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Federal Maritime Commission Permits Another Major Shipping Alliance

The shipping industry continues to generate historically significant news that promises to leave an indelible imprint on the apparel and textile industries. On Wednesday, the Federal Maritime Commission (FMC) announced its decision to permit a consortia of six ocean carriers, a massive collaboration rare among shipping companies.

The alliance, self-dubbed G6, cooperatively links American President Lines, Hapag Lloyd AG/USA, Hyundai Merchant Marine, Mitsui OSK Lines, Nippon Yusen Kaisha and Orient Overseas Container Line, allowing them further levels of partnership involving trade routes between the U.S. and Asia and between the U.S. and Europe.

According to the FMC, a searching appraisal of the proposed alliance indicated that the likely reduction in competition that would result would not negatively affect the general quality of transportation services or produce an undue increase in transportation costs. Rather, FMC Chairman Mario Cordero said that the agency’s “extensive, competitive analysis”  shows that the partnership “will considerably increase available capacity in the expanded geographic scope and has the potential to generate operational efficiencies.”

The G6 proposal will create seventeen new transportation services, bringing the grand total offered by the alliance as a group to twenty-nine. The six shipping companies will share as many as 220 container vessels, with an overall capacity of 14,000 twenty-foot equivalent units. The new arrangement will go into effect today, April 4.

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Many interpret the G6’s consolidation of services as a response to the creation of the P3 Alliance, a partnership that combines Swiss-based Mediterranean Shipping Co., French CMA-CGM and Danish A.P. Moeller-Maersk. That new collaboration just won approval from the U.S. Maritime Commission on March 20 for their controversial collaboration, called the P3 Alliance. The three shipping companies are easily the biggest in the world and plan to start merging their operations sometime this year.

The three companies have agreed to share 255 vessels between them, effectively holding the capacity of 2.6 million containers in common. Many worry that such a collaborative partnership, which just falls short of a full blown corporate merger, constitutes a violation of anti-monopolistic regulations. John Lu, chairman of the Asian Shippers Forum, complained, “The P3 is very close to being a monopoly.”

The PS Alliance will permit all three companies to dramatically reduce costs by sharing ships, ports and port facilities. Each will be able to move more cargo with greater speed, increasing their collective efficiencies. Efficiency is now the big buzzword in shipping, since the industry is beleaguered by overcapacity. In 2007, a record number of ships were newly constructed, just in advance of the global economic meltdown, creating too many vessels in response to not enough demand. Freight rates globally have plummeted by 50 percent in the last year. Problematically, stubbornly high fuel prices have generated a hunger for more fuel-efficient ships, or in the absence of that, more efficient strategies. The P3 Alliance is a version of such a strategy. Maersk alone is forecast to save $1 billion annually as a result of the deal.

In the container-shipping industry, such cooperations are exceedingly rare. For the most part, the commercial sector is dominated by family-owned businesses long in existence or essentially controlled by states. The P3 Alliance and the G6 group both represent a consolidation of companies all but unprecedented historically.

Many are interpreting the creation of the two partnerships as a bellwether of the shipping industry’s future. Lars Jensen, chief executive of SeaIntel Maritime Analysis, said, “It will be difficult for other alliances to match the efficiencies of the P3, so it could be a game-changer in the shipping industry. Over the next five years, we could see a wave of consolidation, which nobody wants but will no longer be able to resist.”