Question: We send shipments out by air freight and will declare a value of $1,000.00 per shipment, which is the amount of our insurance deductible, even though the value may be much greater. The question is, have we prejudiced our ability to collect the invoice value from the insurance company by only declaring a $1,000.00 value on the air way bill?

Answer: By declaring a lesser value on the air waybill, you have prejudiced your insurer's ability to recover the full invoice value from the carrier through subrogation. You would have to review the particular insurance policy as some policies allow the shipper to ship under a bill of lading with a released rate or limitation of liability, and some do not.

Is the shipment domestic or international? The liability differs. Domestic could be 50 cents per lb., 50 cents per lb. per piece, or $9.07 per lb. per piece. International is now 17 SDR's per kilo, or about $10.41 per lb. per piece.

As to the declaration on the air waybill, if you declare the value at $1,000, the carrier will assess an excess value charge for the amount of value that exceeds its tariff limit, whatever that may be. For example, if a shipment weighs 500 lbs. and has an invoice value of $5,000, that's $10 per lb. But if the airline's liability is only 50 cents per lb., or $250, it will charge its excess value charge for $750.00. That could be 35 cents to $1.00 per $100 of excess value, depending on the carrier's tariff. ($26.25 to $75.00)

It may be cheaper to have the insurance deductible set at the carrier's liability limit. The shipper would file claims against the carrier for its tariff limit, and the insurer will pick up the losses over that limit. Insurers' premiums are usually much cheaper than carriers' excess value charges.

As to your question about the insurer's subrogation claim against the airlines, the insurer must claim the actual invoice value of the loss. However, the airline will only pay up to the limit of its liability unless a higher value has been declared. If you are successful in changing your insurance policy as suggested above, there will be no need to file claims against the airline, as you will recover up to the limit of the airline's liability.

2. Air Freight Forwarder - Liability for Theft

Question: An airfreight forwarder has declined our claim on the ground that it has no liability for thefts! Is this correct?

Answer: Definitely not. Air freight forwarders that issue their own house air waybill are liable as common carriers. Even if there were some exculpatory clause in the forwarder's unfiled tariffs, it would be unenforceable.

3. Bar Code Errors

Question: When a shrink-wrapped pallet does not clear a bar code scanner, should it be noted as an exception on the delivery receipt?

Answer: Yes, as a precautionary measure. It would not be proper to report that pallet as a non-delivery - merely report the fact that it would not scan properly. If there is evidence of damage, shortage or breaking of the packages or shrink wrap, it should be surveyed and noted.

4. Bills of Lading - "Straight" vs. "Order"

Question: What is the difference between a "straight" bill of lading and an "order" bill of lading?

Answer: A straight bill of lading requires the carrier to deliver the freight to the named consignee. It is a "non-negotiable" bill of lading.

An order bill of lading is a negotiable document which represents title to the goods. It can be endorsed by the "order" party to transfer title to the goods to a third party. It must be physically surrendered to the carrier before delivery.

5. Brokers - Withholding Payment for Claim on Prior Load

Question: We are a motor carrier and carried a load a couple of months ago contracted through a broker.

After delivery, I billed the broker for the amount agreed upon in the rate confirmation and submitted a signed, clear BOL. They, in turn, sent me payment for the load.

I was informed a week ago, there was a claim on the load for damages. Now, they are withholding payment on another load. My questions are: Can the broker withhold payment on the other load? Can the shipper file a claim for damages when there is a clear BOL?

Answer: As to your first question, the broker cannot withhold payment of freight charges which are due. The broker has no ownership interest in the shipment, and is merely a middleman who arranges for transportation.

Regarding the claim for loss or damage, the fact that there was a clear delivery receipt does not preclude the shipper or consignee from filing a claim. It could be "concealed damage" which was discovered after delivery. The clear delivery receipt does place a greater burden on the claimant, to prove that the loss or damage could not have occurred after delivery. Note also that the bill of lading requires that the claimant file a claim in writing with the carrier, with appropriate supporting documentation.

6. Brokers - Assumption of Liability for Loss & Damage

Question:

1. Is it OK if our broker says it will pay all claims (rather than the carrier) and is willing to sign an agreement to that effect? Can a broker assume liability for claims under a contract and what if the broker's insurance company refuses to pay?

2. Our agreement states that the broker is compensated by the carrier on freight bills paid by shipper to broker. The broker dislikes this language, but this was written to reduce the exposure resulting from having the broker act as an agent for the shipper. Can we do this?

3. Where are the claims procedures that used to be at 49 C.F.R. §1005 now located?

1. a. I see no reason why a broker cannot assume liability for loss & damage claims as part of its contract with the shipper.

b. Contractually assumed liability would probably not be covered by most "contingent cargo liability" policies. It would be necessary to review the broker's insurance policy to be able to give a definitive opinion.

2. It is common for the shipper to pay the broker, and the broker to pay the carrier, retaining its "commission" (profit) out of the spread. When carriers are not paid by the broker, they often try to collect from the shipper, arguing that the broker acted as the agent of the shipper. Thus, shipper-broker contracts and broker-carrier contracts sometimes include language to the effect that the broker acts as the agent of the carrier for purposes of collecting freight charges.

3. The former ICC claim regulations are now found at 49 CFR Part 370 (under the FHWA Motor Carrier regulations). 49 CFR Part 1005 applies to rail transportation.

Brokers - Caught in the Middle

Q:

We are an exempt freight broker and have been getting stuck in the middle between our customers demanding that we pay freight claims and the carriers demanding that we pay the freight charges, even though there are damage claims on the shipment. What should we do?

A:

As a freight broker, you are legally considered an "independent contractor". You are not a shipper and you are not a carrier. You should always make this clear to the people you deal with.

