Journal of Transportation Management Journal of Transportation Management

Volume 29 Issue 1 Article 3

7-1-2018

The new e-commerce/home delivery retail distribution paradigm The new e-commerce/home delivery retail distribution paradigm

Henry E. Seaton Esq. Seaton & Husk, LP, heseaton@aol.com

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Part of the Operations and Supply Chain Management Commons, and the Transportation Commons

Recommended Citation Recommended Citation Seaton, Henry E. (2018). The new e-commerce/home delivery retail distribution paradigm. Journal of Transportation Management, 29(1), 7-25. doi: 10.22237/jotm/1530446520

This Article is brought to you for free and open access by the Open Access Journals at DigitalCommons@WayneState. It has been accepted for inclusion in Journal of Transportation Management by an authorized editor of DigitalCommons@WayneState.

Vol. 29 No. 17

THE NEW E-COMMERCE / HOME DELIVERYRETAIL DISTRIBUTION PARADIGM

Henry E. Seaton, Esq.Seaton & Husk, LP

ABSTRACT

The purpose of this article is to set forth a basic outline of the new e-commerce home delivery retaildistribution paradigm. Special attention will be placed on how it is being implemented and the as yet

unresolved contracting, regulatory and risk transferissues involving selection, retention, and use ofmotor carriers, particularly for the rapidlydeveloping final delivery of consumer goods.

PART I:THE TRADITIONAL RETAIL

DISTRIBUTION MODEL

Traditionally, most retailers used inbound truckloadshipments from suppliers to regional and districtdistribution centers (first mile). From distributionwarehouses, these retailers serviced their storesusing private or dedicated carriers for stop-offtruckload or pedal run deliveries based upon storeinventory needs. This traditional model has beenaugmented by hot shot or expedited shipments ofurgently needed out-of-stock items or by usingintegrated LTL carriers and/or parcel deliveryproviders like USPS, UPS and FedEx for store orconsumer deliveries. As a distinct and separatemodel, local delivery services, couriers and privatecarriage has been used to make deliveries fromstores, restaurants and grocers of locally sourcedgoods.

Because of economic regulation, there was a limitedchoice of carriers and little or no competition forrates and service levels. Transit times were designedto suit the needs of limited “regular route” certificateholders with high fixed costs. Retail distributioninvolved first mile inbound logistics, pooledshipments to LTL carrier-owned break bulktermination locations for deconsolidation into LTLshipments distributed over a network of cartageagents and authorized short haul carriers.

Before deregulation and the popularity of big boxretailers and mega malls, Sears & Roebuck,Montgomery Ward and others offered cataloguesales which avoided in-store inventory costs bydrop-shipping ordered items to rural consignmentfacilities for customer pickup and payment. With theadvent of deregulation, price competition wasintroduced. Flexible truckload and stop-offtruckload service providers altered the traditionalmodel. This led to the demise of many regular routecommodity carriers whose unionized labor costswere non-competitive.1

The New Old Fashioned Way

There is some irony in the fact that three decadeslater, the new retail paradigm is a “new old-fashioned way” utilizing retailer controlled inboundtruckload, pooled outbound, and less-than-truckload or parcel delivery final mile delivery withimportant distinctions. Make no mistake, from adistribution point of view, increased competition andchoice created by e-commerce, more efficientinventory control and quicker and more flexibledeliveries all mandate a radical reevaluation ofinventory control and management that the newparadigm permits. Yet, the model is not the sameacross all retailers, regardless of commodity orweight. The “cheese has been moved” and e-commerce with expedited final mile home delivery isno fad.2 Yet this article will examine latent issueswith the new paradigm which questions thesustainability of the “free freight and free return”concept.

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The new paradigm increases not only the need forfinal mile delivery services, it is driving investmentand speculation in new retail warehouses that “…can sort packages closer to urban consumers anddeliver them more rapidly.”3

Factors Creating the New Retail DistributionParadigm

A number of concomitant factors have led to areexamination of the traditional retail distributionmodel. They include: (1) internet sales have offeredconsumers increased choice and cost competition;(2) technological advances and shipment trackinghas permitted quicker, more dependable deliverytimes which reduce inventory and store stockingneeds; and (3) productivity issues with truckloadand stop-off truckload deliveries caused by theELD mandate and the hours of service strictureshave resulted in scheduling and detention problemsthat have made the traditional truckload and stop-off truckload paradigm less responsive.

The new paradigm offers the ultimate consumer theconvenience of comparison shopping on multiplewebsites for durable goods with the promise of“free freight and free returns” when the final deliveryand return cost can be absorbed in the retailer’smargin or offered as a loss leader to increasemarket share and foster website loyalty.

As a result, many established retailers are followingtheir customers’ buying preferences for internetpurchases and home delivery by developing hybridmodels using the new paradigm to reduceinventories and direct sales expenses.Commentators suggest that traditional departmentstores, grocery chains and big box retailers andspecialty chains are all moving to offer e-commerceand home delivery as a complement if not areplacement for in-store sales. 4

What are the Segments of the New Paradigm?

The new paradigm has variations based upon theretailer’s product line, the size of its shipments andwhether inside home delivery and installation isrequired. Yet regardless of these variables, the

traditional inbound and outbound logistics model isbeing irrevocably altered.(a) First Mile

Previous inbound logistics involved truckloadmovements from suppliers to multiple separately-stocked, retail, distribution warehouses for storageand store replenishment. Under the new model,inbound logistics is typically coordinated through ahandful of fulfillment centers with upstream pressureon suppliers for tighter and more expedited deliverytimes (inbound or first mile leg).

These up-supply chain demands, particularly in thegrocery and wholesale big box segments, haveresulted in penalties for late deliveries, reschedulingfees, waiver of mitigation and unreimburseddetention fees which continue to present challengesfor suppliers and the inbound truckload carrierswhich serve them.5 Exacerbating the supplier andcarrier predicament is ELD enforcement of hours ofservice, contractual waiver of Carmack in the nameof the Food Safety Modernization Act, and theenforcement of tightly scheduled deliveryappointments which can be coercive andinconsistent with reasonable dispatch.6

In some instances, retailers have pushed homedelivery responsibility upstream to the suppliers,paying only for deliveries accepted by the consumer.This practice has led to free astray issues, whichmany suppliers or manufacturers are ill-prepared tohandle. (See “Free Returns” p. 1.)

(b) Middle Mile

Under the new paradigm, technology is used torapidly sort and segregate thousands of SKUs (orStock Keeping Units) at fulfillment centers, down tothe individual item (including its size and color) forultimate consignment to retail stores or for directcustomer delivery. So-called “middle mile” is theterm for the use of regularly timed, consolidatedshipments from fulfillment centers to break up orcross-dock locations for final mile delivery.

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This important middle mile portion is typicallycontrolled by the shipper through private carriage,or under contract with truckload carriers or throughbrokers. Frequently, dedicated pools of trailerseither owned by the shippers or third parties areused. Trailer pools allow loading efficiency, avoidloading and unloading delays and decreases wasteddrive time. Contracting issues involved include theuse of necessary trailer interchange agreements,trailer tracking and recovery issues, the need forphysical damage insurance, and seals and SLC(Shipper Load and Count) issues.

