China's rejection of global shipping cartel a sign of strength

• 

China's regulators have sunk a proposed global container-shipping alliance.

China's regulators have flexed their muscles and sunk a proposed global container-shipping alliance. The plan, led by Denmark's A.P. Moeller-Maersk, Mediterranean Shipping Co and CMA CGM SA, aimed to address the industry's chronic overcapacity and low charter rates since the start of the global financial crisis. Competition regulators at the Ministry of Commerce not unreasonably argued that the alliance, if approved, could lead to price-fixing between some of the world's largest shippers and stifle competition. Analysts have also observed that the tie-up could increase the foreign shippers' dominance of the vital Asia-Europe route at the expense of Chinese shippers.

But the decision - only the second by the ministry and a first that involves all non-Chinese companies - carries high risks for the whole industry, as it cannot fully recover at current low charter rates. This will hurt mainland shippers as well.

The first time the ministry blocked a transaction on competition grounds was when it scuppered an attempt by Coca-Cola to buy mainland juice-maker Huiyuan in 2009.

The proposed alliance has been approved by American and European Union regulators, but the three groups' US$64 million annual revenue on the mainland was enough to justify the intervention of the mainland regulators.

The move is widely seen as an attempt to protect domestic shippers, though some critics point out that the deal could have benefited them as well by lowering costs and helping to raise rates.

The mainland decision may also have broader significance. It may indicate that China is more ready than before to intervene in international business deals when it considers it necessary to guard its own national and industry interests when foreign companies band together. Maersk, the groups' leader, has accepted China's verdict and will "give up" on the alliance plan. Instead, it will consider other options to cut costs and address overcapacity.

Since the onset of the global financial crisis, regulators in major economies have stepped up and enhanced their enforcement powers against companies. China's are no exception. The latest decision is a shot across the bows that China's regulators will have to be factored in when businesses consider forming international alliances and mergers. It's a new global business environment with the rise of a resurgent China.

Maersk 'disappointed' with China's rejection of an industry alliance

19 June 2014 Last updated at 02:14 BST

Plans for a new international shipping alliance to cut costs have been rejected by China.

Already approved by the US and the EU, the so-called "P3 Network" was meant to operate in a similar way to code-sharing deals between airlines.

It would have allowed the world's top three container-shipping operators to share vessels and port facilities, with plans for about 250 ships to participate.

But China's Ministry of Commerce has rejected the tie up.

One of the shipping companies behind the plan is Maersk Line from Denmark. Its Asia Pacific CEO Thomas Knudsen told the BBC's Rico Hizon that the company was "disappointed" but that it would respect China's decision.

Interview with Thomas Knudsen below.

http://www.bbc.co.uk/news/business-27916398

Do Maersk Line and MSC have their own Plan B?

CONTAINER: 

Of all the scenarios outlined since the collapse of the P3 alliance last week, there is one that is particular persistent: A strengthened collaboration between Maersk Line and MSC. This would make sense, says SeaIntel.

---

Photo: Maersk Line

BY TOMAS KRISTIANSEN 
Published 24.06.14 at 08:57

Maersk Line and MSC were allegedly the ones who initiated the formation of the P3 alliance in the spring of 2013, and the ones - the two largest container carriers in the world - who later brought French CMA CGM on board as well.

Together the two major carriers have a global market share of around 30 percent, so the Danish and Swiss carriers are without comparison the biggest players on the global scene. The rest, including CMA CGM, are medium-big or smaller container carriers who, especially due to the collaborations and alliances they participate in, hold significant leverage in the market.

With their rejection of the operational collaboration between the P3 carriers the Chinese set a limit on how closely the container industry can bond. The reasoning goes that new alliances stretching beyond the VSA collaborations that currently exist between carriers will not see the light of day anytime soon.

More VSA's

Maersk Line has already announced that the VSA's - vessel sharing agreements, where carriers buy slots on each other's vessels - could be one scenario the carrier is looking at in the big toolbox, as the company put it. CMA CGM has said in a brief statement that things will continue as before, and MSC, known as the carrier that never publishes its results, has made no comments on the fall of the P3 alliance at all.

Do you want to stay up to date on the latest developments in International shipping? Subscribe to our newsletter – the first 40 days are free

The P3 alliance seemed to make a lot of sense for Maersk Line and MSC in differing ways depending on the carrier. Maersk Line would gain access to MSC's fleet of fairly large ships, whereas MSC would gain access to Maersk Line's intricate network. As such, the two carriers had an obvious interest in the alliance, especially on Asia-Europe, estimates say.

Aponte versus Sadee

As previously reported by ShippingWatch, CMA CGM, which is headed by the French Sadee family, had in fact also been flirting with its two partners on Asia-Europe - UASC and China Shipping - prior to or alongside the negotiations with the other P3 partners. This is another reason why several observers believe that Maersk Line and MSC might be plotting to turn P3 into P2, thus cutting CMA CGM completely out of the equation. There have allegedly been meetings between the two carriers following the collapse of P3. It is a well-known fact in shipping circles that the two shipowning families, Aponte and Sadee, do not necessarily harbor the warmest feelings for each other, and that this has given Maersk Line's representative Vincent Clerc a special role to play between the two families.

Estimates from people with intimate knowledge of the industry say that a strengthened collaboration between Maersk Line and MSC would focus on Asia-Europe. Partner and CEO of SeaIntel, Lars Jensen, estimates that a stronger VSA collaboration "certainly makes sense." But not everyone agrees on this. Others believe that the three carriers might stick to the idea of a closer collaboration, albeit in a more regional form.

The Chinese rejection

In any case, the Chinese rejection has taken a toll on the Maersk headquarters at Esplanaden in Copenhagen, where the carrier and Danish shipping in general enjoys a special status. But following Tom Behrens-Sørensen's departure from the carrier five years ago Maersk has - according to observers - had a hard time maintaining the solid contacts he had established throughout the years.

Maersk Line declines to comment to ShippingWatch about whether the carrier is discussing future opportunities with MSC.