P3 Alliance Might Reduce Emissions
Competition authorities have remained consistent in barring carriers from colluding on freight rates, or at least putting severe restraints on discussion agreements. But they have permitted collaboration in the provision of joint services and operational alliances. As regulators ruminate on the P3, what consideration is being given to the impact on carbon emissions?
Operational alliances are deemed advantageous to the market as they enable carriers to better utilize their assets, so lowering slot costs. A competitive market ensures that lower unit costs translate into lower freight rates. They also enable wider scope and more frequent service coverage than any individual carrier can provide alone.
Such collaboration is permitted provided that no single alliance or joint service obtains a dominant market position – although the definition of market dominance used to justify these arrangements is at times rather imprecise and inconsistent.
The intended formation of the P3 Alliance forces regulators to re-consider these definitions, given the scale of the combined three-carrier formation. Perhaps, then, it is time for due account to be taken of environmental impacts, when reviewing new carrier alliance formations, such as the P3. Apart from speed and length of trade route, the major factors driving carbon emissions per teu are the size of the ship and capacity utilization. Both factors are directly affected by the decisions of competition authorities permitting carriers to operate within alliances and take advantage of bigger ships.
This graph on the right shows how carbon emissions per laden teu vary according to ship size. The comparison is based on a constant average ship speed of 17 knots and a utilization of 85% on the dominant leg of a typical Asia-/North Europe service. The benefit of using 18,000 teu ships compared to 8,000 teu ships is readily apparent, where the former has a 50% advantage over the smaller ship sizes.
This graph on the left illustrates the significance of alliance formation on ship sizes operating on the Asia-Northern Europe trade. Whilst an unlikely scenario, were the current G6 and CKYH disbanded, the size of ships operated by the individual alliance partners would be slashed, leading to a sharp rise in carbon emissions.
If the competition authorities allow the P3 to go ahead, the remaining alliances may feel a need to consolidate further in order to compete on slot costs. If they wave through the collaboration between the three largest carriers, it is difficult to see authorities putting the break on consolidation elsewhere.
Under such circumstances, it is conceivable that 18,000 teu ships could become universally adopted on high volume trades. Drewry estimates that this could deliver carbon emissions saving of up 40%.
So, the potential for big environmental gains is real. But this still leaves regulators agonizing whether the risks to market competition of wider alliance consolidation are worth the price.