Middle mile pool service, unlike just-in-time (or JIT)deliveries to automobile assembly plants isparticularly subject to seasonal customer-drivenspikes. The Christmas “rush” can spike first mileand middle mile costs to obtain excess capacity,particularly when the customer expects same or nextday delivery.

(c) Final Mile

The biggest change in the new paradigm and thesource of the greatest confusion and controversy isthe “final mile” segment. Depending upon the natureof the retailer and the product mix, afterdeconsolidation “final mile” deliveries are made forstore replenishment, to stores for customer pickupof ordered items or for direct home or job sitedelivery to customers.

Under the new paradigm, small packages consignedfor home delivery may be tendered to the postoffice (USPS) for mailbox deliveries. Consolidatedor larger shipments including home delivery offurniture and appliances are typically tendered tooperators of straight trucks weighing more than10,001 pounds. Yet, much of the “final mile” homedelivery service is now being provided in sprintersor cargo vans weighing less than 10,001 pounds(hereinafter referred to as Small Delivery Vehicles orSDVs). It is this new element of the e-commerce/home delivery model which creates the greatestconfusion and problems.

Variations of the New Paradigm

It is beyond the scope of this article to describe themodel permutations most useful for specialtyretailers but some examples of the variant modelsshould be informative:

(a) E-Commerce Retailers

The so-called Amazon model began as primarily apure e-commerce alternative to local brick andmortar retailers. “Mr. Bezos (Amazon’s founder)saw that quick delivery could change how peoplebuy things. Price and selection have always beenimportant in retail but delivery would surpass storelocation as another critical factor.” Amazon now hasover 110 fulfillment centers in North American andis setting up warehouses in major cities to providefor same-day or one-day service of more products.

Amazon “… keeps working to add faster and evenmore convenient delivery options” becoming anexpedited distribution company in competition withFedEx and UPS, providing not only a product salesplatform with distribution and final mile delivery, buttransportation services utilizing its own equipmentfor products not marketed through its website.”7

In this context, Amazon is rapidly expanding its e-commerce home delivery niche, pushing its owndelivery service in competition with FedEx andUPS.8 With its acquisition of Whole Foods andlocal warehousing it evidences its intent to invadethe grocery store delivery market previouslyprovided by private retailers or local deliveryservices without much structure. It has become theretailing behemoth whose size and seeminglyunlimited resources is allowing it to develop retailstores and to get manufactured and market its ownproprietary products. As traditional retailers moveto increase online sales, e-commerce retailers aremoving to establish permanent store locations toattract new customers. Online retailers are predictedto open at least 850 stores in the next four years.9

Amazon’s size and seemingly unlimited resourcesare allowing it to develop retail stores and to

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produce and market proprietary items such asbooks.10 Its e-commerce market share alreadytotals approximately 50% of the total and privatelabel sales are projected to increase as the followingcharts show in Figures 1 and 2:

(b) Department Stores

“To remain competitive for the ever-increasingexpedited home delivery model, department storesare not only expanding their online website offerings,they are changing their store delivery models in anattempt to play offense,” Marc Lore who runsWalmart’s U.S. e-commerce, says.11 Thesetraditional retailers are trying to leverage theirphysical stores as a way for people to order onlineand make drive-by pickups as well as order non-stocked items requiring assembly for expeditedfocused delivery using the new fulfillment model.

E-commerce offers with a variety of color, style andsize options to apparel consumers not available at atypical department store or shopping centerboutique. With store inventories shifting and in-storefitting options, the new paradigm, like the old Searsand Montgomery Ward catalog stores, can bringcustomer ordered product to smaller footprint retaillocations for customer pickup without excessive in-store inventorying. Online retailing with emailadvertising has become an effective marketing toolfor chain retailers which can reduce marketing costswith easy to adjust promotional in-season sales toavoid overstocks.

“Many retailers with stores also touted a buy-online,pickup in store option available throughoutChristmas Eve to fulfill last minute gift needs.Overall, sales in that category grew 47% fromNovember to December 19 according to Adobe.”12

Online sales and pickups are credited by Walmartfor increasing customer visits and per store revenuein the last quarter.13

(c) Hybrid Models

Grocery chains and shopping club warehouses haveadopted portions of the new paradigm to reducecosts, compete with internet sales and the home

delivery/final mile model. With the exception of mailorder specialty items, grocers selling perishablecommodities are typically serviced from locallystocked in-store inventories. Urban deliveryservices of groceries and fast food from storeinventories is nothing new, nor an issue which hasbeen subject to federal or state regulation.

Like Uber and Lyft services, final mile grocery andfood order deliveries have traditionally beenprovided by part-time contractors in their ownvehicles without addressing the federal and statelabor overtime and worker’s compensation issues.The proliferation of class action suits allegingmisclassification of similarly situated contractors hasa spill-over effect from issues being litigated in the“big truck” arena, suggesting possible unforeseeablefuture risks.

Clearly, the attractiveness of the in-store shoppingexperience, bulk pricing discounts and specialpromotional sales campaigns attest to the continuedviability of the multi-item warehouse store that mixesbulk sale of grocery items with a vast array ofconsumer goods. Yet a recent survey by the FoodManufacturers Association notes that 77% ofshoppers are price driven. This competition onprices has obviously put pressure on the suppliersand first mile inbound logistics. At the same time,consumers covet the convenience of home deliveryof groceries and meals ready to eat.14 As a result,grocery chains and shopper clubs are offering homedelivery of locally stocked goods and whererelevant, home delivery of vendor or fulfillmentcentered stocked electronics and more expensivedurable products.

Fierce price competition has been reported ascausing wholesale grocers and warehouse retailersto squeeze suppliers and trucking companies tooffer more for less.15

(d) Hardware and Construction Supplies

Big box home and garden retailers offer a plethoraof choices and convenience for handymen andprofessional contractors. E-commerce is viewed as

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complementing, not replacing in-store sales. Theseretailers can have as many as 200,000 differentSKUs (Stock Keeping Units) ranging from multiplesize bolts and screws to building supplies,lawnmowers, seasonal furniture and plant material.Construction projects may require scheduled jobsite deliveries with flatbed and forklift service.

Yet, the fulfillment center/e-commerce model allowsa full array of SKUs to be advertised withoutinventorying slow moving or seasonal campaignmaterial at every store. More centralized nationalpurchasing and replenishment can reduce inventorycosts. By using technology, interim distributionwarehousing can be reduced to half a dozen ormore fulfillment centers nationwide from whichoutbound pools can deliver specialty orders eitherto final mile providers for direct to customer deliveryor to nearby stores for customer pickup. Thisfulfillment model, retailers claim, can offer one ortwo day delivery to as many as 90% of thepopulation. Even with the redundancy of the finalmile portion (be it in an SDV, straight box truck orflatbed), this model can allow for better inventorycontrol, flexibility and customer satisfaction.

(e) New Furniture and Appliances

This retail segment has been under significantdistribution changes since deregulation. Traditionally,case goods and upholstered furniture were amongthe most prized and expensive retail purchases. Yetnew furniture is no longer considered a familyheirloom. Production has been moved overseas.Comparative costs have dropped. Largeshowroom retailers with their own private fleetshave emerged. Most new furniture is manufacturedand boxed overseas and brought onshore for homedelivery as well as in-store sales.

