I’ve been so focused on topics related to trucking the past few months, like Hours of Service and driver shortage, that I haven’t paid much attention to what’s going on in other modes of transportation. But there’s a lot going on, especially in ocean transportation.
This summer, three of the world’s largest ocean carriers — Maersk Line, CMA CGM, Mediterranean Shipping Co (MSC) — announced that they were forming a long-term operational alliance on East – West trades called the P3 Network. What was the driving force for the alliance, which still has to be approved by U.S., European, and Chinese regulators? The need for improved efficiency. Here’s an excerpt from the press released issued by CMA CGM back in June:
Declining volume growth and over-capacity [emphasis mine] in recent years have underlined the need to improve operations and efficiency in the industry. This has prompted the creation of other operational alliances such as G6 and CKYH. Using the P3 Network the lines expect to be able to improve their efficiency through better utilization of vessel capacity.
The demand-capacity imbalance hasn’t improved since this summer. In an interview with the Wall Street Journal in September, Lars Jensen, head of Asia-Europe operations at Maersk Line, said that capacity on Asia-to-Europe routes is about 10 percent higher than demand, which has led to a 30 percent reduction in freight rates this year.
Simply put, ocean carriers are hurting financially. Twenty-three out of the top thirty carriers were unprofitable last year, and cumulative losses over the past four years have totaled about $7 billion. So, you can’t blame ocean carriers for seeking new ways to save money or become more productive. Unless those ways cross the legal line.
Last week, the Wall Street Journal reported that “The U.S. Federal Maritime Commission has called for an unusual meeting with its European and Chinese counterparts to scrutinize the proposed [P3] alliance of the world’s three biggest container-ship operators, amid concerns by global competitors that it might unfairly squeeze smaller shippers.” According to the article, “The P3 alliance would control an estimated 43% of Asia-to-Europe container shipping, 41% of the trans-Atlantic market and about 24% of the trans-Pacific market.”
And last Friday, the Financial Times reported that “Brussels has launched a regulatory assault on container shipping companies, with a formal antitrust probe into concerns that prices moved in harmony because groups signalled planned changes through public statements.” Here’s an excerpt from the article:
“Since 2009, these companies have been making regular public announcements of price increase intentions through press releases on their websites and in the specialised trade press,” said the commission.
Brussels said the practice “may allow the companies to signal future price intentions to each other and may harm competition and customers by raising prices on the market for container liner shipping transport services on routes to and from Europe”.
The bottom line is that transportation executives have their hands full these days trying to balance — like spinning plates on sticks — cost, service, and risk across the various transportation modes they use. And if you focus too much on one mode, losing sight of what’s going on in other parts of your network, you run the risk of dropping a plate or two, and you’ll be left picking up the pieces. So, keep your eyes on the big picture and keep those plates spinning!
