Q and A: Sea Swift proposed acquisition of Toll Marine

The ACCC has decided to oppose Sea Swift’s proposed acquisition of Toll Marine’s assets because we consider it would be likely to substantially lessen competition in scheduled marine freight services in the NT and FNQ (including the Torres Strait).

What does the ACCC’s decision mean?

Under the Competition and Consumer Act, mergers and acquisitions which are likely to substantially lessen competition are against the law.

We reached this decision because Sea Swift and Toll Marine are the two largest providers of marine freight services in the NT and FNQ and competition between them is important for the benefit of consumers. On many routes, they are the only two providers of scheduled freight services. Not only would this merger eliminate the competition between them, it would also increase the barriers to entry or expansion for any other freight providers.

In reaching this decision we considered a wide range of information provided by Sea Swift and Toll, customers, competitors and government bodies.  We are grateful for all of the information we received via phone, email and letter.

The ACCC’s view is not binding on Sea Swift and Toll – only the Federal Court or Australian Competition Tribunal can decide whether the acquisition should not be permitted to proceed.

Why didn’t the ACCC accept an undertaking from Sea Swift to not increase prices and to maintain service levels?

We understand that Sea Swift and Toll told some customers about a draft court-enforceable undertaking they offered to the ACCC, which would require Sea Swift to maintain a base level of service frequency and set a cap for price increases, if the acquisition were to proceed.

The ACCC carefully considered whether an undertaking of this kind could overcome the competition problems and allow the ACCC to approve the acquisition.  We were very conscious of how vital these freight services are for many communities to get their essential supplies, for example Ugar (Stephen) Island in the Outer Torres Strait, which has no airstrip and only gets one shipping service a month.

We decided that the undertaking would not solve the competition problems.  We also decided that we could not be confident that this kind of undertaking would protect consumers from price increases and service decreases.  For example, rules setting caps on price increases would have to allow Sea Swift to increase prices in response to genuine cost increases, but that would create potential loopholes. When enforcing the undertaking it would be very difficult to tell which increases were genuinely cost-based and which ones weren’t.

Although the ACCC does regulate prices and service standards in some industries, this is usually where there is no scope for competition to do this job, and the government has passed legislation setting out how the industry should be regulated. Examples include monopoly infrastructure that was previously government-owned (such as telecommunications or electricity) where there is legislation about how prices should be determined.  The circumstances here are different.

Setting maximum prices and minimum service levels can also make it harder for new competitors to enter a market. This means that even if regulating prices and service frequency might help customers in the short run, in the long run it could make them worse off because it stops competition from emerging. Our view is that rather than have the ACCC step in and regulate markets, competition is the best process for matching prices and service levels to what customers actually want.

Because of these risks, we decided that it was better for customers overall for the ACCC to not accept an undertaking but instead to oppose the acquisition.

I’ve heard that Toll is going to close down the business anyway, so what’s the point of the ACCC’s deciding to oppose the sale to Sea Swift?

We understand that some customers received letters from Toll advising that it would shut down its NT and FNQ marine freight business if the ACCC opposed the acquisition.

The ACCC decided that, even if Toll was to shut the business, this would provide opportunities for new competitors to enter the NT or FNQ, for example by buying Toll’s vessels or taking its customers.  By contrast, a sale of all of the assets to Sea Swift would mean there would be no chance for anyone other than Sea Swift to acquire the assets, and it would be harder for new competitors to enter.  Some parties have indicated to the ACCC that they would be interested in buying some of Toll’s assets and competing with Sea Swift if the sale to Sea Swift doesn’t go ahead.

While in FNQ new competitors may be less likely to enter in the short term, there have been multiple scheduled freight providers on some routes in FNQ at various times.  Sea Swift acquiring all of Toll Marine’s FNQ assets would make it harder for a new entrant to break into FNQ in the future.

The ACCC considers that the loss of these opportunities for competition is significant, particularly in a context where it is already difficult for other providers to compete with Sea Swift.

Where can I find out more about the ACCC’s decision?

The ACCC intends to publish a more detailed explanation of the reasons for its decision (called a Public Competition Assessment) in the near future.  When this is ready it will be available on the ACCC’s public register.

In the meantime, if you have further questions please email mergers@accc.gov.au.

 

Published date: 
10 July 2015

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