As we anticipated, the march toward consolidation in the ocean container shipment segment continues.

Having been thwarted by Chinese regulators, the proposed P3 Network alliance was suspended in latelogistics_nanjin_port June.  Yesterday industry leader A.P. Moller-Maersk announced a new ten year vessel sharing cooperation agreement with Mediterranean Shipping Company (MSC) for designated Asia-Europe, Transatlantic and Transpacific routings. The new co=operative services agreement will be referred to as 2M and will replace all existing service and slot purchase agreements. 

 

The outlined 2M will include 185 vessels with an estimated capacity of 2.1 million TEU’s, deployed on 21 routes. Maersk will contribute 110 ships involving capacity of 1.2 million TEU’s while MSC will contribute 55 vessels equating to 900,000 TEU’s. The overall purpose is described as sharing of infrastructure networks. Both carriers are stressing that the 2M arrangement will not involve the prior tenants of P3, namely co-ownership of ships, co-operative logistics, pricing and marketing strategies. Both carriers will maintain independent customer relationships. The new pact is expected to begin in 2015.

According to reports from business media, the aim of this altered new alliance is the ability to capture some of the cost savings that both lines were anticipating to achieve under the P3 Network arrangement. The parties expect that 2M will not encounter the same regulatory resistance since it is narrower in scope and no formal clearance is necessary. However, regulators will require continual updates on the alliance.

The implication of this newest development is that remaining industry players, particularly CMA CGM, will be at a cost dis-advantage unless they act on further consolidation of networks to counter the effect of 2M.  Thus, more announcements can be anticipated in the coming weeks and months. Of course, shippers and third-party logistics providers remain caught in the middle of these ongoing industry dynamics for some time to come.

The obvious real issue continues to revolve around excess industry capacity and capital asset management.  Until either the industry or the market itself addresses this broader challenge, shippers will have to bear the ongoing dynamics of co-operative networks.

Bob Ferrari