In order to avoid these problems you should enter into written agreements with both your shipper customers and the motor carriers that you use. Such a contract would make it clear that you are not liable for loss or damage, and that the shipper has primary liability for the freight charges (as well as other relevant provisions, which are agreed to in the contract).

For more information on the subject, refer to Freight Claims in Plain English (3rd Ed. 1995) which has a good section on broker liability. This can be ordered from TCPC through the web page or by calling (516) 549-8984.

Brokers - Liability for Non-Delivery

Q:

I brokered freight from Los Angeles to Pennsylvania. Prior to giving the load to the carrier we obtained their authority and insurance, and then sent them a confirmation for pick up and delivery which they signed and faxed back. After missing their 3rd scheduled appointment for delivery, they informed us by letter that the freight rate had increased and that they must have payment prior to delivery. We offered to have a cashiers check at the consignee's dock when they delivered, which they refused and subsequently their phone has been disconnected and they have disappeared with the freight. We have contacted authorities for help without success. The carrier's insurer is denying the claim on the basis that their client will not respond, and I'm not sure my contingent cargo insurance will cover us. What can we do?

A:

Initially, as a broker, you should not be in the middle. The shipper or owner of the goods is the proper one to bring a claim against the carrier. As a broker, you have no property interest in the goods and are not a party to the contract of carriage (bill of lading). This does not, of course, prevent you from assisting your customer with the claim.

Second, from the facts as stated, the shipper has a legal action against the carrier for the non-delivery of the shipment, and also probably for "conversion", but it would be necessary to get a lawyer, and commence a lawsuit. Even though the carrier appears to have disappeared, the carrier's insurer would probably step in to defend and/or pay the claim.

Third, depending on the value of the shipment, it might be worth filing a claim against the carrier's BMC-32 cargo endorsement, which would provide coverage up to $5,000.

Finally, with regard to your broker's contingent cargo policy, it is our experience that many of these policies have so many exclusions and conditions so as to be almost worthless. However, you should never take "No" for an answer; if necessary, you can also sue your insurer to enforce the policy provisions.

Brokers - Licenses

Q:

We are considering getting a brokerage authority. Where do we get the form and what else do we need? We are a grain elevator using mostly hopper trailers. We would appreciate any help you could give us.

A:

The Interstate Commerce Act requires that brokers for the transportation of property must "register" with the Department of Transportation (FHWA), 49 U.S.C. §§ 13901 and 13904. This registration requirement replaces the former statutory requirement to obtain a "license" from the ICC. Brokers holding licenses from the ICC as of December 31, 1995 were "grandfathered" and deemed to be registered under the new law, 49 U.S.C. § 13905.

The FHWA has established regulations governing applications for broker registration, which are published at 49 CFR Part 365. Application forms (Form OP-1) are available from the FHWA, 400 Virginia Ave SW, Washington, DC, 20590, phone (202) 358-7000. If you need further assistance, TCPC Headquarters can refer you to experienced professionals.

Brokers - Name on Bills of Lading

Q:

When we ship with a broker, should their name be on the bill of lading or the carrier's? Also, if we put the language from the TCPC's Shipper's Domestic Truck Bill of Lading, "Carrier designates broker"... on our bill of lading, is this a legal agreement between the shipper and the carrier if both the shipper and the carrier (driver) sign the bill of lading?

A:

1. There is no problem with putting the broker's name on the bill of lading; so long as you don't show it as the CARRIER. If you do put the broker's name on the bill of lading, qualify it with the word "broker" to indicate the proper capacity.

2. While there are many variations of the bill of lading today, technically only carriers that are "participants" in the NMFC are required (or permitted) to use the Uniform Straight Bill of Lading in the Classification. Even if the carrier is a participant in the NMFC, Item 362 permits the parties to use alternative forms such as TCPC's Shipper's Domestic Truck Bill of Lading. Utilizing the language "Carrier designates broker..." can help avoid problems, but absent a prior agreement with the carrier, there is no guarantee that the carrier will honor such language based upon the signature of a driver. TCPC's "Shipper's Domestic Truck Bill of Lading" comes in a kit which explains the use of the bill of lading and recommends that the shipper get the carrier's prior agreement to use that form of the bill of lading.

Brokers - Protecting Shippers' Interests

Q:

We occasionally have the need to utilize the services of a transportation broker to secure flatbed trucks. I would like to know the proper way to utilize the transportation broker and to make sure that our company is protected against false claims. In the past, we have received a quotation, given the final destination to the broker, requested and have received certificate of operating authority, and copy of the carrier's insurance. We also put the name of the broker on the bill of lading as the transportation company and we pay the bill timely. We had a problem recently when we received a telephone call from the carrier requesting payment, as they claim they had not received payment from the broker. We told them to call the broker as we paid our bill. How we can protect ourselves?

A:

This is a problem that continues to arise and first, you should always know the party with whom you are dealing. Always get a copy of the broker's license and if there is any doubt, check with the FHWA to make sure that the information is current and the broker has a surety bond on file. You can call (202) 358-7000 for registration and insurance information. You may also check with the Transportation Intermediaries Association to see if the broker is a member and is in good standing; telephone (703) 329-1894.

Second, we recommend that shippers who use brokers insist on a written shipper-broker contract, and that the brokers have written contracts with their carriers. This is the best protection. Model broker contracts are available from Augello, Pezold & Hirschmann, and you can order through the web page at www.transportlaw.com.

An alternative is to use TCPC's "Shipper's Domestic Truck Bill of Lading" which contains the following language in the terms and conditions: "If transportation is arranged through a broker, Carrier designates broker as its agent for the collection of freight charges. When charges are paid to broker, Carrier agrees not to hold shipper or consignee liable for said charges."

