Various business media are reporting today that the proposed P3 Alliance, involving a shipping capacity alliance among the top three global ocean container lines has now been suspended. This is a stunning development concerning global transportation.
According to a breaking news report published by the Wall Street Journal, Denmark’s AP Møller-Maersk indicated that its Maersk Line, along with French giant CMA CGM and Switzerland-based Mediterranean Shipping Co. had ceased preparatory work on the alliance which they had expected to start operating later this year.
The precipitator of this development was a decision by China’s Ministry of Commerce to decline its approval of such an alliance. The China agency indicated that it believed the shipping alliance would control 47% of the Asia-to-Europe container shipping market. A published statement indicates that the parties, “failed to demonstrate that the alliance would bring more benefit than harm or that it is in line with the public interest.”
China’s decision was the last regulatory hurdle after both European Union and U.S. maritime agencies voiced no objection. In late March, we featured Supply Chain Matters commentary of U.S. Maritime regulatory approval of the alliance. The decision was a further indicator of the increased influence of China’s regulatory agencies on global commerce along with speculation that China would not rubber stamp such a transportation alliance that involved its key export markets.
By our Supply Chain Matters lens, the implications of this stunning and obviously unexpected development are far reaching for global surface transportation. The respective ocean container carriers must now re-visit and re-address the industry-wide problem of over-capacity among major shipping lanes. While industry leader Maersk has already indicated confidence that it can move on and overcome industry issues, other carriers are in a more vulnerable situation requiring tough decisions. There is already speculation concerning the formation of smaller capacity shipping alliances that might be able to garner global regulatory approval. Meanwhile, investors in shipping lines continue to respond to the latest news by driving certain shipping line stocks lower in global equity markets.
The bottom-line is that one year later, a proposed approach to mitigating over capacity in ocean container shipping is no longer viable and shippers should anticipate further developments and/or announcements in the weeks and months to come. The all-important pre-holiday shipping periods of exports goods shipping out of China begins to ramp in the months of July-August-September. Our prediction of overcapacity driving further industry consolidation is even more valid as this latest news implies that tougher decisions will have to be made, especially among lower-volume container lines. Shippers and logistics providers should anticipate rather dynamic movements in tariff negotiations concerning late 2014 and 2015 contracts.
Stay tuned for further insight analysis by Supply Chain Matters in the coming weeks.
Bob Ferrari
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