Antitrust: how the action could harm shippers - and individuals

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Well, the logistics industry finally made it on to the front pages. All the big names are there – Kuehne+Nagel, Ceva, UPS, DHL – bear with us; it’s a long post today.

Clearly, this wasn’t in the context in which everyone wanted to make the general public more aware of the logistics sector. Price-fixing is not good PR. And those companies that are better known, such as UPS, are taking more of a publicity hit than the rest. Cue a whole raft of why “we love logistics…” jokes.

And, of course, there are the vegetables – the forwarders apparently had codewords and codenames for each other (click here for the juicy (sorry) details).

Aside from the PR prang, there are several interesting aspects to this case, particularly when set against the similar air cargo case of 2010, when the EU’s competition commission imposed fines of €799m on 11 airlines, compared with the €169m it levied on 14 freight forwarders yesterday.

The airlines acted, quite frankly, in a very amateurish way for criminals, when compared with the forwarders. Codenames and codewords imply guilt, and an awareness of illegality, in a way the airlines failed to show.

So why, then, were the fines for the airlines so much bigger? A commission spokesman told The Loadstar: “Fines are based mainly on the gravity of the infringement, the duration of involvement of the company and the value of sales of the product or service to which the infringement relates. The decision on freight forwarding relates to four distinct cartels with durations between five months and two years, which affected services for specific trade lanes between Europe and the US and Europe and China/Hong Kong.

“By contrast, the airfreight decision related to a single worldwide cartel which lasted from 1999 to 2006 on routes from, to and within the European economic area.”

The “value of sales” remark raises another interesting point. EC policy is to issue a maximum fine of 10% of a company’s turnover – and this was deemed to be 2009 results in the air cargo case. But taking one carrier at random, Air France, shows that it made a loss both in – to be safe – 2008/9 and 2009/10. And yet received a fine of €183m, which included a 20% reduction under the leniency programme. Turnover for those periods was €24.7 billion and €21 billion respectively.

The EC maintained: “Price-fixing cartels are in general very profitable to their members and inflict severe harm to customers, whether they are other businesses or consumers.”

Clearly not that profitable – in a recent interview with a US lawyer specialising in antitrust cases, The Loadstar discovered that, generally speaking, cartels in fact very rarely make a profit.

But what of the victims of this crime? Should the forwarders expect to see further legal cases from shippers, who were inflicted with “severe harm”?

Probably not, says one well-placed source in the shipper community. For several reasons: firstly, shipper class actions against the airlines didn’t work out well for most shippers (given that they had no direct contact with the airlines and weren’t the actual customers), but more importantly, many shippers see no real advantage from class actions.

In the case of the airlines, they didn’t believe the carriers had enough money to pay all the fines they were subject to, plus additional fines from class action. And if they were fined how would carriers recoup the losses? By increasing rates. And who would pay for those rates? Shippers.

Essentially, by fining forwarders and airlines to end their abuse of shippers, the ultimate loser is – yet again – the shipper. And the winner? The competition authorities. (The US DoJ boasts that it made $1.8bn from the air transport sector, although it tells us that some of that goes to a victim of crime fund; the EC tells us that it goes into the overall EU budget; known to the rest of us as the gravy train, presumably to be poured over some vegetables.)

In the forwarders’ case, explains the source, whenever shippers discover ill-treatment, they vote with their feet and choose another forwarder rather than sue. In this particular case, involving 16 global forwarders, it’s hard to know where else they would turn. (Although the independent forwarders are looking pretty good at the moment.)

They also feel that the harm done in suing a major supplier would far outweigh any short-term financial gain.

So far no individuals have been named by authorities. While the EU doesn’t have the power to penalise an individual, the US DoJ does, as a host of airline executives know only too well. This hasn’t arisen – yet – in the forwarder case.

The Loadstar put in a call to the DoJ and was told that it couldn’t comment on whether it was investigating individuals – only whether the case is ongoing or closed (Kuehne + Nagel has already been fined $9.8m by the US); if it is closed then individuals could not be investigated.

And?

“I can confirm the case is ongoing,” a spokeswoman said.