The proposed P3 Network of Maersk, MSC and CMA-CGM was scuttled when China’s Ministry of Commerce (MOFCOM) rejected the liner alliance as anti-competitive. Now Maersk and MSC have formed 2M vsa (vessel sharing agreement) that is neither an “alliance” nor a “network”. This Plan B still must run Beijing’s regulatory gauntlet as UK based Paul Richardson writes. June 17th and July 10th are two dates that will go down in container shipping history as dates to remember. June 17th was the day that the P3 Network lines officially announced they would not be going ahead with their planned alliance, and July 10th was the day, two of three P3 carriers announced their intentions to form an alliance instead of the P3. As is well known by now, the Ministry of Commerce in China (MOFCOM) rejected the P3 Network, scheduled to start in the autumn. An official statement from the P3 lines said, “Maersk, MSC and CMA-CGM had now decided not to implement the P3 Network.” The decision by MOFCOM followed a review under China’s merger control rules, and as a result of the rejection, Maersk, MSC and CMA-CGM agreed to end their joint P3 implementation. According to statements from the P3 lines, “The partners took note of and respected MOFCOM’s decision and subsequently, had agreed to stop the preparatory work on the P3 Network, and the P3 Network as initially planned was not to come into existence. Also in the statement by Maersk, the line emphasized that “The lack of implementation of the P3 Network will have no material impact on the Maersk Group’s expected result for 2014.” MSC said in its statement, “MSC will continue to review all remaining options as to how it can continue to become more cost efficient and improve its service offering in the absence of P3. “We are disappointed by the decision of the Chinese Ministry of Commerce (MOFCOM) but will continue our efforts to operate more efficiently and provide our clients with a comprehensive and excellent service. “MSC could have achieved these efficiencies much faster through P3, but with our investment in more fuel efficient vessels, further economies of scale will still be achieved over a period of time.” Backing up these comments, CMA-CGM stated, “Current maritime services offered by CMA CGM and existing co-operations are to be maintained in full, offering an excellent quality of service to customers, ahead of the peak season. “With a presence on every continent through its network of 650 agencies, the Group will continue to deploy a strategy combining innovative transport solutions, financial discipline and excellence in customer service. “CMA CGM is confident that it will maintain its operating performance and continue to over perform in the industry.” Many questions were aired during the days following the P3 rejection, and many aired their own feelings and beliefs on why China turned it all down. Let’s cast our minds back to the third quarter of 2013, COSCO and China Shipping approached the Chinese authorities in September voicing their own individual objections to the establishment of the P3. Thus the writing was already on the wall that if anyone were going to scupper the whole P3 idea, it would be China. While some sat back and assumed China would follow the EC (European Commission) and the FMC (Federal Maritime Commission) and naturally give the nod of approval to the P3, others began to realize that all was “done and dusted.” There had been talk for many months about a merger between COSCO and China Shipping as a natural follow up to the increasing number of vessel and slot sharing deals between the two lines. But as in all cases, mergers mean job losses, and in simple terms on a worldwide basis, the number of job losses could be considerable in the case of COSCO and China Shipping. So, if the P3 Network had been given the green light by the Chinese authorities, then a merger of COSCO and China Shipping would be “forced to take place” in order to compete in the industry with the P3 lines. Both companies have “some important links” with China’s Government and Beijing, and a merger between COSCO and China Shipping, would effectively reduce the overall workforce. Chinese authorities would be against that for certain, particularly because some senior management figures who might find themselves unemployed, could have close connections with Beijing. The P3 lines did not come back with an appeal against the Chinese authorities verdict, and obviously realized it would be pointless arguing against Beijing, COSCO and China Shipping. In the days immediately following the rejection, there were indications that the P3 lines might work together on the Atlantic trades, but nothing came to fruition on that count, possibly because the Atlantic segment is such a small sliver of the pie. 2M & the New Deal Sans Network However, the biggest surprise came just 23 days later when Maersk and Mediterranean Shipping Co (MSC) announced the formation of a new vessel sharing agreement on the major East/West trades covering: Asia/Europe, Asia/Mediterranean, Asia/USWC, Asia/USEC, North Europe/US and Mediterranean/US. Known as the 2M, the new vsa (vessel-sharing-agreement) is planned to start up in early 2015 and consist of 21 separate strings, and importantly, the two lines made sure everyone knew, all those strings will replace existing services provided by the two lines. Importantly however, the 2M still had to go through the usual regulatory procedures, and within that parameter, obviously China ranks as a highly important entity. Summary of Services Planned by the 2M Six will cover the Asia/Europe trade and four, Asia/Mediterranean. On the Asia/US trades, four will cover the US West Coast and two, the US East Coast, while on the Atlantic, there will be three to cover the North Europe/US route and two, the Mediterranean/US trade. A total of 185 vessels are planned to be deployed with an estimated capacity 2.1m teu, and of the total, with Maersk contributing approximately 110 vessels (55%) and MSC approximately 75 vessels (45%). The 2M vsa is planned to have a duration period of ten years but will differ from the now defunct P3 Network in that its combined market share will be smaller, and it will be purely a vessel sharing agreement - there is no word of an “Alliance” or “Network” anywhere. It will not include joint marine operations, and each line will undertake its own voyage planning, stowage, and port operations, and the 2M will not include any commercial tasks or similar responsibilities. Each line will undertake its own responsibilities in the fields of sales, pricing, marketing and customer services. But obviously the start up date is conditional to the filing of information to the relevant authorities, and again the word “China” emerges as a possible obstacle that has to be overcome in that field. Plan B: Beijing & 2M The local Chinese media has wasted no time in voicing various opinions on the 2M, and China Central Television (CCTV) has led the way on that one. CCTV said, the 2M vsa could result in price increases for Chinese consumers and pose great challenges to Chinese shipping lines. The state broadcaster is quoted as saying, “The new vsa between Maersk and MSC could adversely affect China”, and as a result offered a negative view on the proposed move. In addition, China’s Ministry of Commerce’s Anti-Monopoly Bureau said it believed the alliance could have a direct impact on China’s consumers, as the prices of goods are partly determined by transport costs. In addition, CCTV also reported that the “2M would present great challenges to Chinese shipping lines which underperformed when compared to their foreign rivals in developed countries.” Although CCTV does not represent an official viewpoint, it is one of the most influential propaganda networks in China and does form an important role in public opinions. Separately, it is interesting to note that in all these developments, it took months and months of inter-line negotiations and market analysis to put together the P3 Network, only to have it rejected at the last hurdle. Several inside sources have suggested the P3 lines already knew before the China thumbs down there was going to be complications that could lead to a total rejection, and that the best way ahead was to get Plan B (2M) underway as soon as possible. But with Plan B announced, the obvious question coming from all this, is where does CMA-CGM go now? Is the G6 Alliance, for example, about to become the G8 Alliance with the addition firstly of CSAV through the Hapag-Lloyd merger, and secondly by the addition of CMA-CGM through various vessel and slot sharing agreements? There are suggestions from outside the alliance that this is quite possible, but the regulatory authorities, including China still have to give their nod of approval of that one as well.