The Commerce Commission has reached a settlement of proceedings against an international freight forwarding company accused of anti-competitive conduct in the freight forwarding market. The High Court at Auckland yesterday approved the resolution reached between the Commission and EGL Inc., and ordered EGL Inc. to pay a penalty of $1.15 million and the Commission's litigation costs of $50,000.

EGL Inc. admitted breaching the Commerce Act by entering into and giving effect to a surcharge agreement (UK NES surcharge) together with other freight forwarders. The surcharge related to security measures at airports for exports from the United Kingdom and had the effect of controlling and maintaining prices for the supply of freight forwarding services from the United Kingdom to New Zealand.

In 2007 the Commission began investigating alleged collusion by a number of multi-national companies involved in the supply of international freight forwarding services to the New Zealand market. This followed a confidential application for leniency by one of the companies involved in the conduct.

In his judgment, Justice Rodney Hansen regarded EGL Inc.'s conduct as "hard core cartel" behaviour that "enabled all members of the cartel to impose a surcharge without the need to consider their competitors' likely response". His Honour said that the illegal conduct "affected both price competition and the competitive dynamics in the freight forwarding industry and impacted on the efficiency of cartel members".

Commerce Commission General Manager of Enforcement, Kate Morrison said, "Had the cartel agreement not existed, market forces would have been left to determine the level of any surcharges customers would be prepared to accept."

Ms Morrison said, "We are pleased that EGL acknowledged liability at the first available opportunity and cooperated throughout the investigation. These important factors were reflected in the agreed penalty that the Court has endorsed."

In September 2010 the Commission announced it had reached agreed settlements with two of the parties, EGL Inc., and Geologistics International (Bermuda) Limited. Further details of the settlement with Geologistics International (Bermuda) Limited will be announced once it has been approved by the Court.

The judgment is available on the Commission's website at www.comcom.govt.nz/competition-enforcement-outcomes.

Background

Air freight forwarding industry is a complex industry and refers to all facets of the logistical arrangements for the movement of goods, by air, from origin to destination. Generally, freight forwarders are independent from the physical carrier of freight and are therefore able to choose the best option for customer's distribution needs.

In 2006 the provision of air freight forwarding services into and out of New Zealand generated revenue of approximately $450 million. This figure only includes the air freight component, which is the air freight charge levied by carriers, carrier imposed surcharges as well as commissions and discounts payable to the forwarders.

These proceedings should be distinguished from the separate proceedings instituted by the Commerce Commission against a number of airlines for alleged contraventions of Part 2 of the Commerce Act in relation to security and fuel surcharges applied to the international carriage of air cargo in the air cargo industry.

UK NES agreement relates to the new security measures at airports for exports from the United Kingdom introduced by Her Majesty's Customs and Excise (HMCE) in 2002. These security measures included greater x-ray requirements and greater information about cargo having to be filed with HMCE. The introduction of the New Export System Fee resulted in costs to freight forwarders as they were required to integrate their IT systems with the HMCE system and to ensure that the relevant data was entered on the HMCE system in a timely manner.