The ACCC has turned its attention on the shipping and logistics sectors and it is not pulling any punches. The ACCC has recently commenced the first Australian prosecutions for criminal cartel conduct against NYK Line (see our earlier article here) and K-Line and commenced consideration of removing the anti-competition exemptions available for liner shipping services. In this climate, Carriers and freight forwarders should be particularly wary of behaviour that may constitute anti-competitive conduct, such as price fixing and market sharing, as these activities are now squarely in the ACCC's sights.
A recent price fixing prosecution in the aviation industry provides up-to-date guidance on what conduct will fall foul of competition laws in the shipping and logistics sectors.
What you need to know about ACCC v Flight Centre1
Between 2005 and 2009, Flight Centre offered international passenger air travel services to consumers pursuant to an agency agreement between itself and various airlines. It received payment from customers for air travel booked through it and remitted the amounts less commission to the airlines. The airlines also offered tickets directly to prospective passengers.
During this time, Flight Centre wrote to a number of airlines threatening to stop selling the tickets of the airlines if they did not agree to stop offering tickets directly to customers at prices lower than the fares offered to Flight Centre. In 2012, the ACCC commenced proceedings against Flight Centre for breach of price fixing provisions under Australian competition law.
At first instance the Federal Court held that Flight Centre was in competition with the airlines for air travel distribution and booking services and fined Flight Centre $11 million for price fixing. On appeal, the Full Federal Court overturned this decision, holding that there was no relevant competition between the two, with Flight Centre merely acting as a sales agent for the airlines. Given that the two weren't in competition, there couldn't be any anti-competitive behaviour.
The ACCC appealed to the High Court, which unanimously held that despite the fact that Flight Centre was a sales agent for the airlines, it also acted independently for its own benefit and that "Flight Centre was acting in competition with the airlines which had appointed it as their agent." The matter has been remitted to the Federal Court for determination of the penalty.
How ACCC v Flight Centre will affect the shipping and logistics sectors
Carriers and freight forwarders typically compete for business in the same market where they offer the same or substantially similar sea carriage services to customers.
In some limited circumstances, freight forwarders may act as agent for Carriers (for example, the in-house forwarding arm of a Carrier) in offering these services. However, the impact of ACCC v Flight Centre is that the mere existence of such an agency relationship will not preclude the Carrier and freight forwarder from being in competition with each other, in particular where the freight forwarder agent has unconstrained authority to set its own price and act in its own interests in the sale of shipping services.
The more typical situation will be that the Carrier and freight forwarder are in direct competition in offering shipping services to ultimate customers. This will likely be the case regardless of the fact that in many instances, freight forwarders may contract as customer to a Carrier (and then on-sell the shipping services).
So, the impact of ACCC v Flight Centre on the shipping and logistics sectors is to make it relatively clear that, in almost all instances, Carriers and freight forwarders are likely to be held to be in competition with each other and therefore subject to the anti-competitive conduct prohibitions.
What conduct is prohibited between competitors?
Australian competition law prohibits corporations from making a contract or arrangement, or entering into an understanding, that has the purpose, or has or is likely to have the effect, of substantially lessening competition. Examples of this include price fixing, market sharing and limiting outputs to control prices as between competitors in a market.
Price fixing is when competitors agree on a pricing structure that they will offer to the market, rather than competing against each other for business.
Market sharing is when competitors agree to divide a market between them. That is, they agree not to compete for certain customers or classes of customer.
Attempting to engage in this conduct is also prohibited, whether or not the conduct actually occurs. In ACCC v Flight Centre, Flight Centre's emails to the airlines were in breach of the competition laws, regardless of whether they resulted in a prohibited arrangement.
Agreements, arrangements or understandings do not have to be formal to be prohibited. As the ACCC website puts it, "they can be a 'wink and a nod', made over a drink in the local pub".
Carriers and freight forwarders should be wary of any verbal or written discussions that might be perceived to be for the purpose or have the effect of lessening competition. Examples include (but are not limited to):
- a freight forwarder telling a Carrier that it will only contract with that Carrier if it agrees not to offer the same low rate to other freight forwarders or ultimate customers;
- a Carrier telling a freight forwarder not to undercut the Carrier's rates; or
- a Carrier and a freight forwarder (or indeed two Carriers or two freight forwarders) agreeing to split a market between them so as to not compete with each other.
Even if a freight forwarder is acting as an agent for a Carrier in selling the Carrier's shipping services, fixing or attempting to fix prices or share markets etc with that Carrier will likely constitute anti-competitive conduct, particularly where that freight forwarder is free to determine its own freight price.
The maximum fine for each cartel offence for corporations is the greater of:
- AU$10,000,000;
- three times the total value of the benefits obtained by one of more persons and that are reasonable attributable to the offence of contravention; or
- where benefits cannot be fully determined, 10 percent of the annual turnover of the company (including related corporate bodies) in the preceding 12 months.
How our Transport team can help
We routinely advise Carriers, freight forwarders and other participants in the shipping and logistics sectors on competition law compliance issues. Given the substantial penalties that can apply for illegal cartel conduct, we recommend that any organisation considering any form of cooperation or relationship with any potential competitor first seeks legal advice in order to ensure that this does not result in liability for anti-competitive conduct.
Footnote
1ACCC v Flight Centre Travel Group Limited [2016] HCA 49 (14 December 2016).
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