In-home delivery of new furniture and the installationof appliances and some electronics createspecialized last mile service needs, including straighttrucks (CMVs weighing more than 10,001 poundsgvw). Drivers may need helpers and assembly orinstallation expertise. As a result, this niche requiresspecial handling and home delivery is now provided

by established furniture specialists and by largetruckload and LTL carriers which are expanding intothe field.

In-home delivery creates the possibility of differenttort related claims and insurance issues. Driverbackground checks and commercial generalinsurance for non-auto related personal injury andproperty damage liability is important. Homedelivery of furniture and appliances typically requiresexpertise and special handling which creates a nicheservice with its own challenges. In addition totraditional furniture haulers, major truckload andLTL carriers are seeking to enter this area withexpanded service for their core shippers.16

Lower Distribution and Transportation Costs isthe Key

The goal of various e-ecommerce models is for theretailer to reduce its freight-on-board (FOB)delivered price while protecting or increasing itsmargin. Ultimately, the new distribution paradigm isa model which must be fine tuned. Retailers areattempting to reduce inbound first mile logisticscosts by increasing demands for narrow expediteddelivery windows on truckload shipments withpenalties for late deliveries and no detention.

In the middle mile segment, expedited pooldeliveries can be facilitated by avoiding live loadingand using shipper-controlled trailer pools. Yet smallcarriers accepting “power only” moves complainbeing stranded at destination” with no alternative butto accept a noncompensatory return load to getback home. Otherwise, the transportation costs onthese two legs are based on backhaul capacity andthe limitations of federal safety regulation governingHours of Service applicable to operators of straighttrucks and semis.

For both first and middle mile segments, the use andsurvival of the independent contractor model offersa competitive cost advantage and encouragesproductivity.

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The Importance of the Independent ContractorModel on Cost Reduction

Retailers in fierce price competition have typicallyavoided the expense of increased labor cost andliability of private carriage with company drivers.Since deregulation they have, to a great extent, usedlicensed, authorized and insured carriers which inturn retain owner-operators to provide flexibletruckload and stop-off truckload services. Theowner-operator model which utilizes “independentcontractors” which lease equipment with drivers tocarriers is supported by the so-called truth-in-leasing regulations. It provides a roadmap for howcarriers should treat independent contractors whichoperate in interstate commerce. See 49 C.F.R. 376.

Also, there is a traditional federal control testapplicable to interstate carriers that has been usedto justify favorable small business tax treatment ofblue collar entrepreneurs who own equipment andprovide it with drivers to carriers. An estimated800,000 small businessmen follow this model.Numerous states have recognized exemptions fromstate law employment treatment for owner-operators which comply with the federal leasingregulations and/or meet the 20 part federal controltest. Yet, the independent contractor model is undergreat pressure under various state laws for alleged“misclassification.” That is the argument that theowner-operator model somehow unjustly deprivesthe working man of employee benefits such asunemployment compensation, worker’scompensation and other welfare benefits.

E-commerce retailers led by Amazon are attemptingto hire third party delivery companies called“Independent Service Providers” or “ISPs” toprovide final mile deliveries.17 Under this model, theISP accepts the liability for compliance with allfederal and state safety, insurance and employmentlaws, shielding the retailer from up-supply chainexposure and acting as independently contractedcarriers, in turn hire owner-operators assubcontractors who are paid based on the workperformed, not by truckload.

The premise of hiring an ISP and shifting thecompliance burden to qualified independentcontractors is a practical model, particularly whenthe ISP can be vetted as a carrier under federalregulatory standards and has appropriate insurance.Yet systems must be in place to assure the retailerthat it can be properly indemnified and heldharmless from up-supply chain so-called “vicariousliability” and that it will not otherwise be held liablefor negligent selection or co-employment status.

PART IIUNRESOLVED ISSUES WITH FINAL MILE

DELIVERIES CREATE SIGNIFICANTISSUES WHICH AFFECT THE

EFFICACY OF THE NEW PARADIGM

FedEx, UPS and other established carriers withhome delivery networks remain, and USPSprovides significant last mile home delivery throughzone skip mini pools delivered to mail centers forhome delivery at volume rates. But the postalservice is reexamining its discounted rate structureand increases are expected.18

In order to fully develop the new paradigm andcompete on cost, offering “free freight and freereturns” many retailers are being driven to set upand control their own less costly e-commercedelivery systems. With established first and middlemile transportation service providers readilymonitored and subject to federal motor carriersafety regulations, it is the final mile piece that posesthe greatest risk and challenges.

As a result, e-commerce retailers are encouragingnew entrants to enter the home delivery market asindependent service providers with not only straighttrucks but non-commercial motor vehicles such ascargo vans, sprinters, pickups, and passengervehicles (hereinafter referred to as “Small DeliveryVehicles” or “SDVs”)

Vicarious Liability and the Vetting of Last MileSDV Operators

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By far the biggest issue in the selection and use oftransportation service providers is the possiblevicarious up-chain liability arising out of propertydamage and personal injury caused by the carrier.Under the commerce clause and the doctrine ofpreemption, federal law can trump state law in thename of uniformity with preemptive effect.Preemption can be so-called field preemption,implied by statute when the intent of Congress isevidence that state law shall have no effect, orexpressly stated in a statute.

For the past 15 years, beginning with Schramm v.Foster, 341 F. Supp. 2d 536 (D. Md. 2004), themajor issue facing the trucking industry has been theapplication of federal safety rules and their effect inexacerbating shipper and broker liability foraccidents.

With respect to commercial motor vehicles weighing10,001 pounds gvw or greater (called a“Commercial Motor Vehicle” or “CMV”), it is clearthe Federal Government has exercised preemptiveeffect and has established not only Federal MotorCarrier Safety Rules but also assigned the job ofdetermining whether carriers are safe to operate onthe nation’s roadways to first, the ICC and then theFederal Motor Carrier Safety Administration.

While there has been much litigation over whatvetting duties and obligations a shipper or brokermust have in the carrier selection process, theFMCSA is charged only with determining thatinterstate operators of commercial motor vehicles

are “safe to operate on the nation’s roadways.” See49 U.S.C. 31144. These federal vettingrequirements do not apply to operators of smalldelivery vehicles (SDVs) weighing less than 10,000pounds.

On the one hand, major retailers expect final miledelivery service to meet federal insurancerequirements applicable to larger trucks and complywith all federal and state laws including thestandards set forth in the Federal Motor CarrierSafety Regulations. The following chart in Table 1shows that there is no uniformity or consistency inthe application of federal safety regulations to thetransportation of interstate shipments based on thesize of the vehicle used. In fact, SDVs weighing lessthan 10,001 pounds gvw are not subject to federalsafety regulation with few exceptions. Theequipment is not required to be placarded with thename of the owner. The drivers are not required tohave driver qualification files. The equipment doesnot have to pass periodical maintenance andinspection standards, and importantly, there are nohours of service requirements to preclude fatigueddriving.

