Ocean Carriers Moving Towards Strategic Alliances: The P3 Network

Spend Matters welcomes a guest post from Rajiv Rios of GEP.

In June 2013, the three biggest ocean carriers announced their agreement to establish a long-term operational alliance on East-West trades, called the P3 Network. Denmark’s Maersk Line, Swiss-based Mediterranean Shipping Company, and France's CMA CGM will share a pool of 252 vessels, 28 loops, and three routes: Asia-Europe, Trans-pacific, and Transatlantic with a total capacity of 2.6 million TEUs. The ship contributions are 42 percent by Maersk, 34 percent by MSC and 24 percent by CMA CGM.

This move comes from the current situation of the container shipping industry being affected by volatile rates and overcapacity. Most container shipping companies have been losing money since the downturn in 2009. Some analysts argue this alliance resembles a gunshot wedding as most carriers are struggling in terms of profits due to the overcapacity and are thus forced to consider alliances, not because they want to, but because they have to.

The new services under the expanded collaboration are expected to begin in the Q2 2014, subject to obtaining approval of pertinent competitors and other regulatory authorities. Mario Cordero, chairman of the US Federal Maritime Commission, is carefully studying the alliance terms so it does not harm customers, the maritime community, and world trade. Similar regulatory entities in the European Union and China are expected to give their resolution about the network.

According to the Maersk Line webpage, P3 Network vessels will be operated independently by a joint vessel operating center while the carriers will continue to have fully independent sales, marketing, and customer service functions. There are plenty of concerns regarding impaired service, competitors being squeezed out of the market, and ports that will have to lower their fees. This issue may lead to the elimination of effective competition in the world's main liner trades, putting unaligned carriers’ market shares at risk. According to the shipping carrier expert Jesper Christensen, there are three possibilities for small carriers: To order bigger ships, work with bigger alliances, or merge directly.

The plans have encouraged several other container carriers and alliances to expand their activities, especially the G6 alliance (APL, HMM, MOL, Hapag-Lloyd, NYK, and OOCL) which intends to expand into the Transpacific and Transatlantic trade lanes to compete with the P3 network. An expanded cooperation among the G6 alliance, possibly including ZIM, could give them the biggest market share on the routes between Asia and the US West Coast and between Northern Europe and the US East Coast.

The uncertainty about the P3 alliance is forcing competitors to hesitate before they offer any rates and schedules for the second and third quarters of 2014. The resolution is likely to be announced in a few weeks. Meanwhile it keeps everyone in the expectation because at the end of the day the container shipping industry is the heart of the world economy, carrying 90 percent of our goods worldwide.

For more interesting thinking on procurement, visit the GEP Knowledge Portal

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.