Decision No. 30-W-1995

January 20, 1995

January 20, 1995

IN THE MATTER OF the review by the National Transportation Agency of the proposed acquisition by C.P. Containers (Bermuda) Limited of certain assets of and shares held by The Cast Group Limited and of the proposed acquisition by 3041123 Canada Inc. of all the shares of Cast North America Inc., a company of which Cast North America (Trucking) Ltd. and Cast Transport Inc. are wholly-owned subsidiaries.

File No. W 9200/94-2


BACKGROUND

Chronology of events

On August 22, 1994, the National Transportation Agency (hereinafter the Agency) received notice, pursuant to section 252 of the National Transportation Act, l987, R.S.C., l985, c. 28 (3rd Supp.) (hereinafter the NTA, l987), from Canadian Pacific Limited (hereinafter Canadian Pacific) of the proposed acquisition by C.P. Containers (Bermuda) Limited (hereinafter CP Bermuda) of certain assets of and shares held by The Cast Group Limited (hereinafter the Cast Group) and of the proposed acquisition by 3041123 Canada Inc. of all the shares of Cast North America Inc. (hereinafter Cast NA), a company of which Cast North America (Trucking) Ltd. and Cast Transport Inc. are wholly-owned subsidiaries.

On September 22, 1994, the Agency notified Canadian Pacific that its notice of the proposed acquisition was complete, and published notice of the proposed acquisition in the Canada Gazette on October 1, 1994, pursuant to subsection 254(1) of the NTA, 1987. Any written objections had to be filed with the Agency before October 31, 1994. The Agency received objections within the prescribed time from Howard E. Crosby, Q.C., The Mid-Atlantic Shipping Corporation (hereinafter Mid-Atlantic) and CN North America. Canadian Pacific filed an answer to all objections.

The Agency also received letters from the Atlantic Provinces Transportation Commission, the Halifax-Dartmouth Port Development Commission and the Halifax Port Corporation requesting to be registered as interested parties. The Halifax Port Corporation stated that it was extremely apprehensive about the combined effect of Canadian Pacific's purchase of the Cast Group and its proposed acquisition of the eastern Canadian business of the Canadian National Railway Company.

As part of the notice of proposed acquisition, as well as in response to an information demand letter issued to Canadian Pacific by the Agency on November 3, 1994, Canadian Pacific filed a number of documents with the Agency for which claims of confidentiality were made.

Mid-Atlantic made a request for disclosure of all documents and information submitted by Canadian Pacific in respect of the proposed acquisition. A similar request was filed with the Agency by CN North America.

By letters dated October 31, 1994, November 3, 1994 and November l7, 1994, pursuant to Rules 24 and 25 of the National Transportation Agency General Rules, SOR/88-23 (hereinafter the General Rules) and in the alternative, pursuant to section 259 of the NTA, l987, CN North America requested extensive information from Canadian Pacific on the circumstances surrounding the proposed acquisition. By letter dated November 18, 1994, CN North America served a similar request for documents and information on counsel for the Cast Group. Following the requests for disclosure of information, the Agency determined, pursuant to the General Rules, whether each document subject to a claim of confidentiality should be released, not released, or released in an abridged version. Agency rulings regarding the disclosure of documents claimed to be confidential were issued on November 21, 1994, November 28, 1994 and December 1, 1994.

The Agency decided to hold a public hearing as part of its review of the proposed acquisition and issued a notice of public hearing on November 16, 1994. The hearing was held from December 5, 1994 to December 16, 1994 in Montréal, Quebec.

Subsequent to the notice of the public hearing, eleven interventions in support of and ten interventions in opposition to the proposed acquisition were filed with the Agency. The opposing interveners claimed that the proposal, if implemented, would provide the combined entity of Canada Maritime Limited (hereinafter Canmar) and Cast Marine Holdings Ltd. and its subsidiaries with the ability to raise prices significantly at the port of Montréal and would lessen competition. Seven of the opposing inteventions were filed on a confidential basis and were accepted as such by the Agency. One of the opposing interventions was filed by the Conseil régional des transports de l'est du Québec, representing the economic interests of the Quebec region, which argued at the public hearing that the proposed acquisition would reduce competition and result in price increases. The interveners in support asserted that the proposed acquisition would not have any negative effects on competition but that it would instead ensure a strong and reliable Canadian presence in intermodal transportation that can remain competitive with global carriers serving the North Atlantic trade.

As part of its review, and pursuant to subsection 259(1) of the NTA, 1987, the Agency requested information from the ports of Halifax, Saint John and Montréal. The responses were considered confidential and were not disclosed, except for annual reports and tariffs of charges which are public information.

Canadian Pacific and CN North America presented evidence through numerous witnesses and filed a number of exhibits at the public hearing. The exhibits filed were either confidential, in abridged public versions or public documents.

The objections, the non-confidential interventions, the proposed transaction and related documents released by the Agency, the reply of Canadian Pacific to the objections, the transcripts of the public hearing and the public exhibits filed at the hearing are all public documents that were considered by the Agency in its review of the proposed acquisition.

As part of its review of this proposal, the Agency contracted the services of an expert in the container shipping industry to prepare an economic study of the container shipping business between Canada/USA and Northern Europe. Phillipe I. Georges & Associates of Montréal was selected to undertake the study and the report was released by the Agency on December 12, 1994. The Agency invited comments on the report and received submissions from Canadian Pacific and CN North America. The report was released on the basis that it did not in any way represent the views of the Agency.

Description of acquirer and companies being acquired

Canadian Pacific is a large conglomerate involved directly or indirectly through its subsidiaries in an array of businesses, including transportation by rail and water. Canmar, a wholly-owned subsidiary of Canadian Pacific, operates a fully integrated door-to-door intermodal transportation system for moving containerized cargo between North America and Northern Europe and between North America and the Mediterranean.

CP Bermuda was incorporated in Bermuda, in July 1994, for the purpose of acquiring certain assets of and shares held by the Cast Group and it is a wholly-owned subsidiary of Canadian Pacific.

3041123 Canada Inc., formerly an inactive company incorporated under the Canada Business Corporations Act, was purchased by Canadian Pacific for the purpose of acquiring shares of Cast NA.

Cast NA and the Cast Group are wholly-owned subsidiaries of Cast Marine Holdings Ltd., a Bermuda-based company that provides a fully integrated door-to-door intermodal service for moving containerized cargo between Canada, the United States and Europe. Cast NA is a Canadian company that is the North American agent for offshore vessel operations of the Cast Group. The active subsidiaries of Cast NA are Cast North America (Trucking) Ltd., Cast Transport Inc., Cast Terminal Inc. and Cast North America (Agencies) Ltd.

The Cast Group has a 100 percent share interest in Cast Group Europe Limited (the operating agent of the Cast Group in Europe) and Cast Logistics (U.S.A.) Limited (incorporated in Bermuda), which is licensed to transport goods between the eastern U.S.A. and the Commonwealth of Independent States.

