P3 alliance causes uncertainty and box rate freefall

The timetable for the formation of P3 has added another layer of uncertainty to the liner business that affects service reliability to shippers, particularly in the Far East-Asia trade.

The uncertainty arises at a time when global rates are in nearly free fall due to the deliveries of ultra-large container ships onto major trade lanes and the cascading of smaller vessels to lesser trades.

P3 is the proposed alliance of Maersk Line, Mediterranean Shipping Co and CMA-CGM that together holds nearly half of the container capacity. The P3 carriers have said that they plan to put their alliance into effect in the second quarter of next year, subject to approval by EU regulators. 

In the meantime, the industry is left without a road map as to which ports would be served and the levels of service on various routes. 

Other carriers would presumably align their services to compete. Counter-programming in the form of direct calls at ports otherwise being served only by feeders has often worked in the past as a way of maintaining traffic for a broad group of carriers.

During this period of watchful waiting, the other container operators have hit upon the device of voyage cancellations on short notice, presumably to avoid sailing with light loads at non-compensatory rates. The theory is that dropping or adjusting service strings may lead to a permanent loss of market share in a given sub-trade, but a cancellation of a sailing does not.   

On the rate front, there is a bit of disconnect among carriers. Maersk is bent on substantially raising rates by as much as $900 per teu as of 1 November. At the same time, the G6 carriers have announced a winter withdrawal program that would eliminate eight Asia-Europe sailing from late October to mid-March, 2014 due to low expected demand. The G-6 withdrawals are still slightly below those of last winter.   

Rates have fallen to $765 per teu, down from $1,500 at the beginning of August, and well below the estimated operating break-even point of $1,000 to $1,100. Further, the rate problem has spread to the north-south trades, due to the cascading of medium-sized ships displaced by the ultra-size vessels. 

Rates in the Asia—EC Coast of South America trade have reportedly declined to $780 per teu, and rates in the Asia-Australia trade have dropped to $400 per teu, both down more than 60%.

Posted 14 October 2013

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Jim Hanscom

Liner Shipping Correspondent, Seatrade Maritime

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