The Hindu Business Line : Maersk plans to acquire P&O Nedlloyd: How will the sailing be in India?

DENMARK'S AP Moller-Maersk recently unveiled plans to buy the Anglo-Dutch container shipping company P&O Nedlloyd in a move that would give the new entity control of almost one-fifth of the world's container shipping capacity. In P&O Nedlloyd, UK's P&O holds 25 per cent stake, the single largest. The merger, when it takes shape, may impact the Indian trade and industry significantly. First, a bit of historical background.

P&O, whose presence in India dates back to 1854, took over the bulk of the British liner shipping interests in India during the late 1970s and the early 1980s on most of the trade routes including the most important India-Europe and India-US voyages by launching containerised services, either standalone or in consortia.

Maersk, the Danish shipping major, is said to be an aggressive but efficient operator which, along with Evergreen of Taiwan, ended the monopoly of conferences and set new standards of services. Maersk has for long had a presence in India in the tramp trade but started participating in containerised liner shipping only from the mid-1980s

By the time Maersk and P&O started expanding container services in the country, a vacuum had been created by the exit of Scindia Steam Navigation Company from liner shipping and the failure of the public sector Shipping Corporation of India in not positioning itself well in the container trade. For some time American President Line held sway, only to yield ground gradually to Maersk and P&O; the process was also hastened by the acquisition of APL by Neptune Orient Line of Singapore.

Maersk and P&O lost no time consolidating their positions in India — P&O by introducing more services and Maersk by global acquisitions of CMB (Safmarine included) and Sealand, the American containerisation pioneer. Now, P&O Nedlloyd has some 14 per cent share of liner shipping in India and Maersk a whopping 27 per cent.

Their merger, according to many in trade and industry, may not augur well for everybody in India, particularly the not-so-big. They give several reasons for this apprehension.

First, Maersk, it is said, does not have small customers on its radar but, as can be expected, offers attractive contract terms for big volume movers. On occasions, when the casual and small customers are forced to depend on the shipping line, they have apparently had to cough up freights that are said to be 30-40 per cent higher than the lowest contract rates.

Second, Maersk, because of its global reach, best volume customer rate and service, gets a huge amount of buyer nominations as for instance supermarket accounts such as Wal-Mart, Target and big textile accounts such as GAP. It also offers packages covering on-land transportation of boxes. In addition, it has a controlling interest in Pipavav port (Gujarat) though the connectivity to the port still leaves much to be desired.

Soon, by virtue of its tie-up with the Container Corporation of India (Concor), it will control a number of ICDs/CFSs throughput the country. The combination of the two, many shippers fear, may make things difficult for the Indian trade, particularly for those not so big.

Third, also worried are the small forwarders who may find it difficult to compete with them and therefore survive. Maersk, it is pointed out, recently stopped paying brokerage to forwarders/freight brokers in Mumbai, a move that was withdrawn apparently in the face of stiff opposition from the trade. Unlike the EU, which can abort mergers to stop probable emergence of market behemoths, there is no such regulation in India. In a virtual monopoly situation that prevails on the country's shipping front, free interplay of market forces may not be possible. In this case, the EU is unlikely to intervene, as both companies are European.

On the positive side, India stands to benefit immensely in the field of software development and BPO. P&O is one of the early shipping majors to bring software development to India followed by back-office processing and call centres. Maersk not only has a software development centre for in-house use but also for third-party applications.

The port and infrastructure development too is likely to receive a big boost. If the growth of the new Malaysian port, PTP operated by Maersk, is any indication, the participation of the Danish shipping major in India's port development can bring about revolutionary changes to benefit all concerned. Hopefully the larger presence of Maersk in this country will trigger the development of deep-water ports where mainline vessels of higher capacity can be brought by Maersk. With the Railways deciding to throw open Concor-type operations to private and foreign firms, Maersk too may consider participating in such ventures.

However, the positive features will yield little if the transaction cost and the average turnaround time continue to be high, and the small shippers and the freight forwarding community consisting of thousands of truly small but innovative entrepreneurs are pushed to the brink.

(The author is Managing Director, Logistics Plus India Pvt. Ltd., New Delhi)

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