P3 Alliance Fall-Out – What Next?
By Mollie Bailey, Director, LCB International Logistics, Transplace
Last week, China took a hard stance and rejected the P3 Alliance. The P3 Alliance is very unusual in that it was to be a formalized network creating an alliance between the three largest global container lines – Maersk Line of Denmark, CMA CGM of France and the Mediterranean Shipping Company (MSC). Both the United States and European Union regulators waved the deal through – however, the fact that the Chinese decided not to participate in the alliance was a shock for many globally and for our North American-based customers, because everyone assumed that it was a “done deal.”
The alliance was originally proposed because all parties, including shippers, importers and NVOs, are looking for rate stabilization. Ocean carrier pricing is a complex model involving many factors, and in recent years many trades have seen increased rate volatility along with carriers continually introducing additional capacity, which increases supply and thus drives down rates.
The hope for the P3 Alliance was to re-think the current ocean carrier operations model that everyone agrees is dysfunctional and there seemed to finally be carriers who are willing to do so. The P3 carriers were positioning the proposed alliance as an opportunity to reduce costs and gain efficiencies.
However, if the alliance had come to fruition, it would have taken until 2016 to determine if their message was accurate.
In fact, there are a couple of problematic areas to the originally proposed alliance:
- For large importers & NVOCCs that already had contracts with all 3 players (Maersk, CMA, MSC), the alliance was concerning due to the possibility of more consolidation of containers on fewer vessels and fewer sailings among those carriers.
- Most Asia-to-US annual inbound contracts are negotiated with May 1st effective dates, so it’s very likely that in March and April some importers reached out to other carriers and potentially signed new contracts with non–P3 Alliance carriers in order to diversify their ocean network.
The scale that the P3 Alliance was hoping to achieve has been completely disrupted by the Chinese government’s decision. However, the effects in North America are minimal – other than a warning to other carriers that they are going to have to be extremely thoughtful in putting these deals together moving forward.
It is truly back to the drawing board for ocean carriers to figure out a new way outside of such a massive alliance to better manage business models that are currently highly inefficient. There is still great opportunity for formalized ocean partnerships and networks to reduce operating costs and control capacity, but it is going to have to be more strategically managed and negotiated in the future.
What do you think about the rise and fall of the P3 Alliance?