The International Business Transactions Blog

U.S. Extraterritorial Antitrust Law Prevents Further Concentration of Global Shipping

By Yuki Taylor
Law Student Editor

A.P. Møller-Mærsk, better known as Maersk, is a publicly traded Danish logistics and freight transportation firm with one of the largest container shipping lines in the world.  On August 25, 2022, Maersk announced that it had abandoned a planned transaction to sell its wholly-owned subsidiaries, Maersk Container Industry A/S and Maersk Container Industry Qingdao Ltd. (collectively, MCI), manufacturer of reefer (refrigerated) containers, to China International Marine Containers (CIMC).  Maersk decided in tandem with CIMC to terminate the signed stock purchase agreement for the divestment of the reefer container business dated September 27, 2021, due to significant regulatory challenges preventing the closing of the transaction. 

On the same day, the Antitrust Division of the U.S. Department of Justice (DoJ) released a statement regarding the termination of the transaction between the two non-U.S. business entities as follows:

CIMC’s acquisition of MCI threatened to harm this critical aspect of our economy leading to higher prices, lower quality, and less resiliency in global supply chains.  It would have cemented CIMC’s dominant position in an already consolidated industry and eliminated MCI as an innovative, independent competitor.  The deal also would have substantially increased the risk of coordination among the remaining suppliers in the marketplace, most of whom would have been aligned through common ownership and related alliances.

Under U.S. antitrust law, the DoJ may challenge a sufficiently large merger of business firms or acquisition of business assets that risks harming competition in the United States under the Hart-Scott-Rodino Act (HSR), despite the foreign nationalities of the parties or the location of the assets outside of the United States.  The HSR Act provides that any contemplated merger or acquisition meeting the monetary thresholds for assets in the United States, or for sales on the U.S. market, must be notified to the DoJ and Federal Trade Commission (FTC).

In this case, the value of the planned transaction, CIMC’s total assets as of December 31, 2021, MCI’s revenue for 2021, were US$ 987.3 million, approximately US$ 24.3 billion, and US$ 690 million, respectively, all of which were well above the HSR thresholds for premerger notification.  Although the HSR Act exempts transactions between firms with no significant sales to or assets in the United States, both companies far exceeded the exemption.  Maersk is currently the world’ second-largest container shipping line, and CIMC is the largest container manufacturer.  

The planned transaction would have combined two of the world’s four suppliers of insulated container boxes and refrigerated shipping containers, resulting in consolidated control over 90% of the global cold supply chain by the Chinese government.  According to its latest annual report, as of December 31, 2021, CIMC is effectively controlled by the Chinese government via state-owned or state-controlled entities holding 54.23% in the company in aggregate.  Nevertheless, without the planned sales of MCI, China’s “Big 3” consisting of CIMC, Dong Fang International Containers, CXIC Group, together control more than 80% of global container production.  As in the DoJ’s statement, the industry is “already consolidated.”

During the supply chain congestion aggravated by the prolonged global pandemic, logistics companies worldwide are reporting record profits.  Maersk recorded a 55.5% increase in its revenue for 2021 to US$ 61.8 billion, “mainly driven by higher freight rates in ocean, volume increases and acquisitions in logistics & services and higher global demand and increased storage income in terminals.”  CIMC as well reported a 73.9% increase in its revenue in 2021 to US$ 25.8 billion. 

Maersk’s exceptional profits have continued into 2022, as the Danish conglomerate again announced record results with a 52.1% revenue increase in its quarterly report on August 3, in the midst of “exceptional conditions with persisting landside congestion particularly in the United States and Europe.”  CIMC also recorded another substantial increase of 23.2% in revenue for the first quarter of 2022.

Behind record corporate earnings driven by prolonged pandemic supply congestion and shortage, consumers worldwide continue to face rising retail prices.  Although the HSR Act’s extraterritorial effect has blocked this specific merger, it alone cannot prevent the Chinese government’s increasing control over international shipping and other fields of global business.