COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 50/LM/Jul02
In the large merger between:
Safmarine Container Lines N.V.
and
the Unicorn Lines Division of Unicorn Freight Services (Pty) Ltd
Reasons for Decision
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APPROVAL
On 4 September 2002 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Safmarine Container Lines N.V. and the
Unicorn Lines Division of Unicorn Freight Services (Pty) Ltd in terms of section
16(2)(a). The reasons for the approval of the merger appear below.
The Parties
1. The acquiring firm is Safmarine Container Lines N.V. (trading under the
global brand name of Safmarine) (“SCL”), a Belgianbased company.SCL is
in turn part of a large international shipping group based in Denmark, the
AP Moller Group and subsidiary of Maersk (“Maersk”). 1 SCL operates in
South Africa through its whollyowned subsidiary, Safmarine (Pty) Ltd,
based in Cape Town .
2. The target firm is the Unicorn Lines Division of Unicorn Freight Services
(Pty) Ltd (“Unicorn”). Unicorn in turn, is a subsidiary of the Grindrod Group, which
has other shipping interests but is only selling Unicorn Lines which operates its
1 The A P Moller Group acquired the liner shipping interests and the trading name
Safmarine in 1999. Also in this group, is Maersk Sealand, one of the largest shipping liner
companies in the world. They operate on some of the same international routes that
Safmarine do.
African coastal container shipping operations.
Rationale for the Transaction
3. IntraAfrica trade is regarded by Safmarine as a growth area in respect of
which they wish to improve and expand services to intraAfrican
destinations. SAF regards Unicorn as very competent in intraAfrica
regional/feeder trades, while Safmarine’s competence lies in its
international global container trades. The merger will facilitate Safmarine’s
ability to deliver an efficient service to its customers. Similarly, it will enable
Unicorn to achieve critical mass and to leverage Safmarine’s buying power
to achieve savings in operational costs. Since Unicorn is already a sub
contractor for SCL, there will be little change in daytoday operations
The Merger Transaction
4. Safmarine and Unicorn are to establish a joint venture, (Newshelf 667, later
to be renamed “Unifeeder”). Safmarine and Unicorn will, respectively, own
51% and 49% in Unifeeder which will buy the Unicorn’s coastal shipping
services division. This includes a 40% interest in Mozline SARL). Mozline is
a Mozambiquan registered company which facilitates trade between South
Africa, Namibia and Mozambique.
The Relevant Market
5. Safmarine is an international, longhaul container line and transporter of
cargo.2 It also operates in West, North, East Africa, the Far East, South
America, Europe and the USA.
6. Unicorn Lines is a regional, coastal “feeder” service which operates along
the entire South African coastline between Luanda (Angola) and Mombasa
(Kenya). It is called a feeder service because it provides regional services
by collecting cargo from international carriers and “feeding” it to various
smaller South African ports where, due to size constraints, larger vessels
cannot dock. Similarly, it collects cargo from small ports and feeds it to
international carriers at the larger ports. Unicorn Lines also carries out the
shipping of regional commercial cargo from South African ports along the
west coast from Durban to Luanda and along the east coast route (from
Durban to Mombasa) This type of service is referred to as a coastal service.
7. The parties identify the area of overlap as being their costal service on the
2 It does so in containers and in the form of palettes, crates or boxes (breakbulk).
routes into Angola and East Africa, that is, in respect of cargo transported
from Angola to RSA and vice versa, as well as in respect of cargo
transported from Tanzania/Kenya to RSA and vice versa.
Impact on competition
8. The overall impact of the combination is insignificant. Based on total cargo
shipped and landed in the South African market, combined market shares,
including the longhaul shipping activities of SCL, total only 22%. On the
RSA/Angola routes where Safmarine and Unicorn compete, the parties
estimated Maersk Sealand has 15% market share, Unicorn 14% and
Safmarine 13% . Given that Maersk Sealand is a sister subsidiary of the
merged firm, their combined shares of these markets would be 42%.
However the parties maintain that there are 10 other lines competing in this
market, making it very overtraded and highly competitive. On the East
Coast route between RSA and Kenya, they estimated MSC having
approximately 60%, P&O Nedloyd having 20%, Safmarine 15% and
Unicorn having just a few percent.
