Air cargo transport cartels harm economies

Shanghai Daily, China, December 08, 2010

By Pradeep S Mehta

AIR cargo transport cartels are a major problem worldwide – resulting in overcharges and hampering economic development – and the first World Competition Day on Sunday (December 5) raised awareness of the need to break up cartels.

Sunday was the 30th anniversary of the adoption of the UN international standard for competition laws. They are officially known as the UN Set of Multilateral Principles and Rules for the Control of Restrictive Business Practices, better known as the UN Set on Competition Policy.

Many countries already celebrate National Competition Days, including European Union member states, Brazil and Zambia. The events were used to raise awareness and rally the general public around the issue of air cargo cartels, which have been causing serious harm to consumers and the economy.

The EU slapped one of its biggest fines in history on 11 airlines, totaling 799.4 million euros (US$1.1 billion) for running a global cargo cartel, which coordinated action on surcharges for fuel and security between 1999 and 2006.

The prosecution by the EU was not the first for most of the airlines, since earlier the US Department of Justice had also found that some of the world’s biggest airlines had conspired between 2000 and 2006 to fix cargo prices. In 2009, three cargo airlines in the US agreed to pay fines totaling US$214 million for the same crime. In this case, 15 airlines were prosecuted and a fine of US$1.6 billion was imposed. In addition, three senior air cargo industry executives agreed to serve jail terms.

Cartels in the air cargo industry should be of concern to all stakeholders as they seriously undermine economic development and poverty reduction in developing countries. A study done for the International Air Cargo Association and Air Cargo Forum by John Kasarda and others in 2006 showed that the air cargo industry transports almost 30 percent of all international trade, with an annual value of US$2.7 trillion.

The study also showed that Korean Air, Lufthansa, Singapore Airlines, Cathay Pacific and China Airlines were the largest combination passenger-cargo carriers in terms of capacity. American Airlines and United Airlines were found to be providing substantial cargo service even without use of dedicated freighters, while airlines such as Lufthansa, Air France and KLM had broad geographic coverage, servicing more than 50 countries, and British Airways offered cargo service to over 100 countries.

It is, therefore, very alarming to see that almost all the major players in the air cargo market were part of a cartel, and one shudders at the impact in terms of overcharges that consumers across the globe suffered due to the cartel. The air cargo transport industry also specializes in high value to weight products (such as minerals), perishable goods, emergency deliveries and products requiring high security.

Most of these products find their way into the value chain of most finished products; hence “cartelizing” their transport has serious multiplier effects on the prices of the final products. Developing countries are not spared from the impact of the cartel since there is significant air cargo trade in these regions, part of which is handled by members of the cartel. The proportion of exports shipped by air from less developed regions such as Africa and some parts of Asia exceeds 10 percent.

Thus, competition authorities in developing countries also need to join in and prosecute such international cartels once they are discovered. Hamstrung by limited resources and perhaps their own weak laws, competition authorities in developing countries should innovate and use various means to address anticompetitive practices.

This could include initiating and enlarging informal cooperation between authorities in the countries targeted by the cartel.

The author is the secretary general of the NGO CUTS International – Consumer Unity and Trust Society – and chairman of INCSOC.

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