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$3.5m penalties: Second freight forwarding cartel case

$3.65m in total penalties to date following second freight forwarding cartel case

A second multi-national freight forwarding company has been handed a penalty of $2.5 million following a Commerce Commission investigation into anti-competitive conduct in the freight forwarding market, taking the total penalties imposed so far to $3.65 million.

The High Court in Auckland today endorsed a settlement of proceedings reached between the Commission and Geologistics International (Bermuda) Limited, imposing a penalty of $2.5 million and ordering payment of the Commission’s litigation costs of $50,000. Geologistics was found to have contravened the Commerce Act by entering into and giving effect to the Air AMS surcharge agreement together with other freight forwarders. The surcharge related to customs clearance in the United States for goods air freighted between New Zealand and the US.

In his judgment, Justice Allan accepted that this was a case of “hard core cartel behaviour” and that cartels like the one in question “are covert in character and so are difficult to detect, but yet distort world trade by creating market power, waste and inefficiency in countries whose markets would otherwise be competitive.”

On 16 December 2010, EGL Inc. was ordered to pay a penalty of $1.15 million and costs of $50,000 for similar offending.

The Commission began an investigation in 2007 into alleged collusion by a number of multi-national companies involved in the supply of international freight forwarding services to the New Zealand market. This followed a confidential application for leniency by one of the companies involved in the conduct.

The anti-competitive conduct related to agreements about the implementation and application of certain surcharges and fees on air freight forwarding services both to and from New Zealand. These agreements had the effect, or likely effect, of controlling or maintaining the price of air freight forwarding services in breach of the Commerce Act.

“The cost of airfreight is very important to New Zealand exporters and importers. Because of the distance from our biggest markets and sources of supply, it is vital that air freight services are subject to competition between freight forwarders,” said Kate Morrison, the Commerce Commission’s General Manager of Enforcement.

“The Commission is pleased to have worked constructively with the parties to this anti-competitive behaviour. Wherever we can, we prefer to halt harmful conduct and restore competitive conditions, and achieve appropriate deterrent penalties without the need for litigation,” said Ms Morrison.

The Commission is hopeful of settling proceedings with further parties in the near future.

Background

Air freight forwarding industry is a complex industry and refers to all facets of the logistical arrangements for the movement of goods, by air, from origin to destination.

Generally, freight forwarders are independent from the physical carrier of freight and are therefore able to choose the best option for customer’s distribution needs.

In 2006 the provision of air freight forwarding services into and out of New Zealand generated revenue of approximately $450 million. This figure only includes the air freight component, which is the air freight charge levied by carriers, carrier imposed surcharges as well as commissions and discounts payable to the forwarders.

These proceedings should be distinguished from the separate proceedings instituted by the Commerce Commission against a number of airlines for alleged contraventions of Part 2 of the Commerce Act in relation to security and fuel surcharges applied to the international carriage of air cargo in the air cargo industry.

Air AMS Surcharge agreement relates to the costs incurred by air freight forwarders as a result of complying with the air customs requirements of the Air Automated Manifest System (Air AMS) of the US Customs and Border Patrol. The essence of the Air AMS arrangement between freight forwarders was that the participating companies would all charge an AMS fee to customers for the additional work load. This arrangement restrained the participating freight forwarding companies’ freedom as to part of the price to be charged that would have otherwise existed.

ENDS

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