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Why Commercial Zone Fees Are Charged and How to Reduce Them

Posted By Administration, Thursday, February 9, 2017
Updated: Tuesday, February 7, 2017


For years, we've fielded questions during RVCF Supplier Open Forum calls about commercial zones. Retailers charge suppliers commercial zone fees when the supplier's shipping facility is in the same proximity as the retailer's receiving facility, and suppliers often don't understand why.

First, let's take a step back and clarify the definition of a commercial zone and how commercial zone fees are calculated. We spoke with Gerard Smith, Managing Partner with Pezold, Smith, Hirschmann, and Selvaggio, LLC to better understand what the law says about commercial zones and the associated costs.

Mr. Smith is a lawyer specializing in transportation law, business, commercial and insurance law, particularly in the fields of loss and damage claims on behalf of shippers, transportation brokers, freight forwarders and carriers. He also specializes in admiralty, maritime, aviation, in-land marine and marine issues.

Retailers have offered various definitions for their commercial zones. Commercial zones are most commonly defined as "densely populated areas where traffic is restricted" and, to some degree, as "shipments originating within a given radius or from specific zip codes surrounding their distribution or consolidation facilities."

"In general, interstate commerce – transportation between points in two or more states – is subject to federal regulation under the jurisdiction of the U.S. Department of Transportation," said Mr. Smith. "Commercial zones are exempt from federal regulation. For example, if you have a shipment between New York City and certain points within New Jersey that fall within the commercial zone of New York City, then those shipments, although moving in interstate commerce, are exempt from federal jurisdiction and regulation."

The commercial zone regulations are set forth in Title 49 of the Code of Federal Regulations (CFR) at Part 372.

The main purpose behind defining commercial zones and carving out a federal exemption was to avoid duplication of regulation over these areas because the local municipalities already regulated this commerce. Today, regulations specifically define commercial zones in Albany, NY; Beaumont, TX; Charleston, SC; Charleston, WV; Lake Charles, LA; Pittsburgh, PA; Pueblo, CO; Ravenswood, WV; Seattle, WA; Washington, DC; Twin Cities, MN; Lexington, KY; Syracuse, NY; Spokane, WA; Tacoma, WA; Chicago, IL; New York, NY; and Cameron, Hidalgo, Starr and Willacy Counties, TX.

Unfortunately, no universal method for calculating commercial zone fees exists, but there is a way to reduce costs in a way that satisfies all parties involved.

"There is no specific formula or criteria for calculating fees," said Mr. Smith. "You or the retailer can always negotiate commercial zone charges directly with the carrier. These charges should always be set forth in a contract between the parties."

Retailers pointed out that these areas burden carriers with higher expenses that can include everything from delays caused by traffic congestion to tolls for roads, bridges and tunnels. Carriers pass these higher costs onto the retailers and the retailers, in turn, pass them on to suppliers.

The best way to address concerns about commercial zones and associated costs is collaboration. Suppliers, talk to your retail customers and carriers to hear their side. Retailers and carriers, be upfront and transparent with these costs. Open communication can help lower or even eliminate these costs when everyone is on the same page.

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Tags:  Commercial Zone 

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