Daily Archives: September 13, 2012

Three Does Not a Monopoly Make

But it does make competition hard and collusion easy. So what am I referring to now? As recently expounded upon in this recent article in the online version of The Economist, UPS has made a bid for TNT (Express), the fourth largest logistic carrier in the world, the second largest in Europe, and the largest in Britain and Italy. If UPS gobbles up TNT, it may not only shift the balance in power in the near-duopoly between FedEx and UPS in the US, but give UPS the edge it needs in Europe to take on DHL toe-to-toe in Europe (where it controls up to 50% of the market). If UPS succeeds, UPS would have at least a quarter of the market in three big European centres — Britain, France, and Italy. Unless Federal Express scooped up DHL (and it’s pretty easy to predict that bid would happen if UPS scooped up TNT), FedEx might soon go the way of the Pony Express in Europe.

While UPS is likely claiming that this will benefit shippers as it will allow them to offer better service at lower prices, the fact that we could soon be dealing with a duopoly, and would effectively be dealing with a duopoly in the US (UPS and FedEx) and Europe (UPS and DHL) is a bad thing. Consider the fact, as pointed out by Leigh Merz in A Shipper’s Right, that UPS and FedEx have already mandated that shippers can only work with FedEx or UPS directly (and not through brokers or other third parties). Hopefully this restriction will be removed as an anti-trust violation in the upcoming court-case between AFMS and the UPS-FedEx anti-trust lawsuit, but until then, United States shippers are already operating at a disadvantage.

And if we get a local duopoly and a global triopoly, there’s a good chance it could only get worse. All it will take to enforce a new, shipper preferred, style of business is for three senior executives to meet for lunch at the Executive’s club, spontaneously decide that, from now on, all products that weigh less than 5 lbs per unit go first class air freight, and, presto, no ocean cargo for you! And all it will take for prices to rise, on average, 5% across the board is for the CEOs to play a around of golf and decide that, next quarter, as a result of fuel increases, all prices will rise an average of 5%. Now, each shipper will still have lanes where it will be more competitive, but switching won’t save significant dollars as the competitors prices rose in sync. Not saying this will happen, but you see how easy it could happen if, by chance, it happens that each organization happens to have at least one senior executive who is less than honourable at all times. And this is an industry where price collusion happens more regularly than it should. As The Economist article noted, in March, the European Commission handed out fines totalling 169 Million Euros to 14 freight-forwarding companies, including UPS subsidiaries, for price collusion.

Right now, the EC is undertaking a phase II merger investigation, as per this recent press release, and has until November 28 to determine whether the proposed transaction would significantly impede effective competition in the European Economic Area (EEA). I hope they do. In the meantime, the case details are available at the EC site and, as per the initiation of proceedings, published in C226, the Commission invites interested third parties to submit their observations on the proposed concentration to the Commission. While it’s now too late to have the observations fully taken into account in the procedure, if you’re a major multi-national with a big voice, it might not be a bad idea to get your observations in anyway. Often, it only takes a few very noisy squeaky wheels to slow things down and force a good look.