INCOMING: AN UPDATE FOR IMPORTERS
Daniel Silva, secretary of the Importers Institute, reviews the latest news and comments on the trends, impacting New Zealand’s import and export companies.
A roundup of news and views for New Zealand’s trading companies, compiled by Daniel Silva of the Importers Institute.
Who benefits from shipping cartels?
The answer to the question of who benefits from shipping cartels appears, at first sight, obvious: the producer members of the cartels benefit at the expense of those who consume their goods and services, through reduced competition.
But it is not that simple. Some of the major beneficiaries turn out to be the largest buyers, at the expense of their smaller competitors. Take international shipping, as an example. For many years, shipping executives met in price-fixing ‘conferences’ that went so far as to publicly advertise their collective agreements to jack up freight prices.
For any other industry, this type of conduct would normally result in a prosecution under the Commerce Act, but shipping was exempt from anti-competitive laws. This was justified as being necessary to counter the ‘perils of the seas’. If price collusion was not allowed, then the large shipping multinationals would cease to come to New Zealand and milk would be left overflowing from farm tanks.
The Productivity Commission saw this for the self-serving nonsense it patently is and recommended a law change to bring that industry into line with others. The Government accepted this argument and introduced legislation, in the face of determined opposition from shipping companies. The legislation allows for a period of transition and preserves the ability for the companies to enter into operational cooperative agreements, such as
ship sharing, as long as those agreements are not essentially designed to reduce competition.
A group of Ministry officials and the Commerce Commission called a meeting of industry groups, large importers and freight forwarders to discuss the practicalities of the transition. Much to our surprise (and probably that of the officials), some of the largest importers and forwarders present used that opportunity to relitigate the legislation, using the arguments made earlier by the shipping companies. When the absurdity of shipping companies being allowed to simply publish ‘general rate increases’ after their pricefixing meetings was pointed out, the retort was that it made no difference, as those agreements were seldom enforced. That is probably true for those forwarders, importers and exporters who move thousands of containers every year and have a degree of negotiating power. For the rest of us, we had no option but take the price increases collectively imposed by the shipping companies.
It became apparent to us that the major beneficiaries of these cartel activities were not only the service providers, but also their major clients who benefited from costs lower than those of their competitors, helping them to consolidate their positions of market dominance.
We congratulate the government on accepting and implementing the suggestions of the Productivity Commission to bring the shipping industry into line.
Hard core gardening
In the aftermath of 9/11, UK Customs implemented a system of collecting additional data from forwarders, under the guise of ‘security’. As is usual in these cases, the added bureaucracy did nothing that can be empirically shown to have increased security, but it did create an opportunity for forwarders to get an extra nice little earner at the expense of importers and exporters, who were charged new security fees.
The only danger for forwarders is that one or more of them would figure out ways of reducing the costs involved and pass the reductions on to their clients.
The solution they found was to create something they called a ‘Gardening Club’, which had price-fixing meetings off-site, outside normal business hours and communicated with each other using codes like, “I hear… concerns about the price of produce from […], which appears to be operating as a charitable cooperative for the benevolence of vegetable eaters rather than growers…” Oh, what cunning! In the High Court, Justice Venning described this as “hard core cartel conduct” and went on to impose a penalty of $3.1 million plus costs on Kuehne + Nagel, one of the cartel members. Others involved were Agility, Schenkers, Panalpina, DHL, CEVA and Exel. In total, they paid fines totalling nearly $12 million in New Zealand alone. Kuehne + Nagel had earlier paid fines of approximately $1.3 million in the US and $8.7 million in Europe.
The irony is that not a single cent from those millions was returned to the importers and exporters who were overcharged.
Measuring courier performance
The volume of small parcels being sent around the country and around the world keeps increasing. Most couriers can now provide clients with a data stream that includes the parcel barcode and the time stamps for collection and delivery. In many cases, the couriers also collect names and signatures of recipients, which are used as proof of delivery.
At DSL Logistics, we include those data streams into our warehouse management system, which enable clients to get pick-up and delivery information from our website, using their own order numbers or product codes. As a bonus, we end up with reams of data which come in very handy for the analysis of courier performance.
Every month, we compare the times from pick up to delivery against the KPIs promised by the couriers. It is then straight-forward to calculate what percentage of parcels were delivered within KPI – and what percentage was not. The next step is to refer the non-compliance report to the courier for comment. This is necessary, as we cannot hold the courier liable for delivery delays when snow closes the Desert Road overnight or the odd propeller falls off a ship.
Our policy is to remain strictly neutral between the couriers selected by our clients and to pass on their rates without mark-up. Where the courier can provide an individual parcel tracking data feed, we offer performance analysis as part of a courier management service. Experience tells us that we should normally expect deliveries to be made within 98 percent of the KPI. I sometimes ask our friends in courier companies to explain why our clients should pay 100 percent of their bills, when the KPI drops below 95 percent.
I’ll let you know when I get a satisfactory reply to that question.
Port of Tauranga