Friday, March 21, 2014

Cross Channel RoRo Freight and Passenger Ferry Service One Step Closer to Closure

Competition Commission Hints it Will Insist on Withdrawal of Eurotunnel Subsidiary Operation
Shipping News Feature

UK – FRANCE – In the on-going dispute over the future of Eurotunnel’s RoRo cross channel freight and passenger subsidiary MyFerryLink, the UK’s Competition Commission (CC) has ‘provisionally confirmed’ that it has jurisdiction over Eurotunnel’s acquisition of three ferries and related assets, previously belonging to the now liquidated ferry operator SeaFrance. As a result, the CC has concluded that it has no reason to change its opinion and that MyFerryLink must cease operations, even though the UK’s Competition Appeal Tribunal (CAT) originally ruled in favour of the merger.

In November we predicted that, should the CC decide against Eurotunnel, the likelihood is that it will start a dispute between French and British governments following the deal the carrier struck with Paris. The CC says that it has been considering whether Eurotunnel, together with a workers’ cooperative formed by former SeaFrance employees (SCOP), acquired an ‘enterprise’ giving rise to a merger under the UK merger control rules, after the issue was remitted to the CC by the Competition Appeal Tribunal (CAT) in December.

In its provisional remittal decision published today, the CC has concluded that the acquired assets do constitute an enterprise. It was deemed that there was a considerable level of continuity between the former SeaFrance services on the Dover–Calais route and Eurotunnel’s new services on that route. The combination of assets that GET and SCOP SeaFrance acquired enabled them to establish ferry operations more quickly, more cheaply and with less risk than if alternative assets had been separately acquired in the market.

Whilst there had been a period of inactivity between SeaFrance operating ferries on the route and the assets being acquired, Eurotunnel/SCOP were able to commence operations on the route relatively quickly due to the considerable benefit of having vessels that are specifically configured to meet the requirements of the Dover–Calais route as well as ex-SeaFrance staff with experience of running a service on that route. Alasdair Smith, CC Deputy Chairman and Chairman of the Eurotunnel Remittal Group, said:

“It is our provisional view that Eurotunnel in effect acquired a business that was already geared up to run a ferry service between Dover and Calais, using assets that had been proven in practice to be suitable for that activity. It would have faced a much longer, more expensive and riskier process to get the service up and running if it had tried to buy alternative assets in the market. We found that the commercial operability of the assets had not been greatly affected by SeaFrance’s liquidation.”

In its final decision published in June last year following its original inquiry, the CC decided that by adding ferry services to its existing Channel Tunnel business, Eurotunnel would increase its market share to over half and prices would rise for cross-Channel passengers and freight customers, and there would be a ‘substantial lessening of competition’ (SLC) as a result of the merger.

Following a legal challenge to the CC decision by Eurotunnel and SCOP SeaFrance, the CAT issued a judgment in December and the CC were given one month to reopen their investigation. The CC now aims to make its final decision by early May but signs are not encouraging for the owners of the undersea link. A Eurotunnel statement said:

“Groupe Eurotunnel cannot understand how it is possible to acquire a company six months after it has ceased to exist and nine months after the closure of all operations. Groupe Eurotunnel also points out that the decision of the Competition Commission is completely contradictory to that expressed previously by the French competition authorities.

“Groupe Eurotunnel emphasises that over the past two years the market has in no way been negatively affected by MyFerryLink. On the contrary statements by a competitor confirming that it would have to leave the Short Straits are, in the light of the evidence from public statements about their financial strength and ambitions to expand, entirely incredible.

“To conclude, if prior to its final decision the Competition Commission does not wish to review its perspective on the competition which exists across the Strait of Dover in the light of the current reality, and not based on suppositions from two years ago, Groupe Eurotunnel will withdraw its ferries from the Channel.” The arrangement to buy and operate the SeaFrance assets are viewed very differently by politicians either side of the Channel. In France the deal offered a way out when a large tranche of seafarers were effectively all put out of work at once with little prospect of employment.

The argument from MyFerryLink’s point of view is that the operation offers more competition rather than less. British authorities presumably view the deal as another case of state support by the back door and a deal made by France simply for its political expediency.