One of the more insidious things that have crept into the supply chain and therefore into freight distribution is the advent of what are known as ‘compliance fines’ or ‘compliance fees.’
These are of particular (but not exclusive) concern in the retail sector where they were established supposedly to encourage vendor (shipper) compliance with specific supply chain/logistics requirements (ie. price ticketing, carton labeling, etc.)
Failure to meet these requirements can lead to fines levied on the shipper by the retailer.
If this is a matter between the shipper and its customer; what does it have to do with carriers? However appropriate and effective these compliance fees have been, or currently are, there has also been a proliferation and mutation of ‘compliance categories’ to include such things as on-time delivery.
The most common example occurs when a carrier is late for a pre-determined delivery appointment at a distribution centre. Regardless of whether the lateness was beyond the carrier’s control or not, a compliance fine is assessed against the shipper. In such cases the carrier usually finds itself being asked to pay the fine – either through a straight deduction from the freight bill payment, or via a separate invoice from the shipper.
The trucking industry strives for and maintains enviable on-time performance.
But, freight rates are not based on a guarantee of hitting a specific time 100% of the time. Nor do they cover the risk of highly punitive charge-backs.
No other freight mode provides the level of service that trucks provide.
But things do happen – highway congestion, border delays, inclement weather, etc. – that cause shipment delays.
As well, adding insult to injury, the consignees involved are often the same ones who think nothing about, or pay nothing towards, the cost of tying up a carrier’s driver for hours or trailers for days, waiting to be unloaded. We have a term for that in trucking – ‘hurry up and wait’ – and it’s a growing problem.
The costs of the fines vary, but usually late charges run into the thousands of dollars.
Without a doubt they can far outweigh the amount the carrier is being paid to deliver the load.
In the case of an LTL shipment, it is not unheard of for the fines to be 10 times the delivery charges.
For a regional truckload delivery they can be three or four times the shipment revenue.
Recently, we have begun to hear of other minor yet questionable sorts of fees that can nickel and dime a carrier to death.
The legitimacy of these fines is extremely questionable. Carriers are not party to the agreements between the shipper and their customers.
Carriers rarely sign on with their shippers in terms of accepting such charges, viewing them as nothing more than a ‘cash grab’ by consignees.
When asked or told to pay, carriers’ natural inclination is to just say “No”, and often that is exactly what they do.
However, life is not always so simple and business decisions are not always that easy to make.
The debate over whether a carrier should or should not pay these sorts of fines can easily drive a wedge between the carrier and the shipper, straining their relationship.
Shippers and consignees are also advised to consider the exposure compliance fees place on them in terms of the liability for safety compliance. (I am reminded of the liabilities placed on pizza companies that adopted ’30 minutes or it’s free’ delivery policies).
One need only look to the US where all supply chain participants are increasingly being enjoined in litigation and civil lawsuits over their role in truck crashes.
One Canadian province, Manitoba, recently introduced shipper responsibility legislation. Australia has adopted new ‘chain of responsibility’ laws to ensure that all players in the supply chain bear their fare share of responsibility when something untoward occurs.
It appears to us that some consignees and shippers are just trying to take advantage of the current soft market.
No doubt, compliance fines have become a source of considerable revenue for some. That is very short-sighted.
Trucking capacity is shrinking across North America and will inevitably come into line with demand.
Then, carriers will gravitate to the business that pays well and where they are treated fairly.
A more constructive approach to supply chain excellence is consultation and cooperation among supply chain partners.
– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.
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