Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Air freight shipper alleges global air cargo price fixing conspiracy, (Aug 8, 2014)

By Linda O’Brien, J.D., LL.M.

Several foreign airlines engaged in a secret global conspiracy to fix the prices of airfreight shipping services for air cargo shipments within, to, and from the United States by agreeing to increase fuel and other surcharges, and eliminate discounts based on surcharge revenues, according to a complaint filed in the federal district court of Brooklyn, New York (Schenker AG v. Societe Air France, August 7, 2014).

Air France, KLM, Martinair, Cargolux, Nippon, Qantas, and SAS are foreign companies that provide airfreight shipping services throughout the world. Schenker AG is a German corporation in the business of providing logistics and freight forwarding services to customers requiring the transportation of goods within, to, and from the United States.

The complaint alleges that, in 1996, competition in the airfreight services industry was causing a reduction in the price of airfreight shipping services even though fuel costs were increasing. The International Air Transport Association (IATA), an airline industry trade association of which the defendants are members, created the Fuel Price Index (FPI) based on the average of the spot price of aviation fuel in various markets around the world. In December 1996, the FPI rose from 100 to 132. After several airlines began to impose a fuel surcharge, the IATA steering group held a special meeting to develop concerted and coordinated industry action for the imposition of sustainable fuel surcharges.

In 1997, IATA steering group met to further discuss strategies in light of rising prices of aviation fuel. Notwithstanding the antitrust risk, the group developed a resolution that contained a mechanism for imposing a fuel surcharge on a global basis. The fuel surcharge was tied to percentage changes in the spot price of aviation fuel as tracked by the FPI and would remain in effect until the FPI fell below 130. Although the resolution was approved in 1997, IATA did not complete the required filing formalities with government authorities until 2000 when the FPI exceeded 130 for the first time since the resolution’s adoption, the complaint charged.

According to the complaint, in 1999, the defendants began to exchange price and cost information in furtherance of their conspiracy to fix the prices for airfreight shipping services, including U.S. airfreight shipping services. The defendants allegedly continued to conspire through secret meetings and communications to jointly agree on the factors triggering each price change and the timing of those price changes. After the IATA resolution was rejected by the U.S. Department of Transportation in 2000, IATA ceased publication of the FPI. However, the airlines initiated a modified fuel price index and continued to meet frequently in order to implement their cartel agreement, the plaintiffs charged. The defendant carriers routinely staggered the effective date of surcharge increases to convey the false impression that the defendants were acting unilaterally.

The defendants also imposed another surcharge—a security surcharge—beginning in 2001 and acted jointly to implement the security surcharge worldwide. The security surcharge had no relationship to external costs and was not calculated based on actual security-related costs. Additionally, the defendants allegedly agreed to exclude fuel and security surcharge revenues from any incentive, rebate, or discount program. In contrast, the grant of incentives, discounts, or rebates based on the total price of U.S. airfreight shipping services was standard industry practice, the complaint claimed.

Presently 20 airfreight carriers, including all of the defendants, have pleaded guilty to felony antitrust violations in the United States pursuant to an investigation by the U.S. Department of Justice and have paid criminal fines totaling $1.75 billion. In addition, each defendant has a reached a settlement in a civil antitrust class action, which alleged the same antitrust conspiracy involving airfreight shipping services. Schenker excluded itself from those settlements with the defendants in accordance with the court’s opt-out procedures, the complaint states.

Competition in the sale of U.S. airfreight shipping services has been restrained, suppressed, or eliminated. As a result of the defendants’ conspiracy, Schenker was required to pay more for cargo shipping services in the United States than it would have paid in a competitive market and was overcharged on its purchases from the defendants.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-04711.

Attorneys: James J. Calder and Sheldon T. Zenner (Katten Muchin Roseman LLP) for Schenker AG.

Companies: Schenker AG; Societe Air France; Koninklijke Luchtvaart Maatschappij N.V.; Martinair Holland N.V.; Cargolux Airlines International S.A.; Nippon Cargo Airlines Co., Ltd.; All Nippon Airways Co., Ltd.; Qantas Airways Limited; SAS Cargo Group A/S

News: Antitrust NewYorkNews