Wednesday, October 8, 2014

FMC & 2M

FMC approves 2M alliance of Maersk, MSC in 4-1 vote

The U.S. Federal Maritime Commission today voted 4-1 to allow the Maersk Line and Mediterranean Shipping Co.’s proposed vessel-sharing agreement, dubbed “2M,” to go forward, leaving China as the last hurdle for the two largest container lines to overcome.
FMC Commissioner Richard Lidinsky was the lone dissenter — just like he was when the commission voted in March to allow the P3 Network, a massive vessel-sharing alliance involving Maersk, MSC and CMA CGM, to take effect. Chinese regulators then in June stunned the industry in rejecting the P3, saying it would be anti-competitive.
Gaining approval from Chinese regulators is once again the last regulatory hurdle for Maersk and MSC to overcome, as the 2M carriers are already in compliance with the European Union and have now received the go-ahead from U.S. regulators.
“In the proposed 2M agreement there remain many unanswered questions that could have been answered in the additional 45 day period,’ Lidinsky said in a statement, “Regrettably, my position has not been supported, and the Agreement will be allowed to take effect on Saturday with many issues unresolved.”
Lidinsky said in his statement that he always supported requests for additional information on VSAs when he was FMC chairman, suggesting his fellow commissioners didn’t back his push to ask Maersk and MSC more questions on the VSA. A majority vote would have stopped the clock on the FMC’s review of the 2M, with the clock restarting once the carriers responded to the agency’s queries.
“I am in favor of not taking any further action to delay the implementation of this vessel sharing agreement popularly known as 2M,” said FMC Commissioner William Doyle, who originally told he planned to vote to ask the carriers more questions. “Maersk Line and Mediterranean Shipping Company answered all my questions over the 45 days.”
While the FMC will implement “its typical monitoring program,” Doyle said the alliance should be reevaluated to make sure the duo “plays by the rules.” One of the key rules is that the carriers collaborate operationally but price services independently. Doyle said the 2M will allow Maersk and MSC, the two largest global container lines, to increase their service offerings and total capacity.
“In conclusion, it appears that the 2M Agreement is not likely, through a reduction in competition, to result in an unreasonable decrease in transportation service or an unreasonable increase in transportation costs,” said Doyle, referring to language in the Shipping Act of 1984 used by the FMC to determine whether to allow a VSA to take effect.
Pressure on Maersk and MSC to gain regulatory approval to launch the 2M early next year increased after CMA CGM, China Shipping and USAC’s announced a rival VSA, known as the O3. In an attempt to avoid the agency stopping its review of the 2M, Maersk and MSC executives met with Doyle in September to answer his questions. Maersk Line CEO Soren Skou also met with China’s Ministry of Commerce on Sept. 19 in an attempt to avoid a repeat of the P3 demise.
The 2M would involve a total of 185 vessels with an estimated capacity of 2.1 million TEUs on 21 strings, while the O3 will initially operate 138 vessels on 15 weekly services. The 2M and O3 have the largest ships on order with average vessel sizes of 17,800 TEUs and 16,500 TEUs, respectively, outpacing the order books of rival alliances G6 and CKYHE, according to SeaIntel. None of the carriers in the CKYHE and G6 alliances have order for vessels larger than 14,000 TEUs.
Through the proposed VSAs, the 2M and O3 carriers, as well as the existing G6 and CKYH-E alliances, would be able to consolidate their services around fewer but bigger ships, reducing their per container operating costs. As a result, 2M and O3 carriers would gain cost advantages over carriers and operate smaller ships. If the O3 and 2M are ultimately allowed to take effect, it will be the first time that all major east-west carriers, with the exception of Zim, are part of an alliance that covers all three east-west trades.