Irish Competition Authority Decisions

1. Notification was made by Waterford Harbour Commissioners on 1 April 1992 with a request for a certificate under Section 4(2) of the Competition Act, 1991 in respect of an agreement with Bell Lines Ltd. for the priority use of harbour facilities in Waterford.

2. Notice of intention to take a favourable decision was published in the "Irish Times" on 3 July 1992. No submissions were received from interested parties.

3. The agreement involves the proposed building of a new container port in Waterford harbour. The necessary capital is being put up by the Harbour authority with a contribution also coming from EC structural funds. It is proposed that Bell Lines will have priority use of the new facilities and that they will pay to the authority, over the period of the agreement, sufficient monies to cover the capital outlay and associated interest costs incurred by the harbour authority.

4. The parties to this notification are Waterford Harbour Commissioners and Bell Lines Ltd.

5. The principal activities of Bell Lines consist of the provision of shipping services between Ireland, the United Kingdom and the continent of Europe. Its turnover is estimated at £130m and it employs approximately 800 people. [1]

6. Waterford Harbour Commissioners operates under the Harbours Act, 1946. As a harbour authority, it is responsible for the management, control and operation of the port as well as providing the necessary facilities and accommodation for port users. Its turnover in 1991 was £1.4m.

7. The operating revenue of Waterford Harbour Commissioners is made up mostly of rates imposed on goods imported and exported. Tonnage rates are also applied to vessels entering or using the harbour. In 1990, the rates on imports and exports were approximately £1.02m, 72 per cent of its total revenue of £1,416,375. Tonnage rates accounted for approximately £0.2m (14% of revenue). The remaining revenue was made up of rates relating to cranage, storage, weighbridge, water to ships and pilots' administration charges.

8. In 1990, the authority had an operating surplus of £208,000. Financial charges and charges for exceptional items reduced this figure to a deficit of £31,500.

9. The Harbours Act, 1946 is, in effect, a consolidating Act, formally establishing the State's 25 harbour authorities, including Waterford. Section 47 of that Act defines the general duties of the authorities as follows:

'(1) A harbour authority shall take all proper measures for the management, control and operation of their harbour and shall provide reasonable facilities and accommodation therein for vessels, goods and passengers.

(2) A harbour authority shall take all proper measures for the maintenance and operation of all works, structures, bridges, equipment and facilities under their control.'

10. Harbour authorities are obliged to impose charges for their services, necessary to cover maintenance and development costs as well as personnel expenses. Section 94 of the Harbours Act provides that:

'Subject to the provisions of this Act, a harbour authority may charge the following rates in respect of the following subjects of charge:-

(a) rates (in this Act referred to as tonnage rates) calculated by reference to tonnage in respect of a vessel which -

(i) enters within the limits of the harbour of the harbour authority, or

(ii) uses any quay in such harbour, or

(iii) plies within the limits of such harbour;

(b) rates (in this Act referred to as goods rates) in respect of goods shipped, transhipped or unshipped within the limits of the harbour of the harbour authority;

(c) rates (in this Act referred to as service rates) in respect of shipping, unshipping, transhipping, warehousing, acting as warehouse keepers, wharfage, cranage, receiving, landing, re-landing, piling, housing, weighing, measuring, coopering, sampling, unpiling, unhousing, unloading, carrying, conveying, loading, repairing, protecting, watching, delivery or any other work done or service rendered in relation to goods.'

11. Section 96 provides that rates be charged equally in respect of the same classes of vessels and goods. In addition, harbour authorities may charge for the use of any facility or accommodation provided for passengers (s. 47(3)), for facilities such as tenders, life boats, etc., provided by them (s. 49(2)), for ballast (s. 52). They may also licence boats to ply for hire in the harbour and charge for such licences (s. 53(1) and (2)). Section 104 allows the Minister for the Marine to fix maximum rates for a harbour or to fix the basis on which rates are to be computed. Section 119 deals with the application of revenue of harbour authorities.

