Merger of Aktieselskabet Dampskibsselskabet Svendborg and Dampskibsselskebet af 1912 Aktieselskab) with Sea-Land Service Inc.
Case:
Merger of Aktieselskabet Dampskibsselskabet Svendborg and Dampskibsselskebet af 1912 Aktieselskab) with Sea-Land Service Inc.
Key Words:
merger
Reference:
Fair Trade Commission Decision of November 3, 1999 (the 417th Commissioners' Meeting); Letter (88) Kung Yi Tzu No. 88114786-004
Industry:
Marine shipping (6132)
Relevant Laws:
Summary:
1. The sales revenue threshold in Article 11(1)(iii) of the Fair Trade Law serves to identify enterprises that have attained considerable economic clout. Thus, even if an enterprise's market share has not reached the regulatory limit, any merger involving an enterprise of this scale is subject to approval by the Fair Trade Commission (the Commission). Since companies can pay maritime shipping charges at the place of export or at the place of import, it is impossible to calculate shipping sales revenue from Chinese Taipei accurately. Consequently, the Fair Trade Commission calculates sales revenue for maritime shipping enterprises by combining shipping revenues to and from Chinese Taipei. This differs from the method by which the Commission calculates revenues for ordinary businesses pursuant to Article 11(1)(iii) of the Fair Trade Law. 2. Aktieselskabet Dampskibsselskabet Svendborg ("Svendborg") and Dampskibsselskebet af 1912 Aktieselskab's ("1912") Chinese Taipei sales in the last fiscal year reached more than NT$5 billion. Their plan to assign Sea-Land Service Inc. ("Sea-Land") their container yard, ships, containers, motorized equipment, generator engine bases, company names, and trademarks and other international shipping operations, services and capital equipment as well as to purchase stock in Sea-Land constitutes a merger under Article 6(1)(iii) of the Fair Trade Law and therefore requires an application to the Fair Trade Commission under Article 11 of the Law. 3. Impact on Competition (1) This merger would make Svendborg and 1912's subsidiary Ma Si Ke to be the world's largest container shipping company. The Commission also discovered, however, that Ma Si Ke had begun to share shipping lines with Sea-Land, the applicant, in 1991 and that the two companies had begun joint operations in 1995. Since the applicant belongs to the same group of shipping companies operating jointly that itself competes with other groups of international shipping companies operating jointly, the merger has no significant impact on market competition. (2) The international container shipping industry is more concentrated than it was ten years ago. This is related to the competitive, capital-intensive nature of the industry. Although the applicant will have market share of about 10 percent after merger, the shipping market is an international one in which prices are decided by supply and demand. Because the applicant will face competition from other major international shipping companies, the industry will maintain a considerable degree of competitiveness, the applicant will not be able to dominate the market, nor will there be significant impact on shipping prices. (3) The trading counterparts of container shipping companies attain strong pricing leverage through shipping associations, shipping agents, and public shippers without ships that aggregate large numbers of containers. As a result, these trading counterparts can avail themselves of a range of sophisticated services from shipping container companies. If the trading counterpart is a multinational corporation, it can easily change shipping companies without suffering significant damages due to its size and resources. With the rise of information technology, all of the shipping enterprises have made enormous investments so as to be able to provide customers with real-time information and services. Consequently, their trading counterparts can easily compare the differences between the services and prices offered by the shipping companies and select the most advantageous contracts. These trading counterparts, moreover, tend to enter non-exclusive contracts with different shipping lines in order to spread the risk of shipping delays as widely as possible. At the same time, they extend their power to negotiate advantageous pricing and service to the greatest extent possible. There have even been cases of shipping companies who have lost customers when they combined. Consequently, this merger will not have the effect of limiting competition. (4) Chinese Taipei has no regulatory curbs on entry into the shipping business. Moreover, shippers may rent, purchase, or use other forms of security to obtain the ships, containers, and container yards that they need to operate without any significant difficulty. Mergers, joint operations, or other measures that raise the threshold for entry are an industry trend. This trend, rather than the merger in question, is the source of the increasing pressure on niche shippers. (5) Because the merger in question does not extend to shipbuilding or container manufacturing, it does not affect the ability of other shipping companies to acquire ships or containers, nor does will it have a significant impact on ship builders or container manufacturers. Moreover, although the applicant's freight forwarding operation is handled by one of its subsidiaries, this subsidiary will face competition from other freight forwarders. Thus this merger will not have a significant influence on the freight forwarding industry. Each of the applicants currently has container yard operations at the Port of Kaohsiung that potentially might have an impact on competitors after the merger. However, due to the fact that the applicants already have joint operations, the impact on the overall domestic container yard industry will not be significant. 4. Overall economic benefit (1) After merger, the applicants will be able to use their assets and human resources more efficiently, reduce cost duplication, save personnel costs, and improve their ability to allocate capital. This will help the applicants raise operating efficiency, strengthen finances, and thereby provide better a service to their trading counterparts and encourage competitors to compete for superiority. The Commission expects that after merger, the applicants will be able to use their ample capital to deploy super-size vessels on their trunk lines. This will allow the applicants to reduce the number of shipping days by using fleets of small independent container ships that can enter and exit harbors easily to overcome natural barriers and thereby provide fast, competitive service. (2) Ma Si Ke and Sea-Land each own two exclusive wharves in Kaohsiung Harbor. After merger therefore they will own four exclusive wharves. In 1998, the applicants handled a total of 1.67 million TEUs (including importing, exporting, and transporting) or 26.69 percent of Kaohsiung Harbor's volume, 19% of the volume of the three major ports on Chinese Taipei's west coast. Of this, transfer shipments totaled 990,000 TEUs or 30% of Kaohsiung Harbor's total shipping transfer volume. This represents an important contribution to Chinese Taipei's efforts to become an Asia-Pacific Operations Center. After merger, the applicants will be able to use the loading facilities at their exclusive wharves more efficiently, increase their transfer operations, and raise the volume of loading and off-loading at the Kaohsiung Harbor. 5. The foregoing analysis shows that overall economic benefit greatly outweighs potential limitations on competition. The Commission therefore approves the merger pursuant to Article 12 of the Fair Trade Law. Summarized by Ch'en Chun-t'ing; Supervised by Hu Kuang-yu