UPS Charged $40M on Fed Probe - Analyst Blog
01 April 2013 - 8:10PM
Zacks
The charges against United Parcel Service,
Inc. (UPS) for doing business with illegal online
pharmacies finally reached a conclusion after it settled the case
with a non-prosecution agreement with the U.S. Department of
Justice. Under this settlement, the company will forfeit $40
million it earned from illegal Internet pharmacies shipping drugs
using its services and implement a compliance program against such
practices.
We assume that the legal charges may not have a material adverse
impact given the mammoth financial strength of UPS. However, the
rising number of legal battles against carriers like UPS does call
for a closer look into the existing regulations that continue to
govern the freight forwarding companies.
The case dates back to 2005, when an investigation done by the U.S.
Drug Enforcement Administration (DEA) exposed approximately 4600
online pharmacies that were operated illegally.
The disclosure was followed by an immediate shutdown of these
online stores and several arrests that resulted in further
investigation proving the involvement of shipping companies like
UPS. Other major shipping companies like FedEx
Corporation (FDX) were also indicted of delivering drugs
without proper prescriptions. However, these companies were on
denial after these revelations were made.
In Jul 2006, UPS and FedEx served a subpoena from grand jury as
part of an investigation by the Antitrust Division of the U.S.
Department of Justice. The subpoena required them to furnish
records that could provide insight into possible antitrust
violations in transportation of packages for online pharmacies.
Regulatory issues are not new to the parcel industry. Companies
like UPS and Expeditors International of Washington
Inc. (EXPD) have been in news earlier this year for price
fixation. In Mar 2012, the European Union (EU) commission’s
antitrust regulators have charged $225 million as fine on 14
international freight forwarding companies for perusing price
fixing activities for freight transactions in Europe.
According to investigation under the EU commission antitrust
department, these logistic companies were involved in four cartel
activities, fixing airfreight prices between 2002 and 2007. Cartel
activities that are undertaken through the collusion of various
groups of people or companies involve fixing of any underlying
factor that influences market behavior, such as price or
production, in order to reduce competition and derive maximum
benefit from consumers.
Coming back to UPS, we believe the emergence of e-commerce is
giving rise to questionable practices undertaken by many shipping
carriers to maximize profits as no concrete regulation has yet been
implemented to this online business. In particular, for the parcel
industry, any change in the regulatory environment is yet to be
made.
UPS has a Zacks Rank #3 (Hold).
Other Stocks
Air Transport Services Group, Inc. (ATSG) with a
Zacks Ranks #2 (Buy) is another stock in this sector we see as
worth considering.
AIR TRANSPT SVC (ATSG): Free Stock Analysis Report
EXPEDITORS INTL (EXPD): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
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