Air freight cartel nets almost $12 million in penalties

Air freight cartel nets almost $12 million in penalties

The High Court in Auckland has today ordered Swiss company Kuehne + Nagel International AG to pay a penalty of $3.1 million plus costs for breaches of the Commerce Act. Kuehne + Nagel’s penalty brings the total penalties ordered in this case to $11.95 million and sends a strong message to the business community that cartel behaviour is unacceptable.

Kuehne + Nagel is the last defendant in a long-standing case brought by the Commerce Commission against six international freight forwarding companies for a range of hard core cartel behaviour. The other five defendants admitted their role in the cartel and paid penalties in 2010 and 2011. Kuehne + Nagel challenged the Commission’s jurisdiction but were unsuccessful in both the High Court and Court of Appeal.

Kuehne + Nagel today admitted to being part of a secret cartel that called itself the ‘Gardening Club’. The Gardening Club agreed to charge surcharges on air freight forwarding services from the UK to countries including New Zealand, ostensibly to cover the costs of increased security measures imposed in the UK. The cartel participants agreed that they would each pass on certain costs to customers, rather than compete in the usual way and determine their own pricing structures and price levels.

“The ‘Gardening Club’ was a classic hard-core cartel. Members attended covert, off-site meetings outside of business hours and used code words to describe the agreed surcharges,” said Commission Chairman Dr Mark Berry.

“Our investigation uncovered emails in which ‘Gardening Club’ members referred to the agreed surcharges as “…the new price for asparagus for the forthcoming season…,” and “the price of marrows.”

“When members lacked confidence that cartel members were performing the illegal agreement, they emailed in terms like, “I hear… concerns about the price of produce from the garden of Velcro, which appears to be operating as a charitable cooperative for the benevolence of vegetable eaters rather than growers…””continued Dr Berry.

In the penalty judgment, Justice Venning recognised the importance of deterring international cartels from extending their operations into New Zealand. “It follows that the penalty must therefore be set at a level to achieve that deterrent objective bearing in mind the significant size of the companies involved,” continued Justice Venning.

“This case involves deliberate and secretive conduct by the freight forwarding companies, but it’s important for businesses to recognise that cartels can also take on a less obvious form, like a conversation about pricing at a trade association meeting or a ‘nod and a wink’ agreement between competitors not to discount a certain product. Businesses should always ensure that they make any pricing decisions independently, and bring any concerning activities to the Commission’s attention,” said Dr Berry.

"We are extremely pleased to have closed the book on this long-running case involving anti-competitive conduct in a key New Zealand industry,” said Dr Berry. “The Commission took this case in 2007 and we have seen it through to its conclusion. Businesses that act anti-competitively can expect the same determination from us.”

The judgment is available on the Commission’s website at: http://www.comcom.govt.nz/business-competition/competition-enforcement-responses/commerce-act-enforcement-response-register/

Background

The air freight forwarding industry is a complex sector 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 physical carriers of freight and are therefore able to choose the best option for customer's distribution needs.

Case history
In 2007, the Commission began investigating 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.

In 2010, the Commission filed proceedings against six companies for the alleged collusion on surcharges imposed to cover the costs of complying with security measures required by airlines and national authorities:

1. A number of companies forming part of the Deutsche Bahn Group and providing freight forwarding services under the DB Schenker brand
2.
3.
4. Bax Global Inc, having been part of the BAX Group of companies before it was acquired by the Deutsche Bahn Group
5.
6.
7. Kuehne + Nagel International AG
8.
9.
10. Panalpina World Transport (Holdings) Ltd
11.
12.
13. EGL Inc (part of CEVA Logistics)
14.
15.
16. Geologistics International (Bermuda) Limited.
17.
18.
Prior to filing proceedings, the Commission was approached by a number of the companies under investigation who wished to engage in settlement negotiations. As a result, the Commission reached agreements to resolve the proceedings in respect of two companies, EGL Inc and Geologistics International (Bermuda) Limited. In both instances the local New Zealand subsidiaries (Eagle Global Logistics (New Zealand) Limited and Agility Logistics Limited) were not implicated.

In December 2010, EGL Inc settled with the Commission and was ordered to pay a penalty of $1.15 million. In the same month, Geologistics International (Bermuda) Limited also settled and was ordered to pay a penalty of $2.5 million.

In June 2011, BAX Global Inc, Schenker AG and Panalpina World Transport (Holdings) Ltd reached settlements with the Commission, which were accepted by the High Court. They were ordered to pay $1.4 million, $1.1 million and $2.7 million respectively.

In June 2012, the Court of Appeal confirmed the New Zealand High Court's jurisdiction in the Commission's ongoing freight forwarding cartel case against Kuehne+Nagel.

You can find more information about cartels on the Commission’s website.

Price fixing and cartels fact sheet: http://www.comcom.govt.nz/business-competition/fact-sheets-3/price-fixing-and-cartels/

Leniency policy for cartels: http://www.comcom.govt.nz/business-competition/fact-sheets-3/leniency-policy-for-cartels/

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