Brussels, 11 September 2014
Mergers: Commission approves merger between Hapag Lloyd and CSAV in container liner shipping sector, subject to conditions
The European Commission has cleared under the EU Merger Regulation the proposed merger between Hapag Lloyd, a German shipping company with worldwide activities, and rival Compañia Sud Americana de Vapores S.A. (“CSAV”) of Chile. The clearance is conditional upon the withdrawal of CSAV from two consortia on the trade between Northern Europe and the Caribbean and South America’s West Coast, where the merged entity would have faced insufficient competitive constraint to avoid a risk of price raises. The commitments offered by the two companies address these concerns.
Commission Vice President in charge of competition policy Joaquín Almunia said: “Liner shipping plays a central role in global trade, so competition in this sector is essential for businesses and consumers in the EU. Through the commitments, our decision averts the risk that the merger between Hapag Lloyd and CSAV could lead to any price increase.”
The merger will create the fourth largest container liner shipping company worldwide, after Maersk, MSC and CMA CGM. The activities of Hapag Lloyd and CSAV overlap in the container liner shipping business and have limited vertical links. As many other carriers, the two companies offer container liner shipping services mainly through cooperation agreements with other shipping companies known as “consortia”.
The Commission examined the effects of the merger on competition in the market for container liner shipping services on twelve trade routes connecting Europe with the Americas, Asia and the Middle East.
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. The Commission had concerns that these new links would have resulted in anti-competitive effects on two trade routes: the route between Northern Europe and the Caribbean, and the route between Northern Europe and South America’s West Coast. On these routes, the merged entity, through the consortia that the two companies belong to, may have influenced capacity and therefore prices to the detriment of shippers and consumers.
In order to address these concerns the companies offered to terminate the two consortia in which CSAV currently participates on these two trade routes – i.e. the Euroandes consortium and the Ecuador Express consortium, both with MSC. This will eliminate the 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 not raise competition concerns anymore. This decision is conditional upon full compliance with the commitments.
As regards the vertical links created by the transaction between the market for container liner shipping services and the market for (i) container terminal services, (ii) inland transportation services, (iii) freight forwarding services, and (iv) harbour towage services, the Commission found no competition concerns because of the limited market share of the parties in the upstream and downstream markets.
The transaction was notified to the Commission on 23 July 2014.
Companies and products
Hapag Lloyd is an international container liner shipping company. Through a joint venture with a subsidiary of HGV, HL AG also offers port terminal services in Hamburg-Altenwerder. HL AG’s main shareholders include HGV, Kühne Maritime, and TUI AG (“TUI”), a company active in the travel sector.
CSAV provides container liner shipping services and has limited activities in the freight forwarding and inland transportation sector. CSAV is controlled by Quiñenco S.A. (Chile), a Chilean company which provides, among others, terminal, steve-doring, towage and other associated services through its subsidiary SM SAAM S.A.
On the route between Northern Europe and the Caribbean, Hapag Lloyd is currently a member of the Eurosal consortium with HSDG and CMA CGM; CSAV is a member of the Euroandes consortium with MSC.
On the route between Northern Europe and South America’s West Coast, Hapag Lloyd is currently a member of the Eurosal consortium with HSDG and CMA CGM; CSAV is a member of the Euroandes consortium and the Ecuador Express consortium, both with MSC.
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 involving companies 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).