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French shipping group’s plan to find new areas of revenue thwarted by North American routes setback

French shipping group CMA CGM and carrier Air France-KLM are scrapping an air cargo partnership after struggling to get US approval to operate North American routes and deliver on the project’s promise in the wake of pandemic lockdowns.

The companies said on Tuesday they would end a tie-up announced barely two years ago at the end of March, citing regulatory constraints, and that each would go back to operating their own cargo aeroplane fleets while still trying to co-operate on some routes.

One of the biggest hurdles had been the partnership’s difficulty in getting antitrust approval to operate in and out of the US, killing off one of their biggest markets, two people familiar with the matter said.

“A constrained regulatory environment on some important markets did not allow us to co-operate in an optimal fashion,” the companies said.

The original 10-year deal, which was partly motivated by CMA CGM branching into new avenues on the back of Covid-19 era windfall profits, was coupled with a direct investment by the shipping group into the Franco-Dutch airline group. CMA CGM will keep its 9 per cent stake in Air France, but a lock-up on those shares will end in February 2025 and no longer be partly extendable until 2028.

The Marseille-based transport group, the world’s third biggest container shipping company, will also give up its seat on the board of Air France-KLM. The airline group also counts the French and Dutch governments as big shareholders, and had welcomed CMA CGM as it looked to turn the page from Covid-19-related bailouts and raise fresh capital.

The collapse of the partnership comes after CMA CGM’s rivals such as Maersk and MSC also branched into air cargo in recent years.

The companies were lured by surging demand when pandemic lockdowns in 2020 grounded aeroplanes that also carried goods on passenger flights. This in turn exhausted capacity on maritime routes and sent customers searching for speedier transport solutions.

Recent Houthi attacks on container ships in the Red Sea have begun to push up air freight rates and shown fresh pockets of demand for such services.

But prior to this, the expected air cargo boom was damped by a return to pre-Covid traffic levels on passenger flights, adding extra capacity and competition, which weighed on freight rates. In the first nine months of 2023, Air France-KLM’s cargo revenues were down 31 per cent on the previous year.

The US antitrust issue was complicated by the Dutch government’s attempts to cut flights at Amsterdam’s Schiphol airport on environmental grounds, a plan it abandoned at the end of last year but which had also irked US airlines such as Jet Blue, which had risked getting no slots.

That had added to the struggle to obtain competition approval, one of the people familiar with the matter said.

Flush with cash after the pandemic, a boom that is now waning as shipping rates come down from the lockdown-era surge, CMA CGM began its air cargo push by buying six planes and has six more on order, which it intended to contribute to the partnership.

The shipping group will still use the aircraft, but trying to break into the industry on its own has its challenges too, a third person familiar with CMA CGM’s business said.

Under its original attempts, some potential clients were hard to entice because CMA CGM was proposing its services to logistics companies it was also competing with through its own divisions such as CEVA.

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Burger King-owner Restaurant Brands International will acquire Carrols Restaurant Group for about $1 billion in cash.

Toronto-based RBI said it would pay $9.55 per share for Carrols, the largest Burger King franchisee in the U.S.

Carrols operates over 1,000 Burger King restaurants and owns and operates 60 Popeyes restaurants.

RBI said plans to “significantly accelerate Carrols’ current rate of remodels” over the next five years, investing about $500 million in capital from Carrols’ operating cash flow to remodel about 600 restaurants.

RBI said the purchase price represented a 23% premium on Carrols’ 30-day volume weighted average price as of Jan. 12 and a 13.4% premium on the Jan. 12 closing price.

The deal will be financed with cash on hand and is expected to be completed in the second quarter.

RBI expects the acquisition to be neutral to adjusted earnings per share, while net leverage will increase minimally.

Premier hails ‘steady’ economic progress in Davos speech but calls on world to address ‘trust deficit’ among nations

China’s economy grew an “estimated” 5.2 per cent last year, beating the official target, the country’s number two leader Premier Li Qiang said in Davos, as he sought to allay concerns over its recovery from the Covid pandemic. 

In a speech at the World Economic Forum, Li also urged the world to address what he described as a “trust deficit” among nations and, in a veiled dig at the US, said “multilateralism” did not mean that only a few countries could set the rules.

Li said China’s growth rate last year — a rise from the figure of 3 per cent in 2022 when the country was hit by widespread Covid lockdowns — was achieved without resorting to “massive stimulus” and the economy was making “steady progress”.

“We did not seek short-term growth while accumulating long-term risks, rather we focused on strengthening the internal drivers,” he said. “Just as a healthy person often has a strong immune system, the Chinese economy can handle ups and downs in its performance. The overall trend of long-term growth will not change.”

Beijing’s 2023 growth target of 5 per cent was China’s lowest in decades. The economy’s emergence from Covid has been hampered by a deep property slowdown, falling exports and a lack of investor confidence, forcing the government to step in with stimulus measures, though it has stopped short of the “bazooka” fiscal packages it has deployed in past crises.

The 5.2 per cent growth figure, which economists say was flattered by a low base effect in 2022, was in line with a Reuters poll of analysts. Economists expect the government to again set this year’s official growth target at 5 per cent, a goal they say will be more challenging because of the overhang of the property market and deflationary pressures.

But Li told the audience that China’s economy was similar to “hiking in the Alps”.

“Our European friends told me that to fully appreciate the majestic beauty of the Alps one has to zoom out and look from afar,” he said. “As I see it, it is the same way as the Chinese economy, one has to broaden the vision and take a panoramic view to . . . truly grasp where it is now and where it is going.”

Li’s announcement of the GDP figure surprised economists, who had been preparing for the official release of the data on Wednesday by the National Bureau of Statistics.

“China used to be a place where you’d know when this sort of thing would be published, but that has changed radically,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis, who described the decision to announce the figure early as “bewildering”.

Li said the return on foreign direct investment in China was about 9 per cent and the country remained open to international business.

“Choosing the Chinese market is not a risk, but an opportunity. So we embrace investments across businesses of all countries with open arms,” he said.

On multilateralism, he said China believed in the UN Charter, which recognises the sovereignty of all nations. But many European countries have criticised Beijing for not condemning Russia’s invasion of Ukraine.

Li used his speech to instead make a veiled attack on what China sees as US-led hegemony.

“The question is, what is true multilateralism?” he said. “Who will set the rules? What are the rules? If the rules are set by certain or a few countries, then we have to put quotation marks on the multilateralism because it will still be unilateralism in nature.”

Li also urged greater co-ordination between countries on macroeconomic policies, a reference to efforts by the US and its allies to reduce the reliance of their supply chains on China.

Ursula von der Leyen, president of the European Commission, who spoke after Li, responded: “We want to tell our Chinese friends, we do not want to decouple but we need to de-risk our supply chains in some ways.”

Von der Leyen said China was preparing export controls on three metals used in semiconductor production — germanium, gallium and graphite — and that this “was not trust-building”.

“So we are in intense discussions on that point”, she said. “We have to be very frank and very open . . . it is always better to address problems so that we can solve them.”