CELEX: 32020M9936
Language: en
Date: 2020-12-16 00:00:00
Title: Commission Decision of 16/12/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9936 - IMABARI SHIPBUILDING / JFE / IHI / JAPAN MARINE UNITED CORPORATION) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                               Brussels, 16.12.2020
                                                               C(2020) 9386 final
                                                                                 PUBLIC VERSION
                                                                 In the published version of this decision,
                                                                 some information has been omitted
                                                                 pursuant to Article 17(2) of Council
                                                                 Regulation (EC) No 139/2004 concerning
                                                                 non-disclosure of business secrets and
                                                                 other confidential information. The
                                                                 omissions are shown thus […]. Where
                                                                 possible the information omitted has been
                                                                 replaced by ranges of figures or a general
                                                                 description.
                                                               Imabari Shipbuilding Co., Ltd.
                                                               1 ‒ 4 ‒ 52 Koura‒cho, Imabari,
                                                               Ehime, 799 ‒ 2195
                                                               Japan
                                                               JFE Holdings, Inc.
                                                               2 ‒ 2 ‒ 3 Uchisaiwaicho, Chiyoda‒ku,
                                                               Tokyo, 100 ‒ 0011
                                                               Japan
                                                               IHI Corporation,
                                                               Toyosu IHI Bldg. 1 ‒ 1, Toyosu 3 ‒ chome,
                                                               Koto‒ku,
                                                               Tokyo, 135 ‒ 8710
                                                               Japan
Subject:           Case M.9936 – Imabari Shipbuilding/JFE/IHI/Japan Marine United
                   Corporation
                   Commission decision pursuant to Article 6(1)(b) of Council Regulation
                   No 139/20041 and Article 57 of the Agreement on the European Economic
                   Area2
1         OJ L 24, 29.1.2004, p. 1 (the ‘Merger Regulation’). With effect from 1 December 2009, the Treaty on
          the Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the
          replacement of ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology
          of the TFEU will be used throughout this decision.
2         OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- Dear Sir or Madam,
(1)    On 11 November 2020, the European Commission received notification of a
       proposed concentration pursuant to Article 4 of the Merger Regulation, by which
       Imabari Shipbuilding Co., Ltd. (‘Imabari Shipbuilding’, Japan) acquires, within the
       meaning of Article 3(1)(b) and Article 3(4) of the Merger Regulation, joint control
       of Japan Marine United Corporation (‘JMU’, Japan) together with JFE Holdings Inc
       (‘JFE’, Japan) and IHI Corporation (‘IHI’, Japan). The proposed acquisition takes
       place by way of purchase of shares (the ‘Transaction’).3 Imabari Shipbuilding, JFE,
       IHI and JMU are together referred to as the ‘Notifying Parties’. Imabari Shipbuilding
       and JMU are together referred to as the ‘Parties’ or as the ‘Merged Entity’.
1.     THE PARTIES
(2)    Imabari Shipbuilding is active in the development, design, construction, marketing,
       and repair of a wide range of commercial vessels, including bulk carriers, container
       ships, car carriers, LNG carriers, tankers and ferries.
(3)    JMU is active in the development, design, construction, production and marketing of
       a wide range of commercial and military vessels, including bulk carriers, container
       ships, car carriers, LNG carriers, tankers, ferries and offshore support ships. JMU is
       currently jointly controlled by JFE Holdings Inc. (‘JFE’, Japan) and IHI Corporation
       (‘IHI’, Japan). Each of JFE and IHI currently holds 49.4% of JMU.
(4)    JFE is a holding company with interests in steel, engineering and the trading of raw
       materials, machinery, electronics, real estate and food.
(5)    IHI is a heavy-industry manufacturer with activities in (i) resources, energy and
       environment; (ii) social infrastructure and offshore facilities; (iii) industrial systems
       and general-purpose machinery; and (iv) aero engine, space and defence.
2.     THE OPERATION AND THE CONCENTRATION
(6)    Pursuant to a Capital and Business Alliance Agreement executed on 27 March 2020,
       Imabari Shipbuilding will acquire 30% of the common shares in JMU. Post-closing
       the shareholding in JMU will be divided as follows among the three shareholders:
       JFE (35%), IHI (35%) and Imabari Shipbuilding (30%).
(7)    According to the Notifying Parties’ governance arrangements, [Parties’
       Arrangements]. However, the Notifying Parties submit that they will hold at least de
       facto joint control over JMU as a result of the proposed concentration.4
(8)    Joint control may be acquired on a de facto basis where ‘strong common interests
       exist between shareholders to the effect that they would not act against each other in
       exercising their rights in relation to the joint venture’.5 In the present case, the
       Shareholders’ Agreement entered into between the Notifying Parties provides for a
3      Publication in the Official Journal of the European Union No C 398/15, 23.11.2020, pp. 19 ‒ 20.
4      Letter of the Notifying Parties’ counsel, 16 July 2020.
5      Consolidated Jurisdictional Notice (‘CJN’), paragraph 76.
                                                          2
 ---pagebreak---      [Parties’ Arrangements]. Such a system is designed to enable the parent companies
     to exercise joint control ‘even in the absence of explicit agreements granting veto
     rights’.6
(9)  In addition, de facto joint control may arise as a result of ‘a high degree of mutual
     dependency as between the parent companies to reach the strategic objectives of the
     joint venture’, notably ‘when each parent company provides a contribution to the
     joint venture which is vital for its operation’.7 In the present case, each of JFE and
     IHI have committed to provide [Financial situation]. This is particularly important in
     view of [Financial situation]. Conversely, Imabari Shipbuilding will contribute its
     technical and operational capabilities to JMU, as well as its in-depth knowledge of
     the shipbuilding industry, whereas JFE and IHI have not been engaged in the
     shipbuilding business for several years on their own. Hence, in addition to the
     relevant governance mechanisms, it can be reasonably expected that in practice
     JMU’s strategic matters will be determined in a cooperative manner among JFE, IHI
     and Imabari Shipbuilding, in view of the mutual dependence created by their
     respective contribution to the joint venture.
(10) The particular contribution of Imabari Shipbuilding and the strong common business
     interests and related dependencies between the Notifying Parties are specifically
     supported in the present case by the creation of a joint venture (‘the Design and Sales
     JV’) between Imabari Shipbuilding and JMU, pursuant to a JV agreement dated 27
     March 2020. Imabari Shipbuilding and JMU will own 51% and 49% of the Joint
     Venture’s share capital, respectively. Since Imabari Shipbuilding and JMU will have
     equal rights regarding the nomination of the representatives in the management
     bodies including the Board of Directors, which is to decide on the budget, business
     plan and major investments, they will exercise joint control over the Design and
     Sales JV.
(11) The Design and Sales JV will carry out the design of commercial ships, negotiate the
     terms including the ship prices with the customers, sell the ships to the customers
     and conduct all sales activities as its own business. It will have its own resources as
     IS and JMU will transfer their respective sales and design departments (including
     staff) to the Design and sales JV.
(12) The acquisition of a 30% interest in JMU by Imabari Shipbuilding and the creation
     of the Design and Sales JV are interdependent in such a way that one transaction
     would not be carried out without the other. They are linked by condition in the
     Capital and Business Alliance Agreement and therefore form a single concentration.
     Moreover, according to internal documents, [Transaction structure]. Therefore, the
     current JMU shareholders appear to be in fact the undertakings concerned on JMU’s
     side behind the creation of the Design and Sales JV between Imabari Shipbuilding
     and JMU, within the meaning of paragraph 147 of the CJN.
(13) Consequently, JMU will be jointly controlled by Imabari Shipbuilding, JFE and IHI.
     JMU is and will continue to be a full-function joint venture within the meaning of
     Article 3 (4) of the EUMR. The operation thus constitutes a concentration within the
     meaning of Article 3(1)(b) of the Merger Regulation.
6    Consolidated Jurisdictional Notice (‘CJN’), paragraph 77.
7    Ibid.
                                                      3
 ---pagebreak--- 3.   EU DIMENSION
(14) The undertakings concerned have a combined aggregate worldwide turnover of more
     than EUR 5 000 million (Imabari Shipbuilding: EUR [Turnover] million; JMU: EUR
     [Turnover] million; JFE: EUR 30 872 million; IHI: EUR 11 497 million).8 Two of
     them have an EU-wide turnover in excess of EUR 250 million (Imabari
     Shipbuilding: EUR [Turnover] million; IHI: EUR [Turnover] million), but they do
     not achieve more than two-thirds of their aggregate EU-wide turnover within one
     and the same Member State. Therefore, the notified operation has an EU dimension
     within the meaning of Article 1(2) of the Merger Regulation.
4.   MARKET CHARACTERISTICS
(15) This transaction pertains to the shipbuilding industry. The size and dimensions of
     commercial vessels are expressed in a range of different metrics, such as deadweight
     tonnage (‘DWT’, a measure for how much weight a ship can carry), gross tonnage
     (‘GT’, a vessel’s total cargo carrying capacity) and compensated gross tonnage
     (‘CGT’, derived by multiplying the gross tonnage of a ship with a coefficient
     reflecting the work content of each type and size of ship – therefore also an indicator
     of the relative output of merchant shipbuilding activity).9 In the present case, CGT
     represents the most appropriate metric for calculating market shares as it enables a
     more accurate macro-economic evaluation of shipbuilding workload.
(16) A number of additional metrics are used with respect to certain types of commercial
     vessels, such as container ships and PCTCs. Container ship capacity is customarily
     provided by reference to the maximum number of Twenty Feet Equivalent Units
     (‘TEU’ – a measure for one standard 6.1 meters long container) that a vessel can
     carry. PCTC capacity is also sometimes presented by reference to car equivalent
     units (‘CEU’).
(17) In line with previous Commission decisions,10 the relevant time-period to calculate
     market shares in the present case has been considered to be five years (i.e., 2015-
     2019). Market shares over a five-year period allow for a more stable overview of the
     competitive landscape in view of the lumpy demand characteristic of the industry
     and the resulting significant fluctuations in yearly market shares. Nonetheless, the
     Notifying Parties have also provided data on the basis of shorter time periods (three
     years), in addition to yearly data.
(18) While it would likely be most appropriate to consider market shares by contracting
     dates (as competition takes place in the market place right before customers place
     orders for new ships), the Notifying Parties were only able to provide complete
     market share data by delivery date of ships. This information is based on data from
8    Turnover calculated in accordance with Article 5 of the Merger Regulation.
9    The latest CGT system was adopted and promulgated by the OECD Council Working Party on
     Shipbuilding.      It     came      into      force      on      1      January 2007. See:
     https://www.oecd.org/industry/ind/37655301.pdf.
