Friday, January 10, 2014

A Host of Air and Ocean Freight Carriers on Two Continents Penalised for Operation of Cargo Cartels

Hundreds of Millions of Dollars Paid in Competition Commission Fines and Class Action Reparations
Shipping News Feature

SWITZERLAND – US – JAPAN – WORLDWIDE – One year ago this week we told of massive fines imposed on freight forwarders by the Swiss Competition Commission (COMCO) for cartel activity. Well Happy New Year, here we go again with the news out today that the authorities have levied fines of CHF 11 million ($12 million) on eleven air cargo carriers for anti-trust behaviour whilst, once again, the German company cited in the action, Deutsche Lufthansa AG, were let off with no penalty as it was this company which triggered the legal proceedings by self-denunciation, thereby gaining complete immunity from the sanction.

As a subsidiary of Deutsche Lufthansa AG, Swiss International Air Lines AG, also benefits from full immunity whilst after the initiation of the legal proceedings, British Airways Plc., Cathay Pacific Airways Limited, Japan Airlines Co., Ltd., Air France-KLM SA (still fined CHF 3.9 million) and Cargolux Airlines International S.A., all submitted leniency applications and thereby benefit from substantial reductions of the penalties imposed upon them. Others fined included Korean Air Lines Co. Ltd., Singapore Airlines Limited, Atlas Air Worldwide Holdings, Inc. (Polar Air Cargo Worldwide, Inc.), AMR Corporation (American Airlines), United Continental Holdings, Inc. and SAS AB (Scandinavian Airlines).

COMCO stressed that the investigation had been extremely complex particularly in the light of the large number of air transport agreements with various third party States. Of the existing air transport agreements, the one with the European Union (EU) is of particular importance. Switzerland signed this agreement within the framework the Bilateral Agreements which for Switzerland represents a partial integration in the field of air transport and is in addition to the Swiss Federal Act on Cartels and other Restraints of Competition (Cartel Act), COMCO therefore had to apply European competition rules, because they are an integral part of the EU Agreement.

Expressing the seriousness of the offences, infringements of Article 5 Paragraph 3 of the Cartel Act, COMCO announced fines for Korean Air Lines Co. Ltd., Atlas Air Worldwide Holdings, Inc. (Polar Air Cargo Worldwide, Inc.), AMR Corporation (American Airlines), United Continental Holdings, Inc., SAS AB (Scandinavian Airlines), Japan Airlines Co., Ltd., Singapore Airlines Limited, Cathay Pacific Airways Limited, Cargolux Airlines International S. A., British Airways Plc. and Air France-KLM SA.

Some of the above may believe they have got off lightly, particularly in view of what may follow if the multidistrict class actions against the air freight carriers in New York are anything to go by. In the air cargo antitrust case that just keeps on going, two airlines have reached an agreement with freight purchasers to pay a total of $207 million in reparation for fixing freight rates whilst colluding with competitors, and effectively acting as a cartel, from January 2000 to February 2006. In order to avoid the ongoing litigation underway in the Big Apple, Korean Air has settled for a cool $115 million whilst Singapore Airlines and its cargo division landed a $92.4 million settlement with neither company admitting to any liability or wrongdoing and the penalties to first be accepted by the Court.

To date, plaintiffs have entered into settlements with 19 defendant groups totalling $693 million, of which settlements with seventeen defendant groups for $485.5 million have been granted final approval by the court. These settlements are for significant percentages of defendants' relevant sales of air cargo shipping services to and from the US. This litigation is still pending against nine defendant groups. Anyone who wishes to read the gory details of the whole sordid affair can use this link to the multidistrict litigation (MDL) 1:06-md-01775 where there have been 42 Court reports (so far….)

In addition to this air cargo cartel litigation, two Japanese car carriers reached separate compromise agreements with the US Federal Maritime Commission (FMC) resulting in a combined penalty of $2.3 million and resolving allegations that neither of the two carriers, Kawasaki Kisen Kaisha Ltd. (K Line) and Nippon Yusen Kaisha (NYK Line), violated regulations by colluding with other car carriers. Meanwhile, in a similar vein, Japan’s Fair Trade Commission (JTFC) kicks off 2014 by pursuing the same antitrust arrangements at its end by investigating both NYK and K Line along with Norway’s Wallenius Wilhelmson Logistics (WWL).

In the US, and under the separate settlements with the FMC, K Line paid $1,100,000 in civil penalties and NYK, paid $1,225,000 in penalties with both parties agreeing to provide ongoing cooperation with other antitrust investigations or enforcement actions enacted by the FMC. The CEO’s of both companies made reference to anti-corruption laws in their New Year’s message, emphasising the need to adhere to these laws, all without mention of this recent fine as neither carrier (surprise, surprise) admitted violating regulations. FMC Chairman Mario Cordero said:

"These penalties underscore the seriousness with which the Commission views the carriers’ obligation to file with the Commission any agreement with other carriers affecting working relationships in the US trades, both for import and export traffic. The shipping public has a right to know the subject matter and scope of any such agreement, and the Commission is charged by Congress to oversee the parties’ operations and conduct under such agreements. Investigations by our Bureau of Enforcement as to additional carriers implicated in similar agreement activities are continuing at this time."

In Japan, the JFTC served NYK, K Line and WWL with an advance notice of cease and desist orders for alleged violation of ‘Unreasonable Restraint of Trade’ article of the Antimonopoly Act of Japan. According to WWL, the draft surcharge is estimated to be $33 million and primarily related to the Japan-Europe trade.

The action taken by the JFTC is related to a raid carried out on the companies’ offices on 6 September 2012, by Competition Commission officials from Europe, Japan and the US. The offices of both MOL and WWL subsidiary Eukor Car Carriers were also searched but neither has yet received any order from JFTC.