P3 Network Alliance rejected by China: Why this could be seen as victory for smaller freight forwarders

The logistics industry was all eyes on China as it awaited its decision over the P3 Network Alliance’s (Danish group’s Maersk Line unit, France’s CMA CGM, and Swiss-based Mediterranean Shipping Co) request for support. Many were optimistic it will push through, but China’s rejection put an end to their plan of alliance.

Maersk caught off guard with China’s rejection or was everything media publicity in the making?

Prior to issuing a statement, many industry leaders were optimistic that the Chinese Ministry will give the P3 network approval. The rejection put Maersk Chief’s Executive Officer, Nils Smedegaard Andersen, off-guard.

‘The decision does come as a surprise.I did not foresee problems in China. We only received what I would call positive feedback.’ – Bloomberg

Wall Street Journal shares similar feedback

Costas Paris of Wall Street Journal posted a similar report in anticipation of the probable acceptance of China weeks prior to the Ministry’s rejection,

‘Chinese regulators are expected to give the thumbs up later this month, according to two people familiar with Beijing’s thinking. The Chinese haven’t yet ruled on a shipping tie-up of this size and complexity and waited to see how the U.S. and Europe would respond, said one of the people familiar with the matter. Now, that they both have agreed, it is expected the Chinese will too by the end of the month, this person said.’

Supply Chain Digest issues similar remark

Supply Chain Digest also shared similar remarks in their news article dated 4 June 2014. It comes with this statement from Andersen.

‘We did expect to get the European and China approval before or around the middle of the year and we still expect that, but there are a number of jurisdictions, smaller jurisdictions, that we would like to have in place before we put the network in place, and they may take a bit longer.’

So, was there really hope for the P3 Network Alliance to gain the approval of China back then? Or was just media spin by the P3?

Why did China reject the P3 Network Alliance proposal?

China’s Ministry of Commerce (MOFCOM) made it public through their website, the reason behind the P3 Network Alliance’s proposal rejection.

‘They can’t prove that the positive impact of this consolidation outweighs the negative impact. And they can’t prove that the proposal is compliant with social public interest. So according to China’s antitrust law, MOFCOM decided to ban this proposed carrier consolidation.’

With 47% market share the alliance would be anti-competitive

A close analysis of the proposed alliance indicated the ‘would be’ consolidation would result to a combined Asia-to-Europe container shipping service of almost 47%. This is more than the allowed, not only in China but elsewhere around the globe. Agreeing to such an alliance would mean approval to anti-competitiveness.

The P3 has given effort to submit proposed improvements and solutions to this concern, but MOFCOM has seen it as insufficient as stated below:

‘After evaluation, MOFCOM thinks that the proposed improvements and solutions are lacking evidence that they are in compliance with the law.’

Preventing future job losses and over capacity incurred by Chinese shippers

Aside from the official statements of MOFCOM, industry analysts believe that the current over capacity and huge losses incurred by Chinese container companies also prompted the Government to block the P3 agreement. Saying ‘NO’ is the better answer as it will avoid unwanted job losses.

Why this could be seen as victory for smaller freight forwarders?

Can we say this is a victory for freight forwarders? Probably yes! But more than that, it is undeniably a victory for the public. With China saying NO and the P3 Network now abandoning the alliance, the possibility of a ship cargo monopoly between Europe and Asia has been eliminated for the moment.

Even though consolidation is an important economic efficiency, competition is important. This is why many countries have anti-trust laws.

Focus on the customers rather than the competition

Danish group’s Maersk Line unit, France’s CMA CGM, and Swiss-based Mediterranean Shipping Co may have used the alliance to eliminate the competition in order to gain more customers. But according to Lisa Earl Mcleod, author of Selling with Noble Purpose, focusing on the competition rather than the customers is a fatal error many companies commit.

‘Focusing on beating the competition, rather than winning customers, is a classic strategic error that often goes unnoticed in the enthusiasm of battle. Yet over time this oft-made mistake stymies growth, stifles innovation, and ultimately, erodes competitive differentiation, the very thing leaders are trying to create.’

What will happen to Maersk now?

With over 1000 shipping vessels sailing seven seas, Maersk is undeniably a major player in the shipping industry. However over capacity and increasing operational costs remains their most challenging problem. Now that the alliance has been abandoned, how will it remain profitable amidst ships sailing the seas at half loads?

Shipping empty containers across oceans

In the year 2012, many news articles published Maersk major problem – shipping empty containers across oceans. This is an excerpt of what was published in Shipping Watch as reported by Tomas Kristiansen.

‘Every year, Maersk Line has to spend around USD 1 billion on shipping empty containers full of nothing from point A to point B. The imbalance in the trade between Europe and Asia is one major reason so many containers are returned empty, to be filled with computers, shoes, or exotic fruits for European customers.’

Dealing with emerging shipping powers

Maersk have a huge market share around the globe but with COSCO and China Shipping Container Lines investing in more, newer and highly advanced ships, these companies may very soon challenge the power of the P3.

Maersk remains optimistic amidst the rejection

Soon after China rejects the P3 network alliance, the stock market reflected a 5.3 percent decrease on Maersk stocks. Nevertheless, the company remains optimistic:

‘P3 would have been nice to have but it’s not a must-have,” he said. “Maersk is in a very strong position. We are very competitive and making very good profits.’ – Andersen

How will Maersk respond to these challenges?

Will it reduce its shipping frequency to resolve over capacity? Or will it continue to let its vessels sail even with empty half loads?

Its hard to tell at this point. However, the freight forwarding industry sees a better future for them and their customers as they expect:

• Shipping quotes to remain competitive
• Increased options to move their sea freight items
• Logistics companies to better their services

If you have any questions or need a competitive quote on freight forwarding or shipping, call us on 1300651233, today.

Find out more about Freight Forwarder Quote Online Australia and Freight Forwarding or follow us on our social media profiles to remain updated for our upcoming blogs regarding for you to remain posted of the recent Trade Agreement, freight and customs news.

• Linkedin profile 
• Google+ 

 

References:
http://www.mdst.co.uk/attachments/downloads/Lloyds%20List%20230713.pdf
http://www.joc.com/maritime-news/container-lines/p3-network/china%E2%80%99s-ministry-commerce-explains-p3-rejection_20140617.html
http://www.dw.de/china-sinks-p3-global-shipping-alliance/a-17714293
http://www.universalcargo.com/blog/bid/97279/World-s-Largest-Container-Shipping-Carriers-Form-Triumvirate
http://www.scdigest.com/ontarget/14-06-17-1.php?cid=8189
http://www.tradewindsnews.com/liner/339399/p3-alliance-dead-in-the-water
http://www.seanews.com.tr/article/worldship/129889/Abandoned–china–Network–News-by-topic–P3–plan–rejects–SHIPPINg–vessel./
http://www.bloomberg.com/news/2014-06-19/maersk-considers-options-as-china-blocks-p3-ship-pact.html