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Rough Regulatory Waters May Rock Massive Shipping Alliance

Posted  December 11, 2013

By Jeffrey I. Shinder

The proposed P3 shipping alliance among the world’s three biggest container shipping companies encountered more rough seas this past week.

The U.S. Federal Maritime Commission (“FMC”) has requested additional information from the parties.  This request will delay the implementation of the proposed alliance because, after the parties comply with the request, a new 45-day regulatory review period will begin.  While this request should not be interpreted as indicating that the alliance will not be approved by regulators, it almost certainly reflects the significant issues that the proposed deal raises for competition.

The proposed P3 vessel-sharing alliance among Maersk, MSC and France’s CMA CGM S.A has the expressed goal of dealing with overcapacity and declining freight rates through an agreement to share ships and engage in related cooperative operating activities, under a common management, while retaining individual commercial status and control of consignments.

The issues that are raised by this plan to create the world’s largest shipping alliance came into sharp focus last week when reports surfaced that the FMC is apparently questioning “operational contradictions” and “gaps” in the duties of the liners.  See Lewis Crofts,  “P3 shipping lines face questions over alliance’s scope ahead of US, EU, China meeting,” (MLex, Dec. 6, 2013) (subscription required).

The P3 alliance would allow the shippers to share ships and port facilities in Europe, the US and China.  According to Maersk, it would account for 42 percent of shipping routes from Asia to Europe, 24 percent on trans-Pacific routes and between 40 and 42 percent on trans-Atlantic routes.  While the alliance would not permit the sharing of sensitive data or pricing, and the companies would maintain separate sales, marketing and pricing functions, some cargo owners are concerned that the alliance, by enabling communications on ports, port rotations, itineraries, service speeds and “all other aspects of the structure and scheduling of the services,” would facilitate collusion.  Some customers are also concerned about a provision that would allow members to “negotiate jointly and to contract jointly” with marine terminal operators, tug operators and supplies of components and services.

While the EU’s investigation into price fixing allegations involving these carriers is a separate matter that technically should not influence regulators’ evaluation of this venture, that investigation could have some impact if the regulators’ principal concerns come down to whether the alliance would facilitate price fixing.

The next major event in this evolving saga is December 17, 2013, when Chinese officials will also weigh in on this deal when they meet with their U.S. and EU counterparts.   Not to be outdone, Russian regulators have launched an investigation into anti-competitive behavior in this industry.

At this point it is hard to say whether the shippers’ deal will encounter smoother seas anytime soon.

Edited by Gary J. Malone

Tagged in: Antitrust Enforcement, International Competition Issues, Price Fixing,