The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Neptune Oriental Lines (“NOL”) of Singapore by rival CMA CGM, a French shipping company with worldwide activities. The clearance is conditional upon NOL leaving the G6 liner shipping alliance.
Commissioner Margrethe Vestager, in charge of competition policy, said: “Container liner shipping plays a central role in global trade, so competition in this sector is essential for businesses and consumers in the EU. Today’s decision ensures that the takeover will not lead to price increases for the many EU companies using these container shipping services.”
The Commission’s investigation
The transaction leads to the combination of two competitors in the container liner shipping business. Like many other carriers, CMA CGM and NOL offer their services on many trade routes mainly through cooperation agreements with other shipping companies known as “consortia”. Consortia with the same members operating across several trade routes are often grouped into alliances. CMA CGM is a founding member of the Ocean Three Alliance (“O3”) whereas NOL is currently a member of the G6 Alliance.
The Commission examined the effects of the merger on competition for container liner shipping services on seventeen trade routes connecting Europe with the Americas, the Middle East, the Indian Subcontinent, the Far East as well as Australasia & Oceania.
Consortia members decide on capacity setting, scheduling and the list of ports of call, which are all important parameters of competition. The Commission found that the merger, as initially notified, would have created new links between previously unconnected consortia in the O3 and G6 alliances. The Commission had concerns that these potential new links would have resulted in anti-competitive effects on two trade routes: (i) between Northern Europe and North America, and (ii) between Northern Europe and the Middle East. On these routes, competition from liner shippers who have no connection with the merged entity or its alliance partners would have been insufficient. As a result, the transaction could have enabled the merged entity, through the consortia that the two companies belong to, to influence capacity and therefore prices to the detriment of shippers and consumers for a very large part of those markets.
The transaction would also create limited vertical links, arising from CGM CMA’s activity in container terminal services, which may be required by container liner shipping companies. However, the Commission found no competition concerns in this area because of the companies’ limited market share in most upstream markets and the small increment brought about by the transaction on the downstream markets.
In order to address these concerns, the companies offered to make the transaction contingent upon the removal of the link that would have been created between CMA CGM’s O3 Alliance and NOL’s G6 Alliance. Although CMA CGM had previously stated publicly that it intended to remove NOL from the G6 alliance, the formal commitment to do so was necessary to remove the risk of anti-competitive effects on the two trade routes described above.
Although NOL will continue to operate for G6 until 31 March 2017 to guarantee an orderly exit, the commitments foresee that a trustee will ensure that no anti-competitive information is shared between the alliance and the merged entity during that remaining period. This will eliminate the potential additional links between previously unrelated consortia that the merger would have created on the two routes.
In view of the remedies proposed, the Commission concluded that the proposed transaction, as modified, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments.
The transaction was notified to the Commission on 8 March 2016.
Companies and products
The CMA CGM Group is the world’s third largest container liner shipping company and is active worldwide with a fleet of 470 vessels that serves 450 commercial ports. CMA CGM operates 170 shipping lines on the main commercial trade routes. CMA CGM is a member of the O3 Alliance, with UASC and CSCL.
NOL is Southeast Asia’s largest container shipping company and has a fleet of 94 vessels. It operates through its brand American President Lines (“APL”) at ports in over 50 countries worldwide. APL provides six weekly services to/from the EEA (operating 12 ships), with direct port calls in 9 countries. NOL is currently a member of the G6 Alliance, together with Hapag Lloyd, Hyundai Merchant Lines, Orient Overseas Container Line, Nippon Yusen Kaisha and Mitsui O.S.K. Lines.
Consortia are operational agreements between shipping companies for the provision of a joint service. The members of a consortium jointly agree on the capacity that will be offered by the service, on its schedule and ports of call. Generally, each party provides vessels for operating the joint service and in exchange receives a number of container slots across all vessels in the service, based on the total vessel capacity contributed. The allocation of container slots is usually pre-determined and shipping companies are not compensated if the slots attributed to them are not used. The costs for the operation of the service are generally borne by the vessel providers individually, so that there is in principle no cost sharing between the members of a consortium.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involvingcompanies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).