Description of the proposed acquisition

The proposed sale of assets of, and shares held by the Cast Group in certain of its subsidiaries will be by way of the enforcement of security held by the Royal Bank of Canada (hereinafter the Royal Bank) which is satisfied that it has the right to complete the proposed acquisition. The Royal Bank, acting as a secured creditor to Cast, entered into an agreement with Canadian Pacific whereby the business of the Cast Group would be purchased on a going concern basis and the shares of Cast NA would be purchased.

The proposed acquisition is outlined in a series of sale and purchase agreements drawn up between the various parties, as summarized below.

The Share Purchase Agreement between 3041123 Canada Inc. and the Royal Bank describes how the numbered company will acquire shares held by Cast Marine Holdings Ltd. in Cast NA. The Cast NA shares, which are the subject of this agreement, are defined as the 145,010 common shares of the capital stock of Cast NA. Completion is to take place as specified in the Coordination Agreement.

An Asset Sale Agreement between the Cast Group and CP Bermuda describes the sale of certain assets and shares between these companies. Assets of the Cast Group that CP Bermuda will be purchasing include containers, goodwill, equipment used in the business, receivables, intellectual property, marketing information including customer lists, and contracts including container leases and charter party agreements. Shares held by the Cast Group in Cast Group Europe Limited and Cast Logistics (U.S.A.) Limited will also be purchased by CP Bermuda. CP Bermuda agrees to assume the normal operating liabilities to creditors and suppliers and the Cast Group agrees to assign and transfer to CP Bermuda all rights to the use of the "Cast" name.

Canadian Pacific also filed a Quebec Receivables Sale Agreement to effect the sale of the Cast Group's receivables in Quebec and a U.S. Asset Sale Agreement to effect the sale of certain of the assets of the Cast Group that are in the U.S. at the time of the closing of the Asset Sale Agreement.

The Agency also received an executed version of the Coordination Agreement dated October 28, 1994. Parties to the agreement include the Royal Bank, CP Bermuda, 3041123 Canada Inc., Canadian Pacific and Fasken Campbell Godfrey (escrow agent). This agreement sets out the order in which the other agreements are to be executed and states that all unexecuted documents will be held in escrow until their specific time of execution. The agreement sets out the terms and the manner of payment, the time and conditions of completion and the release provisions governing the Royal Bank upon payment.

AGENCY MANDATE

The mandate of the Agency under Part VII of the NTA, l987 is clearly set out in subsection 257(1) of the NTA, l987 which states, in part, that the Agency must form an opinion on whether the proposed acquisition is against or not against the public interest. If the Agency decides that the proposed acquisition is against the public interest, the Agency shall disallow the proposed acquisition.

In the context of this proposed acquisition, the Agency is guided by the national transportation policy set out in subsection 3(1) of the NTA, 1987, which reads, in part:

3 (1) It is hereby declared that a safe, economic, efficient and adequate network of viable and effective transportation services accessible to persons with disabilities and making the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers, including persons with disabilities, and to maintain the economic well-being and growth of Canada and its regions and that those objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation, under conditions ensuring that, having due regard to national policy and to legal and constitutional requirements...

Objection of Mid-Atlantic

Evidence and arguments

Mid-Atlantic, a shareholder of Cast Marine Holdings Ltd. and owned by Mr. Klaus Glusing (former President and Chief Executive Officer of Cast), submitted in its written objection that its opposition was based on the existence of an interim injunction from the Supreme Court of Bermuda restraining the sale or otherwise disposing of the shares or interests in the Cast Group and/or Cast [1983] Ltd. and any subsidiary thereof. The proposed acquisition was said to be in violation of the Court Order, and therefore against the public interest.

At the hearing, counsel for Mid-Atlantic reiterated the essence of the objection and presented arguments in support of the objection of Mid-Atlantic to the effect that the Agency must consider all relevant matters, and that the Agency must ensure that the policy objectives set out in subsection 3(1) of the NTA, 1987 are met, having regard to legal and constitutional requirements. Consequently, the legal principle of comity or respect for foreign judgments ought to be observed in this case. In the final pleadings, counsel for Mid-Atlantic requested that the Agency postpone its decision or, alternatively, that the decision of the Agency not be executed until agreement has been reached among the parties to the Bermuda litigation or until the order is dismissed.

Analysis of the Agency

The principles of comity referred to by counsel for Mid-Atlantic are premised on the notion that foreign judgments ought to be followed to ensure the order and the fairness and security of transactions. On this argument, the Agency concludes that the public interest review under Part VII of the NTA, 1987 does not give effect to the proposed transaction and the principles of comity have no application to these proceedings.

In addition, the issue of an administrative tribunal's obligation to consider the legality of a proposed transaction during its review process was also considered in the case of Seafarer's International Union v. C.N.R. [1976] 2 F.C. 369. In that case, Mr. Justice Pratte held, in part, that under subsection 27(4) of the National Transportation Act, R.S.C. l970, c. N-17, the Canadian Transport Commission "...must form an opinion on the consequences of the proposed acquisition not on the conditions precedent to its legal validity". The same reasoning applies to the task of the Agency under subsection 257(1) of the NTA, 1987.

Under Part VII of the NTA, l987, the Agency is empowered to determine whether a proposed transaction is against or not against the public interest. This determination does not affect the obligations that the parties to the transaction otherwise have in law. It is also not within the mandate of the Agency to impose conditions as part of its decision. Finally, a decision must issue within the statutory deadline. The Agency cannot, by its own order or decision, alter express statutory provisions of the NTA, 1987.

The Agency notes that on January 10, 1995, the Supreme Court of Bermuda issued an Order discharging the injunction that had been granted to Mid-Atlantic on September 13, 1994.

PUBLIC INTEREST ISSUES

In reviewing the proposed acquisition, the Agency considered the concerns raised by the objectors and the interveners, keeping in mind objectives of the national transportation policy.

The Agency has identified the following issues as those that warranted detailed examination in order to be able to assess the impact of the proposed acquisition in the context of the public interest.

  1. Market definition and market dominance
  2. Montréal Port Corporation - Competitiveness related to other ports
  3. Impact of the proposed acquisition on intermodal (between modes) and intramodal (within modes) competition
  4. Impact of the proposed acquisition on Canadian shippers
  5. Barriers to entry
  6. Evaluation of efficiency gains and possible economic loss to Canada

1. Market definition and market dominance

Evidence and arguments

Considerable evidence was heard at the public hearing from Canadian Pacific, CN North America and their respective experts concerning the definition of the relevant markets in which Cast and Canmar operate. The market definitions described ranged in scope from the intermodal container transportation services between Northern Europe and Central Canada via the port of Montréal to those services between Northern Europe and North America via the ports of Montréal and Halifax and the U.S. East Coast ports (hereinafter the USEC ports). As a result of the different positions taken on market definition as well as the lack of publicly available statistics on the North Atlantic container trade, there were considerable differences in the market share percentages presented during the hearing. The views expressed regarding market dominance differed considerably depending on the market definition advocated.

