Consolidation in the transportation industry was a popular subject for the last decade. Due to increasing fuel prices & fierce competition, carriers implanted a new strategy by getting rid of redundant schedules by consolidating their routes via their competition thus achieving better costing. After the September 11 attacks, the airline industry had to make dramatic changes with the extra security costs, thus mergers & acquisitions as well as consolidation of routes became priority, shipping lines seem to be adapting the same strategy and starting from last year they started making alliances where P3 was the big one with Top 3 market leaders (Maersk, Msc & CMA) coming together to form a new alliance called 3PL. P3 alliance was thought to be going through as the European & USA agencies approved the new alliance, however couple of weeks ago China’s regulators blocked the new mega-alliance which was a shock to Top 3 companies who invested heavily by even opening some offices already under this umbrella. The law enforcers appear to believe that cost reductions gained by the new alliance will not translate into savings to contract holders but creating a monopoly & market concentration. The big 3 advised they will not be fighting this decision & have to go back to drawing board to find other means of achieving economies of scale which will be a harder task but it is not the end of the world for them. Maersk, MSC & CMA already are the industry leaders in terms of cost & profits and even without P3 they have an advantage over the competition. In terms of their competition, this is good and bad news. The good news is it removes the threat of a very powerful alliance, but the bad news is most probably the regulators may behave the same way if they decide to create their own alliance between smaller carriers. For shippers & importers, it is better news as they will have the same ample space & extra schedules with a lower cost. There was that original belief that once the alliance establishes the new routes and decreases the redundancy the shipping rates may go up in long term and this risk is for now is removed with the alliance broken down without a start. For the Terminals, we can also think of this as a good news as the new alliances mean more buying power which is a strong hand when you start negotiating the terminal handling fees during contract season.

What will happen now is first the big 3 will start investing new ways to achieve efficiency either by ordering more fuel efficient vessels or getting rid of unprofitable lanes in order to come close to the savings planned with P3. The next thing that they might do is to create alliances between Europe & USA (without Asia) as the agencies of these continents approved such alliance opening a further door for them to create new alliances. Even though the trade between these 2 continents are not as big as China, it is better than no alliance.

 

In Summary, Chinese regulators may have stopped the world’s largest carriers joining forces for now, there are still other methods available to them in terms of efficiency. What is, however a fact is the cancellation of P3 will probably postpone the stabilization of over supplied – unprofitable shipping industry.