The University of SheffieldInternational Faculty, CITY COLLEGE

Business Administration & Economics Department

MSc Logistics and Supply Chain Management

‘’ Strategic Alliances in Liner Shipping Industry: A method

to survive in the era of globalisation‘’

Managing Global Logistics CB6190

Unit Leader: Dr. A. Matopoulos

Emmanouilidou Eirini

Words: 3,782

Executive Summary

This paper provides an extended analysis and discussion

of strategic alliances in the liner shipping industry by

focusing on the case of P3 alliance and the formation of

2M and O3 alliance as replacement of the first. The study

draws the attention to the powerful lobbying that has

strengthened the past ideology for ‘’necessary’’

collaboration between LSCs, combined with the inelastic

demand of transport services. The excess capacity drove

liner ship owners to decrease freight rates in order to

gain customers that created a reaction ending in the

unattractive rates being offered in the past. As a

result, few companies survived from the competition and

formed special contracts to control the trade, known as

cartelisation.

Part of the analysis was the conferences and consortia

agreements as motivation to avoid high capital investment

or as the ultimate type of monopoly pricing. The

establishment of OSRA in 1998 meaningfully shifted the

structure of LSCs from cartelisation of rates conferences

to slot chartering, and strategic alliances, as an

alternative method of cooperation price fixing. Next, it

discussed related theories to Strategic Alliances, where

the resource-based view is the core. Through the analysis

of P3 case study, it should be consider that is block was

a surprise for the business world. From one perspective,

P3 partners enjoy the vessels sharing, while partners

control the one third of east-west routes, while the

whole rational behind this alliance is anti-competitive.

International regulators saw these risks and blocked the

alliance.

This research paper critically discuss the debate of

strategic alliances and the actual benefits to the

economy by emphasizing on the three most discussed

alliances; P3, 2M and O3. Finally, liner shipping is a

sector with various specifics, but with high importance

for the global trade, which automatically associated with

political and economic interests. Researchers and

regulators should focus on the restructuring of the

sector in order to guarantee the rate stability in the

future, when strategic alliances and the mega-vessels

will dominate the world’s largest trade routes.

Table of Contents

1. Introduction.........................................5

2. Literature Review....................................5

2.1 Liner shipping Companies..........................5

2.2 Market structure and the pricing problem..........6

2.3 Liner conferences: The trait of monopoly pricing. .9

2.4 The rise of shipping alliances...................10

2.4.1 Global Financial Crisis and Liner Shipping

Industry............................................11

2.4.2 The types of alliances and the objectives.....13

3. The failure of P3 and the replacement by 2M & O3....15

4.Conclusion...........................................20

5. References..........................................21

1. Introduction

Cooperation of liner shipping carriers has played a

catalytic role in the formulation of the liner shipping

the last decades. The long history of liner carriers,

the adopting strategies for integration and the

conferences as major factor of coordination, made the

sector very competitive. It is been demonstrated from

the analysis that the liner shipping is a sector with

specific rules such as that the LSCs are competitors

and partners on the same time. The core reason for the

exception from the antitrust legislation is the

argument of fixed costs in order to offer regular

service. When a vessel is scheduled to sail, either

full loaded or empty, its costs become fixed. Later, an

emphasis will be given to conferences that offered as

the solution to control the prices depending the market

structure of any specific route. Next, the transition

from consortia to strategic alliances was really

important for the sector, as shipping companies no

2. Literature Review2.1 Liner shipping Companies

Liner shipping is a method of sea transportation

with ocean-going vessels and high capacity of TEUs that

transit systematic routes on contracted and fixed

schedules. By carrying more than 60 percent of global

trade in the era of containerisation, liner shipping

operates with roll on/roll off ships and container

vessels connecting the five continents (World Shipping

Council, 2015). Liner shipping offers services as fleet

of vessels under one ownership and management between

particular ports based on scheduled prices and times that

advertised in advance are the distinction between liner

and tramp shipping (Fayle, 1932; Harambides, 2004; Janson

and Shneerson, 1987; Stopford, 2004).

