When the world's three biggest container shipping companies decided to pool their capacity, it seemed like a sensible solution to a vexing problem.
A weakened global economy had reduced shipping volumes just as an influx of massive new container vessels started plying the busy Asia-Europe routes. The resulting excess capacity and lower prices left profits adrift in the doldrums and companies with a pressing need to reduce costs.
Denmark' s Maersk Line, France's CMA CGM SA and Switzerland's Mediterranean Shipping Co., chose to tackle this industrywide problem through an alliance that would enable them to combine fleets and slash costs – Maersk had estimated combined savings of just under 15 per cent – while still ostensibly competing with each other on price.
But a year after they announced their intentions, the Chinese waded in and used their market clout to nix the alliance. It's the first time they have overtly blocked a foreign deal – but it won't be the last. The arrangement made eminent sense from a market perspective. But that's of little interest to Beijing, which will always put its own agenda ahead of economic logic.
The companies say the intervention caught them by surprise, particularly after U.S. and European regulators had given them the green light. But they quickly scuttled their plan rather than risk losing their share of the immense cargo traffic generated by Chinese trade.
When "operators who already have a certain market share want to work together to further dominate the market, you need to carefully analyze their competition," China's Commerce Ministry said.
So now we have the Chinese wrapping themselves in the cloak of public protector, safeguarding consumers from potential price gouging by an alliance that would control close to half of the container traffic between Asia and Europe.
The truth is that officials had long expressed their displeasure with the planned alliance. Beijing's main concern was that it would give the Europeans a stronger competitive edge over its own shipping powerhouses. The fear was not higher prices, but lower market share and profits for their own industry.
Beijing's broad powers to block foreign deals that it doesn't consider to be in its national interest are enshrined in its competition rules. If the companies involved garner as little as $64-million (U.S.) of their annual revenue from China, they had better be prepared to play nicely with Chinese officials.
Beijing's competition watchdogs voiced no qualms earlier this year when they approved an extensive alliance of their two state-owned shipping majors – China Ocean Shipping Co. (Cosco) and the smaller China Shipping Co.
By sheer coincidence, their European rivals were putting the finishing touches on their route-sharing plan at the the time. And Cosco itself was already part of a broader alliance of Asian shipping lines that enables the participants to pool their container capacity. Not surprisingly, these shippers voiced strong objections to the European alliance.
At the time of the deal between the state-owned companies, the erstwhile competitors declared their goal was to "improve the influence of Chinese shipping companies in the world shipping industry." Which is exactly what Beijing is doing by rejecting the Europeans' plan.
The lesson for global firms in certain sectors like resources and shipping is clear: Leave the Chinese out of your deals at your peril. If the Chinese don't like it, and you still want their business, they're not going to happen.