Wednesday, August 5, 2015

TNT - FedEx Small Package Express Freight Deal Under Investigation by European Commission

Once Again EC Has Doubts About Competition Issues
Shipping News Feature

EUROPE – The European Commission has opened an in-depth investigation to assess whether the proposed acquisition of TNT Express by FedEx Corporation is in line with the EU Merger Regulation. With both companies being major global players in the small package delivery sector, the Commission has concerns that on a number of European markets for international express and regular (so-called ‘deferred') small package deliveries, the merged entity would face insufficient competitive constraints from the only two remaining players in this sector of the international freight market, UPS and DHL.

The Commission suggests that the potential merger, which was announced in April of this year, would lead to higher prices for business customers and consumers. The competition authority now has 90 working days, until 7 December 2015, to investigate the proposed acquisition and to determine whether these initial concerns are founded. The opening of an in-depth investigation does not prejudge the outcome of the investigation. Commissioner Margrethe Vestager, in charge of competition policy, commented:

"Many businesses, and in particular e-commerce, rely heavily on affordable and reliable small package delivery services, and many consumers depend on these services to ensure rapid and safe delivery of goods they have bought. The Commission must therefore make sure that FedEx's takeover of TNT would not impede effective competition and would not lead to higher prices for consumers."

FedEx and TNT are two out of the only four so-called 'integrators' currently operating in Europe. 'Integrators' are companies that control a comprehensive air and road delivery network throughout Europe and beyond and are capable of offering a broad portfolio of small package delivery services. The other 'integrators' present in Europe are DHL, owned by Deutsche Post, and UPS, a US-based company.

In January 2013, the EC blocked a takeover attempt of TNT Express by UPS over worries that the combined company would become a duopoly with DHL the other major competitor. The regulator then had concerns that FedEx would be shut out of the European market. Both DHL and FedEx lobbied against the merger. UPS had bid €5.16 billion for the Dutch group in 2012, compared to this latest bid of €4.4 billion lodged by FedEx.

The Commission’s initial investigation of the current deal has shown that small package delivery services can be divided into several segments, depending notably on whether the destination is in the European Economic Area (EEA) or beyond and on whether the timing of the delivery is express or 'deferred'.

The Commission's preliminary investigation indicates that DHL and UPS would be the only significant competitive constraint on the merged entity for most international express services, with a destination within or outside the EEA. As the proposed transaction would reduce the number of competitors in the EEA from four to three, the competitive constraint on the merged entity would be significantly reduced, leading to a concentrated market in several Member States for international express delivery services to a destination within or outside the EEA.

FedEx and TNT also provide international 'deferred' services outside the EEA. The Commission's initial market investigation showed that the merged entity would have very high market shares for services to some destinations leading to potential competition concerns.

The Commission will now investigate the proposed merger in-depth to determine whether these initial concerns are confirmed or not. The transaction was notified to the Commission on 26 June 2015.