12. Section 55 of the Act provides that:

'A harbour authority may appropriate any part of their harbour (including, in particular, any of the following or any part thereof, that is to say, any dock, pier, quay, wharf, jetty, boatslip, works, plant or equipment) to the exclusive use of any person, trade or class of vessels and may make any such appropriation either gratuitously or in consideration of the payment to them of such charges as they consider reasonable.'

13. Section 97 states that:

'The facilities provided by a harbour authority in respect of their harbour shall, subject to the provisions of this Act and anything done thereunder and to the bye-laws for the time being in force in respect of their harbour, be available equally to all persons on payment of the appropriate rates.'

14. The function of Waterford Harbour Commissioners is to provide and maintain the necessary facilities for the use of Waterford Port by those wishing to import and export goods by ship. Bell Lines operate a container ship service from Waterford to Britain and mainland Europe. Bell Lines also provide stevedoring services in the port which they operate on a twenty-four hour day, seven day week, three hundred and sixty-four day a year basis. The notification is concerned with the provision of shipping services to and from Britain and mainland Europe.

Table 1

Distribution of External Trade by Ports, 1990

£ Tonnage

million (000's)

by value % by volume %

Airports 4,198 16.1 56 0.2

Land Frontier Stations 5,089 19.5 6,432 21.0

Seaports 16,753 64.3 24,050 78.8

26,040 100 30,538 100

Source: CSO; 'Analysis of External Trade by Ports', Irish Statistical Bulletin, September 1991, p. 428.

15. In 1990, the value of Ireland's external trade was £26,040m. As Table 1 illustrates, 64.3% (£16,753m) of this trade was conducted through the country's seaports. This represents 78.8% of the total tonnage of 30.5 million tonnes. By contrast, airports accounted for just 16.1% (£4,198m) of external trade by value and represented only 0.2% of its weight. This reflects the fact that air freight is not an economically viable transport mode for heavy or bulky items.

% Distribution of External Trade by Country, 1990

By Value By Volume

Great Britain 32.8 35.4

Northern Ireland 5.0 13.5

Other European Countries 40.2 30.4

100.0 100.0

Source: CSO; 'Analysis of External Trade by Ports', Irish Statistical Bulletin, September 1991, p. 428.

16. In value terms 33% of external trade in 1990 was with Britain while 40% was with other European countries. Only 5% of Irish external trade was with Northern Ireland, yet as Table 1 illustrates almost 20% of Irish external trade passed through the land frontier stations with Northern Ireland. This apparent discrepancy is due to the fact that a sizable proportion of Irish trade travels through Northern Ireland ports. Over 14% of Irish trade was shipped through Northern Ireland ports in 1990.

17. Of the total weight of goods handled through Irish ports in 1990, 5.2% (1.3 million tonnes) was dealt with by Waterford port (Table 3). This is much less than the figures for the major ports of Dublin and Cork (25.0% and 21.2% respectively) but similar to the neighbouring harbours of New Ross (3.6%) and Rosslare (3.2%).

Table 3

000 Tonnes ________________________________________________________________________________________________________________

% % % %

Waterford 384 (3.9) 855 (11.8) 46 (0.6) 1,284 (5.2)

Dublin 3,542 (35.8) 1,735 (24.0) 959 (12.4) 6,235 (25.0)

New Ross 193 (1.9) 547 (7.6) 152 (2.0) 892 (3.6)

Rosslare 669 (6.7) 137 (1.9) -- 806 (3.2)

Rest of East Coast* 972 (9.8) 1,192 (16.5) 392 (5.0) 2,556 (10.3)

Cork 2,777 (28.0) 1,359 (18.8) 1,157 (14.9) 5,293 (21.2)

Others 1,371 (13.8) 1,408 (19.5) 5,067 (65.2) 7,846 (31.5)

________________________________________________________________________________________________

Total 9,908 (100.0) 7,233 (100.0) 7,773 (100.0) 24,913 (100.0)

_______________________________________________________________________________________________

*Arklow, Drogheda, Dundalk, Dun Laoghaire, Greenore & Wicklow.

