China Says No to P3 Alliance

Even though the European and American regulatory departments had already nodded to the P3 alliance forged by Maersk， Mediterranean Shipping and CMA-CGM， failed to come true because of the rejection from the China， an important shipping market in the world.

The news definitely frustrated the three international shipping giants， but for COSCO， China Shipping and other Chinese container shipping giants， this is undoubtedly good news.

An insider from Maersk said that the three companies of P3 alliance accepted and respected the decision of Chinas Ministry of Commerce. They had already stopped the preparation for the P3 Network and will no longer implement the relevant plan.

Concentration Hurts Competition

P3 alliance is a plan Maersk， Mediterranean Shopping and CMA-CGM made together to share the ships in the long run. The establishment of alliance needs to be approved by the relevant governmental departments of North American， European and Asian countries.

Prior to that， the U.S. Federal Maritime Commission（FMC）， which is known for its strict investigation into the monopolization， gave green light to the P3 alliance， allowing it to take effect in the U.S. The EU Commission also told the P3 members at the beginning of June that it would not launch more investigations into the P3 alliance， but it will keep an eye on the development of P3 to make sure that the operation of this shipping network stays in tune with the legal requirements of EU.

To get the “yes” from China is also a necessary step for the establishment of P3 alliance. It is known that Chinas Ministry of Commerce received the anti-monopoly report about the shipping network operation center run by Maersk， Mediterranean Shipping and CMA-CGM in September 2013. Then it asked the applicants to submit more materials. On December 19， 2013， the Ministry of Commerce of China officially started the initial examination of the application.

“Through the review of the market share， controllability， access and industrial features， we （Ministry of Commerce） believe that the traders will form a closely-related alliance after this deal. They will take 47% of the container shipping market in the Asia-Europe shipping route. The market concentration will be greatly enhanced as well，” said a director from the Ministry of Commerce. During the application， the Ministry of Commerce reported several times to the applicants about the possible effect of excluding and limiting competition of the alliance and discussed with them about reducing the negative influence of the concentration in the competition. The applicants have modified the plan several times. However， finally Chinas Ministry of Commerce thought that the modified plan of the applicants still lack relevant legal basis and convincing proofs， which could not prove that the alliance could bring more benefits to the competition than the harm it may bring to the social welfare.endprint

“Therefore， according to the Anti-Monopoly Law of China， the Ministry of Commerce decided to vote against the alliance，” said the director.

According to the original plan of P3， the three companies will have the shipping capacity of 2.6 million containers in the AsiaShipping shipping route， trans-Pacific shipping route and trans-Atlantic shipping route. The ships that belong to the P3 Network would be managed and run by an independent ship operation center and the P3 members would be competitors to each other in sale， marketing， customer service and pricing.

Inevitable Trend of Shipping Alliance

Notably， Jens Eskelung， President of Maersk， said in May that he was very confident in the final establishment of P3 alliance. However， when the result came out， Maersks CEO Nils S. Andersen admitted that “it was surprised by the decisions of Chinas Ministry of Commerce”.

“The P3 alliance could originally help Maersk reduce the cost and lower the carbon emission. In addition， it could improve our service quality， enabling us to provide better services for clients with a more efficient shipping network，” An- dersen pointed out. “Though P3 was not approved， I believe that Maersk could still achieve the aforementioned goals. In the past five quarters， Maersk had already realized improvement in efficiency， cost reduction， environmental protection and so on. Therefore， I have the confidence that Maersk can do better in saving the cost and improving the service.”

“The close cooperation among alliance members can help increase the industrial concentration and the success rate of increasing the shipping price. If the P3 alliance were approved， it would bring great impact to other shipping enterprises，” an analyst said. The rejection of China for P3 was good news for COSCO and China Shipping. However， they are still in dire situation even if the P3 alliance is not coming out.

In recent years， the concentration into big companies and the formation of alliance have become inevitable trends in the shipping industry， especially when Maersk began to receive the largest container ships in the world. The company became more competitive with the fast decreasing shipping cost of single ship. This forced the other shipping companies to build big ships too； otherwise they will loose their competitiveness and be driven out of the market due to the high cost.

Before the alliance， the market believed that the shipping market had seen its bottom. COSCO and China Shipping have ordered the new big ships and started trying to increase the price from the beginning of this year. However， the price could go up at the beginning of each month but would fall back at the month end.

“In the past five years， the price of container shipping averagely decreased by 1%-2%， because of the excess shipping capacity in the market which leads to the supply higher than the demand，” said Jens Eskelung. The situation is to be continued in 2014， since the shipping capacity is expected to increase by 5%-6% while the demand will only increase by 3%-4%.endprint