The European Commission today officially announced it has prohibited the €5.2 billionacquisition of TNT Express by UPS due to the impact on competition in the European express market,
and justified its decision in a detailed statement.The European competition authority said the proposed acquisition would have restrictedcompetition in 15 Member States when it comes to the express delivery of small packages to anotherEuropean country. These were Bulgaria, the Czech Republic, Denmark, Estonia, Finland, Hungary,Latvia, Lithuania, Malta, the Netherlands, Poland, Romania, Slovakia, Slovenia and Sweden.
In these Member States, the acquisition would have reduced the number of significant players toonly 3 or 2, leaving sometimes DHL as the only alternative to UPS. The concentration wouldtherefore have likely harmed customers by causing price increases, the Commission said.
Outlining the events of the last 10 months since UPS and TNT announced the agreed takeover lastMarch prompting Brussels’ competition investigation, the Commission said that during theinvestigation, UPS offered to divest TNT’s subsidiaries in these 15 countries and allow the buyerto access its intra-European air network for five years. The Commission carried out an in-depthassessment, including a market test where customers and other interested parties were consulted.However, these remedies proved inadequate to address the identified competition concerns, itstated.
Joaquín Almunia, Commission Vice President in charge of competition policy, said: “Manybusinesses active in the EU Single Market need to send small packages to another European countrywith guaranteed delivery on the next day. This requires access to affordable, reliable servicesthat truly fit their needs. These businesses would have been directly harmed by the takeover of TNTby UPS because it would have drastically reduced choice between providers and probably led to priceincreases. We worked hard with UPS on possible remedies until very late in the procedure, but whatthey offered was simply not enough to address the serious competition problems we identified”.
The Commission said its investigation focused on the markets for international expressdeliveries of small packages in the European Economic Area (EEA). The main providers of theseservices are so-called “integrators” that control international integrated air and ground smallpackage delivery networks. There are only four integrators in Europe: UPS, TNT, DHL and FedEx.FedEx, for its part, has low market shares in a number of countries where it does not exercise asignificant competitive constraint on UPS and TNT, because of the lack of density and scale of itsEuropean network. Other market players, such as national postal operators, can only compete to alimited extent because they do not reach comparable efficiency or reliability, given their heavyreliance on road rather than air transport, according to Brussels.
If the notified acquisition had been allowed, many customers in 15 Member States would only havebeen able to choose between UPS, DHL and (sometimes) FedEx for the services they need. This wouldhave likely led to price increases, the Commission said. Moreover, the possible benefits of themerger, i.e. any cost-savings passed on to customers as a result of the combination of UPS andTNT’s air networks, would not have been sufficient to outweigh the negative effects on competition,it added.
To address the Commission’s concerns, UPS proposed to divest TNT’s subsidiaries in the 15relevant Member States, plus – under certain conditions – TNT’s subsidiaries in Spain and Portugal,to further increase the volume of small package express deliveries that would be transferred to thepurchaser. UPS also offered access to its air network for 5 years, should the purchaser not be aso-called “integrator”.
However, to provide intra-EEA express deliveries from the 17 countries covered by the remedypackage, the purchaser would have needed suitable networks or partners in these other countries.This requirement alone severely limited the number of potentially suitable purchasers, castingdoubt over the effectiveness of the remedies. To dispel this uncertainty, UPS would have needed tosign a binding agreement with a suitable purchaser before the concentration was implemented.However, UPS did not propose this to the Commission and its last minute attempt to sign such anagreement before the end of the Commission’s investigation did not materialise.
Moreover, the Commission had serious doubts as to the ability of the very few potentialpurchasers that expressed their interest to exercise a sufficient competitive constraint on themerged entity in intra-EEA express delivery markets on the basis of the remedies offered. Inparticular, a buyer that is not already an integrator would need the ability and incentive toinvest in its own air transport solution and to upgrade its ground network in order to become asufficient competitive threat on the merged entity. Without sufficient volume in express deliveriesit is doubtful that such an incentive would exist.
The Commission found that small package and freight delivery services should be distinguished.Unlike freight, small packages can be handled by a single person without specific equipment. Theyare transported via a specific infrastructure, in particular automated sorting centres and smallvehicles, which are not suitable for freight.
Within small package delivery services, the Commission differentiated between domesticdeliveries, international deliveries within the EEA and international services to the rest of theworld. These categories satisfy different needs and require different networks.
The Commission also distinguished express services from slower services, called “deferred”deliveries. A number of users need to be sure that certain items (for instance spare parts) aredelivered within one day. Such users would not be able to envisage switching to deferred servicesas a result of a price increase.
International intra-EEA express services are predominantly used by business users for shippingsensitive items such as time-critical documents, finished or semi-finished goods, spare parts,samples, etc. As proposed by UPS, the Commission found that markets for intra-EEA expressdeliveries were national in scope. They are defined by reference to the location of the customer.The Commission identified competition concerns in 15 of these national markets.
