China rejects P3 Alliance

The rejection of the ‘P3 alliance’ between Maersk Line, MSC Mediterranean Shipping Line and CMA CGM, can hardly be a surprise. A combination of the three largest carriers accounting for a third of the capacity of the market always appeared to have the potential for reducing competition.

What is more surprising is that it is the Chinese authorities that have halted its creation. Both the European Union (EU) and the United States regulatory bodies have given approval for the alliance, although the EU expressed reservations. Yet the Chinese aggressively asserted that they perceived the alliance as a de facto merger. This may simply be a different perspective as a result of a different business culture. Another possibility is that container shipping is even more important to the Chinese economy than it is to the various European economies or the US.

The Chinese authorities have in the past sought to interfere in the shipping market into China, for example obstructing the operation of very large ore carriers by Vale, the Brazilian mining company. However, Beijing has never sought to interfere in the container shipping market directly other than by supporting its own state-owned shipping lines. Certain parts of the Chinese state have in the past expressed the desire to create a strong presence in container shipping, citing the central role that China plays in the container trade. However, the recent losses of its existing companies, China Shipping and COSCO, illustrate how costly such a presence can be.

The implications for Maersk, CMA CGM and MSC are less clear. The alliance was an attempt to drive-down costs and thus improve margins, something that remains an imperative for all players in the market. Its success was far from assured as the three companies have very different business cultures, yet the attractiveness of such a big move was the potential for major cost reductions combined with the potential for increases in market share.

In the short-term the urgency of such measures may have eased a little as Maersk at least seems to have established some form of cost-competitiveness advantage over its rivals. This suggests that CMA CGM and MSC may be under greater pressure to look for other solutions. For smaller players the pressure remains even greater.