In its evidence, Canadian Pacific identified three possible market definitions and provided container traffic volumes and market share estimates in respect of each of these definitions:

  • Trade between Northern Europe and Canada in the area covered by the Canadian conferences. (A conference is an association of ocean carriers that is permitted under the Shipping Conferences Exemption Act, 1987 to set rates and conditions for the transportation of goods by water).
  • Trade between Northern Europe and the trading area of Canmar and Cast, which includes all of Canada, the U.S. Mid-West, Central and New England states.
  • Trade between Northern Europe and the North American East Coast ports (including Montréal).

For the first market definition, that is the Northern Europe-Canada trade, Canadian Pacific identified six Canadian conference carriers, two non-conference carriers and a third category of carriers comprising the USEC ports lines. The market shares for Canmar and Cast in 1993 were stated to be 19.2 percent and 12.5 percent respectively, for a combined market share of 31.7 percent.

The evidence presented by Canadian Pacific indicated that liners operating in the Northern Europe-Canmar and Cast trading area, the second market definition, include several of the largest liners in the world such as Evergreen, Maersk and Sea-Land which transport considerable North Atlantic container volumes through USEC ports. Within this trading area, Canmar was stated to have the largest market share, 11.5 percent, while Cast has a 9.1 percent share, for a combined market share of 20.6 percent in 1993.

In regard to the third market definition, the Northern Europe-North America trade, Canmar's market share was stated to be 8.1 percent while that of Cast was 6.5 percent, for a combined market share of 14.6 percent in 1993.

Canadian Pacific concluded that the most reasonable market definition is that of the intermodal container traffic between Northern Europe and the Canmar/Cast trading area, since the Canadian originating and destination shipments represent only a small portion of the overall North America - Northern Europe container traffic. In addition, more than 60 percent of the business of Canmar and over 70 percent of the business of Cast consist of the carriage of U.S. container traffic.

On the issue of market dominance, Canadian Pacific indicated that even under the narrow Northern Europe-Canada market definition, Canmar and Cast's post-acquisition combined market share of 31.7 percent would be below the 35 percent threshold of the Bureau of Competition Policy's Merger Enforcement Guidelines. Canadian Pacific claimed that the competitive forces remaining in the relevant market after the proposed acquisition will limit the potential exercise of market power by Canmar/Cast.

Canadian Pacific and several shippers in support of the proposed transaction maintained that competition from non-conference carriers operating at the ports of Montréal, Halifax and the USEC, competition from breakbulk carriers, competition from the four other Canadian conference lines, and the countervailing power of shippers will continue to exert competitive discipline on Canmar and Cast with respect to service and price competition following the proposed acquisition.

Canadian Pacific gave evidence that 50 percent of the container traffic of the port of Montréal in 1993 originated in or was destined for Canada (46.5 percent was for Ontario and Quebec, and 3 percent for Western Canada), while the remaining 50 percent was destined for the U.S. It argued that there is strong competition between the ports of Montréal and Halifax in respect of Central Canada container traffic; and between Montréal and New York, Baltimore and Hampton Roads, in respect of U.S. shipments. Canadian Pacific indicated that the port of Halifax had a 28.4 percent share of the Ontario and Quebec- North Atlantic container market, USEC ports had a 6 percent share, and the balance of container traffic, approximately 65 percent, came through the port of Montréal. Canadian Pacific also indicated that roughly 50 percent of the U.S. Mid-West market is served through the port of Montréal.

An expert witness of Canadian Pacific testified that the combined market share of Canmar and Cast services on the North Atlantic, on the basis of service capacity, is approximately 14 percent. He concluded that the cargo market share, 21 percent, and the capacity market share, 14 percent, of Canmar and Cast combined are not large enough to exert undue influence on the rate or service levels.

In its objection, CN North America claimed that the relevant market for assessing the competitive implications arising from the proposed acquisition is the Central Canada-Northern Europe trade through the port of Montréal. It argued that Canmar and Cast will control or have significant ability to control liner services representing almost 84 percent of the intermodal container shipments on the Montréal-North Atlantic route. In calculating this market share, CN North America included estimates of the market shares of Canmar and Cast as well as estimates of the market shares of Orient Overseas Container Line, Hapag-Lloyd and DSR Lines, on the basis that these three liners are dependent upon either Canadian Pacific/Canmar or Cast for inland transportation, vessel scheduling and container handling capacity.

CN North America expressed the view that carriers operating out of the port of Montréal provide a unique service to a niche market, and that Montréal is not in direct competition with other Canadian ports such as Halifax or the USEC ports. CN North America described the possible alternative gateway ports of Halifax, Saint John, New York and Philadelphia and concluded that, for most shippers, container shipments via these ports are not adequate substitutes for shipments via Montréal for reasons of geography, price and transit times, access or availability of suitable containers.

CN North America and some interveners opposed to the proposed acquisition concluded, in part, that as a result of the high Canmar/Cast market share, these two carriers would be able to exercise a high degree of market power to substantially lessen competition and to impose significant price increases following the proposed acquisition.

The experts of CN North America estimated that of the total container traffic through the port of Montréal in 1993 (598,102 TEUs), approximately 82 percent was derived from the Northern Europe trade. Of the total container traffic through the port of Halifax in 1993 (300,933 TEUs), only 41 percent was generated from the Northern Europe trade. Thus, Montréal has nearly four times the traffic volume of Halifax on the Northern Europe trade. Of the estimated total Montréal-Northern Europe container traffic in 1993 (457,330 TEUs), 45 percent was Canadian traffic, 45 percent was U.S. Mid-West traffic and the balance was New England and U.S. Northeast traffic. Of the Canadian traffic, 61 percent was handled through the port of Montréal, 36 percent through the port of Halifax and the remaining 3 percent through the USEC ports. Of the U.S. Mid-West traffic, 45 percent was handled through the port of Montréal, 21 percent through Norfolk, 14 percent through New York, 20 percent through other USEC ports, and virtually none through Halifax. This, according to CN North America, illustrates the dominance of the Montréal route in the container trade between Northern Europe and Central Canada and the U.S. Mid-West.

The experts of CN North America also estimated the market shares of Canmar and Cast to be 37.3 percent and 26.1 percent, respectively, for a combined market share of 63.4 percent of the Northern Europe container traffic through the ports of Montréal and Halifax in 1993. For the port of Montréal only, market shares for Canmar and Cast were estimated to be 44 percent and 30.8 percent, respectively, for a combined market share of 74.8 percent.

