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  December 13th, 2016 | Written by

European Commission Approves Merger Between Hapag-Lloyd and UASC

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  • EC cleared acquisition of UASC by Hapag-Lloyd conditional on withdrawal of UASC from an alliance.
  • UASC's membership in Europe-North America alliance provides merged entity with insufficient competitive constraint.
  • Hapag-Lloyd/UASC combination will create the world's fifth largest container liner shipping company.

The European Commission has cleared the proposed acquisition of United Arab Shipping Company (UASC) by Hapag-Lloyd under the EU Merger Regulation, subject to conditions. Both companies operate in the container liner shipping sector.

The clearance is conditional on the withdrawal of UASC from an alliance on the trade routes between Northern Europe and North America, where the merged entity would have faced insufficient competitive constraint.

The transaction leads to the combination of two competitors in the container liner shipping business and will create the fifth largest container liner shipping company worldwide. Like several other carriers, UASC and Hapag-Lloyd offer their services on trade routes mainly through cooperation agreements with other shipping companies, known as alliances. Alliance members decide jointly on capacity setting, scheduling and ports of call, which are all important parameters of competition.

The commission examined the effects of the merger on competition in the market for container liner shipping on thirteen trade routes connecting Europe with the Americas, the Middle East, the Indian Subcontinent, the Far East, Australia, New Zealand and West Africa, as well as Northern Europe with the Mediterranean.

“European companies rely on container liner shipping services for their transatlantic shipments,” said Commissioner Margrethe Vestager, in charge of competition policy. “It’s very important that the markets remain open.The commitments offered by Hapag-Lloyd ensure that the takeover will not lead to price increases on the routes between Northern Europe and North America.”

The commission found that the merger, as initially notified, would have created links on the Northern Europe-North America trade routes between the consortia and alliances in which Hapag-Lloyd is a member and the NEU1 consortium, in which UASC is a member. As a result, through the consortia and alliances it would belong to, the merged entity could have influenced capacity and prices on a very large part of those markets, to the detriment of customers and, ultimately, consumers. The commission had concerns that on those routes, the merged entity would have faced insufficient competitive constraint from rival companies.

The transaction also creates limited vertical links between the companies’ activities in container liner shipping services and container terminals, inland transportation, freight forwarding, and harbor towage. But the commission found no competition concerns in these areas, in particular because several other service providers are active in these markets.

In order to address the commission’s competition concerns, Hapag-Lloyd offered to terminate the participation of UASC in the NEU1 consortium. This will entirely remove the additional link between Hapag-Lloyd’s and UASC’s consortia, that the transaction would have created on the Northern Europe- North America trade routes. As a result, the merged entity’s position on these trade routes will be comparable to that of Hapag-Lloyd today.

Although UASC will continue to operate as part of the NEU1 consortium during the notice period to guarantee an orderly exit, a monitoring trustee will ensure that no anti-competitive information is shared between the NEU1 consortium and the merged entity during that notice period.

The commission therefore concluded that the proposed transaction, as modified by the remedies proposed, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments.