Thunder Free Zone Enterprise / Peninsular and Oriental Steam Navigation Co

OFT closed case: Anticipated acquisition by Thunder Free Zone Enterprise, a wholly owned subsidiary of Ports, Customs and Free Zone Corporation, Dubai of The Peninsular and Oriental Steam Navigation Company.

Affected market: Container port terminal services

No. ME/2166/05

The OFT’s Decision on reference under section 33(1) given on 23 January 2006. Full text published 3 February 2006.

Please note that square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Thunder Free Zone Enterprise (TFE) is a newly incorporated wholly owned subsidiary of Ports, Customs and Free Zone Corporation, Dubai (PCFC), which is a corporation established by decree of His Highness The Ruler of Dubai.  PCFC oversees both the commercial and regulatory functions of the Dubai Ports businesses. PCFC has port operations worldwide, although in Europe its activities are confined to an inland terminal in Germany and a port in Romania.

The Peninsular and Oriental Steam Navigation Company (P&O) is an international ports and transport company with operations in (i) ports; (ii) ferries; and (iii) property development. Its ports are based across 18 countries including the UK. P&O's UK turnover was [above £70 million], after disposals, for the year ended 31 December 2005.

TRANSACTION

PCFC (through its wholly owned subsidiary TFE) is proposing to acquire the entire issued share capital of P&O by way of an agreed public bid. PCFC submitted a merger notice in relation to this transaction on 22 December 2005. Therefore, the statutory deadline is 24 January 2006.

JURISDICTION

As a result of this transaction PCFC and P&O will cease to be distinct. The UK turnover of P&O exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

RELEVANT MARKET

The parties overlap in the provision of:

a. Container port terminal services for deep sea container ships – these services (which may also be referred to as ‘stevedoring’) comprise the loading and unloading, processing, handling and storing of containers at a port terminal. Within Europe, P&O operates ports in the UK, Belgium and France and PCFC operates a port in Romania.

b. Inland transportation services – these services involve the provision of road transport (trucking) and water transport (barging). PCFC is only active in this area through the operation of an inland terminal in Germany and the provision of limited barging and trucking services in and around Germany. P&O does not operate barging services anywhere in Europe; however it does carry out trucking services in a number of European countries, including the UK. Given that the parties’ overlap in the provision of transportation services within Europe is minimal, and there is no overlap within the UK, the merger is not considered to give rise to competition concerns in this sector (see [Note 1]).  No third parties raised concerns regarding the impact of the merger on transportation services. Therefore, this will not be considered further.

Stevedoring services to deep sea container vessels

Product focus

The parties submitted that inland transportation services are unrelated to, and thus not substitutable for, the operation of deep sea port terminals. This view has been supported by third parties, who confirmed that the services provided by PCFC at its inland terminal in Germany do not compete with those provided at deep sea port terminals.

The European Commission (EC) has previously considered stevedoring services in previous decisions (see [Note 2]). The EC concluded that the provision of stevedoring services to deep sea container vessels by container terminal operators could be segmented into: (i) stevedoring services in respect of transhipment traffic, i.e. containers destined for onward transportation to other ports by water borne trade; and (ii) stevedoring services in respect of hinterland traffic, i.e. containers transported directly onto or from a deep-sea container vessel to or from the hinterland (via barge, truck or train).

The OFT found no evidence during the course of its investigation which would suggest departing from the EC’s analysis in this case. The OFT has therefore considered the provision of stevedoring services to deep sea container vessels in respect of transhipment traffic and hinterland traffic, respectively, as the relevant product frames of reference to assess the impact of this merger.

Geographic focus

In relation to stevedoring services for transhipment traffic, the EC considered that Northern Europe (i.e. all deep sea ports in the Le Harve (France) to Gothenburg (Sweden) range, that is to say, all ports having sufficient hinterland volumes to justify a direct call by a container liner shipping service (see [Note 3]) constituted a distinct market from Southern Europe (see [Note 4]).

In relation to stevedoring services for hinterland traffic, the EC concluded that within Northern Europe, the UK and Ireland together constituted a distinct geographic market from other Northern Continental hinterland regions (see [Note 5]).

Based on the evidence available, the OFT has no reason to depart from the EC’s analysis in this case. The OFT has therefore considered Northern Europe in the case of stevedoring services for transhipment traffic, and the UK and Ireland in the case of stevedoring services for hinterland traffic as the relevant geographic frames of reference to assess the impact of this merger.

ASSESSMENT

PCFC submitted that P&O and PCFC do not presently compete with each other. This view was supported by all the third party customers who responded during the investigation.

In relation to the provision of stevedoring services for transhipment traffic, P&O operates deep sea container terminals in Northern Europe, however PCFC is not currently present in this geographic area. Therefore there is no overlap between the parties in this region.

In relation to the provision of stevedoring services for hinterland traffic, P&O is active in the UK where it operates the container terminals at Tilbury (in which it holds a 34 per cent share) and Southampton (in which it holds a 51 per cent share). A further port is proposed on the Thames Estuary. PCFC is not active in the UK or Ireland. Therefore there is no overlap between the parties in this region.

There are no vertical links between the parties. In addition, none of the third parties who were contacted by the OFT during the investigation raised concerns about this transaction.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom'.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. C estimates that P&O's European share of supply of transportation services is less than 5 per cent and its own share of supply is approximately [0 per cent to 5 per cent] in Germany. On this basis, the parties' combined European share of supply of transportation services would appear to be very low. At the UK level, PCFC estimates that P&O's share of supply of transportation services is less than 5 per cent. Given that PCFC is not active in the UK, there would be no increment to the parties' share of supply post-merger.
2. COMP/JV.55 - Hutchison/RCPM/ECT; Case No COMP/JV.56 - Hutchison/ECT; Case No M.3576 - ECT/PONL/Euromax.
3. , Southampton, Le Havre, Zeebrugge, Antwerp, Rotterdam, Bremerhaven, Hamburg and Gothenburg.
4. COMP/JV.55 - Hutchison/RCPM/ECT.
5. /JV.55 - Hutchison/RCPM/ECT.

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