zoom China is said to be planning to merge is two container shipping majors China Cosco and CSCL within efforts to consolidate state owned enterprises, which is likely to cause a domino effect on existing carrier alliances and further carrier mergers in Asia, damaging industry competition, according to consultancy firm Drewry.Shares in China Cosco, China Shipping Development (CSD) and China Shipping Container Lines (CSCL) were suspended from trading on Monday 10 August following news reports that the Chinese government is preparing to merge these state-owned shipping entities.Details remain patchy, however; leading executives from the companies are understood to be working on a preliminary plan to be released before the year is out.“There is a hint of double-standards about this story as it was Chinese competition regulators that blocked the proposed P3 alliance between the world’s three largest carriers Maersk Line, MSC and CMA CGM in 2014,” Drewry said.In the container market, Cosco and CSCL currently sit in sixth and seventh place respectively in the rankings of carriers by operated teu. Based on today’s fleet the combined entity would comfortably move into fourth place with a total fleet in excess of 1.5 million teu, giving a world share of around 8%.Drewry explains that the rationale for a merger is entirely sound from a financial viewpoint as both China Cosco and CSCL have seen their financial performance deteriorate materially since the global financial crisis and have seen major value destruction for stakeholders.Between them the two carriers have lost $911 million in operating losses (EBIT) from container operations in the previous five years, Drewry’s data shows.“The next question to ask therefore is: what will happen to the carrier alliances the two lines participate on the East-West trades?,” Drewry said.Cosco is a long-standing member of the CKYHE Alliance alongside K Line (Japan), Yang Ming (Taiwan), Hanjin (South Korea) and Evergreen (Taiwan); while CSCL is a part of the Ocean Three consortium alongside CMA CGM (France) and UASC (Qatar) that was set-up at the start of this year.A merger of the Ocean Three and CKHYE alliances would mean a combined market share above 40% and unlikely to be approved by regulators. Instead, both the CKYHE and Ocean Three will be faced with a major void to fill were they to lose either Cosco or CSCL to the other carrier group. Based on the deployed vessels in the East-West container trades (Asia-Europe, Transpacific and Transatlantic) as of July 2015, both Chinese carriers contributed approximately one-quarter of each alliance’s fleet in teu.As the smallest of the existing alliances the remaining carriers in the Ocean Three grouping, CMA CGM and UASC, would find themselves even further down the pecking order were CSCL to abandon them. While both carriers between them have around 570,000 teu of newbuilds on order (not all for Ocean Three services) they will most likely look to find a replacement carrier to bridge the shortfall.This maybe explains why UASC is now considered the front-runner in the speculated sale of APL, as purchasing the Singapore-based carrier would nearly cover CSCL’s share. It would also reduce the share of the G6 Alliance that APL is currently a member of.Depending on which alliance wins or loses its Chinese member, Drewry predicts that the Ocean Three alliance and the CKYHE alliance will decline to a market share of just 13% or rise to a market share of 28%.