Third, I would not recommend that you show the broker's name as the carrier on the bill of lading. If you show the broker's name, indicate "broker" to show the correct legal capacity.

Fourth, unfortunately, the "double payment" problem is very common when brokers go out of business or abscond with funds. This is a "gray area", but the general rule is that if the shipper has dealt only with the broker, and has paid the broker, the carrier cannot come back to the shipper to collect its freight charges.

Brokers, Agents and Third Party Logistic Providers

Q:

What are the differences between intermediaries such as Brokers, Agents and Third Party Logistic Providers. Also, how can we protect from liability, claims and billing chargebacks (when an intermediary does not pay and the carrier comes after you).

A:

Your question cannot be easily answered in a brief message.

I would start by recommending that you look at Chapter 13 of Freight Claims in Plain English (3rd Ed. 1995) which covers the liability of freight forwarders and intermediaries for loss, damage & delay to goods. There are sections describing the differences between freight forwarders, brokers, shippers' agents and shipper associations.

With regard to liability for freight charges, the law is quite different depending on whether you are dealing with a freight forwarder, broker, etc. As a general rule, if you are dealing with a freight forwarder and you pay the forwarder, you should have no liability to the underlying carrier(s) for freight charges. If you are dealing with a broker, and you pay the broker, but the broker doesn't pay the carrier, you could possibly be liable to the carrier depending on the factual issues. In the case of a shipper's agent or a shipper association, the shipper generally will remain liable to the carrier if the agent or association does not pay the carrier.

Bumping Privilege - NMFC Item 171

Q:

What is a "bumping privilege" under the NMFC's rules, and what does it mean?

A:

Item 171 of NMFC 100-Y, the latest issue effective Oct. 17, 1998, allows a shipper to increase the weight of its shipments to artificially increase package density so that it may apply the next lower class in a density scale and thus obtain a lower rate. The applicable tariff must make reference to this Item, and this may be done only at the time of shipment.

Bumping Privilege - Limited to Shippers

Q:

Can a consignee take advantage of the "bumping privilege" in NMFC Item 171 upon delivery?

A:

No. The language of item 171 is quite specific and is limited to action taken by the shipper at the time of shipment. The obvious answer for consignees on collect shipments is to notify their shippers to be aware of the rule and take advantage of the bumping provision at the time of shipment.

Carmack Amendment - Who is Covered?

Q:

Which carriers are currently subject to the Carmack Amendment? Are UPS and Federal Express subject to it?

A:

Yes, all carriers subject to the DOT's regulation are subject to Carmack, including the surface operations of UPS and Federal Express. Some of their claim policies are in violation of government regulations, and could be changed if enough support were generated among shipper groups.

Carrier Holding Freight "Hostage"

Q:

I made three shipments via a broker, who, in turn, gave the shipments to a motor carrier for delivery. After two weeks, the freight had still not been delivered. When the freight finally did arrive at the intended location, the pallets were triple stacked, and had fallen over. There were parts scattered all over.

The carrier told me they would restack the load and redeliver, but they never did. I called the broker and told them to get my freight back. The carrier told the broker that they would do it . . . FOR $7,800.00.

I have a big problem. None of my shipments were delivered and I am being blackmailed for their return.

Is it the responsibility of the broker to get my freight back or am I screwed?

Any help would be most appreciated as this has been going on for a number of weeks and now the carrier has faxed me a letter saying It was going to cost me $100.00/day for storage until I pay for the freight.

A:

Unfortunately, your story is not unusual.

First, you have to recognize that a motor carrier has a "lien" for freight charges on any shipments it transports and does not have to release the shipment until its charges are paid. In your case, the carrier can probably hold your cargo hostage until the charges are paid. You probably have to tender payment of their charges before they release the shipment. Then, your recourse for the loss or damage to your freight is to file a written freight claim with them and, if necessary, bring a lawsuit to collect your damages. You may also want to question the amount of the freight and/or storage charges and see if they are charging you based on their correct tariff rates; it is quite possible you may have been overcharged.

As to the broker, your recourse is limited. A broker is not a carrier; it is only an intermediary and, as such, is not generally liable for loss or damage to your cargo. The only exception is when the broker is clearly negligent - such as selecting an unsuitable carrier with a bad safety rating or no insurance. I am surprised, however, that your broker did not try to intercede for you and try to work something out with the carrier. My guess is that the broker and carrier are not on good terms.

Carrier Use of Shipper's Forklift

Q:

What kind of liability is the shipper subject to when the carrier's driver uses the shipper's forklifts to load shipments into or onto the carrier's trailer? If there is an injury is it a workman's compensation issue or something else?

A:

This is not a "transportation law" question. This falls into the general area of liability for negligence to a business invitee, i.e., anyone on your premises for normal business purposes.

Most shippers don't allow anyone other than their own employees to operate their equipment.

In theory, the shipper could be liable in negligence to a truck driver if it provided an unsuitable or defective piece of equipment such as a fork lift for his use, resulting in injury to the driver. While the driver's claims against his employer (the trucking company) would be subject to Workmen's Compensation, the driver could have a cause of action for negligence against a third party, i.e., the shipper.

CDL Licensing

Q:

I’m requesting information on CDL positions and requirements. Thank you for your assistance in this matter

A:

CDL licensing procedures vary from state to state. I would suggest that you contact the local department of motor vehicles where you live and get the application forms and information from them.

Claims - Mitigation of Damages

Q:

A door assembly for an off-road haul truck was damaged when we received it and it was noted on the freight bill. Because the customer could not wait for the claim to be resolved, we had to order another door for the customer. Now the freight carrier wants us to have the door repaired, which we don't want to do for several reasons: first, our customers would not want a repaired door; second, off-road haul trucks fall under rules and regulations regarding the modification of roll over structures, and this door is part of the roll over cab and should not be modified; finally, we only sell one of these doors maybe every ten years or so and have no outlet for it. The freight carrier has been inflexible in this matter. What can we do to get our $1600.00 dollars back?

