Ouch! EU Penalties for Freight and Logistics Cartel Unleashed

EUROPE – As we predicted earlier the EU Anti Trust Commission has delivered its latest slap to logistics groups which colluded in four separate air freight swindles with fourteen companies feeling the pain and others, who effectively ‘turned states evidence’ getting off scot free or with reduced fines. And what a slap it is!

The Commission levied a total of €169 million on the freight forwarders following a lengthy investigation during which, following the offer from the authorities of leniency for whistleblowers, Deutsche Post (including its subsidiaries DHL and Exel) received full immunity. The parties involved were complicit in anti trust action at different times and those involved varied as to their degree of guilt. The cartelists established and coordinated four different surcharges and charging mechanisms then conspired to disguise their actions in the most extravagant ways.

In the so called ‘new export system’ cartel, the participants organised their contacts in a fiction known as the "Gardening Club" and code names based on names of vegetables – such as asparagus and baby courgettes – were used when talking about fixing prices. In another, a specific yahoo email account was set up to facilitate exchanges between the participants in the ‘currency adjustment factor’ cartel.

In addition to the 100% immunity given to the Deutsche Post companies Deutsche Bahn (including Schenker and BAX), CEVA, Agility and Yusen received reductions of fines ranging from 5 to 50 %. The reductions reflected the timing of their cooperation and the extent to which the evidence they provided helped the Commission to prove the respective cartels.

When the UK decided to introduce an electronic declaration for exports in 2003, freight forwarders agreed on establishing a surcharge on this reporting service and to fix its amount according to the size of the customer this became the ‘new export system’ or NES cartel. The ‘advanced manifest system’ (AMS cartel) refers to a regulatory requirement by the US customs to provide advance information on goods to be shipped to the US.

In 2003-2004, a group of forwarders agreed to introduce a surcharge for the AMS service, i.e. for processing the electronic transmission of such information to the US customs authorities. They also agreed not to use the surcharge as a tool for competition. The NES and AMS cartels related to exports respectively from Europe to the rest of the world and from Europe to the US. In the ‘currency adjustment factor’ (CAF) cartel, following the appreciation of the Chinese currency (RMB) against the USD in 2005, international freight forwarders agreed on a shift of contracts from USD to RMB or, if this was not possible, on the introduction of a CAF surcharge and on its level. The collusion was driven by the fact that in general, the local services at Chinese airports were paid for by forwarders in RMB, while the customers of forwarders were billed in USD which consequently might have led to losses.

In the ‘peak season surcharge’ (PSS) cartel the freight forwarders agreed in so called "Breakfast Meetings" held in Hong Kong on the introduction and timing of a PSS, to be charged during the peak season transport period in the run up to Christmas (lasting generally from September to December) and on occasions also discussed the level of the surcharge. The CAF and PSS cartels concerned imports of goods from China/Hong Kong to Europe.

The fines levied for the four individual cartels were: NES €13.351 million, CAF €15.822 million, €47.458 million and a whopping €92.751 million for the AMS collusion. This however is unlikely to be the end of the pain for the freight forwarders, and that includes those who gave the game up to the authorities. Waiting in the wings will be the teams of lawyers ready to launch the now familiar class action on behalf of those shippers who found themselves spending over and above what they might have done without the conspiracies against them.

The Commission is particularly helpful in this respect even offering a specific help line page for anyone seeking redress and stating clearly:

“Any person or firm affected by anti-competitive behaviour as described in this case may bring the matter before the courts of the Member States and seek damages. The case law of the Court and Council Regulation 1/2003 both confirm that in cases before national courts, a Commission decision is binding proof that the behaviour took place and was illegal. Even though the Commission has fined the companies concerned, damages may be awarded without these being reduced on account of the Commission fine.”

Speaking from an independent point of view it is often hard to see how the damages sought will ever filter down to the correct aggrieved parties as so many of the charges levied will have travelled down the supply chain to end with a cost to the consumer. Actual levels of fines levied on the various groups are as follows (please note only lead names are shown, for subsidiary details see the EU website) in millions are:

Kuehne + Nagel €53.674, Panalpina €46.484, Schenker and Deutsche Bahn AG €34.935, UPS €9.762, Agility €4.958, Hellmann €4.281, Expeditors €4.140, UTi Worldwide €3.068, CEVA Freight and EGL €3.029, Toll €2.918 with the remaining €2 million or so in fines made up by contributions from DSV, Nippon Express, Yusen Shenda and Beijing Kintetsu.

This type of cartel activity is of course not exactly unknown throughout the history of the industry, in 2010 we listed fines of €800 million levied by the EU on various air carriers. There is apparently a wafer thin line between a gentlemen’s agreement such as those practised by members of the ocean freight community carrying containers far and wide and agreements to charge specific surcharges as was apparent here.

How fine that line is will likely be decided in the near future as raids were carried out by the EU Commission on the offices of the main ocean box carriers as we reported last May and we await further developments with interest.