The Competition Commission has recommended that a proposed deal where the huge container company, United Container Depots (UCD), that is intending to acquire Kings Rest Container Park’s (KRCP) stake be prohibited.
The commission urged the Competition Tribunal to refuse to give the deal the green light, as this will likely result in significant harm to competition.
The acquiring firm, UCD, which is controlled by JSE-listed company Grindrod, is also likely to have a particularly negative impact on the logistics sector. This also includes public interest in logistics and associated sectors.
Deal will harm competition in the sector
The commission also stated that UCD does not control any firms. Also that all its controlling entities and all the firms controlled by its controlling entities are collectively referred to as the Grindrod Group. This means the deal will harm competition in the container and transportation business.
UCD is well known for its services. It offers container services including storage, handling, repairs and maintenance. It also offers transport and cleaning of empty containers at its depots in Cape Town, Durban and Johannesburg.
UCD also provides services for both refrigerated containers and non-refrigerated containers. This is also a direct competitor to KRCP.
Based on its vast operations, UCD also offers sales, leasing and conversions of containers. While the targeted company, KRCP, is also engaged in the provision of container storage services. These include the storage, handling, cleaning and repair of both ordinary and refrigerated containers.
The commission also revealed the findings of its investigation. It found that UCD and KRCP are the only two firms that provide so-called reefer services in Johannesburg. They are the largest of four firms that provide reefer services to the open market in Durban.
Substantial lessening of competition
“The commission found that the proposed merger will likely result in a substantial lessening of competition. [This] 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. This because UCD and KRCP are the only companies that provide the full suite of empty container services. These services are for both refrigerated and non-refrigerated containers in Johannesburg,” said the commission head of communication, Sipho Ngwema.
Ngwema also reiterated that the proposed transaction would result in the removal of an effective competitor from the market. The merged entity was likely to exercise market power in the container storage market in Johannesburg post-merger.
“The commission further found that the proposed merger will also remove an effective competitor. [This]… will be in the provision of empty container storage services market in Durban. And by so doing, it will reduce the number of empty container storage depot operators. These are 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. This as the customers of the merging parties will have fewer options with a full-service offering and sufficient capacity in the Durban market,” he said.
Threat to logistics value chain
He also stated that if the deal falls through, it will have a negative effect on prices and costs in the logistics value chain. Particularly for shipping liners that 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. This they will do by also increasing prices. It may have a negative ripple effect on the logistics value chain. A significant amount of economic activity depends on this value chain. Especially given the limited empty container depot capacity in the market. This view has been confirmed by market participants,” he said.
Following the commission’s recommendation, the Tribunal will, in due course, set the matter down for hearing. It will then make a final decision on the proposed merger.
