Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
As the feud pitting FedEx Corp. and UPS Inc. against parcel consultant AFMS LLC heads for a May 2013 trial date in a California courtroom, the question raised in the real world of everyday business is how consultants have been affected by the alleged boycott by FedEx and UPS of their businesses.
As with the fallout from any failed relationship, the answer depends on who one talks to.
Portland, Ore.-based AFMS LLC has sued FedEx and UPS, alleging the companies violated federal antitrust laws by colluding to boycott consultants and to intimidate shippers who use these intermediaries with the loss of their rate discounts and the specter of erratic or non-existent service.
FedEx and UPS have argued that their actions reflect perfectly acceptable business practices, that they have not zeroed out consultants but have left it up to their managers' discretion whether to use them, and that they are doing their customers a favor by allowing them to keep the savings they've reaped by negotiating directly with the carriers rather than have those economic gains split with a third party.
Barring an out-of-court settlement, the case will go to trial on May 1, 2013, in federal district court in Los Angeles with Judge Margaret M. Morrow presiding. In the meantime, neither FedEx nor UPS seems anxious to move off their policies or settle the dispute. UPS, in particular, has been very vocal in its position. Privately, the company has vowed to take the matter to the U.S. Supreme Court, if necessary, to defend its argument that it did not engage in deliberate collusion with its chief rival.
Impact on profits debated
Parcel consultants that have agreed to be identified in the AFMS complaint claim they continue to lose millions of dollars in business as nervous shippers avoid them out of concern their freight won't get moved. For its part, AFMS said the actions by FedEx and UPS have cost it about $20 million in lost profits and diminished revenues since the policies were publicly announced in October 2009 and put into practice the following spring.
Insource Spend Management Group, a Hilliard, Ohio-based consultancy, said it had projected total revenue of $35 million between 2010 and 2012. Since the FedEx and UPS policies took effect, Insource has cut its revenue forecasts to $14 million for the same period, according to Brett A. Febus, the company's president. Insource has also halved the size of its staff, he added.
Consulting veterans, virtually all of whom held high-level positions with the carriers before going out on their own, don't view the issue in black-and-white terms, however. Jerry Hempstead, head of an Orlando, Fla.-based consultancy that bears his name, said many consultants have "more work and more income now than ever." Hempstead added that a detailed examination of consultants' financial records would show that, in most cases, "business is brisk."
Hempstead said that although he didn't solicit any business in 2011, "business found me, and I did very well."
Like virtually all consultants, Hempstead works behind the scenes on behalf of clients and does not negotiate directly with the carriers. Those who stay in the background and let shippers bargain face to face with FedEx and UPS stand a better chance of maintaining their relationships with the carriers because they lessen the risk of antagonizing them, consultants say.
But consultants who take this approach—and third parties rarely bargain directly with carriers anymore—may be doing their customers more harm than good because shippers unskilled in the complex art of parcel contract negotiation will often leave thousands of dollars of cost savings at the bargaining table even though they were advised by consultants beforehand on what to ask for, according to Rob Martinez, president and CEO of San Diego-based consultancy Shipware LLC.
"Most shippers can't articulate the message as well as the consultants, and benchmarks can no longer be used effectively since the consultant is in the background. As a result, the savings outcome is negated," said Martinez, who also stays behind the scenes, with very few exceptions.
A change in formula
Martinez said that Shipware is "busier than ever" and that revenue has increased as the company writes more business. However, Shipware's profits have been impacted because the formula it has traditionally relied on to divide the savings yielded from the negotiating process has changed, he said.
Under the standard "gain-sharing" formula in place for years, shippers and consultants would split the savings 50-50 over a three-year period. As a result of the FedEx and UPS policies, shippers are increasingly demanding that consultants accept less than 50 percent of the savings and over a shorter duration, Martinez said.
In a number of cases, consultants are being asked to accept a fixed fee for their services rather than work on the parcel industry version of "contingency." The fixed-fee model, while generating a predictable cash stream for the consultant, is often not as lucrative as the gain-sharing model.
Michael P. Regan, chairman of Elmhurst Village, Ill.-based consultancy TranzAct Technologies Inc., agreed that while consultants remain busy, they are ringing less at the register today than in prior years. That, he said, is due to shippers migrating to fixed-fee quotes and away from gain-sharing.
"Since we have always emphasized the fixed-fee approach, it is not a big deal. But for some of the others, it is huge," he said.
