Euan Morton of Synergies was engaged as an independent economic expert by Clayton Utz (representing Pacific National (PN)), in court proceedings initiated by the Australian Competition and Consumer Commission (ACCC) who alleged that PN’s proposed acquisition of Aurizon’s intermodal business would substantially lessen competition in the transportation of non-bulk freight.
Synergies examined the relevant market(s) for intercity non-bulk freight services and the effectiveness of road and rail competition and, in particular, the influence of road costs in setting rail charges for non-bulk freight services and the opportunity for PN to price discriminate between different non-bulk cargoes. Court proceedings were finalised in May 2020 which have enabled PN’s acquisition of the Acacia Ridge Terminal in Brisbane from Aurizon to proceed.
In 2018, the ACCC initiated legal proceedings in the Federal Court against PN and Aurizon in relation to PN’s proposed acquisition of Aurizon’s intermodal business, alleging a substantial lessening of competition in the supply of non-bulk freight (intermodal and steel rail linehaul) transport services.
The ACCC alleged that in July 2017 PN and Aurizon reached an understanding that would lead to Aurizon exiting its intermodal business through a combination of closure and transactions with PN.
The ACCC also alleged that PN’s proposed acquisition of Aurizon’s Queensland intermodal business and the Acacia Ridge Terminal, as well as an agreement for PN to operate the interstate side of the Acacia Ridge Terminal, would separately each have the likely effect of substantially lessening competition.
Euan Morton of Synergies was engaged by Clayton Utz, PN’s legal representative, to act as an independent expert in this matter, and provide a report which:
evaluated the appropriateness of the market definition proposed by the ACCC; and
identified the key competitive dynamics in the provision of services identified by the ACCC.
To perform this task, Synergies first took a ‘top down’ approach to examining the effectiveness of road and rail competition, examining literature and government studies on the circumstances in which road and rail transport are effective substitutes, the road and rail modal shares in the non-bulk freight market and how these have changed over time, and relevant elasticity studies.
Synergies then complemented this with a ‘bottom up’ assessment of the non-bulk freight cargo task for the Queensland north coast corridor and the interstate north-south corridor, considering in detail the relative service offering from road and rail modes (having regard to both service quality and price) and the extent to which the modes compete for the cargo task.
Using detailed data provided by PN on the composition of the cargo carried within a representative timeframe, the type of commodity and density of the cargo in each container transported was determined. With this information Synergies populated a building block style model that estimated the likely cost of transporting each of the analysed containers on road. Juxtaposing PN’s prices charged with the modelled cost for the corresponding road transport allowed us to identify a close relationship between the two.
Based on this material, Synergies developed a definition of the relevant markets, using well accepted analytical methods to identify the relevant products, functions and geographical areas that exercise a sufficient competitive constraint on each other. Synergies then undertook a comprehensive assessment of the competitive dynamics in these markets.
Synergies’ assessment demonstrated that, for most cargoes carried on PN’s intermodal rail services, competition from road operators provides a strong constraint on PN’s ability to increase prices or reduce service quality, and that the structure of the market and countervailing power of customers means that PN is likely to be limited in its ability to price discriminate for any cargoes that may be considered ‘rail advantaged’.
Synergies concluded that, for non-bulk freight, road and rail services operate in the same market, and even if PN’s acquisition of Aurizon were to proceed, road transport would provide a strong and effective constraint on PN’s market behaviour for non-bulk freight.
Synergies’ report (and Euan Morton’s subsequent attendance at court proceedings) was relied upon as evidence submitted to the Federal Court.
Based on Synergies’ report, PN was able to effectively defend itself against the ACCC’s allegations, by demonstrating that its acquisition of Aurizon’s intermodal business would not cause a substantial lessening of competition in non-bulk freight transport services.
Court proceedings have been ongoing in this matter but have recently been finalised. On 6 May 2020, the Full Court of the Federal Court delivered its judgement (in relation to an ACCC appeal against the original Federal Court judgement) which has cleared the way for PN’s acquisition of the Acacia Ridge terminal from Aurizon to proceed. The Full Court found that there was insufficient evidence to establish that the acquisition was likely to result in a substantial lessening of competition and dismissed the ACCC’s appeal.
 ACCC (2018), Media release – ACCC takes action against Pacific National and Aurizon, 19 July 2018.