Experts on behalf of CN North America and shippers opposed to the proposed transaction argued that the Montréal route provides significant cost advantages as well as certain service advantages to shippers over alternative routes via Halifax or New York. It was argued that shipping by other routes would only become an effective alternative after rates through Montréal are raised to a level that would almost eliminate the savings that shippers currently experience using the Montréal gateway.

In addition, the experts of CN North America compared intermodal rates of certain U.S. competitors for various commodities on container shipments between Chicago and Europe with quoted rates obtained from Cast and Canmar. The experts testified that the Cast and Canmar rates were found to be significantly lower. In rebuttal, Canadian Pacific indicated that, in 1994, Canmar has lost to Evergreen significant business from several major U.S. customers, because of lower rates offered by its competitor.

Regarding market dominance, the experts of CN North America as well as certain shippers opposed to the proposed transaction were of the view that the USEC ports are not cost competitive for cargo routed over Montréal and that the cargo transportation via Halifax and rail routings is not as cost efficient. One expert testified that it was obvious from the lower rates offered that Canmar and Cast have cost advantages and that the port of Montréal's share of the U.S. Mid-West market, which is already significant, will continue to grow. Another expert indicated that the proposed acquisition of Cast by Canadian Pacific will eliminate competition, raise rates, reduce service and stifle innovative spirit in the North Atlantic trade. All of the CN North America experts concluded that the proposed acquisition would result in Canadian shippers having to pay higher rates.

Analysis of the Agency

After examining all of the evidence and arguments raised in the pleadings and during the course of the hearing regarding the issue of market definition and dominance, the Agency is of the opinion that the relevant market to consider in this case is the market for intermodal transportation of 20 and 40 foot containers via the North Atlantic between Northern Europe and Central Canada, the U.S Mid-West states and the U.S. Northeast states. The Agency is of the view that the port of Montréal is one of several gateways through which intermodal container transportation services are provided between Northern Europe and a large part of North America. It is apparent to the Agency, from its review of the evidence, that the combined market share of Canmar and Cast following the proposed acquisition would be in the vicinity of 21 percent, based on this Northern Europe-Central Canada, U.S. Mid-West and U.S. Northeast container transportation market.

The Agency is of the view that Montréal is the dominant port in the North Atlantic container trade in respect of the large Central Canada and U.S. Mid-West markets, having roughly 60 percent to 65 percent of the Ontario and Quebec market and 45 percent to 50 percent of the U.S. Mid-West market, and that Canmar and Cast are major competitors operating in these markets through the port of Montréal. There is evidence that the port of Montréal may have certain cost advantages over other ports, primarily due to its proximity to major Canadian and U.S. markets.

However, the Agency also notes that the relevant market identified above is served through the ports of Montréal and Halifax as well as through the USEC ports by a number of carriers which compete under a variety of arrangements, including vessel ownership, charter, vessel sharing and slot charter. The Agency is of the view that Halifax, with its 28 percent to 36 percent share of the Ontario and Quebec market, and the USEC ports, with their 50 percent to 55 percent share of the U.S. Mid-West market, also compete effectively for this container traffic.

In respect of this U.S. Mid-West market, even when accepting the rate evidence filed by CN North America to the effect that Canmar and Cast have substantially lower rates than those of their competitors, it is not apparent to the Agency that Cast and Canmar dominate or will dominate this important market. The evidence indicates that regardless of Cast and Canmar's lower rates, many U.S. shippers located in this market have a preference for routing and do send a large portion of their container traffic through U.S. ports for a variety of service reasons, one of which is a possibility for one-stop shopping. Some shippers do prefer in fact to use one carrier to access all of their worldwide destinations. The Agency notes that there is and will likely continue to be effective competition for Canmar and Cast from other carriers operating via the ports of Montréal and Halifax, as well as the USEC ports, in the relevant market.

The Agency concludes, therefore, that with a combined market share of 21 percent, and with the effective competition provided by other liners serving the North Atlantic trade, Canmar and Cast should not be able to dominate, or abuse any resulting post-acquisition market power in, the Northern Europe-Central Canada, U.S. Mid-West and U.S. Northeast container transportation market.

2. Montréal Port Corporation - Competitiveness related to other ports

Evidence and arguments

Canadian Pacific stated that the port of Montréal serves as one of several gateways for the Canada/U.S.A. - Northern Europe trade. As such, it constitutes a major link of the intermodal chain which serves the transportation needs of Canada/U.S.A. - Northern Europe shippers. In 1993, the port of Montréal handled 598,102 TEUs of container traffic. Of this volume, approximately 75 percent was carried on the Canada/U.S.A. - Northern Europe trade route. Of the total TEUs of containerized cargo handled, 50 percent originates in or is destined to points in Canada (46.5 percent for Ontario and Quebec, 3.5 percent for the rest of Canada) and 50 percent originates in or is destined to the United States. The ability of the port of Montréal to compete effectively in the U.S. Mid-West market and the Ontario and Quebec market is crucial, according to Canadian Pacific, to ensure that the port of Montréal remains competitive with other USEC ports and the port of Halifax.

Canadian Pacific presented evidence that there are 7,000 direct jobs associated with the activities of the port of Montréal, with an annual economic impact on Canada of over $1.2 billion. Of the direct employment, 40 percent is involved directly in marine activities (port authority, terminal operations, stevedoring, marine services, etc.) and 60 percent is involved in closely related activities (freight forwarding, surface transportation, marine agencies, banks, insurance). The container handling activities at the port account for 25 percent of the $1.2 billion of economic impact.

Canadian Pacific asserted that the USEC ports have excess capacity and, as a result, are looking increasingly at Canada and at the U.S. Mid-West markets as areas for future expansion. The competitiveness of the USEC ports has increased as rail access to these markets has been improved and as incentives on container traffic moving more than 250 miles inland have been offered. Regarding Halifax, Canadian Pacific maintains that the port is competitive because large capacity vessels with lower unit ocean costs can deliver containers to Halifax economically even though an additional rail journey is needed to get containers to their destination. In the case of many large vessels, the call at Halifax is necessary due to draught restrictions at the USEC ports, where these vessels cannot enter or leave the ports fully loaded; they use Halifax as a means of lightening loads before proceeding to the USEC ports and for topping off their loads en route to Europe. As well, the time needed to make a stop at the port of Halifax is minimal and adds to the profitability of the voyage.

Canadian Pacific stated that the top 20 major container shipping lines have ordered (as of September 1, 1994) a total of 76 new vessels with capacities ranging from 3,400 to 5,000 TEUs. These new vessels will add to the overcapacity situation, but will also bring additional pressure on the Montréal gateway to retain its market share. The use of Halifax as a gateway for Canada/U.S.A. - Northern Europe traffic is expected to grow as a result of the introduction of new, large vessels that are unable to call at the USEC ports fully loaded and also as a result of plans announced by three shipping lines to increase their number of calls at the port. The additional port calls are expected to generate an additional 20,000 TEUs of container traffic at Halifax in the Canada/U.S.A. - Northern Europe trade.

