Recent Questions & Answers
FREIGHT CHARGES – TERMS OF CREDIT
Question:
Can freight bills be paid at any term of days? Interstate Commerce Commission (“ICC”) regulations used to require that they be paid in 15 days. Some shippers now state that they pay freight bills to a carrier at 90 days. Can this be done?
Answer:
As you know, the ICC was “sunsetted” effective December 31, 1995. However, some of the old ICC regulations were transferred to the FMCSA’s jurisdiction and still exist. 49 CFR Part 377 governs the extension of credit to shippers by motor carriers and provides:
(a) Authorization to extend credit.
(1) A carrier that meets the requirements in paragraph (a)(2) of this section may
(i) Relinquish possession of freight in advance of the payment of the tariff charges, and
(ii) Extend credit in the amount of such charges to those who undertake to pay them (such persons are called "shippers" in this part).
(2) For such authorization, the carrier shall take reasonable actions to assure payment of the tariff charges within the credit periods specified
(i) In this part, or
(ii) In tariff provisions published pursuant to the regulations in paragraph (d) of this section.
(b) When the credit period begins. The credit period shall begin on the day following presentation of the freight bill.
(c) Length of credit period. Unless a different credit period has been established by tariff publication pursuant to paragraph (d) of this section, the credit period is 15 days. It includes Saturdays, Sundays, and legal holidays.
(d) Carriers may establish different credit periods in tariff rules. Carriers may publish tariff rules establishing credit periods different from those in paragraph (c) of this section. Such credit periods shall not be longer than 30 calendar days.
It should be noted that this regulation only governs CARRIERS. It doesn’t apply to SHIPPERS. Also, under 49 USC 14101(B), carriers and shippers are free to enter into contracts that contain other provisions for freight payment.
FREIGHT CLAIMS – LIABILITY FOR IMPROPER SECUREMENT
Question:
A live load (full truckload) was shipped on a standard bill of lading (“B/L”). The load was not blocked and braced and during transit it shifts, falls over and is damaged. Who bears the responsibility, the shipper or the carrier? The shipper loaded the truck and the carrier was on hand during the loading. There were no loading or unloading agreements with the carrier.
Answer:
Carriers are presumed to have the knowledge and expertise on the proper loading of freight. Therefore, even though a shipper loads or assists in the loading of a trailer, the primary responsibility for safe loading (blocking, bracing and load securement) is on the carrier. This is reflected in the federal safety regulations, e.g., 49 CFR 392.9, 49 CFR 393.100, etc.
As with any rule, there are exceptions and one is that the improper loading or defect be “patent” and not “latent”. What this means is that the improper loading condition has to be apparent and visible to the carrier, and not hidden so that it can’t be seen. From your description, however, the carrier’s driver was present and observed the loading of the freight, so I don’t think this exception would apply.
Lastly, under the “Carmack Amendment”, a carrier is liable for loss or damage to goods in its possession unless it can prove that the sole cause was one of the basic exceptions such as an act of God, act or default of the shipper, etc. AND that it was free from any negligence. In this case, the carrier would not be able to show freedom from negligence if the driver witnessed the loading and still accepted the shipment.
As with any rule, there are exceptions and one is that the improper loading or defect be “patent” and not “latent”. What this means is that the improper loading condition has to be apparent and visible to the carrier, and not hidden so that it can’t be seen. From your description, however, the carrier’s driver was present and observed the loading of the freight, so I don’t think this exception would apply.
Lastly, under the “Carmack Amendment”, a carrier is liable for loss or damage to goods in its possession unless it can prove that the sole cause was one of the basic exceptions such as an act of God, act or default of the shipper, etc. AND that it was free from any negligence. In this case, the carrier would not be able to show freedom from negligence if the driver witnessed the loading and still accepted the shipment.
FREIGHT CLAIMS – COLLECTING COSTS INCIDENTAL TO REPAIR
Question:
Under Carmack, can you point to case law regarding the recovery of costs which are incidental to the repair? It’s clear that a shipper can recover the cost of materials and labor for the repairs. Do you have a case citation where travel, lodging, rental cars, meals, etc. were recovered for the engineers and the work crew who did the repairs?
Answer:
Carriers will usually argue that most of these expenses are “special damages” that are not recoverable because they were not “foreseeable” at the time the carrier received the shipment. However, at least one court considered similar expenses to be “general damages” and awarded the damages to the claimant. This is the Vacco Industries case that is discussed in Freight Claims in Plain English (4th ed. 2009) as follows:
. . . . Vacco was the consignor of goods allegedly damaged in transit on an interstate move by Navajo Freight Lines. The bill of lading showed a declared value for a piece of machinery to be $130,000. At trial, Vacco sought damages in the nature of its itemized repair costs, as well as overhead and administrative costs for the repair work, inspection costs, freight, packaging, the evaluation trip and lab fees.