Although Federal Motor Carrier Safety Regulationsincluding hours of service do not apply to vehiclesweighing less than 10,001 pounds gvw, whetherSDV providers are handling interstate or intrastatefreight otherwise can make important differences.The Truth-in-Leasing regulations applicable toowner-operators (49 C.F.R. Part 376) and cargoclaims rules and statutes apply (49 U.S.C. 14706,

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49 C.F.R. Part 370) to the SDV drivers handlingthese interstate shipments. Additionally, SDVoperators in interstate must have a minimum of$300,000 insurance limits applicable to allequipment (49 C.F.R. 387.303).

FMCSA certification that an operator of a CMV ininterstate commerce is fit to operate on the nation’sroadways provides a simple vetting standard foroperators using straight trucks and semis ininterstate commerce. Evidence that a carrier hasbeen vetted by the FMCSA and is properlylicensed, authorized, and insured is the vettingstandard customarily used by shippers and brokers.It offers the best defense against lawsuits based onstate law causes of action such as negligent selectionand negligent entrustment.

Yet with respect to operations of SDVs, theabsence of federal preemptive fitness determinationstandards and enforced safety requirement createsconfusion, vetting problems and the opportunity forthe application of diverse and inconsistent statelaws. This makes the qualification and use of SDVdelivery services, and new entrants, in particular, amore difficult and risky proposition.

The following Federal qualification standards to notapply to SDV operators in interstate commerce: (1)driver qualification and background checks; (2)random drug and alcohol tests; (3) equipment,maintenance and repair standards; (4) enforcementof hours of service requirements to prevent fatigueddriving; and (5) recordkeeping requirements. Newentrants are required to pass a new entrant auditand a carrier loses its right to operate if its liabilityinsurance is canceled. Commercial motor vehiclesmust bear the name of the licensed carrier and itsdocket number. Under the MCSAP program, thestates are paid millions of dollars annually to inspectcommercial motor vehicles in accordance withstandards the FMCSA sets and to log carrierviolations into a database for the agency to use asan enforcement tool leading to a possible safetyaudit and termination of the carrier’s right tooperate. None of these safety requirements orcarrier vetting standards apply to use of SDVs. See49 C.F.R. 386 ff.

So how does a shipper or broker vet an SDVcarrier if the federal safety regulations do not applyand the SDV operator has not been certified by theFMCSA as safe to operate on the nation’sroadways?

The different final mile contracts being circulated byretailers and their brokers belie any consistency orconsensus. Many SDV shipper contracts track theirinterstate contract for operators of straight trucksand semis, ignoring both the intrastate v. interstateand the noncommercial motor vehicle issuesdiscussed herein. These contracts typically includecontractual requirements of compliance withouttreating the unique SDV issues discussed.

Some retailers, who appear to have no corporateexpertise in transportation, apparently conclude thatthe legal issues are beyond them and attempt to hirethird party logistics companies that will manage asuitable vetting program as they see fit and offerindemnity against up-supply chain liability includinglabor and safety issues if they fail to do so. Theresult of this approach is frequently contract termswhich treat SDV providers as independentcontractors under state law and which require up-supply chain indemnity. Insurance limits may beinserted, but independent vetting is costly anddifficult to manage.

In some instances, a retailer or 3PL will insist that athird party contracting service historically involved inthe courier industry review, vet and transmitpayments to the SDV provider. These services,typically used to vet owner-operators for courierservices, may offer information concerning statecompliance issues and may assist with obtainingoccupational accident insurance but do notindemnify the retailer or 3PL against misclassificationor other employment and safety liabilities.

Finally, established 3PLs and motor carriers withfinal mile experience appear to be more sensitive tothe SDV issue. So far, many have been able to holdoff on their use of SDVs and limit their final mileoffering to the straight trucks which are subject to

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FMCSA safety regulations and use federal truth-in-leasing requirements for owner-operators.

Insurance Issues with SDVs

The typical risk transfer devices in shipper andbroker contracts with motor carriers include broadlyworded indemnity language and proof of applicableinsurance to protect the customer from up-supplychain liability. Usual insurance requirements forcarriers utilizing commercial motor vehicles is asfollows:

(1) Auto Liability (called BIPD) in the amountof $1,000,000 per occurrence.(2) Commercial General or General LiabilityInsurance in a similar amount.(3) Cargo insurance in the minimum amount of$100,000 per occurrence.(4) Worker’s compensation as required bystate law.

These requirements are often accompanied by acertificate of insurance and warranty of coverage.Unfortunately, obtaining and verifying similarcoverage in these amounts for carriers using SDVscreates problems.

(1) Auto Liability

Federal insurance requirements applicable to CMVsoperating in interstate commerce require a$750,000 minimum with coverage endorsement(MCS-90), confirmed by a federal filing whichassures a retailer that a qualified insurer will pay anythird party property damage or personal injury claimup to that amount for which the carrier becomeslegally liable. The advantage of the endorsement is itultimately applies to any commercial motor vehicleused by the carrier and no further examination of theservice provider’s individual policy is required.

This is not so for SDV operators, few of whommake filings. In this context, a systemic problem invetting carriers which provide hot shot services orinterstate expedited delivery utilizing SDVs has beenliability insurance verification. Without the substantialfederal filing requirements, there is no assurance

from a certificate issued by an insurance agent (aCOI) that the policy as written covers “any auto.”Because non-CMV vehicles need not be placardedand the drivers are not required to be vetted, thereare real issues determining whether the insurance isin place for subcontracted independent owner-operators.

In this context, although the risk of catastrophic lossis low, the premiums charged to SDV operators for$1,000,000 million per occurrence auto liability isfrequently at or above the big truck cost and cantotal $18,000 per month – a major cost factor to beconsidered.

All too frequently, an SDV operator, assuming itssame state operations are intrastate, will procurecoverage meeting the state law minimums. This canbe as little as $24,000 per occurrence. SDVoperators utilizing cars and pickups frequently donot have coverage which extend to commercialuses. The result can be major coverage gaps whichcreate defaults in promised coverage which sprinterand van operators lack the resources to make up.

(2) Commercial General Insurance

This type of insurance covers personal injury andproperty damage caused by a carrier which is notrelated to auto liability. While this type of coverageis frequently waived in contracts with licensed andfederally regulated truckers, it is more important forfinal mile delivery when in-home delivery, installationand personal injury to homeowners and theirproperty are more likely to occur.

Tort claims against carriers regardless of the size ofequipment used poses real problems when in-homedeliveries are made. Carriers and brokers enteringthe final mile arena report increased propertydamage and personal injury claims including assaultand battery with unanticipated liability and insurancecost results which warrants insisting that final milecarriers maintain commercial general insurance.

(3) Cargo Liability

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Unless special accommodation is made, a homedelivery “free freight and free return” offered to thee-commerce/home delivery buyer can create anexacerbated cargo claims handling problem. Thelast mile delivery company may be making doorstepdrops and not be present when the package isopened. Allocation of concealed damages betweenfirst, middle and final mile is a seemingly impossibletask. As a result, insurers are particularly unwilling tounderwrite cargo for final mile deliverers withouthigh deductibles. Moreover, cargo policies ofteninclude exclusions for theft; and the claims handlingexpenses for parcel deliveries can be costprohibitive.

