Wednesday, October 31, 2012

Cross Channel RoRo Freight and Passenger Ferry Row Could Run and Run

UK Authority to Investigate All French Deal
Shipping News Feature

UK – FRANCE – The Office of Fair Trading (OFT), the UK's consumer and competition authority, this week referred the completed acquisition by rail freight provider, Groupe Eurotunnel S.A. of certain assets of former RoRo ferry operator, SeaFrance S.A. to the Competition Commission for further investigation, due to concerns the merger could substantially reduce competition in the provision of cross channel transport services.

After SeaFrance went into liquidation earlier this year, Eurotunnel acquired a variety of the French company’s assets, including three vessels. In August 2012, Eurotunnel recommenced operations with ex-SeaFrance ships, operated primarily by former employees of SeaFrance, on the Dover to Calais route, under a new brand called 'MyFerryLink'.

The OFT said that it recognises that the new service provides benefits to customers by replacing capacity on the Dover to Calais route which was lost when SeaFrance went into liquidation however it apparently believes that there is some evidence that an alternative buyer would have acquired the business had Eurotunnel not done so, and therefore the OFT is concerned about the loss of competition as compared with an alternative scenario which would have been viable.

The evidence gathered by the OFT indicates that, prior to SeaFrance's liquidation, it was a close competitor to Eurotunnel. Although some competitors remain after the merger, the evidence available to the OFT indicates that only ferry operator P&O will provide a strong competitive constraint to Eurotunnel for many customers. At the time the new operator commenced trading in August P&O spokesman Chris Laming made the views of his company very clear saying:

"They've got three SeaFrance ships, the SeaFrance managing director, the SeaFrance staff and the SeaFrance offices and I don't think the disguise is going to fool anyone. We at P&O don't have a problem with fair competition, but it would be reassuring if the competition authorities were to declare this operation unsubsidised. What many of us suspect is that this is a huge political expedient in re-employing old SeaFrance staff rather than expanding the freight market as they claim."

For both passenger and freight customers, the OFT is concerned that prices may increase as a result of this deal. Given the realistic prospect of this merger resulting in a substantial lessening of competition, the OFT considered it appropriate to refer the merger to the Competition Commission for an in-depth review. Amelia Fletcher, OFT Chief Economist and Decision Maker in this case said:

“Having efficient and cost-effective transport links between the UK and Continental Europe for passengers and business customers is clearly important. We are concerned that the merger could further strengthen Eurotunnel's position in the market for cross channel transport and prices could go up as a result. As such, we believe it is appropriate that the Competition Commission reviews this merger in detail to ensure that the interests of consumers and industry are protected.”

P&O’s Mr Laming’s view of the deal that subsidisation in one form or another has been involved seem prevalent within the ferry community, Groupe Eurotunnel and SeaFrance are both French registered and matters were largely decided therefore in France by the Judicial Tribunal. Many readers may be confused why the UK Competition Commission is the body to decide on what is clearly an inter European matter and exactly what it can or will do if it finds matters have not been resolved fairly.

The Competition Commission has a history of reviewing, accepting, blocking and amending shipping related deals which is worth considering. Just last year the acquisition of DFDS Seaways Irish Sea Ferries by Stena AB was considered and the Commission, after an intensive investigation, eventually ruled that there was no substantial lessening of competition (SLC). SLC’s are the raison d’être of the Commission and precisely why this latest case has been referred by the OFT.

The OFT acts under the terms of the Enterprise Act 2002 which empowers them to refer to the Competition Commission completed or proposed mergers for investigation and report which create or enhance a 25 per cent share of supply in the UK (or a substantial part thereof) or where the UK turnover associated with the enterprise being acquired is over £70 million.

So what can the Commission do if it finds in this case that all is not well and that fair competition has been strangled? After all SeaFrance folded because it simply could not make a profit and the phoenix which has risen in the form of MyFerryLink would not appear to be substantially different. P&O may wish for action but this is not a monopoly’s and mergers enquiry and, as ferry services across the Channel do not seem to have been reduced substantially by SeaFrance effectively merely changing hands, this leaves only the question of whether the deal with Groupe Eurotunnel was in the best interests of customers.

P&O and Stena of course have history with the Competition Commission. In 2003 P&O agreed to hand over their Liverpool – Dublin ferry route to Stena but a lessening of competition was considered and in February 2004 the deal was blocked by the Commission concluding it was ‘the only effective measure’.

Speaking to the Handy Shipping Guide today the Competition Commission, whilst pointing to the organisation’s previous experience in the field illustrated the difference which exists between all ferry mergers and suggested possible methods for dealing with the case whilst admitting fining parties who were seen to have acted improperly was not in its gift. If there was a substantial lessening of competition the Commission says it would look at ‘structural and behavioural remedies’ but it is difficult to see what it can achieve in this case that would act as an effective punishment or deterrent.

The Competition Commission has 24 weeks to complete the process and will be publishing an administrative timetable in due course that will outline key publishing dates: issue statement, provisional finding, remedies notice (if required) and the final report which is scheduled for the 14th April 2013 with a maximum of 8 weeks delay allowable under extenuating circumstances. Any interested party is invited to provide the Commission with a summary of its views by 19th November 2012 using an e mail address Eurotunnel.SeaFrance@cc.gsi.gov.uk  

By the time matters are decided MyFerryLink will have been operating the former SeaFrance vessels for 8 and possibly 10 months, a company registered in France and funded by another huge French group. The decision of the Competition Commission will be interesting. If a substantial lessening of competition is found to have occurred - what follows will be far more so.

Footnote: For a ‘New Company’ at the time of going to press the Freight FAQ’s section on the MyFerryLink website still refers to the company as SeaFrance!