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.
It began benignly enough, at least as legal matters go.
In February 2011, an immigration law firm in Alpharetta, Ga., filed a breach-of-contract suit
against FedEx Corp. and its corporate support division, FedEx Services, alleging they misclassified
commercial shipments as residential deliveries to extract higher surcharges from the firm, a FedEx shipper.
Nearly two years later, the case has broadened into a civil complaint filed under the federal Racketeer Influenced
and Corrupt Organizations Act, more commonly known as RICO. In an amended complaint filed Dec. 12, 2012, in federal
district court in Memphis, Tenn., attorneys representing the Atlanta firm and a law practice in Oakland, Calif., said
Memphis-based FedEx defrauded customers over a number of years by intentionally mis-rating tens of millions of
transactions as residential deliveries so it could collect millions of dollars in illicit overcharges.
According to the allegations, senior executives at FedEx and its Services unit did not stop the mis-rating practice
despite receiving repeated internal warnings that it had become a systemic problem.
A sales executive at FedEx Services wrote in an August 2011 e-mail obtained by plaintiffs' attorneys that
"we are choosing not to fix this issue because it is worth so much money to FedEx." The executive said he
believed the company had "methodology available to us to verify commercial addresses and [to] not charge our
customers for services that we do not perform."
The 170-page complaint also alleges that FedEx employees were encouraged to participate in the
scheme through financial incentives. In one case cited in the complaint, FedEx levied about $142,000
in residential delivery surcharges to one customer for deliveries to nonresidential addresses. A FedEx
Services employee then negotiated a $50,000 refund with the customer—which was not identified in
a copy of the filing given to DC VELOCITY. The outcome allowed FedEx to keep more than $92,000 of
the overcharges, according to the complaint.
For the work, the employee received an unspecified cash bonus and the company's "Bravo Zulu" award,
a name taken from the Naval signal conveyed by flag-hoist or voice radio meaning "well done," according
to the complaint.
Steven J. Rosenwasser, an Atlanta attorney representing the two plaintiffs, said FedEx employed
various tactics to implement the overcharge scheme. For example, prior to 2012 the company had a
policy of assessing the higher residential delivery charge on a shipment marked "residential," even
if the driver making the delivery concluded that it went to a nonresidential address, according to
Rosenwasser. However, if a customer indicated that a delivery location was not residential and the
delivery still went to a residence, the customer's initial designation would be overridden and the
residential delivery surcharge would be imposed, he said.
"FedEx followed its courier's designations only when it resulted in the imposition of a residential
delivery charge but not when it would cause the removal of an improper overcharge," Rosenwasser said.
Because FedEx is not required to produce documents that existed before August 2008, it is impossible to know for
certain how far back the alleged practice stretched, Rosenwasser said. Yet in one of the August 2011 e-mails, the
FedEx Services sales executive said the issue had been "brought to the attention of many people over the past
five or six years," a suggestion that it was going on before 2008.
Rosenwasser said he doesn't know if the alleged practice is still going on. Attorneys may get more
clarity during the on-going "discovery" process, he added.
FedEx declined requests for an interview and had no comment other than an e-mailed statement from Sally
Davenport, a company spokesperson. "We value our relationships with our customers, and these relationships are
at the core of all we do," said Davenport.
Davenport added that the documents that were made part of the record in mid-December "do not tell
the entire story of this case," and that the company "will continue to defend these allegations in a
court of law and not the media." Customers with billing complaints can seek refunds through FedEx, she said.
For FedEx, the case is an unwelcome distraction as it works on an
extensive revamp of its flagship FedEx Express air and international division, an initiative expected
to reap $1.65 billion in annual savings over the next two to three years.
A parcel industry source said FedEx is likely to settle the case out-of-court rather than deal with
the continued fallout from the release of additional potentially damaging documents. Rosenwasser declined
comment on whether there have been discussions to that effect.
The attorney said a motion would be filed in the spring seeking class action status for a multitude of shippers
allegedly harmed by the actions. He surmised the case impacts shippers of all stripes shipping from commercial and
industrial origins.
If a civil action under RICO is successful, a plaintiff can collect so-called "treble damages," defined as
damages tripling the amount of actual or compensatory damages.
Rosenwasser said plaintiffs' attorneys amended the complaint after becoming convinced
that the misclassifications were not accidents that had been overlooked, but were a deliberate
pattern of behavior that the company made no effort to halt.
THE SURCHARGE PHENOMENON
The dispute revolves around a band of surcharges imposed by FedEx on
residential and commercial deliveries. The surcharge tab escalates as
the deliveries are deemed to be more difficult and costly for the company
to make. The surcharges on hard-to-reach residential locations can be as
much as $1 more per shipment than the comparable commercial surcharge.
The delivery surcharges are just one of dozens of so-called accessorial fees that carriers
tack on to the base rate to compensate them for a range of services beyond the pickup and delivery.
The most well-known accessorial fee is a "fuel surcharge" levied to offset rising jet and diesel fuel costs.