Canadian Pacific argued that Canada is a trading country which needs an efficient transportation service to enable shippers to get their goods to market at the lowest cost and thus remain competitive in world markets, and that it is to the benefit of Canada that Montréal continue to be an efficient and effective intermodal hub. Canadian Pacific and several shippers asserted that the proposed acquisition is expected to enable Cast, Canmar and the port of Montréal to compete more effectively with large global carriers on the North Atlantic serving other gateways. According to Canadian Pacific, the proposed acquisition will generate prosperity and stability through combined Canmar/Cast operations, which will have a major and continued beneficial impact on Montréal, the Canadian economy and employment.

Canadian Pacific argued that the proposed acquisition would reinforce the position of the port of Montréal as a key intermodal gateway for the Canada/U.S.A. - Northern Europe trade. The proposed transaction would, according to Canadian Pacific, allow Cast, Canmar, CP Rail and the port of Montréal to work together to create the most efficient intermodal hub in North America, capable of serving a broader geographic area of the Canada/U.S.A. - Northern Europe trade.

CN North America asserted that the Montréal gateway represents the low cost route for Canada/U.S.A. -Northern Europe trade and, as such, other gateways have to match their costs and rates with those of the Montréal gateway. This is supported, according to CN North America, by an analysis of costs and rates where container traffic transported through Montréal enjoys a significant cost and rate advantage over the ports of New York, Baltimore, Hampton Roads and Halifax (according to evidence presented by CN North America, a cost advantage of 8 to 17 percent and a rate advantage of up to 40 percent on certain commodities). The Montréal gateway also enjoys a one-day advantage in door-to-door transit time compared with that through Halifax and the USEC ports.

CN North America asserted that competition between Cast and Canmar for transporting containerized cargo through the Montréal gateway has been instrumental in maintaining a rate advantage for the Montréal gateway over alternative routes, and that this competition will practically disappear should the proposed acquisition be completed. Once the acquisition is completed, Cast and Canmar will have an opportunity, according to CN North America, to increase rates just below the cost advantage enjoyed over other gateways.

CN North America and shippers opposed to the proposed transaction argued that the port of Montréal serves a niche market with captive shippers and that other ports are not suitable substitutes, due to the additional cost and transit time associated with routing containerized cargo through these other ports.

CN North America alleged that the independence of the Montréal Port Corporation could be threatened by the presence of a large commercial enterprise that controls or has the ability to control a large portion of container traffic moving through the port, and that owns or controls a large portion of the container terminal handling facilities.

Analysis of the Agency

Having reviewed the evidence and argument presented regarding the port of Montréal, the Agency notes that the container handling activities at the port represent an important part of the total operations of the port. Using 1993 reported tonnage of cargo handled at the port, containerized cargo represented 36 percent of the total tonnage handled compared with only 17 percent of the total tonnage in 1984. This means that the handling of containerized cargo is increasingly important for the port of Montréal.

Of greater significance though, in the view of the Agency, is the fact that one-half of the containerized cargo originates in or is destined to the United States or, put in another manner, 50 percent of the container traffic is dependent upon the ability of the port to compete in the U.S. Mid-West market. This means that the infrastructure that has been put in place in the port for containerized cargo greatly exceeds what would be necessary to handle Canadian containerized cargo. As such, the ability of the port of Montréal to remain competitive vis-à-vis other gateways for the U.S. Mid-West market is of fundamental importance.

The Agency notes that, while large shipping lines that compete in the Canada/U.S. Mid-West market will be able to realize reduced unit slot costs for the ocean voyage by introducing high TEU capacity vessels, the shipping lines serving the port of Montréal are not able to reduce unit slot costs in a similar manner, due to the draught restrictions and hence vessel size restrictions of the St. Lawrence River and of the port of Montréal. As a result, shipping lines serving the port of Montréal must try to achieve cost reductions in other areas such as improving efficiencies of container handling at the port.

In this regard, the Agency notes that Canadian Pacific expects to achieve cost savings through improved railcar utilization and through reduction of the number of container railcars in the fleet by improving the interfacing between ships and railcars, and through creating more unit/double-stack trains in the terminal area. The Agency notes Canadian Pacific's contention that the expected cost savings due to improved efficiencies could, depending on market conditions, be passed on to shippers. The Agency agrees that this is possible, although unlikely.

There is evidence indicating that major shipping lines will introduce new high TEU capacity vessels on the Canada/U.S.A. - Northern Europe trade route in the near future. One implication of this would be that a greater number of containers will have to be loaded and unloaded at Halifax in order for these large vessels to call at the USEC ports.

The competitiveness of the Halifax gateway should also be enhanced when the CN North America tunnel at Sarnia is opened in the spring of 1995. This tunnel will improve the transit time between Halifax and U.S. Mid-West points by up to 12 hours. This service improvement, together with the anticipated higher volume of container traffic coming through the Halifax gateway, could lead to efficiency gains by CN North America and make this routing more competitive.

With respect to the evidence that the USEC ports have incentive programs in place to attract container shipping lines, the Agency notes that the port of Montréal has been able to introduce an incentive plan to assist in maintaining its market share of the Canada/U.S.A. - Northern Europe container traffic, as a result of cost reducing measures at the port. As such, the port of Montréal appears to have been able to maintain its competitive position regarding this particular aspect of service.

The information on employment and value of economic activity indicates to the Agency that the port of Montréal is a major contributor to the economic health of the Montréal region. Thus, changes in the transportation sector that contribute to the economic viability of the port and assist in maintaining or encouraging growth in the level of economic activity at the port of Montréal are consistent with the policy objective contained in the NTA, 1987 that transportation is a key to regional economic development.

Regarding the assertion that the Montréal gateway enjoys a significant price or cost advantage when compared with other gateways (i.e., the USEC ports or the port of Halifax), the Agency notes that, based on the information available, none of the analyses of costs via the various routes included total door-to-door costs; the European port costs and European inland costs were absent from the various cost comparisons. Moreover, the rate comparison was based on filed conference rates which do not apply to U.S. cargo carried through Canadian ports or to Canadian cargo carried through U.S. ports.

An examination of the movement of containerized cargo on the Canada/U.S.A. - Northern Europe trade route reveals that significant volumes of cargo move through Halifax and the USEC ports. This suggests to the Agency that the price and level of service combination of these alternative routes is equally, if not more, attractive to many shippers in Canada and in the U.S. Mid-West. If this were not true, the Montréal gateway would presumably have a much larger share of this trade. This alone leads the Agency to conclude that the Montréal gateway faces stiff competition from other gateways, and that continuing efforts are necessary to maintain the existing market share through Montréal.

Regarding the claim that Canadian Pacific will exert commercial pressure on the Montréal Port Corporation, the Agency notes that under the Canada Ports Corporation Act, a port authority must provide accessibility and equitable treatment to all users.

