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Cargo

The rate debate

With increasing numbers of airlines changing their surcharge methodology, shippers are asking whether it’s time to ditch the extra tariffs in favour of all-in rates. Alex Lennane reports
 

If there’s one topic guaranteed to make waves along airfreight’s value chain, it has to be surcharges. A substantial portion of airfreight’s cost, surcharges make shippers spit, forwarders fearful, handlers howl and airlines, well, money. Yet they are also legally threatening, ensuring that no proper conversations about potential change can be held.

It seems to be the last area of control that the carriers have. With downward rate pressures hitting yields, surcharges – which are not discussed and can be applied at any time – are the only financial tools airlines seem to have at their disposal. And they are willing to use them.

At the start of the winter season a growing group of carriers, including Japan Airlines, Saudia, Air France-KLM, Emirates, Lufthansa, Korean Air, Singapore Airlines, Jet Airways and Asiana, introduced chargeable weight methodology on all surcharges.

While this is already common practice on many trade lanes, and in some parts of the world even a legal requirement, there has never before been such a widespread move towards it, and from such a large number of airlines. And that in itself has triggered several issues, not least from shippers.

The legal implications of a range of airlines following suit on surcharges are tricky, to say the least. No one has forgotten the US Department of Justice’s hounding of the airline industry and its executives when it claimed that carriers had copied each other’s methodology previously in a ‘cartel’ style move – which, incidentally, even if deliberate, certainly failed to make them more profitable. But it is not just the airlines and the Department of Justice that haven’t forgotten – the shippers, those that ultimately pay the bills, haven’t forgotten either. There is very little trust regarding this topic. What’s more, shippers are considering asking for an investigation to be launched into whether the series of announcements on chargeable weights amounts to ‘signalling’.

The European Shippers’ Council says it is considering asking the European Commission to investigate this spate of announcements to ensure that there is no distortion of competition, pointing to “problems in this area in the past”.

“Many shippers are asking us,” explains Joost van Doesburg, air freight policy manager at the council. “We don’t know what is going on, but we need to make sure that this is fair competition and that prices are being determined by supply and demand. The airlines are not being transparent about the charge.”

He added, however: “There has been legal action against the airlines in the past, and we don’t want that in the future – and I don’t think the airlines do either.” 

 

However, the law in this area is far from clear. While no lawyers would go on record – perhaps confirming the complexity on the issue – European legal publication The Antitrust Source writes that European law ‘separately prohibits so-called concerted practices, an often ambiguous concept but one the Commission describes as requiring something less than an express agreement. And the Commission’s recent guidelines show a willingness to stretch the concept still further to reach suspicious conduct.’

However, it also notes that carriers do have a right to act: ‘Horizontal guidelines acknowledge that companies have the ‘right to adapt themselves intelligently to the existing or anticipated conduct of their competitors’. Unlawful concerted practices instead are limited to instances where there is some direct or indirect communication between competitors, with the potential to harm competition.’ 
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