10   See, in particular, Commission decision of 5 May 2008 in case M.4956 – STX/AKER YARDS,
     paragraph 40.
                                                      4
 ---pagebreak---      Clarksons Research (‘Clarksons’), a provider of intelligence for global shipping.11
     Among other metrics, Clarksons also tracks global ship orders, shipbuilding and
     fleet sizes. Therefore, for the purposes of this decision, the Commission will rely on
     2015-2019 market shares based on ship deliveries. Where available, information
     based on contracting date will be taken into account in the assessment.
(19) The proposed Transaction takes place in a wider industry context characterised by
     the leading role of Asian shipbuilders in commercial shipbuilding.12 The Japanese
     share of global deliveries grew after World War II while Europe’s share declined.
     Today, the global commercial shipbuilding industry is largely concentrated in three
     countries: China, Korea and Japan (as shown in Figure 1).
                          Figure 1 – Historical shipbuilding shares
                                         Source: Clarksons.
(20) In recent years, measures have been adopted to make commercial ships more
     environmentally friendly. In 2013, the International Maritime Organization (‘IMO’ –
     a United Nations agency) adopted measures to reduce the emission of greenhouse
     gases from international shipping. Along with certain intermediary steps, the IMO
     set the goal to reduce the total annual greenhouse gas emissions by at least 50% by
     2050. The shipbuilding industry is therefore increasingly seeking new approaches to
     reduce emissions (such as design and technical measures, operational measures or
     the development of alternative fuel technologies such as LNG-powered vessels).
5.   MARKET DEFINITION
(21) The Parties’ activities overlap horizontally in commercial shipbuilding, specifically
     for container ships, bulk carriers, PCTCs and Roll-on roll-off carriers (RORO), LNG
11   For RORO carriers, LNG carriers, ferries and tankers, the IHS Markit data was provided by the
     Notifying Parties.
12   Excluding cruise ships in which European shipbuilders have a leading role.
                                                     5
 ---pagebreak---      carriers, ferries and tankers. Conversely, the horizontal overlap in the repair of
     commercial ships,13 on the one hand, and vertical relationships between the Parties,14
     on the other hand, are extremely limited and do not warrant particular investigation.
5.1. Product market definition
(22) In previous decisions, the Commission identified separate markets in the
     shipbuilding industry between merchant/commercial/civil ships and naval/military
     ships. Such a distinction is warranted due to differences in characteristics,
     performance, use and prices, as well as distinct customer bases, naval vessels being
     ordered by national governments as opposed to private customers for commercial
     ships.15 This segmentation was also endorsed by a vast majority of respondents to
     the market investigation.16
(23) Within commercial ships, the Commission considered further sub-delineations
     according to the main categories of vessels including: (i) bulk carriers; (ii) container
     ships; (iii) product carriers17; (iv) chemical and oil tankers; (v) liquefied natural
     gases (‘LNG’) carriers; (vi) liquefied petroleum gas (‘LPG’) tankers; (vii) roll-on
     roll-off vessels; (viii) ferries; (ix) cruise ships; and (x) offshore/specialised vessels.18
     The Notifying Parties also present the Parties’ activities based on this segmentation
     (as well as PCTCs).19
(24) A large majority of customers and competitors having responded to the market
     investigation agreed that this segmentation according to the different cargo profile of
     commercial ships remains appropriate.20 Accordingly, this Decision relies on such
     segmentation as the starting point of competitive assessments and focuses on the
13   Both Parties provide repair and minor conversion services for commercial ships such as hull works
     (painting of hulls, repair of damaged parts, maintenance of deck equipment, etc.), engine works
     (maintenance of main/auxiliary engines, propellers, etc.), and electrical and piping works
     (maintenance of electrical equipment and wiring on board ships, exchange and maintenance of
     various piping, etc.). Both Parties had limited revenue from ship repair services, in particular with
     customers outside of Japan. In this regard, JMU generated EUR […] million in fiscal year 2016 (of
     which only EUR […] with customers outside of Japan) and EUR […] million in fiscal year 2017 (of
     which only EUR […] with customers outside of Japan), while Imabari Shipbuilding generated EUR
     […] million in fiscal year 2016 and EUR […] million in fiscal year 2017 and […] with non-Japanese
     customers (response to RFI 5, question 3). It can therefore be reasonably excluded that the
     Transaction could raise serious doubts as to its compatibility with the internal market in relation to the
     repair of commercial ships.
14   Imabari Shipbuilding has occasionally outsourced the production of certain ship block parts to JMU.
     This only happened on an ad-hoc basis and generated limited sales (less than EUR […] million per
     year on average over the last five years). It can therefore be reasonably excluded that the Transaction
     could raise serious doubts as to its compatibility with the internal market due to such occasional
     vertical links. Further, a vertical relationship between JFE and JMU in relation to the supply of steel
     plates pre-existed to the Transaction. Since the Transaction had no impact on that relationship, it will
     not be discussed further in this decision.
15   Commission decision of 11 May 2009 in case M.5473 – Fincantieri/ABB/JV, paragraph 21.
16   Q1 – Questionnaire to customers, replies to question B.A.A.1., and Q2 – Questionnaire to
     competitors, replies to question B.A.A.1.
17   A product carrier is a tanker engaged in the trading of other oil than crude oil.
18   Commission decision of 11 May 2009 in case M.5473 – Fincantieri/ABB/JV, paragraph 22,
     Commission decision of 5 May 2008 in case M.4956 – STX/AKER YARDS, paragraph 12.
19   Form CO, paragraphs 94 and 95.
20   Q1 – Questionnaire to customers, replies to question B.A.A.2, and Q2 – Questionnaire to competitors,
     replies to question B.A.A.2.
                                                         6
 ---pagebreak---         three areas in which the Parties’ activities result in affected markets (container ships,
        bulk carriers and PCTCs).
(25)    While the Parties’ activities also overlap in RORO carriers, LNG carriers, ferries and
        tankers, no plausible affected markets arise with respect to these ship types and it
        therefore can be reasonably excluded that the Transaction could raise serious doubts
        as to its compatibility with the internal market in relation to the construction and
        supply of these ship types.
(26)    RORO carriers: RORO carriers are ships designed to carry wheeled cargo, such as
        cars, trucks, semi-trailer trucks, trailers, and railroad cars, etc. that are driven on and
        off the ship on their own wheels. In light of the low combined market shares of the
        Parties in ROROs overall of [0-5]% (IHS data, 2015-2019, by CGT) and the fact that
        JMU only built [Number of ships] and Imabari only [Number of ships] RORO
        vessels in the 2015-2019 timeframe, no plausible affected market arises.
(27)    LNG carriers: the Notifying Parties submit that LNG carriers are ships with a
        standard cargo capacity of 80 000 – 180 000 cubic metres that exclusively transport
        liquefied natural gases. In light of the low combined market shares of the Parties in
        LNG carriers overall of [0-5]% (IHS data, 2015-2019, by CGT) and the fact the
        Imabari Shipbuilding only built [Number of ships] and JMU only [Number of ships]
        LNG carriers in the 2015-2019 timeframe, no plausible affect market arises.
(28)    Ferries: the Commission has considered a distinction between (i) day ferries, (ii)
        night ferries, and (iii) cruise ferries.21 In ferries overall, the Parties have a combined
        share of [0-5]% (IHS data, 2015-2019, by CGT). The Parties only produce night
        ferries. The Notifying Parties submit that considering only night ferries, the
        combined market share of the Parties would be very unlikely to exceed 20%, given
        that in the timeframe 2015-2019 JMU only built [Number of ships] and Imabari
        Shipbuilding only built [Number of ships] night ferries.22
(29)    Tankers: the Commission has previously left open whether chemical/oil tankers and
        product tankers should be considered as forming one single product market noting
        that there was some demand side substitutability between these two categories of
        tankers.23 In light of the low combined market shares of the Parties in tankers overall
        of [0-5]% (IHS data, 2015-2019, by CGT) and the fact that [Number of ships] of
        Imabari’s [Number of ships] tankers built in the timeframe 2015-2019 had a capacity
        of 25-54 999 kt, a size category of tankers in which the Parties’ combined share is
        only [0-5]%, no plausible affected market arises.
     5.1.1. Construction and supply of container ships
(30)    Container ships are commercial vessels that carry cargo in containers. They are used
        for the shipping of non-bulk cargo like manufactured goods as the use of containers
        allows for efficiency in loading and unloading the ship. A container ship’s capacity
        is measured in TEU, with the capacity of ships ranging from 100 TEU to over 23
        000 TEU. Figure 2 below illustrates a Neo-Panamax 12-14 000 TEU container ship.
21      Commission decision of 27 March 2006 in case M.4104 – Aker Yards / Chantiers de l’Atlantique,
        paragraphs 24 ‒ 27.
22      In any case, [Parties’ order book information].
23      Commission decision of 5 May 2008 in case M.4956 – STX / Aker Yards, paragraph 17.
                                                        7
 ---pagebreak--- Figure 2 – Neo-Panamax 12-14 000 TEU container ship from Imabari Shipbuilding
Source: Imabari Shipbuilding website.
5.1.1.1. Notifying Parties’ arguments
(31)     As the Commission has not in previous decisions distinguished between different
         sizes and cargo capacities of container ships, the Notifying Parties submit that the
         relevant market is the market for the construction, production and sale of container
         ships overall.24
(32)     The Notifying Parties state that container ships should not be further segmented,
         notably according to categories used in Clarksons publications, in part because they
         submit that there is no common understanding as to how the various ship size
         categories should be defined.25
(33)     The Notifying Parties further submit that from the demand side perspective, the
         container ship size depends on the number of containers to be transported and the
         routes and harbours to be serviced. They explain that for example Neo-Panamax
         container ships are able to pass the New Panama Canal whereas Post-Panamax ships
         are not able to pass it but have a higher loading capacity. Nevertheless, the Notifying
         Parties submit that many ship owners order container ships of different sizes, in
         particular customers that provide the full range of services from intercontinental
         routes to intra-regional routes. Customers that only service intra-regional routes
         however only order smaller container ships.26
(34)     From a supply side perspective, the Notifying Parties argue that the range of the ship
         sizes that a manufacturer can built is determined by the physical constraints of its
         shipyard (such as dock size). In particular, with respect to Asian shipbuilders, which
         the Parties regard as their significant competitors, the Notifying Parties submit that
         they are capable to produce the whole range of container ship sizes.27
24       Form CO, paragraph 103.
25       Form CO, paragraphs 104 and 106.
26       Form CO, paragraph 108.
27       Form CO, paragraph 107.
                                                     8
 ---pagebreak--- 5.1.1.2. Commission’s assessment
(35)    Responses to the market investigation confirm that container ships likely are a type
        of vessel distinct from other merchant/commercial/civil ships and other cargo vessels
        in particular.28
(36)    Contrary to the submissions made by the Notifying Parties, the results of the market
        investigation also suggest that it is appropriate to further segment the market for
        container ships, notably by size.
