As a Third Party Consultant (3PC) and 20-year parcel industry veteran, I read with interest Amanda Armendariz’ recent article “The Changing Relationship Between Carriers & Shippers” (Parcel e-news, 8/26/10) in which the Parcel Editor accurately reports that both United Parcel Service (UPS) and FedEx Corp (FedEx) have selectively adopted a policy to reject bid participation if it involves a 3PC.
With USPS’s struggle to become a viable third player, some industry pundits are calling FedEx and UPS a duopoly in the parcel market. Many shippers are fearful that without market pricing controls – competition and 3PCs – UPS and FedEx pricing will rise unabatedly.
By all accounts, carrier pricing has tightened in recent months. The general rate increases (GRI) in each of the past three consecutive years have been the highest on record. And a recent Colography Group report shows surcharges are up over 125% since 2003.
It’s possible that it won’t stop there. A source within one of the “Big 2” (who shall remain anonymous) reported custom rate increases for a population of customers that don’t meet profitability standards is being considered.
Not only are dozens of 3PC businesses and hundreds of jobs at risk with the advent of these carrier policies, but we’re now hearing instances in which shippers have been threatened to comply with the policy or risk moving to list rates.
How are 3PCs responding to these carrier actions? Some are scrambling to change their engagement approach, a few have moved on to specialize in services unrelated to price negotiations, and at least one 3PC has filed a Federal lawsuit against FedEx and UPS citing Antitrust violations, intentional interference of contract and prospective economic relationships, unfair competition in addition to other complaints.
One East Coast law firm is investigating possible collusion charges against UPS and FedEx. At the heart of the investigation: 1) Serving on a Parcel Forum panel in October 2009, UPS and FedEx representatives announced a pending policy not to work with 3PCs; 2) The panelists did not deny the possibility of collusion between the carriers; and 3) Both carriers adopted similar policies within weeks of each other.
As stated in the aforementioned Federal lawsuit: “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 3PCs at or about the same time – as they did.”
Confounding the matter is the fact that neither carrier has published for public consumption its official policy regarding 3PCs, other than to reiterate the preference has always been to negotiate directly with their customers.
Why the sudden adoption of the mysterious and austere policy against 3PCs? After all, many 3PCs have enjoyed a long and successful track record of collaborating with both FedEx and UPS for the past two decades. Many of us have dozens of letters from carriers thanking us for our involvement.
Shippers have reported the message delivered by carrier reps is the policies were designed to “protect shippers” from improper rate disclosure. Another rep told her customer “we (the carrier reps themselves) are the most expert at discussing our pricing policies and services”. Talk about the fox minding the henhouse.
One industry insider who requested anonymity believes those explanations are marketing rhetoric. He estimates that 3PCs have saved shippers hundreds of millions of dollars in the past few years alone. In his mind, these policies constitute “price fixing” and were enacted entirely as a means to protect carrier margins.
It’s clearly an important topic. However, it appears that no one is willing to have an open dialog about this issue. Not the carriers, not shippers, and not the 3PC’s. The various 3PCs cited in Amanda’s article each requested anonymity, perhaps a testament to the uncertainty and fear of challenging two multibillion dollar companies.
So what exactly are the carrier policies? It’s time to shed light on these policies, and to educate the shipping public of its rights. Here’s what we’ve been able to gather:
FedEx Policy - “Third Party Consultant Rules of Engagement for Field Sales” issued on 4/23/10, the message to the FedEx sales organization is to “say no” to direct engagement with consultants providing RFP services where the only value is price negotiation.
Reps can exercise limited exceptions by appealing to a review board. This is an advisory board that will determine if the 3PC is a “value added provider” (VAP). Suppliers that provide supply chain services including warehouse efficiency, fulfillment, storage, warehousing, inventory control and transportation management have a chance at passing the value test, while firms that focus on auditing and price negotiations are not considered VAPs.
If the Sales Rep believes the firm is a VAP, he/she must get approvals from the District Sales Manager (DSM), Managing Director (MD) and VP Sales (VP). The customer, the 3PC and FedEx must sign a 3-Way Non-Disclosure Agreement, and FedEx must have access to all individuals pertinent to the decision.
Note, the DSM is instructed to appeal to the MD and VP if he/she feels that not working with the consultant will damage the customer relationship, or if the 3PC provides an opportunity to win an entrenched competitor customer. Another confidential source at FedEx said the policy is “posturing” and that FedEx will back down if shipper’s call its bluff. The source said, “We simply cannot afford to walk away from business.”
UPS Policy – Like FedEx, UPS’s policy is to negotiate directly with its customers and not 3PCs. However, the policy can be appealed at the discretion of the sales team with approval of the Director of Sales (DOS). A signed Third Party Confidentiality Agreement is required.
While the carrier policies certainly change the traditional negotiation game, shippers can still engage 3PCs, even if only to advise them how to conduct an effective bid on their own.
Like many, I will closely follow and report to PARCEL readers on the progress of the Federal lawsuit against Defendants FedEx and UPS. While I am hopeful the judge grants the Plaintiffs injunction relief (meaning the carriers are legally ordered to back off their policy against 3PCs), I’m calling for the carriers to reevaluate and rescind these policies and – like FedEx’s Brown Bailout campaign – “say ‘yes’ to competition”.
More importantly, I’m calling for shippers to take a stand to do their part to keep the carrier’s pricing in check. Remind the carrier that YOU are the customer and that you have options.
Demand free market competition. Demand the right to engage any vendor YOU determine delivers value. If enough of us take a stand, the carriers will rescind these policies.