9. It is obvious that there is a great deal of competition between feeder
suppliers because supply exceeds demand. There is a worldwide trend to
pool resources and consolidate in such an overtraded market. The parties’
strategy is to ultimately lower costs and improve the quality of regional and
international container transport by sea, increasing the competitiveness of
South African exports. As evidence of this, the parties have pointed out
that freight rates had declined substantially in the past year. The total
volume of cargo shipped has decreased by 4.42% even though the number
of container vessels calls to local ports has increased by approximately
46%.
10. The parties’ customers are large companies who, in the event of the exercise of market
10. The parties’ customers are large companies who, in the event of the exercise of market
power by the merged entity, will be able to substitute relatively easily to other shipping
service providers, notwithstanding also to rail and road transportation. The parties also
refer to the rapid emergence of import competition from wayporters, to whom Unicorn has
reportedly lost 27% market share in the last 7 years. Wayporters are various international
carriers which stop along the South African coastline and act as feeder operators to other
shipping lines and pick up and offload coastal cargo between ports along the SA coastline.
Examples are Tunain, P&O Nedlloyd, Matsui OSK Lines, NYK Lines, CSAV, Keen Hung,
MSC. They provide a comprehensive service, comprising global shipping, feeder services
and regional coastal transportation, therefore are typically vertically integrated.
11. Furthermore, barriers to entry to South African markets remain low,
facilitated by government’s deliberate trade liberalization policies in recent
years, thereby ensuring that restrictions on foreign vessels from
transporting cargo between local ports have been eliminated. In
consequence, the number of container vessels docking at local ports has
increased substantially over recent years due to globalisation and the rise
of export and import activity.
Vertical Issues
12 Currently, Unicorn Lines operates as a subcontractor for Safmarine as well
as other shipping lines, by providing it with a regional feeder service to
compliment its international trade. The fact that Unicorn Lines will also be
servicing other shipping lines gives rise to the possibility of Safmarine post
merger foreclosing its other competitors by channeling all its regional
shipping needs through Unifeeder, preventing it from servicing other
shipping lines.
13. However the parties maintain that in an overtraded shipping market, vertical
integration of large shipping lines and smaller regional operators is
commonplace. Unifeeder will require critical mass to remain economically
viable, and to maximize the usage of its cargo capacity on its various
vessels. Presently, 30% of the volumes it carries is attributable to
Safmarine (including Maersk Sealand), the remaining 70% is split equally
between other third party lines (including P&O Nedlloyd, Zimlines, NYK) as
well as other domestic, commercial cargos. Therefore, Unifeeder will be
dependent on the patronage of other shipping lines to keep it in business.
There is no evidence to suggest that SCL’s competitors will not continue to
have access to Unifeeder’s services at market related terms.
14. The parties furthermore assured that, in any event, there are other service
providers for Safmarine’s competitors on the route into East Africa there
are at least two other feeder carriers, Global Container Lines and another
company called SPAM Freight. P&O Nedloyd provide their own service into
company called SPAM Freight. P&O Nedloyd provide their own service into
Angola. The parties advised that it is not difficult for larger carriers to
implement their own direct service on a particular route, to meet their own
requirements, as opposed to utilizing a feeder service and since these
markets are so small in global terms, the merger will be unlikely to prevent
them from doing so. The parties suggested that, as an alternative, other
shipping lines could easily collaborate to form a partnership with one of their
overseas trading partners on these African routes. In addition, since much
of the feeder service is provided to landlocked countries, there is also the
alternative to transport cargo by road or rail. Therefore competitors are
unlikely to be foreclosed from these markets.
Conclusion
We conclude that the merger will not lead to a substantial lessening of
competition. The Tribunal therefore approves the transaction unconditionally.
There are no public interest concerns which would alter this conclusion.
_____________ 20 September 2002
N. Manoim Date
Concurring: D. H. Lewis, U. Bhoola
For the merging parties: Edward Nathan Attorneys
For the Commission: K. Tshikare, Mergers Division, Competition
Commission