FMC gives approval to 2M vessel sharing agreement between Maersk and MSC

By Jeff Berman, Group News Editor, and Patrick Burnson, Executive Editor

The United States Federal Maritime Commission (FMC) said this week that it signed off on a vessel sharing agreement (VSA) between ocean carrier bellwethers Maersk Line and Mediterranean Shipping Company (MSC), known as the 2M Network.

FMC officials said that the organization concluded its review of the proposed VSA, which included the evaluation of information received from Maersk and MSC on response to questions from the FMC staff and Commissioner during the review period. It added that the agreement would authorize the carriers to share vessels and engage in related cooperative operating activities in trade lanes between the U.SD. and Asia, North Europe and the Mediterranean.

FMC said that its decision would allow 2M to take effect on Saturday, October 11, but it also noted that does not mean it is a done deal either, as it explained it based its decision on a determination that the agreement is “not likely at this time, by a reduction in competition, to produce and unreasonable increase in transportation cost or an unreasonable reduction in transportation service under section 6(g) of the Shipping Act.”

Maersk and MSC first announced the 2M Network in July, explaining it is a ten-year VSA that has an estimated capacity of 2.1 million TEU (Twenty-Foot Equivalent Units) or roughly 185 vessels, with Maersk contributing about 55 percent of its capacity.

Maersk officials said that the U.S. was the last remaining jurisdiction, the others being China and Europe, needed sign off on 2M.

“We are very pleased that the FMC has decided to allow our VSA with MSC to become effective,” said Vincent Clerc, Maersk Line Chief Trade and Marketing Officer, in a statement. “In our view, this is a win-win situation. Due to a larger and more cost efficient network, we can continue to provide our customers in North America, Europe, Asia competitive and reliable container shipping services. We can look forward to starting our new East/West network in 2015.”

With this new network, Maersk said that it will offer its customers more services and ports, with 21 strings compared to 18 today, 1,036 port pairs compared to 788 today, and 291 called ports compared to 212 today. It also said it expects 2M to yield cost savings by deploying larger and more efficient vessels and better utilization, coupled with lowering CO2 emissions.

As previously reported in LM, the 2M differs from the P3 Network, a planned VSA between Maersk, MSC, and CMA CGM that was rejected by Chinese officials in June, in that it is viewed as a pure-play VSA, with no jointly-owned independent entity with executional powers.

Another notable difference between P3 and 2M is scale, with P3 previously poised to control as much as 40 percent of total cargo moved in containers from Asia to Europe, and across the Pacific and Atlantic oceans, with the three carriers previously agreed to jointly deploy 255 vessels among them, sharing capacity of 2.6 million containers along some of the world’s busiest sea routes, according to industry reports.

“Vessel-sharing arrangements are nothing new, but they have gotten larger due to the sustained over capacity situation,” says Brian M. Conrad, Executive Administrator, Transpacific Stabilization Agreement (TSA), earlier this year. “Carriers ordered vessels based on assumptions of a quicker recovery in global trade growth, and on the urgent need to manage costs through greater economies of scale. Roughly a third of global container lines posted profits in 2013, most from cost-cutting, not top line growth.”

In the transpacific, added Conrad, no major carrier operated profitably and the trade as a whole has seen only five profitable quarters in the past five years.

Even with this VSA ready to take effect in the coming months, the capacity outlook for the ocean carrier market remains muddled as carriers continue to grow at a higher rate, which is, in turn, leading to carriers establishing partnership alliances to reduce scale, noted Ben Hackett, Founder of maritime consultancy Hackett Associates in a previous edition of the monthly Port Tracker report he produces with the National Retail Federation.

A Reuters report pointed out that concerns remain with 2M, with Maersk and MSC representing a cumulative 28 percent of the global container shipping market along with a higher share along big trade routes that the report said leaves Europe- and Asia-based exporters concerned about the possibility of collusion and anti-competitive behavior.