THE Competition Commission has recommended that the Competition Tribunal prohibits a proposed transaction whereby United Container Depots (UCD) intends to acquire Kings Rest Container Park. The Commission said it is of the view that the proposed transaction is likely to result in significant harm to competition, particularly in the logistics sector and will likely have a negative impact on public interest in logistics and associated sectors.
The primary acquiring firm, UCD, is ultimately controlled by Grindrod Limited, according to the Commission.
UCD offers container services including storage, handling, repairs, maintenance, transport and cleaning of empty containers. UCD provides these services for both refrigerated containers (also called reefer services) as well as ordinary (non-refrigerated) containers. UCD’s container depots are situated in Cape Town, Durban and Johannesburg. In addition, UCD also offers sales, leasing and conversions of containers.
The primary target firm, Kings Rest Container Park (KRCP), is also engaged in the provision of container storage services including the storage, handling, cleaning and repair of both ordinary and refrigerated containers. KRCP has two container depots in Durban (at Bayhead and Clairwood Park) and one container depot in Johannesburg (City Deep). KRCP is also involved (to a limited extent), in the sale, leasing and conversion of containers.
The Commission’s investigation found that UCD and KRCP are the only two firms that provide so-called reefer services in Johannesburg and that they are the largest of four firms that provide reefer services to the open market in Durban. Although there are several smaller competitors that provide storage and handling services for non-refrigerated containers, there are very few players that provide an integrated offering, like the merging parties do.
The Commission thus found that the proposed merger will likely result in a substantial lessening of competition in the market for the provision of empty container services both in Johannesburg and Durban. In Johannesburg, the proposed merger is likely to result in a complete loss of competition as UCD and KRCP are the only companies that provide the full suite of empty container services for both refrigerated and non-refrigerated containers in Johannesburg. The proposed transaction, therefore, results in the removal of an effective competitor from the market and the merged entity was likely to exercise market power in the container storage market in Johannesburg post-merger, according to the Commission.
The Commission further found that the proposed merger will also remove an effective competitor in the provision of empty container storage services market in Durban and by so doing, reduce the number of empty container storage depot operators that provide a full suite of services in the Durban market. As a result, the Commission is of the view that significant harm to competition is likely to arise post-merger as the customers of the merging parties will have fewer options with a full-service offering and sufficient capacity in the Durban market.
The Commission is concerned that the transaction will have a negative effect on prices and costs in the logistics value chain, particularly for shipping liners who rely on the competition that exists between the merging parties pre-merger. Should the merged entity increase prices post-merger, shipping lines are likely to pass down costs to their customers by also increasing prices. This may have a negative ripple effect on the logistics value chain upon which a significant amount of economic activity depends, especially given the limited empty container depot capacity in the market. This view has been confirmed by market participants, the Commission said.
The merging parties did not provide sufficient evidence of merger-specific technological, efficiency, or other pro-competitive gains that will be greater than and offset the likely effects of the loss of competition arising from the proposed transaction, nor substantial public interest commitments that would outweigh the competition concerns.
Following the Commission’s recommendation, the Tribunal will, in due course, set the matter down for hearing and subsequently make a final decision on the proposed merger.