A:

This is a tough one. The problem is that a consignee receiving a damaged item usually has a duty to "mitigate the damage" if it can reasonably be done. Normally this would involve repairing or refurbishing a damaged item, or sorting and segregating damaged/undamaged items. This is explained in detail in Freight Claims in Plain English (3rd Ed. 1995) in Section 7.1.4, Duty to Mitigate Loss, and in Section 10.10, Salvage Procedures.

The legal test is whether your actions were "reasonable under the circumstances". I would say that you do have some good reasons for purchasing another door for your customer. The only thing that I might suggest is to contact the door manufacturer and see if they will take it back for some kind of salvage allowance. They would probably be in a better position to repair and resell the door.

As a last resort, of course, you may have to bring a lawsuit against the carrier. From the size of the claim, you may be able to do this in a local small claims court.

Claims - Prepaid Freight Charges

Q:

We include prepaid freight charges with our loss and damaged claims. We did not charge the customer for the freight. Two carriers have denied the freight portion of our claims on the premise that the merchandise value includes the cost of the freight. Our merchandise moved Prepaid-FOB nearest warehouse. The freight is paid by us and it is not in the price of the product. In light of this, is the carrier obligated to pay the prepaid freight charges?

A:

I think the carriers may be correct on this one. You have apparently priced your product so that the selling price to the customer is sufficient to cover the anticipated cost of freight which you are separately paying to the carrier.

Look at it this way - if the customer had risk of loss in transit (FOB origin), and the goods were lost by the carrier, the customer would have to pay you the invoice price only, and would not also have to pay the freight charges. The customer's claim against the carrier would be for the invoice price. Why should the amount of damages be different depending who files the claim?

Claims - Recovering Freight Charges on Partial Deliveries

Q:

On partial deliveries, can I recover the freight charges on the missing cartons as a part of my claim?

A:

Yes. Claimants are to be made whole when shipments are delivered short or damaged. You are entitled to add a prorata share of the total freight charges based on the weight of the missing cartons. If the shortage is to be replaced with another shipment which costs more freight due to the smaller size shipment (LTL, for instance, rather than the original TL shipment), you are entitled to recover the extra freight cost from the carrier as your measure of damage. See Freight Claims In Plain English (3rd Ed. 1995), Section on Measure of Damages, for the authorities.

Claims - Regulations and Procedures

Q:

We are not having much luck recovering loss and damage claims. It seems the carriers either decline the claims or simply fail to respond. What do you suggest?

A:

Motor carriers are subject to federal regulations governing claims: "Principles and Practices for the Investigation and Voluntary Disposition of Loss and Damage Claims and Processing Salvage", 49 CFR Part 370. These regulations are also incorporated into item 300100 et seq. of the NMFC.

The regulations outline the procedures that are supposed to be followed and include specific time limits in which action is to be taken. Unfortunately, since the demise of the I.C.C., there is little effort to enforce these regulations and they are often ignored.

We suggest that you enter into properly drafted contracts with your carriers that include provisions for the handling of L&D claims. You should also avail yourself of the educational materials provided by TCPC. If you do not have the staff or expertise to process the claims, farm the work out to experienced professionals. Contact TCPC Headquarters for more information.

Claims - Repackaging Expenses

Q:

A carrier delivered part of a shipment late. The consignee refused the freight because it was late. Since the cartons were labeled for that specific consignee the cartons required repackaging. The carrier refuses to pay for repackaging, but they would "consider a reasonable restocking fee." Since the freight was delivered late and refused shouldn't the carrier be liable for the repackaging expenses?

A:

This claim falls into the category of a "delay claim", and the legal issue is whether the damages (your repackaging expenses) are "foreseeable" at the time of shipment. If they were, they are recoverable. For a thorough discussion of general vs. special damages, I would suggest that you read Chapter 7.0 of Freight Claims in Plain English (3rd Ed. 1995).

I would think that the need to repackage, relabel, etc. if shipments are rejected due to carrier delay would be a reasonably foreseeable consequence of the delay. Certainly, it can be argued that you have mitigated your damages by putting the goods in a condition that they can be resold to another customer.

The carrier should pay these repackaging expenses.

Classification of Shipments

Q:

How do we determine the correct "Tariff Code" when shipping plastics and rubber products to Canada and Mexico?

A:

It is not clear what you mean by "tariff code".

If you are talking about the proper identification of an article on a motor carrier bill of lading, the usual way is to refer to the National Motor Freight Classification which lists thousands of "articles" and sets forth the "class" which is used for rating the shipment. If you do not have a copy of the Classification, or are unfamiliar with it, seek answers from a transportation consultant. See TCPC's Directory for a list of qualified consultants.

If you are talking about how to describe articles on an export document, contact a freight forwarder dealing in exports to Canada or Mexico.

Common Control - Shipper and Broker

Q:

May a shipper own or have an interest in a broker?

A:

No, the former ICC's regulations (now FHWA) prohibit brokers from receiving compensation when they own a shipper, where the shipper owns the broker, or when there is a common ownership of the two. See 49 CFR 371.9.

Concealed Damage - Canned Goods

Q:

I have a question concerning concealed damage on canned goods.

We have a shipment that we consolidated with both refrigerated and dry product. We specified and paid extra for a bulkhead to protect the dry product from freezing. The shipment was delivered to our customer in south Florida (hot and humid). It was delivered with no exception on the bill of lading.

Several weeks later our customer informed us that the cans were rusting and seeks to file a claim against the carrier.

My question is this: Can we file a claim for concealed damage or would this be considered inherent vice of this product.

