Commerce Commission warns freight forwarding companies

The Commerce Commission recently warned eight international freight forwarding companies (Companies) for likely entering into cartel arrangements with Mondiale Freight Services Limited (Mondiale) and Oceanbridge Shipping Limited (Oceanbridge) between 2014 and 2018.

Mondiale and Oceanbridge supply wholesale freight forwarding services to the Companies. For example, if Mondiale or Oceanbridge have less than a container load of freight, they often combine it with freight from the Companies for efficiency. Mondiale and Oceanbridge not only supply services to the Companies, but they are also in competition with the Companies by supplying retail freight forwarding services directly to importers and exporters.

The Companies were concerned that Mondiale and Oceanbridge would learn confidential and commercially sensitive information about the Companies’ customers, which Mondiale or Oceanbridge could then use to compete for those customers.

To address these concerns, the Companies agreed that Mondiale and Oceanbridge would not compete for the Companies’ customers, and in return the Companies would not compete for Mondiale’s and Oceanbridge’s customers. The Companies also gave effect to the arrangements by:

• communicating with Mondiale and Oceanbridge to clarify whether specific customers could be competed for;
• declining to quote customers or withdrawing quotes already provided;
• expressing disappointment when Oceanbridge or Mondiale had quoted a Company’s customer and seeking assurances it would not happen in the future;
• apologising to Mondiale and Oceanbridge when approaching their customers; and
• discussing the amount one party should quote to ensure the price would not be competitive.

The Commission considered the arrangements, and the actions taken, went further than necessary to protect the Companies’ confidential or commercially sensitive information. The relevant provisions of the Commerce Act 1986 the Commission believes were likely breached are:

• Section 27(1) and (2) – prohibition on entering into a contract, arrangement or understanding that will or is likely to substantially lessen competition in the market, and/or giving effect to such contracts, arrangements or understandings.
• Section 30A(1) and (2) – prohibition on price fixing, as Mondiale, Oceanbridge and the Companies did not have the usual freedom to price customers, and customers lost the opportunity to be offered a price that had been set by a freight forwarder in response to working competitive market forces.
• Section 30A(1) and (4) – prohibition on market allocating.

The Commission brought proceedings against Mondiale and Oceanbridge for their role in the anti-competitive behaviour, and the High Court imposed penalties of $4.9m on Mondiale, $4.6m on Oceanbridge, and penalties ranging from $65,000 to $100,000 on four individuals associated with the companies earlier in the year. For the Companies, the Commission decided a warning was appropriate given they had significantly less market and negotiating power than Mondiale or Oceanbridge.

The warnings highlight the need for caution when entering into a supplier/customer relationship with a competitor or potential competitor, regardless of the size of the parties involved.