(4) Worker’s Compensation

A major labor law issue affecting the use of SDVs infinal mile service is the application of state worker’scompensation laws. In most states commercialdrivers, acting as true independent contractors whoown and lease their equipment to authorized carriersunder Part 376 leases can be classified asindependent contractors involved in a separate tradeor business, if not subject to excessive control bythe carrier. Led by California and Massachusetts,there is a trend to change the so-called ABC Testfor determining whether a driver is an employee orcontractor for worker’s compensation purposes.Conflicting rulings on the preemptive effect offederal law in the 9th and 1st Circuits and thedeclination of the Supreme Court to decide the issuehas left uniform treatment of inconsistent state lawsin shambles. Potential greater exposure exists if finalmile is deemed intrastate only and not otherwiseaffecting an SDV’s routes, rates or services. 19

In this context is the FMCSA finding that federallaw trumps the California meal and rest break ruleas a matter of federal preemption has beenchallenged by the California Labor Commission inthe 9th Circuit.20 The federal preemption argument isharder to make for operators of SDVs whichcannot claim federal hours of service rules anduniform FMCSA safety rules apply.

Contracting with owner-operators in 49 C.F.R. 376compliant leases gives structure and favorablefederal tax law treatment based upon previous IRSrulings and establishes a compliance template ifstrictly adhered to.

Misclassification exposure and up-supply chainliability for worker’s compensation can be a seriousproblem under state law for the customer whoattempts to micromanage and control the operationof the SDV service provider which lacks theresources to make good on its contractual indemnityobligations. Retailers and brokers who retainoperators of SDVs have been sued under “cutthrough” theories when SDV carriers were found tohave failed to procure worker’s compensationunder state law. (See Collins v. Seko Charlotte,Case No. 27519 (SC 04/29/15); Young v. ActFast Delivery of W. Virginia, Inc., No. 5:16-CV-09788, 2018 WL 279996 (S.D.W. Va. Jan. 3,2018)).

Are Typical E-Commerce Deliveries ShipmentsMoving in Interstate Commerce

A major contracting issue involving final miledelivery between points in the same state, regardlessof the size of equipment used, is whether a final miledelivery between points in the same state is aninterstate shipment when it is pooled into the statefor ultimate customer delivery.

This issue was addressed by the InterstateCommerce Commission in 1992 in anAdministrative Ruling entitled “Policy Statement –Motor Carrier Interstate Transportation – From Outof State Through Warehouses to Points in the SameState, Ex Parte MC-207.” Therein, the Agencyestablished guidelines to be used to determine ifproperty “temporarily stored in a warehouse ordistribution center before moving to its finaldestination” moves in interstate commerce ratherthan intrastate.

The Commission found: “The controlling element indetermining whether traffic is interstate is if theshipper has a fixed or insistent intent to have the

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shipment continue in interstate commerce to itsultimate destination.”

The Commission concluded that the presence orabsence of any of the following factors did notconstitute a break in the continuity of interstatecommerce at the warehouse. Those factorsincluded: (1) the shipper’s lack of knowledge of theultimate destination or consignee at the time theshipment leaves; (2) whether separate bills of ladingfor inbound and outbound movements are issues;(3) storage and transit tariff provisions; (4) storagereceipts issued by the warehouse distribution center;(5) time limits on storage; or (6) payment oftransportation charges by warehouse or distributioncenter.

Based on this precedent, final mile deliveriesbetween points in the same state would be acontinuation of interstate shipments. All FMCSAregulations (including safety, insurance and Hours ofService) would apply to straight trucks and semis.But SDVs have only uniform federal rules governingminimal insurance, cargo claims, and the truth-in-leasing regulations.21

Traditionally, the local pickup and delivery ofpassengers and packages have been providedwithin commercial zones and left to taxicabs,grocery and pizza delivery contractors without muchregulatory attention. The lack of regulatory structureand the political environment surrounding classaction overtime, worker’s compensation andmisclassification issues, results in additional risk oflitigation for this segment of the new paradigm. AsUber and Amazon build out an independentcontractor model based on application of state lawprinciples, the field is ripe for class actions involvingpossible misclassification of drivers as independentcontractors – an issue which is more easilydefended against if there is strict compliance withfederal truth in leasing requirements.22

Given the vicissitudes of state law, it would seemprudent for shippers and carriers to ultimately relyon an independent owner-operator model and toembrace the leasing regulations of §376 as an

established template for retaining owners of SDVswhether directly or indirectly.23

Reliance on these federal standards gives someconsistency to establishing uniform control,insurance and claims handling practices and astandard for distinguishing recognizable federalinstrumentalities of transportation and permissivecontrol issues which become particularlytroublesome if left solely to state law.

In this context, it is to be noted that beginningapproximately six months ago, some sophisticatedshippers began including final mile carriercompliance with the federal leasing standards (Part376) as a prerequisite for retaining independentcontractors as final mile service providers.

Overtime and Hours of Service Issues withSDVs

Class action lawsuits seeking overtime pay fordrivers are proliferating against carriers which aresubject to the federal hours of service requirement.Particularly prevalent as part of misclassificationsuits are claims that the driver is an employee andnot an independent businessman. The Fair LaborStandards Act which generally requires thepayment of overtime after 40 hours, contains anexemption for commercial motor vehicles operatingpursuant to the hours of service requirementsestablished by the Secretary of Transportation. Yetthe Department of Labor expressly provides thatfederal exemption from overtime pay that applies toequipment which weighs greater than 10,001 gvwdoes not apply to SDVs.24

Thus, drivers of CMVs in interstate commercefound to be employees are entitled to $1,050 perweek when on duty 70 hours at $15 per hour. Yet,with SDV (vans or sprinters) drivers classified asemployees would be entitled to $1,275 or $225more due to the application of overtime pay after40.

In State of New York v. FedEx Ground Package,Case No. 402966, the Attorney General entered asettlement for payment of overtime to 500 package

Vol. 29 No. 1 19

delivery drivers which the state claim weremisclassified as contractors rather than employees.25

Thus, overtime pay disputes and the possibility ofclass action liability would seem a great risk forthose who hire drivers or misclassified owner-operators and their customers. Complicating theissue is the fact that final mile delivery drivers arefrequently paid not an hourly wage, but by thenumber of packages delivered or the routes run,regardless of congestion and times spent. In Stateof New York v. FedEx Ground Package, CaseNo. 402960 / 2010, the Attorney General of NewYork entered a settlement on December 20 withFedEx for payment of overtime to 500 packagedelivery drivers which the state claimed FedExmisclassified as contractors rather than employees.

The Boston Globe has reported on retailer “flexofferings” which labor lawyers say “bank on the factthat workers are looking at that big number” but notdeductions for equipment, insurance and fees.

Whether done directly or indirectly by encouragingnew inexperienced ISPs, developing a dedicatedhome delivery system for parcels which ultimatelyrelies upon the independent contractor status andfavorable tax treatment of SDV operators is riskybusiness. As final mile deliveries, including restaurantand grocery delivery of locally sourced itemsbecome more prevalent, litigation over the modelwill surely increase.26

As the new paradigm expands to include store tocustomer two hour service using route pricingovertime, worker’s comp and state law benefits willundoubtedly create new challenges.