        (A)       Market participants have a common understanding of container ship
                  categories
(37)    Contrary to the submission by the Notifying Parties, market participants appear to
        have a common understanding of different container ship categories based on size
        (delineated by TEU capacity in particular). This holds specifically for categories
        reported on by industry publication Clarksons Research, namely: Feeder (<3 000
        TEU), Intermediate (3-7 999 TEU), Neo-Panamax (8-11 999 TEU), Neo-Panamax
        (12-14 999 TEU), and Post-Panamax (15 000+ TEU). A majority of customers and
        competitors expressing their opinion submit that these categories are regularly relied
        upon in interactions between shipbuilders and customers.29 While one customer
        states that ‘[t]he size categories seem to be unrelated to the interactions between
        shipbuilders and customers’,30 another customer explains that these ‘categories
        refer[…] to the typical classification in the shipping industry when shipbuilders
        interact with their customers’.31 A further customer agrees and submits that these
        ‘definitions are very common in the market recognized by most majority of the
        people involved in the industry’.32 Yet another customer says that ‘[s]ubject to vessel
        design and trade requirements, proposed category looks reasonable and
        corresponds to common industry practice’.33 Competitors agree, with one stating
        that ‘[t]hese categories are usually used in discussions with customers, classification
        societies, etc.’34 and another one calling them ‘[w]orld standard’.35
(38)    Elaborating on which categories of container ships can be considered distinguishable
        from others due to factors such as price, performance, size and
        manufacturer/customer base, a customer submits that ‘[a]ll categories of container
        vessels are distinguishable from each other due to factors such as capacity, price,
        performance etc.’.36 Another customer states that ‘[s]ize and TEU is the most ideal
        categorization of container vessels’.37
28      Q1 – Questionnaire to customers, replies to questions B.A.C.1., B.A.C.1.1., B.A.C.2. and B.A.C.2.1.,
        Q2 – Questionnaire to competitors, replies to questions B.A.C.1., B.A.C.1.1., B.A.C.2. and
        B.A.C.2.1.
29      Q1 – Questionnaire to customers, replies to question B.A.C.3.1., and Q2 – Questionnaire to
        competitors, replies to question B.A.C.3.1.
30      Q1 – Questionnaire to customers, reply to question B.A.C.3.1.1.
31      Q1 – Questionnaire to customers, reply to question B.A.C.3.1.1.
32      Q1 – Questionnaire to customers, reply to question B.A.C.3.1.1.
33      Q1 – Questionnaire to customers, reply to question B.A.C.3.1.1.
34      Q2 – Questionnaire to competitors, reply to question B.A.C.3.1.
35      Q2 – Questionnaire to competitors, reply to question B.A.C.3.1.
36      Q1 – Questionnaire to customers, reply to question B.A.C.3.5.
37      Q1 – Questionnaire to customers, reply to question B.A.C.3.5.
                                                          9
 ---pagebreak--- (39) It therefore appears that the categorisation of container ships according to size
     categories based on TEU capacity used by Clarksons is widely recognised in the
     industry and relied upon in exchanges between market participants. In order to
     establish whether these categories could form the basis for distinct container ship
     product markets, the extent of supply and demand side substitutability is assessed in
     the following sections.
     (B)       No demand side substitutability between different container ship categories
(40) Generally, it appears that customers procure containerships of a specific size for
     different needs, and in particular for service on specific routes. Utilising other size
     container ships would in most cases not be cost-efficient for the shipping company.
(41) A majority of customers and competitors who expressed an opinion in response to
     the market investigation consider that shipping companies cannot use various
     categories of container ships to carry out the same types of services at competitive
     conditions.38 While one customer submits that ‘[i]nstead of having bigger vessels
     with less frequency, customer may want more frequent service offered by the fleet of
     the smaller vessels’,39 another customer in this context explains that ‘[i]n order for a
     shipping line to design and utilize its network, it must deploy the suitable vessels (in
     terms of size) on a given trade, corridor or string. Using smaller or larger vessels
     than set out in the network does generally not make sense for a shipping line, as it
     would not be cost efficient. Moreover, the deployment of vessels must take into
     account size restrictions in ports’.40 Another customer states that ‘[u]sually,
     shipping companies try as much as possible to use the same categories of container
     ships on the same service. For instance, using a feeder on larger trades will not be
     competitive enough’.41 Another customer describes the distinct use of different sizes
     of container ships by stating that ‘[b]igger ship goes back and forth bigger ports in
     fixed schedule, smaller ships go to smaller ports in a more flexible way’.42 A
     competitor submits that shipping companies ‘adapt the size of [the] vessel to the
     route to optimize costs’.43
(42) It therefore appears that different sizes of container ships address different (route)
     needs of shipping companies. This is further confirmed by a customer stating that it
     ‘uses different sizes of container vessels for different needs. Such needs will
     primarily be determined by global customer demand for shipping services, the
     structure of our global network, and vessel size restrictions etc. in ports’.44 Another
     customer closely mirrors this assessment and submits that it ‘uses different
     categories of container ships to address the specific needs of each trade. Different
     size and categories of vessels are used depending on the trade so as to adapt to the
     port facility, to the market, and to keep competitiveness’.45 This is further illustrated
     by another submission by a customer, that states that ‘[f]or example, the feeder size
38   Q1 – Questionnaire to customers, replies to question B.A.C.3.3., and Q2 – Questionnaire to
     competitors, replies to question B.A.C.3.4.
39   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.1.
40   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.1.
41   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.1.
42   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.1.
43   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.1.
44   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.2.
45   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.2.
                                                      10
 ---pagebreak---      vessel would be placed in intra-Asia route as connecting vessel. On the other hand,
     the Post-Panamax containerships can only be placed in Far East to Europe trade,
     not only because of trade volume but also because only terminals along this trade
     route have the ability to handle the Post-Panamax containership’.46
(43) The circumstance that certain types of container ship categories are used for specific
     routes by shipping companies appears to be most pronounced with respect to Post-
     Panamax container ships, which are utilised for East Asia-Europe routes. Post-
     Panamax ships cannot pass through the Panama Canal and therefore cannot be
     utilised on routes leading through the Panama Canal. Neo-Panamax container ships
     appear to be used on a greater number of routes, such as Asia to America, but also
     Asia to Europe47. Neo-Panamax 12-14 999 TEU ships are the largest category of
     container ship that can pass through the Panama Canal. Shipping companies would
     generally not utilise smaller vessels than those capable to service the largest share of
     demand on a given route while adhering to the size limitations of ports and canals
     along the route.
(44) It therefore appears that there is little demand side substitutability between container
     ships of different sizes.
     (C)       Limited supply side substitutability between different container ship
               categories
(45) Based on the responses to the market investigation, it appears that most shipbuilders
     active in the manufacture and supply of container ships are not active in the
     manufacture and supply of all size categories of container ships as identified by
     Clarksons. It further appears that shipbuilders active in certain size categories of
     container ships could not readily shift into building also other (in particular larger)
     size categories and customers have reservations with respect to purchasing large
     ships from shipbuilders without a track record in such ships.
(46) Considering whether shipbuilders active in container ships are typically able to build
     a wide range of container ship categories, a large majority of customers expressing
     their opinion does not consider all shipbuilders of container ships able to do so, but
     only some.48 Also, a majority of competitors expressing their opinion does not
     consider all shipbuilders of container ships able to build a wide range of container
     ship categories.49 With respect to their own activities in container ships, a majority
     of competitors states that they do not build all categories of container ships.50 In this
     context one competitor states that ‘a 20,000TEU container ship has a length overall
     of 400 meters and c[a]nnot be built at the dock of [the Company’s] shipyard’.51
     Another competitor explains that its ‘shipyard [does not have] know how for large
     size container vessel[s]’.52 Yet another competitor says that it ‘could build all
     containerships of all categories mentioned above, but [it] would build specific
46   Q1 – Questionnaire to customers, reply to question B.A.C.3.3.2.
47   Q1 – Questionnaire to customers, replies to question B.A.C.6.
48   Q1 – Questionnaire to customers, replies to question B.A.C.3.2.
49   Q2 – Questionnaire to competitors, replies to question B.A.C.3.2.
50   Q2 – Questionnaire to competitors, replies to question B.A.C.3.3.
51   Q2 – Questionnaire to competitors, reply to question B.A.C.3.3.1.
52   Q2 – Questionnaire to competitors, reply to question B.A.C.3.3.1.
                                                      11
 ---pagebreak---      category of containerships considering facilities and manpower for price
     competitiveness’.53
(47) Overall, however, the size of a given container ship appears to be the main factor
     determining whether a shipbuilder active in container ships is capable of building it
     according to the quality standards expected by customers. Larger container ships
     require larger docks and related infrastructure, but also different and more elaborate
     design and engineering capabilities.
(48) A customer explains that ‘to build big containers ships request shipbuilder investing
     on the building facilities as dock, pier crane and so on. On the other hand, the
     experiences as design ability, qualified work labor availability also limit some
     container producer to build big container ships’.54 Another customer states that
     ‘larger container vessels (+10,000 TEU) require detailed technical design
     capabilities as well as drydocks of suitable sizes. Some container vessels are built
     with special features, such as waste heat recovery systems, complex electrical
     control systems and potentially use of alternative fuels, including LNG – all require
     experience from the yard for quality installation and economic viability’.55 An
     additional customer submits that the ability of a shipbuilder to construct a certain
     category of container ship depends ‘on size and facility of [the] Shipyard [and on]
     design [and] technology’.56 Another customer says that ‘[a]ny shipbuilder of
     container ships has a specific equipment/infrastructure, know-how based on the past
     record, and facilities which enable to produce the specific size most efficiently. The
     small-scale yard cannot produce the large size physically. Therefore, they basically
     produce specific size or particular range of container ships’.57
(49) The limited supply side substitutability seems to be especially pronounced with
     respect to large container ships. Market participants contend that only some players
     active in the construction of container ships are capable of building large container
     ships. This appears to be particularly the case for Post-Panamax, and to a lesser
     extent, for Neo-Panamax container ships. A customer submits that ‘[o]nly a few of
     big shipbuilders can build 15,000+ TEU type container carrier’.58 Another customer
     explains that shipbuilders tend to focus either on ships over 10 000 TEU capacity or
     under 5 000 TEU capacity.59 Yet another customer ‘differentiates shipyard that build
     small ships (up to 5000teus), shipyards that build medium size, and shipyards that
     can build Ultra Large Container Ships (ULCS)’.60
(50) Irrespective of the exact size and/or category that distinguishes the large container
     ships from smaller container ships, there appears to be fewer capable shipbuilders
     active in large container ships. This is also confirmed in the market shares provided
     by the Parties. These suggest that at least 22 shipbuilders were active in container
     ships overall between 2015 and 2019, while only seven were active in the category
