Friday, March 21, 2014

P3 Triple Container Shipping Line Tie Up Gets the Nod from FMC for Shared Ocean Freight Services

Three Companies Vessels Will Share Common Administrative Base with Echoes of Past Box Conferences
Shipping News Feature

US – WORLDWIDE – The Federal Maritime Commission (FMC) has concluded an extensive review of the proposed P3 Network Vessel Sharing Agreement, announcing that it will allow the Agreement to become effective as scheduled on Monday, March 24, 2014. The pending agreement between the world’s three largest container shipping lines Maersk, CMA CGM, and MSC, would authorise the parties to share vessels and engage in related cooperative operating activities in the trades between the US and Asia, North Europe, and the Mediterranean and the decision came despite last minute protests from shippers groups.

The Commission’s decision is based on a determination that the agreement is not likely at this time, by a reduction in competition, to produce an unreasonable increase in transportation cost or an unreasonable reduction in transportation service under section 6(g) of the Shipping Act. The Commission notes that there may be circumstances that could permit the P3 Agreement parties at some point in the future, to unreasonably reduce services or unreasonably raise rates that could raise concerns under section 6(g). To address these concerns, the Commission directed staff to issue alternative reporting requirements to the P3 Agreement parties to assist the Commission in its ongoing, close monitoring of the agreement. FMC Chairman Mario Cordero said:

"The Commission’s action on the P3 Agreement takes into account the comprehensive, competitive analysis conducted by the FMC staff and comments received from shippers and other stakeholders. While the agreement is expected to produce operational efficiencies for the benefit of the US consumer, the new reporting requirements specifically tailored to this agreement’s unique authority will ensure we have timely and relevant information to act quickly should it be necessary.”

In clearing the Vessel Sharing Agreement, the FMC also offered a word of caution to the parties warning them that they ‘should be mindful of the antitrust probes that are being conducted in the ocean borne transportation sector – worldwide’ highlighting the recent antitrust settlements between the Commission and carriers such as MOL, NYK, K Line, and CSAV, to name but a few. The FMC said that it ‘is not taking its hands off the wheel’ and is instituting a monitoring programme for the Alliance.

The P3 agreement activities will be monitored by the FMC throughout the life of the Vessel Sharing Agreement. The monitoring system is intended to provide an early warning system to detect capacity issues and market problems. The FMC says that its monitoring activities will include regular communication between Commission staff and Network Centre to discuss operations, schedules, processes, and business rules; ensuring adherence to the Agreement and autonomy of the Network Centre irrespective of individual carrier interests; submission of certain actions by P3 members ensuring independence of individual lines’ and autonomy of the Network Centre; advance notification of cancelled sailings and any service modification resulting in changes in average weekly capacity; monitoring of rates in connection with actions altering capacity; and monitoring of activities in connection with third parties that might demonstrate prohibited acts or other behaviour that might threaten competition.

Through the FMC’s Bureau of Trade and Analysis’ examination of the P3 Agreement and subsequent representations, it appeared that the Agreement is not currently likely, through a reduction in competition, to result in an unreasonable increase in transportation service or an unreasonable increase in transportation costs.

While the three largest carriers will be collaborating operationally, these carriers will continue to compete with each other on pricing and cost. That is, shippers will continue to negotiate with each carrier individually. With regard to transportation service, each P3 carrier will increase its service offerings and overall capacity will increase. With P3, there will be at least three carriers’ independently marketing and selling space on each P3 voyage rather than just one or two under their existing arrangements.

Those in favour of this new deal will see the sense in administrative cost reduction, one office handling space allocation etc. and less possibility of consignment shut outs. They will say no doubt that agreements on rate increases, surcharges etc. still appear simultaneously, as if by magic, between competing lines.

Those against will see a return to conferences and stabilisation agreements between the behemoths of the industry making the services of smaller carriers appear less frequent and less reliable meaning their only possible course will be to offer reduced rates. Given the industry’s track record over the past few years, when practices of rate and surcharge sharing, formerly tacitly accepted as normal, has subsequently become criminal with fines stretching to millions, if not billions of dollars, the FMC will not be the only party watching how the new relationship develops.