FedEx and UPS embroiled in federal antitrust inquiry

FedEx and UPS are facing a court hearing later this month regarding claims they colluded to prevent shipping consultants from negotiating lower rates on behalf of their clients. The two companies stand accused of making a joint decision to stop working with third party negotiators on behalf of potential customers, in order to protect revenue.

The civil antitrust lawsuit was initially filed with the US District Court in Los Angeles last August by lawyers on behalf of shipping consultancy AFMS Logistics Management Group, with additional allegations added in October.

AFMS, of Portland, Oregon, is claiming millions in lost business it believes resulted from the shipping companies’ refusal to deal.

On a broader level, the lawsuit claimed that the presence of shipping consultants was one of the only ways to maintain competition between UPS and FedEx in the domestic delivery of time-sensitive items, and that the new policy was effectively “price fixing”.

It suggested the companies would not have dared to refuse business via third party negotiators unless the policy was taken by both FedEx and UPS.

The US Department of Justice (DOJ) is now said to be reviewing the case, although it has declined all requests for comment. A spokesperson told Post&Parcel today: “We are not commenting one way or the other on this.”

A statement from UPS issued yesterday confirmed that the Antitrust Division of the DOJ had requested information on November 19, 2010, as part of a “preliminary investigation of UPS’s policy for interacting with third-party negotiators”.

“DOJ asked UPS to respond voluntarily to questions and provide information, and UPS is cooperating fully with the DOJ inquiry,” said the Atlanta-based company.

FedEx confirmed today that it had heard the DOJ was looking into the case on an “informal” basis.

A court date has been set for a judge in the US District Court, Central California, to hear UPS and FedEx motions to dismiss the case on January 31. If the judge rules not to dismiss the case, a full trial would be held in September.

Lawsuit

The AFMS lawsuit, filed on the company’s behalf by Los Angeles-based antitrust lawyers Blecher & Collins, cited 2007 figures from Morgan Stanley suggesting that 11% of all shippers used consultants to help reduce their costs through negotiation with FedEx and UPS.

Some 49% of these saw their costs cut by 15%-30% through using consultants, according to the cited study.

AFMS argued that for UPS and FedEx to agree to eliminate the third party option for shippers would be “a form of price fixing” under US law.

It suggested that the two shipping companies had been raising their prices in “lock-step” for years, and that consultants negotiating cost-savings would cost the two companies “billions” each year.

Arranging shipping for the likes of Sony, Toyota, Honda, Quiksilver and Guess in Southern California, AFMS worked with FedEx and UPS for 17 years before the policy change, claiming to have saved clients $100 million between 2007 and 2009.

Maxwell Blecher, the attorney representing AFMS, explained to Post&Parcel that the impact of the FedEx and UPS policy change had been “devastating” for his client and other shipping consultants.

He said potentially, the legal challenge against the two shipping companies cold “open up discovery on the whole nature of the relationship between the shipping companies”.

Policy shift

A central allegation within the lawsuit was that UPS and FedEx announced their policy shift on third party negotiators together, at the same industry event in Chicago in October 2009.

The lawsuit also pointed to internal memos from both companies, issued on the same day, instructing staff on policies regarding third party negotiators.

Copies of the memoranda seen by Post&Parcel, both dated April 23, 2010, reveal UPS and FedEx requiring their staff to limit dealing with third party negotiators, and refuse requests for information.

Both notes lay out strategies and scripts for staff to follow when dealing with third party negotiators, for example persuading customers that half the cost savings they might achieve in negotiations would be lost to the consultants.

The FedEx note does include an exception process, whereby if using a third-party consultant would bring particular value to the company, such as an “entrenched competitor customer”, staff could deal with consultants.

Right to decline

Describing the allegations in the lawsuit as “baseless”, UPS said yesterday that it had acted unilaterally in its third party negotiator policy, and insisted that UPS and FedEx compete against each other “to an extraordinarily high degree”.

UPS said in its statement: “As is the case with the AFMS litigation, UPS strongly defends its right to decline to deal with third-party negotiators when doing so is in UPS’s best interests and the best interest of our customers.”

FedEx told Post&Parcel today that it would “vigorously” defend itself against the allegations.

Spokesperson Sandra Munoz denied there had been a change of policy at FedEx regarding third party negotiators, stating: “We are willing to co-operate in certain circumstances with third parties.”

The FedEx spokesperson was unable to explain why FedEx had issued instructions to its staff on third party negotiators on the same day as UPS, stating: “We have no idea when UPS does things.”

Ms Munoz said the view of FedEx regarding consultants was that “we understand best the diverse nature of the services we offer. We do have a full range of services and feel that we can provide customers with the best value for their shipping.”

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