ONE OF THESE DAYS, not too many years from now, someone from the central office will come down to visit your operation. He’ll admire the RFID holographic display that plots inventory movements across three time zones in three-dimensional, color-coded bubbles. He’ll admire the way the packages roll silently down one line or another and into waiting trucks that fill rapidly and leave. And then from out of nowhere, a cute little robot will roll right up to you with its little arms waving and a red light flashing on top of its spinning head and your visitor will say, What’s that? even as the little guy squeaks DANGER! DANGER! DANGER! and you’ll say, Why, that’s our new O+F Regulation Module. And then you’ll turn to your assistant and say, “Bucky, better call Washington. Looks like they’re running low on money again.”
But for the moment, our robot is still in development. Instead, here are a few of the legal and regulatory issues experts see affecting fulfillment in 2005:
HOURS OF SERVICE
The controversy over the truckers’ new hours of service rules is rapidly becoming one of the great regulatory comedies of our time.
Last January, the government reduced the number of hours truckers could drive in a week in order to make the roads safer for everyone. The trucking lobby protested, of course, but could not dissuade the Department of Transportation. Yet in July, seven months after the rules went into effect, several consumer safety groups persuaded a federal judge to throw out the new hours of service rules on the grounds that the new rules actually made the highways less safe than the old rules.
So is everybody happy now that the DOT has to go back to the drawing board? No. “Here’s the funny thing,” explains Karl Manrodt, an associate professor of logistics at Georgia Southern University in Statesboro, GA, “everybody [in the industry] wants to keep the new rules and regulations.” Just months after they stopped fighting against the new rules, the trucking industry argued that redrawing all the routes and schedules was so much work that they wanted to keep the new rules in place.
For now, truckers have won the right to keep using the new regulations temporarily until the Department of Transportation can change its approach. When that happens is anyone’s guess. “It’s like everything else,” says Thomas Craig, CEO of LTD Consulting, a supply chain consulting firm based in Glenmore, PA. “It’s political, so nothing’s getting done on it.”
Assuming the new rules are maintained, Manrodt says, they are likely to exacerbate the current driver shortage. By some estimates, the new rules will require hiring 80,000 additional drivers over the next few years, meaning that a third of the men in that age range will have to go into the business just to maintain present service levels. Manrodt is skeptical that will happen. “Thirty percent or more of your able males are going to go into that one industry?” Manrodt asks. “That doesn’t make any sense.”
Another ongoing issue for fulfillment is the effect of Sarbanes-Oxley. Accountant Warren Bergstein, a principal at Adelman Katz & Mond in New York, says that while Sarbanes-Oxley won’t change how inventory is handled, it does change how much the CEO and CFO have to know about their company’s operations. “He’s not going to be able to say, let me have my vice president join us tomorrow,” Bergstein says. “He’s going to have to know what these procedures are.”
Pete Moore, a vice president at Cap Gemini in Boston who consults on supply chain management, says that the new level of clarity demanded by Sarbanes-Oxley is pushing top management and operations executives to ask questions they never asked before about how business gets done.
Perhaps as a result, there are signs that Sarbanes may prove to be kind of a blessing in disguise. Craig of LTD sees Sarbanes as a potential lever for fulfillment executives who want to improve their company’s processes. “There are times when you have not been able to get authorization to do things that had to be done,” he says. “Well, Sarbanes-Oxley might give you the way to get it done — ‘I’m sorry, we’ve got to comply with this regulation, don’t we?’”
And don’t breathe too easily just because you work for a private company: Large public companies are the only ones required to follow Sarbanes-Oxley, but Bergstein says investors or lenders used to working with companies compliant with Sarbanes-Oxley will likely begin to push private companies to comply with the same practices as the large public firms.
New post-9/11 scrutiny of people and cargo may also affect fulfillment operations in some companies, whether through knock-on effects brought on by slowdowns at the borders and new security regulations, or through ventures that aren’t launched and deals that don’t get made.
