The charges against
United Parcel Service, Inc.
) 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
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
) 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.
) 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).
Air Transport Services Group, Inc.
) with a Zacks Ranks #2 (Buy) is another stock in this sector we
see as worth considering.
AIR TRANSPT SVC (ATSG): Free Stock Analysis
EXPEDITORS INTL (EXPD): Free Stock Analysis
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis
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