Cargotec and Konecranes have separately announced that China’s State Administration for Market Regulation has given their merger transaction an “unconditional approval.”

“The companies continue to work closely with the competition authorities in the remaining jurisdictions to obtain regulatory approvals. Cargotec and Konecranes are confident that the approvals will be received to allow completion of the Transaction by the end of H1/2022. Until completion, both companies will operate fully separately and independently,” the announcements said.

As far as competition reviews are concerned, the approval from the Chinese regulator was one of the easier decisions for regulators considering this merger. Both companies have a number of domestic competitors across their business lines in the Chinese market, especially in mobile lifting equipment such as lift trucks and reach stackers, and almost no terminal operators in the country use straddle carriers.

In addition, the merger does not present the same vertical competition issues in China that it does in other jurisdictions. Konecranes and Kalmar both have production facilities in China for some lines, but make extensive use of third-party contract fabricators, some of whom build cranes and other products for competing brands.

Cargotec was involved in a joint venture for crane production with Rainbow Heavy Industries, but recently sold its interest in the company. It subsequently transferred its crane engineering expertise in China to another company, Etteplan.

In the components sector, Chinese crane and mobile equipment OEMs use a mix of their own spreaders, ZPMC spreaders, and products from European suppliers.

Wide ranging reviews

While China has made its decision already, the competition authorities in other countries are still seeking input from customers of both companies as they conduct wide ranging reviews.

For example, the UK Competition & Markets Authority (CMA) has released an “Issues Statement” outlining the wide range of topics it will cover as it considers whether the merger “may be expected to result in a substantial lessening of competition (SLC)” in the UK.

It will look at the container lifting equipment markets in detail and examine a range of “horizontal unilateral effects.” Its investigation so far “suggests” that impacts of the merger will include:

• The merged entity being the leading RTG supplier in Europe.
• Combining two of the main four RTG suppliers in the UK (the other two being ZPMC and Liebherr).
• Combining the “pre-eminent” ASC suppliers in Europe over the last ten years.
• Reducing ASC suppliers in the UK to three main companies, along with Kuenz and ZPMC.
• Creating the largest supplier of reach stackers in the UK, Europe and globally.
• Removing two “close alternatives” in reach stackers in the UK, where Konecranes and Kalmar compete with Hyster and Sany, and “to a lesser extent with CVS and Liebherr.”
• Creating “by far the largest supplier of heavy duty forklifts of more than 10t and particularly of forklifts with a higher lifting capacity, on a Europe-wide and UK-wide basis”. Alternatives for UK customers include Hyster, Sany, Linde and Svetruck.
• Creating the largest ECH supplier in Europe and UK, with the other main suppliers in the UK being Sany and Hyster.

Interestingly the CMA is also looking at automated terminal tractors, where it says “there is some evidence to suggest that Konecranes, which stopped manufacturing terminal tractors in 2017, would have become a competitor in the provision of automated terminal tractors.”

Konecranes did not itself build terminal tractors, but it inherited the original CVS Ferrari design when it acquired the material handling and port equipment business of Terex. It is not known what the evidence is the CMA is referring to is, but it notes that both merger parties have the capabilities in automation to produce automated terminal tractors.

Straddle question

The biggest “substantial lessening of competition” (SLC) in the port sector is in the straddle carrier market. The UK CMA said that the evidence available to it shows that: “(a) the Parties are the two main suppliers of straddle and shuttle carriers, with a combined share of supply of nearly [90-100%] on a UK-wide, Europe-wide and global basis; and (b) the Parties’ offerings are close alternatives for UK customers, with ZPMC being the only other supplier with any recent record of bidding for UK customers (with ultimately no success).”

The CMA is, therefore, discounting Liebherr as a straddle carrier supplier. Liebherr entered the straddle market around 10 years ago and sold machines in New Zealand and Ireland, though it is not known to have booked any orders over the last two years.

There is no avoiding the conclusion that the merger meets the CMA’s balance of probabilities test for an SLC in the straddle carrier market. The CMA would then consider what remedies might be appropriate, and whether a loss of competition would be balanced by other benefits of the merger.

The UK regulator is also taking a closer look at the vertical supply chain in equipment production and the issue of “input foreclosure” in the spreader market with regard to Bromma spreaders for yard cranes, mobile harbour cranes and mobile equipment spreaders.

In this regard the CMA wants to look at Bromma’s “market power upstream” and the extent to which a merged company “would have the ability and incentive to stop supplying crane spreaders or worsen the terms of supply” for other crane OEMs that use Bromma, making mention of Liebherr and Kuenz. It will also consider Konecranes’ position as a customer of other spreader suppliers, and the likely impact of a merger on their business.

The CMA notes that Konecranes today is an important customer of “a Cargotec rival in the supply of spreaders for mobile equipment,” which is Elme. While a merged Cargotec and Konecranes could improve economies of scale for the Bromma business in this sector, such a move could in turn make Cargotec’s rival “a less cost-effective option for rival mobile equipment producers by reducing its economies of scale.”

Price and service levels

The Australian competition and consumer commission (ACCC) is taking a different approach. It is focusing on competition and seeking views on the potential impact of a merger on: prices or service levels; whether Cargotec and Konecranes compete closely in Australia; and whether their customers have access to alternative suppliers. It also wants to know how equipment users would respond if the merger went ahead and prices did rise or service levels declined.

The ACCC is seeking feedback from equipment operators on these issues, plus the extent to which there is potential for new entrants in the market. It has to consider the merger under legislation that “prohibits mergers and acquisitions that are likely to have the effect of substantially lessening competition in a market”.

Australia will be a tough test in this regard. It is a relatively small, distant market where entrenched purchasing patterns have made it difficult for new entrants. Because of this some companies have chosen not to compete for business there.