Stevedore company DP World’s bid for rival Silk raises the ACCC’s competition concerns

Australia’s second-biggest stevedore operator, DP World, has hit a competition hurdle in its bid to take over rival Silk Logistics.

DP World’s terminal at Port Botany in Sydney. Picture: Nikki Short

Australia’s second-biggest stevedore operator, DP World, has hit a hurdle in its bid to take over Silk Logistics after the competition regulator raised concerns that the move would lead to higher prices and less service.

Silk’s main business is shifting shipping containers on trucks to and from the ports where DP World operates. It is one of the only national door-to-door logistics companies.

The Australian Consumer & Competition Commission is reviewing whether the Silk takeover would give DP World the ability to “increase terminal fees or worsen the quality of terminal services for container transport providers that compete with Silk”.

“We have heard concerns that DP World’s ownership of a ­national container transport provider is likely to reduce competition in the supply of container transport services. This could lead to higher prices and reduced quality for Australian importers and exporters,” ACCC Commissioner Philip Williams said.

Silk shares slumped 22.2 per cent on Thursday to $1.54, which is still above the trading range before takeover negotiations began.

The share rout wiped $36m from company’s market value, which now sits at just under $126m.

Silk announced an agreed $175m takeover by DP World in November, and the deal is subject to a break fee to its suitor.

“We are also assessing whether DP World Australia, after acquiring Silk, is likely to offer below-cost transportation prices to importers and exporters if their containers are also picked up and dropped off at DP World Australia’s stevedoring terminals,” Dr Williams said.

The ACCC concerns were shared by the Freight and Trade Alliance, which pointed out that Silk was the third-biggest road transport operator behind listed rival Qube and ACF.

“The big thing with this one is just the vertical integration,” FTA director Paul Zalai said. “The ACCC’s got some valid concerns that we shared as well; that this may open up a commercial advantage for them, and cause an issue for competing transport ­operators.”

The proposed deal comes as exporters and importers have been hit with a rise in landside charges at ports. According to ­estimates from the FTA, total revenue per container lift has risen 23 per cent in three years. The FTA has also flagged skyrocketing costs of empty container notification fees.

The ACCC is taking submissions from interested parties for another two weeks and will also be looking at whether DP World could use its strong market power – if allowed to proceed with the deal – to discount logistics pricing to lure customers from rivals.

“This is because a discounting strategy involving below-cost ­prices could reduce container transport competition allowing a combined DP World Australia and Silk to raise prices later.”

Silk’s biggest rival, Qube, recently posted a 6 per cent rise in net profit after tax for the half year to $105.7m. But smaller logistics operators have sometimes struggled. The ACCC is concerned that DP World Australia could be able to access and use commercially sensitive data about Silk’s rivals in a way that damages competition.

The ACCC said its monitoring showed there was “very limited competition” between the main stevedores on terminal charges to container transport providers.

In February, Silk reported half-year earnings before interest and tax of $15.6m, which was a drop of 14.3 per cent on the previous corresponding period.

Silk provides port and contract logistics and operates 46 facilities across NSW, Victoria, Queensland, South Australia and Western Australia.

DP World has stevedoring operations in Sydney, Melbourne, Brisbane and Fremantle and handles about a third of containers that pass through these ports.

Originally published as Stevedore company DP World’s bid for rival Silk raises the ACCC’s competition concerns