Friday, 9 August 2019

The unsung heroes

Earlier this month, in a criminal case, the Federal Court of Australia pinged Kawasaki Kisen Kaisha Ltd (K-Line) A$34.5 million, the highest ever criminal cartel fine in Australia, though just adrift of the highest civil penalty, Visy's A$36 million in 2007.

K-Line was the second Japanese shipping company to have its collar felt for the longstanding rort of rigging the cost of shipping Japanese cars to Australia, following the earlier criminal conviction and A$25 million fine for NYK Line (see 'The Shipping News'). The K-Line judgment is here (handy hint - you can safely skip paras 86 through 169).

The only reasonable response to the fine is, jolly good. This fell squarely within the 'hard core' kind of cartel conduct that criminalisation was intended to punish and deter, complete with the usual cloak and dagger contrivances. NYK had had a version of Maxwell Smart's 'cone of silence', and K-Line had "reports ... often marked with words to the effect of “Confidential. Dispose of after Reading”. You can imagine some hapless manager in Tokyo trying to eat the files as the lads from Japan's Fair Trade Commission arrived.

The only smidgen of mitigation that, as an economist, you might feel for them is that, as the judge noted
41 ... the market for ocean transport service for roll-on, roll-off cargo was characterised by high capital costs with ‘lumpy’ investment, meaning that capacity could not be smoothly adjusted in response to demand.
42    The market was also characterised by long investment lead times. That was because the length of time required to commission and build a specialised car, or car and truck vessel was approximately two to three years per vessel. Such vessels were also not generally available for short term lease or charter, though in some instances space on vessels was made available between particular carriers pursuant to space chartering arrangements
But workably competitive markets are inventive enough to come up with licit solutions to these kind of problems. One is long-term 'take or pay' contracts, as you see every other day in (for example) the commercial property market, where developers line up leasing precommitments before they turn the first sod.

Lawyers should probably have a look at the bits of the judgment that discuss the extent of K-Line's cooperation with the ACCC, as described in the agreed statement of facts. The judge at [193] pointed to the "rather general and anodyne nature of some of the facts recited in it" and at [341] said it was "a statement of facts which appears to have been the product of detailed discussion and agreement between the respective legal teams. The result is a lengthy and detailed document which has no doubt been carefully crafted as a result of the negotiations, but which is nonetheless rather unhelpful in a number of important respects. The Court is left in the rather unenviable position of having to decipher and draw inferences and conclusions from that rather bland and sanitised document". You can be too clever by 'arf, in other words.

Other than that, there isn't too much to take away from the sheeting home of a particularly large, global and brazen cartel.

Except for two unsung heroes at K-Line.

One pops up at [79], where we read that "The Car Carrier Business Group General Manager was particularly distrusted by some NYK and Mitsui employees because he would sometimes compete aggressively for market share and on occasion attempt to depart from agreements reached with the other carriers" (he subsequently got sat on).

The other appears in [81], where "a Manager in one of the regional teams in the Car Carrier Business Group proposed to the Managing Executive Officer of the Car Carrier Business Group that K-Line should consider ceasing its communications with other carriers because such communications were risky for K-Line and its employees and K-Line should focus on having a strong sales force" (he - almost certainly a he - was ignored).

Well done, guys. And hopefully for their companies' sakes there aren't honest New Zealand executives in the same ignored and sidelined boat. Cartel criminalisation goes live in New Zealand from April 2021.

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