In another salvo in the decade-long, low-level war between the two leading U.S. parcel carriers and a cluster of consultancies that work on behalf of carriers’ customers to optimize their parcel shipping spend, UPS Inc. (NYSE:UPS) said it will not agree to provide money-bank guarantees on late or missed deliveries if customers use a third party to track UPS shipments.
The language, which began appearing within the past 30 to 60 days in an undetermined number of contracts, is couched in broad terms. There are questions as to whether shippers could bargain that language out of their contracts or whether it would withstand a legal challenge. However, the directive’s language reads that the use of a third party to track UPS shipments is “strictly prohibited” and constitutes a “breach” of its service guarantee.
Mike Erickson, president of parcel consultancy AFMS LLC, said that FedEx Corp., (NYSE:FDX), UPS’ chief rival, has a similar policy and that the language is becoming more commonplace in both carriers’ contracts. Tracking data is essential to verifying a carrier’s on-time delivery performance.
Erickson added that both are pushing shippers to agree to waive their rights to file for refunds on late deliveries no matter who requests them. Shippers that push back on that language can often get it removed, he said.
Erickson has fought a nine-year legal battle with the carriers, charging they violated antitrust laws by excluding AFMS from contract negotiations and working directly with the shippers and AFMS clients. Erickson’s argument has not passed muster, however, as courts have found AFMS has never been a parcel shipper and failed to demonstrate a “relevant market” where any discrimination may have occurred.
UPS spokesman Steve Gaut said the company has long required specific contractual agreements involving third-party use of data shared by the company with its shippers. “We establish those agreements on an individual basis to ensure there is clarity on the permitted use of the data among everyone involved,” Gaut said.
Katie Wassmer Johnson, a FedEx spokeswoman, said the company’s service guarantee policies have not changed. She added that FedEx recently had updated language in its service guide to “better reflect alignment across operating companies.” A review of those changes could not find language relating to a waiver of service guarantees for third-party use of FedEx data.
Trevor Outman, co-founder of parcel consultancy Shipware, LLC, said the UPS edict “sounds like the typical carrier approach” to convince their customers to do what is in the carrier’s best interest. “The carriers know full well that shippers don’t have proprietary technology to audit invoices for accuracy and late packages,” Outman said. “UPS is simply making an effort to get their customer to stand down on recovering this revenue.”
For most of the parcel industry’s modern history, UPS and FedEx tolerated the presence of consultants, virtually all of whom came from the industry and many being alumni from the two carriers themselves. In late 2009, however, the carriers began bypassing the parcel consultants to deal with the shippers. They also barred consultants from accompanying their shipper clients to the negotiating table. The carriers said at the time of the ban that it would enable shippers to keep all of their cost savings gained through negotiations rather than share those savings with consultants.
Since then, consultants can only access a shipper’s contract and shipping data through a three-way nondisclosure agreement (NDA) signed by the shipper, carrier and consultant. Consultants maintain that although they can prep shippers for contract negotiations, it is not the same as having them across the table from skilled carrier executives, according to consultants.
A consultant who requested anonymity said the NDAs are one-sided in favor of the carriers. For example, the carriers can impose financial penalties on a consultant if they believe the data is being used improperly, the consultant said. Carriers can seek injunctive relief, effectively shutting down the consultant’s practice, the consultant said. In addition, the carrier can, upon request, obtain the consultant’s work product, the consultant added. “Imagine coaching a client on how to negotiate with UPS, and UPS has access to that playbook?” the consultant said.
Many shippers feel that they, not the carriers, own the shipping data and contract information and that shippers have the right to share that intelligence with any outside parties, consultants have said.
The consulting sector has argued that most parcel shippers, many of whom are not transport specialists, are at a distinct disadvantage going head-to-head with the carriers in complex contract negotiations. Most don’t know what can be done to save serious budget money without compromising service levels, according to consultants. The proliferation of often-bewildering accessorial charges, carrier-imposed fees for services unrelated to the line-haul, can put shippers behind the eight ball, consultants said. In addition, many shippers fail to catch the contract “gotchas” that the carriers insert in contracts that could cost their customers money or rob them of refunds they are entitled to, consultants contend.
Consultants contend that, in aggregate, they have saved shippers hundreds of millions of dollars or more over the decades, which is why the carriers don’t want them around.
The demands of e-commerce customers for free shipping, combined with UPS and FedEx raising rates and accessorial charges every year, have made consultants even more important to pressured shippers, consultants have said.