Source: CSO; 'Statistics of Port Traffic in 1990', Irish Statistical Bulletin, December 1991,

p.598.

18. There are five different categories of traffic through Irish ports. Three of these, bulk liquid, bulk solid and break bulk can be handled through almost any commercial port. The two remaining categories are Ro-Ro (Roll-on/Roll-off) and Lo-Lo (Load-on/Load-off). Both deal with the transport of container traffic.

19. Under this method a container or trailer is delivered by truck from its point of origin to its final point of destination. As it is obviously necessary for the truck to board the ship, special facilities are required which would not be available at most Irish ports. A variation of this is URO-RO, whereby the trailer is delivered to the port by truck, loaded onto the ship by port tractors, and brought to its final destination from the far end by a local contractor. The only Irish ports with Ro-Ro terminals are Dublin, Dun Laoghaire, Cork and Rosslare. Table 4 shows that Ro-Ro accounted for 10.3% of goods handled through Irish ports in 1990.

20. With Lo-Lo, the containers are delivered to the port by either rail or road where they are stored prior to loading into a ship specific for the purpose. Again, special facilities are required for provision of this service. Dublin, Cork and Waterford are the main Lo-Lo terminal ports although a small amount of Lo-Lo traffic is handled by small ports. Lo-Lo accounted for 12.2% of Irish port traffic.

Roll-on/Roll-off 2,317 (23.4) 171 (2.3) 76 (0.9) 2,564 (10.2)

Lift-on/Lift-off 805 (8.1) 2,016 (27.9) 215 (2.8) 3,035 (12.2)

Bulk Liquid 4,858 (49.0) 903 (12.5) 894 (11.5) 6,655 (26.7)

Bulk Solid 1,475 (14.9) 3,609 (49.9) 5,969 (76.8) 11,053 (44.4)

Break Bulk and all

other goods 453 (4.6) 532 (7.4) 621 (8.0) 1,606 (6.4)

_____________________________________________________________________________________________

Total 9,908 (100.0) 7,231 (100.0) 7,775 (100.0) 24,913 (100.0)

______________________________________________________________________________________________

Source: CSO; 'Statistics of Port Traffic in 1990', Irish Statistical Bulletin, December 1991,

p.598.

21. The biggest users of Waterford port are Bell Lines. They have approached their business in a very high-tech manner, and, with their unique use of the railways throughout the country, they are regarded as the most successful Lo-Lo container carrier between here and the UK and Europe. [2] They operate a service to their own port, Bell Port on the Usk River near Newport in South Wales, to the Rosenberg terminal in Rotterdam, and to Radicatel, a small port near Rouen on the river Seine. Their policy is one of owning and operating their own berths within ports to strict company policy, fast and speedy throughput of their containers, and with high emphasis on the requirements of their customers.

22. Waterford is 6 hours steaming time nearer to the Continental ports than is, say, the port of Dublin. This gives Bell Lines the advantage of saving 12 hours in any round trip over and above their competitors using Dublin exclusively.

23. Table 4 shows that 78.5% of Waterford port's business involves the handling of Lo-Lo traffic. There are no Ro-Ro facilities available. This table also shows that 64.4% of its business is conducted with mainland Europe. The only other significant market is Great Britain and Northern Ireland which accounts for a further 28.9% of its trade.

Table 5

Roll-on/Roll-off - -

Lift-on/Lift-off 1,043 78.5

Bulk Liquid 110 8.3

Bulk Solid 173 13.0

Great Britain & N. Ireland 384 28.9

Other E.C. 855 64.4

Non E.C. 46 3.5

*Figures at variance with those of Table 3 because of the absence of figures for coastal trade (43,000 tonnes) which is not considered significant.

Source: As for Tables 3 and 4.

(f) The notified agreements

24. The existing container terminal in Waterford is considered totally inadequate to the needs of its traffic. It has a design capacity of some 80,000 TEU's per annum. [3] The throughput at the terminal in 1991 was 130,000 TEU's. Because of the congestion, new traffic cannot be accepted.