Davies (1983) stated that liner shipping is part of

ocean shipping family that concentrates in providing

scheduled cargo movement services on specific routes. Sys

(2009), also, states that LSCs are carriers of

conventional cargo in ports on regular basis. The main

characteristic of liner shipping is that assists the mass

transportation of containers at lower prices. The degree

of availability of goods in many countries at

international level is reached via liner shipping. By

lowering the costs and rising the efficient production

and the effective allocation of resources, liner shipping

has achieved international economic strength and

stability (Metaxas, 1972; Basedow, et al., 2012).

Under specific consumptions, concerning the market

share, constraints of regulations and a never-ending

factor to reduce costs, liner shipping companies (LSCs)

require to optimize their operations offering solutions

on problems such as vessels per route, how to serve

particular demand with what size of vessels, the speed of

vessels, the calling ports, and the fleet management. The

schedules need to be fulfilled based on vessel

utilization. Therefore, long-term contracts and planning

play an important role. One of the cost control tools in

liner shipping is the management of fleet of containers,

as containers are not onboard always. They spend time for

picking, delivering, repairing and maintained.

Consequently, the main purpose is that at every port

there are available empty containers to fulfill the

customer’s request. However, sometimes more containers

move to a specific direction compared to another, which

creates cargo imbalances between import and export

dominated port with delays in orders and increase of cost

(Harambides, 2007; Ye, Yuan and Liu, 2007).

2.2 Market structure and the pricing problem

Cooperation among LSCs has been structural since

many decades ago and has explanation through economic

theories. Successful and powerful lobbying has

strengthened the past ideology for ‘’necessary’’

collaboration between LSCs, combined with the inelastic

demand of transport services that has authorised the

global economic system to enjoy the extra-competitive

prices in liner shipping for an extraordinary long time

period (Basedow et al., 2012). Several studies in liner

shipping economics have been worried with the structure

of the liner shipping as an oligopoly (Booz-Allen

&Hamilton, 1991; United Nations, 1998; Peters, 1991), but

Martin (2002), Shepperd (1999) and Sys (2009) confirmed

it. Also, De Borger and Van Dender (2006) examined the

duopolistic relation on pricing level and capacity, and

stated that the exceeded marginal costs of capacity might

be advantageous to duopoly to gain more profit.

Competition among LSCs can be explained Nash equilibrium

in multiple level hierarchical processes (Boile et al.,

2012; Lee et al., 2012). Later, Alvarez-SanJaime et al.

(2013) analysed the competition in maritime sector based

on economies of scale and differentiation. This model

applied to investigate the strategic alliances in liner

shipping.

Since the 1800s cartelisation in liner shipping is a

phenomenon with explanations in economic terms and by the

excess capacity. Many scholars showed that liner shipping

industries should not had avoided competition due to

higher fixed costs compare to variable cost, the shifting

costs are high as the entering into liner service is

really competitive market, and the vessels are itself a

high investment and it extremely difficult to match the

demand fluctuations of demand (Davies, 1986; Goss, 1982;

Veenstra and Haralambides, 2001; Jankowski, 1989;

Pearson, 1987). The above reasons were obstacles for LSCs

to form a perfect competition (Basedow et al., 2012).

Given the importance of stable and consistent shipping

services moving goods in international markets,

cartelisation was accepted as the most operational

effective model for liner shipping. If there were

competition between LSCs for pricing, this would create

destructive competition (rate wars) with consequences in

stability of trade. Therefore, the value of this model

was the stability of tariffs, due to the fact that this

decreases the price fluctuations in global trade as an

advantage of the whole sector and the economic system

(Basedow et al., 2012; Haralambides, 2007; Jansson and

Shneerson, 1985; Sjostrom, 2004). The inelastic demand

and supply in liner shipping drives to untestable prices.

So, LSCs face increased uncertainty and high risks of

freight rates (Wang et al., 2014). Conferences give a

solution to ship owners’ doubt for freight rates (Graham,

1998; Hyde, 1967; Jankowski, 1989).

However, apart from economic causations,

cartelisation liner shipping is explained with long

lasting overcapacity. The replacement of sailing with

higher speed vessels with higher reliability and

productivity with higher volume of cargoes is the first

factor (Basedow et al., 2012; OECD,2015). Secondly, from

the geographical perspective the opening of Suez Canal,

the most vital connection route for Europe-Asia, doubled

the efficiency of vessels that deployed. Next years the

excess tonnage that created was the first structured

cartel in the sector, while there was the Calcutta

Conference since 1875 (Basedow et al., 2012). The excess

capacity drove liner ship owners to decrease freight

rates in order to gain customers that created a reaction

ending in the unattractive rates being offered in the

past. As a result, few companies survived from the

competition and formed special contracts to control the

trade, known as cartelisation (Blanco, 2007; Fusillo,

2006; Herman, 1983; Sjostrom, 1989; Sheppard, 2008).

