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Planned P3 Shipping Alliance Abandoned
06/17/2014
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Planned P3 Shipping Alliance Abandoned

Chinese Regulators Block Deal

The world's three largest container-shipping operators abandoned plans for a globe-spanning alliance that had promised to reshape the shipping industry, after Chinese authorities ruled out allowing the tie-up to go forward.

Denmark's AP Møller-Maersk said Tuesday that its Maersk Line, along with French giant CMA CGM SA and Switzerland-based Mediterranean Shipping Co. had ceased preparatory work on the alliance, called the P3 Network, which they had expected to start operating later this year.

The three shippers had previously won U.S. and European regulatory approval, and Chinese approval had been widely expected to follow.

Earlier this month, Chinese regulators were poised to approve the deal, according to people familiar with the matter. Maersk had previously said publicly the Chinese had expressed no concerns over the tie-up.

"The decision does come as a surprise to us, of course, as the partners have worked hard to address all the regulators' concerns," said Møller-Maersk Chief Executive Nils Andersen in a statement.

"Subsequently, the partners have agreed to stop the preparatory work on the P3 Network and the P3 Network as initially planned will not come into existence," Møller-Maersk said in its statement.

Møller-Maersk said the decision not to go ahead with the alliance won't have a material impact on the group's financial results. Nevertheless, shares in the company fell more than 7%.

Jesper Christensen, an analyst at Alm Brand, said the importance of the cancellation for Maersk shouldn't be overestimated, noting that it was already "the most cost efficient container line in the world" and that the failure of the deal could be a bigger problem for the others shippers in the alliance. He added that the trio could instead plan to ally with smaller liners, hoping Chinese regulators wouldn't oppose such a deal.

The alliance was aimed at reducing operating costs amid weak international trade and freight rates. Akin to a code-sharing deal between airlines, it was envisioned to allow the world's top three container-shipping operators by volume to cut costs by sharing ships and port facilities. It would also have used each company's geographic strengths to move cargo faster and cheaper, shipping executives said.

The alliance would have positioned the three partners to control up to 40% of all cargo capacity along routes from Asia to Europe and across the Atlantic and Pacific oceans. The shippers had agreed to jointly deploy 255 vessels between the three of them, sharing capacity of 2.6 million containers along the busiest sea routes.

Though such alliances aren't new, smaller shipping companies, cargo forwarders and fuel suppliers have pressed regulators to rule against this much larger combination, worried they will lose leverage when negotiating their rates.

In a statement on its website posted late Tuesday local time, China's Ministry of Commerce said it believed the shipping alliance would control 47% of the Asia-to-Europe container shipping market. The parties, it said, "failed to demonstrate that the alliance would bring more benefit than harm or that it is in line with the public interest."

Ministry officials didn't pick up the phone late Tuesday.

China has taken an increasingly strong stand in antitrust matters, even those involving companies based outside the mainland. Its global regulatory heft has grown along with its economy, as it has become over the years a major consumer of everything from energy and metals to electronics and services.

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