G6 and P3 Carriers? Sounds Complicated.

December 13, 2013
By Rich Roche

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Through the year there have been many announcements and articles in the maritime journals about the G6 or P3 carrier groups. What does this mean for future trade?

We used to refer to vessel sharing agreements (VSA’s) by the names they were formed under. The Grand Alliance was organized by NYK Line, Hapag-Lloyd and Orient Overseas Container Line. Together they operate many vessel strings on a variety of trade lanes where each may have ownership of participating vessels in the string, but all have access to move cargo on each other’s vessels. Similarly the New World Alliance was formed by APL, Hyundai Merchant Marine, and Mitsui O.S.K Lines; and has operated for many years in the same fashion.

There are quite a few VSA’s operating this way in trade lanes around the world. Some are larger than others, and some are specific to a single trade lane while others cross multiple lanes. A few carriers have opted out of vessel sharing arrangements, choosing instead to provide all the vessels on a given string, be fully responsible to fill out slots, and profit solely from their efforts. This is not the norm on most container trades, where volume concentration is key to success.

At the same time, the individual carriers have been in a constant race to increase the size of their vessels in order to benefit from greater economies of scale. Their VSA partners have done the same to keep up, as have their competition. We are looking forward to a newly expanded Panama Canal in 2015 that will handle vessels three times larger than are able to transit today; and while not yet complete, there are vessels already being built that will be four times the size of today’s Panamax ships, and will be too large to use the expanded canal. Each incremental increase in size is designed to wring out more fuel savings per container and better economies in operating and ownership costs. The race continues.

Enter the G6 and P3 announcements. G6 is the combination of the Grand Alliance and New World Alliance carriers. Originally deployed together in the Europe-Asia trade, G6 recently announced they have expanded their service to include TransPacific and TransAtlantic trade routes as well. They will employ 240 vessels serving 66 ports in three major trade lanes.

P3 is an agreement by the world’s largest carriers, Maersk, CMA-CGM, and MSC. Their plan is to operate an even larger group, with 255 vessels and 28 vessel strings serving the same three trade lanes as G6.

While neither consortium will be fully operational until late spring 2014, pending regulatory approval, together these vessel sharing groups represent a significant percentage of available vessel tonnage on these trade lanes. Regulators are watching closely and asking questions. The Federal Maritime Commission is studying the impact on trade and will host an international summit of regulators the week of December 16 to discuss worldwide impact of this unprecedented collaboration between carriers.

The natural fear is that the powerful carrier groups will be able to command higher pricing, as they own a significant percentage of the vessel capacity. The fact is that P3 really has an edge over G6 in total tonnage operated with the best economies on the largest ships. In another unprecedented arrangement designed to provide more buying clout and reduce duplication of efforts between the members, they’ve formed a separate entity to operate the ships, regardless of ownership within the group. It is such wringing out of cost that will help members of these behemoth agreements provide the low rates that their clients demand, while providing the efficiencies needed to survive on those low rates.

Ocean freight has been commoditized over the years. Drastic measures like super-consortiums are the next answer to survival for the ocean carriers we have all come to depend on.

Rich Roche is Vice President of International Transportation for Mohawk Global Logistics.

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