AFMS takes a legal licking and keeps on ticking

Seemingly undaunted by a series of legal setbacks, a leading parcel consulting firm continues to press its case in court, charging that the nation's two largest parcel carriers—FedEx Corp. and UPS Inc.—acted illegally by colluding to boycott consultants and to threaten shippers who use these intermediaries with the loss of their rate discounts.

In late November, a federal district judge in California ruled that Portland, Ore.-based AFMS LLC failed to prove that the actions of the two giants did harm to the industry beyond the alleged damage to AFMS's own business. Because AFMS couldn't show that harm was done to companies other than itself, it had no legal standing to bring a suit charging federal antitrust violations by FedEx and UPS, according to the ruling by Judge Margaret M. Morrow.

On Dec. 12, AFMS responded to Judge Morrow's concerns by listing in court documents the names of several consultants allegedly harmed by the actions of FedEx and UPS. The consultants were Insource Spend Management Group, Columbia Services Inc., Distribution Management Inc., and what AFMS said was a well-established East Coast consultancy, which it called "Company X."

AFMS said in its amended complaint that many other consultants wanted to come forward but were afraid to do so out of fear of retribution from the parcel giants.

Judge Morrow's November ruling marks the second time in six months she has dismissed AFMS's claims against FedEx and UPS. In June, she ruled that AFMS was not a participant in the shipping market but in the consulting market, and thus could not have suffered antitrust damages arising from FedEx and UPS's alleged anticompetitive behavior.

Prior to that, the courts threw out AFMS's allegations that the carriers' actions violated California antitrust law, ruling that federal pre-emption of state statutes mooted the allegations.

Prepared for a fight
AFMS claimed the actions by FedEx and UPS "largely eviscerates" the ability of consultants to compete in the marketplace. It added that many consultants have suffered severe declines in revenue and income since policies took effect nearly two years ago allegedly boycotting the use of consultants.

FedEx and UPS have vowed to vigorously fight the AFMS claims, arguing their policies of working directly with customers instead of through intermediaries is a legal business practice in a competitive free-market environment.

The carriers also contend their policies don't explicitly state they are terminating their relationships with third-party consultants, but that they would continue dealing with the third parties "at the discretion of the individual company's management."

UPS has been more vocal about the dispute than its rival, stating that the allegations of collusion are ridiculous given the rivals' long history of battling for market share. A high-level source inside UPS said the company would take its case to the U.S. Supreme Court, if necessary, to defend against charges of collusion.

The legal fight began in August 2010, several months after FedEx and UPS terminated a 17-year arrangement with AFMS and three months after the carriers issued separate directives revamping their policies for working with consultants. In October 2009, executives of both companies spoke publicly at an industry conference about their respective plans to phase out their relationships with consultants.

AFMS, like other parcel consultants, has worked with shippers for years to guide them through the complex world of parcel negotiations and suggest ways to optimize their parcel spending. For years, FedEx and UPS worked amicably with the consultants. In recent years, however, the carriers have started to fight back against a practice they've come to see as a threat to their margins.

Privately, several consultants have admitted that unless they can deliver value to the shipper-carrier relationship that involves more than negotiating rate discounts with the carriers, they will likely be frozen out of business.