53   Q2 – Questionnaire to competitors, reply to question B.A.C.3.3.1.
54   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
55   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
56   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
57   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
58   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
59   Q1 – Questionnaire to customers, reply to question B.A.C.1.1.
60   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
                                                      12
 ---pagebreak---      of Neo-Panamax 12-14 999 TEU container ships. A customer summarises the reason
     for this by stating: ‘Building mega ship requires high-end production, infrastructure,
     design capability and large scale capital. [The Company] believes only limited
     shipbuilders are able to build ultra-large vessels’.61
(51) Market participants also generally describe shipbuilders as not able to shift easily
     from building only smaller container ships to also building large container ships.62
(52) While one competitor states that ‘[i]f there are enough facilities and manpower,
     there’s no big barrier for shipbuilders to expand into building larger size
     containerships’,63 another one describes the ‘[c]apacity of facilities, such as dock
     size [and] crane capacity’64 as barriers. Another competitor also points to ‘workers’
     quality’ as an aspect to be ‘prepared for larger construction works’.65
(53) A majority of customers expressing their opinion submit that they would not order
     large container ships from a shipbuilder with experience in building smaller
     container ships.66 A customer explains this by saying that ‘[s]hipyards tend to
     specialize on certain vessel types/size and therefore [the Company] would not
     purchase a ULCS from a shipyard specialized in building small container ships’.67
     Another customer submits that ‘[t]here is [a] technical and infrastructure gap when
     the vessel size exceeds certain limit. Therefore, [the Company] will consider whether
     the technical and infrastructure capability of potential shipbuilders can match its
     requirement. Yet […] only limited supplier[s] can build mega ships in the market.
     Therefore, when [the Company] intends to order mega ships, it will only turn to
     certain suppliers’.68
(54) Based on the above feedback from market participants, it appears that generally
     supply side substitutability is limited with respect to container ships. While
     shipbuilders may construct a number of different categories of container ships, most
     shipbuilders do not build all categories. In particular with respect to larger container
     ship categories, such Neo-Panamax 12-14 999 TEU container ships, only few
     shipbuilders are capable to build these ships, and it would not be easy for others to
     enter the production of these categories.
     (D)       Conclusion
(55) The results of the market investigation discussed above support the appropriateness
     of distinguishing between different categories of container ships, based on size – in
     particular their TEU capacity. While some market participants referred to different
     dividing lines between container ship segments, the categorisation according to
     Clarksons is widely used by industry participants. There appears to be virtually no
     demand side substitutability, while there does appear to be some limited level of
61   Q1 – Questionnaire to customers, reply to question B.A.C.3.2.1.
62   Q1 – Questionnaire to customers, replies to question C.C.C.3.1., and Q2 – Questionnaire to
     competitors, replies to question C.C.C.3.
63   Q2 – Questionnaire to competitors, reply to question C.C.C.3.
64   Q2 – Questionnaire to competitors, reply to question C.C.C.3.
65   Q2 – Questionnaire to competitors, reply to question C.C.C.3.
66   Q1 – Questionnaire to customers, replies to question C.C.C.3.
67   Q1 – Questionnaire to customers, reply to question C.C.C.3.1.
68   Q1 – Questionnaire to customers, reply to question C.C.C.3.1.
                                                      13
 ---pagebreak---         supply side substitutability when considering smaller categories of container ships or
        the intersection between the large Neo-Panamax 12-14 999 TEU ships and Post-
        Panamax ships. Nevertheless, when considering large container ships, including
        Neo-Panamax 12-14 999 TEU ships, only few shipbuilders are capable of producing
        them.
(56)    In any event, the exact scope of product market definition with respect to container
        ships can be left open since the Transaction would not raise serious doubts as to its
        compatibility with the internal market under any plausible alternative product market
        definition and irrespective of whether a separate market is defined according to the
        Clarksons categorisation for Neo-Panamax 12-14 999 TEU container ships.
     5.1.2. Construction and supply of bulk carriers
(57)    Bulk carriers are commercial vessels that carry dry bulk cargo, such as iron ore, raw
        coal, thermal coal, grains, steel or cement. There are various sizes of bulk carriers.
        Figure 3 below illustrates a Newcastlemax bulk carrier from JMU.
        Figure 3 – Newcastlemax bulk carrier from JMU
        Source: JMU’s website.
5.1.2.1. Notifying Parties’ arguments
(58)    Since the Commission has not distinguished between different sizes and cargo
        capacities of bulk carriers in previous decisions, the Notifying Parties submit that the
        relevant market is the overall market for the construction, production and sale of
        bulk carriers.69
(59)    The Notifying Parties submit that bulk carriers should not be further segmented by
        size or by region or port, namely into Small, (DWT <10 000), Handysize (DWT 10
        000 - <40 000), Handymax/Supramax (DWT 40 000 – <65 000), Panamax (DWT 65
        000 - <80 000), Capesize (DWT >100 000) or additional categorizations of very
        large bulk carriers such as Kamsarmax (DWT 80 000 – 90 000), Dunkirkmax (DWT
        170 000 – 180 000), Newcastlemax (DWT 180 000 – 190 000) or Setouchmax
69      Form CO, paragraph 96.
                                                  14
 ---pagebreak---         (DWT 200 000 – 210 000), given that there is no common understanding as to how
        the various ship size categories should be defined beyond a general understanding.70
        Moreover, the Notifying Parties submit that different ship classification societies
        have different definitions.71
(60)    From a supply-side perspective, the Notifying Parties argue that the range of the ship
        size that a manufacturer can build is determined by the physical constraints of its
        shipyard. In particular, the Notifying Parties submit that Asian shipbuilders – which
        they regard as significant competitors – are capable of producing the whole range of
        bulk carrier sizes.72
(61)    The Notifying Parties further submit that, from a demand-side perspective, the
        choice of a bulk carrier depends on the goods to be transported and the routes and
        harbours to be serviced.73 In this regard, they explain that Capesize ships are ordered
        where the intended use does not involve the passage of the Suez and Panama Canals
        and where the capacity is needed; that larger bulk carriers typically transport iron ore
        or coal; or that Panamax bulk carriers often carry grain or coal. The Notifying Parties
        submit that many ship owners order bulk carriers of different sizes and, as a result,
        that there are no distinctive customer groups for different bulk carrier sizes.74
(62)    Lastly, the Notifying Party submits that it is not necessary to regard Newcastlemax
        and Setouchmax as separate categories as it is widely recognised in the industry that
        they belong to the same category of Newcastlemax.75
5.1.2.2. Commission’s assessment
        (A)        Market participants have a common understanding of bulk carrier categories
(63)    Clarksons defines different sizes of bulk carriers according to their DWT into: Small
        (DWT <10 000), Handysize (DWT 10 000 - <40 000), Handymax (DWT 40 000 –
        <65 000), Panamax (DWT 65 000 – <80 000), Panamax (DWT 80 000 – <100 000)
        and (vi) Capesize (DWT >100 000).76 Moreover, additional categorisations are used
        in the industry to refer to the specific regions or ports that bulk carriers may service,
        such as Kamsarmax (DWT 80 000 – 90 000)77, Dunkirkmax (DWT 170 000 – 180
        000)78, Newcastlemax (often with a DWT 180 000 – 190 000)79 or Setouchmax
        (DWT 200 000 – 210 000)80. The Notifying Parties appear to rely in fact on these
70      Form CO, paragraphs 97 and 99.
71      Form CO, paragraph 99.
72      Form CO, paragraph 100.
73      Form CO, paragraph 101.
74      Form CO, paragraph 101.
75      Form CO, paragraph 102.
76      The different reports from Clarksons rely on these categories, such as its World Shipyard Monitor
        (Form CO, Annex 7.1.2-(3), World Shipyard Monitor Volume 27, No. 7 for July 2020).
77      For Port Kamsar in Equatorial Guinea.
78      For the eastern harbour lock at Dunkirk in France.
79      For the Australian port of Newcastle.
80      For ports in the Setouchi Sea in Japan.
                                                         15
 ---pagebreak---      different categories. In this regard, JMU’s website includes entries for
     Newcastlemax, Dunkirkmax or Panamax.81
(64) Contrary to the Notifying Parties’ submission, market participants appear to have a
     common understanding of different bulk carriers’ categories based on (i) size (by
     DWT); and (ii) specific region or ports.
(65) First, a vast majority of those customers and competitors that responded to the
     market investigation submitted that the Clarksons size categories by DWT identified
     in paragraph (63) above are regularly relied upon in interactions between
     shipbuilders and customers.82 In this regard, some customers expressed that ‘[t]hese
     categories are normally an important part of the interaction between shipbuilders
     and shipowners’ or that this ‘category is very common for shipyard industry and all
     the people in the market’. A competitor also expressed that ‘[t]hese categories are
     typically used in discussions with ship owners and data providers use the same
     categories’. A number of market participants considered moreover that these
     categories are ‘world common in shipping industry’ or a ‘[w]orld standard’. For all,
     a customer indicated that ‘the distinction Clarksons make is perfectly rational and
     justifiable on the basis of size and deadweight. The bigger the vessel, the lower the
     building price per deadweight’.83
(66) A majority of both customers and competitors who responded to the market
     investigation moreover considered that, within this first general segmentation of size
     categories by DWT, it is not appropriate to further sub-segment the category for
     Capesize bulk carriers (DWT >100 000) to assess the relevant competitive
     dynamics.84
(67) Secondly, a vast majority of those customers that responded to the market
     investigation submitted that a segmentation by regions or ports into Kamsarmax
     (DWT 80 000 – 90 000), Dunkirkmax (DWT 170 000 – 180 000), Newcastlemax
     (DWT 180 000 – 190 000) and Setouchmax (DWT 200 000 – 210 000) are also
     regularly relied upon in interactions between shipbuilders and customers. 85 The
     responses of competitors were however inconclusive on this point.86
(68) In this regard, a customer submitted that these ‘categories are relied upon to define
     more precisely the type of bulk carrier to be contracted’.87 Another customer
     explained that these categories are ‘[r]ather self-evidently [, as] some ports have
     physical size restrictions which limit what ships can service them’.88 A number of
     market participants clarified that these categories are not limited to the particular
     ports of reference, but may also be used in ‘any other ports as far as their size fit
81   JMU’s website accessed on 8 December 2020.
82   Q1 – Questionnaire to customers, replies to question B.A.B.3.
83   Q1 – Questionnaire to customers, reply to question B.A.B.3.5.
84   Q1 – Questionnaire to customers, replies to question B.A.B.3.4, Q2 – Questionnaire to competitors,
     replies to question B.A.B.3.5. Some customers nevertheless converged in referring to a potential
     segment for ‘baby Capesize’ or ‘mini-Capesize’, with a DWT of 100 000 to 120 000 (B.A.B.3.4.1).