The California appeals court upheld the finding of liability by Navajo and went on to discuss the appropriate measure of damages, most specifically the overhead, administrative and general costs and profit element sought by Vacco in connection with the repair. The court noted the testimony of various experts on behalf of the plaintiff as to usual and customary overhead, general and administrative costs in the industry. The court specifically held that the consignor could recover a profit element for the repair work it performed and that the profit element, like normal costs of repair, was a recoverable item of general damage.
As to the question of when similar types of “special damages” are recoverable, the case of Marjan International, also discussed in the book, is instructive:
In Marjan International Corp. v. V.K. Putman, Inc., 1993 WL 541204 (S.D. N.Y. 1993), a shipment of oriental rugs was intended for an auction in Tacoma, Washington. The shipment was delayed, missed the auction, and the rugs ultimately returned to the shipper in New York, with two valuable rugs missing. The plaintiff claimed for the value of the missing rugs, plus the expenses of sending its employees to Tacoma for the auction (wages, air fare and hotel accommodations), and also sued for the return of the freight charges, which the carrier had demanded before releasing the shipment upon its return to New York, see Section 7.4.9.
In awarding the plaintiff's expenses in connection with the auction, the court stated:
The court is fully satisfied that the prerequisite to recovery of special damages has been established in this case. Major repeatedly and emphatically advised Putman’s driver on the date of loading in New York that Marjan required delivery of the rugs to their destination no later than Friday, November 29 at 2:00 p.m., Pacific time. Major specifically informed Westfall: that the rugs were to be sold at an auction in Tacoma, and that failure to deliver on time would prevent the auction sale; that three or four Marjan employees would be flying to Tacoma with Major to receive and unload the cargo and to assist in the sale; and finally, that considerable advertising and other expenses would be incurred by Marjan in connection with the auction. Furthermore, Westfall acknowledged the urgency of prompt delivery before leaving Marjan’s store in New York.
. . . . Vacco was the consignor of goods allegedly damaged in transit on an interstate move by Navajo Freight Lines. The bill of lading showed a declared value for a piece of machinery to be $130,000. At trial, Vacco sought damages in the nature of its itemized repair costs, as well as overhead and administrative costs for the repair work, inspection costs, freight, packaging, the evaluation trip and lab fees.
The California appeals court upheld the finding of liability by Navajo and went on to discuss the appropriate measure of damages, most specifically the overhead, administrative and general costs and profit element sought by Vacco in connection with the repair. The court noted the testimony of various experts on behalf of the plaintiff as to usual and customary overhead, general and administrative costs in the industry. The court specifically held that the consignor could recover a profit element for the repair work it performed and that the profit element, like normal costs of repair, was a recoverable item of general damage.
As to the question of when similar types of “special damages” are recoverable, the case of Marjan International, also discussed in the book, is instructive:
In Marjan International Corp. v. V.K. Putman, Inc., 1993 WL 541204 (S.D. N.Y. 1993), a shipment of oriental rugs was intended for an auction in Tacoma, Washington. The shipment was delayed, missed the auction, and the rugs ultimately returned to the shipper in New York, with two valuable rugs missing. The plaintiff claimed for the value of the missing rugs, plus the expenses of sending its employees to Tacoma for the auction (wages, air fare and hotel accommodations), and also sued for the return of the freight charges, which the carrier had demanded before releasing the shipment upon its return to New York, see Section 7.4.9.
In awarding the plaintiff's expenses in connection with the auction, the court stated:
The court is fully satisfied that the prerequisite to recovery of special damages has been established in this case. Major repeatedly and emphatically advised Putman’s driver on the date of loading in New York that Marjan required delivery of the rugs to their destination no later than Friday, November 29 at 2:00 p.m., Pacific time. Major specifically informed Westfall: that the rugs were to be sold at an auction in Tacoma, and that failure to deliver on time would prevent the auction sale; that three or four Marjan employees would be flying to Tacoma with Major to receive and unload the cargo and to assist in the sale; and finally, that considerable advertising and other expenses would be incurred by Marjan in connection with the auction. Furthermore, Westfall acknowledged the urgency of prompt delivery before leaving Marjan’s store in New York.
FREIGHT CLAIM – WHICH LIABILITY REGIME APPLIES ON MULTI MODAL MOVE
Question:
“X Logistics” is acting as an international freight forwarder when it brings a container in from China to a warehouse in the US. It then destuffs the container and ships the product to a construction site. At what point does X move from being a freight forwarder to a broker, or does it? If it does not move to a broker status, would it be liable for cargo claims as a domestic freight forwarder, international ocean forwarder? Which liability regime would apply if the freight were damaged moving between the warehouse and the final destination?
Answer:
The answer will depend on the bill of lading, i.e., did X issue its own house multimodal bill of lading from origin to destination, etc. If you have a copy of the bill of lading, maybe you could send it to me (both sides).