Thirdly, the cargo handling has an enormous impact on

vessels, since the navigation time and the

loading/unloading time are doubled or more. The delays in

ports from mega-carriers are more than two days, which

cause impact on vessel’s efficiency, lost investment for

the ship owner and an analogous excess capacity (Basedow

et al., 2012; Haralambides, 2007; Imai et al., 2007;

Notteboom, 2006).

Concerning the above discussion, prices in liner

shipping are controlled by the competition powers such as

the demand and the supply, but LSCs follow a fixed time

schedule with specific routes, making the price-fixing a

complicated procedure (Stopford, 2009). In other words,

the cost structure in liner shipping sector is the known

pricing problem. LSCs charge prices for the vessels that

at least cover the total cost of the vessels. In a free

market, with price control by the competition and long

lasting periods of excess capacity, there is competition

between operators for the availability of cargo. This

boundless rate wars drives to incessant declines in

prices, which are lower than average and equal to

marginal costs (loading and unloading costs)

(Haralambides, 2007; Jansson and Shneerson, 1987).

Therefore, the ship owner should wait to fill the vessel

in order not to lose investment and to follow the rule of

liner shipping; to follow a schedule route whatever is

the vessel empty or full. Liner services would not be

survived in a long period, because carriers would not

have the ability to recover the full amount of capital

costs (Haralambides, 2007). Thus, a mechanism was found

to charge average costs to ‘’the benefit of

sustainability and reliability of services, according to

the level of demand ‘’. Conferences were, the solution to

control the prices depending the market structure of any

specific route, carriers coalitions with a focus on price

setting (Haralambides, 2004).

2.3 Liner conferences: The trait of monopoly pricing

In addition to the cost structure and the

cartelisation between LSCs, there have also been

significant cartel agreements, typically in response to

substantial losses of carriers and the overcapacity.

Liner conferences were cartel agreements among liner

carriers operating the same routes. The members of

conferences agree fixed schedules and freight rates in

order to avoid imbalances that discussed above (Ryoo and

Thanopoulou, 1999). Conferences included pooling

revenues, allocation of routes, loyalty discounts and

sharing of capacity (Sjostrom, 2004). Thus, the need for

frequent routes and fixed prices, the beginning of high

speed vessels and the overcapacity in 1875 led to the

creation of first conference, that of Calcutta

(Sjorstrom, 2010). Conferences have been famous to assess

price discrimination, as ‘’ the ultimate trait of

monopoly pricing’’ that is positive and negative on the

same time. The monopoly power of carriers was negative

for customers and regulators. But, price discrimination

was a competition tool that skims the market and attracts

operators with hit and run tactics by thoroughly

weakening conference freight prices (Haralambides, 2007).

So, the position of members of the conference was not

always supportive (Benacchio et al., 2007).

From early 1960s consortia agreements began with the

motivation of high capital investment and including among

other technical and commercial arrangements like the port

installation and joint use of vessels. The major

difference from conferences was the absence of price-

fixing and the low market shares, and offers lower costs

came from economies of scale (Phang, 2009). Later, in

1980s conferences were incapable to persuade independent

LSCSs to join them. Talking agreements emerged in order

to simplify the exchange of information (rates, capacity,

conditions, etc) on non-biding terms (Benacchio et al.,

2007). From 1986 the EU allowed the liner conferences as

an exemption from antitrust law that often called as a

generous block exemption (Benacchio et al, 2007;

Pozdnakova, 2008). In 1998, the regulations in liner

shipping went a step further with the Ocean Shipping

Reform Act (OSRA), as LSCs tend to be anticompetitive

because of the long-term contracts between them (Yong,

1996). Confidentiality of OSRA offered reduction of

conference ability at all (Fusillo, 2013). For the mid

1990s, liner shipping experienced a transformation period

derived from the development of global strategic

alliances between LSCs. In 2015, European Commission

decided the extension of block exemption for LSCs until

2020, which may give a level of certainty in the market

during the economic crisis, the increase of fuel prices

and stricter environmental rules (Levitt and Ziegler,

2014).