In summary, the port of Montréal makes a significant contribution to employment and economic activity in the Montréal region. Therefore, the Agency concludes that efforts to maintain or encourage growth in employment and economic activity are in the public interest. The Montréal gateway faces stiff competition from the USEC ports for U.S. Mid-West traffic and significant competition from the port of Halifax for Ontario and Quebec traffic on the Canada/U.S.A. - Northern Europe trade route. Continuing efforts are needed by the port of Montréal, as well as by other transportation interests, to maintain the competitive position and the viability of the port, all of which are in the public interest.

Most importantly, the Agency finds that the ability of the port of Montréal and of the carriers operating at that port to maintain a strong presence in the U.S. Mid-West market is crucial to Canadian shippers. The availability to Canadian shippers of a world-class service with its infrastructure is primarily due to the ability of Montréal-based carriers to serve the U.S. Mid-West market in an efficient and effective manner. The port of Montréal is an integral component of this world-class service and to see it maintained is in the public interest.

In his testimony, Mr. Domenic Taddeo, President and Chief Operating Officer of the Montréal Port Corporation, strongly supported Canadian Pacific, even though the Canada Ports Corporation Act requires that a port must treat all users equitably. The legal authority and the suitability of the President and Chief Operating Officer's appearance as a witness for Canadian Pacific was questioned by the Agency. Written assurance was subsequently provided by Canadian Pacific that Mr.Taddeo had obtained the support of the Board of Directors of the Montréal Port Corporation for the views expressed.

3. Impact of the proposed acquisition on intermodal (between modes) and intramodal (within modes) competition

Evidence and arguments

Canadian Pacific stated that the proposed acquisition would give Cast the financial stability it needs and provide an investment in the operational infrastructure of Cast and support its organization. Substantial operational efficiencies in the order of US$20 million annually would result from savings in container management, empty positioning, inland operations and computer systems. These production and dynamic efficiencies would allow Cast and Canmar to achieve the operational economies of scale that would enable them to compete from a strengthened position in the U.S. Mid-West market with the global liners. An even more efficient and effective intermodal system serving an even broader geographic range would result.

CN North America, in its objection, and shippers, in their opposing interventions, stated that the proposed acquisition of Cast by Canadian Pacific would result in the elimination of the vigorous competition between Canmar and Cast, which had made Montréal a very competitive gateway in the North Atlantic trade.

CN North America presented evidence that the port of Montréal enjoys cost differentials of 11 percent with the port of Halifax and 38 percent with the port of New York. This would be why other carriers serving other ports would only carry high value cargo from Quebec, Ontario and the U.S. Mid-West. The higher rates charged enable them to overcome their cost disadvantage. Furthermore, competition by these large carriers at the Montréal gateway would continue to be non-existent because of the draught restrictions of the St. Lawrence River and the very low rates prevailing within this market niche.

According to CN North America, as a result of the proposed acquisition, Canmar and Cast would control a significant proportion of the ship capacity calling at the port of Montréal, the most important terminals, and the rail and truck transportation services for the inland movement. Furthermore, the Montréal Port Corporation could be subjected to significant commercial pressure by the new entity, to the detriment of other users of the port.

CN North America doubted that a potential competitor could gain access to common user terminals, given the port's testimony that it was willing to negotiate priority berthing rights. As a result, the proposed acquisition would substantially lessen competition between itself and CP Rail for the inland portion of container movements into and out of the port of Montréal by rail.

According to CN North America, Canmar is attempting to eliminate direct competition as Cast, with an upgraded vessel fleet, could compete vigorously with Canmar on both price and service. One dominant liner in a niche market, which could raise rates in a monopolistic fashion, would result. A predicted increase in prices by the new Cast/Canmar entity would result in higher non-conference carrier charges since these carriers are price followers. CN North America was of the view that independent action to provide competitive rate quotes within a conference exerts an important competitive discipline on conference rates. The proposed acquisition would result in significant market power for the merged entity and would enhance the ability of Canmar/Cast to raise prices through the shipping conferences. Canadian shippers would not have sufficient countervailing market power to force competitive bids from Canmar and Cast. The proposed acquisition would therefore frustrate the pro-competitive provisions of the Shipping Conferences Exemption Act, 1987.

CN North America was also of the view that, following the proposed acquisition, new service and innovative product offerings from Cast and Canmar would be reduced considerably, rail container traffic would be monopolized, and the purported gains in efficiency would not offset the resulting loss of competition.

Analysis of the Agency

The Agency recognizes that the proposed acquisition would allow CP Rail to continue to access the greater portion of containerized traffic moving by rail through the port of Montréal. This situation has existed since 1986, when Cast shifted its container traffic to CP Rail. Even so, shippers have registered minimal interest in that respect with the Agency, irrespective of the willingness of the Agency to accept shipper interventions on a confidential basis.

As approximately one-third of the current Ontario and Quebec containerized traffic moves through the port of Halifax, competition exists and will likely continue to exist for this Canadian containerized traffic. The competitiveness of CN North America will most likely be improved in the future with the opening of the Sarnia tunnel in March 1995. The Agency is also aware that containerized cargo makes up only one-third of the total cargo handled at Montréal and that CN North America competes for transporting this other cargo.

CN North America has direct access to the port of Montréal at two points and the proposed acquisition of Cast will not obstruct this access. The Montréal Port Corporation asserted that it would be prepared to add trackage to its terminal railway infrastructure, should the need arise. In this context, the Agency is of the view that CN North America could provide, with adequate facilities, an intramodal alternative for Canadian shippers.

The Agency also notes that trucking is a competitive intermodal alternative for Canadian shippers where containers are moved within a 400 to 600 mile radius. Shippers in Southern and Southwestern Ontario fall within that geographic range.

The Agency has examined its confidential rail traffic database and notes that the great majority of the Canadian containerized rail traffic at Montréal moves no further west than Toronto, Ontario. Given the price sensitivity of rail container traffic, the Agency is of the view that the Canadian containerized rail traffic at Montréal has a viable intermodal competitive alternative in trucking services.

The Agency notes that, according to the Montréal Port Corporation, approximately half of the containerized traffic is U.S.-based. Accordingly, the U.S. traffic plays a significant economic role at the port of Montréal and competition for this U.S. traffic by the USEC ports and U.S. rail carriers has generated significantly lower inland rail transportation costs, better service, timeliness and reliability, all in order to attract this traffic to Montréal.

The Agency concludes that the level of competition between shipping lines serving the Canada/U.S.A. -Northern Europe trade will not be adversely affected by the combined operations of Cast and Canmar, and that the proposed acquisition will not affect the competitive position of other carriers that serve the North Atlantic trade. The available evidence supports the conclusion that conference as well as non-conference carriers in Montréal and Halifax have offered and should continue to offer effective competition in this market.

