* "P3" alliance between Maersk, MSC and CMA CGM
* Tie-up wins approval from U.S. regulators
* Critics fear it could dominate key shipping routes
* Alliance needs green light from Europe, China regulators (Adds comments, background)
By Ole Mikkelsen
COPENHAGEN, March 21 (Reuters) - An alliance of the world's top three container shipping firms which could control more than a third of the market is likely to start operating in mid-2014, No.1 player Maersk Line said after the tie-up was approved by U.S. regulators.
The industry has been battling overcapacity since the financial crisis because new vessels ordered before the downturn have flooded the market. This has driven rates on the main route between Asia and northern Europe to loss-making levels.
The proposed alliance is between Maersk Line, a unit of A.P. Moller-Maersk, Switzerland-based MSC Mediterranean Shipping Company and France's CMA CGM.
To cut costs, they have agreed to pool about 250 ships which will operate on three trade routes: Asia-Europe, trans-Pacific and trans-Atlantic. This would allow the firms, which currently run many of their vessels only partly laden to run larger ships - which are more fuel efficient - fully loaded.
The grouping has been criticised by cargo owners and shippers' groups because of fears it could dominate the key routes, pushing out smaller carriers and potentially driving up prices.
The so-called P3 alliance will have more than 40 percent of Asia-Europe and trans-Atlantic trade and 24 percent of the trans-Pacific market, according to industry estimates.
The approval from the U.S. Federal Maritime Commission (FMC) takes effect from Monday but will apply only to routes to and from U.S. ports. The alliance still needs approval from Chinese and European regulators before it can become fully effective.
Maersk Line said it expected to receive Chinese and EU approval before the middle of this year. "We expect that the P3 can be started mid-2014," it said.
However, a spokesman for Joaquin Almunia, the European Competition Commissioner said the EU was still assessing the proposed alliance because it would exceed the 30 percent market share allowed for shipping consortia. He could not give an indication of when a decision would be made.
Shares in A.P. Moller-Maersk opened up 2.5 percent after news of the U.S. approval, and were up 1.3 percent at 1527 GMT, outperforming the main Copenhagen index which was down 1.3 percent.
"North America and the U.S. in particular is a key shipping market. Therefore, the decision by the FMC is a very important step towards overall approval of P3," a Maersk spokesman said.
With a global market share of around 15 percent, Maersk Line is the world's biggest container shipping company, while MSC with around 13 percent and CMA CGM with around 8 percent are number two and three respectively.
The three shipping firms plan to commit all vessels deployed on the three routes into a joint vessel operation centre located in London that will operate the combined fleet independently.
The U.S Shippers Association says the aim of the tie-up is to drive out weaker carriers and increase market share.
"In the case of the trans-Atlantic, it is a short step to the 50 percent mark and beyond, where the P3 would have a controlling share of the market, which would be a very dangerous and detrimental situation," it wrote to the FMC last year.
"It is just a matter of a short time before the P3 controls the trans-Atlantic market," it said.
Analysts from investment bank Alm. Brand Markets forecast the tie-up could lower Maersk Line's costs by up to 6 percent.
The lower costs would mainly be driven by bigger and more energy efficiency vessels, they said.
Maersk has ordered 20 super-size vessels from South Korea's Daewoo Shipbuilding & Marine Engineering. Four of them were put into service on the busy route between Asia and Europe last year, helping to lower costs per unit.
An additional 16 of the Triple-E class vessels are scheduled for delivery during 2014-2015.
Lars Jensen from maritime analysis company SeaIntel said the alliance operating with larger vessels and maximising utilisation would result in significant improvements in their unit costs compared with their competitors.
He estimates the alliance will operate with vessels that on average are 2.000-3.000 TEU (twenty-foot equivalent unit containers) bigger than competitors. (Additional reporting by Keith Wallis; Editing by Pravin Char)