A:

From your description of the facts there is no evidence that the cans got wet while in the truck, or that they were wet at the time of delivery. It would seem that, most probably, moisture condensed from the atmosphere onto the cold cans after they were delivered and that they remained wet for a long enough period to cause rust.

I don't see how the carrier is responsible for this. After all, it was the shipper who decided to ship both refrigerated and dry product in the same truck. Also, the consignee might have prevented the rusting by opening the cartons and drying off the cans, or by storing them in a dryer atmosphere.

Concealed Damage - Clear Delivery Receipt

Q:

Can a carrier refuse to participate in concealed damage claims? I filed a concealed damage claim and the carrier was notified a few hours after delivery of the damaged goods. The carrier replied that they will not participate in any claim where they have a clear delivery receipt. Is this legal?

A:

The fact that damage may be "concealed" does not relieve the carrier of its duty to conduct a proper investigation of the claim. See generally, "Freight Claims in Plain English" (3rd Ed. 1995) at Section 11.1, Concealed Damage. This requirement is set forth in federal regulations which are binding on all interstate motor carriers, see 49 CFR Part 370.

Contracts - Consignee-filed Claims

Q:

We have a contract provision that reads “Liability for loss and damage is the invoice value plus applicable paid freight.” Our problem is that when our customer files a claim, the carrier insists on applying its tariff limitation of liability rather than the agreed-to contract value because we did not file the claim. Can they do this and how should we protect our customers and ourselves in the future?

A:

The legal issue is “what is the contract of carriage”. The shipment was tendered to the carrier under your contract with the carrier. Thus, the terms and conditions of the contract govern. Conversely, if there were no transportation agreement, the contract of carriage would be the bill of lading issued by the carrier to the shipper, and the tariffs, if any, incorporated therein by reference.

In the future, you could spell out in the contract what claims and liability provisions will apply to customer-filed claims.

Note that terms of sale (such as FOB origin, FOB destination), which govern risk of loss in transit are of no concern to the carrier and are not binding on the carrier. These terms are part of the contract of sale between seller and buyer and they are not part of the contract of carriage.

Contracts - Incorporation of Rate Tariffs

Q:

Some contract carriers are now stating that their discounts will be off the rates in effect on the date of shipment. Is this proper?

A:

In theory, the parties to a transportation contract can include any condition they wish to have govern the agreement. Remember, however that all of the terms and conditions are negotiable.

A properly drawn contract should state that the applicable rates and rules shall be those stated in the contract rather than those in the carrier's tariffs. If it is necessary to incorporate any portion of a carrier's tariff by reference, it should be limited to those

provisions that are in effect on the date of the agreement. A copy of those tariff provisions should be attached to the contract. Anything less may subject the shipper to surprises.

Contracts - Released Rates on Computers

Q:

What are computer companies generally agreeing to in their contracts with motor carriers, $5.00 per lb. or higher?

A:

Sorry, we don't know what individual computer companies are doing in their contracts. Perhaps they will share that information with us, unless they have a confidentiality clause in their contracts.

Court Decisions on Carrier Liabilty

Q:

Where can I find recent court decisions on carrier liability?

A:

The Transportation Consumer Protection Council reports regularly on recent court decisions in its newsletter, TransDigest. This is the best place to stay abreast of the latest developments. TCPC also covers this type of information, in less extensive version, on its web page - www.transportlaw.com, and specific questions can be answered through our Hotline via email, phone or fax. I would also recommend Freight Claims in Plain English (3rd Ed. 1995) as a valuable text on all aspects of carrier liability for loss or damage. The 2-volume text, often referred to as "the Bible of the industry", is also available from TCPC and is current through mid-1995. You can get information on joining the Council and on subscribing to the TransDigest on the web page or by calling TCPC at (516) 549-8984.

If you have access to a law library, you may be able to use online research databases such as Westlaw(r) or Lexis(r) (either of which can be exceedingly expensive). "Goods in Transit" by Saul Sorkin, is an excellent treatise, but it is expensive (initial cost of over $750 plus annual updates).

Cross-Docking for Lower Rates

Q:

Can a shipper agree to cross-dock another shipper's freight to get a lower rate for the consolidated load, or would that require a broker's license?

A:

I see no reason why two shippers cannot do that without obtaining a license as a broker. It would raise a question of how each shipper would be billed for 1/2 of the truckload rate, without subjecting one shipper to liability in the event one shipper failed to pay for its portion of the freight charges. Also consider liability exposure for personal injury and property damage during the cross-dock operation for the other shipper's freight.

Customer Chargebacks

Q:

We are having a lot of problems with unreasonable "chargebacks" from our customers. One example is "no packing lists on cartons". Such chargebacks can only be negotiated in the hope that the customer will be reasonable enough to realize that packing lists are sometimes torn off in transit. Aside from this, there is no way, short of video taping each shipment as it leaves our dock, for a vendor to prove the packing lists were there. This is just one example. Do you have any suggestions?

A:

I can certainly sympathize with you about your chargeback problems. Unfortunately, there is not much you can do when dealing with a large, important customer that is in a position to dictate the terms and conditions which it includes in its purchase orders. One thing that you should do is to carefully review customer purchase orders, and all of the terms and conditions which may be incorporated by reference, such as the customer's shipping instructions, routing guide, etc. If the chargebacks are not specifically set forth somewhere in your contractual agreement with the purchaser, you do not have to accept them. If you find unreasonable or offensive provisions, the time to correct them is during the negotiation phase, before you accept the purchase order and ship your goods. If the customer insists on including provisions which are unacceptable, you either have to live with them or refuse to sell your goods to that customer. I would suggest that you bring this to the attention of your top management and let them know what these practices are costing your company. Perhaps they would be in a better position to deal with their major customers' counterparts.