25. It is proposed to construct a completely new terminal approximately 4km downstream of the existing port facility. The cost of this construction is estimated to be £17.5m. This project is in receipt of EC Structural Fund grant-aid of £7.5m. Bell Lines have agreed to pay sufficient income to the Waterford Harbour Commissioners to discharge the interest and capital cost of the development in return for priority use of the terminal for an initial period of fifteen years with an option to renew for a further ten years. The relevant extracts of the agreement are as follows:

"1. In consideration of the several assurances given by the Company as hereinafter appears the commissioners hereby agree with the Company as follows:-

(a) To give to the Company priority use of the Terminal for an initial period of fifteen (15) years commencing on the date the Belview Terminal becomes operational subject as hereinafter appears.

(b) To grant to the Company on the expiration of the said fifteen (15) year period referred to in paragraph (a) above an option to obtain Priority Use of the Terminal for a further period of ten (10) years, which option if exercised shall be subject to a new Agreement on terms yet to be negotiated between the parties hereto.

(c) If the Company exercises such option to renew, then on the basis of the throughput projections being met, the Commissioners undertake to give to the Company, during the latter ten year period, a discount on volume. Such discount shall be based on the effective TEU rate now operating namely and applied to the said rate indexed in accordance with Clause 4 of this Agreement.

(d) To construct and provide at the Terminal a modern Lift-off ("Lo-Lo") facility with all necessary ancillary services and support systems.

(e) To equip the Terminal with adequate cranes.

(f) To obtain and perfect all necessary Leases, Licences, Permissions and Authorisations for the proper and lawful operation of the Terminal including a Foreshore Lease from the Department of the Marine.

(g) To dredge and keep clear all berths at the Terminal and all access Channels to it including the river bars at Duncannon and Cheekpoint.

(h) To repair and put in working order the Workshop and Offices located on the Premises including the temporary Access Road from the public road. The Company's right of way over the temporary access road will cease when the new access road is completed.

Clause 3 provides that:

1 ´Regarding Capital and Interest Repayments (Capital Charge) the company will provide income to the Commissioners sufficient to discharge the interest and capital cost of the Commissioners borrowing to a maximum of Eight and a Half Million Irish Punts for a one gantry operation and up to Ten Million Irish Punts for a two gantry operation arising on the construction, provision and development of the Terminal over the loan period. The income will be in addition to all other payments that the Company is obliged to make under this agreement.'

26. The Company has also agreed to continue using the existing container terminal at Frank Cassin Wharf and to continue payments in respect of that facility until all the capital and interest costs of the extension to the Frank Cassin Wharf have been paid.

27. The Minister for the Marine is strongly supportive of the Belview Harbour Development plan. In addition to EC grants of £9.4m for the harbour itself, it is envisaged that road and rail links to Belview will also qualify for EC aid. Borrowings made by Waterford Harbour Commission from the European Investment Bank in respect of the project are guaranteed by the State under the State Guarantees Act, 1954. The Department of the Marine has already paid the Commissioners £200,000 in respect of expenditure already incurred on the project.

28. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void'.

29. Bell Lines Limited is engaged in the provision of shipping services between Ireland, the United Kingdom and the continent of Europe. It is a subsidiary of the Bell Group Limited. Bell Lines is engaged in the provision of services for gain and is therefore an undertaking within the meaning of Section 3 of the Act.

30. Waterford Harbour Commissioners is a statutory authority established under the Harbour Acts, 1946 to 1976. It is responsible for the care, management and superintendence of the Port of Waterford. The question is whether it constitutes an undertaking within the meaning of the Competition Act. Section 3 of the Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.'

31. The harbour authority is a body corporate. It is engaged in the provision of services namely harbour facilities and services and, under the Pilotage Act, 1913, pilotage services. Pilotage is compulsory for vessels navigating in the area between Hook Point and Killoteran Pill, County Waterford.

