Sunday, June 29, 2014

Cross Channel RoRo Freight and Passenger Ferry Row Takes Yet Another Turn

UK Authorities Demand Cessation of Service but This One Could (continue to) Run and Run
Shipping News Feature

UK – FRANCE – A ruling this week from the UK Competition and Markets Authority (CMA) is supposed to sound the death knell for Groupe Eurotunnel’s venture into the RoRo cross channel freight and passenger ferry market, MyFerryLink, with the confirmation of a previous decision by the Competition Commission (CC) that the mechanism whereby the tunnel outfit took over the failed SeaFrance operation was unfair, and would lead to an uncompetitive environment with Eurotunnel controlling the majority of cross channel traffic.

The CMA took over responsibility for the CC, plus the competition and certain consumer functions of the Office of Fair Trading in April, and says it will enforce the original decision which gave Eurotunnel 6 months to sell off its maritime assets, something actually forbidden by a clause in the contract drawn up in France when the group bought the ships involved, clearly mandating they must not be resold within 5 years.

This English/French self-interest controversy is really what lies at the heart of the problem. SeaFrance was an entirely Gallic operation, the ships were owned by railway group SNCF, which failed in the face of competition causing several hundred SeaFrance staff to be put out of work. The French who were made redundant promptly created the Société Coopérative de Production SeaFrance S.A. (SCOP) which received widespread support when it attempted to resurrect the sunken former employers business, concluding with an alliance which saw the undersea operator effectively bankrolling the new venture. To read the complete history simply enter SeaFrance into the News Search box above.

Both P&O and DFDS, the two other ferry operators now on the route, have objected strongly to what they consider illicit support and backed the decision of the CMA, now the UK’s primary competition and consumer authority. The question is however whether the CMA actually have the power to stop MyFerryLink trading in the light of the fact it is fully supported by the French who doubtless consider the rulings of their own countries Courts as the prime authority in the matter.

The latest ruling by the CMA can be read HERE and makes the case that it would be much better for passengers and freight customers to have three competing cross-Channel operators, with Eurotunnel running the rail link and two independent operators on the ferry route. Eurotunnel make the point that having three ferry services operating has resulted in more competition, not less, and this is reflected in prices which impact on subsea operations as well as surface services. In other words the customers are winning whilst all three groups operating the crossings are each feeling the pain of the extra competition.

The CMA has proposed that Eurotunnel ‘find another owner for the MyFerryLink business if that made MyFerryLink completely independent of Eurotunnel’, something the French ruling makes impossible whilst DFDS CEO, Niels Smedegaard, commented:

"Today's final report from the CMA is good news for DFDS and our 1,300 employees providing ferry services across the English Channel. We can now start to carry out our plans for the future. For the sake of all stakeholders, we hope the decision will be implemented as swiftly as possible."

The truth is things are likely to be a little more complicated than this, with Eurotunnel describing the decision as ‘absurd’ and commenting on the appeal ruling in its favour in December 2013 that the purchase via public auction of the assets of a business that had been liquidated nine months previously could not be considered as the acquisition of an enterprise. The French group says by removing one competitor from the market, the CMA is creating a de facto duopoly in the maritime sector which will lead to an increase in prices for consumers and a reduction in revenues for the ports of Dover and Calais, without taking account of the social drama it will generate for the 600 employees of the SCOP.

Eurotunnel Chief Jacques Gounon said the CMA was ‘denying reality’ with a decision that would penalise consumers and put people out of work, and a company statement said the trade has changed dramatically (something the CMA said it had considered) and that its request that the British authority seek a convergence of views with its French counterpart through the offices of the European Commission, had been totally ignored.

All the signs are that this case will again be appealed, presumably through the European Court. If this is the case the affair is likely to drag on for a considerable time and a spokesman for the CMA told the Handy Shipping Guide that, as a new authority, the organisation was picking up powers from its predecessors but these were generally used to introduce price caps when relevant, or to force asset sell offs, the paradox created by the initial ruling when the ships went under the hammer.

This convoluted situation may well leave the ruling in place with limited powers in place to enforce it. No UK ferry port will be keen to see the loss of business should MyFerryLink simply cease trading, and it seems the CMA might need new legislation to enforce its decision, although technically legal in Britain. This means Eurotunnel/MyFerryLink will doubtless run up an even larger legal bill whilst simply ignoring the CMA which appears at first sight seemingly to have no power to impose any meaningful sanctions.

Last week we saw the personal finance group Wonga ordered to pay out £2.6 million as compensation in the ‘fake legal letters’ scandal but it is noticeable that the Financial Conduct Authority (FCA), which imposed this, could not fine the lending company as the FCA only took over its responsibilities from the Office of Fair Trading (OFT) in April, an interesting parallel to the CMA.