Major splits in the circuit over state lawencroachment on the independent contractor modelare focusing on whether state welfare andmisclassification laws violate federal preemption andthe requirements that states may not make ruleswhich affect interstate routes, rates and services.See Massachusetts Delivery Ass’n v. Coakley,769 F. 2d 11 (1st Cir. 2014); Dynamex Operations

West, Inc. v. Superior Court, 4 Cal. 5th 903(2018).

Clearly, the systemic issue with use of SDVequipment for final mile delivery services is largelydependent upon the ultimate success of theindependent contractor model. If the ultimate drivercost, whether borne directly by the retailer or aretained so-called Independent Service Provider (orISP) as Amazon proposes, requires full driverwages, benefits, insurance, cost of equipment andfuel, the allocated up-supply chain cost of usingSDV operators would be prohibitive. If state lawapplies to the use of SDV operators, retailerscannot count on a poor man’s indemnity and mustassume the risk of inconsistent state law.

In this context, Amazon reportedly is not hiringdrivers but is hiring companies that will employdrivers following the model of hiring “independentservice providers.” The Journal of Commerce notedin this context: “This issue of are these contractorsor employees is not going to go away, especiallywith union membership on decline.”27

If final mile delivery, particularly where SDVequipment is used, is not considered interstatefreight and subject to uniform treatment ofindependent contractor status, state and local laborlaws will create major obstacles for the newparadigm. A harbinger of things to come may beAmazon’s decision to withdraw its announcedcreation of 25,000 new jobs in the state of NewYork following the statement of New York Mayorde Blasio: “We are a union town,” … “there is goingto be tremendous pressure on Amazon to allowunionization and I will be one of the people bringingthe pressure. I believe that ultimately that pressurewill win the day.”28

If home delivery costs are left to the vicissitudes ofstate labor laws and independent contractor issues,offering free freight to all on uniform pricing and slimmargins will be difficult to sustain.

Journal of Transportation Management20

PART IIIOTHER POTENTIAL PROBLEMS INIMPLEMENTATION OF THE NEW

PARADIGM

In addition to the serious vetting, regulatoryinsurance and contracting issues with final miledeliveries discussed above, a sober assessment ofthe model requires consideration of severalremaining issues:

Reasonable Dispatch

The common carrier standard for interstate motorcarrier service is “reasonable dispatch.” That term isdefined in the uniform bill of lading as, “No carrier isbound to transport said property in time for anyparticular market or otherwise than with reasonabledispatch.”29

The public expects, and carriers are required toprovide reasonable dispatch; however, expeditedservice beyond the carrier’s standard holding out isusually provided at additional cost. In the retailenvironment, these additional costs for expeditedservice have traditionally been addressed in the e-commerce environment with higher delivery costoptions charged and passed on by the retailer to theintegrated national parcel delivery provider withwhom it contracts.

The promise of “free freight and free returns” hasproven to be an attractive marketing tool whichpresupposed that the real cost of premium carrierdelivery services can be mitigated by reducedinventory costs.30 The free freight and free returnpromise necessitates rock bottom pricing,guaranteed expedited service, and a system forhandling free astrays.

The automotive industry has been following a leanlogistics model for years, insisting on just-in-time(JIT) deliveries from suppliers to avoid inventorycosts. Frequently managed by third party 3PLs, JITautomotive contracts can impose draconianpenalties on their suppliers and carriers, includingcharter plane service requirements if scheduled

appointments are missed. The retail industry, withoverseas suppliers, difficult to forecast seasonalsales, and far more SKUs is pushing its suppliersand carriers to obtain consistent expedited servicewith far more variables including penalties withoutpremium pricing. Excessive use of telemetrics anddemand for time of delivery can be consideredcoercive and subject the shipper to additionalcontaminating “control” issues under state andfederal law.

Free Returns

Under general principles of federal transportationlaw, the statutory obligation of carriers for cargoloss or damage claims is “the full actual value of thedamaged or lost articles” subject to the consignee’sobligation to mitigate damage, inspection of adamaged article, and salvage.31 The “free returns”sale offerings of internet retailers is a reflection of arelatively new shipper-initiated contractual substitutefor accepted statutory claims handling. Retailers andgrocery houses in particular, increasingly insist theirsuppliers on prepaid or their carriers on collectshipments waive their duty to mitigate, permit therejection of any shipment which fails to make anappointed delivery, and absorb or waive anydetention to arbitrary restocking fees.

These contractual requirements outrun the cargoinsurance terms available to most service providers,making hash out of established claims resolutionprocedures. When this right to simply reject deliveryfor any reason is extended downstream to the homeconsumer, established claims procedures becomeirrelevant.32

The following examples will demonstrate these risks:

Example 1: A substantial middle mile carrierspecializing in expedited service under contract withan e-commerce retailer delivered thousands ofhome furnishing shipments to final mile carriers forhome delivery. Each shipment was carttoned. Themajority of shipments originated overseas and thecontents were not examined. Without rejection, thedelivering carriers accepted all tenders, marking on

Vol. 29 No. 121

bills of lading any superficial damage to outsidecontainers.

The e-commerce retailer filed no cargo claims andultimate disposition of the shipment was not madeknown to the middle carrier. When the e-commerceretailer defaulted on its freight charge paymentobligation, it filed notice of 3,048 claims totaling$2.7 million which it offset against freight chargesotherwise due and owing. The ultimate dispositionof the cargo and value of the claims was neverdetermined due to the insolvency of the e-commerce retailer which in turn precipitated theinsolvency of the carrier.

Example 2: Free Astrays. A big box retailercontracted with a high-end overseas furnituremanufacturer to fulfill internet sales order FOBhome delivery contingent upon the consumer’sacceptance and payment of the order.

The manufacturer shipped furniture to the U.S. forsubsequent distribution and hired an establishedfurniture hauler to deliver consolidated shipments toa Canadian distribution carrier for delivery. Over ashort period of time, $50,000 worth of furniture wasrejected by consumers throughout Ontario forunidentified reasons. When the big box retailerrejected payment for failure to make delivery, theshipper learned that the Canadian carrier washolding the shipments as free astrays and assertedits lien for delivery, recovery and storage.

Example 3: Seasonality. Depending upon theitems, product characteristics like seasonality, shelflife, and surge demand test the ability of the newmodel to offer the lowest cost and make expediteddeliveries without paying premium pricing. In thisexample, a big box retailer, apparently afternegotiating a substantially discounted price on lawnfurniture, offered the home and retail deliveryportions for bid to several experienced freightforwarders. The winning forwarder, relying onestablished relationships with established expediters,undertook the job at unsustainable rates. Inresponse to slow pay inquiries, it stated thatpayment from its customer was slow. As a result,

the carrier asserted their liens, stopped delivering theseasonal lawn furniture and notified the forwarder’scustomer. The forwarder filed for bankruptcy.Millions of dollars in unpaid freight charges were leftoutstanding. Scores of final mile expediters were leftwith hundreds of sets of lawn furniture lined up andready for a yard sale pending amicable resolution ofthe issue with the retailer.

