The FMC likely will allow the proposed alliance of Maersk Line, Mediterranean Shipping Co. and CMA CGM considering the agency hasn't sought an injunction against a VSA since it gained the authority to do so as part of the Shipping Act of 1984, said Ashley Craig, co-chair of the International Trade Group at Venable, a Washington D.C.-based law firm. Despite the agency’s track record, some argue the size of the P3 should necessitate a regulatory block.
FMC Chairman Mario Cordero has observed that the nature of vessel-sharing alliances appears to be "evolving," spurring him to host his European and Chinese counterparts in a regulatory summit in Washington last month. The Dec. 18 meeting, dubbed the Global Regulatory Summit, allowed regulators to discuss the potential impact of carrier alliances and vessel-sharing agreements.
“Today, 13 of the top 20 carriers are associated in some form of an alliance," Cordero said. "The question is how the evolution will impact international maritime transportation."
Of the 222 VSAs filed with the FMC as of last Sept. 30, only a handful were even close to the scale of the P3, according to agency analysis. Most VSAs involve the space sharing for as few as 100 20-foot-equivalent container units on a single service. The VSAs with "alliance" in their title, such as the Grand Alliance and New World Alliance, tend to be closer to scale and scope of the P3, which covers the three carriers' trans-Pacific, trans-Atlantic and Asia-Europe services.
The larger VSAs have become more integrated in recent years, encompassing multiple trades, port rotations and service strings, according to the analysis. The G6 alliance of APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK Line and OOCL is the lastest example of carriers seeing more integrated VSAs. The group in early December announced plans to expand into the trans-Atlantic and Asia-U.S. West Coast trade lanes to complete with the P3.
The FMC has never rejected a VSA because carriers didn't meet filing requirements, nor has the agency ever sought an injunction against a VSA because of competition or service concerns. That's largely because VSAs are operational partnerships, not vehicles to set rates.
Instead of seeking an injunction against the P3, the more likely scenario is that the FMC will require the P3 carriers to provide more transparency for regulators and the shipping public as part of a back-and-forth with the carriers and the FMC prior to the agreement becoming effective, Craig said. That already appears to be occurring, considering the FMC in early December sought more information from the P3 carriers' about the proposed alliance. As of Jan. 6, the P3 carriers had not yet responded to the FMC’s request, Karen Gregory, secretary at the agency, said on Monday. The carriers can take as long as they want, although they are hoping to launch the network in April. Once the FMC receives the responses, the 45-day review clock restarts.
The regulatory approach is far different in Europe. "There is no time frame (for when EU authorities must decide whether to block the agreement) because in the EU P3 is not considered to be a merger," Hubert de Broca, directorate general for competition at the EU's division of Antitrust-Transport, Post and Other Services, said at the Dec. 18 regulatory summit. "Under the EU regime, the companies do not have to wait for any decision from us, so the P3 parties can implement their agreements now if they want."
If European regulators at any time determine the P3 Network violates Article 101 of the Treaty on the Functioning of the EU, they will issue a statement of objections, de Broca said at the FMC summit.
If issued, a statement of objections from the EU could be more than a year in the making and would state how authorities believed the carriers violated antitrust rules. If European regulators took such a step, the P3 carriers could respond with comments. The EU would dissolve the consortium if the comments didn’t change their stance, and fines against the carriers would likely follow. EU antitrust regulators also could dissolve the P3 years down the road if they found evidence that the network violated antitrust laws.
But de Broca stressed that such a path was still hypothetical. "We are far from a situation where we would know whether we want to object to" the P3, he said.
The EU, he said, is now collecting information from the P3 carriers and stakeholders "to see if there are concerns that should lead to an investigation." Because the P3 would have more than a 30 percent market share on the trans-Atlantic and Asia-Europe trade lanes, the proposed consortium does not automatically receive antitrust clearance.
Consortiums that control less than 30 percent of the market and meet other requirements don’t automatically prompt EU authorities to take a closer look. The alliance would represent approximately 42 percent of Asia-Europe capacity, 24 percent of trans-Pacific capacity and 40 to 42 percent on the trans-Atlantic, according to the FMC. But exceeding the 30 percent threshold doesn’t automatically mean the P3 would run afoul of EU authorities. It means only that authorities will take a closer look.
Public comments to the FMC regarding the P3 have been mixed, with 14 in support, and 48 expressing concern or opposition, according to industry analyst Alphaliner. Supporters argued the VSA would expand port coverage, stabilize service, provide reliable and competitive transit times, increase slot availability and help stabilize the industry as a whole.
"The first benefit is the service improvement. From a (non-vessel-operating common carrier) point of view, this means that we will have a new advanced shipping product to sell to our U.S. consignees that are in need of more reliable and stable services to satisfy their final customers," said Jonathan Crestot, sea freight manager at Logistics International Service. "We also believe that the P3 will be beneficial to our company and our clients because of the vessel capacity increase and additional direct calls."
Few public comments called for the FMC to block the P3, with shipping groups and others choosing instead to raise concerns. Those in the industry might be reluctant to criticize the proposed P3 Network because the three largest global container lines "carry significant weight and influence," Eni Faleomavaega, the non-voting U.S. House of Representatives delegate from American Samoa, told the FMC in a Dec. 19 letter. "Indeed, it is difficult to raise concerns or offer a contrary position if one or more of these major cargo carriers happens to be a client or otherwise influences a business’ welfare," he wrote.
Although the P3 wouldn’t allow the carriers to set rates together, the Med-American Shippers Association noted that the success of these protections could be limited by the P3 carriers’ high market share in major trade lanes.
"Since the three carriers will be meshing their services operationally and providing space on the same vessels, they will ultimately all be selling the same service, which will be hard to differentiate simply by marketing different brands," MASA President Angelo Nino Caponi wrote. "Thus, as their operations converge more and more, it is likely that they will be capable of influencing the competition in the market."
The P3 carriers’ deployment of large vessels will increase usage of hub ports, extending transit times for the wine shipments of MASA's member shippers and “expose the containers to temperature variations, seasonally extreme, with negative effects for the shelf life of the wines transported,” he noted.
Andrew Abbott, president and CEO of Atlantic Container Line, an operator of multipurpose ships in the trans-Atlantic trade which is not affiliated with an alliance, said the P3 would "greatly distort the market," making it "impossible for non-consortium carriers to compete with them." The creation of such a large consortium would spell the end of smaller ports, terminals, stevedores, trucking companies and "logistics suppliers of every type."
"If P3 is approved by the FMC, then you will force every remaining carrier to join forces in a similar bloc to be competitive," he said. "The single, independent carrier will go out of business. American exporters will no longer have a large portfolio of carriers to choose from."
The more immediate question is how Chinese regulators will respond. In her comments to the FMC, U.S. Shippers Association Executive Director Beverly Altimore raised the question whether China would allow the plan, considering there is no Chinese carrier included. The country is "well-known for requiring a China connect in order to do business in the country," she said.
If the P3 Network is approved, Cosco and China Shipping will see their Chinese market share shrink from about 60 percent to 10 percent, said Cai Jiaxiang, vice president of the China Shippers' Association. Both Chinese carriers are suffering from deep financial losses.
"In the future, their market share will be even less with P3, so I think the Chinese government will not approve the alliance," Cai said.
Li Hongyin, deputy director-general of China’s Bureau of Water Transport, gave no indication on how Chinese regulators would proceed when he attended the FMC’s December summit.