4. Impact of the proposed acquisition on Canadian shippers

Evidence and arguments

According to Canadian Pacific, shippers would not be adversely affected by the proposed acquisition since eastern and central Canadian containerized cargo is not solely controlled by Cast and Canmar, and approximately 28 percent (based on tonnage) of the current Ontario and Quebec containerized traffic moves through the port of Halifax. Cast and Canmar provide a very competitive alternative for U.S. shippers via the port of Montréal which translates into a competitive service and a form of benefit to Canadian shippers. It was stated that Canmar cannot discriminate in its provision of service between Canadian and U.S. shippers, as Canadian cargo moves on the same ships and according to the same schedules as the U.S. traffic.

Market forces, including access to competitive alternatives such as trucking and other railway companies for inland movements; the competitiveness of other ports such as Halifax; the continued "poised" presence of other liners; the continued excess vessel capacity; and the low barriers to entry at the port of Montréal contribute to ensure continued quality of service to Canadian shippers, according to Canadian Pacific. Canadian shippers get to piggy-back on U.S. volumes, with concomitant upgrades in frequency and level of service. The proposed acquisition would assure the continuance of high levels of service and continued access to export markets by Canadian shippers. The proposed acquisition would also ensure the long-term survival of Cast, thereby ensuring that U.S. volumes of this carrier remain at the port of Montréal.

The Conseil régional des transports de l'Est du Québec, representing the maritime industry interests of Eastern Quebec, intervened against the proposed acquisition at the public hearing on the basis that the transaction would result in an increase of rates, to the detriment of the small and medium-sized businesses.

According to CN North America and shippers opposed to the proposed transaction, the competition between Cast and Canmar, which is instrumental in maintaining rate advantages for container traffic through Montréal, would practically disappear. This situation would allow a combined Cast/Canmar entity to raise rates in a monopolistic fashion and create strong barriers to entry, to the detriment of shippers. The monopolistic entity could set rates to maximize profits, not volume; it may even sacrifice some volume in the process, which could result in some shippers with lower-value, high volume commodity traffic being priced out of the Montréal market.

Given the global industry trends towards multimodalism and the bundling of rates and services, CN North America alleges that the Cast/Canmar traffic would be handled exclusively by Canadian Pacific, thus monopolizing the inland container rail traffic at the port of Montréal and increasing captivity of the shippers.

Analysis of the Agency

The Agency has carefully considered all evidence and arguments and is of the view that the rates are not the only predominant concern of most Canadian shippers; they are also very concerned with service elements such as reliability and timeliness. These service attributes are critical within the context of the continued and enhanced competitiveness of Canadian shippers within export markets.

The Agency is of the view that without the U.S. traffic volumes, the port of Montréal would not be able to support its current level of container handling operations and that such a situation would have negative repercussions on employment, long term investments and service. The loss of a "critical mass" of container traffic represented by U.S. volumes would be particularly detrimental to port employees, the Montréal community, the region and, ultimately, Canadian shippers operating out of Quebec and Ontario.

The Agency is aware, from evidence filed at the hearing, that rates at Montréal have been very low for approximately 10 years, partly as a result of the intense competition between Cast and Canmar. The Agency notes that this intense competition, while beneficial to shippers, has created financial difficulties for Cast.

The Agency has considered the concerns of CN North America in respect of the impact that the proposed acquisition may have on low-value commodity shippers, and is of the view that the existing situation of excess vessel capacity, which is not expected to change in the future, will ensure continued service to these shippers.

The Agency is also of the opinion that the combined operations of Canmar and Cast will contribute to a continued strong Canadian presence in the competitive U.S. Mid-West market, which is important to maintain high levels of service in terms of quantity and quality to Canadian shippers.

The Agency cannot conclude that any negative impact on shippers, through a loss of competition, will be significant; the Agency can neither conclude that this proposed acquisition will likely lessen competition substantially. This conclusion is bolstered by the fact that no shippers or shipper associations appeared at the public hearing and that the Agency has only received a small number of written interventions from shippers on the possible negative implications of the proposed acquisition. The container volumes of these shippers represent less than 2.5 percent of the North Atlantic trade through the Montréal gateway. Without a clear and concerted voice of concern from such groups so obviously affected by a proposed acquisition, the Agency cannot conclude that competition will be lessened substantially to the detriment of Canadian shippers.

5. Barriers to entry

Evidence and arguments

In its evidence presented to the Agency, Canadian Pacific argued that barriers to entry in the Canada/U.S.A. - Northern Europe trade were low and that the likelihood of a new carrier entering the market was quite high. Essentially, Canadian Pacific characterized this market as being a contestable one. Marine terminal services are available at competitive prices, as are inland transport services, marketing and sales services, containers and suitable vessels on a charter-hire basis. Entry into the container shipping business does not require large amounts of capital for initial investments but, rather, financial backing for working capital.

Canadian Pacific suggested that in order to break even, the new entrant would have to transport 58,800 TEUs annually, and that the transportation of 83,200 TEUs (4.5 percent of the actual market) would generate a profit of US$8 million. Between 1978 and 1993, Canadian Pacific noted that eight carriers had entered the market at Montréal for varying periods of time which, in its opinion, means that competitive pressures in the market encourage entry and expansion. Established carriers could more easily enter a new market due to their financial and operational expertise, and make better use of existing excess capacity.

In its objection and through evidence presented at the hearing, CN North America argued that the proposed acquisition would raise the already significant barriers to entry into the container handling business at Montréal. A new entrant at Montréal would have to introduce new capacity to build market share which would likely result in a rate war with established carriers, and the new entrant would probably not survive.

CN North America asserted that a new entrant would have to provide a sophisticated door-to-door seamless service to be seen as a viable and credible option for shippers. The financial outlay to put such a service in place is considerably higher than just starting up a shipping service on its own. Examples of failed entry at Montréal over the past decade were, according to CN North America, evidence of carriers failing to meet the necessary service requirements. A new entrant at Montréal would require an annual volume of 170,000 TEUs to have a viable service and the likelihood of capturing this volume is highly doubtful.

CN North America further argued that barriers to entry at the port of Montréal are dependent on the characteristics of the North Atlantic trade which are not conducive to new entrants. The market is mature with a slow growth of about 2 to 3 percent per year and excess capacity already exists. A broad range of services are offered by very qualified container operators proffering complete door-to-door intermodal service, supported by a high degree of computer automation. Further, service contracts have become increasingly prevalent, which essentially excludes a new entrant from bidding on such volumes. A new entrant must also face higher unit costs associated with the use of third parties for services (inland transport, terminal services, marketing, etc.) and the scarcity of risk capital.

