On 7th November 2017, China Ministry of Commerce published the announcement on its website approving the acquisition with 4 restrictions.
In its bulletin (2017-077) it decides it approves the concentration (the acquisition) with the following restrictions:
1) Hamburg Sud will not participate ASPA 1,2,& 3 sharing agreement ( Far East- South America West Coast) after it expires;
2) Hamburg Sud withdraws from Asia 2 sharing agreement (Far East- South America East Coast);
3) Maersk and Hamburg Sud are not allowed to join alliance or reach sharing agreement with major operators with regard to Far East- South America East Coast and West Coast within five years from the date of completion of the transaction. (In Maersk’s proposal major operators are named as Hapag-Lloyd, NYK, MSC and CMA-CGM-inserted by writer)
4) Maersk needs to reduce its reefer capacity on Far Est- South America West Coast to make its market share between 34-39% and maintain the same within 3 years after the completion of the transaction;
Apart from the above decision made, the proposal made by Maersk on 2nd November to Ministry of Commerce binds as well.
In its proposal, Asia 2 means Asia-S America East Coast sharing agreement between Hamburg Sud, Hapag-Lloyd/UASC, NYK, HMM and Zim;
ASPA 1,2 & 3 means Asia- S America West Coast sharing agreement between Hamburg Sud, Hapag-Lloyd/UASC, CMA-CGM, MSC, COSCO SHIPPING and HMM covering Far East- Central America/Caribbean sea services, Far East- South America West Coast Services and Far East – North America services
Ministry of Commerce reviewed 11 services, namely 1)Far East- North Europe; 2)Far East- India Sub-continent; 3)Far East – Middle East; 4)Far East- Oceania; 5)Far East-South Africa; 6)Far East-North America Est Coast; 7)Far East- N America West Coast; 8)Far East- Mediterranean; 9)Far East- Central America/Caribbean Sea and the two services in question. The administration believes the acquisition will not produce market concentration to restrict competition giving consideration of the small market shares on all other 9 services. But the acquisition will produce concentration on the two services in question with regard to general and reefer container services.
In its announcement, S America West Coast means Chile, Peru, Ecuador and Columbia, S America East Coast means Brazil, Uruguay and Argentine);
Far East means China, Japan and Korea;
After the acquisition, Maersk and other sharing operators via ASPA 1, 2 & 3 will take 70-75% market share in terms of volume on both ways (Far East- S America West Coast) on both general and reefer;
While the capacity of all sharing parties will be 70-75% for dry and 75-80% for reefer;
For Far East- S America East Coast service
In terms of volume, after the acquisition, the sharing parties of Asia 2 will take up 55-60% for dry and 60-65% for reefer on both ways.
Northbound (S America East Coast- Far East) will see 55-60% market share on general, 60-65% on reefer;
Southbound (Far East -S America East Coast) will see 55-60% market share on general, 75-80% on reefer;
With capacity, the sharing parties on Asia 2 will take 45-50% for general and 40-45% for reefer.
It goes further to say after the acquisition, Maersk itself will take up 45-50 % market share on Far East- S America West Coast reefer on capacity, leaving other players difficult to compete.
Herfindahl-Hirschman Index (HHI) is being used to indicate 1604 before the acquisition and 2652 after the deal done.
Also Gross Upward Pricing Pressure Index (GUPPI) has been simulated to indicate that a huge potential exists for a 10 percent price jump on reefer after the deal.