A federal administrative law judge has ruled against Peloton in its case against shipping partner Flexport International LLC, rejecting Peloton’s attempt to recover $33.7 million in pandemic-era shipping charges.
As reported by Seatrade Maritime News, Administrative Law Judge Mary Apostolakos Hervey issued a 70-page initial decision on September 9. Hervey found that Flexport did not violate the Shipping Act provisions cited by Peloton and is not liable to Peloton for reparations.
We first shared the lawsuit in May 2024, when Peloton accused Flexport of improperly handling inland transportation and then charging Peloton millions of dollars in detention and demurrage fees related to resulting delays.
Detention and demurrage charges are generally assessed when cargo remains at a terminal beyond its allowed free time or shipping equipment is not returned on schedule.
The case involved 7,343 containers. Peloton ultimately sought $33.7 million in direct damages related to 3,249 store door shipments, consisting of $13.8 million in demurrage charges, $16.2 million in equipment detention, and $3.7 million in yard and warehouse storage costs.
Peloton’s damages expert attributed $26 million of those charges to Flexport with no evidence that Peloton was at fault. Another $5.8 million allegedly did not contain enough information to determine whether Peloton was responsible, while $1.7 million was attributed to both companies and $134,520 exclusively to Peloton.
One of the central disputes was over Peloton’s argument that because Flexport handled the inland portion of many shipments under “store door” arrangements, Flexport should generally be responsible for detention and demurrage unless Peloton was responsible for the delay.
Hervey rejected that interpretation, writing:
“Peloton’s argument that an ocean common carrier is responsible for detention and demurrage on store door moves is not supported by the applicable guidance.”
The judge noted that Federal Maritime Commission rules do not prohibit detention and demurrage charges on store door shipments. Instead, the charges can be scrutinized based on the circumstances that caused a particular delay.
That became one of the biggest problems for Peloton’s case.
The FMC’s “incentive principle” generally looks at whether detention and demurrage fees are functioning as an incentive to keep freight moving. Hervey said determining whether Flexport’s charges complied with that principle required examining what happened with individual containers on the specific dates charges were assessed.
Peloton’s damages expert instead performed what the ruling describes as a shipment-level analysis. The analysis used Flexport shipment IDs and consolidated invoices, some of which contained charges for as many as eight containers.
It did not identify several key dates for individual containers, including when they were discharged, picked up, delivered or returned, or the dates on which particular charges were assessed.
Hervey wrote:
“In the absence of a container-by-container analysis, there is insufficient evidence in the record to show that Flexport’s assessment of D&D in accordance with its tariff was per se unreasonable.”
The decision notes that Peloton had separately conducted its own internal audit of Flexport’s charges. That audit lined up details including gate-in dates, when goods arrived at warehouses, when Peloton notified Flexport that containers were empty, and when the empty containers were returned.
Peloton withheld that audit during discovery under a claim of attorney-client privilege. Hervey said the existence of the audit demonstrated that Peloton “possessed the information necessary to perform a container-by-container analysis of key events but did not do so for reasons that are not apparent.”
The ruling also details several instances in which Peloton’s own warehouse and inventory issues contributed to shipping delays.
As of July 7, 2021, Peloton had 154 containers in yard storage waiting for delivery to its Perris facility, another 293 containers sitting at the Port of Los Angeles that had not yet left the port, and approximately 350 additional containers scheduled to arrive during the following two weeks.
In August 2021, Flexport told Peloton that 51 containers at an Ingram Micro facility had been outside the port for more than 20 days and accumulated approximately $400,000 in charges.
Peloton’s then-Director of North America Logistics responded that the company was attempting to obtain more warehouse space, writing:
“Unfortunately, we do not have floor space to unload weights and they cannot go in our racking so it makes this issue extra challenging. We’re working on approval for more storage capacity on several fronts. Please bear with us. We are keenly aware of the costs.”
The problems continued into 2022. An April 2022 internal Peloton email cited in the ruling said unloading had been completely paused for some containers at the Hesperia distribution center, including containers that had been sitting for more than 100 days and were accumulating significant detention costs.
Those events took place during Peloton’s broader inventory problems following the pandemic-era surge in demand. In early 2022, Peloton temporarily paused production of some of its connected fitness products as inventory levels increased and demand slowed.
The ruling does not conclude that every charge assessed by Flexport was reasonable or that Flexport was responsible for none of the delays. The record included examples of Flexport trucking errors, and Hervey described Flexport’s formal employee training and dispute resolution process as limited.
Instead, Hervey found that Peloton did not sufficiently connect problems caused by Flexport to the individual charges it was seeking to recover.
The judge also noted that Peloton paid the Flexport invoices at issue and did not formally dispute the charges through Flexport’s dispute process at the time. Peloton later audited the invoices and identified what it believed were discrepancies, but did not provide Flexport with a list of the individual shipments and invoices being disputed.
A separate Peloton allegation related to invoice requirements enacted through the Ocean Shipping Reform Act of 2022 was also rejected.
Peloton argued that 13 Flexport invoices totaling $83,390 did not contain information required under the new law. However, Hervey found that Peloton’s proposed findings identified only one allegedly deficient invoice and did not specify what required information was missing.
The September 9 ruling is an initial decision rather than necessarily the final step in the case.
Either party may file exceptions within 22 days of the decision being served. If the Federal Maritime Commission does not review the decision, it will become the decision of the Commission.
We will share any updates if Peloton seeks further review of the decision.
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