Monday, 29 July 2013 00:07
P3 Alliance – Is it a threat to ports?
The P3 Alliance between Maersk Line, Mediterranean Shipping Co. and CMA CGM having a pooled network of 255 ships on 29 service loops will pose a major challenge for container terminals across Asia, Europe and the USA. There is bound to be significant implications arising out of the concentration between these three top container carriers. To quote London based Drewry “the carriers have family connections with terminal operators, so choosing the best terminal will not only come down to the best for each job”.
Whilst Maersk is linked to APM terminals, CMA CGM part owns Terminal Link and MSC has a stake in Terminal Investments Ltd. Drewry questions whether the carriers will consolidate or rationalise their port calls. Drewry further says: “Whilst economies of scale are there for the taking it will result in tampering with the well established berthing windows of each schedule and the feeder connections of each carrier which will presumably remain separate”. There would be synergy with better coordinated schedules and improved turnaround times, though, rationalisation of ports and terminals within the P3 network “may be a bridge too far”.
Port tariff reforms in India to attract investors
Global port operators such as PSA International, DP World and APM Terminals with large investments in India have continuously expressed their frustration at what they see as a crippling tariff structure. Though these port operators have helped to increase capacity and boost productivity at Indian ports they have not been allowed to increase their tariffs and have instead being requested to scale down existing rates.
The new guidelines issued by the Tariff Authority for Major Ports (TAMP) will increasingly be on market based mechanisms. Shipping ministry has announced that projects approved under the Public Private Partnership (PPP) model from 1 April this year will not be bound by previous regulations. Whilst many prospective new investors have called for abolishing of TAMP, the Government of India is mindful of striking a balance between encouraging investors and controlling tariffs on consumer goods. Higher costs on exports and imports obviously have a bearing on its external trade. There are 12 “major ports” controlled by the Indian Government through TAMP. Minor ports such as Mundra and Pipavav in Gujarat and Ganagavaram in Andra Pradesh, which does not come under the tariff restrictions have attracted investors both domestic and foreign. Volumes handled by major and minor ports are rapidly narrowing with minor ports handling approximately 40% of the total Indian cargo.
Single market to the seas
The European Commission (EC) recently presented its “Blue Belt” initiative for shipping under maritime activities in the European internal market and beyond which will result in fewer administrative hurdles, ease customs formalities for ships, reduce delays in ports and make the sector more competitive. EC Commissioner for transport said: “Europe is faced with major challenges in terms of rising congestion and pollution. We need short sea shipping to fulfil its potential and provide a low cost environmental friendly transport solution taking more goods off lorries and off our congested roads.” It will also create a harmonised and electronic cargo declaration.Whilst this initiative will bring the single market to the seas, European Ship Owners Association (ESOA) has said that the cost savings from simplifying administrative procedure can work out up to EURO 25 per container.
From P3 to P4 network
As confirmed by a senior Maersk official there is a possibility of other lines joining the ground breaking P3 Network announced by the worlds’ top three carriers. In an exclusive interview with Lloyds List, Brain Kristensen Vice President of Maersk Lines said: “I don’t think anybody has ruled out that others could join the P3 operating consortium, a fourth member in to P3 or P4 – I think that’s on the cards for the next couple of years. If somebody comes with all the right vessel types it will make a lot of sense.” Maersk Lines has confirmed that it will still offer its daily Maersk services to clients. The 18,000 teu class 5 of which will be delivered by December and another by the middle of next year will continue to replace the Emma Maersk class vessels in Maersk Lines AE10 service until P3 takes over.
Asia/Europe rate push – Shipper concern
The recent dramatic freight rate increase of 165% in forwarder buying rates from ocean carriers with spot cargoes from Shanghai to Rotterdam moving up to USD 2,622/40’ container on 4 July and a 61% increase obtained from Shanghai to Genoa on 6 June with a rate of USD 2,268/40’ container followed by another 15% on 4 July moving up to USD 2,564/40’ container, has raised shipper concerns. Whilst shippers have raised suspicion that carriers have a coordinated GRI strategy, it is however a tough call to distinguish between coordinated price setting and following price setters. Though European Shippers Council is yet to raise the issue with the European Commission, it is understood however EU is pursuing the matter following an investigation of documents obtained during its raids on ocean carriers European Offices two years ago. The first quarter of 2013 results points out to free market behaviour with most carriers financial accounts filled with red ink without profits being made to pay interest due on loans. According to industrial sources European shippers are being questioned by EC on the way that their ocean freight rates are negotiated.Following the recent general rate increase Success Shipping Lines are bracing for another round, with Hanjin Shipping announcing a rate increase of US$ 500 per teu from Asia to North Europe and Mediterranean effective 1 August. Mitsui OSK Lines also plans to increase rates by a similar amount effective 1 August.
[The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a NORAD /JICA Fellow.]