A proposed merger between two major container service providers, United Container Depots (UCD) and Kings Rest Container Park, “is likely to result in significant harm to competition particularly in the logistics sector and will likely have a negative impact on public interest in logistics and associated sectors,” says the Competition Commission.
The commission points out that UCD, which intends to take over Kings Rest, is ultimately controlled by JSE-listed Grindrod Limited. It offers storage, handling, repairs, maintenance, transport and cleaning of both ordinary containers and reefers, with depots in Cape Town, Durban and Johannesburg. In addition, UCD also offers sales, leasing and conversions of containers.
Kings Rest offers the same services as UCD, and has two container depots in Durban, at Bayhead and Clairwood Park, as well as a container depot in City Deep, Johannesburg.
The commission says that its investigation found that UCD and Kings Rest “are the only two firms that provide so-called reefer services in Johannesburg and that they are the largest of four firms that provide reefer services to the open market in Durban”.
There are smaller competitors providing storage and handling services, but “few players provide an integrated offering, like the merging parties do”. The proposed merger would therefore substantially reduce competition in the market for the provision of empty container services both in Johannesburg and Durban, it added.
The commission also expressed concern that the merger could increase costs in the logistics value chain and lead to shipping lines passing down costs to their customers through price increases.
“This may have a negative ripple effect on the logistics value chain upon which a significant amount of economic activity depends, especially given the limited empty container depot capacity in the market,” it said.
Additionally, the commission said the two companies provided insufficient evidence that the merger would produce gains that could offset the likely effects from the loss of competition, and could also not show “substantial public interest commitments that would outweigh the competition concerns”.
The commission therefore recommended that the Competition Tribunal prohibit the merger.
The next step in the process is for the tribunal to hold a hearing, after which it will make a final decision.
