On 1 July 2016, the Australian Competition Tribunal (Tribunal) authorised the acquisition by Sea Swift Pty Ltd (Sea Swift) of Toll Marine Logistics Australia’s (Toll) Far North Queensland (FNQ) and Northern Territory (NT) marine freight assets. The authorisation is subject to behavioural commitments from Sea Swift. The behavioural commitments comprise minimum service levels and price caps for the next 5 years.
Sea Swift initially sought informal clearance from the Australian Competition and Consumer Commission (ACCC) for the transaction. Sea Swift’s application for informal clearance was expressed to be subject to a behavioural undertaking.
Although Sea Swift’s undertaking was not published, the ACCC described it as one that would have maintained a base level of service frequency and set a cap for price increases.
In July 2015, after a 6 month review process, the ACCC decided to oppose the proposed acquisition on the basis that it would be likely to substantially lessen competition in the markets for supply of marine freight services and scheduled freight services in NT and FNQ.
At the time, the ACCC expressed the view that customers would have been better off overall without the acquisition, when compared to an attempt to regulate the affected markets through Sea Swift’s proposed behavioural undertaking which would have been implemented following completion of the acquisition. The ACCC considered that the undertaking would be incapable of resolving its competition concerns and would not protect consumers from price increases and service decreases.
The ACCC also rejected the undertaking because:
- The undertaking would be difficult to enforce. Rules capping price increases would have to allow Sea Swift to increase prices in response to genuine cost increases, which would be difficult to ascertain.
- Although it may help customers in the short run, setting maximum prices and minimum service levels could make it harder for new competitors to enter the market. In the long run, this would make customers worse off.
Application to the Tribunal
The Tribunal applies a different test for authorisations of acquisitions compared to the test used by the ACCC to clear acquisitions. The ACCC’s assessment is confined to whether or not an acquisition would, or would be likely to, have the effect of substantially lessening competition in a market.
In contrast, the Tribunal may only authorise an acquisition if it is satisfied that the acquisition would result, or be likely to result, in a net public benefit. In making this assessment, the Tribunal must weigh all of the detriments to the public likely to arise from the acquisition (including any detrimental effects on competition) against all of the benefits to the public likely to arise from the acquisition (including efficiencies, environmental benefits and incentives to invest).
Sea Swift initially applied to the Tribunal for authorisation of the acquisition based on net public benefit in September 2015. It withdrew its application in November 2015, and refiled a strengthened application on 4 April 2016. The application was heard in Melbourne between 6 and 17 June this year, with the Tribunal delivering its determination less than 1 month later.
The Tribunal has so far only released its determination in advance of publishing its reasons.
Sea Swift’s application for authorisation was granted conditional on Sea Swift providing the following commitments for five years from completion of the acquisition:
- Service commitments – Sea Swift must maintain a minimum service level to NT and FNQ remote communities, including continuing to service all the communities currently services by either Sea Swift or Toll and maintaining the frequency of such services.
- Pricing commitments – Sea Swift must cap maximum prices for dry, refrigerated and vehicle freight services at its current scheduled rates for remote communities in FNQ and in NT. Sea Swift may only increase prices based on published price indices. If it wishes to make any other increases, it must apply under an independent price review process and notify the ACCC.
These behavioural commitments appear to be similar to the behavioural undertakings offered by Sea Swift during the ACCC’s informal review process, but this is not clear based on the public record.
Although the Tribunal’s reasons for the decision have yet to be published, it is understood that the Tribunal was concerned about the uncertainties faced by customers in remote communities for their fuel and fresh food deliveries. The Tribunal noted in its determination that Sea Swift and Toll offer scheduled services in NT and FNQ areas from bases in Darwin and Cairns, carrying marine freight to a large number of destinations to these areas. These scheduled services deliver essential items such as food, fuel, medical and educational supplies to remote communities along those routes. As many of these areas are not accessible by road for all or part of the year (due to the wet season in the top part of Australia), remote communities are very dependent on these scheduled services.
ACCC’s reaction to the Tribunal’s decision
The ACCC has expressed disappointment at the Tribunal’s decision. The crux of its concern seems to be that the acquisition would result in a “near monopoly” position for Sea Swift in the supply of scheduled marine freight services in NT and FNQ.
Notwithstanding its disappointment the ACCC has limited scope to contest the Tribunal’s ruling as any appeal can only be based on an error of law, rather than the merits.
Tribunal’s authorisation record
The Tribunal’s decision marks the second time it has authorised a merger opposed by the ACCC since the introduction of the current merger authorisation procedure in 2007. The first instance was in 2014, when it authorised AGL’s acquisition of Macquarie Generation’s electricity generation plants. Aside from these two applications, the Tribunal has received only one other authorisation application, from Murray Goulburn for its proposed purchase of Warrnambool Cheese and Butter in November 2013 (that application was ultimately withdrawn).
In the absence of any other applications on the Tribunal’s register, this authorisation could be the last of its kind under the current merger control regime. Assuming the next Federal Government (whatever its ultimate composition) continues its support for and implements the Harper Review’s recommended reforms to our merger control regime:
- the ACCC will be the first port of call for authorisation applicants, with power to authorise a merger if satisfied that the merger does not substantially lessen competition or that the merger would result, or would be likely to result, in a benefit to the public that would outweigh any detriment; and
- a right to seek review of decisions by the Tribunal on the merits, based upon the material that was before the ACCC, but with a discretion on the part of the Tribunal to allow a party to adduce further evidence, or to call and question a witness, if the Tribunal is satisfied that there is sufficient reason.
We eagerly await the publication of the Tribunal’s full reasons for its determination. We also expect the ACCC to publish the Public Competition Assessment relating to its review in due course.