1. From your description of the facts, multimodal bill of lading issued by X Logistics as a freight forwarder or NVOCC would show a foreign inland location or port as the origin, and X Logistics as the consignee, with the final destination as the X Logistics warehouse. Thus, the first “leg” of the movement from origin to the inland warehouse is governed by the multimodal bill of lading and its terms and conditions. Under this bill of lading, liability for loss or damage during the ocean portion would be governed by the Carriage of Goods by Sea Act (“COGSA”). On the inland portion, the bill of lading allows suit against the inland carrier responsible for loss or damage; it is not clear to me whether its liability would be governed by COGSA or by its own bill of lading and tariffs.
2. Assuming that X is not acting as a motor carrier or freight forwarder, the second “leg” of the movement, from X’s warehouse to the job site would be governed by your transportation contract with the inland carrier, or if there is none, a separate bill of lading issued by the inland carrier, and subject to Carmack liability.
1. From your description of the facts, multimodal bill of lading issued by X Logistics as a freight forwarder or NVOCC would show a foreign inland location or port as the origin, and X Logistics as the consignee, with the final destination as the X Logistics warehouse. Thus, the first “leg” of the movement from origin to the inland warehouse is governed by the multimodal bill of lading and its terms and conditions. Under this bill of lading, liability for loss or damage during the ocean portion would be governed by the Carriage of Goods by Sea Act (“COGSA”). On the inland portion, the bill of lading allows suit against the inland carrier responsible for loss or damage; it is not clear to me whether its liability would be governed by COGSA or by its own bill of lading and tariffs.
2. Assuming that X is not acting as a motor carrier or freight forwarder, the second “leg” of the movement, from X’s warehouse to the job site would be governed by your transportation contract with the inland carrier, or if there is none, a separate bill of lading issued by the inland carrier, and subject to Carmack liability.
FREIGHT CHARGES – BROKER OBLIGATIONS
Question:
As a licensed, bonded broker, I need to know what our legal financial responsibility is with regards to a customer who doesn’t pay their freight bills.
1. Are we obligated to pay the carriers in full if the customer doesn't pay us?
2. Are we obligated to act on behalf of the carriers (i.e. initiate collections or a lawsuit) in pursuing unpaid freight bills?
3. Is the type of freight (regulated vs. non-regulated) an issue?
Morally, I know what our responsibility is. However, practically speaking, our company could go belly-up if we had to absorb the loss of revenue from even one major customer.
1. Are we obligated to pay the carriers in full if the customer doesn't pay us?
2. Are we obligated to act on behalf of the carriers (i.e. initiate collections or a lawsuit) in pursuing unpaid freight bills?
3. Is the type of freight (regulated vs. non-regulated) an issue?
Morally, I know what our responsibility is. However, practically speaking, our company could go belly-up if we had to absorb the loss of revenue from even one major customer.
Answer:
Let me try to answer your questions.
1. Are we obligated to pay the carriers in full if the customer doesn’t pay us?
The broker has two separate contractual relationships, one with the shipper and one with the carrier. You are an independent contractor, not merely an “agent” of the shipper.
Unless you have specifically provided in your contract with the carrier that payment is contingent on collecting from the shipper, your obligations with respect to the carrier are not dependent on your agreement with the shipper, i.e., your price, credit terms, etc. Thus, if the carrier provides the agreed services it is entitled to look to you as the broker for payment.
That said, if you have a situation where the shipper has gone bankrupt or out of business, you may be able to negotiate with the carrier and the carrier might agree to share part of the loss, but it does not have to do so.
2. Are we obligated to act on behalf of the carriers (i.e. initiate collections or a lawsuit) in pursuing unpaid freight bills?
Unless you have contractually agreed to do so, or want to “volunteer”, the answer is NO. And, I would NOT recommend that you do so.
3. Is the type of freight (regulated vs. non-regulated) an issue?
The obligation to pay freight charges is contractual, and is not governed by any federal or state laws or regulations, so it doesn't matter whether the freight was “regulated” or “exempt”.
1. Are we obligated to pay the carriers in full if the customer doesn’t pay us?
The broker has two separate contractual relationships, one with the shipper and one with the carrier. You are an independent contractor, not merely an “agent” of the shipper.
Unless you have specifically provided in your contract with the carrier that payment is contingent on collecting from the shipper, your obligations with respect to the carrier are not dependent on your agreement with the shipper, i.e., your price, credit terms, etc. Thus, if the carrier provides the agreed services it is entitled to look to you as the broker for payment.
That said, if you have a situation where the shipper has gone bankrupt or out of business, you may be able to negotiate with the carrier and the carrier might agree to share part of the loss, but it does not have to do so.
2. Are we obligated to act on behalf of the carriers (i.e. initiate collections or a lawsuit) in pursuing unpaid freight bills?
