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Cool winds are blowing between Beijing and Esplanaden these days. Since Maersk’s port operator, APM Terminals, took over operations at the key port of Balboa in the Panama Canal earlier this year following the ousting of Singapore-based CK Hutchison, China has turned its heavy artillery on the Danish shipping group. Had Maersk foreseen how China would react to the shipping group’s entry into the Balboa port in Panama, the top management of the Danish shipping company would probably have thought twice before putting pen to paper.

lol. lmao. actions have consequences? who knew!

That is the assessment of several analysts and individuals familiar with the matter whom ShippingWatch has spoken with. They also point out that the rifts in the relationship with Beijing could have serious consequences for the Danish shipping group’s business in China. “There is no doubt that if they feared Chinese reprisals by taking over the concession—and this applies to both MSC and Maersk—they would not have done it,” says Peter Sand, chief analyst at the research firm Xeneta. ShippingWatch spoke with a source with extensive knowledge of Maersk and its business in China, who wishes to remain anonymous due to their work. The source says that Maersk likely underestimated how strongly the Chinese would react to APM Terminals’ involvement in port operations at the Panama Canal and describes the Chinese response as “predictable.” Martin Jes Iversen, an associate professor and business historian at CBS, also believes that the strained relationship with China could end up hurting Maersk. “This is a precarious challenge that entails significant risk. This conflict could potentially harm Maersk’s Chinese relations and its revenue from China,” he tells ShippingWatch, but emphasizes that he believes there is more at stake in terms of security policy and relations than for Maersk’s bottom line. Maersk has declined to comment on the matter to ShippingWatch.

A proxy war with Clerc and Aponte at the helm

In January, Maersk and the world’s largest container shipping company, MSC, signed agreements with Panama to operate the two key ports of Balboa and Cristóbal at opposite ends of the Panama Canal. The ports had otherwise been under the control of the Singapore-based port company CK Hutchison since 1997 through its subsidiary Panama Ports Company. But after a major uproar, in which Donald Trump, among other things, accused China of controlling the Panama Canal, Panama’s Supreme Court revoked the concession with the Singapore-based company in January of this year, calling it “unconstitutional.” This has caused great frustration at both CK Hutchison and in Beijing, where top executives from the two container shipping companies were summoned to a meeting. Vincent Clerc, the CEO of Maersk, therefore met with China’s National Development and Reform Commission in Beijing at the end of March, where, according to the Financial Times, he was asked to immediately withdraw the Danish shipping group from the port of Balboa. MSC’s CEO, Diego Aponte, received the same message, though he did not attend in person. The meeting may have been a last-ditch attempt to reach an agreement without legal action, according to Max von Zedtwitz, a professor of strategy and international politics at Copenhagen Business School.

“The fact that Vincent Clerc was invited to China at all suggests that this visit may have been a last-ditch attempt to reach a non-aggressive agreement, and that Maersk was considering a deal,” he explains in a written response to ShippingWatch. “Apparently, this agreement did not materialize, or else the balance between pros and cons was not sufficiently convincing for Maersk,” he elaborates. Just a few weeks after the meeting, Panama Ports Company initiated arbitration proceedings against Maersk, but not against rival MSC. Maersk has rejected the claims in the case. At the same time, the Chinese shipping company Cosco and its subsidiary OOCL announced that they would no longer call at the Maersk-controlled port in Balboa. The boycott did not apply to the MSC-operated port of Cristóbal. The softer stance toward the competitor may be linked to MSC’s announcement last March that it would acquire CK Hutchison’s port business in a consortium with the US firm Blackrock. The deal has since faced challenges, as China reportedly wants to be part of the consortium. Most recently, Bloomberg reported that the large Hong Kong-based conglomerate China Merchants Group is part of the negotiations. Thus, MSC remains at the negotiating table with Beijing.

Relations with China take a hit

Over the past year, the US and China have been locked in a geopolitical standoff over the Panama Canal, which handles approximately 5% of global trade annually. According to the anonymous source with extensive knowledge of Maersk and its business in China, Maersk now risks being caught between the US and China in the escalating superpower conflict. The source points out that China has historically been willing to exert significant pressure on both Denmark and Maersk when political interests are at stake, citing, among other things, previous incidents where Maersk was summoned to meetings with Chinese authorities following diplomatic conflicts between Copenhagen and Beijing. Peter Sand specifically highlights Maersk’s extensive lobbying efforts to change China’s cabotage rules as a potential lever China could use to twist Maersk’s arm. In 2022, the rules were successfully amended so that it was no longer only Chinese shipping companies that were allowed to sail domestically between Chinese ports, and since then, Maersk has played a significant role in the transport sector. “It was undeniably a feather in Maersk’s cap that they were allowed to participate in this cabotage shipping as one of only a few companies. Therefore, it would also be naive to believe that China will stick to this if the relationship between Maersk and China does not improve,” Sand tells ShippingWatch.

Martin Jes Iversen is more optimistic when it comes to any potential reprisals that might come from Beijing. “I am confident that Maersk has the capabilities to navigate this. They’ve been operating there for many years, they know the people, and they have expertise in the Chinese system, but also in relation to the US market,” he says, but adds: “I don’t see any easy fix for this. It’s a sensitive process in a challenging geopolitical situation that reflects major-power rivalry rather than multilateral cooperation.” The situation draws parallels to Russia’s invasion of Ukraine, points out Martin Jes Iversen, where most shipping companies were forced to take a stance on sailing to Russian ports. “Shipping companies and businesses can no longer remain neutral. Of course, it’s attractive, but dilemmas arise where it is no longer possible. That’s when it gets really difficult. We saw this, for example, with the war between Russia and Ukraine, where companies were forced to take a stand,” he explains.

An ace up the sleeve

If the relationship between China and the world’s two largest shipping companies cracks, it could hurt business, points out Mikkel Emil Jensen, a shipping analyst at Sydbank. “There’s no doubt that in container shipping, China is the worst player to fall out with. It’s absolutely crucial,” he tells ShippingWatch. “China could certainly step in and ruin Maersk and MSC’s ability to sail into ports or limit their opportunities for cabotage trade. But that could have major consequences for China, as it would alienate the West.” One must be careful not to underestimate the power Maersk and MSC wield at the negotiating table with China, the analyst points out. “It would be one thing if we were talking about a small shipping company. These are the world’s two largest container shipping companies, which account for a very large share of the market and freight out of China, so this isn’t something you just do on a whim,” he says.