Clearly, engineering and cost-effective returnprograms for e-commerce is a major issue. TheNational Retail Federation reports 58% of allshoppers were expected to return holiday gifts.Shippers and retailers are working with theirlogistics providers to shore up their returns andrestocking programs. Large technologically savvy3PLs are testing technology solutions for viablereverse logistics programs.33

The large number of concealed damage claims andotherwise rejected home delivery shipments resultingfrom the “free returns” offering is forcing suppliers,retailers and carriers to rethink traditional claimsadjustment programs and establish claims, rebatesor allowance programs to benchmark and allocaterisk and salvage without establishing thousands ofclaims for low value goods.

Transportation Costs is the Ultimate Issue

The cost to retailers of e-commerce home deliverymodel and the “free freight and free return” salesproposition is the ultimate issue. Amazon, theindustry leader in the development of the newparadigm, is reported to have increased its grosssales by 20% and is now the largest capitalizedcorporation in the world yet its stock valuation haslost 25% in the last quarter. See “Amazon TakesTop Market Cap Crown,” WSJ 1/8/19 at B3.

Whether the risk of increased labor costs andvicarious liability, the regulatory uncertainty by finalmile deliveries and other issues set forth above haveany effect on its market price is difficult to tell. Yet,Amazon has recognized a new acronym which isclearly a driving factor in its establishment of the newdistribution paradigm. “CRaP” stands for “Can’t

Journal of Transportation Management22

Realize a Profit.” This is the term it applies when thedelivery cost of low value items is too great to beabsorbed in its sales margin, resulting in homedelivery of many SKUs being loss leaders.Amazon’s response, like the reported response ofgrocery houses and big box retailers with whom itcompetes is to increase its profit margin byrecognizing additional supply chain and procurementsavings at the expense of its vendors and carriers.As a result, suppliers are pushed to cut costs orincrease the value of retail sales price of valuesshipped, with continuing pressure to reducetransportation costs of first, middle and final milecarriers.

Recent reports that Amazon intends to “insert itstransportation spend” is adding to carriers’reluctance to serve it. Transport Topics reportsAmazon is curtailing business with XPO losing$600,000,000 annually and intends to set up itsown competitive for-hire distribution network tocompete with FedEx, UPS and other similar motorcarriers. 34

Retailer volatility and bankruptcies such as Toy-R-Us and Sears exacerbate the turbulence created bythe new model clearly resulting in new risk and pricepressure on suppliers and transportation serviceproviders in particular. Many traditional truckload,LTL and expedited delivery carriers seem to believethat the CRaP acronym applies to them and haveconcluded that, as of now, the risks are too great;and the costs are too high to make a profit under theservice terms and rates retailers demand,particularly for the SDV.35

In many instances, reasonable dispatch has beenabandoned and penalties for failure to keepappointment times as well as uncompensateddetention is being imposed. Traditional local pickupand delivery providers have largely eschewedparticipating in-home delivery services, particularlywhere SDVs are involved because under the pricesoffered for the service required, most believe they“Can’t Realize a Profit.” Substantial efforts arebeing made to enroll new “independent serviceproviders” with the lure of equipment financing, help

in obtaining insurance and the promise of unlimitedgrowth potential.

Important distinctions are being drawn betweenUber and Lyft, ride hailing services and homedelivery of cargo. Stiff price competition, expediteddelivery guarantees, coupled with promises of freefreight and free return is driving retailers to proposenon-compensatory service propositions. In oneexample, one established, licensed, authorized andinsured SDV carrier was offered an average of 150deliveries per day for $225 or $1.50 per stop. Thedelivery route would require a commute during rushhour across a major metropolitan city and require aminimum of 10 to 12 hour on duty per day. Theexperienced carrier quickly confirms that the amountwas non-compensatory.

Technology, changing customer preferences andconvenience have irrevocably changed retail salesand more changes are coming. Driving downdelivery costs and the cost and risk associated withdriver pay is a major impediment to the “free freightand free return promise.” When and if bots, drones,and autonomous trucks will replace the need fordrivers, whether employees or independentcontractors remains to be seen.36

CONCLUSION

Technology, e-commerce and expedited homedelivery is quickly grabbing market share andshifting retail distribution to a new paradigm whichwill replace or augment supply chain managementfor retailers. The model is not one-size-fits-all butretailers across product lines are making innovationsin response. Price competition driven bycomparison shopping and e-commerce optionsresult in retailers squeezing suppliers and carriers toprovide premium short notice guaranteed services.

The traditional final mile parcel delivery service –FedEx, UPS and USPS and others – are facingnew competition as retailers attempt to take overmanagement of final mile delivery to compete withthe promise of “free freight and free returns.” Thisoxymoron – neither freight nor returns are free –

Vol. 29 No. 1 23

assumes that the retailer’s spread and increasedefficiency can cover the cost of transportation aswell as returns and restocking fees.37

The final mile segment of the new paradigm,particularly when non-commercial motor vehiclesare used, is the most risk prone, problematical areainvolved in implementation of the new paradigm.Retailers understandably eschew establishing privatecarriage operations for final mile delivery and are leftto recruit or hire service provider logisticscompanies to provide for independent contractorswhich can meet strict contractual requirements andoffer meaningful indemnification against up-supplychain vicarious liability and employment lawobligations under state law.

Vetting issues, the lack of verifiable safetycompliance and insurance standards, and thevicissitudes of state laws creates added risk for theSDV segment. The consensus among carriers and3PLs offering expedited services and thoseoperating SDVs in particular appears to be thatretailers’ home delivery value/price options are notsustainable and that they Can’t Recover a Profit atthe transportation rates retailers expect to pay.

Currently there appears to be a lack of experienced,well qualified and truly independent carriers willingto take on final mile deliveries for the compensationoffered. Traditional brokers and forwarders areexperiencing shipper pressure to offer completehome delivery management, but many seemreluctant to take on the risk and challenges ofarranging for SDV services. Creating newindependent service providers to insulate retailersagainst class actions, misclassification and up-supplychain liability is problematical, particularly when theindicia of control by the retailer is ever present andthe SDV operator is undercapitalized and difficult tovet.

The issues and risk with the e-commerce homedelivery model discussed above will become moreprominent as Amazon pushes the envelope tocompete with FedEx and UPS providing

warehousing and delivery of shipments it neitherowns nor distributes.

Clearly, Amazon is the wild card in the futuredevelopment of the new retail paradigm. From its e-commerce/home delivery model it is building its ownexpedited logistics/carrier network to compete withFedEx and UPS. It is building local warehousesthroughout the country to offer same day deliveriesand implementing an “Uber-like” contractor modelto support it. After mixed results with its fooddelivery business, Amazon announced it is enteringthe retail grocery business, building and acquiringbrick and mortar grocery stores. Shares of Krogertumbled 4.5 % and Amazon gained 2% with theannouncement.38

How it and other shippers will ultimately frame andvet their use of SDV equipment in conformance withfederal and state safety, employment laws andinsurance requirements is yet to be determined.

