Thursday, June 6, 2013

Freight Interests Concerned as RoRo Ferry and Channel Tunnel Row Brews

UK Competition Commission Decision will Overrule Any EU Finding!
Shipping News Feature

UK – FRANCE – The UK’s Competition Commission (CC) has decided to bar passenger and rail freight service provider Groupe Eurotunnel from operating a RoRo ferry route between France and Dover after the CC found that the acquisition of three ferries and other assets from the former ferry operator, SeaFrance, could mean higher prices for cross-Channel passengers and freight customers. In response to this ruling, Groupe Eurotunnel said that it will immediately appeal the decision which the group finds ‘incomprehensible and seriously disproportionate’.

The decision puts Eurotunnel in an untenable position, having leased three ex SeaFrance vessels for a five year term under French Law, the company is prohibited from selling the ships on to another operator or operating them on another route. What will surprise many readers is that there can be no appeal to the European authorities despite the importance of the affair. When Eurotunnel took on the vessels of SeaFrance, operating them under the MyFerryLink brand, it also provided employment for many ex staff whose future must now be in doubt as will jobs in both Dover and Calais offices.

In its final report published today (June 6), the CC has concluded that by adding ferry services to its existing Channel Tunnel business, Eurotunnel would increase its market share to over half and prices would rise. This confirms the CC’s provisional findings which were published in February.

The CC found that Eurotunnel decided to acquire the SeaFrance ferries in order to prevent a ferry consortium, DFDS/LD, from buying them. Eurotunnel was concerned that if DFDS/LD obtained the assets cheaply, it could drive down prices for customers. The CC also found that one of the three current ferry operators on the Dover–Calais route was likely to exit in the short term in which Eurotunnel could gain an even larger share of the cross-Channel market. Chairman of the Eurotunnel/SeaFrance Inquiry Group and CC Deputy Chairman, Alasdair Smith, said:

“It cannot be good for competition when Eurotunnel, which already holds a market share of over 40%, moves into the ferry business particularly when it did so to stop a competitor from buying the ferries. Customers would lose out from Eurotunnel increasing its share even further and being able to raise prices on the tunnel services. In view of the current excess capacity on the Dover–Calais route, it also seems likely that one of the current ferry operators will exit in the short term if we don’t take action. Customers will be better off if there are two independent ferry companies competing with the tunnel than if one of the two is owned by Eurotunnel.

“By preventing Eurotunnel from operating ferry services out of Dover, we can protect the interests of customers. We did consider ordering Eurotunnel to sell the ferries but we were conscious of the uncertainties and possible delays affecting a sale. We can achieve the same outcome this way and it should be clear that we will not be diverted from ensuring the best result for customers.”

Group Eurotunnel has, in a statement, said that the Competition Commission decision is not based on any concrete facts, but solely upon a random association of virtual hypothesis and also ignores the ruling of the Paris Commercial Court linking the sale of the assets of SeaFrance with the requirement not to re-sell them for a period of five years and contradicts the decision of the France’s own Competition Authority. The Group further added that the conclusion restructures the maritime activity across the Straits of Dover into a duopoly, which will disadvantage consumers; prohibit access to a port, in total contradiction with the freedom of movement incarnate in Europe; and deprives the Ports of Dover and Calais of significant revenues. Jacques Gounon, Chairman and Chief Executive Officer of Groupe Eurotunnel SA, commented:

“This decision by the Competition Commission will reduce the choice of services across the Straits of Dover to the detriment of the consumer. It will inevitably lead to an increase in the price of a crossing.” 

Three of the four vessels and other related assets operated by SeaFrance at the time of its liquidation, earlier this year, were subsequently bought by Eurotunnel which then launched ferry services between Calais and Dover on 20 August 2012 under the MyFerryLink brand. At the time of the sale the French Commercial Court made an Order prohibiting the onward sale by Eurotunnel of the vessels until 2017, so an Order by the CC to sell the MyFerryLink business would be subject to delay and uncertainty as it would require the French Court to lift its Order.

Eurotunnel will be prohibited from operating ferry services at the port of Dover for two years with any vessel and for ten years with the Berlioz and the Rodin. As an alternative to the ten-year prohibition, Eurotunnel may sell the Berlioz and the Rodin in order to address the CC’s competition concerns, but would still be prohibited from operating ferry services with any vessel at the port of Dover for a period of two years. The CC states that this will ensure that all Dover–Calais ferry services are run by companies which are independent from the competing rail link.

Eurotunnel will immediately launch an appeal as, although the UK CC has permitted them to continue to trade on the route for the next six months, they tell us that it will obviously be impossible to sign any freight contracts which involve either the ferry or both ferry/tunnel services. The EU have no jurisdiction as, under current legislation, there has to be more than two EU countries involved or the deal involved costs €70 million or more (the three vessels were sold to Eurotunnel for €65 million) to trigger EU involvement.

What the EU regulations do recommend however is that, in a dispute involving two countries, both authorities should consult to ensure a fair and proper outcome. Eurotunnel says it has evidence from the French authorities that it received no response to the approaches that were made to the UK CC.

Eurotunnel make the point that the proportion of traffic it would carry across the Channel is irrelevant as any driving down of fares and freight rates would serve the purpose of providing more consumer choice with less expensive options for consumers, usually the raison d’être of any competition investigator. The decision will certainly not sit well with French authorities whose own support for the SeaFrance service often came in for criticism.

The decision to force the closure of a further means of accessing the Continent has been criticised by freight interests on both sides of the Channel. Jackie Brown, Associate Director at East London freight forwarder W.E. Deane, commented:

“Traditionally the Kent to Northern France routes have a history of keen competition with new operators trying their luck every few years. It’s hard to see how by cutting a service the UK authorities are serving customers when, by maintaining something approaching the previous overall capacity, the potential for fare reductions was more of a possibility. Although Eurotunnel potentially had a larger share of the cross channel market, this decision seems to play into the hands of other operators on the route by reducing the options of private and commercial customers.”

Photo: A MyFerryLink vessel under way.