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Government Lawsuit Against YRC Shines Light On LTL Reweighing Practices

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In the late 1990s, YRC Worldwide, Inc., (NASDAQ: YRCW) then known as Yellow Corp., was considered by some the gold standard of freight inspection among less-than-truckload carriers. One long-time LTL executive who never worked at YRC recalls it being a leader in freight inspection practices, with between 80 to 90 people in its weigh and research department committed to doing inspections right. That staff didn't include the dock folks who were in charge of reweighing the freight to accurately assess its weight and cube, the executive said. The executive's carrier, at the time, had no workers in such a department.

The US government would beg to differ on the executive's impression of YRC's competence and integrity. On Friday, the Department of Justice sued YRC Freight, YRC's long-haul carrier, and two affiliated carriers, Roadway Express and Yellow Transportation, for overcharging the Department of Defense for years by billing the DoD based on shipment weights that were higher than the actual weight of the goods hauled. According to the lawsuit, the carriers would reweigh thousands of shipments but suppress the results whenever they showed that a shipment was lighter than its original estimated weight. DOJ said YRC "knowingly made or used false statements" to hide its practices. The alleged actions, which were thought to have occurred between 2006-07 and 2013, cost the government millions of dollars, DOJ said, without disclosing specifics. Overland Park, Kan.-based YRC said Friday that the government's charges have no merit, that it will be vindicated by the evidence, and that it has worked with DoD for years in an effort to respond to the agency's concerns. It declined comment beyond its statement.

Anyone looking for a clear delineation of right and wrong will likely not find it here. Interviews with several people said that in the arena of government freight, especially with a shipper as massive as The Pentagon, mistakes and bad judgment are bound to happen on both sides. Charles W. Clowdis, Jr., a veteran trucking executive, consultant and litigation support expert, said he's worked on litigation where the government would misinterpret the language in bills of lading, and he's been involved in cases where carriers engaged in double, triple, and even quadruple billing on one transaction and would submit accessorial charges—fees for services beyond the standard line-haul—that were "contrived." Then there were carriers who "played it straight" and honestly billed all allowed charges, Clowdis said. Those carriers, he said, would make solid profits on military shipments.

Not every carrier has a rosy view of doing business with the Pentagon. YRC, for example, said DoD traffic accounts today for just 1 percent of its annual revenue, which based on its full-year 2017 revenue would amount to under $49 million. The unidentified carrier executive said it exited the military haulage business years ago, fed up with inflexible rules that tilted entirely towards the Pentagon, such as language that didn't cap the carrier's liability on loss or damage. In general, the Pentagon made a good-faith effort to submit shipments with accurate weights, although there were cases where shipments were tendered without any weight being shown, according to the executive

LTL rates are set by the weight of a shipment as determined by a complex and arcane set of commodity classifications in place since the mid-1930s. DoD traffic can be difficult to price because the contents in each shipment can be diverse and involve multiple commodity classifications. Some carrier executives want to move away from the classifications formula and rely on high-tech equipment that digitally captures a shipment's weight and cube to arrive at the proper density that can make or break an LTL carrier's costs.

YRC was within its rights to reweigh and, if necessary, reclassify DoD shipments to levels that justified a higher charge, said Tommy Barnes, president of technology provider project44 but who has spent most of his career in physical distribution as an LTL and third-party logistics provider executive. The potential problem for YRC is to what extent it concealed the number of reweighs that would entitle DoD to refunds, Barnes said. That's typically not a concern in the commercial world, according to the unnamed executive. "We don't find many reweighs in favor of the customer," the executive said.

There is no set formula to determine when and how many reweighs should take place, Barnes said. Generally, a carrier can identify locations demonstrating a pattern of tenders with improper weights, and it will reweigh a disproportionate number of those shipments, he said. Barnes, who oversaw DoD military business as an executive of the former contract logistics firm Menlo Worldwide Logistics, now a part of XPO Logistics, Inc., (NYSE: XPO) said the goods were mostly low-value and slow-moving, adding that more than a few of the supply depots were not running world-class operations.

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Virtually all LTL carriers today have reweighing capabilities, and technology in this discipline has become commonplace, said Todd Polen, vice president of pricing for Old Dominion Freight Line, Inc. (NASDAQ: ODFL). A universal problem, though, is that shippers often fail to include the weight of a pallet in their calculations. That's because a shipper doesn't know how many pallets will be required until the picking process is completed. As a result, their Transportation or Warehouse Management Systems cannot calculate the actual shipment weights, Polen said. "It is a legitimate issue," he said.

According to Barnes, carriers treat reweighs as a profit center, noting that carriers charge a reweigh fee on top of any additional revenue and margin collected if the reweigh produces a higher weight than what was shown upon tender. Third-party logistics providers are the biggest culprits and often get holding the bag because, after paying the carrier for the adjusted rate they then have to pursue their customer, the shipper, something that is time-time-consuming and can engender ill will, he added.

Polen disagrees with the notion that reweighs are primarily used to goose the top line. At Old Dominion, reweighs accomplish three objectives, none of which are revenue-generating, he said: First, arriving at the correct shipment density is essential to running an efficient LTL network, and density cannot be captured without knowing a shipment's proper weight and cube. Second, reweighing helps Old Dominion avoid costly fines for running an overweight truck. Third, it contributes to the carrier's safety performance by having weights and cube properly documented.

Like all LTL carriers, Old Dominion is paid by shipment weight. But as far as reweighs are concerned, anything that produces elevated revenue is just gravy, Polen said.

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