85   Q1 – Questionnaire to customers, replies to question B.A.B.4.
86   Q2 – Questionnaire to competitors, replies to question B.A.B.4.
87   Q1 – Questionnaire to customers, reply to question B.A.B.4.1.
88   Q1 – Questionnaire to customers, reply to question B.A.B.4.1.
                                                      16
 ---pagebreak---      to’.89 In this regard, a competitor explained that ‘a bulk carrier named ‘Dunkirkmax’
     can and do serve various ports which have a similar size to Dunkirk. In other words,
     the reference relates to the size rather than a specific geographic region’.90
(69) Based on the above, it therefore appears that market participants do have a common
     understanding of the various categories of bulk carriers, which are in turn relied
     upon in exchanges between market participants. In order to establish whether these
     categories could form the basis for distinct container ship product markets, the extent
     of supply and demand side substitutability is assessed in the following sections.
     (B)        Demand-side substitutability between different bulk carrier categories
(70) A majority of those customers and competitors that responded to the market
     investigation submitted that shipping companies typically use different categories of
     bulk carriers to carry out the same types of services at competitive conditions.91
(71) In this regard, there appears to be at least in theory some overlaps in the use that
     shipping companies may make between different adjacent categories of bulk carriers.
     A customer explained that ‘if the (large) Capesize market is very strong (expensive
     for cargo owners) then they might decide to break down their cargo into two or
     more vessels of smaller size (say Panamax or Handymax)’.92 Another customer
     indicated that ‘Panamax type of tonnage can carry the similar cargo of Cape size’
     and that ‘Handymax can do the same as Panamax type’.93 In this same direction, a
     competitor explained that shipping companies ‘may use larger bulk carriers for
     international routes and smaller carriers for short-distance routes’, but that
     ‘adjacent vessel classes are frequently substitutable (e.g. Panamax and Capesize)’.94
     A customer however submitted that ‘[v]essel size and specification is crucial to most
     routes. Some overlapping can happen but depends primarily on whether it is
     possible and whether the vessel rates can justify it’.95
(72) In practical terms, however, several customers pointed to limitations when asked
     whether a bulk carrier of any category could be used for any of the bulk transport
     services that their company provides or whether their company used different
     categories of bulk carriers to address different needs.96 First, several customers
     indicated that ‘specific port restrictions in terms of the vessels’ dimensions such as
     its draft and length’ or the ‘sizing restrictions to dock and offload’ represent an
     important factor when deciding for a category of bulk carrier. For instance, a
     customer explained that Handysize and Supramax are self-sufficient, as they have
     their own cranes on board and can on-load and off-load the cargo by themselves,
     while Panamax vessels and above are without cargo gear on board and are therefore
     dependent on the existing equipment of the port of loading and discharge.97
89   Q1 – Questionnaire to customers, reply to question B.A.B.4.1.
90   Q2 – Questionnaire to competitors, reply to question B.A.B.4.1.
91   Q1 – Questionnaire to customers, replies to question B.A.B.3.3, and Q2 – Questionnaire to
     competitors, replies to question B.A.B.3.4.
92   Q1 – Questionnaire to customers, reply to question B.A.B.3.3.1.
93   Q1 – Questionnaire to customers, replies to questions B.A.B.3.3.1 and B.A.B.3.3.2.
94   Q1 – Questionnaire to customers, reply to question B.A.B.3.3.1.
95   Q1 – Questionnaire to customers, reply to question B.A.B.3.3.1.
96   Q1 – Questionnaire to customers, replies to question B.A.B.3.3.2.
97   Non-confidential minutes of a conference call with a customer of 29 October 2020, paragraph 22.
                                                      17
 ---pagebreak---      Secondly, commercial viability is another important factor that determines the use of
     particular types of bulk carriers. In this regard, a customer pointed out that ‘a bulk
     carrier can theoretically carry almost all bulk commodities, but it might not be
     economical’, while another one highlighted restrictions ‘due to the commercial
     viability as the freight can be cheaper by using bigger vessels’. Thirdly, some types
     of bulk carriers appear to be better suited to transport particular types of dry cargo.
     In this sense, a customer indicated that ‘iron ore is moved primarily on capesizes,
     coal on capesizes and panamaxes, grain on panamaxes and handymaxes and so
     called minor bulks in handysizes (and smaller)’. For all these reasons, a customer
     explains that while ‘[i]n theory a bulk carrier of any category, subject to physical
     limitations, may be used for the services [its] company provides’, ‘[i]n reality, the
     services [it] provides is mainly carried out by one specific vessel type and size’.
     (C)       Supply-side substitutability between different bulk carrier categories
(73) Several respondents indicated that the size of the dry docks and the equipment
     restrictions of the shipyards (such as crane capacity) are decisive factors for the size
     of the bulk carriers that a shipbuilder can construct. While large bulk carriers cannot
     be constructed in smaller-sized docks, shipbuilders with large docks can construct
     bulk carriers of smaller sizes. Customers indicated in this sense that ‘[a]s long as the
     drydock capacity is large enough, the shipyard can build any type of bulk carriers’
     and that ‘[f]or those shipyards which can build a Capesize should also be able to
     build a smaller Handysize’.98 A customer moreover indicated that ‘[b]arriers to
     entry […] are not great as subcontractors are available in most markets’.99
     Moreover, a competitor further indicated that, provided the docks are sufficiently
     large, ‘the construction method is basically the same for any bulk carrier category’
     as ‘[d]ifferent classes of bulk carriers are not distinguishable in terms of the
     construction process’.100
(74) A majority of those competitors that responded to the market investigation submitted
     that they do not build bulk carriers of all different categories referred to in paragraph
     (63) above.101 In this regard, several competitors indicate that this is due to their
     ‘lack of infrastructure’ or to their ‘corporate strategy’.102
(75) A majority of those customers and competitors that responded to the market
     investigation nevertheless submitted that some producers of bulk carriers are
     typically able to build a wide range of bulk carrier categories.103
     (D)       Conclusion
(76) The results of the market investigation discussed above indicate that it may be
     appropriate to distinguish between different categories of bulk carriers based on size
     (by DWT) and on type of port or region. However, the exact categories according to
     which distinction should be made for the purpose of market definition are not clear.
98   Q1 – Questionnaire to customers, replies to question B.A.B.3.2.1.
99   Q1 – Questionnaire to customers, reply to question B.A.B.3.2.1.
100  Q2 – Questionnaire to competitors, reply to questions B.A.B.3.2.1 and B.A.B.3.3.1.
101  Q2 – Questionnaire to competitors, replies to question B.A.B.3.3.
102  Q2 – Questionnaire to competitors, replies to question B.A.B.3.3.1.
103  Q1 – Questionnaire to customers, replies to question B.A.B.3.2, and Q2 – Questionnaire to
     competitors, replies to question B.A.B.3.2.
                                                      18
 ---pagebreak---          While these categories appear to be widely used by industry participants, there
         appears to be some level of demand- and supply-side substitutability when
         considering adjacent categories of bulk carriers.
(77)     In any event, since the Transaction does not raise serious doubts as to its
         compatibility with the internal market under any plausible product market definition,
         it can be left open whether all types of bulk carriers belong to a single product
         market or whether distinct markets should be identified for various bulk carriers
         segments (i.e. into (i) Small (DWT <10 000); (ii) Handysize (DWT 10 000 - <40
         000); (iii) Handymax (DWT 40 000 – <65 000); (iv) Panamax (DWT 65 000 - <80
         000); (v) Panamax (DWT 80 000 - <100 000); and (vi) Capesize (DWT >100 000))
         or according to specific ports or regions (i.e. into (i) Kamsarmax (DWT 80 000 – 90
         000); (ii) Dunkirkmax (DWT 170 000 – 180 000); (iii) Newcastlemax (DWT 180
         000 – 190 000); and (iv) Setouchmax (DWT 200 000 – 210 000). The competitive
         assessment in Section 7.3 take into consideration all these potential sub-
         segmentations.
     5.1.3. Construction and supply of PCTCs
5.1.3.1. Notifying Parties’ arguments
(78)     PCTCs are commercial ships designed for shipping cars and trucks only.104 The
         Parties submit that the relevant market is that for the construction, production and
         sale of PCTCs. Figure 4 below illustrates a PCTC.
Figure 4 – PCTC from Imabari
Source: Imabari Shipbuilding website.
104      In contrast, RORO carriers are ships designed to carry wheeled cargo, such as cars, trucks, semi-
         trailer trucks, trailers, and railroad cars, etc. that are driven on and off the ship on their own wheels.
                                                                 19
 ---pagebreak--- 5.1.3.2. Commission’s assessment
        (A)       Potential sub-segmentations within the market for PCTCs
(79)    In the course of the market investigation, the Commission has sought to verify
        whether it would be appropriate to further segment the market for PCTCs, notably in
        relation to the size of the ships or the number of cars they carry.105
(80)    In that regard, while the majority of customers indicated they were unable to answer
        the question as they are not active in the PCTC segment, responses were mixed
        among those who expressed an opinion as to whether a distinction according to size
        would be necessary in relation to PCTCs. In general, respondents indicated that the
        right size vessel is always chosen and deployed by charterer for each assigned
        journey in consideration of cargo volume, required frequency, and port
        characteristics.106 When asked about the potential segmentations for the PCTC
        market, some respondents suggested a segmentation by number of vehicles (less than
        2 000, between 2 000 and 3 999, between 4 000 and 5 999 and above 6 000)107. As
        regards this potential narrower segmentation, the activities of the Parties only
        overlap in relation to PCTC with a number of cars above 6 000 units.
        (B)       Demand-side substitutability between different PCTC categories
(81)    A majority of customers that responded to the market investigation and expressed an
        opinion submitted that shipping companies cannot use different categories of PCTCs
        to carry out the same type of service at similar competitive conditions. Conversely, a
        majority of competitors that responded to the market investigation and expressed an
        opinion said that they can.108
(82)    In any event, those customers that expressed an opinion when responding to this
        specific aspect of the market investigation submitted that, when deciding which type
        of vessel to operate for a particular service, they take into consideration a large
        number of aspects such as, cargo volume,109 required frequency,110 route,111 or port
        characteristics112.
