Open-mouthed surprise perhaps best summed up the response of the air cargo executives to the raids by the European Commission and US Department of Justice on airline offices in mid-February, investigating collusion on cargo fuel and security surcharges.

As it happened, many of the executives were gathered at the time for an IATA Committee meeting and an unrelated air cargo conference in Shanghai, and there was universal agreement among them that there was no case to answer.

“This kind of thing might have happened 20 years ago, but we all fully understand the anti-trust laws these days, and no airline would indulge in such practices,” said one cargo manager. “Perhaps the European Commission has nothing better to do,” commented another.

What is hard to deny is that since they were introduced by many airlines in 2001, fuel surcharges have tended to move in lock-step in the industry. Charged on a per kilo basis irrespective of route length, many airlines openly admit that they calculate their surcharges based on the fuel price index published on the Lufthansa Cargo website since 2000.

Using a price of 53.35¢ a US gallon as a benchmark of 100 points, this adds a 5¢ per kilo surcharge if the index rises above 115 for two consecutive weeks, followed by a further 5¢ if it rises above 135, and so forth. As of mid-March, the index stood at 337, giving a surcharge of 45¢ per kilo.

Carriers say this use of the Lufthansa fuel index is a way to make their surcharges more transparent and less arbitrary to forwarders and shippers. “It would be a pity if this transparency was now put at risk,” says one cargo executive. Consciously setting your rates to parallel your competitors is not unlawful under US antitrust law so long as you do it independently. To prove a price-fixing conspiracy requires evidence of an agreement or “concerted action” between rivals.

This can be inferred, but it requires something more than the fact that competitors raised their prices by the same amount at almost the same time.

US courts are on the lookout for certain “plus factors” before they will allow a jury to decide if such circumstantial evidence proves a violation. These factors generally involve behaviour inconsistent with competition, such as an airline raising rates when it knew it might increase its market share and make more money if it kept them lower.

European Union courts apply similar standards, although prosecutors generally find it easier to prove violations under European rather than US antitrust law. On both continents investigators are likely to focus on the reasons for Lufthansa Cargo’s index and other factors that would tend to show an agreement.

In practice, the closest that prosecutors often come to the “smoking gun” of an illegal agreement is evidence, perhaps from a disgruntled former employee, that competitors actually communicated about a common plan or disciplined one of their own for breaking ranks, even if they never met to do it.

In air cargo’s case, airline executives privately point the finger at disgruntled forwarders or general sales agents as the cause of the current investigation. Both groups have long complained that surcharges form a large percentage of the freight rate and that they have to collect them for airlines without receiving commission.

By way of example, while freight rates out of China can be as much as $2.70 per kilo, from Europe to Asia they can be as low as 30¢. In such cases, a surcharge of 45¢ a kilo for fuel, and maybe 15 cents a kilo for security, dwarfs the commissionable rate. The question of why freight surcharges are proportionately so much higher than passenger ones has never been asked.

Suspicion in air cargo circles that disgruntled customers are behind the investigation have only been fuelled by news that shippers have taken out at least 20 class action lawsuits in the US courts in the wake of the EC and Department of Justice investigations. These cases allege a “global conspiracy” by airlines acting “in lock step” to fix the fuel, security, and war insurance surcharges added to air cargo rates.

The US justice department has also called a grand jury, which is an early step in cases where it may seek criminal charges. The class actions anticipate such charges, since a criminal conviction is automatic proof of a violation under US law. Private cases, where prevailing plaintiffs may obtain treble damages, normally await the outcome of government investigations. Some questions remain about whether private litigants would have access to the government’s evidence.

All of these procedures will take a long time, however, because of the volume of documents involved and the need to comb them carefully for patterns of behaviour. Before making a decision investigators could decide to interview witnesses and demand more documents.

Meanwhile, in the normally friendly air cargo industry, executives are going to be even more careful about socialising with their colleagues in other carriers. “It has got to the stage where you are even afraid to go out for dinner,” complains one cargo executive. ■


Source: Airline Business