EU hits Air Freight Cargo Cartel As Expected

EUROPE – In an horrific league table of disaster the European Commission announced the penalties it will impose on the air freight cargo carriers found guilty of collusion and, as predicted, the figure came to almost €800 million. The Commission found that the carriers coordinated their action on surcharges for fuel and security without discounts over a six year period. The fines were collectively one of the highest penalties ever imposed by the EU since its inception.

The €799.4 million ( $1.1 billion) was spread amongst eleven carriers with whistle blowers such as Lufthansa and subsidiary Swiss Air body swerving any penalties. Top of the table came Air France-KLM with a €310 million fine (plus subsidiary Martinair must stump up €29.5 million), British Airways took second spot after being hit for €104 million, Europe’s largest freight only cargo carrier, Grand Duchy of Luxembourg based Cargolux have to find around €80 million, with Scandinavian carrier SAS close behind with a €70 million penalty.

Other air lines linked to the anti trust suit include Qantas, Japan Airlines, Air Canada, Cathay Pacific, Singapore Airlines and LAN Chile. Several US carriers had already escaped prosecution through lack of evidence. When Mr Joaquín Almunia took office as the EU’s anti trust commissioner in February he had to fill the large shoes of Ms Neelie Kroes and with this result he has shown there are to be no easy rides for those who indulge in dubious practices.

Mr Almunia said after announcing the level of fines imposed that the necessity of collaborating more closely on security after the 9.11 attacks had provided rival groups with the ability to collude on fuel surcharges. He commented:

"It is deplorable that so many major airlines coordinated their pricing to the detriment of European businesses and European consumers. With today's decision the Commission is sending a clear message that it will not tolerate cartel behaviour.

“The fact that fuel prices were increasing, or that security costs rose after the 2001 terrorist attacks, is not an acceptable reason to stop competing against each other. The companies always had an alternative to collusion despite the difficulties created by the regulatory and economic environment.”

The contacts on prices between the airlines concerned initially started with a view to discuss fuel surcharges. The carriers contacted each other so as to ensure that worldwide airfreight carriers imposed a flat rate surcharge per kilo for all shipments. The cartel members extended their cooperation by introducing a security surcharge and refusing to pay a commission on surcharges to their clients, mainly freight forwarders who then passed the excess charges onto shippers.

The aim of these contacts was to ensure that these surcharges were introduced by all the carriers involved and that increases (or decreases) of the surcharge levels were applied in full without exception. By refusing to pay a commission, the airlines ensured that surcharges did not become subject to competition through the granting of discounts to customers. Such practices are in breach of the EU competition rules.

Despite the huge fines the woes of the freight groups however may not yet be over. As detailed in our recent article, a class action is still in progress which may involve several hundred shippers and freight forwarders claiming compensation from the guilty groups. In addition SAS have claimed they are entirely innocent and will appeal. Their fine was weighted against them as they had already been found guilty of cartel behaviour previously (in 2001 with Maersk Air).

Mr Almunia confirmed he will enforce the penalties despite several of the cargo carriers stating that the guilty verdict will force them into administration. He supported this by saying the fines were tailored to the amount of sales by each of the guilty parties and that leniency percentages had been allocated according to the amount of sales involving third party (outside European scope) destinations and the general regulatory environment in the sector at the time.