        (C)       Supply-side substitutability between different PCTC categories
(83)    A majority of the customers that expressed an opinion in the market investigation
        submitted that ‘some’ producers of PCTCs are typically able of building a wide
        range of PCTC categories, while a majority of competitors indicated that ‘all’ PCTC
105     Contrary to containerships or bulk carriers, there is no widely-recognised industry segmentation for
        PCTCs.
106     Q1 – Questionnaire to customers, reply to question B.A.D.3.2.
107     Q1 – Questionnaire to customers, reply to question B.A.D.3.1.
108     Q1 – Questionnaire to customers, replies to question B.A.D.3.3., and Q2 – Questionnaire to
        competitors, replies to question B.A.D.3.4.
109     Q1 – Questionnaire to customers, replies to question B.A.D.3.3. 2.
110     Q1 – Questionnaire to customers, reply to question B.A.D.3.3. 2.
111     Q2 – Questionnaire to competitors, reply to question B.A.D. 3.4.1.
112     Q1 – Questionnaire to customers, replies to question B.A.D.3.1.3.
                                                         20
 ---pagebreak---      producers were able to do so.113 Several respondents indicated in this regard that the
     dockyard size and the equipment and infrastructure are the main constraints to
     produce PCTCs of different size categories.114 In this regard, one competitor
     submitted that ‘[p]rocedures and know-how are the same with regardless the size of
     the vessel. The only limiting requirement is the size of the dry dock’.115
(84) A majority of competitors active in the construction of PCTCs that expressed an
     opinion in the market investigation submitted that they do not build PCTCs of all
     sizes.116 In this regard, a competitor indicated that while it ‘could build all PTCTs of
     all categories […] [it] would build specific category of PCTCs considering facilities
     and manpower for price competitiveness’.117
     (D)         Conclusion
(85) The results of the market investigation discussed above indicate that it may be
     appropriate to distinguish between different categories of PCTCs based on the
     number of vehicles they can carry.
(86) However, the exact scope of product market definition with respect to PCTCs can be
     left open since the Transaction does not raise serious doubts as to its compatibility
     with the internal market under any plausible alternative product market definition
     and irrespective of whether all types of PCTCs belong to a single product market or
     whether different segmentations of PCTCs can be identified for (i) less than 2 000
     cars; (ii) between 2 000 and 3 999 cars; (iii) between 4 000 and 5 999 cars; and (iv)
     above 6 000 cars.
5.2. Geographic market definition
(87) In previous decisions, the Commission defined the relevant geographic market for
     the construction and sale of commercial ships as worldwide in scope.118 The
     Notifying Parties agree with this definition and do not propose an alternative.119
(88) A vast majority of the customers and competitors that responded to the market
     investigation agreed that the relevant geographic market for the assessment of the
     relevant competitive dynamics in shipbuilding is global in scope.120
(89) In light of these considerations, as well as all evidence available to it, the
     Commission considers that the markets for the construction and supply of (i)
     container ships; (ii) bulk carriers; and (iii) PCTCs, including possible segmentations
     thereof, are worldwide in scope.
113  Q1 – Questionnaire to customers, replies to question B.A.D.3.2, and Q2 – Questionnaire to
     competitors, replies to question B.A.D.3.2.
114  Q1 – Questionnaire to customers, replies to question B.A.D.3.2.1, and Q2 – Questionnaire to
     competitors, replies to question B.A.D.3.2.1.
115  Q2 – Questionnaire to competitors, reply to question B.A.D.3.2.1.
116  Q2 – Questionnaire to competitors, replies to question B.A.D.3.3.
117  Q2 – Questionnaire to competitors, reply to question B.A.D.3.3.1.
118  Case M.4956 – STX/Aker Yards, paragraph 36; Case M.5473 – Fincantieri/ABB/JV, paragraph 28.
119  Form CO, paragraph 91.
120  Q1 – Questionnaire to customers, replies to question B.B.1, and Q2 – Questionnaire to competitors,
     replies to question B.B.1.
                                                      21
 ---pagebreak--- 6.   COMPETITIVE ASSESSMENT: LEGAL FRAMEWORK
(90) Under paragraphs 2 and 3 of Article 2 of the Merger Regulation, the Commission
     must assess whether a proposed concentration would significantly impede effective
     competition in the internal market or in a substantial part of it, in particular through
     the creation or strengthening of a dominant position. In this respect, a merger may
     entail horizontal and/or vertical and/or conglomerate effects. For the purposes of the
     competitive analysis of the Transaction, only horizontal effects may potentially arise.
(91) Horizontal effects arise when the parties to a concentration are actual or potential
     competitors in one or more of the relevant markets concerned. The Commission
     appraises horizontal effects in accordance with the guidance set out in the Horizontal
     Merger Guidelines.121
(92) In horizontal mergers, non-coordinated effects may significantly impede effective
     competition by eliminating the competitive constraint imposed by each merger party
     on the other, as a result of which the merged entity would have increased market
     power, without resorting to coordinated behaviour. In that regard, the Horizontal
     Merger Guidelines consider not only the direct loss of competition between the
     merging firms, but also the reduction in competitive pressure on non-merging firms
     in the same market that could be brought about by the merger.122
(93) The Horizontal Merger Guidelines list a number of factors which may influence
     whether or not significant non-coordinated effects are likely to result from a merger,
     such as the large market shares of the merging firms, the fact that the merging firms
     are close competitors, the limited possibilities for customers to switch suppliers or
     the fact that the merger would eliminate an important competitive force.123
     Furthermore, in accordance with the Horizontal Merger Guidelines, a merger with a
     potential competitor can also have horizontal anti-competitive effects where the
     potential competitor constrains the behaviour of firms active in the market. 124 Not all
     these factors need to be present for significant non-coordinated effects to be likely.
     The list of factors is also not an exhaustive list.
7.   COMPETITIVE ASSESSMENT: HORIZONTAL NON-COORDINATED EFFECTS
(94) The Transaction has been notified to the Commission on 11 November 2020. At the
     time of notification of the Transaction, another transaction partially affecting the
     same markets had already been notified to the Commission.
(95) The Commission notes, in that regard, that in assessing the competitive effects of a
     proposed transaction under the Merger Regulation, it needs to compare the
     competitive conditions that would result from the notified concentration with those
     that would have prevailed in the absence of the concentration. As a general rule, the
     competitive conditions prevailing at the time of notification constitute the relevant
     framework for evaluating the effects of a transaction. In some circumstances,
121  Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
     concentrations between undertakings (‘Horizontal Merger Guidelines’), OJ C 31, 05.02, 2014.
122  Horizontal Merger Guidelines, paragraph 24.
123  Horizontal Merger Guidelines, paragraphs 26 ‒ 38.
124  Horizontal Merger Guidelines, paragraph 59.
                                                    22
 ---pagebreak---       however, the Commission may take into account future changes to the market that
      can be reasonably predicted.125
(96)  Based on those principles, the principle of equal treatment and the provisions of the
      Merger Regulation, notably Article 6(1) thereof, the Commission has consistently
      taken the view126 that, in cases of parallel investigations into concentrations affecting
      the same relevant markets, the first transaction to be notified (‘the first transaction’)
      should be assessed on its own merits and on the basis of the market structure
      prevailing at the time of that notification. The second transaction to be notified (‘the
      second transaction’) should, conversely, be assessed on the basis of the market
      structure resulting from the likely implementation of the first transaction.
(97)  On 12 November 2019, that is before the notification of the Transaction, Hyundai
      Heavy Industries Holding (‘HHI’) notified the Commission of its intention to
      acquire within the meaning of Article 3(1)(b) of the Merger Regulation a majority
      interest in Daewoo Shipbuilding & Marine Engineering Co., Ltd. (‘DSME’) (Case
      M.9343).127 The HHI/DSME transaction partially affects the same markets as the
      Transaction assessed in the present decision, notably as regards container ships.
(98)  Therefore, given the circumstances in this case, the Transaction (which is thus ‘the
      second transaction’) should be assessed taking into account the HHI/DMSE
      transaction notified on 4 June 2018 (which is ‘the first transaction’). The starting
      point for the Commission's assessment of the Transaction is therefore a likely market
      structure where the Parties’ competitors HHI and DMSE would be treated as a single
      entity.
7.1.  Notifying Parties’ arguments
(99)  The Notifying Parties submit that the Transaction does not significantly impede
      effective competition in any shipbuilding markets.128 In particular, the Notifying
      Parties argue that the Transaction does not eliminate important competitive
      constraints and does not confer market power to Imabari Shipbuilding and JMU
      enabling them in particular to increase prices.129
(100) The Notifying Parties submit that the Parties’ combined shares are below 20% in all
      main ship categories worldwide in the period 2015-2019. In addition, the Notifying
      Parties submit that there are many competitors remaining in each category.
      According to the Notifying Parties, their combined market shares only exceed 30% if
      two sub-categories are considered, namely (i) the bulk carrier sub-category
      Newcastlemax (DWC 180-190kt); and (ii) the container ship sub-category Neo
      Panamax (TEU 12-14 999). However, the Notifying Parties submit that these
      segments do not constitute separate markets.
125   Horizontal Merger Guidelines, paragraph 9.
126   See for example, Case M. 6214 ‒ Seagate/HDD Business of Samsung, and Case M. 6203 ‒ Western
      Digital/Viviti Technologies; Case M. 4942 ‒ Nokia/Navteq, and Case M. 4854 ‒ TomTom/Tele Atlas;
      Case M. 4601 ‒ Karstadtquelle/My Travel, and Case M. 4600 ‒ TUI/First Choice.
127   OJ C 392, 19.11.2019, p. 11.
128   Form CO, paragraph 130.
129   Form CO, paragraph 131.
                                                     23
 ---pagebreak--- (101) The Notifying Parties submit that the Parties’ ships are not closer substitutes than the
      ships of other competitors. In this regard, the Parties argue that the ships of Imabari
      Shipbuilding, JMU and its competitors are basically similar, with their differences
      arising from specific customer demands.
(102) The Notifying Parties submit that switching costs are very low and do not play an
      important role for customers when changing from one shipbuilder to another. Each
      ship is a single project and when new ships are needed, the customer requests quotes
      from several shipbuilders, defining the specifications for each project. The customer
      then compares the prices, performance, and delivery dates offered by each
      shipbuilder to select the shipbuilder who offers the best deal. Thus, customers can
      easily switch to another shipbuilder without spending much time or expense. The
      customers’ fleets usually include ships built by multiple shipyards.
