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New Shipping Alliance Stokes Fear of Monopoly

In a little-noticed partnership certain to have a big impact on the global container industry and beyond, a major new shipping alliance just formed that some are labeling a monopoly.

Swiss-based Mediterranean Shipping Co., French CMA-CGM and Danish A.P. Moeller-Maersk 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 P3 Alliance still requires formal approval by European and Chinese regulators but most experts believe the U.S. imprimatur would be the hardest to obtain. Collectively, the three shipping giants account for 40 percent of all the cargo shipped in containers from Europe to Asia, across both the Pacific and Atlantic oceans.

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.”

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 represents a consolidation of companies all but unprecedented historically.

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The U.S. Maritime Commission, after exhaustively assessing the proposal for the partnership, determined that the threat of monopolistic practices was small, concluding that it is very unlikely that “at this time, by a reduction in competition, to produce an unreasonable increase in transportation cost or an unreasonable reduction in transportation service.” Nevertheless, the Commission is “instituting a monitoring program to help ensure the P3 play by the rules.”

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.

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.”