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World’s top three betting heavily on P3 tie-up

Posted to Far East Maritime (by on October 1, 2013

With 360,000 TEUs in ship capacity coming online in the next year, Maersk Line is putting its faith in a cargo-sharing partnership with the world’s next biggest carriers.

Earlier this year, the world’s three top carriers announced they would put their rivalry aside on the east-west trades and combine services in a gigantic container shipping alliance.

Switzerland-based MSC and France’s CMA CGM plan to link up with Maersk on the P3, where the number of ships will be reduced but the vessels will be larger. Maersk will supply 42 percent of the capacity, MSC 34 percent and CMA CGM 24 percent.

Something certainly needs to be done because container shipping is becoming a very gloomy business. Freight rates on the Asia-Europe trade have fallen to under US$1,000 per container this year, a good 30 percent drop, amid expanding capacity and falling volumes.

The traditional peak season has long since disappeared and capacity will continue to outstrip export volumes well into next year and possibly even into 2015. Asia-Europe head of Maersk Lars Jensen says capacity is around 10 percent above demand.

Maersk reckons the P3 alliance will help the line reduce annual costs by eight percent and increase capacity by six percent through the deploying of fewer but larger vessels (255 in total).

The P3 partnership is scheduled to be operational by the second quarter of 2014, but the problem is that it first needs to be cleared by European Union regulators. For the lines to announce the tie-up before gaining approval suggests they are pretty confident.

Still, the EU will be wrestling with the fact that between the three lines, they will control almost 50 percent of the market on Asia-Europe trade, something the regulator may take a dim view of.

It is also worth bearing in mind that shipper groups have been voicing their disapproval amid fears of reduced competition leading to rising prices and worsening service levels. Those voices from around the world may also influence the EU decision.

Should the alliance fall through it could put Maersk in an awkward position. Last week the line’s CEO admitted that the company had overestimated demand for container shipping when it placed orders for 20 Triple-E ships.

At US$3.7 billion, it is an expensive miscalculation, a mistake that keeps on giving, you could say. Or taking. As the 18,000 TEU Triple-Es float into service at a rate of one a month they are not being loaded past the 14,000 TEU mark to avoid disrupting the AE10 service on which they are deployed.

Without the P3 alliance to generate higher container volumes, Maersk may find it difficult to improve freight rates, despite routinely complaining that rate levels are unsustainable. The carrier has faced a never ending battle this year to convince customers that rate increases are needed. 

There are also schedule reliability issues that vary among the three with MSC being the most tardy, according to Drewry's carrier performance insight.


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