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June 23, 2014

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INTERNATIONAL MARITIME IMPORTING | EXPORTING | PORTS | CARRIERS | BREAKBULK | GLOBAL LOGISTICS THE JOURNAL OF COMMERCE 45 THE P3 SHUFFLE, IN REVERSE THE P3 SHUFFLE, IN REVERSE E U ROPE AN OCE AN C ARRI E RS , ports and shippers were scrambling last week to determine their next course of action after the sudden collapse of the proposed P3 Network among the world's three largest container lines. No doubt, China's unexpected rejection of the landmark partnership that would have grouped Maersk Line, CMA CGM and Mediterranean Shipping Co. will roil the container shipping waters for some time. But for now, those invested materially in the mega-alliance are putting as positive a spin on developments as can be expected. Maersk, which some analysts said would reap as much as $1 billion in benefi ts through synergies and reduced costs, said the demise of the P3 would have "no material impact" on the group's expected result for 2014. Although the collapse of the P3 won't immediately affect Maersk, which expects its 2014 result to exceed 2013's $1.5 billion profi t, it's sure to impact the carrier's ability to keep cutting costs, the main benefi t of the alliance with MSC and CMA CGM and the key to its surging profi t at a time when most of its rivals are losing money. The vessels deployed by the P3 carriers were expected to cut bunker consumption by 8 percent, according to Jens Eskelund, managing director of Maersk China. CMA CGM was equally tranquil, say- ing it's confident it "will maintain its operating performance and continue to outperform the industry." But the French carrier also was counting on P3-driven cost cuts to offset softening freight rates and slowing traffi c growth to boost oper- ating profits, which declined 7.4 percent in the first quarter to $186 million from $201 million a year earlier. Europe's ports will take an even big- ger hit from the collapse of the P3. Ant- werp was the major benefi ciary when the 'I DIDN'T SEE IT COMING' REACTION IN THE U.S., like that in Europe and elsewhere, to China's torpedoing of the P3 Net- work ranged from surprise to shock. But considering the lack of visibility into China's political process, maybe nothing should come as a surprise when it comes to China, even when a ruling goes against the overwhelming conventional wisdom as this one did. Bruce Carlton, president of the National Industrial Transportation League, was one of those taken aback by the Ministry of Commerce's decision. "I didn't see it coming, and I certainly didn't predict it," Carlton said. "I'm sure the carriers were surprised. They'd been proceeding as if it were no problem." Like many monitoring the P3 regulatory process, Carlton thought all along that Chinese approval represented the biggest hurdle for the partnership of Maersk Line, Mediterranean Ship- ping Co. and CMA CGM. He said the U.S. Federal Maritime Commission apparently had no legal grounds to challenge the P3 in court, and that the European Union's regulatory system emphasizes self-assessment: It assumes that companies know the rules, and that the European Commission will crack down if they're violated. "China is not as transparent," Carlton said. "In fact, it's quite opaque. We don't know what criteria they used, so at this point we're all guessing. At the end of the day, all that matters is that they said 'no.' " Other shipper representatives are still considering the impact. "It's too early to say whether it's good, bad or indifferent. We'll have to let the dust settle to see how it affects everything," said Beverly Altimore, executive director of the U.S. Shippers Association, whose members include manufacturers of chemicals and other products. The USSA was vocal in raising concerns about the P3 with, among others, the FMC. Now that the P3 has been rejected, container lines will have to redouble efforts to cut costs that already have been slashed through reorganizations, staff cutbacks, and reduced service, Carl- ton said. "I don't know how many tricks they still have up their sleeve," he said. Curtiz Foltz, CEO of the Georgia Ports Authority, said the decision was a setback to ocean car- rier efforts to improve returns on investment, but he predicted carriers would continue to pursue alliances or other consolidation "in some way, shape or form." — Joseph Bonney European carriers and ports review strategies in wake of China's rejection of P3 Network By Bruce Barnard

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