FMC Approves New Carrier Alliance, Takes Steps to Prevent Potential Reduction in Competition

Excerpt from Sandler, Travis & Rosenberg Trade Report |  Monday, March 24, 2014

The Federal Maritime Commission approved March 20 the P3 Network Vessel Sharing Agreement, which authorizes the world’s three largest container carriers to share vessels and engage in related cooperative operating activities on routes between the U.S. and Asia, North Europe and the Mediterranean. The carriers involved in this agreement, which will become effective as of March 24, are A. P. Moller-Maersk, CMA CGM and MSC Mediterranean Shipping Company.

The FMC took more time than usual to investigate the P3 agreement due to concerns about its potential effects on consumer interests, the U.S.-flag international fleet, small businesses, suppliers, and third parties such as terminals, vendors and bunker operators. It is estimated that the alliance will control between 24% and 42% of the market in the trade lanes in which it will operate. In addition, participants have proposed an initial deployment across all U.S. trades with an annual capacity of 130 vessels that range in capacity between 4,000 and 12,250 twenty-foot-equivalent units, with an eventual expansion to a maximum of 180 vessels of up to 19,200 TEUs.

The FMC determined that the P3 agreement is not likely to reduce competition and thus negatively impact service options and prices at this time. Commissioner William Doyle explained that while the participating carriers “will be collaborating operationally, … they will continue to compete with each other on pricing and cost.” In addition, “each P3 carrier will increase its service offerings and overall capacity will increase.” Doyle added that the carriers revised the agreement so that they must negotiate independently and enter into separate contracts with third parties.

However, the Commission acknowledged the potential for circumstances to change for the worse in the future. To address this concern, the three carriers will be subject to special reporting requirements to, as Doyle put it, “give a measure of assurance to the public, common carriers, shippers, consumers, marine terminal operators, ocean transportation intermediaries and exporters and importers that the P3 parties are playing by the rules.”