Finally we have somewhat positive news to share regarding ocean container shipping. Supply Chain Matters has consistently predicted that the forces for industry consolidation were overwhelming and now, there has been a major announcement.
The three largest ocean container shipping lines have announced the intent to establish the P3 Network that pools vessels operated by Maersk Line, Mediterranean Shipping Line (MSC) and CMA CGM among the most traveled global routings. They would include Asia-Europe, transpacific and transatlantic schedules and routes. This is a significant announcement, and provided it garners various official regulatory approvals could serve as a watershed event for stabilization of an industry that has hemorrhaging balance sheets. According to Aplhaliner, the coordination of shipping assets and routes represents about 255 vessels or 37 percent of global capacity, the equivalent of 2.6 million TEU’s.
The goal is to start operation of the P3 Network by the second quarter of 2014.
According to a published report in The Financial Times titled Reality of the container market sinks in, (paid subscription required or free metered view) talks among the three largest carriers began at the end of 2012. The report cites equity analysts as opining that there was little appetite for further M&A activity among container shipping lines given the current depressed level of asset valuations for vessels across the industry. To appease regulatory agencies, the three carriers will reportedly setup a separate standalone operations center with offices in London and Singapore to manage all of the combined fleet assets. Operations staff will be separated from the sales and marketing resources within each of the individual shipping lines, who will compete individually for business.
FT quotes a CMA CGM executive as indicating the proposed structure was setup after initial discussions with Chinese, European, and U.S. regulators, and that these talks are still a “work-in-progress.”
Obviously, shippers should view this a major announcement with yet to be defined implications. How much leeway regulators will grant given the inherent consolidation of over 50 percent of shipping assets on some routes is still open not to mention the pricing influence. Then again, regulators must also try to balance the political forces of global banking and financial interests who have a lot invested in shipping assets and investment programs. As noted in a previous Supply Chain Matters commentary, German banks especially have a high investment profile in financing the newer mega-container ships that enter operationally service over the next three years.
The other obvious question concerns the remainder of ocean container carriers who may have little choice but to consider consolidation if the three largest lines are granted approval for their plan.
Thus the forces of consolidation have made their presence and the news could be positive in the long-run as both carriers, shippers and inter-modal 3PL’s adjust to market, industry and political realities. We add however that more developments are surely forthcoming and manufacturers and retailers need to remain diligent in seeking out the implications for their short and longer-term transportation budgeting and supply chain servicing needs.