The Ministry of Commerce of the People’s Republic of China (hereinafter referred to as the “Ministry of Commerce”) received the Anti-monopoly Declaration on the Concentration of Undertakings by A.P. Moller - Maersk A/S of Denmark (hereinafter referred to as the “Maersk”), the MSC Mediterranean Shipping Company S.A. (hereinafter referred to as the “MSC”), and CMA CGM S.A. (hereinafter referred to as the “CMA CGM”) with respect to the establishment of a network center (hereinafter referred to as the “Case”). Upon review, the Ministry of Commerce believes that the establishment of the network center may lead to the formation of a compact association by Maersk, MSC and CMA CGM, and have effects of excluding or restricting competition on the container liner shipping market for the Asia-Europe route. Therefore, the Ministry of Commerce has decided to prohibit the concentration of undertakings. In accordance with Article 30 of the “Anti-monopoly Law of the People’s Republic of China” (hereinafter referred to as the “Anti-monopoly Law”), the Announcement is hereby made as follows:
I. Case-filing and review procedures
On September 18, 2013, the Ministry of Commerce received the anti-monopoly declaration for the concentration of undertakings concerning the Case. Upon review, the Ministry of Commerce considered that the documents were incomplete, and required the declarer to make supplementation. On December 19, 2013, the Ministry of Commerce confirmed that the documents and materials after further supplementation complied with Article 23 of the Anti-monopoly Law, and therefore the anti-monopoly declaration for the concentration of undertakings was admitted to be filed and the preliminary investigation was launched. On January 18, 2014, the Ministry of Commerce decided to further review this concentration of undertakings. On April 18, 2014, the Ministry of Commerce decided to further extend the review period to June 17, 2014.
In the course of the review, in order to learn the information in relation to the market definition, market structure, industry characteristics, future prospects and other aspects, the Ministry of Commerce sought the opinions from the relevant government departments, trade associations and related enterprises, and examined the authenticity, completeness and accuracy of the documents and information submitted by the declarer; in the meantime, independent third-party institutions were engaged to conduct legal and economic analysis and appraisal on the competition issues arising from this concentration of undertakings.
II. Overview of the Case
Maersk was incorporated in Denmark in 1904, and was listed on NASDAQ OMX Copenhagen Stock Exchange in 1982. It is the world’s largest container shipping company, having offices in 142 countries and regions worldwide, the business scope of which includes container liner shipping, terminal services, inland transportation, logistics, harbor tugs, tankers, oil and gas exploration and production, retails and air transport. Maersk engages in container liner shipping services and related businesses in the major ports of China.
MSC was founded in Belgium in 1970, and was registered as a company limited by shares in Switzerland in 1976. It is the world’s second largest container shipping company, providing container shipping services, a combination of rail, river and road freight container transportation, ancillary services, port services and cruise services on a global scale. MSC engages in container liner shipping and ancillary businesses in China.
CMA CGM is a limited liability company incorporated in France in 1996. It is the world’s third largest container shipping company, with its business scope covering shipping, refrigerated transport, port handling facilities and ground logistics. CMA CGM in China mainly engages in container liner shipping businesses and a small part of logistics businesses as well as agency businesses.
In October 2013, Maersk, MSC and CMA CGM (hereinafter referred to as the “Transaction Parties”) signed an agreement intending to establish a network center in the form of limited liability partnership in England and Wales to take charge of the container liner operating matters for the routes of Asia-Europe, trans-Atlantic and trans-Pacific of the Transaction Parties in a unified manner.
III. Relevant Market
1. Relevant commodity market
Upon examination and investigation, relevant commodity market is found to be the international container liner shipping market.
