Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The use of independent contractors (ICs) is nearly as much of a trucking industry tradition as strong coffee, avoiding weigh stations, and lengthy waits at shipping docks. For decades, it has been commonplace for an owner-operator to work under
contract to a large trucking company to augment its in-house fleet.
However, the IC model is under closer legal scrutiny than ever before. Drivers and their advocates contend that many
so-called independent operators effectively function as company employees. Yet because they are classified as contractors,
they are denied the rights, privileges, and benefits that come with being an employee.
Last Wednesday, a three-judge panel of the Ninth U.S. Circuit Court of Appeals struck perhaps the most decisive blow to date
against the contractor model. The panel ruled that a class of 2,300 drivers in California who from 2000 to 2007 were classified as contractors
for FedEx Ground, FedEx Corp.'s ground parcel delivery unit, were actually employees under California law. The panel reversed a
December 2010 lower court ruling that the workers were contractors and remanded the case to a federal district court in California
with directives to enter an order changing their classification. The panel also ruled in favor of the plaintiffs in two cases in
Oregon.
The panel ruled that FedEx Ground exercised total control over its contractors, making those workers eligible under
California's "right to control" test to be considered employees. It dismissed the company's claim that its control of drivers was
limited only to pursuing the results it sought, not the manner in which the drivers achieved them. In the lead opinion, Judge
William A. Fletcher wrote that company actions that ranged from limiting a driver to operating over specific territories or
schedules to dictating their grooming habits and the appearance of their uniforms are not part of a "control of results" strategy
as prescribed under California law.
In its defense, FedEx relied on a 2009 decision by a federal appeals court in Washington, D.C., that workers at the company's
"FedEx Home Delivery" unit were contractors because the company offered "entrepreneurial opportunities" to them. However, Judge
Fletcher said that ruling has no legal standing in California. "There is no indication that California has replaced its
longstanding right-to-control test with the new "entrepreneurial-opportunities" test developed by the D.C. Circuit," he wrote.
"Instead, California cases indicate that entrepreneurial opportunities do not undermine a finding of employee status."
Much could change if the ruling is upheld because there are more than 20 cases around the country involving FedEx Ground that
turn on the worker-classification issue. FedEx could retroactively owe its driver workforce hundreds of millions of dollars in
expenses ranging from employee benefits to equipment obligations that had been borne by the workers. It could alter FedEx Ground's
operating cost advantage over unionized rival UPS, which has played a pivotal role in the unit's resounding success over the past
decade or more. Organized labor could be emboldened to restart its efforts to organize FedEx Ground years after Founder, Chairman,
and CEO, Frederick W. Smith, long known for his anti-union animus, beat them back. It could pique the interest of the Internal
Revenue Service (IRS) as well as state tax agencies looking for more payroll tax income. The IRS is active in employee
reclassification efforts, knowing that it means more income in its coffers; as employees, workers would be unable to employ the
same sort of tax avoidance tactics that are abundantly available to them as contractors.
The panel's ruling threatens to upend a highly successful ground parcel operating model FedEx inherited in 1998 when it
acquired Caliber System Inc., the parent of Roadway Package System Inc. (RPS). RPS had been using contractors since its founding
in 1985, and its low operating costs made it an increasingly viable alternative to UPS, which until the late 1980s held a
90-percent-plus share of the U.S. ground parcel business. Supported by FedEx's vast resources, the rebranded FedEx Ground
unit turned the model into a powerful force. It is by far the fastest-growing unit within the FedEx portfolio.
Whether the FedEx legal battle spills into the broader trucking business is anyone's guess. At least 30 percent of all truckload
drivers are involved in long-term, exclusive agreements with motor carriers, according to estimates from IHS Economics and Country Risk (formerly IHS Global Insight), a consultancy. Charles W. Clowdis Jr., who runs the firm's global trade and transportation practice, said the relationships are so
intimate that many outside drivers function in the same delivery dispatch cycles as company drivers, However, it is unlikely that
many driver-carrier relationships in the truckload industry involve the deep level of control that FedEx Ground purportedly
exercises over its drivers, according to several observers.
FEDEX APPEAL
FedEx said in a statement that it would appeal the ruling and may seek what's known as an en banc rehearing before the full
circuit. Petitions for a full rehearing are usually granted if a panel's decision conflicts with an earlier appellate court
order or an opinion issued by the U.S. Supreme Court, or if the issue is deemed to be of exceptional importance. The Ninth Circuit
receives about 1,200 petitions for rehearing a year and hears about two dozen cases at any given time, according to Eric Su, a New
York-based attorney for FordHarrison LLP, a firm that represents employers in labor-management issues.
FedEx said in the statement that the panel rendered a decision on a model that is no longer in use. Since 2011, FedEx Ground has
only contracted with incorporated businesses that treat their drivers as their employees, the company said. FedEx said that over
the years it has "significantly strengthened" the operating agreement that served as the basis for the adverse ruling.
The company said in the statement that it would shift to new independent service-provider (ISP) agreements in California,
Oregon, Washington, and Nevada, four of the states where the Ninth Circuit holds jurisdiction. Such agreements typically involve
larger geographic service areas from which contractors can operate, according to Patrick Fitzgerald, a FedEx spokesman. FedEx
Ground operates through an ISP in 17 states; the company plans to provide details on the extended agreement in October, Fitzgerald
said.
ARE THE TIMES A-CHANGING?
The panel's decision is the latest gust of wind that seems to be blowing in labor's direction. Courts, regulators, and lawmakers
are moving, albeit slowly, toward taking a tougher stand against an employer's classification of workers. A law in New York State
that took effect in April required companies to pass one of two tests in their entirety before drivers working trucks over 10,000
pounds of gross vehicle weight (tractor, trailer, and cargo combined) could be classified as independent contractors. The
legislature in neighboring New Jersey had passed a similar bill affecting parcel and drayage drivers. However, Gov. Chris Christie
vetoed it last year.
Courts in the Northeast and in California, regions with strong organized labor influence and which generally favor positions
supporting workers' rights, appear to be leaning in the workers' direction on the issue, attorneys say. Public policy from the
White House seems to favor classification of workers as employees instead of as contractors, according to Su.
But if there is one company with deep experience in the employee-classification issue, it's FedEx. It spent years battling the
IRS over alleged tax liabilities stemming from the classification of its ground workers. The fight culminated in the IRS
withdrawing claims that could have cost the company about $1 billion in back taxes plus interest. The company has also fought in
multiple states over the issue. The appellate court ruling had stemmed from a class action lawsuit that had been consolidated.
FedEx has taken its hits. In mid-March, for example, it reached a $5.8 million settlement with attorneys representing 141 Maine
drivers who alleged their employment status was misclassified. The presiding judge noted that if the drivers' case was tried,
damages could have topped $10 million, with the potential for double damages under state and federal wage laws, according to a
note from the law firm Pepper Hamilton LLP.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.