(Footnotes)1 Federal Express and UPS led the fight forderegulation and the F4A. The so-called “FiledRate Doctrine” was repealed. By the early 1990s,shippers began dictating their own contract termsand utilizing neophyte truckload carriers with newlyavailable nationwide authority. See 49 U.S.C.13902. The list of 100 largest interstate carrierstoday is a testament to the competitive effect ofderegulation.

2 Johnson, Spencer. Who Moved My Cheese?: AnAmazing Way To Deal With Change In YourWork And In Your Life. New York: Putnam, ©2002; 1998. “Department Store Makeovers ShowWay to the Future,” Wall Street Journal (December27, 2018) at p. 2.

3 Retailer Warehouses Get Taller, MoreSophisticated,“ Wall Street Journal (January 23,2019) at B7.

Journal of Transportation Management24

4 “Winners in Traditional Retailing are also WinningOnline,” by Elizabeth Winkler, Wall Street Journal(June 8, 2018).

5 See “Produce or Else: Wal-Mart and Kroger GetTough With Food Suppliers on Delays” WSJ 11/27/17.

6 This disruptive trend has led to retailers’ insistenceon waiver of any duty to mitigate damages, “freereturns” push to the supply and wasteful destructionof perishable commodities as “free astrays.”

7 See New York Times 12/22/18 at B5.

8 “Amazon Pushes Delivery Service,” Wall StreetJournal (1/24/19) at B1. “Amazon PressuresSuppliers,” Wall Street Journal (12/17/2018) at A1,A11.

9 Malls Devote Floor to E-tailers,” Wall StreetJournal (1/16/19) at B6.

10 “Amazon Sets Up Shop in the Heart of thePublishing Industry,” Alexandra Alter, New YorkTimes (5/24/17).

11 New York Times 12/22/18 at B5.

12 “Retail Sales End on High Note,” Wall StreetJournal (12/24/18) at A2

13 See “Walmart Posts Big Holiday Gains,” WSJ (2/20/19), p. A1 and A2

14 “Grocery robots are even being tested to pickcall-in orders and replenish. “The Grocery Robot isHere,” Wall Street Journal (January 5-6, 2019), B4

15 “Produce or Else: Wal-Mart and Kroger GetTough with Food Suppliers on Delays“ Wall StreetJournal 11/27/17.

16 “J.B. Hunt Buys Cory to Expand in Final MileHeavy Item Sector” Transport Topics (1/14/19) p.1, 25.

17 See “Amazon Recruiting Delivery Entrepreneurs”by Joseph Pisani, Inside Logistics (June 29, 2018).

18 “Task Force on USPS Goes After Amazon,”MKinnon and Ziobro, WSJ 12/5/18 at A1, A11.

19 Massachusetts Delivery Ass’n v. Coakley, 769F. 2d 11 (1st Cir. 2014); Dynamex OperationsWest, Inc. v. Superior Court, 4 Cal. 5th 903(2018); but see Angel Omar Alvarez v. XPOLogistics Cartage, LLC (2:18-cv-03736-SJO-E)(District Court, C.D. California); Bedoya v. Am.Eagle Express, Civ. No. 14-2811, 2017 WL4330351 (D.N.J. Sept. 29, 2017).

20 See Labor Commissioner for the State ofCalifornia v. Federal Motor Carrier SafetyAdministration, Case No. 19-70329, in the U.S.Court of Appeals for the Ninth Circuit.

21 49 C.F.R. 387.303, 48 C.F.R. 376 and 49C.F.R. 370.

22 See Raef Lawson v. GrubHub Inc., Case No.18-15386 in the U.S. Court of Appeals for theNinth Circuit.

23 The term “independent service provider” is not aterm of art recognized or used to describeindependent authorized carriers or leased operatorsunder federal transportation standards and shouldbe avoided as a “state law” term without definingprecedent and militating need for uniformity ininterstate commerce.

24 See “Fact Sheet #19: The Motor CarrierExemption under the Fair Labor Standards Act(FLSA),” U.S. Department of Labor Wage andHour Division, November 2009.

25 New York, Massachusetts, California and nowNew Jersey and Illinois have raised state minimumwage requirements to $15.00 per hour. See NewJersey Lawmakers reach deal to make stateminimum wage $15 (NYT 1/18/19 at A19).

26 Raef Lawson v. GrubHub Inc., Case No. 18-15386 in the U.S. Court of Appeals for the NinthCircuit.

27 "Amazon’s third-party delivery network to redrawtruck capacity,” by William B. Cassidy, Journal ofCommerce (June 30, 2018).

Vol. 29 No. 125

28 See Wall Street Journal (February 14, 2019) atA16.

29 See Standard Bill of Lading Section 2(a).

30 In many instances big box and e-commerceretailers may use supplier inventories to furtherreduce inventory costs.

31 See 49 U.S.C. §14706, the CarmackAmendment.

32 “Produce or Else: Wal-Mart and Kroger GetTough with Food Suppliers on Delays” WSJ 11/27/17.

33 “Logistics Companies Aim to Ease Returns, KeepCosts Low Amid E-Commerce Rise,” TransportTopics (1/14/19) at p. 1 and p. 18.

34 See “Amazon Moves Supply Chain Evolution,”(Transport Topics, 2/25/19) and “Amazon.com‘Insourcing’ Roils Freight Industry, Analysts Say,”(Transport Topics 2/21/19).

Henry E. Seaton has practiced law for 44 years with the Law Office of Seaton & Husk, LP in the

Washington D.C. area representing motor carriers and brokers. The firm specializes in freight claims, freight

charge collection, contracting issues, carrier representation before the FMCSA and bankruptcy issues. He

serves as counsel for the National Association of Small Trucking Companies, the Air & Expedited Motor

Carriers Association, The Expedite Alliance of North America, the Tennessee Motor Coach Association,

the American Home Furnishings Alliance and the Auto Haulers Association of America. Mr. Seaton is a

member of the Conference of Freight Counsel. He is a frequent speaker and lecturer regarding cargo

claims, freight charges, contracting and risk/insurance issues affecting carriers and brokers. Mr. Seaton

serves on the Editorial Board for the Airforwarders Association Quarterly Magazine. A graduate of Duke

University and Vanderbilt School of Law, he has published “Rules of the Road: A Practical Guide to Legal

Issues in Truck Transportation” (2016) which is available for purchase at www.transportationlaw.net. In

2014, Mr. Seaton was awarded the Lifetime Achievement Award from the Transportation Lawyers

Association. Email: heseaton@aol.com.

35 “Amazon Pressures Suppliers,” Wall StreetJournal 12/1718 at p. A1 and A11.

36 Robots are being tested for use in e-commercewarehousing. See “Warehouses Test a New Breedof AI Robots,” Jennifer Smith (WSJ 1/08/19);“Amazon’s Private Fleet Appears to be TestingAutonomous Trucks,” Commercial Carrier Journal(February 1, 2019).

37 "58% of holiday shoppers returned items,”National Retail Federation says. See TransportTopics, 1/14/19, p. 1. 79% of e-commerceshoppers believe free returns is important, yet “notonly moving the box but also testing, repairing,restocking and disposing of goods creates cost.”Ibid.

38 See “Amazon Pushes into Groceries” (WSJ 3/2/19) at p. A1, A4.

BIOGRAPHY