(103) The Notifying Parties state that competitors are able to increase supply if prices
      increase, as competitors have sufficient capacity. The Notifying Parties explain that
      shipbuilders generally build various types of vessels and switch between the
      production of these categories regularly. Once a ship-builder possesses the
      technology and necessary know-how to build a specific type of ship and there are no
      physical limitations regarding its yards for the building of ships of certain sizes, it
      can quite easily adjust its production according to market need.
(104) The Notifying Parties submit that Imabari Shipbuilding and JMU will not be able to
      hinder expansion by competitors. There are no indications that Imabari Shipbuilding
      and JMU will be able to or have the incentive to make the expansion of smaller firms
      and potential competitors more difficult or otherwise restrict the ability of
      competitors to compete. IS and JMU do not have particular influence on the supply
      of inputs or distribution possibilities. The shipbuilding markets are also not markets
      where interoperability between different infrastructures or platforms is important.
(105) Lastly, the Notifying Parties submit that the Transaction will not entail the
      elimination of an important competitive force. In this regard, the Notifying Parties
      explain that neither Imabari Shipbuilding nor JMU have more influence on the
      competitive process than their market shares would suggest. None of both recently
      entered the market nor are IS and JMU particularly important innovators. All
      shipbuilding companies are currently conducting research and development on
      environmentally friendly ships to more or less the same degree.
7.2.  Construction and supply of container ships
(106) Both Parties are active in the construction and supply of container ships. While
      Imabari Shipbuilding is active in a number of categories of containerships, JMU’s
      activities in recent years have been almost exclusively focused on Neo-Panamax 12-
      14 999 TEU ships.
(107) The Notifying Parties submit that in relation to container ships, potential affected
      markets only arise with respect to the category of Neo-Panamax 12-14 999 TEU
      container ships and with respect to container ships >7 999 TEU. The latter would
      however only be affected if considering 2017-2019 market shares ([20-30]%
      combined share in CGT and [20-30]% combined share in number of ships).
                                                 24
 ---pagebreak---  ---pagebreak---  ---pagebreak---     7.2.3. Sufficient alternatives for customers
(113) It appears that post-Transaction, customers will continue to have access to a number
       of alternative suppliers of container ships, including Neo-Panamax 12-14 999 TEU
       ships. Considering the 2015-2019 market shares in Neo-Panamax 12-14 999 TEU
       container ships, in particular Hyundai Heavy Industries, CSSC, Samsung Heavy
       Industries and CSBC Corporation will remain as established shipbuilding companies
       with track records also in constructing large container ships including Neo-Panamax
       12-14 999 TEU ships.
(114) Information on the current order books by shipbuilders submitted by the Notifying
       Parties and based on Clarksons data further shows that customers are also likely to
       have access to alternatives in the future.135 The Clarksons data show that JMU
       currently [...] Neo-Panamax 12-14 999 TEU ship under construction. While Imabari
       Shipbuilding has [...] such container ships on its order books, Hyundai ([...]),
       Samsung ([...]) and Yangzijiang Shipbuilding ([...]) all have more currently on their
       order books. It would thus appear that the Merged Entity’s market share based on
       delivery dates is likely to decrease in coming years.
(115) Customers responding to the market investigation confirm that they would still have
       access to sufficient alternative shipbuilders to turn to for ordering container ships
       (including Neo-Panamax 12-14 999 TEU ships) after the Transaction. Specifically
       asked whether if faced with a 5-10% price increase by the Merged Entity post-
       Transaction they would have sufficient alternatives, a large majority of customers
       expressing their opinion submit that both for container ships overall and for Neo-
       Panamax 12-14 999 container ships this would be the case.136
(116) This is further confirmed by the circumstance that no responding customer considers
       that their likely reaction to a 5-10% price increase by the Merged Entity would be to
       absorb that price increase. A majority of customers providing substantive answers
       submit that their likely reaction to such a price increase by the Merged Entity would
       be to switch to another supplier of container ships.137 A customer in this context
       explains that a ‘5-10% price increase is important and might create an overcost for
       the shipowner and, in the end, the containership price will not be competitive
       enough compared to other shipyards’.138 Another customer submits that it is ‘able to
       find other good container builder in not only Japan but also in Korea/China’.139 Yet
       another customer ponders ‘why need to place an order with the higher price ? we
       have Korean/Chinese yards instead’.140 This further confirms that customers have
       effective access to alternative shipbuilders of container ships.
(117) Customers who in the past may have bought Neo-Panamax 12-14 999 TEU
       container ships from either of the Parties will in the future likely not face any
       significant barriers to ordering Neo-Panamax 12-14 999 TEU container ships from a
       competing shipbuilder instead. The project-driven demand characteristic for the
       industry means that customers can easily and without any significant costs opt for
135    Form CO, Annex 7.1.2 ‒ (30).
136    Q1 – Questionnaire to customers, replies to question C.C.A.4.
137    Q1 – Questionnaire to customers, replies to question C.C.B.3.
138    Q1 – Questionnaire to customers, reply to question C.C.B.3.1.
139    Q1 – Questionnaire to customers, reply to question C.C.B.3.1.
140    Q1 – Questionnaire to customers, reply to question C.C.B.3.1.
                                                        27
 ---pagebreak---       any of the shipbuilders which responds to a tender for a new Neo-Panamax 12-14
      999 TEU container ship that meet the criteria of the customer (e.g. price, delivery
      time).
(118) Large majorities of customers and competitors expressing their opinion submit that
      no new shipbuilders not previously active in container ships have entered since
      2015.141
(119) Barriers to entry appear to be particularly pronounced with respect to large container
      ships, such as Neo-Panamax (including 12-14 999 TEU) and Post-Panamax ships.142
      Customers confirm this: a large majority of customers expressing their opinion state
      that they would not order large container ships from a shipbuilder with experience in
      building only smaller container ships.143 As described in 5.1.1.2(C), the main
      limitations hindering certain container shipbuilders to manufacture and supply large
      container ships, such as Neo-Panamax and Post-Panamax ships, are dock size,
      experience and know-how.
(120) Fewer barriers however likely exist between large container ship categories. This is
      evidenced by almost all shipbuilders active in Neo-Panamax 12-14 999 TEU ships144
      also being considered capable to manufacture Post-Panamax ships, at least in the
      opinion of some customers.145 Additionally, shipbuilders currently active in Post-
      Panamax ships, but not in Neo-Panamax 12-14 999 TEU ships, are likely also
      capable to enter the construction and supply of Neo-Panamax 12-14 999 TEU ships
      relatively easily and without the need for any significant investments. The fact that
      market participants describe a number of shipbuilders as capable to build the largest
      type of container ships currently available on the market (i.e. the largest versions of
      Post-Panamax ships), underlines that a number of strong competitors with
      capabilities for the construction of very large container ships will remain post-
      Transaction. These competitors would likely also be able to construct the category of
      container ship below in size to Post-Panamax, i.e. Neo-Panamax 12-14 999 TEU.
      The shipbuilders listed most often as capable to construct the largest container ships
      available on the market include CSSC, CSIC, COSCO, Hyundai- Daewoo, Samsung,
      Imabari Shipbuilding and JMU. Some respondents also deem Hanjin Heavy
      Industries or Kawasaki Heavy Industries as capable.146 Therefore, a larger number of
      shipbuilders is likely capable of constructing Neo-Panamax 12-14 999 TEU ships
      (and to participate in tenders) than evidenced by the 2015-2019 market shares. These
      shipbuilders often also have a track record in Neo-Panamax 12-14 999 TEU ships,
      but simply have not built any ships of this category over the last five years (as is for
      example the case for Daewoo and COSCO).147 In case the Merged Entity were to
      increase its prices for Neo-Panamax 12-14 999 TEU ships post-Transaction, these
      shipbuilders may find it economically attractive to (re-)enter the manufacturing of
      this category of container ships.
141   Q1 – Questionnaire to customers, replies to question C.C.C.1., and Q2 – Questionnaire to
      competitors, replies to question C.C.C.4.
142   Q2 – Questionnaire to competitors, replies to question C.C.C.3.
143   Q1 – Questionnaire to customers, replies to question C.C.C.3.
144   Form CO, Annex 7.1.2 ‒ (1).
145   Q1 – Questionnaire to customers, replies to question B.A.C.5.
146   Q1 – Questionnaire to customers, replies to question B.A.C.4., and Q2 – Questionnaire to
      competitors, replies to question B.A.C.4.
147   See Form CO, Annex 7.1.2 ‒ (26).
                                                       28
 ---pagebreak--- (121) Therefore, while barriers are likely significant when considering entry into the
        construction and supply of container ships overall, as well as when considering a
        potential diversification of builders of smaller container ships into larger container
        ships, barriers are less relevant when considering a distinction between different
        large categories of container ships, e.g. Neo-Panamax 12-14 999 TEU and Post-
        Panamax ships. This further suggests that customers of Neo-Panamax 12-14 999
        TEU ships have access to a number of capable alternative shipbuilders.
(122) Overall, therefore, customers of container ships in general and of Neo-Panamax 12-
        14 999 TEU container ships in particular, will continue to have effective access to a
        number of established alternative shipbuilders post-Transaction.
     7.2.4. Overall impact
(123) Large majorities of customers and competitors responding to the market
        investigation do not expect the Transaction to have a negative effect on price,
        quality, capacity, the availability of slots at shipyards, and innovation.148
(124) Four customers responding to the market investigation indicate that they have in the
        past bought Neo-Panamax 12-14 999 TEU container ships from either of the Parties.
        Neither of them expects a negative development as a consequence of the Transaction
        with respect to the parameters of price, innovation, quality and availability of slots at
        shipyards, while only one expects a decrease in capacity.149 It therefore appears that
        with respect to the affected potential market of Neo-Panamax 12-14 999 TEU
        container ships, customers with a record of ordering such ships with the Parties do
        not expect the Transaction to have a negative impact on them or on competition.
     7.2.5. Conclusion
(125) In light of the considerations in this Section 7.2, the Commission concludes that in
        the potential worldwide market for the construction and supply of container ships, as
        well as in all possible segments, in particular the Neo-Panamax 12-14 999 TEU
        container ships, the Transaction does not raise serious doubts as to its compatibility
        with the internal market due to horizontal non-coordinated effects. This is because (i)
        the Parties’ market shares are moderate; (ii) they are not particularly close
        competitors; (iii) customers have effective access to a number of established
        alternative shipbuilders; and (iv) a large majority of market participants has indicated
        that the Transaction would have no negative impact on price, quality, capacity, and
        innovation.
7.3.    Construction and supply of bulk carriers
(126) The Transaction gives rise to horizontally affected markets in the overall market for
        bulk carriers, as well as in several potential sub-segments, namely in Handysize,
        Handymax, Capesize,150 Newcastlemax and Setouchmax.
