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December 27, 2017 12:30 PM, EST

Late Fees Burn Refrigerated Carriers

Major Grocers Institute Fines to Enforce Agreed-Upon Delivery Times
Walmart groceries Fox News 4 via YouTube

The fines that several grocery chains have implemented for late deliveries are receiving pushback from carriers, but a concerted effort to fight the policies hasn’t materialized yet.

Three major grocery chains — Kroger, Safeway and Wal-Mart Stores — implemented the fees to encourage delivery by refrigerated carriers at agreed-upon times. The merchants contend that food spoilage is a major issue, pointing to a Food Marketing Institute report that grocers lose as much as $75 billion annually in sales on out-of-stock and unsalable products.

Carriers are caught in the middle between suppliers and merchants as their drivers work to meet delivery times despite challenges, including inclement weather and bad roads. The situation is made more difficult because the fines may be directed at the supplier but are given or sent to the carrier or even the truck driver.

“I understand that retailers want predictability in the supply chain. I argue against issuing fines on truckers that are late,” said Ken Lund, vice president of operations at Allen Lund Co., which ranks No. 20 on the Transport Topics sector list of top freight brokerage firms. “It should be on a case-by-case basis. It doesn’t take into account the weather, hours-of-service issues, when the truck was loaded, all kinds of things that are no fault of the carrier.”

The fine policies aren’t uniform, either.

Kroger socks suppliers with a $500 fine when a delivery is two or more days late. Wal-Mart’s On Time and In Full policy, or OTIF, issues monthly fines of 3% for late or incomplete deliveries. Wal-Mart requires its suppliers to hit a two-day delivery window 75% of the time and also will fine for early delivery so inventory isn’t sitting around a warehouse.

Safeway reportedly started the fine system by slapping $300 to $500 fees on carriers that didn’t notify the grocer when a truck couldn’t make an unloading appointment or had to reschedule.

Further, different distribution centers handle the fines differently, according to Randy Savoy, chief operating officer of Orlando, Fla.-based Cold Carriers.

Sometimes a late driver may get shorted pay on an invoice, or the warehouse might refuse to unload a truck until a fine is paid, or the merchant may send a check for the delivery — with the fine subtracted — to the supplier, Savoy said.

“It’s at the discretion of the consignee, the local receiver,” he said.

C.R. England rejects paying fines, but the systems shippers have in place are tough to fight, said Brandon Harrison, the carrier’s chief sales officer.

“It’s frustrating; we do not agree to pay fines, period,” he said. “Does that mean we never pay fines? We do end up paying some fines. In most cases, we are reimbursed; the fines are pushed on to suppliers.”

C.R. England Inc. ranks No. 26 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

At Safeway “it’s been an absolute disaster,” said Harrison. “Drivers won’t unload the trailer until the late fee is paid. For carriers and drivers, it’s a bad situation.”

The size of the three merchants means that carriers can’t pass off the policies as a minor annoyance.

Kroger had sales of more than $115 billion in fiscal 2016 at its 2,796 supermarkets and other stores. Safeway saw sales of nearly $60 billion at 2,300 stores. And Wal-Mart had net sales in fiscal 2017 of nearly $308 billion through its 3,522 stores and 699 neighborhood markets, though that figure accounts for more than just grocery sales.

The upshot of the fines still is being determined. Neither Wal-Mart nor Kroger have announced improved on-time delivery rates, though the policies still are relatively new.

Savoy says the programs will inevitably be harmful for business, since carriers and suppliers will factor in the fines to their costs and pass that on to the merchant, who will pass it on to their customers.

“The end result is the consumer pays for it,” he said.