Thursday, December 11, 2014

Air Freight Forwarding Groups Hit With More Fines in Antitrust Suit

Singapore Joins in the Rush to Punish Carriers for Cartel Behaviour
Shipping News Feature

SINGAPORE – JAPAN – Having issued a round of Proposed Infringement Decisions (PID) in April earlier this year, the Competition Commission of Singapore (CCS) has penalised 10 freight forwarders and their Singapore subsidiaries a total of more than S$7 million for infringing the country’s Competition Act by collectively fixing certain fees and surcharges, and exchanging price and customer information in relation to the provision of air freight forwarding services for shipments from Japan to Singapore. One company managed to get off scot free, as we predicted in our previous article, now correctly identified as DHL having instigated the investigation by applying for leniency with the CCS. Totalling over S$7.15 million, the CCS imposed the following financial penalties:

Hankyu Hanshin S$662,142; K Line Logistics S$828,200; Kintetsu World Express S$771,497; MOL Logistics S$77,887; Nippon Express S$2,072,386; NNR S$330,551; Nissin S$64,283; Vantec S$154,249; Yamato S$153,662; Yusen S$2,035,995.

Five of the Parties: DHL Global Forwarding, Hankyu Hanshin, Kintetsu World Express, NNR, and Vantec, each received a leniency discount, presumably for cooperation with the authorities. Toh Han Li, Chief Executive of the CCS, said:

“Price fixing among competitors, thus forming a cartel, is considered one of the most harmful types of anti-competitive conduct. It distorts the terms of trade between the cartelists and their customers, with the latter not being able to enjoy competitively determined rates. As an open economy, Singapore businesses are vulnerable to such international cartels.”

Investigations in this case commenced in December 2011 after CCS received an application for immunity from DHL under the commission’s leniency programme. The infringements are in relation to the provision of air freight forwarding services, both on a pre-paid and collect basis, from Japan to Singapore. Collaborative discussions on the proposed fees and surcharges took place in meetings of the Japan Air cargo Forwarders Association (JAFA) between November 2004 to November 2007 for the Security Charges, and September 2002 to November 2007 for the fuel surcharges.

The discussions on Security Charges culminated in a consensus on 20 February 2006 to charge a minimum price of 300 JPY (approximately S$3.31) and an examination fee of 1,500 JPY (approximately S$16.57) per house airway bill on all outgoing cargo from Japan, including the Japan to Singapore route. The CCS says that there is evidence pointing to a significant mark-up in some instances. In the following meetings, the parties apparently freely discussed how much they were actually charging customers and how successful they were in collecting the Security Charges.

Following a general rise in fuel prices, airlines started levying on freight forwarders a fuel surcharge as well. Given this additional cost, the parties began discussing at the JAFA meetings, in particular from September 2002, how to react to this additional cost. It was agreed at those meetings that the forwarders would not use the fuel surcharge as a point of competition between them, and that they would pass on the costs of the surcharge at 100% to customers.

After collectively deciding to pass on the costs to customers and not use the fuel surcharge as a means of competition, the companies again met regularly to discuss their success in passing on these costs to customers. To this end, they exchanged information about their collection ratios (i.e. the proportion of their fuel surcharge costs that they were able to pass on to customers). The Parties sought to maintain a high collection ratio and encouragement was given in JAFA meetings to achieve this. The discussions between those involved also concerned identifying customers that they were unable to collect the fuel surcharge from, and at the meetings, particular freight forwarders were assigned to negotiate with these customers.

In imposing financial penalties for the Parties’ infringements, the CCS took into account the nature of the infringement and the circumstances under which the infringement was committed, aggravating and mitigating circumstances, including whether the Parties had co-operated with CCS, whether the Parties had applied for leniency, as well as representations made to CCS by the Parties. The financial penalties are calculated on the basis of each Party’s turnover affected by the anti-competitive conduct.

As with the host of similar incidents we have witnessed worldwide over the past few years (enter cartel into the News Search Box to see just how many cases there have been) this may well not be the end of the matter, even for those companies which received leniency. There may well be individual or class action suits against the perpetrators as has been so often the case recently.