Continuum of Operational Agreements in LSCs

Conferences

(1875 –

1998)

Association of LSCs travelling the same

routes in the direction

Formal and explicit agreement between

members to common prices, schedule and

renegotiation and dispute settlement

processesConsortia

(1960s-

1990s)

Members of a consortium are independent LSCs

or they are under the umbrella of the same

consortium. Sharing fixed costs on shipping

routes based on operational, commercial and

technical arrangements like port

installations, marketing organisations,

sharing of vessels. There is no

cartelisation, but lower market shares than

conferences.Strategic

Alliances

(Late 1990s-

today)

The formation of two or more top LSCs that

try to improve their competitive advantages

jointly on a global scale. There is no price

setting, but members involved in the

optimisation of their services and their

assets arrangements like sharing vessels,

ports, terminals, schedules, charters and

synchronisation of inland services. There is

no common management and marketing.Figure 1

Title: Continuum of Operational Agreements in LSCs

2.4 The rise of shipping alliances

The establishment of OSRA in 1998 meaningfully

shifted the structure of LSCs from cartelisation of rates

conferences to slot chartering, non-obliging discussion

agreements, long-term contracts with confidentiality, and

strategic alliances, as an alternative method of

cooperation price fixing (Slack et al., 2002; Panayides

and Wiedmer, 2011; Fusillo, 2013). Having no longer the

protection of conferences, LSCs have been enforced, from

the power of globalisation, to intensify more on

economies of scale by raising their operation’s scale.

This includes the increased activity of M&As, the

establishment of mega-vessels, the development of hub

spoke supply chains and the formation of alliances

(Fusillo, 2013). According to Lu et al. (2006), the main

activities, besides the vertical integration, of

alliances is the horizontal, which comprises the sharing

of fleets and routes. Liner shipping alliances (LSAS)

play a significant role in the operation of LSCs, because

they engage in many structuring formats of agreements due

to their frequent announcements concerning the

collaboration in new routes (Panayides and Wiedmer,

2011).

2.4.1 Global Financial Crisis and Liner Shipping Industry

Few of the sectors that affected by the economic

recession were shipping, logistics and global transport

among others, as the fallen demand of the global trade

and the negative effects on the ocean transportation were

visible (Pagoulatos and Triantopoulos, 2009; Slack and

Fremont, 2009; Slack, 2010; Ng and Liu, 2010). Actually,

this financial crisis did not only affect negatively, but

also positively in a sense that LSCs had the opportunity

to develop and establish new approaches for optimisation

in terms of capacity, new mega vessels and collaboration

agreements (Samaras and Papadopoulou, 2010). Regarding

that LS is a capital-intensive sector with high risk and

instability due to oil and exchange fluctuations, one of

the major negative effects was the disability of LSCs to

repay their loans (Lin et al., 2010). Additionally, there

was a shift from cargo to bulk due to lower bulk rates

and the reduction of freight rates of cargo containers

(Alphaliner, 2010). According to few authors, idle

vessels in ports results to the less profitability due to

the absence of cargo from the low manufacturing activity

(Floerl and Coutts, 2009; Slack, 2010). Apart from this

feature, overcapacity increased due to the arrival from

vessels’ deliveries and the outstanding orders (Slack,

2010). Nonetheless, financial crisis gave the opportunity

to LSCs for optimisation with alternatives routes and

schedules, the control of cost, the efficient exchange of

information, and the cooperation (Min et al, 2009).