International shipping market mainly includes container liner and non-liner transportation services, as well as dry bulk and tankers transportation services. International container liner shipping services refer to the type of transportation service that the container liner enterprises provide standardized and repeated container cargo transportation services for non-fixed shippers based on pre-planned schedules, between fixed ports of call on international fixed routes, according to the relevant operating rules, and calculate and collect the freight charges based on the freight rate for the twenty-foot equivalent unit (TEU). Non-liner shipping cannot be substituted by liner shipping and vice versa. Dry bulk transport, bulk cargo transport, tanker transport and container transport are not replaceable with one another either.
2. Relevant geographic market
Upon examination and investigation, relevant geographic market is found to be related to the Asia-Europe route, the trans-Pacific route and the trans-Atlantic route.
The feature of liner shipping is shipping between fixed ports according to fixed routes and schedules. During the investigation on the relevant geographic market, trade routes are the basic elements of the international container liner. The transaction among the Transaction Parties involved three routes, namely the Asia-Europe route, the trans-Pacific route and the trans-Atlantic route. According to the industry practice, the aforementioned three routes involve a total of nine trade routes: the Far East-North Europe trade route and the Far East-Mediterranean trade route (collectively known as the Asia-Europe route); the Far East-West Coast of North America trade route, the Far East-East Coast of North America and the Far East-US Gulf Coast trade route (collectively known as the trans-Pacific route); North Europe-US East Coast trade route, the Mediterranean-US East Coast trade route, the Europe-Canada trade route and the Europe-US West Coast trade route (collectively known as the trans-Atlantic route).
The trans-Atlantic route does not cover any of Chinese ports, while the Asia-Europe route and the trans-Pacific route both cover major ports in China. Therefore, the Ministry of Commerce focused on investigation of the impacts of competition in the transaction among the Transaction Parties on the Asia-Europe route and the trans-Pacific route.
IV. Competition analysis
According to the provisions of Article 27 of the Anti-monopoly Law and the characteristics of the Case, the Ministry of Commerce made assessments on the factors concerning the Transaction Parties and the network center in respects of relevant market share, market control power, market concentration, market access and the impacts on consumers and other business operators, and believed that upon the completion of the concentration, the Transaction Parties would form a compact association. Given the fact that competitors with relatively high market share exist on the trans-Pacific route and that the market structure is relatively fragmented, the Ministry of Commerce focused on investigating the market of the container liner shipping services for the Asia-Europe route:
1. The transaction has formed a compact association different from the loose traditional shipping alliances in nature.
The international container liner shipping industry is a capital-intensive industry with large investments and high risks. A certain degree of cooperation is usually carried out among shipping companies, mainly in the form of vessel sharing agreements, and accommodation swap agreements, etc. On this basis, a number of shipping alliances have formed in the market.
The traditional shipping alliances in the international container liner shipping market conduct cooperation based on vessel sharing agreements and accommodation swap agreements, and each alliance member operates independently. The cooperation is loose. In the Case, the Transaction Parties integrated the full shipping capacity of the Transaction Parties in the global East-West shipping line (the Asia-Europe route, the trans-Pacific route and the trans-Atlantic route) through the establishment of the network center; which is substantively different from the traditional shipping alliances in terms of form of cooperation, operational procedures and cost sharing methods; this is a compact association.
It has been found in the investigation that, in terms of form of cooperation, the traditional shipping alliances generally adopt the form of vessel sharing and accommodation swaps; while in the Case, the Transaction Parties conducted daily management for all their vessels in the cooperative lines by jointly setting up the network center, and the Transaction Parties retained only the right concerning technical management of the vessels. In terms of operational procedures, the shipping alliances coordinate the operation through a committee composed of representatives from each route; while in the Case, the network center is independently responsible for the management and operation in accordance with pre-agreed work procedures. In terms of cost sharing methods, each member of the shipping alliances bears its own expenses for operating the vessels, and conducts independent accounting and bears the costs; while in the Case, all routes involved in the cooperation are divided into several settlement groups, the cost is settled in a unified manner, and the ship operational costs are allocated uniformly, by defining the voyage costs (including charter rates, fuel costs, port fees and canal fees). In terms of sales of the unused container space, the shipping alliance members may directly sell such space to other members according to the terms of the ownership interests, or sell or sublease such space to any third party; while in the Case, the Transaction Parties authorize the Network Centre to uniformly coordinate and dispose of the unused space. In terms of suspension of a shipment, the shipping alliance members enter into an agreement on it through discussion; while in the Case, it is directly determined by the network center.