Damages - Missed Delivery Appointment

Q:

We use a common carrier to deliver our product. Recently, we had a job-site type delivery that the carrier had to perform. On the bill of lading was a phone number for the carrier to contact. The carrier contacted the customer and made an appointment, the details or time of which were not know to us (the shipper).

The customer supposedly hired equipment to unload the shipment. The carrier was some two hours late, causing the customer to incur extra charges for the rental of equipment. The shipment was delivered and signed for clear. . . without exception.

Now the customer is withholding payment for our product, is back-charging us for the equipment rental, and wants us to file a claim against the carrier.

A:

You have two problems: one with your customer and one with the carrier.

The customer cannot withhold payment unless there is some contractual obligation which you have failed to perform. I would question whether there is anything in your purchase order, terms of sale, etc. which says anything about extra charges for late delivery, etc. Maybe that is where you should start.

In the absence of a special contract, the carrier is only required to deliver "with reasonable dispatch" and would not ordinarily be liable for a short delay of 2 hours. The carrier would undoubtedly deny your claim on the grounds that it is for "special damages" and they were not on notice that there would be extra charges for rental of equipment, etc. if they missed the appointment time. The subject of "special damages" is covered in detail in "Freight Claims in Plain English" (3rd Ed. 1995) at Section 7.3.

Damages - Special Damages for Rail Service Failures

Q [JJW1] :

It is my understanding that special damages claims could be filed against CSX and/or NS because of service failures due to the purchase of Conrail. Because of the poor service we have had to use truck service at a cost penalty to keep plants running. In addition, we lease a lot of rail cars that have sat idle due to the inability of the railroad to move equipment.

What documentation would be necessary to supply the railroad to support a special damages claim or is that decided by the railroad?

A:

Many shippers have experienced severe service problems since CSXT and Norfolk Southern took over operation of the former Conrail lines.

Although the Interstate Commerce Act requires rail carriers to provide "transportation or service on reasonable request" (49 USC Section 11101), the legal obligation of these carriers to honor "special damage" claims for shipper's expenses resulting from service problems and delays is largely a function of the contracts and/or "circulars" which govern the traffic. However, in view of the embarrassing "meltdown" of the Union Pacific last year, and the public commitments of CSXT and Norfolk Southern, it is likely that these carriers will acknowledge their responsibility and make some reasonable compensation to affected shippers without the necessity for litigation.

In terms of documentation for "special damage" (delay) claims, I would suggest the following:

1. Review and analyze your historical transit times for movements between the same origins and destinations in order to determine the usual and normal transit times ("reasonable dispatch").

2. Save all communications (letters, e-mail, faxes, memos of phone calls) to or from the carrier relating to problems in locating or tracing cars, misrouting, delays, delivery problems, etc. in order to show that the carrier had notice of the problems and the potential consequences of its service failures.

3. Document your damages with invoices, canceled checks, time sheets or other appropriate business records. Damages might include expenses of alternative transportation to meet delivery or production schedules, demurrage, detention, extra labor, overtime, higher prices for raw materials or parts purchased from other sources or vendors, administrative expenses, etc.

4. Be prepared to show how your damages were caused or necessitated by specific instances of delays or service failures.

Definitions - Logistics Company

Q:

What is a "Logistics Company"? Do they have to have any sort of broker license or authority?

A:

Many companies call themselves "logistics companies" today. They can be anything from a warehouse/distribution facility, a motor carrier, a freight forwarder, a broker, a shipper's agent, a consultant, or some combination of these functions. There is, unfortunately, no legal or official definition of a "logistics company."

Motor carriers, freight forwarders and property brokers are required by law to "register" with the FHWA and it is illegal to perform or provide these services without operating authority, insurance, surety bonds, etc. as provided in the Interstate Commerce Act and FHWA regulation. Unfortunately, the FHWA has limited resources to enforce the laws and many of them operate illegally.

You must be extremely careful when dealing with a "logistics company." Determine exactly what services are to be provided and demand copies of their operating authority, insurance, etc. before doing business. It is always advisable to enter into a written contract, which specifies the services, rates, rules, etc.

Definitions - Property Broker as Shipper

Q [JJW2] :

I sometimes see references to a "Dixie Midwest" decision in contract carriage agreements involving property brokers. Could you give me the definition of a shipper as stated in that decision and where could I get a copy of the document.

A:

The "Dixie Midwest" decision you refer to resulted from administrative appeals before the I.C.C. in which a number of motor carriers had applied for operating authority to provide service to brokers. The principal issues were whether a property broker can be considered a contract shipper, and, if so, the proper form of operating authority (common or contract).

The decision contains a lengthy discussion of the distinctions between "common" and "contract" carriage and the requirements for obtaining operating authority at that time (1982).

The I.C.C. essentially held that a property broker can be a contract shipper if he exercises sufficient control over the transportation, and meets certain criteria (payment of freight charges, regularity and continuity of traffic, specialized or particularized needs, etc.).

The decision may be found in 1982 Federal Carriers Cases Par. 36,982, and in the I.C.C.'s Motor Carrier series of reports, 132 MCC 794, which should be available in a good law library.

I would note that the ICC Termination Act of 1995 eliminated the statutory distinction between "common" and "contract" carriage. Thus, the issues which may have been relevant in 1982 are now essentially moot.

Definitions - Shipper’s Load and Count

Q [JJW3] :

Are there any laws or regulations which cover "SL&C" (shipper's load and count) shipments

A:

The statutory provisions relating to "shipper's load and count" are found in the Bills of Lading Act, specifically 49 USC Section 80113. This subject is discussed in "Freight Claims in Plain English" (3^rd Ed. 1995), in Section 4.8.3.