Unless you have contractually agreed to do so, or want to “volunteer”, the answer is NO. And, I would NOT recommend that you do so.
3. Is the type of freight (regulated vs. non-regulated) an issue?
The obligation to pay freight charges is contractual, and is not governed by any federal or state laws or regulations, so it doesn't matter whether the freight was “regulated” or “exempt”.
FREIGHT CLAIMS – SHORTAGE ON SL&C SHIPMENT
Question:
We are a broker; our customer filed a claim with us stating the load was delivered 32 cases short. I called the shipper; they confirmed 2313 pieces were shipped, 38 pallets. I contacted the receiver who confirmed they received 2,281 pieces; they did not have a pallet count because they were broken down. The driver signed the bill of lading without exceptions. The consignee noted 32 cases short on the bill of lading. I filed the claim with the carrier, but it was denied due to the trailer being sealed, no evidence of tampering or damage, and the driver was not allowed on the dock at the shipper or receiver.
Does the carrier have a right to deny this claim? How should I respond to our customer? Thank you.
Does the carrier have a right to deny this claim? How should I respond to our customer? Thank you.
Answer:
This sounds like a simple factual question -- how many cases were tendered to the carrier at origin and how many were delivered at destination. If you can get an written statement or affidavit from a shipper employee with personal knowledge of the facts that confirms what was loaded into the truck, and one from a consignee’s employee that confirms what was delivered, the carrier should pay the claim.
You do mention a “seal”. If the trailer was loaded by the shipper without the driver being present or able to count during the loading, and the shipper sealed the trailer, this would be a shipper load & count (“SL&C”) shipment. And if the trailer arrived with the original seal intact, and there was no sign of tampering with the seal, the locks, hinges, etc., there would be a strong presumption that the shortage did not occur in transit. This may require further investigation.
You do mention a “seal”. If the trailer was loaded by the shipper without the driver being present or able to count during the loading, and the shipper sealed the trailer, this would be a shipper load & count (“SL&C”) shipment. And if the trailer arrived with the original seal intact, and there was no sign of tampering with the seal, the locks, hinges, etc., there would be a strong presumption that the shortage did not occur in transit. This may require further investigation.
LIABILITY – BROKER OBLIGATIONS UNDER RECENT CHANGES
Question:
1. How can freight brokerage companies protect themselves from liability due to their agents’ liability, considering the new Federal Motor Carrier Safety Administration (“FMCSA”) safety qualifications and the elimination of the BCM-32 coverage, removing a carrier’s requirement to carry cargo insurance?
2. Does paying the salaries of our agent’s employees make the agent our employee rather than an independent contractor? Would this open us, a freight brokerage company, (we hire agents, pay the carriers and invoice the customer) to liability due to an agent’s negligence?
2. Does paying the salaries of our agent’s employees make the agent our employee rather than an independent contractor? Would this open us, a freight brokerage company, (we hire agents, pay the carriers and invoice the customer) to liability due to an agent’s negligence?
Answer:
First, let me mention that some of the same questions you are asking (CSA 2010, BMC-32, etc.) were the subject of extensive discussion at the Council’s Annual Conference in St. Louis - too bad you couldn’t attend.
As to the new issues involving “due diligence” in selecting and qualifying carriers, obviously these recent changes make it more difficult to protect yourself as a broker. The best way a broker can effectively protect itself is through a good broker-carrier contract. I would strongly recommend that you consult a knowledgeable transportation attorney to prepare a contract if you do not already have one. (I would note that our firm specializes in transportation law and provides contracts to many of our broker clients.)
As to your second question, any time you exercise significant control over an otherwise “independent” contractor, it may be treated as your agent and/or employee. As such, you increase your exposure in the event the party is negligent and that negligence results in liability and/or damages. Payment of salaries (as opposed to commissions) is more likely to establish an employer-employee relationship.
As to the new issues involving “due diligence” in selecting and qualifying carriers, obviously these recent changes make it more difficult to protect yourself as a broker. The best way a broker can effectively protect itself is through a good broker-carrier contract. I would strongly recommend that you consult a knowledgeable transportation attorney to prepare a contract if you do not already have one. (I would note that our firm specializes in transportation law and provides contracts to many of our broker clients.)
As to your second question, any time you exercise significant control over an otherwise “independent” contractor, it may be treated as your agent and/or employee. As such, you increase your exposure in the event the party is negligent and that negligence results in liability and/or damages. Payment of salaries (as opposed to commissions) is more likely to establish an employer-employee relationship.
FREIGHT CLAIMS – DO LIMITATIONS APPLY WHEN TRAILER CATCHES FIRE?
