The Hamburg case: Why the Antitrust Committee of Ukraine got concerned in the German port

In view of the difficult security situation in Black Sea region, Ukraine is trying to restore interest in its ports from global container lines. But all of a sudden, ATCU makes an objection to MSC, the largest of these lines. What is the logic?

In early September, the German press writes, a final decision upon so-called measures taken towards the Port of Hamburg by Mediterranean Shipping Co. (MSC), owned by the Italian Aponte family, should be made in this country. In July, the Hamburg parliament voted for the global largest container line to acquire a stake in port operator Hamburger Hafen und Logistik AG (HHLA). The industry is now awaiting the results of the second reading of the agreement between the city and the MSC.

MSC announced its intention to acquire 49.9% of HHLA a long time ago. Nearly a year ago, it already entered into binding preliminary agreement on fixing strategic partnership with the Hanseatic city. 50.1% will be owned by the city, in the person of Hamburger Gesellschaft fur Vermogens- und Beteiligungsmanagement mbH (HGV).

Previously, the company belonged exclusively to the Free Hanseatic City. But since 2007, HHLA has been listed on the stock exchange, about 30% of the shares were in free circulation, and it was from the majority of shareholders that MSC had already bought them back at 16.75 euros per piece.

The agreement for forty years is still controversial both in Germany and worldwide. In particular, some politicians and experts are concerned that cost of the agreement is understated and can be treated as a form of state aid. Port workers and the trade union see here a threat of rights restriction.

Recently, even the Antitrust Committee of Ukraine suddenly expressed its concern that “under certain conditions” the agreement might cause “monopolization of the container cargo transshipment market within the Odesa Sea Port”. As we know, HHLA has been managing the Odesa Container Terminal since 2001.

By selling a stake in HHLA to the Mediterranean Shipping Company, Hamburg hopes to increase its transshipment volume. Last year cargo handling fell 4.7%, to 114.3 million tons (as compared with 2022), the lowest since 2009. MSC promises to improve its values just next year and to reach one million TEU per year by 2031.

In addition, the company intends to increase the number of jobs and in the supplementary agreement, it undertook not to fire anyone for industrial reasons for five years and to preserve the right of employees to make joint decisions. MSC wants to locate its German headquarters in Hamburg and register its cruise division here. And HHLA should receive 450 million euros for additional investments. In short, everything looks beautiful.

HHLA currently operates three of the four container terminals at the Port of Hamburg, the third largest container port in Europe (after Rotterdam and Antwerp). HHLA's stake should become another MSC, which already owns 70 terminals and 760 container ships.

Ukrainian concern

But the Antitrust Committee of Ukraine sees grounds for prohibiting concentration due to the threat of monopolization of the container cargo transshipment market within the Odesa Sea Port. Therefore, it announced the beginning of “in-depth study of the state of competition and analysis of the impact of concentrations on the commodity markets of Ukraine”.

Antitrust Committee has initiated considering the case “on concerted actions directly related to implementation of such concentrations" and promises to check two concentrations within this agreement. First is taking control over HHLA by SAS Shipping Agencies Services S.a r.l (MSC subsidiary) and HGV. Second is taking control over Port of Hamburg Beteiligungsgesellschaft SE (MSC subsidiary) by SAS Shipping Agencies Services and HGV.

What is the reason for the Antitrust Committee concern in German affairs and will the Ukrainian Antitrust investigation have an impact on the agreement between MSC, HHLA and Hamburg?

Ukrainian Antitrust agents cannot directly impact on the agreement concluded in Germany, as noted in the comments of the Interlegal Law Firm Central Committee.

Interlegal lawyers explain, “Principal powers of the Antitrust Committee include, inter alia, control over economic concentration: the Antitrust Committee is entitled to grant permits for concentration, that is, for mergers and acquisitions of companies, unless it causes market monopolization or significant restriction of competition. The Antitrust Committee can make a decision regarding the Ukrainian subsidiary HHLA. In future, it may demand to sell part of shares on the market or even may impose a fine”.

The question is why the Antitrust Committee decided to delve into this topic right now, when there is still no final decision on the agreement in Germany and no impact on the Ukrainian market yet.

Interlegal lawyer Dmytro Ochkolias says, “Speaking about peculiarities of obtaining a permit for concentration in Ukraine, it consists of several stages. Companies planning a merger or takeover shall file an application to the Antitrust Committee with detailed information about the agreement and its parties. The Antitrust Committee shall analyze it, shall assess impact of the agreement on market and competition. Further, having considered the application, the Antitrust Committee shall make a decision on granting or rejecting a concentration permit. If the agreement may cause monopolization or significant restriction of competition, the permit may be rejected”. But it is precisely within Ukraine that concentration does not occur.

“In such situation, we cannot understand what assets were objects of the deal between two companies, what level of control and at which corporate positions were changed and whether they were changed at all, this will hastily form certain forecasts of the results of such proceedings initiated by the Antitrust Committee”, he comments and emphasizes the need to conduct due diligence on all risks before making legally significant decisions.

Indeed, now it is not clear what exactly the Antitrust Committee will pay attention to. Obviously, the fact that the owner of a large terminal in Odesa will become a company having a large fleet and running container lines is a cause for concern.

Let us remind that MSC has already resumed container ship calls to Ukraine and decided to launch a regular feeder service, connecting the Turkish port of Tekirdag and Odesa (with work specifically at the Odesa Container Terminal). It was MSC that became the first international container line to direct its vessel to Odesa following outbreak of the full-scale Russian invasion. However, it should be noted that the way to this Ukrainian port was not easy: MSC initially cancelled the first call to Odesa due to misunderstanding with the national customs.