Roots causes

of global

financial

crisis in 2007

Negative

effects on

liner

shipping

Positive

effects in

liner

shipping

New

approaches to

survive

Excessive

accumulation

of debt

Overcapacity

due to new

deliveries

Fleet

capacity

optimisation

Changes in

schedules

Toxic banking Difficult Decision on Mergers &

products trading

conditions

vessel types Acquisitions

Interconnected

ness of

markets

Cease of

company

operation

Alternative

shipping

routes

JV or

Strategic

alliancesHouse Price

burst

Weak export

demand

Improvement

of fleet

operation

efficiency

Rerouting

Global linkage

of financial

institutions

Increased

concentration

of LSCs

Improvement

of fleet

operation

benefit

Services

Postponement/

Withdrawal

Equity Price

reduction

Currency

volatility

Increase of

single

vessel

Deadweight

Nearshoring

Credit

crunches

Freight rate

decline

Control of

fleet costsLeverage

acceleration

Increased

control of

debt paying

Win-win

cooperation

and fair

competitionExcessive

global savings

Charter rate

reduction,

idle vessels,

low volume of

containerized

Strength of

information

exchange

cargoFigure 2

Title: Global financial crisis on LSCs and the new

approaches to survive

Source: Samaras and Papadopoulou, 2010

2.4.2 The types of alliances and the objectives

LSAs take many forms. Strategic alliances focus on

the utilisation and the employment of vessels over

various scheduled routes and the sharing of terminals and

containers at global level. However, they do not cover

the sharing marketing, sales, assets, and management and

joint revenues (Midoro and Pitto, 2000). This type of

alliance LSA imposes ‘’ boundaries on a member’s use of a

non-member carrier’’ (Slack et al., 2002). The aim of

strategic alliance is the integration of services of all

members into one entity, rather than the price fixing

(Panayides and Wiedmer, 2011). Within the strategic

alliances, LSCs developed two other forms of agreements.

Slot sharing agreements includes a specific percentage of

capacity for exchange between the members of the

agreements for fixed time period. This offers benefits

for LSCs that operate on the same routes with different

time schedules. Vessel sharing agreements requires that

demand fulfilment of trade route in order to achieve

optimisation on time schedule and cost. Except from

vessels, LSCs share profits and information (Heaver et

al., 2001).

Alternatively, some other LSCs prefer as soloist,

because they have a wide network and large number of

fleet. These companies have the resources and the fortune

to achieve economies of scale. However, in order to

eliminate the risks this form is very low nowadays. In

addition, LSCs saw performance advantages with the

establishment of liner shipping networks whose members

are LSCs, forwarders, terminal operators, 4PL and

intermodal providers and the port (Lun, 2011). Liner

shipping networks offers cost reductions in cargo

handling and in intermodal services (Midoro and Pitto,

2000), as well as low impact in the environment, low

operating costs and economies of scale (Heaver et al.,

2001; Meng and Wang, 2011; Wang and Meg, 2012; Wang et

al., 2013).

In addition, the objectives of new LSCs to form

strategic alliances in mid- 1990s, were the poor

profitability levels combined with the common goals of

LSCs, the economies of scale with risk and investment

sharing. Many authors examined the concept of strategic

alliances (Evangelista and Morvillo, 1999; Heaver et al.,

2000; Ryoo and Thanopoulou, 1999; Panayides and Wiedmer,

2011). Some others conclude that the formation, the

implementation or the defection of strategic alliances is

forced by completion of corporate objectives (Fossey,

1994; Gardiner, 1997; Midoro and Pitto, 2000; Panayides,

2001; Todeva and Knocke, 2005; Tjemkes et al., 2012).

Among others advantages that a liner strategic alliance

offers are the entry to new markets with the increase of

purchasing power, the flexibility and the network

expansion, the frequency of services, wider geographical

scope and the efficient planning of vessels (Midoro and

Pitto, 2000).

In spite the fact that some of the above advantages

are obvious, it might be justified that in certain cases

those advantages have not been practically accomplished.

Consequently, many LSCs faced instability and

restructuring of their strategic direction, which linked

back to the completion of corporate objectives (Killing,

1988; Alix et al., 1999; Panayides and Wiedmer, 2011).

Midoro and Pitto (2000) argued that the closer

cooperation with fewer partners might drive to efficiency

and stability to the LSAs. Recently, these problems of

alliances caused a shift from strategic alliances to

mergers and acquisitions (M&As) in order to achieve

closer integration (Meersman et al., 1999; Oliver, 1990;

Heaver et al., 2000; Panayides, 2001; Panayides and Gong,

2001; 2002; Fremont, 2009; Das, 2011; Panayides and

Wiedmer, 2011; Andreou et al., 2012). Specifically,

focused liner M&As offer more economic value rather than

diversifying deals (Alexandrou et al., 2014). However,

many strategic alliances have been jeopardised by the

wave of M&As, as many rearrangements were essential such

as OSRA and EU Directives (Fucilo, 2009; Panayides and

Wiedmer, 2011; Alexandrou et al., 2014).