Detention Charges

Q:

What are the rules regarding a carrier billing for detention time? What paperwork is required for backup from the consignee and carrier? What is the time frame for figuring charge:

Appointment? Arrival? Start of unloading? Completion of unloading? Does the carrier have to provide written copies of rates with detention time listed to the consignee?

A:

I assume that you do not have a written transportation contract with the carrier. If you did, the contract would usually specify the rates, charges and rules applicable to your shipments, including detention charges, if any.

If you used a bill of lading which provides that it is subject to the carrier's tariffs, those tariffs are said to be "incorporated by reference" and become part of your contract. Detention charges are usually set forth in the carrier's "Rules Tariff". The rules tariff specifies the free time, when detention charges start to accrue, and how detention charges are calculated.

I would suggest the following:

If you are being billed for detention charges, demand a copy of the carrier's rules tariff. Carriers are required by law to provide copies of their tariffs upon demand by the shipper, see 49 U.S.C. Section 13710. If the carrier does not provide the tariff (or does not have a tariff), you should not pay for detention.

In the future, you should enter into a properly drafted transportation contract with each of the carriers that you use.

If you are subject to detention charges, establish a company procedure for recording when equipment is placed or received, when notice is given to the carrier that the equipment is unloaded and available to be picked up, and when the equipment is actually picked up.

Discount Rates - Discounted from What?

Q:

Some contract carriers are now stating that their discounts will be off the rates in effect on the date of shipment. Is this proper?

A:

In theory, the parties to a transportation contract can include any condition they wish to have govern the agreement. Remember, however that all of the terms and conditions are negotiable.

A proper shipper-drawn contract should state that the rates and rules to apply shall be those stated in the contract, and not in the carrier's tariffs. If it is necessary to incorporate any portion of a carrier's tariff, it should only be those provisions that are in effect on the date of the agreement. A copy of those tariff provisions should be attached to the contract. Anything less may subject the shipper to surprises.

Duty to Accept Damaged Goods

Q:

We have a situation where a shipper loaded baled waste paper into a trailer and the load shifted in transit, causing the bales to fall over. Now the consignee refuses to accept the shipment and says he can't unload the bales because they would break apart. Doesn't the consignee have to accept the shipment?

A:

Normally, the consignee has a duty to accept a damaged shipment unless it is "substantially worthless", and also has a duty to take reasonable steps to mitigate damages. In this case, it appears that the consignee can't remove the bales with his forklift equipment and could incur significant expense or other problems in trying to unload the truck. Since the fault is either with the shipper (for improper loading) or with the carrier (for causing the load shift), it does not seem that the consignee would be unreasonable in rejecting the load.

Factoring Companies

Q:

What can you tell me about "factoring companies" and how they fit in to the whole scheme of payment liabilities?

A:

Trucking companies often assign their accounts receivable to factoring companies or financial institutions. If you are notified by a factor that freight bills are to be paid to the factor, and not to the trucker, BEWARE!

First, this may be an indication that the motor carrier is in financial difficulty.

Second, you should double-check with BOTH the carrier and the factor to make sure that the accounts have actually been assigned. If you pay the wrong company you could be exposed to double payment liability.

Make sure you get confirmation IN WRITING.

FOB Terms vs. Payment Terms

Q [JJW4] :

I have a customer who claims that FOB terms (ownership of goods) and freight terms (burden of freight cost) are separate and that they could order from my company :

Freight - Prepaid

FOB Factory

meaning that title would pass at my dock but the freight would be prepaid. Is this legal and/or correct?

A:

"FOB terms" are terms of sale and are defined in the Uniform Commercial Code. They govern the risk of loss in transit, i.e. whether the buyer or the seller has the risk in the event of loss or damage to the goods. See "Freight Claims in Plain English" (3rd Ed. 1995) at Section 10.5.1, Risk of Loss, for a thorough discussion.

"Prepaid", "Collect" or "Bill to" terms are freight payment instructions which are generally entered on the bill of lading to tell the carrier which party should be sent the freight bill.

Thus, you can have a sale which is "FOB Origin", and the freight can be either prepaid, collect or bill to a third party.

Freezing of Perishables

Q:

The shipper marked the bill of lading "Perishable if frozen - prevent from freezing - take special precautions if weather deems necessary". Handwritten on the bill of lading, at the time of the pickup, was the notation, "trailer has no heat but has a team of drivers." The carrier does not offer a heater service. However, the driver accepted the shipment and the shipment froze enroute. Is the carrier liable?

A:

The fact pattern you described is similar to the case of Fine Foliage of Florida, Inc. v. Bowman Transp., Inc., 698 F.Supp. 1566 (M.D. Fla. 1988), affirmed, 901 F.2d 1034 (11th Cir. 1990).

In that case the carrier had a filed ICC tariff which said it would not accept shipments requiring protective service, and that shipments accepted which are subject to temperature damage are accepted only at the shipper's risk and responsibility. However, the court held that the Carmack Amendment prohibits a carrier from relying on such a tariff provision to exempt itself from liability once it accepts goods for transportation that require refrigeration. Since the bill of lading clearly put the carrier on notice of the perishable nature of the shipment, and the carrier accepted the shipment, I think the carrier is liable.

Freight Bills - Time Limits

Q:

I recently received over 100 invoices averaging $700 each, from a carrier who performed the pickup and delivery over a year ago. Some of the invoices are for services nearly two years ago. Is there a period of time within which the carrier must invoice for services rendered? And if not, is my company required to pay these within a certain length of time?

A:

Under the Interstate Commerce Act, a motor carrier must bring a civil action (lawsuit) to recover charges for transportation or service provided by the carrier within 18 months after the claim accrues. This statute of limitations is found at 49 USC Section 14705. You have no legal obligation to pay freight bills after the expiration of the statute of limitations.