Question:
Our company has recently become a member of the Transportation & Logistics Council, Inc. I recently filed a claim against a less-than-truckload carrier for an entire shipment because the trailer the load was shipped in caught on fire during transit. The carrier is relying on their tariff which states “in the event of loss or damage to any shipment, carrier’s maximum liability for loss or damage shall not exceed $5.00 per pound for the actual weight of the damaged or lost portion of the shipment, subject to a maximum liability of $100,000 per shipment, and $250,000 per incident and in no instance shall liability be greater than the actual value of lost or damaged articles less salvage.”
Interestingly enough, the carrier stated that based on the above item they would only pay their maximum liability of $10.00 per pound.
I received a copy of the police report on file and it stated that the cause of the fire was “mechanical malfunction”.
My question is, can we legally hold the carrier liable to pay the claim in its entirety due to the fact that the damage incurred was not the act of a cargo handling situation but due to mechanical malfunction?
Interestingly enough, the carrier stated that based on the above item they would only pay their maximum liability of $10.00 per pound.
I received a copy of the police report on file and it stated that the cause of the fire was “mechanical malfunction”.
My question is, can we legally hold the carrier liable to pay the claim in its entirety due to the fact that the damage incurred was not the act of a cargo handling situation but due to mechanical malfunction?
Answer:
I’m assuming that the bill of lading in this case had the usual language incorporating the carrier’s tariffs, and that the carrier did have a tariff and has provided a copy to you.
The court decisions say that a liability limitation is enforceable if certain criteria are met: a notice of a tariff limitation (usually on the face of the bill of lading), a tariff that is applicable to the rate charged for the shipment, and a choice of higher or lower rates commensurate with the liability assumed by the carrier. If all of these criteria are met, courts will usually enforce the liability limitation -- and it makes no difference what caused the loss or damage.
I do find it interesting that the carrier has offered $10 per pound instead of $5 per pound (if that is what the tariff actually states).
The court decisions say that a liability limitation is enforceable if certain criteria are met: a notice of a tariff limitation (usually on the face of the bill of lading), a tariff that is applicable to the rate charged for the shipment, and a choice of higher or lower rates commensurate with the liability assumed by the carrier. If all of these criteria are met, courts will usually enforce the liability limitation -- and it makes no difference what caused the loss or damage.
I do find it interesting that the carrier has offered $10 per pound instead of $5 per pound (if that is what the tariff actually states).
BILLS OF LADING – DO IT RIGHT
Question:
I have a couple of shipping locations that give work orders or pick tickets to carriers instead of bills of lading. What can I tell them to make them realize that this is not a smart thing to do?
Answer:
The Carmack Amendment, 49 USC §14706, and the Federal Motor Carrier Safety Administration (“FMCSA”) regulations require that a motor carrier issue a “receipt or bill of lading” for property that it receives.
Most shippers prepare some form of a bill of lading which is provided to the carrier’s driver for signature to acknowledge receipt of the goods by the carrier. Some accept the carrier’s bill of lading, and some use other documents such as shipping orders or delivery orders to document that the carrier has received the goods.
The federal regulations at 49 CFR Part 373 specify the minimum requirements for a bill of lading:
Every motor common carrier shall issue a receipt or bill of lading for property tendered for transportation in interstate or foreign commerce containing the following information:
(a) Names of consignor and consignee.
(b) Origin and destination points.
(c) Number of packages.
(d) Description of freight.
(e) Weight, volume, or measurement of freight (if applicable to the rating of the freight).
Bills of lading usually contain additional information: freight payment terms (prepaid, collect, bill to third party), special instructions (protective service, delivery appointments, COD collection), agreed or declared value (liability limitations), carrier information (SCAC code, trailer number, seal number), etc.
Formal bills of lading, such as the Uniform Straight Bill of Lading published in the National Motor Freight Classification, are considered by the courts as “contracts of carriage” because they usually contain terms and conditions that are either printed on the bill of lading or incorporated by reference (such as classifications, tariffs, service guides, etc.)
Obviously, a shipper needs to obtain a receipt for any goods that it tenders to a carrier for a number of reasons: to prove to its customer that it shipped the goods so it can get paid, to establish receipt by the carrier in good order and condition in the event of any loss or damage in transit, etc. - AND it should contain the basic required information.
This does not necessarily mean that shippers must use a “standard” form bill of lading such as the Uniform Straight Bill of Lading. Many shippers do not want to use a carrier’s form bill of lading because they don’t want to be subject to the terms and conditions, liability limitations, and other tariff provisions that are incorporated in such bills of lading. We often recommend that shippers develop their own bill of lading forms, with appropriate provisions that are more “shipper-friendly”.
In conclusion, I would not recommend using “work orders or pick tickets” instead of a bill of lading since it is very unlikely that they would contain basic essential information.
Most shippers prepare some form of a bill of lading which is provided to the carrier’s driver for signature to acknowledge receipt of the goods by the carrier. Some accept the carrier’s bill of lading, and some use other documents such as shipping orders or delivery orders to document that the carrier has received the goods.
