Forwarders heavily fined in EU price-fixing investigation.
By Eric Johnson
In September 2010, half a dozen major global air freight forwarders agreed to a collective $50 million in settlements with the U.S. Department of Justice over price-fixing allegations between 2002 and 2007.
The forwarders involved could be excused for believing those penalties would set some sort of benchmark for similar ongoing investigations in the European Union, Australia, New Zealand, Canada, Brazil, and Switzerland.
But in late March, the European Commission hammered an even broader set of forwarders for the same infractions, levying roughly $225 million in price-fixing fines.
The magnitude of the fines, which affect 14 forwarders, was likely more severe because most of the alleged price-fixing activity involved air freight lanes to and from Europe.
The European Union antitrust division’s case for the penalties — including more than $140 million against Kuehne + Nagel, Panalpina, and UPS alone — amounted to “four distinct cartels aimed at fixing prices and other trading conditions for international air freight forwarding services, in breach of EU antitrust rules.”
The investigation began in 2007 with pre-dawn raids at some of the world’s biggest forwarders based on tips from Deutsche Post subsidiaries DHL Global Forwarding and Exel, which escaped fines because they reported the collusive activity.
The EU alleges the forwarders engaged in backroom deals, using codes and dedicated Yahoo email accounts to cover up price-fixing schemes on air freight surcharges.
The first cartel was connected to surcharges assessed based on an electronic declaration system for exports from the United Kingdom, and introduced in 2003. According to the EU, the forwarders involved in this cartel agreed to establish a surcharge on the reporting service and to fix the amount according to the size of the customer.
“Companies should be aware that crossing the line and colluding on prices comes at a high price.”
Members of the cartel, dubbed the New Export System cartel, were Kuehne + Nagel (fined $7 million), BAX Global (now owned by Schenker, fined $4.9 million), UPS Supply Chain Solutions (fined $3 million), CEVA Logistics (fined $2.8 million), DHL, and Exel. CEVA had 35 percent of its penalty reduced under the EU’s leniency notice, while DHL and Exel paid no fines. The NES cartel was related to shipments from the United Kingdom to outside the European Economic Area.
The second cartel was associated with a surcharge based on the start of U.S. Customs’ advanced manifest system (AMS) requirements in 2003-2004. The EU said members of this cartel “agreed to introduce a surcharge for the AMS service, i.e. for processing the electronic transmission of such information to the U.S. Customs authorities. They also agreed not to use the surcharge as a tool for competition.”
Members of the so-called AMS cartel were Kuehne + Nagel (fined $48.9 million), Panalpina (fined $31.5 million), Schenker and Deustche Bahn (fined $30.7 million, with a 25 percent leniency reduction), UPS (fined $4.8 million), UTi Worldwide (fined $4.1 million), Agility (fined $3.1 million, with a 30 percent leniency reduction), DSV Air & Sea (fined $504,000), DHL and Exel.
The AMS cartel, which is related to shipments from Europe to the United States, was easily the most heavily penalized, with roughly 55 percent of the total fines coming from this group.
The third cartel related to the valuation of China’s currency. The EU said “following the appreciation of the Chinese currency (RMB) against the U.S. dollar in 2005, international freight forwarders agreed on a shift of contracts from U.S. dollars 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 U.S. dollars, which consequently might have led to losses.”
Members of this currency adjustment factor cartel were the China offices of Schenker (fined $7.3 million, including fines for BAX Global, with a 20 percent leniency reduction), UPS (fined $5.2 million), Panalpina (fined $4.3 million), CEVA (fined $1.2 million, with a 50 percent leniency reduction), Nippon Express (fined $1.1 million), Kintetsu World Express (fined $830,000), Kuehne + Nagel (fined $600,000), Yusen Air & Sea (fined $425,000, with a 5-percent leniency reduction), DHL Global Forwarding and DHL Logistics.
The final cartel related to peak season surcharges (PSS) in which “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.”
Members of this cartel were Panalpina (fined $26.1 million), Kuehne + Nagel (fined $14.9 million), Hellman Worldwide Logistics (fined $5.7 million), Expeditors International (fined $5.5 million), Toll Global Forwarding (fined $3.9 million), Agility (fined $3.5 million, with a 25 percent leniency reduction), Schenker (fined $3.5 million, with a 50 percent leniency reduction), DHL Global Forwarding and DHL Supply Chain.
The last two cartels related to shipments from China to the European Economic Area, with the peak season surcharge cartel specifically related to shipments from South China and Hong Kong.
The EU said the fines were set on the basis of the EU 2006 Guidelines. Deutsche Post (including its subsidiaries DHL and Exel) received full immunity from fines, while Deutsche Bahn (including Schenker and BAX), CEVA, Agility and Yusen received reductions of fines ranging from 5 to 50 percent, which reflected the timing of their cooperation and the extent to which the evidence they provided helped the commission prove the respective cartels.
“In most cases, the freight forwarders took specific measures to conceal the cartel behavior,” the EU said. “In the ‘new export system’ cartel, the participants organized their contacts in a so-called ‘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, (the currency adjustment factor cartel) a specific Yahoo email account was set up to facilitate exchanges between the cartel participants.”
Some of the bigger names hit with massive EU penalties said they will appeal the decision, arguing that the commission’s investigation led to incorrect conclusions. They also said they had cooperated with the investigation and should have had reduced penalties.
“We will carefully consider the decision of the EU Commission and its rationale,” said Karl Gernandt, chairman of Kuehne + Nagel International AG, in a statement. “However, already now we are of the opinion that the commission has not correctly investigated the facts and the participation of Kuehne + Nagel and has drawn significantly incorrect factual and legal conclusions.
“In addition, Kuehne + Nagel’s comprehensive cooperation throughout the investigation was not adequately acknowledged. That is why we take into consideration to appeal against the decision before the European courts.”
Panalpina likewise said it is considering an appeal.
“Panalpina will analyze the commission’s decision given its right to appeal the decision to the European General Court,” the company said. “The group has so far made no provision for the penalty of 46.5 million euros ($61.9 million) as it was not in a position to predict the outcome of this proceeding and to assess its financial exposure. It is Panalpina’s position, which is supported by independent economic evidence, that the infringements likely did not affect prices paid by Panalpina’s customers.”
Panalpina settled with the U.S. Justice Department for $12 million.
“Panalpina also completed settlement negotiations with the New Zealand Commerce Commission and the agreed penalty was approved by the competent court,” the company said. “Identical antitrust proceedings in Canada and Australia were dropped. Two antitrust proceedings are still ongoing in Switzerland and Brazil.”
The Swiss company said it has in the last few years “successfully built a state-of-the-art compliance structure aimed at ensuring rigorous adherence to competition and other pertinent laws throughout the world.”
EU Antitrust Commissioner Joaquín Almunia said the fines were meant to send a message to companies that conspire to fix prices as Europe’s economy struggles to gain a foothold.
“These cartels affected individuals and companies shipping goods on important trade lanes,” Almunia said. “Many European exporters and consumers of imported goods may have been harmed as a result. Companies should be aware that crossing the line and colluding on prices comes at a high price.”