DC Velocity - February 2013

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 [driver’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 ongoing “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 spokeswoman. “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.

AN UNWELCOME DISTRACTION

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 RISE OF SURCHARGES

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 per shipment more 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 for a range of services beyond the pickup and delivery. The most well-known 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, according to Shipware.

Misclassifying delivery surcharges has a ripple effect on shippers because it also triggers the prevailing fuel surcharge on a higher delivery fee, parcel consultants said.

Carriers contend that the surcharges are designed to cover a variety of value-added services that must be paid for. Many of these functions are performed in order to correct avoidable mistakes made by shippers, according to the carriers. Parcel consultants also note that FedEx and archrival UPS Inc. discount accessorials for high-volume customers.

Consultants maintain that the carriers process so many transactions that they are bound to make mistakes. Consultants say the carriers, for the most part, are diligent about making information available in real time for customers to audit and providing refunds when they are deemed to be legitimate. However, many customers lack the time, resources, and expertise to do what’s needed to obtain refunds, according to consultants.