European Shippers 'pull alarm bell' over 2M

European Shippers Council tells FMC that Maersk-MSC alliance might damage world trade.

By Chris Dupin |Monday, September 22, 2014

The European Shippers Council has written to the Federal Maritime Commission to express concern about the planned 2M agreement between Maersk and MSC.
In a letter to the FMC dated September 15, ESC Chairman Denis Choumert noted the proposed vessel-sharing agreement “goes in the direction of the current maritime history. Indeed, ship owners are very fond of cooperation agreements to cut costs and try to improve a sector plagued by overcapacity.
“However, following to the submission of the project to FMC, shippers would like to pull the alarm bell about the excesses that could cause such VSA. Operators might set up an extremely damaging situation to world trade.”
Choumert continued, “We are facing here a partnership whose only objective is to increase profit but not improve service. 2M should not be seen as a downgrade of the P3 (and thus considered positively), but as a huge upgrade of the individual ship-owner position. The gathering of the two first ship operators will create a huge player that will be in a position to have such a power that they can distort the market for the purpose of price increase.”
Maersk, when it announced its 2015 East-West Network last week, said shippers will "benefit from an expanded scope of stable, flexible and direct services delivering you a consistent experience made possible through improved network efficiencies driven by superior vessel utilisation and economies of scale.
Choumert sees things differently.
“Allowing these two operators to discuss and agree on some core parameters of the services can lead to a decrease of the competitive environment of the trade concerned by this agreement. Indeed, it will lead to a decrease in the number of direct call, a decrease of service quality and surely an increase of price," he wrote.
Concerns raised in the ESC letter include:

Authorization of Maersk and MSC to discuss and agree on the allocation of terminal costs giving them the “freedom to increase relevant surcharges with harmonization of pricing as consequence.”
The ability of the carriers to skip weekly voyages — so called “blank sailings.” He said this “can clearly be seen as market manipulation to restore freight rate if needed (by playing on the supply side).” However, Maersk said last week in its announcement, "Due to overlaps in port coverage, our new network will minimize disruptive effects on customers of blank sailings."
The fact that exchange of commercially sensitive information between the carriers is forbidden except if they are “strictly necessary.” ESC, Choumert wrote, “would like to have a much more precise definition of the scope of this ‘necessity’.”
The ability of operators to discuss and agree on administrative matters and implementation, which ESC said has “a potential negative impact on differences and the service levels of both carriers. It will lead to less competition and more harmonization between the carriers.”

Choumert said ESC “would be very supportive to the creation of a control system held by FMC that will monitor the link between the capacity available on the trade and the freight rates (as well as the creation of surcharges). Advance notification for any service modification (either in capacity or any other) should be required from the operators.”
He suggested that “an observatory of the service quality should be created.”
He continued, "The risks of 'extremism' in rationalization will lead to reducing the number of direct called ports, to the detriment of shippers. Limiting transshipment ensures shorter transit time more economical freight rates and greater security for the goods. FMC’s proposal regarding the P3 could be used for this situation, and for all new alliances in maritime transport."
Maersk said that on Friday, that Søren Skou, the chief executive officer of Maersk Line, met with Shang Ming, Director-General of China’s Ministry of Commerce (MOFCOM), to update the government on its plans to form the 2M VSA.
The company said that it had arranged the meeting at its own initiative. In view of MOFCOM's decision in June to block its earlier plan to form the three-way P3 alliance with MSC and CMA CGM, Maersk said, “We found it natural to provide an update on our future plans.”
The carrier continued, “We fully understand MOFCOM's decision, which is why we have decided to engage in a traditional VSA with MSC, similar to the many other VSA arrangements in our industry. We are filing our VSA with the relevant authorities as per regulatory requirements."
A week earlier, Maersk and MSC executives visited Washington and met with members of the FMC to discuss their agreement that they filed on Aug. 27. Such agreements go into effect in 45 days, on Oct. 10, unless the FMC asks for additional information
FMC Commissioners William P. Doyle and Richard A. Lidinsky, Jr., both said they plan to “stop the clock” by submitting written questions to Maersk and MSC about their planned VSA.
Doyle said he raised a number of these questions when he met with representative Anders Boenaes, a vice president at Maersk, and Caroline Becquart, a senior vice president for MSC, on Sept. 12, but would want to receive written responses for the record.
Maersk and MSC can take as long as they like to respond to those questions, but then the agreement will come into effect after another 45 days waiting period, unless the FMC seeks to block it through a court injunction, which would be unprecedented.
Lidinsky said that he will also have some questions for the two carriers, commenting that the two companies have been engaged in a “publicity blitz” for the alliance and are speaking to three audiences — regulators, shippers and the press — which, he said, sometimes results in “mixed messages.”
He continued, “I saw a quote from somebody at Maersk saying, 'They should have no problem approving 2M because they approved P3,' which is not a proper and logical way to go about this." Lidinsky was the only one of the five FMC commissioners to vote against the P3.
He said he has “five or six areas of concern, which I will spell out in the record, but it is not a simple ‘press the ATM’ approval process.”
While Maersk and MSC would control a smaller percentage of the world fleet than the P3 would have, he said the agency needs to look at “vessel control and deployment,” the impact of the agreement on “the entire supply chain,” and the membership of the two carriers in the Transpacific Stabilization Agreement, the discussion agreement for the transpacific trade.
Lidinsky said FMC Chairman Mario Cordero has mentioned to him that regardless of how the FMC rules on the 2M or recently announced plans by CMA CGM, United Arab Shipping Co. and China Shipping to form the Ocean Three agreement, there may be a need for a second "summit conference" between U.S., European and Chinese Maritime regulators, similar to a meeting that was held at the FMC headquarters last December.