Introduction
The long-awaited decision on the acquisition of HSDG by Maersk has been published, one year after the decision was announced, and after decisions on both the Ocean Network Express (ONE) and COSCO-OOCL mergers were published.
Although decisional practice in the relevant product and geographic markets for liner shipping remains consistent, the Commission has provided some useful insight into the overall liner shipping market, as well as its views of tramp services and container manufacturing.
The acquisition was cleared, conditional on withdrawal by HSDG from:
- The vessel share agreement (VSA) between HSDG and Hapag-Lloyd, covering the MedAndes service on the Mediterranean – West Coast South America trade
- The EPIC operating agreement between HSDG and Hapag-Lloyd, covering the EPIC 2 service on the Northern Europe – Indian Subcontinent and Northern Europe – Middle East trades
- The operating agreement between HSDG, CMA CGM and Hapag-Lloyd, covering both the Eurosal 1 and Eurosal 2 services on the Northern Europe – Central America/Caribbean and Northern Europe – West Coast South America trades
- The VSA between HSDG and MSC, covering the MESA service on the Mediterranean – East Coast South America trade
The Commission is continuing its practice of requiring the appointment of monitoring trustees to ensure that, to the extent that HSDG receives information relating to capacities or volumes shipped by its partners in the consortia agreements above, confidential information will not be disclosed to Maersk or any members of the consortium of which Maersk is a member. Furthermore, the monitoring trustee is tasked with ensuring that HSDG will not receive any information regarding the planning of the above services prior to full withdrawal. Finally, the monitoring trustee will submit compliance reports every six months to the Commission, but there is no requirement that these be published.
Liner shipping
While acknowledging the recent consolidation wave, the Commission still views the liner shipping industry as fragmented (for example, it considers that even the largest carriers individually do not have more than approximately 15 per cent of the world’s total fleet capacity). However, this view changes substantially depending on the trade.
In its determination of market share, the Commission has continued its practice of not only considering individual parties’ market shares, but also the aggregate share of each party’s consortia members. In doing so, the Commission “does not imply that other consortia members are part of the Parties’ undertakings”, but takes the view that consortium members affect important parameters of competition (capacity, frequencies, schedule of the services, etc.).
Furthermore, the Commission provides some interesting insight into VSAs and the scope of their operation. For example, the evidence presented shows that VSAs do not allow the sharing of individual, actual costs or discussions of actual costs, and explicitly preclude price coordination, joint marketing, revenue sharing and (typically) joint purchasing. VSAs therefore operate, in the narrowest sense, as limited cooperation for operating a joint service.
Tramp services
Tramp services have previously been considered by the Commission, which has defined the product as the unscheduled shipping of a single commodity that fills a single ship. Regarding the relevant product market, the Commission discussed the possibility of sub-segmenting dry and liquid bulk vessels, each their own product market, according to deadweight tonnage (DWT) ranges. Although the conclusion was left open, 25,000 DWTs and 60,000 DWTs were considered as the dividing lines.
Regarding the relevant geographic market, it was submitted by the parties that the market was worldwide. Although the conclusion was left open, discussion of possible regional markets was limited, with no consideration of the potential existence of national markets.
Continuing to define dry and liquid bulk-vessel markets as worldwide is a welcome development for market participants, where consolidation and pooling of vessel resources remain common market themes. However, market participants should be wary of sub-segmentation of the relevant product market into DWT ranges, as well as potential consideration of types of cargo and contract types. This can potentially narrow market definitions for niche vessels and create unforeseen competition risks.
Container manufacturing
Containers (also known as ‘the boxes’ or TEUs (twenty-foot equivalent units)) constitute one of the most prominent input products for container liner shipping companies, and are a key aspect of procurement strategy. The Commission remains consistent with previous decisional practice in viewing the geographic market as a global one, although reaches no conclusion as to whether the product market comprises all types of containers (i.e., dry freight standard, dry freight special, reefers and tanks).
Nevertheless, a global geographic market for container manufacturing is positive for container liner shipping companies. Overcapacity and low freight rates mean that operational efficiencies and cost-cutting remain key considerations for market participants.
Conclusion
The Commission’s decision is a continuation on previous decisional practice on competition law in the shipping industry; however, its view that the market remains fragmented, with persisting overcapacity, suggests that further consolidation and merger activity is possible.
Client Alert 2018-095