The federal regulations at 49 CFR Part 373 specify the minimum requirements for a bill of lading:
Every motor common carrier shall issue a receipt or bill of lading for property tendered for transportation in interstate or foreign commerce containing the following information:
(a) Names of consignor and consignee.
(b) Origin and destination points.
(c) Number of packages.
(d) Description of freight.
(e) Weight, volume, or measurement of freight (if applicable to the rating of the freight).
Bills of lading usually contain additional information: freight payment terms (prepaid, collect, bill to third party), special instructions (protective service, delivery appointments, COD collection), agreed or declared value (liability limitations), carrier information (SCAC code, trailer number, seal number), etc.
Formal bills of lading, such as the Uniform Straight Bill of Lading published in the National Motor Freight Classification, are considered by the courts as “contracts of carriage” because they usually contain terms and conditions that are either printed on the bill of lading or incorporated by reference (such as classifications, tariffs, service guides, etc.)
Obviously, a shipper needs to obtain a receipt for any goods that it tenders to a carrier for a number of reasons: to prove to its customer that it shipped the goods so it can get paid, to establish receipt by the carrier in good order and condition in the event of any loss or damage in transit, etc. - AND it should contain the basic required information.
This does not necessarily mean that shippers must use a “standard” form bill of lading such as the Uniform Straight Bill of Lading. Many shippers do not want to use a carrier’s form bill of lading because they don’t want to be subject to the terms and conditions, liability limitations, and other tariff provisions that are incorporated in such bills of lading. We often recommend that shippers develop their own bill of lading forms, with appropriate provisions that are more “shipper-friendly”.
In conclusion, I would not recommend using “work orders or pick tickets” instead of a bill of lading since it is very unlikely that they would contain basic essential information.
FMC FILING REGULATIONS FOR NVOCC'S
Question:
I would like to check with you from the FMC filing regulation perspective, is the MQC (minimum quantity commitment) a must-have in the service contract with NVOCC - same as the service contract with Carriers? I've heard from one NVOCC that we don't have to worry about MQC when contracting with them. So I would like to make sure if their statement is correct. If yes, then we should take out the MQC verbiage from NVOCC contract. Thanks.
Answer:
For an NVOCC Service Arrangement (similar to a VOCC Service Contract) there is still a requirement for a minimum quantity commitment ("MQC"). 46 CFR Part 531 governs Service Arrangements and 46 CFR 531.3(p) defines a NVOCC Service Arrangement as:
(p) NVOCC Service Arrangement (“NSA”) means a written contract, other than a bill of lading or receipt, between one or more NSA shippers and an individual NVOCC or two or more affiliated NVOCCs, in which the NSA shipper makes a commitment to provide a certain minimum quantity or portion of its cargo or freight revenue over a fixed time period, and the NVOCC commits to a certain rate or rate schedule and a defined service level. The NSA may also specify provisions in the event of nonperformance on the part of any party.
For NSA's there is still a requirement to publish a tariff and a statement of "essential terms". NSA's can be amended by the parties, provided that any changes to rates must be published in the NVOCC's tariff and any changes to the "essential terms" must be filed with the FMC.
There is a new kind of NVOCC contract called a "Negotiated Rate Arrangement", effective April 18, 2011. NRA's are governed by 46 CFR Part 532. They are principally used for shorter periods and to lock in rates for specific shipments. There is no requirement for an MQC or filing of a rate tariff, however the NVOCC must make its Rules Tariff available at no cost. The requirements for an NRA are set forth in 46 CFR 532.5:
§ 532.5 Requirements for NVOCC negotiated rate arrangements.
In order to qualify for the exemptions to the general rate publication requirement as set forth in section 532.2, an NRA must:
(a) Be in writing;
(b) Contain the legal name and address of the parties and any affiliates; and contain the names, title and addresses of the representatives of the parties agreeing to the NRA;
(c) Be agreed to by both NRA shipper and NVOCC, prior to receipt of cargo by the common carrier or its agent (including originating carriers in the case of through transportation);
(d) Clearly specify the rate and the shipment or shipments to which such rate will apply; and
(e) May not be modified after the time the initial shipment is received by the carrier or its agent (including originating carriers in the case of through transportation).
[76 FR 11360, Mar. 2, 2011; 76 FR 19707, Apr. 8, 2011]
(p) NVOCC Service Arrangement (“NSA”) means a written contract, other than a bill of lading or receipt, between one or more NSA shippers and an individual NVOCC or two or more affiliated NVOCCs, in which the NSA shipper makes a commitment to provide a certain minimum quantity or portion of its cargo or freight revenue over a fixed time period, and the NVOCC commits to a certain rate or rate schedule and a defined service level. The NSA may also specify provisions in the event of nonperformance on the part of any party.
