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Imperial Air Cargo calls for investigation into ‘crisis’-stricken airfreight industry

Imperial Air Cargo calls for investigation into ‘crisis’-stricken airfreight industry

Photo by Bloomberg

19th September 2013

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Local airfreight specialist Imperial Air Cargo (IAC) has made an urgent call on the Competition Commission to initiate a market inquiry into the state of competition in the domestic overnight express airfreight market amid what it calls an “escalating crisis” in the industry.

In an expansive submission to Commissioner Shan Ramburuth, the Imperial Logistics business division provided details of what it claimed was anticompetitive conduct by State-owned South African Airways’ (SAA’s) Cargo subsidiary, which was the dominant player in this market alongside IAC – the industry’s only private operator.

Along with several other claims, the submission outlined the SAA subsidiary’s failure to pass on increases in major cost drivers to customers – including fuel, landing and handling, air traffic navigation, aircraft leases and the impact of exchange rate deterioration.

Imperial Logistics chief integration officer Cobus Rossouw claimed that SAA Cargo had frozen its prices since April 2012, despite the impact of increased costs and deteriorating exchange rates and had, only recently, intimated that it would increase its prices.

He asserted that IAC, meanwhile, had to increase its prices by upwards of 10% as a result of inflationary and fuel pricing pressures.

“It is our view that SAA Cargo’s conduct can only be seen as an exclusionary strategy to eliminate the only remaining competitor, IAC, from the domestic overnight express airfreight market. There are compelling grounds to justify the commission launching an enquiry into this market, on an urgent basis,” he commented.

Describing the industry as being in “a state of escalating crisis”, Rossouw said the company intended to draw the commission’s urgent attention to noncommercial conduct and structures that were preventing, distorting and restricting competition.

During a conference call on Thursday morning, he emphasised that a market enquiry was a mechanism introduced under the Competitions Amendment Act in April, which enabled parties to request investigations into the very structure of an industry, rather than into a particular player in that industry.

“Failure to [investigate the industry] may result in the overnight express market slipping into a subsidised State-owned monopoly, which would lead to a substantial increase in prices and a reduction in both efficiency and reliability in the market,” he noted.

Rossouw warned of “serious implications” should the current industry structure remain unchanged.

“The ramifications are far-reaching. It is clear that, if unresolved, this crisis is likely to negatively affect key sectors of South Africa’s economy, owing to the significant knock-on effects with regard to productive capacity, efficiency and the pricing of goods and services in general,” he cautioned.

SAA spokesperson Tlali Tlali said in an emailed response to questions on Thursday afternoon that the carrier had not received official notification of IACs request to the Competition Commission and that it would only respond to allegations once it was required to do so by the commission.

“In our view, all operations at SAA Cargo have always been above board, which include the adjustments we have been making on pricing. We can confirm that increases in pricing have occurred in the normal course of running operations,” he commented.

The announcement by IAC came a little over a week after Public Enterprises Minister Malusi Gigaba unveiled a long-awaited but much-criticised 12-year turnaround strategy for the troubled SAA, which was aimed at bringing the national carrier back to a point where it could leverage off its balance sheet.

The State-owned carrier, which reported a loss of R1.25-billion last year, had in recent years been kept afloat by multibillion-rand bailouts from government, the most recent of which was a R5-billion guarantee by National Treasury.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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