148     Q1 – Questionnaire to customers, replies to question D.3., and Q2 – Questionnaire to competitors,
        replies to question D.3.
149     Q1 – Questionnaire to customers, replies to questions A.2.1., A.2.2., B.A.C.5. and D.3.
150     The Notifying Parties submit that there is no overlap between Imabari Shipbuilding and JMU in ‘mini
        Cape bulk carriers’ with a DWT 100 000-120 000 (Response to Post-Notification RFI 1, question 2).
                                                         29
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---        Imabari for bulk carriers in terms of quality, innovation and shipyard capabilities.153
       The responses from competitors in this regard were inconclusive.154
(134) A clear majority of the customers that responded to the market investigation
       moreover indicated that Imabari is the overall closest competitor to JMU with
       respect to bulk carriers, followed by Tsuneishi and Oshima.155 When asked to rank
       the closest competitors to JMU based on a number of parameters, a clear majority of
       customers indicated that Imabari is the closest competitor to JMU for bulk carriers in
       terms of innovation and shipyard capabilities.156 In terms of price and quality, the
       responses of customers were mixed between those who indicated Imabari and those
       who indicated Oshima.157 The responses from competitors in this regard were
       inconclusive.158
    7.3.3. Sufficient alternatives for customers
(135) At the outset, it appears that the bulk carriers industry is characterised by certain
       barriers to entry. In this sense, a majority of those customers and competitors that
       responded in the market investigation indicated that no shipbuilders not previously
       active in bulk carriers had entered the supply of bulk carriers since 2015.159 As one
       customer points out, the general trend instead appears to be ‘to exit the shipbuilding
       business due to substantial decrease of new vessel ordering’.160 Moreover, a
       majority of customers also indicated that they would not order large bulk carriers
       from a shipbuilder with experience in building only smaller bulk carriers.161 Several
       of these customers submitted in this regard that experience and a track-record in
       building large bulk carriers are important factors.162
(136) Information on the current order books of shipbuilders submitted by the Notifying
       Parties and based on Clarksons data nevertheless indicates that customers are likely
       to have access to sufficient alternative shipbuilders in the future across all potential
       sub-segments of bulk carriers.163 In particular for Newcastlemax bulk carriers, the
       order books show that Imabari has […] vessels of this size under construction, while
       JMU has […].164 In comparison, CSSC (under Shanghai Waigaoqiao), CSI (under
       Beihai Shipyard) and Hyundai Heavy Industries + Daewoo have each […]
       Newcastlemax bulk carriers under construction, while Namura Shipbuilding and
       Yangzijiang Shipbuilding have […] each.165 In the case of Setouchmax bulk carriers,
       the order books show that Imabari has […] vessels of this size under construction,
153    Q1 – Questionnaire to customers, replies to question C.B.A.1.
154    Q2 – Questionnaire to competitors, replies to question C.B.A.1.
155    Q1 – Questionnaire to customers, replies to question C.B.A.2.
156    Q1 – Questionnaire to customers, replies to question C.B.A.2.
157    Q1 – Questionnaire to customers, replies to question C.B.A.2.
158    Q2 – Questionnaire to competitors, replies to question C.B.A.2.
159    Q1 – Questionnaire to customers, replies to question C.B.C.1, and Q2 – Questionnaire to competitors,
       replies to question C.B.C.4.
160    Q1 – Questionnaire to customers, reply to question C.B.C.1.1.
161    Q1 – Questionnaire to customers, replies to question C.B.C.3.
162    Q1 – Questionnaire to customers, replies to question C.B.C.3.1.
163    Form CO, Annexes 7.1.2 ‒ (9) for overall bulk carriers, 7.1.2 ‒ (19) for Capesize, 7.1.2 ‒ (20) for
       Panamax, 7.1.2 ‒ (21) for Handymax and 7.1.2 ‒ (22) for Handysize.
164    Form CO, Annex 7.1.2-(19).
165    Form CO, Annex 7.1.2-(19).
                                                        33
 ---pagebreak---        while JMU has […]. In comparison, CSSC (under Shangai Waigaoqiao) has […],
       Jiangsu Hantong has […], COSCO has […], CSIC (under Beihai and Bohai
       shipyards) has […], and New Times Shipbuilding has […].166
(137) The information derived from the order books of shipbuilders is consistent with the
       feedback that market participants have expressed in the market investigation. An
       overwhelming majority of those customers who responded to the market
       investigation indicated that, in case of a 5-10% price increase by Imabari and JMU
       after the Transaction, they would have sufficient alternative shipbuilders to turn into
       for all possible sub-segments of bulk carriers and specifically for small, Handysize,
       Handymax, Panamax (DWT 65 000 - <80 000), Panamax (DWT 80 000 - <100
       000), Capesize, Newcastlemax and Setouchmax.167 In particular, several customers
       indicated that there would remain sufficient alternative Japanese shipbuilders
       following the Transaction for all these different categories of bulk carriers.168 In this
       regard, some customers indicated that ‘[t]here are multiple alternative Japanese
       shipbuilders for each categories above even after the combination of Imabari and
       JMU’ or that customers currently ‘have many choice[s] for shipyard, not only Japan,
       but also other countries’.169 In particular, some respondents indicated that Namura,
       Oshima, Tsuneishi, Kawasaki or Mitsui have shipyards in Japan that can build bulk
       carriers from each category.170 Another customer expressed there is no a particular
       type of bulk carrier that only Japanese shipbuilders are able to build.171 For all, a
       customer indicated ‘absolutely YES. [N]umerous builders in the same segments’.
(138) This perception of sufficient alternative shipbuilders may also be observed by the
       fact that a majority of those customers that responded to the market investigation
       indicated that, in a scenario where the price of bulk carriers would increase by 5-
       10%, their likely reaction would be to switch to another supplier. 172 In this regard,
       several customers indicated that they would have alternative shipbuilders from
       Japan, China or Korea. A customer indicated in this sense that ‘[s]ince there are
       multiple shipyards, including China, that can build vessel that do not differ
       significantly in performance, we will select other shipyard with a low price’.173
    7.3.4. Overall impact
(139) A large majority of the customers and competitors that responded to the market
       investigation expect that the Transaction will not change price, quality, capacity,
       innovation or the availability of slots at shipyards in the bulk carrier industry.174 A
       number of these respondents also indicated that the Transaction could potentially
166    Form CO, Annex 7.1.2-(19).
167    Q1 – Questionnaire to customers, replies to question C.B.A.4.
168    Q1 – Questionnaire to customers, replies to question C.B.A.4.2.
169    Q1 – Questionnaire to customers, replies to questions C.B.A.4.1 and C.B.A.4.2.
170    Q1 – Questionnaire to customers, replies to question C.B.A.4.2.
171    Non-confidential minutes of a conference call with a customer of 29 October 2020, paragraph 24.
172    Q1 – Questionnaire to customers, replies to question C.B.B.3.
173    Q1 – Questionnaire to customers, reply to question C.B.B.3.1.
174    Q1 – Questionnaire to customers, replies to question D.2, and Q2 – Questionnaire to competitors,
       replies to question D.2.
                                                        34
 ---pagebreak---         bring a positive change in these parameters of competition, i.e., a reduction in price
        and an increase in both quality and capacity,175 as well as innovation.176
     7.3.5. Conclusion
(140) In light of the considerations in paragraphs (127) to (139) above, the Commission
        concludes that in the worldwide market for bulk carriers overall, as well as in the
        potential sub-segments for Handysize, Handymax, Capesize, Newcastlemax and
        Setouchmax bulk carriers, the Transaction does not raise serious doubts as to its
        compatibility with the internal market or the functioning of the EEA Agreement due
        to horizontal non-coordinated effects given that (i) the combined entity would only
        have modest market shares and would continue facing competition from several
        shipbuilders; (ii) customers have overwhelmingly confirmed that they would have
        sufficient alternative suppliers for all potential sub-segments of bulk carriers; and
        (iii) a large majority of market participants has indicated that the Transaction would
        have no impact on price, quality or capacity.
7.4.    Construction and supply of PCTCs
     7.4.1. Market shares
(141) The market for the construction and supply of PCTCs would be affected only if a
        separate product market for PCTCs above 6 000 cars is considered.
(142) According to data provided by the Notifying Parties, as set out in Table 7 below, the
        combined share of the Merged Entity in the potential market for PCTCs above 6 000
        cars would remain modest at [20-30]% based on number of ships delivered or CGT
        over the 2015-2019 period.177 Hyundai would remain market leader based on both
        number of ships and CGT with [30-40]%. The Merged Entity would also continue to
        face competition by Shin Kurushima ([10-20]% on both number of ships and CGT),
        China Merchants (between [5-10]% and [10-20]%) and Fujian Shipbuilding ([5-
        10]% on both number of ships and CGT).
175     Q1 – Questionnaire to customers, replies to question D.2, and Q2 – Questionnaire to competitors,
        replies to question D.2.
176     Q1 – Questionnaire to customers, replies to question D.2, and Q2 – Questionnaire to competitors,
        replies to question D.2.
177     Reply to post-notification request for information RFI 1, [Annex 1, question 1].
                                                          35
 ---pagebreak---  ---pagebreak---     7.4.4. Overall impact
(146) A large majority of market participants that responded to the market investigation do
       not expect the Transaction to have a negative effect (in terms of price, innovation,
       quality, capacity and availability of slots at shipyards) on the market for PCTCs.185
       Moreover, the outcome of the market investigation revealed that there will remain at
       least two other players in Japan active in large PCTCs, including one (Shin
       Kurushima) that is twice as big as JMU in the construction and supply of PCTC
       above 6 000 cars.
    7.4.5. Conclusion
(147) In light of the considerations in this Section 7.4, the Commission concludes that in
       the potential worldwide market for the construction and supply of PCTCs, including
       the possible segment of PCTCs above 6 000 cars, the Transaction does not raise
       serious doubts as to its compatibility with the internal market due to horizontal non-
       coordinated effects. This is because (i) the Parties’ market shares are moderate; (ii)
       they are not particularly close competitors; (iii) customers have effective access to a
       number of established alternative shipbuilders; and (iv) a large majority of market
       participants has indicated that the Transaction would have no negative impact on
       price, quality, capacity and innovation.
8.     CONCLUSION
(148) For the above reasons, the European Commission has decided not to oppose the
       notified operation and to declare it compatible with the internal market and with the
       EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
       Merger Regulation and Article 57 of the EEA Agreement.
                                                           For the Commission
                                                           (Signed)
                                                           Margrethe VESTAGER
                                                           Executive Vice-President
185    Q1 – Questionnaire to customers, replies to question D.4, and Q2 – Questionnaire to competitors,
       replies to question D.4.
                                                     37