DFDS's Acquisition Of Ekol Lojistik: TCB's Behavioral Remedies And Concerns

I. Introduction

The Turkish Competition Board ("TCB") has recently published its reasoned decision¹ no. 23-34/643-216 dated 26.06.2023, concerning the acquisition by DFDS A/S ("DFDS") of the business line related to the international land transport activities of Ekol Lojistik A.Ş. ("Ekol"), along with the undertakings EUTS SRL, EUTS GmbH, and EUTS BV². The decision, which is now available on the Turkish Competition Authority's ("TCA") website, marks a significant development in the competition landscape for logistics and transportation services.

In the decision, the TCB, by a majority vote, determined that the behavioural remedies proposed by DFDS were sufficient to address the competition concerns posed by the transaction. As a result, the Board granted conditional approval within the framework of DFDS's commitments, with an emphasis on maintaining competitive balance in the relevant market. However, the dissenting opinions of two TCB members are remarkably significant, as they raise substantial concerns regarding the sufficiency of the proposed remedies in preventing potential anti-competitive effects. The dissenting members stated that the commitments submitted may not be enough to mitigate the risk of DFDS gaining a dominant position.

II. Evaluations in the TCB's Decision

The decision includes detailed explanations on "Sea Transport", "Ro-Ro Transport"³ and "Land Transport"⁴ sectors, which constitute the subject matter of the file, and considering the activities of the target undertakings within the scope of the notified transaction, defines the relevant product market broadly as "international freight transport by land" and more narrowly as "international freight transport by land using Ro-Ro vessels".

It is stated that, within the scope of the file, there is no horizontal overlap between the target undertaking and the acquirer DFDS; yet there is a vertical overlap between the international freight transport by land, which is the field of activity of the target undertaking, and the Ro-Ro transport market in which DFDS operates.

The relevant geographical market is determined as (i) "Ro-Ro lines between Türkiye and Europe" in terms of Ro-Ro transport services and (ii) "Türkiye" in terms of international freight transport by land since the target of the relevant activities is Türkiye in general.

It is considered that the transaction will not give rise to any material anticompetitive effect in terms of customer foreclosure, considering the high number of market players operating in the field of international freight transport by land and the competitive structure of the market, and considering the fact that Ekol Logistics, which has a low market power at the downstream market level, is not an important and indispensable business partner for Ulusoy, which can still go to alternative customers even if, Ekol shifts all its purchases to DFDS after the transaction, and stops receiving services from Ulusoy, and that the change caused by the transaction would not affect the total market share of the competing Ro-Ro operators in the upstream market.

Moreover, since almost all of Ekol Logistics' Ro-Ro cargoes are currently carried by DFDS, it is foreseen that, after the transaction, there will be no significant change in the share of competing Ro-Ro operators in terms of customers in the downstream market. This being the case, since the market structure for other competing Ro-Ro operators will remain considerably the same after the transaction, it is concluded that there will be no motive for customer foreclosure for the merged undertaking.⁵

It is assessed that no concentration on the horizontal level will arise in consequence of the notified transaction, and no buyer with a significant market share will participate in the merged undertaking as a result of vertical concentration. It is stated that, considering its market share in the international land transport market, Ekol Logistics is not a buyer with the potential to create an effect of encouraging the compliance of undertakings with coordination or facilitating the use of mechanisms to deter deviations from coordination, and therefore, the notified transaction will not result in the participation of a significant buyer in the merged undertaking. Furthermore, although the likelihood of coordinated behaviour in the downstream or upstream markets post the transaction is low, it is assessed that the commitments submitted by the parties are capable of eliminating the likelihood of such risk of coordination.

III. Commitments Submitted by DFDS, and Conditional Authorisation

Upon the examinations conducted within the scope of the file, it is concluded that the notified transaction will not cause any input and customer foreclosure. On the other hand, it assessed that, in terms of undertakings engaged in international land transport, the transaction may raise concerns on the likelihood of the sharing of commercially sensitive information with Ekol and discrimination in favour of Ekol Logistics. In this context, at the preliminary examination stage, DFDS has provided the following commitments:

• Commitment No. 1⁶: In order to eliminate the concerns regarding the sharing of information about Ekol Logistics' competitors with Ekol Logistics, it is undertaken that, following the transaction:

1. Ekol Logistics will operate as the Road Transport business unit of DFDS in Türkiye, and DFDS's Ro-Ro business unit in Türkiye will be in the nature of a separate legal entity,
2. Ekol Logistics and DFDS will each be under the management of separate "business unit managers" (i.e. general managers) supervised by DFDS's vice president in charge of the Mediterranean Business Unit, and all employees, including managers and other personnel in the commercial and operational departments of the business units in question, will be kept separate; employees of one operational unit at Ekol Logistics and DFDS will not have any role in the affairs of the other business unit; it will be ensured that the reporting channels of the employees of Ekol Logistics and the employees of DFDS within their business units will be kept separate from each other; and those two business units will not cross-report to each other,
3. In terms of support units, such as accounting, human resources and information technology departments, Ekol Logistics and DFDS may get assistance from employees, some of whom are assigned to a separate business unit and some of whom support both business units, but in any case, those employees will not be capable of taking any commercial decisions affecting any individual customer and no commercially sensitive information will flow from these employees within one business unit to employees of another business unit,
4. DFDS will not directly or indirectly share with Ekol Logistics any commercially sensitive information obtained as a Ro-Ro carrier through its commercial relations in the Ro-Ro transport market,
5. Ekol Logistics and DFDS will use different operational information technology systems, the data stored within the scope of Ekol Logistics' activities and the data stored within the scope of DFDS's activities will be automatically kept separate from each other in their operational software, and in this extent, DFDS's employees will not have access to the data stored within the scope of Ekol Logistics' activities and likewise Ekol Logistics' employees will not have access to the data stored within the scope of DFDS' activities, and employees of one business unit will not be allowed to access customer information belonging to the other business unit,
6. A report indicating what kind of measures have been taken by DFDS through which methods during the implementation of this commitment will be submitted by DFDS to the TCA within 90 days after the closing of the transaction and once a year for the term of the commitments by the beginning of the following year,

• Commitment No. 2⁷: It is undertaken that the procedures applied by DFDS prior to the transaction with respect to booking and acceptance for shipment procedures will continue as they are for all customers without any change after the transaction,

• Commitment No. 3⁸: It is undertaken that the term of the commitments will be three years as of the closing date of the transaction and, at the end of such term, may be extended for another three years if deemed necessary by the TCB.

