China blocks proposed three-way shipping alliance

The world's three biggest container shipping groups have abandoned plans to set up an operational alliance for three of the biggest global trade routes after Chinese regulators blocked the tie-up.

AP Moller-Maersk, Mediterranean Shipping Company and CMA CGM had hoped to form the so-called P3 Network to reduce costs and boost the number of sailings on Asia-Europe, trans-Pacific and transatlantic routes by pooling 250 ships.

Shares in Denmark's Maersk - the only quoted company of the trio - dropped as much as much as 7 per cent on Tuesday's news, their biggest fall in two years.

The Danish shipping-to-oil conglomerate insisted the rejection of the alliance would have no impact on its results this year. But it had hoped the tie-up would boost results after then by reducing the chronic overcapacity that has plagued the container shipping industry in recent years.

Maersk indicated last month that it expected approval from Chinese regulators. Nils Andersen, chief executive, said on Tuesday: "The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators' concern.

"The P3 alliance would have enabled Maersk Line to make further reductions in cost and CO2 emissions, and not least improve its services to its customers with a more efficient vessel network."

Mr Andersen insisted that Maersk - one of the few container shipping companies that is profitable - would be able to continue to improve its performance without the P3 Network.

In a statement posted on its website, China's commerce ministry estimated that the alliance would control 47 per cent of container traffic on Asia-Europe routes, "greatly increasing market concentration".

The ministry said that during its review, it had conducted extensive discussions with the three shipping lines about how to reduce their alliance's impact on competition. But after considering various proposed remedies, it had decided that there was not sufficient evidence that the "benefits outweighed its harms" and concluded it was "not in keeping with the public interest".

The EU and US had already approved the operational alliance, although Brussels had reserved the right to monitor how the P3 Network performed in practice.

Various shipping groups have long had operational alliances on different routes in an attempt to cut their losses. But the P3 Network provoked concern among rivals as the three companies together would have a 40 per cent share of Asia-Europe and transatlantic routes, and a quarter of trans-Pacific sailings.

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China's rejection is one of the most high-profile uses of its six-year-old merger review system, under which it is increasingly flexing its muscles. Mostly, it has set conditions on global mergers or led to companies offering disposals, as Glencore did to complete its takeover of Xstrata. But Chinese regulators did reject Coca-Cola's attempted purchase of juice maker Huiyuan in 2009.

The abandonment of the alliance may put pressure on Maersk but is likely to be even worse news for MSC and CMA CGM. The Danish company is the most profitable container shipping group, posting an operating profit margin of 7.8 per cent, a full 9.9 percentage points ahead of the average of its biggest rivals. Analysts estimate Maersk could have saved up to $1bn from the tie-up.

Additiona; reporting by Tom Mitchell in Beijing

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