32. As pointed out in paras 10-13 above, a Harbour Authority is empowered to charge port users for the use of the harbour facilities and for goods shipped through the port subject to a maximum set by the Minister for the Marine. There is no provision in the legislation to prevent a Harbour Authority earning a surplus or profits from the provision of services. The 1985 Green Paper on Transport Policy noted in its review of the financial performance of the State's harbours over the five year period to 1983 that 'while all but three of the top fourteen scheduled harbours were profitable, the surpluses generated tended to be quite small.' [4] The report notes a decline in port profitability compared with earlier years.

33. The Waterford Harbour Authority has generally generated small surpluses. In 1990 it recorded an operating surplus of almost £209,000 which was reduced to a deficit of £31,500 after financial charges and, exceptional items amounting to almost £108,000, were included.

34. The Green Paper notes that the return on capital employed by harbours averaged only about 2%. It goes on to state that: 'In line with the target set out for public investment projects in the Public Capital Programme, it is now the policy that investment proposals by harbour authorities should achieve a realistic return on investment.' [5] It is also stated that:

'The general aim will be to ensure that harbour authorities pay their way by charging economic rates and thereby produce realistic surpluses which will enable harbour authorities to:

- meet ongoing maintenance requirements,

- maintain dredged depths without Exchequer assistance,

- fund future capital works of a minor nature, and

- build up reasonable reserves so as to make significant contributions to future major capital requirements.' [6]

35. The Authority has previously indicated its views on the definition of an undertaking in PRS/IMRO [7] where it stated:

'In the view of the Authority, it is immaterial whether "profit", in the technical sense, actually occurs or not. The term "gain" is clearly a wider one than "profit". In this connection, it is noted that the phrase "engaged for profit" was used in the Mergers Act, 1978 but this was not repeated in the 1991 Act. In the view of the Authority the term gain means any consideration or reward in return for the supply of a good or the provision of a service.'

36. This view has been endorsed by the Supreme Court in its recent decision in Mary Deane & others v Voluntary Health Insurance Board (29 July 1992) where it held that the VHI was an undertaking within the meaning of Section 3(1) of the Competition Act. In that decision Finlay C.J. stated that:

´I am, therefore, driven to the conclusion that the true construction of this section is that the words "for gain" connote merely an activity carried on or a service supplied, as it is in this case, which is done in return for a charge or payment, and that, accordingly, the Defendant does come within the definition of an undertaking in the Act of 1991.'

37. Harbour authorities are commercial undertakings which charge port users for the services they provide and which are legally entitled, and indeed obliged as a matter of policy, to charge 'economic rates' and produce 'realistic surpluses'. In the Authority's view, a harbour authority is engaged for gain in the provision of services since it provides services in return for payment by harbour users. Waterford Harbour Commissioners is, therefore, an undertaking within the meaning of Section 3 of the Competition Act.

38. The notified agreement concerns arrangements between Waterford Harbour Commissioners and Bell Lines for the priority use of a proposed new Lo/Lo terminal in Waterford harbour. In return Bell Lines have agreed to pay sufficient income to the Commissioners to cover the capital cost of the development of the terminal together with any associated interest costs. This constitutes an agreement between undertakings which has effects within the State.

39. Under the terms of the notified agreement Waterford Harbour Commissioners agrees to give Bell Lines priority use of the new Lo/Lo terminal to be developed at Belview for a period of 15 years commencing on the date the terminal becomes operational. There is also an option to continue Bell Lines' priority use of the terminal for a further 10 years upon the expiration of the 15 year period. By priority use it is intended that Bell Lines vessels would have first call on berthing facilities at the terminal. Bell Lines would also operate the terminal itself as they do the existing terminal thus providing their own stevedoring services. The Authority has to decide whether, in its opinion, such arrangements prevent, restrict or distort competition within the State or any part of the State.

40. At present only Bell Lines operate a container service from Waterford to Britain and mainland Europe. Bell Lines' throughput at the existing terminal is 130,000 TEU's while the existing terminals design capacity is for 80,000 TEU's. Bell Lines operate the terminal on a 24 hour, 364 day per year basis.

