The High Court at Auckland has ordered three international freight forwarding companies to pay penalties totalling NZD$5.2 million plus costs for breaches of the Commerce Act.
The companies, BAX Global Inc (BAX), Schenker AG (Schenker) and Panalpina World Transport (Holdings) Ltd (Panalpina) had reached settlements with the Commerce Commission, which have now been accepted by the High Court.
The penalties follow a Commission investigation which began 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.
BAX has been ordered to pay $1.4 million, Schenker $1.1 million and Panalpina $2.7 million for their roles in the freight forwarding price fixing cartel. These penalties are in addition to penalties already imposed by the Court for similar conduct in the freight forwarding industry following settlements reached with EGL Inc and Geologistics International (Bermuda) Limited. The total cartel penalties imposed to date are $8.85 million.
BAX admitted applying the UK NES surcharge and the Chinese CAF surcharge. Schenker had also applied the Chinese CAF surcharge, and Panalpina applied the Air AMS surcharge.
In his judgment, Justice Allan commented that the surcharge agreements were “part of a sustained course of conduct involving covert meetings and communications.” He also noted that the conduct occurred in “a market of fundamental importance to New Zealand.”
Commerce Commission General Manager of Enforcement, Kate Morrison, welcomed the penalties.
“The Court has now ordered a total of $8.85 million in penalties in relation to the freight forwarding surcharge and fee. We are confident the industry has been sent a very strong message that collusion to fix prices is unacceptable. Being so far from our world markets, competitive pricing by the freight forwarding industry is extremely important to the competitiveness of New Zealand industries,” says Morrison.
“We acknowledge the cooperation of BAX and Schenker who took a responsible approach to our investigation from an early stage. The Commission aims to work with parties who are prepared to admit liability and co-operate in order to achieve a suitable settlement and penalty without the need for lengthy, costly court proceedings,” she adds.
The Commission’s freight forwarding cartel case continues against Kuehne + Nagel. A hearing to determine jurisdiction is set down for August 2011.
The judgment is available on the Commission’s website at www.comcom.govt.nz/competition-enforcement-outcomes
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.
UK NES agreement relates to the new security measures at airports for exports from the United Kingdom introduced by Her Majesty’s Customs and Excise (HMCE) in 2002. These security measures included greater x-ray requirements and greater information about cargo having to be filed with HMCE. The introduction of the New Export System Fee resulted in costs to freight forwarders as they were required to integrate their IT systems with the HMCE system and to ensure that the relevant data was entered on the HMCE system in a timely manner.
Chinese CAF agreement relates to a 2005 decision by the People’s Bank of China to stop pegging the local currency to the US dollar. Freight forwarders entered into an arrangement to impose a currency adjustment fee (CAF), supposedly to offset the revaluation of the Chinese currency.