On track in Texas

Yesterday I was in Pharr, Texas working on a print story and a video at a company called McCoy’s Building Supply (look for this story in an upcoming issue of DC Velocity). As the name implies, McCoy’s provides lumber, hardware, shingles, blocks, and a full range of other building products to construction firms from over 80 locations throughout five southern states. I was there to look at their use of Toyota lift trucks, particularly in moving the heavy loads within their yard.

 

The Pharr facility does a little of everything. It serves as a distribution point for other McCoy stores in south Texas and there is also a retail store attached to the lumberyard that provides hardware and other home improvement products to do-it-yourselfers.

 

What struck me as uncommon about this facility was that it had a rail spur in its yard. While rail is often used to supply manufacturing facilities, few distribution operations in the U.S. have rail connections. Two flatbed rail cars had been dropped off onto the spur the night before I visited. Heavy-duty pneumatic-tire lift trucks were used to quickly unload the cars the following morning, taking advantage of their ability to access the rail cars from both sides.

 

Of course, a lot of freight moves by rail in North America. It is the most cost-effective ground transport available to shippers. Most rail loads, though, have to transfer to trucks to reach a D.C. Having a rail spur in their yard allowed McCoys to purchase full train car loads, which gave them better pricing and saved on freight. The product is then distributed to other local McCoy’s stores.

 

Possibly in the future we will see more distribution networks designed to better take advantage of direct connections to rail, gaining the efficiencies and cost savings found with being on-track.

Fast track off track on trade disputes

With its vote to end a Democratic-led filibuster, the US Senate will pass fast track authority this week for the Trans-Pacific Partnership(TPP), the most wide ranging trade deal since the North American Free Trade Agreement. The House will be under enormous pressure to go along.

Most of the details of the pact remain secret as negotiations continue, and that secrecy is one of the reasons that authorizing fast track authority has run into opposition. 

But a more contentious part of the deal is the Investor-State Dispute Resolution (ISDS) mechanism. That creates a binding arbitration process by which foreign investors can challenge a nation's laws or regulations that they contend unfairly cause those investors economic harm. 

ISDS has been a part of trade agreements for a long time. but as large international firms have used the process more and more often to go after laws and regulations they don't like, ISDS has become a central issue to opponents of TPP and similar agreements (notably the now stalled Transatlantic Trade and Investment Partnership.) 

When you look at some of the ISDS challenges, it's no wonder. As the Economist reports, "Among the cautionary examples often cited are the suit brought by Vattenfall, a Swedish energy firm, against the German government for phasing out nuclear power after the Fukushima disaster and that of Veolia, a French utility, against the Egyptian government for raising the minimum wage." And there others like that that create similar concerns. Philip Morris Asia, for example, has challenged Australia's rules aimed at reducing smoking by requiring health care warnings on tobacco packaging under the ISDS procedures. The results of that case are pending. Furthermore, ISDS cases have proliferated, jumping sharply over the past decade or so, 

It surprises me that the Obama administration has not seemed amenable to reforms in the ISDS process to allay at least some of the concerns of the TPP opponents. The Economist, in the same report, says European trade authorities, in an effort to restart the transatlantic talks,  have suggested changes that would make the process more like that found in courts of law, with public access, permanent arbitrators, and an appeals process.

The original idea behind ISDS processes was to protect investors from arbitrary and confiscatory rules in nations where they invested in order to encourage that very investment. But it seems to being used more often to challenge laws and regulations that are merely inconvenient--health and environmental rules, minimum wage laws and the like. Furthermore, with business investment flourishing around the world, even the need for ISDS might be questionable.

I'm no foreign trade expert, but a process that could let outside arbitrators rather than our own courts determine whether our rules and regulations are legitimate--a process, by the way not open to all-- makes me as a citizen pretty uncomfortable.

 

 

Parcel carriers behaving badly

Duopolies should be able to make bundles of money the above-board way without resorting to tactics that could be described as underhanded or just downright dumb.

The latest incident came to light last month when the Justice Department said UPS Inc., one half of the B2B parcel duopoly in the U.S., agreed to pay $25 million to settle claims that, for 10 years, the company knowingly recorded inaccurate delivery times on packages shipped to hundreds of federal agencies to make it appear the packages were delivered on time. UPS also applied inapplicable exception codes designed to excuse late deliveries, and provided incorrect on-time performance data. UPS’ objective, according to DOJ, was to conceal its failure to meet its “Next Day Air” delivery commitments, which would have allowed the government to claim refunds through the money-back guarantees called for under contracts with the General Services Administration and the U.S. Transportation Command.

UPS did not acknowledge liability, and paid the fine to avoid the prospects for lengthy litigation. Susan L. Rosenberg, a company spokeswoman, said the company has worked to improve systems, training, and technology since it became aware of the issue.

The issue is a practice known as “stopping the clock,” where a carrier will, at times, game the system to appear a particular route has few or any service failures. The clock starts when a shipper selects a service level. The clock stops when a package is delivered and a proof of delivery is furnished, when a carrier encounters bad weather, a wrong address is entered, the recipient is not available, or if Customs holds a package. These are all legitimate causes. The problem arises when carriers, under pressure to hit tough deadlines, play fast and loose with events. There are as many as 60 codes at a carrier’s disposal that stop the clock; many can be and are used inappropriately, and the result is that the customer has no recourse to file a claim. Even if they do, most lose because the carrier’s can prove that there was a code invoked that stopped the clock.

Jerry Hempstead, who worked for decades at top positions at Airborne Express and DHL Express in the U.S., called it a widespread problem that demonstrates no respect for the shipper or the consignee. Hempstead said it’s caused by a culture of fear that flows from line supervisors to drivers to “make service no matter what it takes” in order to make their service numbers and get the bonuses and promotions that accompany good results often arise from that. “When employees are under pressure, and performance reviews, and compensation are involved, sometimes poor judgment enters the equation,” he said.

This isn’t the first time of allegedly bad behavior by either company. Nearly two years ago, FedEx Corp. reached a tentative $21.5 million settlement with thousands to shippers to resolve allegations the company overcharged commercial customers by misclassifying their shipments as residential deliveries to extract higher surcharges. Last year, DOJ accused FedEx of being part of a criminal conspiracy by knowingly transporting illegal drugs on behalf of two rogue pharmacies. The year before, UPS settled similar claims out of court; FedEx plans to fight the charges.

UPS and FedEx dominate the US B2B parcel market, and no one is in sight to challenge them. Yet they’ve been accused of acting in ways that would make them out to be scrappy newcomers willing to push the boundaries of the law just to get their names known. The two companies combined cover virtually all corners of the earth and employ hundreds of thousands of people. It’s true that there’s opportunity for sleazy stuff to go on well below the eyes of upper management. Still, the culture if formed at the top, and if messages aren’t permeating all the way down the line, then, like it or not, the buck stops in the C-suite.