A 2011 class action lawsuit against FedEx (Gokare P.C. v. Federal Express Corp) alleges the shipping giant systematically and knowingly overcharged its customers for erroneous residential delivery charges, and that it failed to fix the issue over a 5-year period during which concerns were repeatedly raised. Citing violations of federal civil racketeering laws, the lawsuit’s plaintiffs provided examples in which FedEx invoiced residential surcharges as much as $3 per package for deliveries to obvious non-residential addresses including banks, courthouses, government offices and other commercial locations. In fact, examples included packages being delivered to FedEx’s own corporate headquarters.
While FedEx denies the allegations and intends to defend itself, online merchants and other shippers are wise to take measures to safeguard against erroneous charges buried within parcel invoices.
Of course, errors are not limited to just residential surcharges. There are dozens of “accessorial” charges applied to parcel invoices, any one of which could be in error. Discounts are not always accurately applied to shipments, fuel surcharges may be incorrect, and of course, there’s the issue of late deliveries. Parcel carriers do not automatically credit an invoice when a shipment is delivered after the money-back guarantee. Shippers have 15 days to call the carrier’s 800 lines or go online to file a refund request.
However, carriers have developed delivery exceptions that restrict you from filing service claims on certain shipments. These catch-all exceptions make up about 60 percent of all service failures and aren’t eligible for any refunds.
In fact, there are more than 80 delivery exceptions. Several of these exceptions include reasonable factors like delays resulting from “Acts of God” (natural disasters, severe weather, etc.). Many shippers are surprised, however, to learn of less-intuitive delivery exceptions. For example, a package may be excluded from the guarantee if the carrier driver cannot locate the delivery address, even if it’s a legitimate address.
Let’s quantify the potential value of money-back guarantees for parcel services: The world’s largest package delivery company, UPS handles more than 4 billion packages a year. Even if UPS were to maintain a 98% on-time delivery performance—considering the 2011 average revenue of $10.82 per package—if a claim was filed for each late package making up the 2% failure rate, it would cost UPS nearly $1 billion a year! And that figure excludes the administrative cost of researching and processing claims, re-invoicing and issuing credits.
What about the value of invoice errors? UPS’s U.S. Domestic Package Operations alone invoiced early $32 billion in 2011. Let’s assume invoicing accuracy is .005 – as a freight audit company, that’s a generous measure in our estimation – the value for UPS in the U.S. alone is $160 million.
Nearly $1 billion in service claims and $160 million in invoice errors. And that’s just UPS! Given the enormous financial impact, it is no wonder the carriers have developed complex pricing agreements, confusing invoices, watered-down service guarantees with limited access and multiple restrictions. So then, what can shippers do to put the “money-back” in the “guarantee” and to safeguard against erroneous charges?
The first recommendation is to request detailed, electronic invoices from your carriers that include delivery information. Then, assign a clerk to review the electronic data to identify late shipments and obvious invoice errors.
In addition, several qualified parcel audit companies have powerful software to validate rates and surcharges, identify and file claims on late shipments, and audit against a variety of common invoice errors. Once you’ve engaged an audit firm, they automatically receive and audit weekly parcel invoices, applying credits before you issue payment to the carrier.
Many audit firms are compensated on a contingency basis, only taking a percentage of the credit applied to your parcel invoice. Moreover, parcel auditors can deliver rapid ROI by facilitating accounting charge-back requirements, GL coding, and spend management visibility and reporting.
Finally, use your electronic parcel data to better manage service levels and to make more cost effective shipping decisions. By focusing on overall delivery performance—not just the failures—shippers can drive down total shipping costs through routing compliance, identifying opportunities for modal optimization, limiting accessorial costs and other important actions. The more shippers know about their freight, the better they position themselves for carrier rate negotiations down the road.
(December 28, 2012, By Rob Martinez, President & CEO, Shipware, LLC)
Rob Martinez is President and CEO of Shipware LLC, an innovative parcel audit and consulting firm that helps multichannel merchants reduce shipping costs 10%-30%. Rob welcomes questions and comments, and can be reached at 858-879-2014 or firstname.lastname@example.org.