A&P Seeks to Reject Logistics Contract

JON SPRINGER

WHITE PLAINS, N.Y. — A&P has asked U.S. Bankruptcy Court here for permission to reject a logistics contract with Grocery Haulers Inc., which provides trucking services for its Pathmark stores, saying the contract is inefficient and likely to become more expensive.

A&P acquired Pathmark in 2007 and in so doing acquired a contract that runs through 2014 with Grocery Haulers. GHI, Avenel, N.J., provides exclusive hauling of grocery items from five New Jersey warehouses known as the Woodbridge facilities to Pathmark stores. Those warehouses are owned by supplier C&S Wholesale Grocers, which is expected to close them shortly. A&P argued that maintaining the “cost-plus” structure of the GHI contract — which in addition to an annual fee includes reimbursement for labor, fuel, equipment and maintenance — would likely be more expensive when provided from another facility.

C&S filed a notice with the New Jersey Department of Labor that its Woodbridge Logistics subsidiary could close six New Jersey warehouses effective Feb. 6. The Keene, N.H.-based supplier declined to comment to SN on the potential closures, and it was unclear where it intended to shift the warehouse volume.

A&P in court papers said its own analysis indicated the company pays “substantially more” for the same services to GHI than it would to another third-party logistics provider and could reject the GHI deal after reviewing proposals from other providers. C&S and GHI were among those asked to submit a proposal, A&P said.

The GHI contract also results in redundancies for overhead and administration and has prevented the company from taking advantage of synergies, A&P said.

“For example, even though a Waldbaums-branded grocery store and a Pathmark-branded grocery store may be geographically proximate to one another, the debtors are required to utilize and pay two different carriers to deliver merchandise from the same distribution centers to these two stores, frequently on the same day,” A&P argued. “This piecemeal arrangement — the result of multiple exclusive long-term supply and logistics contracts in the wake of a significant and complex acquisition — is inefficient, and the debtors’ businesses would be well-served by addressing it.”

Grocery Haulers in a response said A&P had not proven that rejecting the contract would benefit the retailer or its estate and urged the judge to disallow the motion at least until the company could detail an alternative.

“While styled as a motion to reject, the debtors … are really seeking authority to continue to enforce the terms of their trucking agreement with GHI and then, maybe, reject it, at an indeterminable future date, at the debtors’ whim, with no specific procedures for notice to GHI and its 300 employees who service the debtors, and without any further judicial scrutiny as to whether the rejection is in the best interest of the debtors and their estates,” GHI said.