Fuel Surcharges: Rising Gas Prices Hit Businesses And Consumers Beyond The Pump

As oil prices soar to record levels, gas prices in many United States metropolitan areas are reaching $4.50 a gallon — diesel prices are often higher. Regrettably, consumers are not just getting pinched at the pump. Consumers are also paying higher prices in the form of fuel surcharges, which have cropped up in industries across the American economy, from garbage collection, passenger airfares, water delivery, limousine services and cruise tickets to air, land and ocean freight carrier services. Fuel surcharges are extra fees tacked onto normal prices that purport to compensate carriers or manufacturers for rising and volatile oil prices. Fortunately, some relief for consumers fromfuel surcharges may be in sight.

newsletter_aug2008_pic1.jpgGovernment investigations and civil class action lawsuits are surfacing in industries that have imposed collusively set fuel surcharges. For example, the  United States Department of Justice (“DOJ”) is investigating the air cargo industry for anticompetitive acts in setting fuel surcharges. To date, eight international airlines have pleaded guilty to price fixing fuel surcharges and agreed to pay $1.2 billion in criminal fines, the highest total amount of fines ever imposed as a result of a criminal antitrust investigation. Unbelievably, the fines represent just a fraction of the total amount shippers and consumers lost paying anticompetitive fuel surcharges and the money is not paid to the victims of the price fixing scheme to compensate them for their losses. Left with no other viable recourse, consumers and shippers have sought to recover their losses directly from the air cargo industry through civil class actions. Thus far, for example, consumers and shippers have recovered $85 million in a settlement with Lufthansa Airlines. Their claims against Lufthansa’s coconspirator airlines are still pending.

In the trucking industry, a pending class action brought by cargo shippers against trucking companies alleges a conspiracy to fix fuel surcharges for “less-thantruckload” truck shipments – that is, freight to be shipped by a customer that is less than one truckload. According to trucking industry trade journals, the total domestic less-thantruckload, or “LTL,” industry is a $25 to $35 billion market. For most shippers, the amount of the fuel surcharge imposed by trucking companies on LTL shipments inexplicably exceeds the entire cost of fuel for delivering the freight. Furthermore, fuel surcharges vastly exceed the increase in fuel prices since fuel surcharges were imposed on most shippers.

In their 2006 annual reports, trucking companies, such as Old Dominion Freight Line and YRCWorldwide, admitted that higher fuel prices were increasing their profitability, plaintiffs allege. For example, Old Dominion’s 2006 annual report stated that “[a] rapid and significant decrease in diesel fuel prices would likely reduce our revenue and operating income until we revised our pricing strategy to reflect these changes.” And YRC’s 2006 annual report stated that “[i]n general, under our present fuel surcharge program,we believe rising fuel costs are beneficial to us in the short term.” Indeed, a transportation industry expert noted that LTL carriers’ earnings would be “hurt by sustained lower fuel costs” due to their fuel surcharge recovery mechanism, which overcompensates for fuel cost increases.

Surcharges are not confined to fuel used in the transportation industry. In the flat glass industry, for example, manufacturers of glass used in construction and automotive applications imposed “energy surcharges” on top of the price of flat glass. Like the transportation industry, flat glass manufacturers justified these surcharges based on rising energy costs.

Government investigations, however, have revealed that the increases in surcharges were the result of anticompetitive practices. In February 2005, European competition authorities raided the offices of major flat glass manufactures Guardian, Pilkington, Saint-Gobain and Asahi. Subsequently, these companies admitted to forming a cartel to fix the price of flat glass and energy surcharges and paid $723million in fines to the European Union. Class actions brought by flat glass purchasers are now pending in the United States.

Scott + Scott LLP currently represents the victims of fuel surcharge conspiracies, seeking to recover damages resulting fromthe imposition of anticompetitive fuel surcharges by competitors in the LTL, air passenger, flat glass, and Puerto Rico and Hawaii ocean shipping services industries.

newsletter_aug2008.jpg Source : Scott+Scott August 2008 Newsletter