On the very last day of the statutory period for a merger review (i.e. June 17, 2014), China’s Ministry of Commerce (“MOFCOM”) rendered its decision to prohibit the proposed shipping alliance among the world’s three largest liner shipping operators, namely, Maersk Line (“Maersk”), Mediterranean Shipping Co and CMA CGM (“P3 Alliance”). The proposed P3 Alliance would be structured as a limited liability partnership in England and Wales. It will be in overall charge of operational matters of all the participating undertakings’ container liner business on the world’s three major shipping routes – Asia to Europe, Transatlantic, and Transpacific. According to MOFCOM’s decision  and a statement of the explanations , MOFCOM concluded that the P3 Alliance was actually a “close joint operation” and it would have restrictive and anti-competitive effects on the Asia-Europe container shipping market. MOFCOM further pointed out that the parties cannot prove that the positive impact of the proposed alliance will outweigh the negative impact or that the alliance will serve public interest. The parties negotiated with MOFCOM for possible remedial measures for several rounds and submitted a final remedy proposal for review on June 9, 2014. However, MOFCOM observed that the remedy plan lacked legal basis and convincing evidence, thus it cannot resolve MOFCOM’s competition concerns.
It is reported that the parties will abandon their propose P3 Alliance following the unexpected rejection by MOFCOM . This is the second time MOFCOM disapproves a concentration since the implementation of the Anti-monopoly Law (the first blocked case is proposed acquisition of Huiyuan Juice by Coca-Cola in March 2009). The decision to block might be surprising as it was widely anticipated that MOFCOM would conditionally approve the P3 Alliance given its reluctance to block deals over the past five years. This case has once again demonstrated the independency and importance of MOFCOM in merger review of global transactions. In fact, MOFCOM has grown more confident to impose conditions on or even straightly block a transaction despite that it might have been unconditionally cleared in other jurisdictions (as in this case: EU and US) based on its own assessment.
In the MOFCOM decision, the relevant product market was identified as the global container shipping service market, which was provided by container shipping companies to cargo owners on a regular basis with a fixed shipping route and a fixed shipping schedule. Given that contained shipping has fixed shipping route, fixed shipping schedule and fixed ports, the relevant geographic markets are Asia to Europe, Transatlantic and Transpacific routes. Since the Transatlantic route does not cover Chinese ports and the Transpacific route is highly competitive, MOFCOM focused its competition analysis on P3 Alliance’s impact on the Asia to Europe route.
In its decision, MOFCOM identified the P3 Alliance as a close joint operation rather than a loose-knit shipping alliance that was more common in the past. The differences were rooted in the cooperation form, operational procedure, and cost allocation. The limited liability partnership would act as a network center that was in overall charge of the alliance, including daily management of all the vessels, operation, sales, service suspension, etc. The close joint operation was more of a de facto merger between the three shipping giants whereas the members of a traditional loose-knit alliance would operate independently.
As to the substantive competition issues, MOFCOM assessed key factors such as the market share and controlling power, level of the concentration, market entry and impact on other operators in reaching the decision.
Firstly, MOFCOM found that the market power of the parties would be substantially enhanced after the transaction. The market share of Maersk, Mediterranean Shipping Co and CMA CGM was respectively 20.6%, 15.2% and 10.9%, ranked as the top three among all the market players. Their combined market share would reach 46.7%.
Secondly, the level of concentration in the market would soar from HHI 890 to HHI 2240 with the change of 1350. The market structure would go through substantial transition from relatively diverse to highly concentrated, especially considering the reduced number of major competitors after the formation of the close joint alliance.
Thirdly, MOFCOM concluded that the entry barrier would be heightened. The global container shipping service was a capital-intensive industry with economies of scale. The P3 Alliance would eliminate effective competition among major competitors and impair competition in the relevant market, which might strengthen the market entry barrier as a result.
Finally, MOFCOM conducted an analysis of impacts on other competitors, upstream cargo owners and downstream port operators respectively. The P3 Alliance, through consolidation of their shipping lines and shipping capacity resources, would reinforce the market power of the parties and eventually squeeze other competitors out of the market by means of providing lower shipping costs, providing a deal package service, etc. Also, cargo owners’ interest will be detrimentally affected in light of their weak bargaining power. Similarly, the P3 Alliance will enhance the bargaining power of the parties over port operators, who might have to accept lower service fee in order to compete with other ports, thus impairing the development of ports.
This decision is undoubtedly a landmark decision in MOFCOM’s merger review in that it blocked a global high-profile transaction for the first time. Before MOFCOM’s decision, the US Federal Maritime Commission had already approved the P3 Alliance and the European Commission had decided not to open an antitrust investigation into the P3 Alliance. Different criteria applied in their respective review processes inevitably led to different decisions. For example, the P3 Alliance would raise more concerns among Asian regulators than US regulators since several Asian nations have container fleets, while the US does not. Therefore, this decision clearly shows that MOFCOM is gradually attaching more weight to the Chinese market in its merger review. This case is a reminder for companies considering large-scale merger and acquisitions on a global dimension to take MOFCOM’s merger control into account in their strategic planning. Especially when substantial competition concerns are involved, the relevant party should provide specific and convincing solutions tailored to address these concerns. They can thus avoid an outright block by MOFCOM.
 The original Chinese decision is available athttp://fldj.mofcom.gov.cn/article/ztxx/201406/20140600628586.shtml.
 The original Chinese statement is available at http://www.mofcom.gov.cn/article/ae/ai/201406/20140600628734.shtml.
 Please see: http://www.maerskline.com/zh-cn/countries/int/news/news-articles/2014/06/p3-network.