41. The new terminal has a design capacity of 250,000 TEU's. The combined design capacity of the two terminals at Waterford Port will be more than four times that of the existing terminal. The Harbour authority has indicated that they hope that other shipping services will use the enlarged port. Bell Lines will operate the stevedoring services in both terminals. Other companies will, however, be free to use the port subject only to the proviso that Bell Lines´ ships will have priority use of berthing facilities at the new terminal. Whether other shipping companies will choose to use either of the container terminals the Authority cannot say. The sizable increase in the capacity of the port, however, may allow such competitors to enter the market. If that were to occur it would actually result in increased competition.

42. Waterford is not the only Lo/Lo terminal through which goods can be shipped to and from Britain and mainland Europe. Both Dublin and Cork harbours have Lo/Lo terminals which can handle such traffic. In fact Dublin accounts for 54% of total Lo/Lo traffic compared with 34% which goes through Waterford, with Cork accounting for virtually all of the remainder. [8]

43. In addition, however, there is scope to switch from Lo/Lo to Ro/Ro and vice versa. In many cases it is relatively easy to load a container onto a trailer to be transported by road in order to avail of Ro/Ro transport facilities. Indeed 43% of container traffic currently travels to and from Waterford by road. In addition to Dublin and Cork, Dun Laoghaire and Rosslare both have Ro/Ro terminals. Waterford harbour´s share of the combined Lo/Lo and Ro/Ro business is almost 19%.

44. Dublin, Dun Laoghaire, Cork and Rosslare therefore all represent alternative outlets though which exporters and importers can choose to route goods. Cork and Rosslare in particular represent alternative ports for firms located in the South of the country. Rosslare is only 49km from Waterford while Cork is 77km away.

45. It also needs to be borne in mind that a sizable proportion of Ireland's external trade is routed through Northern Ireland where it is shipped by either Lo/Lo or Ro/Ro to Britain and the Continent. The Culliton Report noted that:

'For international Ro-Ro (roll-on roll-off) loads, one estimate is that almost 40 percent choose to go though Northern Ireland ports despite an extra road journey of some 500km."

46. The fact that up to 14% of Ireland's total external trade goes through ports in Northern Ireland illustrates the extent to which ports in the State, including Waterford, are exposed to competition from outside.

47. The Authority does not consider that other forms of transport such as break bulk offer a reasonable alternative to Lo/Lo and Ro/Ro modes. Similarly air freight is not a substitute for such transport modes as the cost involved in carrying heavy items by air is prohibitive. The high cost of developing a new Lo/Lo terminal together with the difficulties involved in obtaining a suitable location for such a facility excludes the possibility of new entrants to the market.

48. The Authority nevertheless believes that there are a number of competing ports through which goods may be shipped to and from Britain and mainland Europe by Lo/Lo and Ro/Ro modes both within the State and in Northern Ireland. In its opinion these ports should all be regarded as part of the market. Competition takes place largely between the various ports which can handle Lo/Lo and Ro/Ro traffic.

49. The notified agreement will not reduce competition between ports. As the Authority believes that the market is that for shipping goods either by Lo/Lo or Ro/Ro through ports in the entire island of Ireland, and that the notified agreement does not prevent, restrict or distort competition in that market, the agreement does not offend against Section 4(1) of the Competition Act. Indeed, as the agreement only involves giving Bell Lines priority access rather than exclusive use of the facilities, the development of the new terminal may allow other shipping lines access to Waterford harbour for container traffic and could increase competition.

50. Bell Lines and Waterford Harbour Commissioners are undertakings within the meaning of Section 3 of the Competition Act, 1991 and the notified arrangements constitute an agreement which applies within the State.

51. The Authority believes that the agreement does not prevent, restrict or distort competition in the market for shipping goods to and from Britain and mainland Europe by Lo/Lo and Ro/Ro modes and does not, therefore, offend against Section 4(1) of the Competition Act, 1991.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between Waterford Harbour Commissioners and Bell Lines Ltd., (CA/11/92) giving Bell Lines priority use of the proposed new container terminal in Waterford harbour, which was notified on 1 April 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

4 August 1992