It was also claimed that the major carriers have vessels that are too large for the St. Lawrence River and the port of Montréal, and obtaining suitably sized vessels would add to the current overcapacity. The container handling capacity of the terminals at Montréal and the significant container imbalances due to the difference in exports and imports from Europe are additional barriers. Established carriers at Montréal are able to reduce these imbalances with the U.S. Mid-West cargo, but, unless a new entrant was able to penetrate this market, the economies associated with balanced container traffic would not be available.

Although a degree of excess capacity exists at each container handling terminal in the port of Montréal, according to CN North America, only the Termont terminal has the capability to handle a new shipping line.

Analysis of the Agency

Evidence clearly indicates that currently there are barriers to entry related to the nature of the container transportation industry itself and to certain physical characteristics of the St. Lawrence River and of the port of Montréal. The Agency concludes, however, that whatever barriers to entry may exist, they will not be enhanced as a result of this proposed acquisition.

6. Evaluation of efficiency gains and possible economic loss to Canada

Evidence and arguments

As part of its evidence at the public hearing, CN North America called upon Professor Fernand Martin to make a presentation on the effects of the proposed acquisition on the Canadian public interest. The position of Professor Martin and of CN North America was that, although some efficiency gains may result from the transaction, negative effects on the Canadian economy should be considered.

Professor Martin presented an empirical model to quantify the effects of price increases of container transportation services on the Canadian public that could result from increased market power subsequent to the proposed acquisition. This assessment covered only the effects on Canadians.

Professor Martin adopted the argument of CN North America that Canadian Pacific could or would control 84 percent of the volume of containers handled at the port of Montréal and, as a result, prices would likely increase. He stated that ordinarily it is a competitive market which offers the best guarantee for the best allocation of resources. In such a market, consumers pay a price that is equal to the cost of production, including capital costs. A reduction in competition results in price increases due to a monopolistic market power, thus introducing distortions in the economy and forcing shippers to allocate greater resources to container transportation or to abandon containers as the best method for transporting their goods.

The possibility for a price increase in container transportation through the port of Montréal is dependent upon the existence of a favourable price difference between Montréal and other ports, and on the ability to take advantage of this price differential. Montréal attracts a disproportionate share of the Canada/U.S.A. - Northern Europe market due to price and quality of the services offered. Several factors contribute to this: the geographic location of the port, its management, the intense business competition at the port, and the lower exchange rate of the Canadian dollar.

According to the model, the economic loss to Canada would be at least $22 million based on an assumed 10 percent price increase which assumption was deemed by Professor Martin to be reasonable and acceptable.

Professor Martin did qualify his results by stating that price increases could be very small, thereby producing a very small economic loss. He also indicated that any estimate of possible economic loss was dependent upon the accuracy and validity of the information used.

Analysis of the Agency

The handling of the U.S. Mid-West container volume contributes greatly to the transportation infrastructure that has been put in place at Montréal; to the level of direct employment at the port of Montréal and in the transportation industries serving the port; to the economic health of the Montréal region; and to the level of service available to Canadian shippers in terms of quantity and quality. Therefore, the economic benefit of the U.S. Mid-West traffic handled through the port of Montréal must also be taken into consideration when evaluating the trade-off between gains and losses.

The Agency recognizes that the public interest referred to in the NTA, 1987 applies to Canada and Canadian consumers and enterprises. However, when the economic health and viability of Canadian enterprises, the situation of Canadian shippers and consumers, and the level of employment generated are in a large part dependent upon markets that have been developed in the United States, the Agency is of the view that due recognition must also be given to these other markets.

More particularly, the evidence on the characterization of the relevant market showed that the port of Halifax and the USEC ports provide considerable competition for the Montréal gateway. The presence of such direct competition would also act to control price increases on container transportation through the port of Montréal, if the proposed acquisition is completed.

While acknowledging the presentation by Professor Martin of a model to quantify efficiency gains and economic losses, the Agency is not convinced that there would be any abuse of market power, price increases and a corresponding economic loss, as a result of the proposed acquisition being consummated.

CONCLUSION

The task before the Agency is to make a determination, based upon the evidence and arguments before it, as to whether the proposed acquisition is against or not against the public interest.

Based on the preceding analyses of the issues identified as relating to the public interest of the proposed transaction, the Agency is of the opinion that the proposed transaction is not inconsistent with the national transportation policy provisions of subsection 3(1) of the NTA, 1987.

These policy provisions state, in part, that effective transportation services are essential to serve the transportation needs of shippers and to maintain the economic well-being and growth of Canada and its regions. To achieve these objectives, the policy further states that competition and market forces must be the prime agents in providing viable and effective transportation services and that transportation is recognized as a key to regional economic development, so that the potential economic strengths of each region may be realized.

The Agency cannot conclude that the proposed acquisition would have any significant impact upon CN North America. With respect to container traffic handled at the port of Montréal, CN North America has not transported containers for Cast since 1986. Based on the evidence presented, CN North America does provide competition for the Ontario/Quebec market and its service to the U.S. Mid-West is expected to improve.

The Agency also cannot conclude that Canadian shippers would be affected in a negative manner by the proposed acquisition but rather the expected efficiency gains of the combined Canmar/Cast operations will maintain a world-class level of service to Canadian shippers. This is fundamental if Canadian shippers are to remain or become more competitive in the global marketplace. The Agency notes that the infrastructure in place at the port of Montréal for a world-class service is critically dependent upon the ability of strong Canadian-based shipping lines to compete in the highly competitive U.S. Mid-West market. Moreover, the Agency is of the view that effective competition to Cast and Canmar exists on the North Atlantic trade and this competition should be a restraining factor on Cast/Canmar from developing or abusing any dominant market position.

The ocean rates applicable to Canadian container traffic carried by conference carriers, i.e., Cast and Canmar, are governed by the rate setting provisions of the Shipping Conferences Exemption Act, 1987 which permits collective rate setting amongst competing carriers. This situation will not be affected by the proposed acquisition. Regarding inland trucking, there was no evidence to suggest that trucking services will not continue to offer aggressive rate and service competition for the inland portion of container movements for a large segment of the North Atlantic trade handled through the port of Montréal.

The strengthening of the port of Montréal's competitive position relative to other Canadian and the USEC ports will also help, in the Agency's view, to maintain and encourage the growth of employment and economic activity thereby supporting regional economic development in this area. In this regard, the Agency notes that the Montréal Port Corporation stated unequivocally that the port will benefit from the proposed acquisition. Moreover, the Agency cannot conclude that the benefit to the port of Montréal will be at the expense of or to the detriment of the port of Halifax.

After having conducted a careful review of the proposed acquisition by C.P. Containers (Bermuda) Limited of certain assets of and shares held by The Cast Group Limited and of the proposed acquisition by 3041123 Canada Inc. of all the shares of Cast North America Inc., a company of which Cast North America (Trucking) Ltd. and Cast Transport Inc. are wholly-owned subsidiaries, the Agency is of the opinion that these proposed acquisitions are not against the public interest and, therefore, the proposed acquisitions are not disallowed.

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