Speaking about the shipping company itself, before the full-scale invasion of Russia into Ukraine, the MSC fleet called at the Odesa and other Black Sea ports, offering two feeder services. MSC share in the container handling market of Ukraine made up approximately 15%. But with this share in the volume of container traffic at the Ukrainian sea ports, the company is still runner-up among international container lines, after Maersk, Denmark.

Regarding the Odesa Container Terminal, before the full-scale war, it handled the largest volume of containers among the Ukrainian container terminals with a market share of 35–40%. In 2021, the terminal with a capacity of 850,000 TEUs increased its container turnover by 5.1%, against 390,808 TEUs in 2020 (turnover of the Ukrainian sea ports that year made up 1.022 million TEUs).

For a monopoly, it is enough to occupy at least 35% of the market. So, if we focus on such pre-war indicators, the Odesa Container Terminal is still a candidate for a monopolist. But this is if you focus on them. But in the current situation they are not relevant. Market players note, now we should be happy about the resumption of container transshipment in our ports.

“Analysis of the aforesaid agreement may indicate not only monopolistic trends, which is an object for study by Antitrust Committee. Here it is worth mentioning another vector of vision of the situation. Namely, the fact that MSC's actions indicate an interest in working in Odesa region from the aspect of a single action, but from the aspect of long-term work, because it is about one of MSC's key assets. In the context of recovery of the container transportation market of Ukraine, it was the carrier MSC that entered the Odesa Sea Port after a long pause, having shown its leadership position on the market”, as commended by Volodymyr Guz, the Global Ocean Link commercial director.

He is convinced, “We can state that the giant company believes in the victory of Ukraine and the independent development of our economy, wanting to strengthen and to use these prospects. Otherwise, actions and decisions of the MSC management would have a single nature. Instead, we see a clear strategy. With a fixed communication between all the market players and the Antitrust Committee, as with one of regulators, the prospects can be quite positive”.

“All the lines previously operating in Odesa before the war did so for the Odesa Container Terminal. Now MSC works for the Odesa Container Terminal, while SMA, MAERSK, AKKON, HPL work for the Chornomorsk Fishery Port. Accordingly, MSC will have its own terminal through which all other container lines will enter by purchasing its services.

Will this situation cause a monopoly? Time will tell. Some market players are wary of this, others see a prospect in the fact that powerful companies work with Ukraine, seeing the potential of our port industry and not being afraid of the risks of war. This inspires a certain hope”, noted by Dmytro Kazanin, director and owner of the transport and logistics company TEUS.

 

He adds, “As of today, we can only assume that, having strategic plans for successful and long-term work in Ukraine, MSC anticipated the above aspects and will conduct their activities in such a way that everyone will benefit from this, and the anti-monopoly legislation will be observed”.

Viktor Berestenko, president of the Association of International Freight Forwarders of Ukraine (AIFF), is also convinced that it is too early to talk about the threat of monopoly. He notes, “Currently, the situation on the Ukrainian container market is not at all the same as before the war. One should understand it. That is why such statements of the Antitrust Committee seem inappropriate to me. In particular, with regards to the fact that the actual previous agreement between MSC and Hamburg was well-known much earlier. Why should we start an analysis now? From the outside, it may look like response of the state authorities to the previous scandal, when the MSC postponed the visit to the Ukrainian sea port due to the excessive delay of the customs office”.

Mr. Berestenko comments, “We may assume that MSC container ships will call exclusively at the Odesa Container Terminal in future, because it will be owned by the company. But this is the market, and from time to time we still see container lines change terminals. Let us remember how at one time Maersk left Chornomorsk and moved to Pivdennyi Sea Port”.

"But MSC does not seek to take over the entire supply chain, this is not its approach. To a greater extent, it still focuses on fixing good relations with forwarders. This is important because, for example, forwarders complained to our association that one local container line does not allow any foreign freight forwarder, it is not a monopolist, but I do not expect this from MSC, nor do I expect it to have a negative impact on the Ukrainian market”, he adds.

In the footsteps of the giant

In fact, it is now difficult to predict exactly how MSC will behave on the Ukrainian market when it becomes the new owner of the Odesa Container Terminal. Such a large company clearly has ambitions, and global media is paying attention to its moves in various regions.

For example, Le Monde wrote that, by controlling two container terminals on the Cote d’Ivoire coast, MSC “obtained a monopoly on containers in this key West African country”. These include the port of Abidjan, “the country's vibrant economic capital serving part of the landlocked Sahel region”, and the port of San Pedro, “global leader in export of cocoa”.

Last year, a lively discussion took place in Australia in the shipping industry about national antitrust legislation. In particular, the Australian Competition and Consumer Commission noted that legislation “allows shipping companies to enter into agreements on rates, vessel sharing and schedules”, which might cause abuse. It called for more powers to fight collusion and “to encourage greater competition between shipping companies on trade routes”. The discussion took place in view of a vessel-sharing agreement between MSC and ZIM (Israel) which restricted the number of container ships sailing to Australia.

Nevertheless, as for container market in Ukraine, let us repeat: it is still too early to predict future impact of the Mediterranean shipping company on this market. MSC actions cannot fail to interest the competitors in this market, they clearly closely monitor development of events. Of course, without the attention of Antitrust officials, there is no way to do here. But while the container market is recovering, it still needs positive signals, not warning shots.