Rob Martinez, MQC, CMDSS is President & CEO of Shipware Systems Corp. He welcomes comments and experiences from shippers, carriers and other 3PCs, and can be reached at 858-538-3359 or rob@shipware.com.
With USPS’s struggle to become a viable third player, some industry pundits are calling FedEx and UPS a duopoly in the parcel market. Many shippers are fearful that without market pricing controls – competition and 3PCs – UPS and FedEx pricing will rise unabatedly.
By all accounts, carrier pricing has tightened in recent months. The general rate increases (GRI) in each of the past three consecutive years have been the highest on record. And a recent Colography Group report shows surcharges are up over 125% since 2003.
It’s possible that it won’t stop there. A source within one of the “Big 2” (who shall remain anonymous) reported custom rate increases for a population of customers that don’t meet profitability standards is being considered.
Not only are dozens of 3PC businesses and hundreds of jobs at risk with the advent of these carrier policies, but we’re now hearing instances in which shippers have been threatened to comply with the policy or risk moving to list rates.
How are 3PCs responding to these carrier actions? Some are scrambling to change their engagement approach, a few have moved on to specialize in services unrelated to price negotiations, and at least one 3PC has filed a Federal lawsuit against FedEx and UPS citing Antitrust violations, intentional interference of contract and prospective economic relationships, unfair competition in addition to other complaints.
One East Coast law firm is investigating possible collusion charges against UPS and FedEx. At the heart of the investigation: 1) Serving on a Parcel Forum panel in October 2009, UPS and FedEx representatives announced a pending policy not to work with 3PCs; 2) The panelists did not deny the possibility of collusion between the carriers; and 3) Both carriers adopted similar policies within weeks of each other.
As stated in the aforementioned Federal lawsuit: “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 3PCs at or about the same time – as they did.”
Confounding the matter is the fact that neither carrier has published for public consumption its official policy regarding 3PCs, other than to reiterate the preference has always been to negotiate directly with their customers.
Why the sudden adoption of the mysterious and austere policy against 3PCs? After all, many 3PCs have enjoyed a long and successful track record of collaborating with both FedEx and UPS for the past two decades. Many of us have dozens of letters from carriers thanking us for our involvement.
Shippers have reported the message delivered by carrier reps is the policies were designed to “protect shippers” from improper rate disclosure. Another rep told her customer “we (the carrier reps themselves) are the most expert at discussing our pricing policies and services”. Talk about the fox minding the henhouse.
One industry insider who requested anonymity believes those explanations are marketing rhetoric. He estimates that 3PCs have saved shippers hundreds of millions of dollars in the past few years alone. In his mind, these policies constitute “price fixing” and were enacted entirely as a means to protect carrier margins.
It’s clearly an important topic. However, it appears that no one is willing to have an open dialog about this issue. Not the carriers, not shippers, and not the 3PC’s. The various 3PCs cited in Amanda’s article each requested anonymity, perhaps a testament to the uncertainty and fear of challenging two multibillion dollar companies.
So what exactly are the carrier policies? It’s time to shed light on these policies, and to educate the shipping public of its rights. Here’s what we’ve been able to gather:
FedEx Policy - “Third Party Consultant Rules of Engagement for Field Sales” issued on 4/23/10, the message to the FedEx sales organization is to “say no” to direct engagement with consultants providing RFP services where the only value is price negotiation.
Reps can exercise limited exceptions by appealing to a review board. This is an advisory board that will determine if the 3PC is a “value added provider” (VAP). Suppliers that provide supply chain services including warehouse efficiency, fulfillment, storage, warehousing, inventory control and transportation management have a chance at passing the value test, while firms that focus on auditing and price negotiations are not considered VAPs.
If the Sales Rep believes the firm is a VAP, he/she must get approvals from the District Sales Manager (DSM), Managing Director (MD) and VP Sales (VP). The customer, the 3PC and FedEx must sign a 3-Way Non-Disclosure Agreement, and FedEx must have access to all individuals pertinent to the decision.
Note, the DSM is instructed to appeal to the MD and VP if he/she feels that not working with the consultant will damage the customer relationship, or if the 3PC provides an opportunity to win an entrenched competitor customer. Another confidential source at FedEx said the policy is “posturing” and that FedEx will back down if shipper’s call its bluff. The source said, “We simply cannot afford to walk away from business.”
UPS Policy – Like FedEx, UPS’s policy is to negotiate directly with its customers and not 3PCs. However, the policy can be appealed at the discretion of the sales team with approval of the Director of Sales (DOS). A signed Third Party Confidentiality Agreement is required.
While the carrier policies certainly change the traditional negotiation game, shippers can still engage 3PCs, even if only to advise them how to conduct an effective bid on their own.
Like many, I will closely follow and report to PARCEL readers on the progress of the Federal lawsuit against Defendants FedEx and UPS. While I am hopeful the judge grants the Plaintiffs injunction relief (meaning the carriers are legally ordered to back off their policy against 3PCs), I’m calling for the carriers to reevaluate and rescind these policies and – like FedEx’s Brown Bailout campaign – “say ‘yes’ to competition”.
More importantly, I’m calling for shippers to take a stand to do their part to keep the carrier’s pricing in check. Remind the carrier that YOU are the customer and that you have options.
Demand free market competition. Demand the right to engage any vendor YOU determine delivers value. If enough of us take a stand, the carriers will rescind these policies.
Rob Martinez, MQC, CMDSS is President & CEO of Shipware Systems Corp. He welcomes comments and experiences from shippers, carriers and other 3PCs, and can be reached at 858-538-3359 or rob@shipware.com.
