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Federal Maritime Commission signs off on P3 Network Vessel Sharing Agreement

By Jeff Berman, Group News Editor
March 26, 2014

The P3 Network vessel-sharing agreement, whose objective is to give ocean carrier heavyweights Maersk, MSC, and CMA CGM the ability to discuss and agree on the size, number and operational characteristics of vessels to be operated on transatlantic and transpacific trade lanes between the U.S. and Asia, North Europe and the Mediterranean, was given the green light by the Federal Maritime Commission (FMC) earlier this month.

As previously reported, the P3 network agreement also includes the Asia-Europe trade – which is not subject to the Shipping Act or FMC jurisdiction.

According to Drewry Maritime Research, competitors of the P3 alliance will introduce only moderate capacity growth in its forthcoming schedules between Asia/Europe and Asia/North America, but its new services are a stark reminder of the “awesome” size of Maersk/MSC/CMA CGM’s combined resources.

FMC officials said this decision was based on a determination that the P3 Network Vessel Sharing Agreement is not likely at this time, by a reduction in competition, to produce an unreasonable increase in transportation cost or an unreasonable reduction in transportation service under section 6 of the Shipping Act, adding that there might be circumstances which could permit the P3 agreement parties to unreasonably reduce services or raise rates that could raise concerns under section 6 of the Shipping Act.

“The Commission’s action on the P3 agreement takes into account the comprehensive, competitive analysis conducted by the FMC staff and comments received from shippers and other stakeholders,” said FMC Chairman Mario Cordero in a statement. “While the agreement is expected to produce operational efficiencies for the benefit of the U.S. consumer, the new reporting requirements specifically tailored to this agreement’s unique authority will ensure we have timely and relevant information to act quickly should it be necessary.”

While the FMC did sign off on P3, FMC Commissioner Richard Lidinsky voiced his opposition to it.

Lidinsky said that in certain trades and circumstances he supports the alliance carrier structure as they can assist in rationalizing services and calling new ports. But in the case of P3 he said it is not in reality an alliance or a true vessel sharing agreement and, instead, is in effect a merger of the top three global liner companies.

“This agreement will allow the controlling carrier the ability, when coupled with existing discussion agreements, to deploy its assets along with those of the other two carriers to dominate vessel competition and narrow shipper options at U.S. ports. Other than the publicity machine of the three would be partners to rally support, there is nothing in the record before us of Americans clamoring for this proposal…I feel if we allow this agreement to take effect, it will become a model precedent. The United States, the European Union, the People’s Republic of China or any other regulatory authority will be hampered in protecting their national maritime interests in direct or cross trades.”

Ben Hackett, founder of maritime consultancy Hackett Associates, said that while P3 received FMC approval, it still needs agreement from the Chinese and the EU, noting it does not look like it will begin until at least the summer, probably to the relief of the P3 management who were fighting a deadline of April that did not seem possible to achieve. 

“Lidinsky’s comments seemed off the wall and showed either that he lacks understanding or just remains a total enemy of liner shipping companies,” said Hackett. “It is all about cost cutting, not mergers nor trying to push up pricing (which the lines seem to be uniquely incapable of doing.  Unless they cut capacity drastically, freight rates will remain unprofitable.”

From a shippers’ perspective, the National Industrial Transportation League (NITL) said that its organization and the Global Shippers Forum are concerned that the P3 carriers will leverage their dominant position to impact competition and have called on U.S. and Europe-based regulatory authorities to fully analyze the impact of P3 on rates and services.

“The proposed P3 vessel sharing agreement among the world’s three largest carriers is considerably larger than any previous VSA in terms of prospective market share,” said NITL President and CEO Bruce Carlton to his member companies in a recent edition of the NITL Notice. “As such it has riveted the attention of shippers everywhere. Most shippers have benefitted from VSAs. However, their concerns about the P3, and ours, have been whether there will be adverse effects on competition flowing from this new massive arrangement. The FMC’s decision reflects thoughtful balance and fairness for all: the three carriers can go forward as planned, and the agency has signaled they will closely monitor its implementation. The League is very pleased with this outcome.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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