Fuelish Fantasy

Fuelish Fantasy

Copyright 2007, Traffic World, Inc.

If you''ve already finished "Harry Potter and the Deathly Hallows," I''ve got another fantasy you might want to read: a lawsuit alleging price fixing among the nation''s top LTL carriers.

This lawsuit pits a small shipper, Farm Water Technological Services, against some of the biggest names in trucking - Arkansas Best, FedEx, UPS, YRC Worldwide, Con-way, Jevic Transportation, Averitt Express, Saia, R+L Carriers and New England Motor Freight.

I won''t say it''s a gripping read, but the lawsuit certainly is inventive and ambitious - and flawed. Its main claim is that the LTL carriers violated federal antitrust laws by conspiring to fix fuel surcharges. It seeks treble damages, injunctive relief, attorneys'' fees and costs not just for Farm Water Technological Services, but for all shippers as a class action lawsuit.

So we have greedy, collusive corporations - let''s call them "Fuel Eaters" - opposed by a small, heroic shipper, a $21 million company that says it supplies irrigation system components. But there''s a big hole in the plot: the allegation of price-fixing by LTL carriers strains belief to the breaking point.

"A number of structural characteristics of the LTL industry facilitate the implementation and maintenance of horizontal price-fixing," the lawsuit alleges.

That''s certainly news to anyone who''s followed trucking since, say, 1980.

Since deregulation eliminated federal tariff filing requirements and allowed widespread discounting from base rates, it''s hard to imagine a more competitive service industry when it comes to pricing than trucking. The plaintiff in this case seems to do business in an alternative universe.

"The LTL service industry ? is highly concentrated, facilitating coordination of prices," the suit says. "Demand for LTL services is imperfectly inelastic, meaning the gains from collusion are substantial." Perhaps the shipper''s attorneys could get Consolidated Freightways to testify to that.

Of course, it''s not base prices that are being fixed by a carrier cartel, according to the lawsuit, but fuel surcharges.

The lawsuit points to the fact that nearly all carriers use similar or identical surcharge mechanisms tied to the U.S. Energy Information Administration''s fuel price index as evidence of industrywide collusion. Of course, they all use similar trucks as well, but the lawsuit lets that point go.

The fact is, the fuel surcharge does not fix the price a shipper pays. That''s determined by negotiation over base rates and discounts - known to go as high as 70 percent off those rates. Prices accordingly vary from customer to customer, and even shipment to shipment.

To back its claim of collusion, the lawsuit notes that LTL carriers post their fuel surcharge mechanisms on their Web sites, for all the world to see. This isn''t about providing pricing transparency to shipping customers, but "policing the cartel."

The lawsuit quotes a 2006 Traffic World article in which Ken Hazen, president of CTSI, called fuel surcharges a profit center for carriers and said, "carriers are in the catbird seat." That, of course, was in February 2006, when capacity was tight and shipper demand was high. Today, lower volumes and overcapacity have put shippers "in the catbird seat," and deflated carrier earnings. Fuel prices are down, too.

Perhaps Farm Water Tech and its attorneys need to put aside Harry Potter and catch up on their business reading.