Coalition fights Iata immunity bid

PUBLISHED : Tuesday, 10 June, 2003, 12:00am
UPDATED : Tuesday, 10 June, 2003, 12:00am

A powerful lobby of 40 US groups is opposing a move that will allow the top airline body to raise cargo prices

A powerful coalition of shippers and one of America's top legal bodies have opposed a request for exemption from antitrust laws by the International Air Transport Association (Iata) as it seeks to unilaterally change the pricing formula for low-density cargo.

If the United States Department of Transport (DOT) grants immunity to Iata, the world's biggest airline body will have taken the first step towards a potential 20 per cent rise in air freight rates for 'volumetric' cargo linked to the US market, with a global roll-out of the scheme beckoning.

The National Industrial Transportation League (NitLeague), an organisation of more than 700 of America's biggest shippers, and the Department of Justice (DOJ) are among 40 groups which, by the weekend, had formally opposed Iata's proposal, known as Resolution 502.

The DOJ in its submission to the DOT described Iata's proposal as 'a price-fixing agreement to increase rates for low-density shippers'.

'Iata has not demonstrated any offsetting important public benefit or fulfilment of a serious transportation need. Each carrier should be required to determine independently whether or [to] what extent it wishes to increase, or decrease, low-density cargo rates,' the DOJ said.

The resolution aims to reduce the conversion ratio for volumetric cargo, goods such as cellular phones, which are charged by size due to their light weight, to 5,000 to 6,000cm per kilogram charged.

If approved, the proposal could have strong implications for the south China cargo market, where low-density cargo such as electronic goods and textiles made up the majority of shipments flown by air.

'Air cargo shippers, particularly shippers of low-density products [eg., high-technology, floral and textile products], will suffer serious harm if the proposal is approved by the DOT,' NitLeague said in its objections submitted late last month.

Iata has applied for antitrust immunity, such as that enjoyed by maritime container shipping companies for discussions on freight rates, so its members can unilaterally apply a new weight-to-volume ratio in the American market.

Presumably, a similar application would have to be made for carriers based or operating in the European Union, where there are also stringent antitrust laws.

The airlines contend the conversion formula, established in 1981, no longer reflects the operational capabilities of the new era of aircraft with enhanced power and aeronautical designs that allow them to carry more weight further and faster. The 1981 ratio, they said, resulted in airlines most often running out of cargo space long before they reached weight limits, a trend exacerbated by a reduction in the average density of products moving by air in the past decade.

In support of Resolution 502, American Airlines last month said the average density had fallen to nine pounds per cubic foot from 11 pounds in 1981.

'This is approximately an 18 per cent decrease in freight density. The proposed rule change serves to offset this change in cargo density,' the carrier said.

The carrier estimated the change would generate up to US$10 million in additional global sales revenue for it this fiscal year, based on June 2001 economic conditions.

United Airlines and Delta Airlines also supported the resolution with economic justifications, the lack of which had forced Iata to back off last year's October implementation date for the resolution.

Federal Express (FedEx) estimated the additional sales revenue from its Asia-Pacific division alone would reach US$11.1 million under the new regime.

NitLeague contended one of Iata's basic rationalisations for the increase was the boost it would give to ailing US carriers; United filed for Chapter 11 bankruptcy protection last year while American narrowly averted a similar fate in the first quarter.

But the shippers' organisation said FedEx's profitability - it posted a net income of US$710 million last year while the industry lost $3.8 billion on international services - shows the adjustment was not needed.

'The serious difficulties facing airlines operating in the US should not be borne by the shippers of international cargo,' NitLeague told the DOT. 'Moreover, the financial success of some carriers, such as FedEx, shows that international air cargo carriers clearly can earn a profit even if the current density rule remains the industry standard.'

One Hong Kong-based carrier executive said yesterday the new formula could bring much-needed emphasis on correcting some sloppy industry practices.

'[The new formula] would put the onus on poor packaging practises, which are a significant problem in regions which produce a lot of electronic products,' the executive said. 'It will force shippers and forwarders to re-evaluate that and, if they can reduce their packaging requirements by 20 per cent, there would be no [substantial] cost.'

For and against

Iata has not shown any important public benefit or fulfilment of a serious transportation need, says the DOJ

The Iata resolution aims to reduce the conversion ratio for volumetric cargo