Fear of retribution
With a court date well over a year away, the dispute is turning into a war of attrition that many consultants fear they can't win without some form of legal relief. With combined annual revenues of more than $94 billion and a near duopoly in the business-to-business U.S. parcel market, FedEx and UPS can easily live without consultants. However, the same cannot be said for consultants. In the end, their customers need to have their parcels shipped, and for the most part, only two are able to do it.
But the larger fear for consultants is that shippers will walk away from their relationships if they believe FedEx and UPS will punish them either by removing their discounts or degrading their service levels.
The AFMS complaint raised that concern, arguing that many shippers that have used third parties are refusing to speak publicly about the dispute because they are concerned about "retributive price increases" from the carriers. Martinez of Shipware added that "shippers are skittish of violating confidentially [agreements] or pissing off the carrier. They fear losing discounts or getting 'shut down,'" industry lingo for no pickups.
Martinez said he has spoken to more than a dozen consultants who have told him how much damage the policies have done to their businesses. Some have begun plying their trade with other transport modes, while a few have gone out of business, he said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
The Owner-Operator Independent Drivers Association (OOIDA) says the bipartisan legislation—called the Household Goods Shipping Consumer Protection Act—is needed because motor carriers are victimized through unpaid claims, unpaid loads, double brokered loads, or load phishing schemes on a daily basis.
The proposed act, which was introduced by Congresswoman Eleanor Holmes Norton (D-DC) and Congressman Mike Ezell (R-MS), offers a solution, OOIDA says. If passed, the bill would restore and codify FMCSA’s authority to issue civil penalties against bad actors. The legislation also requires that brokers, freight forwarders, and carriers provide a valid business address to FMCSA in order to register for authority.
According to Rep. Norton, the bill “would clarify that FMCSA has the authority to assess civil penalties for violations of commercial regulations, and crucially, to withhold registration from applicants failing to provide verification details demonstrating they intend to operate legitimate businesses. Americans moving across state lines need to be able to have confidence in FMCSA-licensed companies transporting their physical belongings. I'm thankful for Rep. Ezell’s partnership in co-leading this bill with me and look forward to the bill’s progress in the Senate.”
The bill has been endorsed by the Transportation Intermediaries Association (TIA), American Trucking Associations’ Moving & Storage Conference (ATA-MSC), Owner-Operator Independent Driver Association (OOIDA), the National Association of Small Trucking Companies (NASTC), Commercial Vehicle Safety Alliance (CVSA), Institute for Safer Trucking (IST) and Road Safe America.
OOIDA is now calling for the bill to get a swift vote before the full U.S. House of Representatives.
"Freight fraud committed by criminals and scam artists has been devastating to many small business truckers simply trying to make a living in a tough freight market,” OOIDA President Todd Spencer said in a release. “OOIDA and the 150,000 small-business truckers we represent applaud the House Transportation & Infrastructure Committee for its bipartisan approach in providing FMCSA better tools to root out fraudulent actors, which are also harmful to consumers and highway safety. Because of the broad industry support for these commonsense reforms, we hope this legislation will move to the full House of Representatives for a vote without delay.”
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
Dexory’s robotic platform cruises warehouse aisles while scanning and counting the items stored inside, using a combination of autonomous mobile robots (AMRs), a tall mast equipped with sensors, and artificial intelligence (AI).
Along with the opening of the office, Dexory also announced that tech executive Kristen Shannon has joined the Company’s executive team to become Chief Operating Officer (COO), and will work out of Dexory’s main HQ in the United Kingdom.
“Businesses across the globe are looking at extracting more insights from their warehousing operations and this is where Dexory can rapidly help businesses unlock actionable data insights from the warehouse that help boost efficiencies across the board,” Andrei Danescu, CEO and Co-Founder of Dexory, said in a release. “After entering the US market, we’re excited to open new offices in Nashville and appoint Kristen to accelerate our scale, drive new levels of efficiency and reimagine supply chain operations.”
The deal will create a combination of two labor management system providers, delivering visibility into network performance, labor productivity, and profitability management at every level of a company’s operations, from the warehouse floor to the executive suite, Bellevue, Washington-based Easy Metrics said.
Terms of the deal were not disclosed, but Easy Metrics is backed by Nexa Equity, a San Francisco-based private equity firm. The combined company will serve over 550 facilities and provide its users with advanced strategic insights, such as facility benchmarking, forecasting, and cost-to-serve analysis by customer and process.
And more features are on the way. According to the firms, customers of both Easy Metrics and TZA will soon benefit from accelerated investments in product innovation. New functionalities set to roll out in 2025 and beyond will include advanced tools for managing customer profitability and AI-driven features to enhance operational decision-making, they said.