Issue link: https://jocdigital.uberflip.com/i/348056
GOVERNMENT WATCH INTERNATIONAL | WASHINGTON | CUSTOMS | SECURITY | REGULATION 16 THE JOURNAL OF COMMERCE www.joc.com JULY 21.2014 By Mark Szakonyi MAERSK LINE AND Mediterranean Shipping Co. didn't wait long after China's surprise rejection of their proposed P3 Network before proposing a new deal. The two carriers have proposed a 10-year vessel- sharing agreement, without their third previous partner CMA CGM, that they hope will get the necessary approval of U.S. and international regulators. How much market share Maersk and MSC would control through the VSA announced this month will largely deter- mine whether the pact meets a similar fate as the P3. In addition, as Chinese regulators indi- cated in rejecting the P3 on June 17, the onus will be on Maersk and MSC to show that the arrangement won't be so tightly structured that authorities would view the agreement, known as 2M, as a virtual liner operator. That the Ministry of Transport will analyze the VSA, and not the Ministry of Commerce, suggests the 2M will have a smoother ride in China. A complete analysis of the two carriers' share of capacity on the three major east-west trade lanes via the 2M isn't available, but data from Alphaliner and PIERS provide some idea of how much capacity and laden con- tainer market share the two would control. In its analysis of the proposed P3, Alphaliner found that in the Asia-Europe trade, Maersk would have controlled 20 percent of the mar- ket and MSC would have had 15 percent. If this analysis holds for 2M, the Danish and Swiss carriers would control 35 percent of capacity on the world's largest trade lane. Before the 2M was announced, SeaIntel Maritime Analysis said Maersk would have to shut down one of its services using smaller vessels to enter a VSA with MSC in the Asia- Europe trade. If it does, or if the duo reduces their share of capacity on the lane in some other way, the 2M would have a better shot at getting the go-ahead from Chinese and European regulators. In blocking the P3, Chinese regulators took issue with the market share the three carriers would have had in the Asia-Europe trade and said they saw the P3 "Network Center" as proof that the carriers would cre- ate a de facto shipping line. The 2M doesn't propose such a centralized operation, and with CMA CGM not involved, the 2M's mar- ket share on the Asia-Europe lane is about 11 percentage points lower than under the P3 proposal, even if capacity isn't reduced further by removing a string. The P3 decision by China's Ministry of Commerce "suggests that the 2M and future VSA agreements must overcome these con- cerns to gain approval under their emerging regulatory framework," said Chris Welsh, sec- retary general of the Global Shippers' Forum, a U.K.-based group of containerized shippers. There is also the question of whether the 2M would fall under the European Union's antitrust exemption for liner shipping, which applies to VSAs that control less than 30 percent of capacity on one trade lane. "If market shares are above this, Maersk/ MSC will need to self-assess their agree- ment," Welsh said. "On the basis that the EU intended not to start proceedings against the P3, it is assumed that this is unlikely to present overall problems — save for a more detailed analysis by regulators of the VSA's impact, including its impact on specifi c trade routes and, in particular, on 'thin routes.' " If the 2M has EU antitrust liner immunity — in other words, if the two carriers ensure their combined market share is at or under a 30 percent share — the agreement could take effect immediately. European regula- tors, however, could shut the VSA down any time if they fi nd it violates Article 101 of the Treaty on the Functioning of the EU. SELLING THE 2M The combined share of Maersk and MSC in major trades will determine if the latest VSA passes the regulatory test 55% of 2M 45% of 2M TAKING STOCK OF 2M Carriers' 2M contributions as percentage of individual fleets The proposed vessel-sharing agreement will include 185 vessels with an estimated capacity of 2.1 million TEUs. 1.2 million TEUs Maersk Line will contribute approximately 110 vessels. = 10 vessels 900,000 TEUs = 10 vessels MSC will contribute approximately 75 vessels. 44% 2,731,812 TEUs 36% 2,477,984 TEUs 100% 17,542,695 TEUs 7% 5% 12% 2,100,000 TEUs 2M capacity as a percentage of total global container ship fleet 55% of 2M 45% of 2M TAKING STOCK OF 2M Sources: Alphaliner Top 100 as of July 10, 2014; carrier announcement Design: Diana Denton, JOC Group Inc. Carriers' 2M contributions as percentage of individual fleets The proposed vessel-sharing agreement will include 185 vessels with an estimated capacity of 2.1 million TEUs. 1.2 million TEUs Maersk Line will contribute approximately 110 vessels. = 10 vessels 900,000 TEUs = 10 vessels MSC will contribute approximately 75 vessels. 44% 2,731,812 TEUs 36% 2,477,984 TEUs 100% 17,542,695 TEUs 7% 5% 12% 2,100,000 TEUs 2M capacity as a percentage of total global container ship fleet 0 1 2 3 4 5 6 Asia-North Europe Asia-Mediterranean Asia-U.S. West Coast Asia-U.S. East Coast North Europe-U.S. Mediterranean-U.S. 21 strings in the Asia-Europe, trans-Atlantic and trans-Pacific trade lanes. 55% of 2M 45% of 2M TAKING STOCK OF 2M Sources: Alphaliner Top 100 as of July 10, 2014; carrier announcement Design: Diana Denton, JOC Group Inc. Carriers' 2M contributions as percentage of individual fleets The proposed vessel-sharing agreement will include 185 vessels with an estimated capacity of 2.1 million TEUs. 1.2 million TEUs Maersk Line will contribute approximately 110 vessels. = 10 vessels 900,000 TEUs = 10 vessels MSC will contribute approximately 75 vessels. 44% 2,731,812 TEUs 36% 2,477,984 TEUs 100% 17,542,695 TEUs 7% 5% 12% 2,100,000 TEUs 2M capacity as a percentage of total global container ship fleet 0 1 2 3 4 5 6 Asia-North Europe Asia-Mediterranean Asia-U.S. West Coast Asia-U.S. East Coast North Europe-U.S. Mediterranean-U.S. 21 strings in the Asia-Europe, trans-Atlantic and trans-Pacific trade lanes.