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How to get a better deal on transport costs? Collectively bargain alongside your competitors

25 May 2021

#Transport, Shipping & Logistics, #Competition & Consumer Law

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How to get a better deal on transport costs? Collectively bargain alongside your competitors

A group of freight brokers made a notification to the Australian Competition & Consumer Commission (ACCC) to collectively negotiate with freight carriers for a term of six years. The ACCC has not objected to this notification meaning that, instead of having to negotiate one on one with freight carriers, the freight brokers can consolidate their bargaining power and negotiate as a bloc.

For other freight brokers and even importers, manufacturers, freight forwarders and logistics businesses generally, the question is, “Should you be teaming up with your competitors to ensure that you are not getting stuck with a worse deal?”

How are transport services usually negotiated?

Ordinarily, businesses requiring transport services will negotiate one on one with a carrier or logistics provider. How good a deal they get will largely depend on the level of competition in the marketplace and the relative bargaining power of the business vs that of the carrier or logistics provider.

It is almost universally true that the more volume you have to ship, the more buying power you have and therefore the more bargaining power you can exercise in negotiations – resulting in better rates or terms of service.

What is collective bargaining?

Collective bargaining is where a number of competitor businesses requiring transport services band together on one side of the negotiating table, across from a single carrier or logistics provider on the other side.

Typically, businesses seek to band together and collectively bargain to enhance their individual buying and bargaining power.

So, why don’t all businesses collectively bargain?

The Competition and Consumer Act 2010 (Cth) (Act) generally requires businesses to act independently of their competitors when making decisions such as setting prices and terms and conditions for the provision of services. 

Collective bargaining is, therefore, generally considered to be anti-competitive, in that competitor businesses work together to negotiate joint price or service terms, rather than competing with each other to extract the best price or service terms.

Depending on the extent of such collective action, this may constitute cartel conduct, concerted practices or other restrictive trade practices, which may be prohibited and punishable under the  Act. Penalties for such prohibited conduct can, if viewed as cartel conduct, result in individuals facing either criminal (up to 10 years jail) or civil penalties (up to $500,000 per civil contravention). In the case of corporations, penalties for criminal or civil contraventions can be up to $10 million and, in some cases, even higher.

How can the freight broking businesses collectively bargain?

Businesses can apply to the ACCC for an exemption from the competition provisions of the Act for collective bargaining through either the process for:

  • authorisation; or
  • notification. 

For authorisation, depending on the nature of the conduct to be engaged in, the ACCC may grant authorisation where:

  • the proposed conduct would not be likely to substantially lessen competition; or
  • the likely public benefit from the conduct outweighs the likely public detriment.

Notification is an alternative process to authorisation for seeking legal protection to engage in collective bargaining, which may be faster than seeking authorisation. The ACCC will assess a notification on whether any benefit to the public is likely to outweigh any potential public detriment. 

If authorisation is granted, or the notification is not objected to by the ACCC, businesses that act within the scope of that authorisation or notification cannot be prosecuted for breach of competition laws.

What happened in this case?

The freight brokers made a notification to the ACCC to collectively bargain with freight carriers to obtain more favourable rates and terms that the freight brokers could then offer to their customers. Presumably, the freight brokers hope that the favourable rates and terms that they are able to negotiate will provide them with a competitive commercial advantage over other competitors that are not part of their collective bargaining group.

The ACCC considered that the arrangement would be anti-competitive, in that competition between the competitor freight brokers would be reduced by permitting them to bargain together.

However, the ACCC further considered that the public benefits outweighed the detriments caused by this reduction in competition. Specifically, the ACCC considered that the overall reduced negotiating costs and improved (and slightly more equal) negotiating standing obtained by the freight brokers outweighed any detriment.

The ACCC further noted that the freight brokers only comprised a relatively small percentage of the market, agreed to permit other freight brokers to join their group and were otherwise forced to negotiate solo against some very large freight carrier businesses, such as TNT, Toll, Followmont Transport, Northline, Couriers Please, StarTrack, Bonds Transport and Aramex (formerly Fastway Couriers).

Balancing the above considerations, the ACCC did not object to the notification for the collective bargaining. The ACCC decided to allow the notification to remain in force for a period of six years.

Are you missing out on a better deal?

If you are a freight broker, importer, manufacturer, freight forwarder or logistics business that engages freight carriers, you should be asking the question, “Am I getting a raw deal by negotiating alone?” The answer is probably “Yes”.

If you would like to remedy this position, you should consider notifying or applying for authorisation to collectively bargain to the ACCC to enable you to form a band with some of your competitors who also purchase freight carriage services. In incredibly competitive markets, you don’t want to be left behind bearing higher costs than your competitors.

Holding Redlich’s Transport, Shipping & Logistics and Competition & Consumer Law groups regularly provide advice and assistance in relation to competition law issues within the sector. If you would like to discuss how to make or respond to an application for authorisation or notification or any related issues, please get in touch with us.

Authors: Nathan Cecil & Joanne Jary

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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