Australia: Airlines, Competition Authorities And Regulators Investigating Freight Service Providers And Freight Forwarders, Air Cargo Handlers Anti-Competitive Allegations And Pricing Activities

Last Updated: 29 July 2008
Article by Andrew Hudson

First published in Air Cargo Asia Pacific, June – July 2008

Activity by regulators affecting those providing freight services continues unabated. In some cases, those regulators are engaging in investigations across jurisdictions. In other cases, it relates to the withdrawal of existing authorizations or the warning that certain established conducts may, in fact, be anti – competitive and require changed behaviour in the future.

5 international airlines agree to pay criminal fines and agree to plead guilty to fixing rates for international air cargo shipments contrary to US laws

Five international airlines in Air France, Cathay Pacific, KLM, Martinair and SAS have agreed to pay a total of US$500 M in criminal fines having agreed to plead guilty to charges regarding the fixing of rates for international air cargo shipments contrary to US laws.

Investigation by the US Department of Justice found anti-competitive practice in air cargo

  • The investigation by the US Department of Justice ("DoJ") found an anti-competitive practice in air cargo including surcharges for fuel, security and war risk insurance.
  • Air France – KLM (now the one entity) has agreed to pay US$350M, Cathay Pacific US $50M, SAS to pay US$52M and Martinair US$42M.
  • On the assumption that all these plea agreements are accepted by the Courts, the total amount of fines secured by the DoJ exceeds US $ 1.27B, the highest ever level in a criminal anti –trust investigation. This includes Qantas agreeing to make payments and potential action against individual officers involved in the behaviour.
  • There has also been action by the EC and Australian competition authorities in relation to these air cargo issues. Recent press reports have suggested that Qantas is close to a settlement with EC and Australian competition authorities, presumably in relation to actions bought in relation to issues similar to those being pursued by the DoJ. However, in the Australian context, 2 of the major airlines (Singapore and Ethiad) are arguing in the Federal Court against the ACCC on the basis that the ACCC has no jurisdiction to investigate alleged price fixing which took place overseas even though the effects were felt here, This case may well have a fundamental effect on the extra – territorial operation of the ACCC and our Trade Practices Act 1974.
  • Lawyers here and overseas are circling with class actions. The Melbourne papers on 2 July carried advertisements asking people whether they wanted to "opt in" or "opt out" of the class actions being brought overseas. This is on top of existing local actions.
  • Various competition authorities are also investigating some of the major freight forwarding operations on the basis of alleged anti-competitive behaviour.

Rulings by competition authorities are having broader impacts which may change the fundamental way that business is conducted

  • IATA resolved not to seek further authorization from the ACCC to continue elements of particular commercial arrangements. Given a short extension for a "change over" to the new "free" fee charging actions, the existing authorization will expire on 30 September 2008.
  • The UK Competition Authority has found that the BAA's common ownership of seven airports in the UK appears to have an adverse effect on competition and is likely to lead to BAA electing to divest itself of some airports in the near future.
  • From a sea cargo perspective, the EU has repealed its bloc exception for Liner Associations to engage in authorized price fixing and capacity regulation in and out of EC ports with effect from 18 October 2008. At the same time the EC has now issued guidelines allowing a framework for "Trade Associations" to exist not as a "lobby organization but as a "trade date collection and sharing" body. The parameters and guidelines are vital to ensure that they do not step overt the line to past behaviours.

Take the Australian Competition and Consumer Commission (ACCC) and the Trade Practices Act (TPA) seriously – it is another level of regulation as important as any other

  • Those entities holding a lot of infrastructure which limits the ability of parties to negotiate may well be facing some queries as to their continued activities especially with the Government's new Infrastructure authority looking at causes of "bottle necks" in the supply chain. This is difficult given the lack of operating sites and the sheer cost of these sites gives rise to a natural focus on a small number of large and powerful operators.
  • Regulators here and overseas are looking very closely at pricing and capacity regulation activities by air and sea lines together with any action suggestive of collusion on rates or levies
  • Behaviour of operators in industry from a senior down to a junior level is facing heavy scrutiny by the competition regulators. This suggests that even the old habits of "comparing notes" on rates and surcharges and "warning the market" of price increases in the belief that others will follow are to be totally avoided.
  • Notwithstanding whatever level of doubt as to the ACCC's jurisdiction in relation to activity there is no doubt as to its powers here, which powers extend to some important evidence gathering tools together with the steady stream of people willing to be the "whistle blowers" for protection.
  • Even those who give evidence in one stage can be held to account if the denial evidence given at an early proves to be contrary to that given later, for example at a plea stage. There are risks in not telling the truth at all stages in a consistent manner
  • ACCC compliance must be a priority for all parties. Knowledge and training is vital together with manuals and directives to have all actions checked and approved at a senior level. For these purposes the CBFCA and ourselves are working on such programs.

Important new laws concerning Customs and Customs Brokers

The various Customs and Trade Bills have passed Parliament and we only now await Royal Assent for some important new laws including Customs new duty recovery regime and the new provisions for licensed nominee customs brokers able to work with more than one corporate broker as a licensed nominee. Exciting days ahead to be covered in August seminars with the Customs Brokers and Forwarders Council of Australia (CBFCA).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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