2.4.3 Related Theory to Strategic Alliances

Resource –based view highlights the knowledge and

the capabilities as critical resource for the development

of sustainable competitive advantage. The resource-based

view of collaboration involves the access of knowledge

and the sharing of capabilities via strategic alliances

based on resource-dependence theory (Barney, 1991;

Pfeffer and Salancik, 2003; Grant and Ballend-Fuller,

2004). As the trade become more knowledge-based apart

from globalised, the creation of knowledge and learning

is becoming crucial for the competitive performance.

Specifically, innovation includes the mutual sharing and

benefit of learning. Also, the inter-organisational

learning, via strategic alliances offers a competitive

advantage (Berger and Luckman; Poweel et al., 1996).

Nevertheless, sometimes the relationship between partners

sharing performance and knowledge is predicted to be

improved by LSC’s co-location with alliance members

within a cluster. According to Porter (1998), the

tendency of knowledge sharing augmented by industrial

cluster as ‘’ geographic concentrations of inter-

connected companies and institutions in a particular

field. Clusters typically exemplify the geographical

proximity (Porter, 2000). In the case of LSCs, strategic

alliances share vessels, routes, capacity, terminals, and

information flows.

3.

The failure of P3 and the replacement by 2M& O3

In the era of exceed capacity and trade offs between

sea and inland transportation by focusing on

optimisation, the LS sector appears to be strengthening

through a significant number alliances. However, the

rising number of competition rules globally stances many

new challenges. Regulators such as European Commission

and IMO become more and more stricter as the technology

and green standards play a more active role in the

sector. In 2013, the three largest ocean carriers,

Mediterranean Shipping Company (MSC), A.P. Moller-Maersk

(Maersk) and CMA CGM Group (CMA) proposed the formation

of a strategic alliance, known as P3 alliance, in order

to sharing fleets in the main trading routes. (Asia-

Europe, Trans-Atlantic, Trans-Pacific. The P3 focuses not

only on the deployment of 255 vessels (2.6 million TEU

capacity), but also to tackle the outcomes of the end of

conference periods and the negative impacts of global

financial crisis of 2008 (WFM, 2014).

1996Members

Capacity

(TEU)

No.Vessels

Global AllianceAPL, Nedloyd, MOL,

OOCL, MISC

209.645

65

Grand AllianceHapag-Lioyd,

NYK, NOL, P&OCL

255.705

72

Hanjin/TriconCho Yang,

DSR/Senator, Hanjin

199.404

72

2000Members

Capacity

(TEU)

No.Vessels

New World

AllianceAPL-NOL, MOL, HMM

325.487

90

Grand AllianceHapag-Lioyd,

P&O, Nedloyd,

OOCL, MISC

350.197

93

United AllianceChoYang,DSR/Senator,

Hanjin

277.000

85

2006Members

Capacity

(TEU)

No.Vessels

New World

AllianceAPL, MOL, HMM

712.082

223

Grand AllianceHapag-Lioyd,

OOCL, MISC

Berhad, NYK

966.570

350

CKYH

COSCO, K Line, Yang

Ming, Hanjin

1.046.991

354

2010Members

New World

Alliance

Grand AllianceNYK, Hapag-

CKYHCOSCO, K Line, Yang

Capacity

(TEU)

No.Vessels

APL, MOL, HMM

1.161.607

282

Lloyd, OOCL

1.187.607

288

Ming, Hanjin

1.548.508

400

2012 to

todayMembers

Capacity

(TEU)

No.Vessels

2MMaersk, MSC

2.100.000

185

Ocean Three

(O3)CMA-CGM, CSCL,

UASC

1.300.000

129

G6APL, Hapag-Lloyd,

Hyundai, MOL, NYK,

OOCL

3.300.000

240

2012 to

todayMembers

Capacity

(TEU)

