Parcel Shippers’ Court Battle Continues to Take Shape
On Oct. 14, 2010, plaintiff AFMS, a parcel consulting firm, filed an amended complaint against defendants UPS and FedEx, stating violations of Sherman Acts 1 and 2. AFMS claims that UPS and FedEx have violated federal antitrust laws. Furthermore, it alleges the parcel carriers are engaged in monopolistic and collusive actions. The lawsuit is the result of UPS and FedEx’s 2010 policies to not participate in bids or rate negotiations that involve third-party negotiators (3PNs) like AFMS.
The evidence submitted by AFMS clearly raised quite a few eyebrows. On April 23 of last year, both FedEx and UPS released internal memos to their sales divisions stating that new policies had been implemented to circumvent 3PN participation. Yes, you read that correctly: Two archrivals issued very similar policies on the same day out of the blue following 20 years of collaborative and successful relationships with 3PNs.
AFMS’ complaint contends that “the competitive impact of either FedEx or UPS unilaterally terminating its dealings with third-party consultants was so significant that neither company would have dared to give the other such a huge potential competitive advantage/opportunity without an understanding that both would terminate dealings with third-party consultants at or about the same time — as they did.”
In other words, if UPS refused to work with 3PNs and FedEx continued to do so, FedEx would have had an enormous advantage — it would be the beneficiary of any bid with only one bidder participating. Therefore, the only way UPS moves forward with that policy is if it was guaranteed that its rival would also do so. The complaint includes several examples of testimony as well as documented evidence wherein the defendants were in fact aware of the other's intention to exclude 3PNs.
Why would rivals work in concert to cut out 3PNs from participating in contract negotiations with their customers? You guessed it. Most 3PNs are good at getting parcel carriers to lower pricing. How successful? The AFMS complaint cites potential savings of $2 billion a year. 3PN company Shipware estimates that the top six 3PNs alone force UPS and FedEx to take revenue dilution of $250 million annually.
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.