Over the years, "accessorials" have become a larger part of a shipper's overall bill. Many chafe at the rising
number of accessorials and their increased cost but continue to pay them. For example, in 2013 FedEx will bill
shippers a basic $3.20 per-shipment surcharge for each residential delivery shipped by air and $2.80 for a
residential shipment laded for ground delivery, according to Shipware LLC, a San Diego-based parcel consultancy.
In 2012, those surcharges were $3 and $2.55, respectively, for air and ground services, according to Shipware.
Misclassifying delivery surcharges has a ripple effect on shippers because it also triggers the prevailing fuel
surcharge on a more expensive delivery fee, parcel consultants said.
Carriers contend that surcharges cover a variety of value-added services that must be paid for and
that many of these functions are performed to correct avoidable mistakes made by shippers. Parcel
consultants note that FedEx and archrival UPS Inc. discount those fees for high-volume customers.
Parcel consultants—many of whom are former carrier executives and make a good living advising shippers on
how to deal with rate, service, and accessorial issues—say the carriers admit that they make mistakes, that
real-time information is available for shippers to audit, and that refunds will be made for legitimate overcharges.
Shippers can get refunds if they bring solid evidence and push hard enough, according to the consultants. However,
many lack the time or expertise to pursue them, they say.
"Few shippers do the investigations and questioning," said Jerry Hempstead, a former top parcel
sales executive and now head of an Orlando-based consultancy bearing his name.
AN ART FORM
The application of surcharges is mostly an art form. As a general rule, the shipper is responsible
for determining if a delivery is bound for a residential or commercial address. However, many shippers
enter incorrect information, or are confused as to whether a destination is residential or commercial.
Parcel consultants say many high-volume shippers tender everything as a commercial delivery knowing some
shipments will ultimately be re-rated to a residential classification.
The driver makes deliveries based on the addresses shown on the package labels. If the delivery is to a residence,
the driver checks a box marked "residential" on a handheld device. That action effectively overrides any commercial
designation made at the time of manifesting and triggers a re-rate to a residential classification.
By checking the "residential" box on their devices, drivers are allowed to leave the package without a signature
unless one was already required. Shipments delivered to a commercial address require a signature. FedEx and UPS often
leave the ultimate application of delivery surcharges to the driver's discretion.
Both parcel giants receive customer complaints about overcharges relating to delivery misclassifications. However,
a long-time parcel executive said there are fewer complaints directed at UPS because it is more proactive in adjusting
the rate from residential to commercial when the situation warrants. UPS will reverse the charges on about eight out of
10 complaints, according to the executive. At FedEx, the ratio is one or two reversals for every 10 complaints, the
executive said.
Hempstead of Hempstead Consulting believes that FedEx prizes its hard-won reputation for quality and integrity too
highly to let this issue go unaddressed. "In the end, I believe this suit will result in a more accurate billing process,"
Hempstead said.
He added that FedEx will "get focused, put a Six Sigma team together, do root-cause analysis, and they will
quickly put this issue behind them."
For those inside FedEx who sensed the coming storm well before it hit, the issue can't be in the
rearview mirror soon enough. In one of the August 2011 e-mails, the FedEx Services sales executive
complained that he repeatedly raised the issue as high up as the managing director level but
received little or no response.
The clearly frustrated executive also made a comment that today seems eerily portentous: "My
prediction is this practice is going to come back to haunt us in a very expensive way."
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Two European companies are among the most recent firms to put autonomous last-mile delivery to the test with a project in Bern, Switzerland, that debuted this month.
Swiss transportation and logistics company Planzer has teamed up with fellow Swiss firm Loxo, which develops autonomous driving software solutions, for a two-year pilot project in which a Loxo-equipped, Planzer parcel delivery van will handle last-mile logistics in Bern’s city center.
The project coincides with Swiss regulations on autonomous driving that are expected to take effect next spring.
Referred to as “Planzer–Dynamic Micro-Hub w LOXO,” the project aims to address both sustainability issues and traffic congestion in urban areas.
The delivery vehicle, a Volkswagen ID. Buzz battery-electric minivan, will feature Loxo’s Level 4 Digital Driver navigation software, a highly automated solution that allows driverless operation. The van was retrofitted to include space for two swap boxes for parcel storage.
During the two-year pilot phase, Loxo’s Digital Driver will navigate a commercial vehicle several times a day from Planzer’s railway center to various logistics points in Bern's city center. There, the parcels will be reloaded onto small electric vehicles and delivered to end customers by Planzer’s parcel delivery staff.
Following the completion of the pilot phase, Planzer and Loxo will build on the program for rollout in other Swiss cities, the companies said.
The partners said the project addresses the increasing requirements of urban supply chains and aims to ensure the “scalability of their disruptive solution.” With largely emission-free delivery, it contributes to greater levels of sustainability for the city as a living space, they also said.
“The uniqueness of this project lies in the fact that it will have a direct impact on society,” Planzer’s CEO and Chairman Nils Planzer said in a statement announcing the project. “We didn't just want to integrate automated technology into existing systems, we wanted to develop a completely new concept and a new business model.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.