China's antitrust regulator Anti-monopoly Bureau at Ministry of Commerce ("MOFCOM") published its decision on 17 June 2014 to prohibit the container shipping companies alliance between Maersk Line, Mediterranean Shipping Company and CMA CGM ("P3"). This is MOFCOM's second prohibition decision after its prohibition of Coca-cola's acquisition of Huiyuan Juice in 2009.

The proposed alliance would allow the participating companies to share vessels and enter into cooperative working arrangements with each other for a minimum of 10 years. It received antitrust approval in the EU and US in the past a few months - European Commission confirmed not to open the investigation proceedings at the moment and US Federal Maritime Commission imposed reporting requirement onto the P3 participants to keep monitoring the implementation of P3 closely.

Because the proposed alliance is not a merger, there was doubt at the beginning whether P3 should be submitted to China's merger review regulator MOFCOM for clearance or the parties should consult China's price-related antitrust authority National Development and Reform Committee ("NDRC") for approval. MOFCOM confirmed its jurisdiction on the ground that the proposed P3 would create a network center for the purpose of the joint coordination and management of the P3 network. Many important operational and management decisions would be made by the network center. This is different from a traditional shipping alliance in which members makes those decisions individually. MOFCOM seems to see the alliance more like a joint venture than a plain cooperation agreement. This clarification sets a precedent for the merger review of alliance in China.

MOFCOM cited high market share of the parties (individually 20.6%, 15.2% and 10.9%, combined 46.7%) on the Asia-Europe route, high concentration of the market, increasingly difficult market entry and weakened negotiation power of shippers and ports post transaction as competition concerns. Such concerns cannot be resolved by the remedy proposal plans submitted by the parties.

Given the precedent effect of this decision, it would be useful for MOFCOM to publish a non-confidential version of the notification and provide more details of its competition analysis. Such details and transparency will provide guidance to industries contemplating similar businesses, help them to structure competition law compliant transactions and remedy plans, and consequently will streamline the review and analysis process of the notification.

This prohibition will no doubt change the consolidation path of the shipping industry. It rings the bell for other shipping alliances such as the G6. Reportedly, Hong Kong Shipowners Association is planning to seek an industry wide block exemption from Hong Kong Competition Ordinance for voluntary discussion agreement and vessel sharing agreement. It's prudent for companies in transport and other industry sectors to review and discuss their existing and contemplated alliances and cooperation agreements with antitrust counsel to ensure such activities do not violate the competition laws.