For NSA's there is still a requirement to publish a tariff and a statement of "essential terms". NSA's can be amended by the parties, provided that any changes to rates must be published in the NVOCC's tariff and any changes to the "essential terms" must be filed with the FMC.
There is a new kind of NVOCC contract called a "Negotiated Rate Arrangement", effective April 18, 2011. NRA's are governed by 46 CFR Part 532. They are principally used for shorter periods and to lock in rates for specific shipments. There is no requirement for an MQC or filing of a rate tariff, however the NVOCC must make its Rules Tariff available at no cost. The requirements for an NRA are set forth in 46 CFR 532.5:
§ 532.5 Requirements for NVOCC negotiated rate arrangements.
In order to qualify for the exemptions to the general rate publication requirement as set forth in section 532.2, an NRA must:
(a) Be in writing;
(b) Contain the legal name and address of the parties and any affiliates; and contain the names, title and addresses of the representatives of the parties agreeing to the NRA;
(c) Be agreed to by both NRA shipper and NVOCC, prior to receipt of cargo by the common carrier or its agent (including originating carriers in the case of through transportation);
(d) Clearly specify the rate and the shipment or shipments to which such rate will apply; and
(e) May not be modified after the time the initial shipment is received by the carrier or its agent (including originating carriers in the case of through transportation).
[76 FR 11360, Mar. 2, 2011; 76 FR 19707, Apr. 8, 2011]
Liability – Driver Injured While Loading Truck
Question:
I am the claims mitigator for a 3rd party logistics company. We are a TLC member. We purchase your books each year and they are a great help to me. I have a couple of questions I would appreciate your help with.
We had a situation where a shipper was loading his product into a trailer of an LTL carrier. The one piece was a little top heavy and started to fall. The driver of the carrier reached up to prevent it from falling and helped load it into the trailer. He left without any problems.
Later, the shipper died and now the driver is suing the company that the shipper worked for saying he hurt his back and can’t work anymore.
First, who assumes liability for a driver who gets hurt while helping to load a truck? Do we as the 3rd party have any exposure there? Does the shipper have liability to the driver? As a broker, is there something we should include in our contracts with the carriers to protect us and the shippers from having this happen to them?
We appreciate your input in this matter and look forward to your response.
Answer:
If the driver was injured in the course of his employment he would be covered by Worker’s Compensation (which means he can’t sue his employer).
However, in the “loading/unloading” situation, he could have a separate cause of action in negligence against the shipper, if the shipper was in some way negligent and that negligence caused or contributed to his injury. That, of course, is a factual issue to be determined at trial. Typically these cases involve unsafe loading docks, faulty equipment such as forklifts, and large items falling over during loading or unloading.
In the situation that you describe, I don't see how a 3rd party or broker could be considered negligent. The recent cases holding brokers liable generally involve highway accidents and claims of “negligent hiring”, e.g., where the broker fails to exercise due diligence in selecting and checking out the carrier’s safety record.
Freight Claims – Waiver of Right for 3rd Party to Track Shipments
Question:
We have a customer that has waived their right to allow a 3rd party to track their shipments by contract. They have also waived their rights to refunds for late deliveries.
Below is the exact language in their contract.
9. Customer agrees to waive the Money Back Guarantee (Guaranteed Service Refund) provision as outlined in the UPS Service Guide for all UPS Ground services during the life of the Agreement.
10. Guaranteed Service Refunds (GSR): Customer agrees to the tracking limitations described in the current UPS Rate and Service Guide and Tariff/Terms and Conditions of Service in effect at the time of shipping. Customer also agrees that the use of a Third Party to track UPS shipments in strictly prohibited and constitutes a breach of the agreement.
This language would appear to prevent us (a third party) from tracking shipments under the Guaranteed Service Refunds (“GSR”) clause (wherein the company waived the right to refunds for late deliveries). I am not sure if they can say this language, even though it is under the GSR clause, also prevents a third party from tracking any shipments period, no matter the reason.
Can the language the carrier included in their contract regarding guaranteed service refunds prevent us from tracking the shipments so we know which ones need to be filed for a loss or damage claim? Under the Carmack Amendment, does our customer have the right to allow us to track their shipments just for their lost or damaged shipments?
Answer:
I can’t see any reason why the “waivers” that you describe would prevent filing a claim for loss or damage to shipments (other than delay claims)
I would take the position that the restriction is limited to use for the purposes of a “Guaranteed Service Refund”.
Brokers – Surety Bonds
Question:
Our company has experienced difficulties with transportation brokers filing bankruptcy, resulting in our dealing with the resulting legalities of the bankruptcy estate in addition to subcontracted carriers looking for payment. As we continue to grow our business, our percent of managed transportation is growing and we are looking at ways to protect ourselves against financial risk. Part of this surrounds expanding our business with asset only agreements. However, based on our growth, and current system limitations, the need for brokerages will still exist.