In conclusion, the Ministry of Commerce holds that, a compact association different from the shipping alliances in nature will form in the Case.
2. The transaction will significantly enhance the market control power of the Transaction Parties.
Capacity share is an important indicator reflecting the market power of the container liner shipping companies. As of January 1, 2014, the capacity shares of Maersk, MSC and CMA CGM on the Asia-Europe route were 20.6%, 15.2% and 10.9%, ranking the first, second and third respectively. The capacity share of any of the Transaction Parties is larger than that of the other competitors. The total capacity share of the Transaction Parties amounted to 46.7%, and the market control power after the integration has been significantly enhanced.
3. The transaction will significantly increase the concentration of the relevant market.
The review indicates that before the transaction, many competitors exist in the market including the Transaction Parties in the Case. Herfindahl-Hirschman Index (HHI) of the international container liner shipping market for the Asia-Europe route was approximately 890. After the transaction, since the Transaction Parties formed a compact association which led to the reduction in the number of major competitors in the market, the HHI index increased to about 2240, and the HHI variable was approximately 1350. The container liner shipping services market for the Asia-Europe route changed from “relatively segmented” to “highly concentrated”, and the market structure will change significantly.
4. The transaction will further increase the entry barriers for the relevant market.
International container liner shipping is a capital-intensive industry, with the effect of the economy of scale; however, a necessary condition to maintain market competition is to have a certain number of market players with effective competition relation. The transaction integrates the strength of the Transaction Parties and their operating networks, and eliminates effective competition among the major competitors in the relevant market, which may further increase the entry barriers for the international container liner shipping market and lead to the difficulty in generating new constraints with competitiveness.
5. Impacts of the transaction on other relevant operators
Upon the completion of the transaction, the Transaction Parties, by integrating the routes and capacity resources, will further strengthen their market power, which may squeeze the development space for other competitors, which may fall into a more disadvantageous situation in the future competition.
It is found through investigation that the shippers have comparatively weak bargaining power concerning the container shipping. The Transaction Parties may jeopardize the interests of the shippers by using their increased market power.
The Case will also strengthen the bargaining power of the Transaction Parties against the ports. To fight for the ports of call of the Transaction Parties, ports may be forced to accept lower prices for port services, causing negative impacts on the development of ports.
V. Discussion on the additional restrictive conditions
In the course of the review, the Ministry of Commerce pointed out to the Transaction Parties that, the concentration of undertakings might have effects of excluding or restricting competition, and conducted many discussions with the declarer on how to solve the aforementioned issues concerning competition. The Transaction Parties submitted several rounds of remedy programs, and submitted a final remedy program on June 9, 2014. Upon assessment, the Ministry of Commerce holds that the final remedy program submitted by the Transaction Parties lacks of appropriate legal basis and support of convincing evidence, and may not solve the concern on competition from the Ministry of Commerce.
VI. Decision for the review
Upon review, the Ministry of Commerce believes that, the concentration of undertakings has formed a compact association of the Transaction Parties, and may have effects of excluding or restricting competition on the container liner shipping service market for the Asia-Europe route. The participating undertakings have failed to prove that the beneficial effects of the concentration on competition significantly outweigh the adverse effects, or the concentration would comply with the public interests. Therefore, the Ministry of Commerce has decided to prohibit the concentration of undertakings by the Transaction Parties.
The Announcement shall come into force as of the date of promulgation.
The Ministry of Commerce of the People’s Republic of China
June 17, 2014
Translated by Hou Zuowei
(All information published in this website is authentic in Chinese. English is provided for reference only. )