Maersk-MSC tie-up approval may run to late 2014

US maritime regulator likely to set conditions for antitrust approval of vessel-sharing pact

PUBLISHED : Tuesday, 02 September, 2014, 12:38am
UPDATED : Tuesday, 02 September, 2014, 12:38am

The proposed alliance between Maersk Line and Mediterranean Shipping Company (MSC), the world's two largest container shipping lines, is likely to obtain the only antitrust clearance it needs from the US by late November but with additional conditions attached.

Marketed as 2M, Copenhagen-based Maersk Line and Geneva-based MSC plan a vessel-sharing agreement for seaborne trade that straddles Europe, the US and Asia. The US Federal Maritime Commission is reviewing the application but the agency will likely demand additional information, extending the review process.

"The chances for 2M to be approved are very good, since the commission voted four-to-one in favour of the more concentrated [P3] merger last time," a source close to the commission said.

[The alliances] are … in spirit contradicting the principle of fair competition

"However, similar to the approval of P3, there will in all likelihood be strings attached to 2M. There will be requests for more information as well as answers to questions required, with the earliest approval date late November," the source said.

In March, four of the body's five commissioners voted in favour of P3 - a merger bid by Maersk, MSC and France's CMA CGM - on the condition that a monitoring programme aimed at reining in the three carriers' bargaining power against US exporters and terminal operators be put in place.

P3 was abandoned after China's Ministry of Commerce barred its formation under the country's anti-monopoly law.

Maersk Line and MSC then came back with the 2M alliance, which involves a total of 185 vessels with a capacity of 2.1 million teu (twenty-foot equivalent units) on 21 trade routes.

The reasons for the close scrutiny and additional conditions, according to the Washington-based source, were the timeframe for the consortium's existence and the size of the vessels it plans to operate.

Scheduled to begin early next year, 2M plans to operate for 10 years, twice the life span of other existing container alliances such as G6 and CKYHE. In addition, 2M also plans to operate vessels with a capacity of up to 19,200 teus, exceeding the size of container ships now in service or under construction.

As 2M embodies a traditional vessel-sharing agreement now commonplace in the container shipping market, it does not fall under the category of "concentration of business operators" defined by China's anti-monopoly law so it does not require approval from the commerce ministry, only registration with the Ministry of Transport.

Terminal operators such as China Merchants Holdings (International) (CMHI) are also vying for business from 2M, after absorbing costs from the abandonment of P3. CMHI last week reported throughput fell 7.4 per cent at Shekou Container Terminal in the first half, compared to a 0.7 per cent dip in Shenzhen ports during the same period.

"We initially had few [cargo] volumes from Maersk Line at Shekou. After P3 was announced, we adjusted our business structure in hopes of accommodating them," said Zheng Shaoping, CMHI's deputy general manager and executive director.

"We signed a contract with P3 for more port calls at Shekou, only to find out it wasn't approved. The volumes we are working to attract from 2M are similar as what we signed with P3."

If the commission gives its approval, the tie-up is expected to reshape the global container trade landscape, with Asian-based exporters bearing the brunt of any adverse impact from the consolidation, according to John Lu, chairman of the Singapore National Shippers' Council.

"In the world container trade, Asia has a share of close to 60 per cent. Any antitrust activities are going to harm Asian shippers and exporters. Asian shippers are the major group to be affected," said Lu, who was also chairman of the Asia Shippers' Council until late last year.

In the case of 2M, 16 of the 21 trade routes are connected to Asia. While vessel-sharing agreements can bring down costs and improve efficiency for carriers, such benefits have so far failed to be passed on to shippers, exporters and consumers, Lu said.

"Antitrust means competitors will not be allowed to come together as such a move will significantly influence market price. What we see now - the trend of forming container shipping alliances - is not against the law, but very close to being against the law, and is in spirit contradicting the principle of fair competition," Lu said.