Competition Bureau statement regarding the acquisition by TransForce of Contrans

OTTAWA, November 7, 2014 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by TransForce Inc. (TransForce) of Contrans Group Inc. (Contrans), pursuant to a Support Agreement announced on July 24, 2014.

On November 5, 2014, the Bureau issued a No Action Letter (NAL) to TransForce stating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act (Act) in respect of the transaction. Section 97 of the Act provides for a one-year period following the completion of the transaction during which the Commissioner may challenge the transaction before the Competition Tribunal.

In conducting its review, the Bureau interviewed a large number of market participants, including customers and competitors to the parties, and reviewed documentary evidence and data from the parties.Footnote 1

Background

TransForce and Contrans are active in the provision of non-specialized (dry box trailers) and specialized trucking services, including flatbed, dry and liquid tank, and dump trailer services. TransForce’s and Contrans’ revenues from their specialized trucking divisions are primarily earned on routes with an origination or destination point located in Central Canada, with the exception of their respective flatbed trailer revenues, which are also earned on Western Canadian routes.

Due to the presence of effective remaining competitors, the Bureau determined that the proposed transaction is not likely to result in a substantial lessening or prevention of competition in any relevant market in the provision of dry box, flatbed or tank (either dry or liquid tank) trailer services. A more in-depth review was conducted with respect to dump trailer services on routes within Quebec, between Quebec and Ontario, and between Quebec and the USA (Quebec Routes), where the parties are the two largest competitors. Contrans has the largest fleet of dump trailers working the Quebec Routes, whereas TransForce follows an asset-light business model with a large portion of its revenues attributable to its activities as a third-party logistics provider, sub-contracting the exclusive services and assets of many smaller trucking companies. Ultimately, the Bureau determined that, in the event of a material price increase post-transaction, entry/expansion into the dump trailer business would be timely, likely and sufficient to prevent the sustained exercise of market power.

Dump trailer services

The primary focus of the Bureau’s analysis was the provision of dump trailer services on long haul (long distance) routes where the inability to arrange for backhaul (the route back to the origination point) becomes cost prohibitive. Running empty miles without freight on the backhaul forces carriers to recoup costs by charging higher front haul prices to customers. Carriers unable to consistently arrange for backhaul customers are therefore priced out of the market for the provision of long haul routes.

Smaller carriers, because of their limited customer base and fleet size, can only serve a limited subset of long haul routes compared to either TransForce or Contrans.

Timely, likely, and sufficient entry/expansion

Outside of Contrans and TransForce, the dump trailer services business on Quebec Routes is fragmented, consisting of several smaller carriers. Many of these carriers are often sub-contracted by Contrans and/or TransForce to service these routes. As primarily a third-party logistics supplier, TransForce is especially reliant on aggregating the services of multiple smaller carriers to bid for large projects.

In the event of a material price increase post-transaction, the Bureau identified a number of dump trailer competitors with both the resources and industry knowledge to expand their activities across a broader set of routes and customers. Some of these carriers have been expanding organically and like TransForce, through aggregating the fleets of smaller carriers, would be well positioned to expand their services across multiple long haul routes. Moreover, given that a large portion of dump trailer services are arranged through informal, short-term spot sales or non-contractual arrangements, customers (both backhaul and front haul customers) have the ability to switch carriers relatively quickly in the event of a material price increase or a reduction of the quality of services provided by the merged entity.

The timely, likely, and sufficient expansion of companies capable of replicating TransForce’s role as a third-party logistics supplier was the most significant factor in assessing the likelihood of a substantial lessening or prevention of competition.

Conclusion

While the transaction will result in the removal of a significant competitor in the dump trailer services business on Quebec Routes, the Bureau concluded that the transaction is not likely to result in a substantial lessening or prevention of competition in any relevant market given the presence of potential competitors well positioned to expand their services in the event of a material price increase.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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