In support of this, our CFO has requested that we insert into our transportation agreement the requirement of a “letter of credit” (“LOC”), up to an agreed upon amount (around roughly 30 days agreed upon business - ie. $50K - $100K). I anticipate a less than favorable response to this. However as an alternative, I have had some general conversations with various brokers specific to the concept of requesting them to issue a “performance bond” in our company’s name (again, around the amounts listed above)
The feedback has been lukewarm. However, the bond concept seems to provide for more of a negotiating opportunity than the LOC. My questions are - (A) does the concept of a “performance bond” in our company’s name seem like a reasonable strategy to protect our company’s risk; and (B) are there any other strategies, or contractual language that may accomplish the same?
Answer:
As you know, the Federal Motor Carrier Safety Administration (“FMCSA”) requires brokers to have on file a surety bond in the amount of $10,000. Unfortunately, this is usually insufficient when a broker goes out of business or otherwise fails to pay the carriers.
We often recommend to our clients that they require in their contracts that the broker obtain a supplementary surety bond - at least $50,000 or $100,000. These are available from various sources including:
Avalon Risk Management, Inc.
84 Wharf Street
Salem, MA 01970
Phone: (978)740-5677
FAX: (978)740-6627
www.avalonrisk.com
Transportation Intermediaries Association (TIA)
3601 Eisenhower Ave., Ste. 110
Alexandria, VA 22304
www.tianet.org
Brokers – Operating as a Dispatcher
Question:
I am a driver for a local precast concrete company, as the company has only 3 drivers of its own, and the rest of the work is subbed out to owner-operators. It has recently been brought to our attention that our dispatcher, who is a salaried employee of the company, may have obtained a broker’s license, and is still acting as dispatcher. The other drivers and myself feel this is a severe conflict of interest and need to know is there any law against such practice, and if so, how may we proceed to improve our situation?
Answer:
From your description of the facts is quite possible that this might be a conflict of interest, and it may actually be illegal. Federal Motor Carrier Safety Administration (“FMCSA”) regulations governing brokers at 49 CFR Part 371 contain the following language:
Sec. 371.9 Rebating and compensation.
(a) A broker shall not charge or receive compensation from a motor carrier for brokerage service where:
(1) The broker owns or has a material beneficial interest in the shipment or
(2) The broker is able to exercise control over the shipment because the broker owns the shipper, the shipper owns the broker, or there is common ownership of the two.
(b) A broker shall not give or offer to give anything of value to any shipper, consignor or consignee (or their officers or employees) except inexpensive advertising items given for promotional purposes.
Freight Claims – When Does 9-Month Limit to File Apply?
Question:
I am a member of your organization and tried to find an answer to this question from your previous Q&As and publications, but I could not.
We are handling an interstate cargo claim for our insured, a carrier who transported three used automobiles. They damaged one of the autos resulting in $7,000 in repairs. We denied the claim because the claim was not made and received by our insured within 9 months of delivery. The claimant’s lawyers are threatening to sue.
The autos were delivered to one consignee. There was no bill of lading issued and though each auto had a condition page showing the condition of each auto at pick up and then at delivery, there were no contract terms of any sort on any of these three pages. In addition, our insured has no tariff.
We believe our position in denying this claim is correct concerning our application of the 9-month filing limitation. It is our position that the 9-month filing limit for cargo claims is the “standard” in the industry and has been for some time. Barring a written and agreed upon time limit greater than nine months, this 9-month period is the standard time limit accepted in the industry by all involved in the movement of freight ... whether they be carriers or shippers. We further believe this time limitation to be the acceptable standard whether or not a bill of lading is issued by the carrier or if the bill of lading is silent about the time period in which to file a cargo claim. We further believe our position is supported by L&S Bearing Company v. Randex International, 913 F.Supp. 1544 (S.D. Fla. 1995). Here, as we understand it, the judge accepted the 9-month time limitation as the industry standard for filing a cargo claim even though there were no bill of lading terms.
Of course, the claimant’s lawyers do not believe our position to be adequate enough to win in a court of law.
Please advise of your thoughts.
Answer:
Time limits for filing claims and bringing lawsuits are contractual, i.e. there must be a contract (bill of lading, etc.) for them to be enforceable. The Carmack Amendment, 49 U.S.C. 14706 only says that a carrier may not by contract or otherwise provide for LESS than 9 months for the filing of a claim or 2 years for the commencement of a lawsuit.
To the extent that there may be some authority for a court to apply a 9-month time limit that is not explicitly set forth in a contract of carriage or bill of lading, there would have to be other factors involved such as a course of dealing over a period of time during which the claimant had received numerous bills of lading with the time limit.
The L&S Bearing case that you cite is distinguishable on its facts and does not support your position.