The government’s push toward greater scrutiny of cargo is well known. Less well known is the fact that for foreign direct marketers trying to mail into the U.S. market or U.S. marketers with operations overseas, it’s reportedly become increasingly difficult to get things done.
One contributing factor may be that the United States Postal Service has greatly reduced the size of its international business development office in recent years, according to Charles Prescott, vice president for international business development and government affairs at the Direct Marketing Association in New York City. Unlike post offices in some European countries that educate prospective commercial clients about how to use direct mail and help them solve mailing problems, he says, the USPS no longer has the staff available to provide such services.
“I think it’s a disgrace — I really think it’s a disgrace,” Prescott says. “We are the largest importer and exporter of mail in the world, and the senior management of the U.S. Postal Service fundamentally don’t care. I don’t think these guys have passports.”
Not only has finding out about the direct mail business over the phone become more difficult for foreign supply chain executives, so has visiting in person. Prescott says that even senior executives from overseas are finding it difficult to get to DMA seminars here because risk-averse officials in U.S. consulates are turning down many more visa applications than in the pre-9/11 days. Recently, according to Prescott, the deputy postmaster general of China couldn’t attend a conference in the U.S. because the State Department wouldn’t approve his visa. “This is becoming a very, very serious matter … and they have not done a damned thing about it,” he says.
On the Internet, however, some retailers seem to be finding ways to fight the bureaucracy. No robots yet, but one maker of trade-support software, NextLinx of Rockville, MD, is coming close, with an online engine for Amazon.com that will calculate post-tax and post-tariff costs on the fly for the Seattle e-tail giant’s customers. Darren Maynard, NextLinx’s COO, says that his company’s new engine — which it is introducing to Amazon but will offer elsewhere as well — will reduce the incidence of expensive refusals of delivery by foreign customers who are surprised by the duty charges. “Overall you’re going to have a more satisfied customer because they know what their real cost is and that’s what their focus is going to be,” he says.
But the factor that may hurt fulfillment executives the most this year may not be the result of any new law or policy. The biggest danger may be their ignorance of the rules already in place. One transportation law expert believes that many shippers are paying more to their carriers than they should simply because they don’t know even the basics of the existing law.
“The basic problem is that everyone thinks — and has been misled to believe — that transportation has been deregulated and you don’t have to worry about legal problems anymore, but you couldn’t be further from the truth,” says William Augello, making the kind of sweeping generalization permitted someone who has been practicing transportation law for 52 years, and who recently completed the 885-page second edition of his handbook on the subject (Transportation, Logistics and the Law; Transportation Consumer Protection Council, 2004).
Bennett Voyles is a business and financial writer based in New York City. He can be reached at [email protected].
No matter what your specific legal headache, as a shipper, you must be vigilant when you work with carriers. “After all, transportation is the carrier’s primary business and they’re professional at it, whereas shipping is only incidental to the shipper’s business,” advises William Augello, an adjunct professor of transportation law at the University of Arizona. His advice:
Read your carrier terms very carefully. “If it’s a carrier’s contract, it’s drawn up to protect the carrier, not the shipper.”
Have your bills audited by a professional. “In the last year I have been getting complaints from a lot of shippers that they are being overbilled systemically,” he says. Augello says these complaints are all about one of the world’s largest parcel shippers.
Demand full price for breakage. Sometimes carriers will try to pay only the “manufactured cost” of damaged goods, but Augello says that’s not right. Next time it happens, refer the carrier (or insurer) to Polaroid Corp. v. Shusters Express, 484 Fed. 2d 349 (1st Cir. 1973), a court case that established that the carrier is liable for the invoice price for damaged goods.
Don’t deposit a check from your carrier before you determine that it is for the amount of your claim. “In most states, when you deposit a check, that’s deemed to be accepted, and you cannot reopen the claim,” Augello says. “A lot of carriers send checks for less than the claimed amount with an offer of settlement, knowing that many companies deposit checks before checking the claim file.”— BV