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Key shipping alliance on East-West trades likely to be approved in Q2: Maersk


source:hellenicshippingnews author: time:2014-04-11  

Global container shipping company, AP Moller Maersk, expects the P3 Network -- an alliance between three major global shipping companies -- to become operational this quarter once regulatory approvals comes through, a top company official said Thursday.

In June last year, Maersk Line, the Mediterranean Shipping Company and CMA CGM in principle agreed to establish a long-term operational alliance on East-West trades, called the P3 Network.

The objective of forming the P3 alliance was to reduce costs by increasing the average size of ships.

"We are hopeful of regulatory approvals from major regions and countries in the current quarter and if that happens, the network will be operational by the end of the year," Thomas Riber Knudsen, chief executive, Maersk Line, for Asia Pacific Region told Platts on the sidelines of the Container Supply Chain Asia conference.

AP Moller Maersk is the parent company of Maersk Line.

The network is yet to be approved by regulatory bodies of European Union and China among others.

The Maersk group plans to contribute 1.1 million 20-foot equivalent units, or TEUs, of its 2.6 million TEU capacity into the P3 Network. The P3 network capacity is currently proposed to be around 2.6 million TEU.

Once this new network is operational, it will increase the number of direct port pairs -- moving large volumes between two major ports without any transhipments or halts. The number of direct port pairs is expected to be raised to 1,100 from 650 currently, Knudsen said.

The number of weekly sailings will also be increased.

While the alliance is for operational collaboration, the P3 Network will not have a joint sales force, joint customer service or uniform bookings, Knudsen said. "Maersk Line will continue to differentiate its service reliability," he said.

Container ships are the largest vessels available for moving commodities such as petrochemicals, grains and metals. But recently the shipping lines have been facing serious financial challenges due to overcapacity, rising bunker prices and low freight rates.

As such, Maersk is looking to increase its fleet size by a marginal 2-4% this year. "We are focused on increasing our utilization and there will be very little expansion in [Maeersk's] capacity this year on the Asia-Europe routes," Knudsen said.

The new vessel capacity ordered by the industry in 2013 is estimated to be equivalent to 11% of the current fleet size, he said. Last year, the nominal growth in capacity, after accounting for the scrappings, was 6% compared with a demand growth of 4%.

There is an incentive for companies to invest in new larger ships because the slot cost gets reduced by 25% when vessel size is doubled. But overcapacity and rising fuel prices have been weighing on the industry, he said.

The collective industry net loss in 2013 was $1.5 billion, he said.

"The challenge has for long been between the East-West trades, [that is] Pacific and Asia to Europe and Trans-atlantic. Maersk Line has made an accumulated loss in these trade lanes over the past five years and the [overall] industry profitability appears to be no better," Knudsen said.

Maersk plans to navigate in this environment by reducing costs through slow steaming and adjusting capacity to meet seasonal demand, he said.

 


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