No.Vessels

CKYHECOSCO, K-line,

Yang Ming, Hanjin,

Evergreen

n/a

62

Table 3, Strategic Alliances since 1996

From one perspective, P3 partners enjoy the vessels

sharing, while partners control the one third of east-

west routes, which surpassing the EC’ rule for efficiency

about the 30% of market share. The combination of P3

vessels with will be dramatically reduced from 346

vessels with 7,100 TEUs/vessel to 255 with 10,200

TEUs/vessel. This marginal growth in capacity gives not

only efficiency and fulfilment of vessels, but also cost

reduction with great economies of scale. It should be

mentioned that the current level of TEUs/ vessel is 6,100

for the current largest alliance, CKYH, and 6,600 for G6

alliance. Concerning to this, a greater reactionary

alliances might be spurred in order to recover the scale

of competitiveness in the sector (Drewry Research, 2014;

Garratt and Teodoro, 2013). Furthermore, P3 alliance is

a way to reduce cost from the sector without buying mega-

vessels, which is a huge investment with additional

problems to small ports (Yap, 2014). From a customer-

oriented perspective, the P3 alliance is beneficial for

each member’s customers, as the number of sailings/ week

and the selection of products will be greater in

combination with lower cost (Knudsen, 2013).

Nonetheless, there are doubts for assurances of P3

partners about the fair price competition in order to

avoid uncomfortable situations from other industry

members, even if few decades ago these companies pressed

so much for the end of conferences. Next, the port

selection by the P3 members creates again doubts due to

the fact that P3 members will have interest for their own

terminals, which is anti-competitive for independent LSCs

(Garratt and Teodoro, 2014; HFW, 2013; Davidson, 2014).

Regarding the above, 70% of P3’s capacity will affect the

vessels that are being building for P3 members and the

vessels that they already own. Instead of use the charter

market, each member of the alliance agreeing to use part

of the provided capacity by another member, which is

again anti-competitive (Garratt and Teodoro, 2014;

UniCredit Bank, 2014).

But how the competition authorities and regulators

reacted? First of all, in 2014, before the decision about

P3, extended the block exception, which is a positive for

the sector, while still LS facing great crisis due to the

fall of demand on the major trading routes. This is a

clear answer that also followed by the US. Both

regulators argued that the alliance is a cooperative

agreement, while all alliance members have over 30% of

market share for the east-west route. It should be noted

that the P3 alliance is 20% larger than G6 in terms of

capacity (Figure 3 &4) (Liang, 2014; Wackett, 2014). On

the other hand, MFCOM rejected the proposal for the

alliance due to monopoly concerns and merger’s control

rules (BBC, 2014; Slaughter and May, 2014), and because

the G6 alliance, a competitor of P3, consists of Asian

operators, who felt uncomfortable with this proposal

(Maritime Executive, 2014; WFW, 2014).

Figure 3

Title: Asia-Europe Market Shares until June 2014

Source: Drewry Market Research, 2014

Figure 4

Title: Top 20 Liner shipping companies according to

market share- 2015

Source: Alphaliner, 2015

4.Conclusion

In the end, LSCs, either through alliances or other

form of agreement, focuses on optimisation and cost

reduction in order to tackle the risk and the crisis in

the sector. This view is supported by many leading

companies from MSC and Maersk to CMA and G6 companies.

Through the analysis of the continuum of conferences and

Few weeks after the block of P3, MSC and Maersk had

abandoned CMA and launched a traditional cooperation

agreement, 2M. But the final piece of the world’s LS

was the new alliance, O3, between CMA, United Arab

Shipping and China Shipping Container Line (Maritime

Insight, 2014). Both alliances is equal in terms of

performance compare to both CKYHE and G6 networks

(Alphaliner, 2015). It should be mentioned that O3 and

2M is an alternative solution of LSC as the P3 alliance

cartels, we can easily assume that LSCs have failed to

survive without any form of price-fixing. Although the

conferences were totally anti-competitive, the LSCs have

been unsuccessful to live with cartelisation. The failure

of P3 alliance caused mainly by political and economic

interests from Asia, where the alliance actually blocked.

It is safe to mention that this alliance is politically

challenging. In the end, the case of P3, the O3 and 2M

could be seen as a debate for further discussions about

the restructure of the liner sector. From the upcoming

years, strategic alliances and the mega-vessels in LS

will dominate the world’s largest trade routes by

focusing mainly on expansion of service coverage, further

reduction of costs and, of course, optimisation of

calling ports.

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