The TCB has decided by majority vote that the commitment text containing behavioural solutions is found sufficient to eliminate the competition issues that the transaction would cause, and therefore, the transaction is conditionally authorised within the framework of the commitments submitted by DFDS.

IV. Dissenting Opinion Against the Decision

Two members of the TCB, Hasan Hüseyin Ünlü and Berat Uzun, have submitted a dissenting opinion against the decision taken by majority vote, stating that:

• It is an acquisition that will result in significant impediment to effective competition within the scope of Article 7 of Law No. 4054,
• DFDS is in a dominant position in the Ro-Ro transport market with its near-monopoly market power, and is an indispensable business partner for undertakings engaged in international freight transport using Ro-Ro vessels,
• By virtue of its vertically integrated structure, DFDS has mutual rights on both sides of the line at strategic ports at the points of departure-arrival (Pendik-Trieste, Mersin-Trieste, Yalova-Sete, Izmir-Tarrogana),
• DFDS, which does not operate in the field of land transport and Ro-Ro land transport in Türkiye, will achieve full vertical integration through the acquisition of Ekol, the strongest player in the market operating in this field,
• It will further strengthen its near-monopoly dominant position in the Ro-Ro transport market,
• The undertakings which operate in the field of international freight transport through Ro-Ro vessels and which -by necessity- receive services from DFDS for such service will also become competitors with DFDS, and this will cause the risk of abuse of dominant position by DFDS,
• By the transaction, DFDS, which has a near-monopoly market power in the upstream market (Ro-Ro transport), will acquire the strongest player in the downstream market (international freight transport using Ro-Ro vessels) and reach a significant market power in this market as well,
• Most of the undertakings, whose opinions were taken within the scope of the file, have stated that the transaction would adversely affect competition in the market and the transaction should not be authorised,
• The commitments submitted do not eliminate any risk of discrimination which may arise for Ekol's competitors,
• The acquisition would serve no other purpose than to further strengthen DFDS's strong position in both markets,
• The transaction will not result in any efficiency gains to the benefit of consumers.

As understood from the above statements, the TCB members who have disagreed with the TCB's majority opinion are of the opinion that DFDS would increase its dominance in the market by completing its vertical integration and this would give rise to anticompetitive effects. It is also emphasised that the commitments submitted are not sufficient to protect competition in the market, but to the contrary, the acquisition would further strengthen the strong position of DFDS in both markets and would not result in any efficiency gains to the benefit of consumers.

V. Evaluation and Conclusion

The majority of the TCB have found the behavioural commitments provided by DFDS sufficient, and has conditionally authorised the transaction. The decision carefully evaluates the impacts of the acquisition on the market and finds that there would be no input and customer foreclosure; however, due to the high market share of DFDS and potential discrimination risks, provision of certain behavioural commitments between the parties is required. On the other hand, two members of the TCB have expressed strong concerns that the acquisition by DFDS might have a negative impact on competition, and in particular, stated that DFDS would further strengthen its monopolistic position in the Ro-Ro transport market, and this may give rise to discrimination risks in the market. They have further stated that more comprehensive measures should be taken to protect competition, emphasizing that the commitments offered are not capable of sufficiently eliminating these risks.

Footnotes

1 https://www.rekabet.gov.tr/Karar?kararId=d73837d8-e05c-45d0-8f31-c07173f46b38

2 The transaction only concerns the transfer of Ekol's business line of international land transport as well as EUTS, and Ekol's business lines of domestic transport, contract logistics, warehouse management and logistics software were previously separated and excluded from the scope of the notified transaction.

3 Data on Ro-Ro Lines between Türkiye and Europe as well as the Line Operators are provided in Chart-6 within the framework of the information collected through reply letters.

4 It is considered that the share of land transport within the modes of transport is in a significant range of approximately 29-37%, and sea transport is the mode of transport that has always been used at the highest rate for its transport advantages in exports. (Par. 43)

5 Par. 72

6 Under the Commitment No. 1, it is stated that, with respect to the information obtained from the competitors in the downstream and upstream markets within the scope of the activities of DFDS and Ekol Logistics as a result of the vertical merger, a complete and effective information-communication wall (Chinese Wall) will be established to function as a barrier against the transmission of all kinds of information, including customer lists, consignee and shipper of the cargo carried, cargo weight, cargo volume, type of cargo and value of goods. Under this commitment, neither Ekol Logistics nor DFDS will share with each other any competitively sensitive information obtained within the scope of their ongoing commercial relations. At this point, it is undertaken that sensitive information regarding competitors, customers and similar issues cannot be shared.

7 Commitment No. 2 has been provided in order to eliminate any potential discrimination risk in favour of Ekol Logistics and ensures that all similarly positioned customers of DFDS can be provided with equal conditions for booking and acceptance for shipment within the scope of the Ro-Ro transport service.

8 Under Commitment No. 3 regarding the term of the commitments, it is undertaken that the term of the behavioural commitments will be three years and, at the end of such term, may be extended for another three years if deemed necessary by the TCB.

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