Q&A: Customer Pickup Allowances

Q&A: Customer Pickup Allowances

Copyright 2003, Traffic World, Inc.

Q:

As a food service distributor, much of our company's inbound freight is purchased on f.o.b.-destination basis (either priced f.o.b. destination or delivered pricing with a customer pickup allowance). To what extent does the Robinson-Patman Act impact customer pickup allowances?

Consider a food manufacturer and two different distributors, both in the same geographic market. Distributor A is a food service distributor, purchases less-than-truckload but many SKUs and has considerable pallet breakdown (sort and segregate). Distributor B is a retail distributor, buys full truckloads albeit with much fewer SKUs, and the product pulls straight off the truck with no sort/segregate required.

The actual transportation rate per hundredweight to deliver and unload is considerably higher for Distributor A in this scenario. Does the Robinson-Patman Act require that the manufacturer offer the identical pickup allowance rate to both distributors?

A:

No. In your case that answer derives directly from statute. Under 49 U.S.C. ?13713(a), "it shall not be unlawful for a seller of food and grocery products using a uniform zone-delivered pricing system to compensate a customer who picks up purchased food and grocery products at the shipping point of the seller if such compensation is available to all customers of the seller on a nondiscriminatory basis and does not exceed the actual cost to the seller of delivery to such customer."

Your pricing scheme appears to be more or less "zone-delivered" (all customers in a given geographic zone are charged equal delivered prices), so this applies to you. In your scenario, delivery to Distributor A costs you more than delivery to Distributor B, so you can offer A a bigger allowance provided that it's reasonably cost-related.

(By the way, subsection (b) of that statutory provision states that it is "the sense of the Congress that any savings accruing to a customer by reason of compensation permitted by subsection (a) of this section should be passed on to the ultimate consumer" - meaning that Distributor A should offer correspondingly lower prices to its retailers, who should in turn pass on that reduced cost to their shoppers. Well, even Congress can dream, can't it?)

The foregoing warrants a bit of background information. In the 1970s the Federal Trade Commission, which is charged with enforcing Robinson-Patman, took a bit of a run at vendors who used zone-delivered pricing. The act bears the soubriquet "Fair Pricing Act" and is intended to ensure that all similarly situated buyers receive nondiscriminatory pricing. The FTC claimed that was not the case when one buyer, if it opted to pick up its purchases itself, received a higher allowance off a uniform delivered price than another in the same zone.

In fact, zone-delivered pricing structures exist in a wide range of economic sectors, so why single out your own (food service) for this relief? The simple answer is that the FTC was focusing on food service in its enforcement efforts, so these were the firms that complained. And in the mistaken belief that it was only food service that was affected (since nobody else was making lobbying waves), Congress restricted its relief to that sector. A simple matter of realpolitik.

Which leads me to the conclusion that, if you were in another line of business, the answer to your question might well be otherwise. Implicit in what you wrote me is that, notwithstanding the different circumstances surrounding your shipments to the two distributors you've described, you're charging them both identically on a delivered basis. Why you choose to eat the additional sorting and segregation costs associated with delivery to Distributor A is your affair, especially since you describe your transportation cost differential as "considerable," but I can't second-guess your marketing decisions.

Now, I can make you a decent argument that this particular decision itself violates Robinson-Patman. Your customers, Distributors A and B, in fact do not appear to be "similarly situated," in that you incur additional delivery costs to A that don't apply to B. So by selling to both on identical delivered terms you're possibly engaging in outlawed discriminatory pricing.

But if you survive that challenge to your practices, then your granting of higher allowances to A than to B would indeed be a violation of Robinson-Patman except for intervention of ?13713. That is, if your base delivered pricing is deemed acceptable, this says that A and B are indeed to be considered "similarly situated" within the context of the statute, and in any other economic sector this would be illegal.

Bear in mind that ?13713 doesn't relieve you of the obligation to establish nondiscriminatory pricing, so you still are open to possible legal challenge for your identical delivered prices to A and B. But if nobody's making waves about that, you - being in the food service sector - then may set customer pickup allowances at different levels for these two distributors.

-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76, Morganton, Ga. 30560; phone, (706) 374-7201; fax, (706) 374-7202; e-mail, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.