Freight Bills Received After 180 Days

Q:

Can freight companies collect on unpaid freight bills that are past the 180 day time limit? I have 5 bills from a company that they are saying have never been paid and I don't show them having been paid either. Are we responsible?

A:

Yes, freight companies can collect original, unpaid freight bills that are over 180 days old. Pursuant to 49 U.S.C. § 13710(a)(3)(A), the 180-day rule only applies when the carrier seeks to collect charges in addition to the original freight charges (i.e., freight undercharges). The only time limitation that would apply to the carrier's attempt to collect its original unpaid freight charges would be the 18 month statute of limitations. For your reference the statute of limitation provision is in 49 U.S.C. § 14705(a).

Unless you have some other reason to dispute the unpaid bills, it would appear you are responsible for them.

Freight Charges - Billing to Customers

Q:

I am a volume shipper. As such I generally receive discounts from the carriers I use. Often these discounts fluctuate and, sometimes, the discount I receive is significantly larger than I anticipated in the pricing of my customer contracts. My standard sales bills contain separate charges for shipping. The shipping charge on the bill is what I anticipate the freight charge to be at the time of the order.

When I receive discounts greater than I anticipated, am I legally obliged to pass them on to my customers?

A:

Section 7 of the Negotiated Rates Act of 1993, and former regulations of the ICC in 49 CFR § 1051.2 were addressed to "off bill discounting". Essentially, this prohibited carriers from paying a discount or allowance to anyone other than the payor of the freight bill and required carriers to disclose all discounts or allowances on their freight bills. Neither the statutory provision nor the regulation are still in effect, due to subsequent legislation, namely the Trucking Industry Regulatory Reform Act of 1994 ("TIRRA") and the ICC Termination Act of 1995 ("ICCTA"). It should be noted that, in any event, the statutory provisions and regulations only applied to carriers, and not to shippers.

Thus, the real question is whether a purchaser could reasonably claim commercial fraud or misrepresentation if the seller adds an amount higher than the actual freight charge to its invoices.

Some companies place a notice, either in their terms of sale or on their invoices to disclose that the freight charges being invoiced do not reflect volume discounts or incentives received from the carrier. Others use wording such as "shipping and handling charge".

The best advice is to use a notice in your terms of sale and/or invoices which constitute a sufficient disclosure to your customer to avoid such claims.

Freight Charges - Broker Out of Business

Q [JJW5] :

I have recently read an article that someone had sent me regarding "double payment" in which you stated that this is a "gray area". My questions is how does a shipper get the collection agencies to stop bugging them? Let me take a minute and describe the situation. A shipper who had been doing business with a broker for well over 4 years has recently been notified by carriers that the broker has not paid them for freight do to the fact the broker has gone out of business and turn his affairs over to an attorney to handle his lack of monies to pay his freight bills. Now the broker was well established and had been in business for over 10 years and all of his authority and bond was in compliance at the time the freight shipped. Now the shipper obviously paid the broker as they have always did and the collection agencies are contacting the shipper for the money and these collections people are down right rude and harassing.

A:

Liability for freight charges depends on the facts and the relationships among the parties. Unfortunately, the "double payment" problem is very common when brokers go out of business or abscond with funds. This is a "gray area", and collection agencies and lawyers for the carriers will probably tell you that you are liable even though you have paid the broker.

However, the general rule, as supported by a number of court decisions, is that if the shipper has dealt only with the broker, and has paid the broker, the carrier cannot come back to the shipper to collect its freight charges. The legal rationale is that there is no privity of contract between the shipper and the carrier; also, that the carrier has extended credit to the broker, and not to the shipper.

There is not much you can do when being harassed by collection agencies or lawyers, other than to tell them - very firmly - that you have no intention of paying them, because you have already paid the broker

Freight Charges - Shipper Liability to Subcontractor

Q:

Is a shipper liable to a truck line for freight charges owed to it by a steamship line when the ocean carrier issued a through door-to-door bill of lading, hired the truck line for the inland move, and collected freight charges from the shipper, but failed to pay the trucker?

A:

No. Under a through Bill of Lading, the shipper's contract is with the ocean carrier, and there is no privity of contract between the trucker and shipper. We note, however, a growing number of these occurrences due to the slow pay cycles occurring in the ocean trade.

Freight Charges - Shippers Liability

Q:

I have a manufacturing client who shipped goods freight collect (clearly indicated on bill of lading and signed by carrier) to a consignee who later went bankrupt and didn't pay the freight bills. Now the carrier is coming back to the shipper for payment. I have many of your books, but I could not find information directly on point. I found information regarding brokers and freight forwarders, but not bankrupt consignees. The carrier is citing the U.S. Supreme Court decision Southern Pacific versus Commercial Metals. What do you recommend?

A:

It appears that you do not have any written transportation contract with the carrier in question, and that the shipment moved in common carriage under a standard bill of lading.

A shipper will remain liable for freight charges even if the bill of lading is marked "collect", UNLESS the shipper executes the "non-recourse" or "Section 7" box on the face of the bill of lading. The non-recourse provision will generally protect the shipper if the consignee fails to pay or goes bankrupt. The Supreme Court case you referred to is Southern Pacific Transportation Co. v. Commercial Metals Co., 456 U.S. 336 (1982); it is on point and supports this conclusion.

Freight Charges - Shipper's Liability; "Section 7"

Q:

If a carrier agrees to deliver freight to a customer on a collect basis and the consignee goes out of business before paying the freight charges, who is then responsible for paying the freight charges?

A:

The general rule is that the shipper is primarily liable for payment of freight charges. A shipper may be able to protect himself on a collect shipment by signing what is referred to as the "non-recourse" or "Section 7" provision - a box on the front of the uniform straight bill of lading. Unless this is done, however, and the consignee fails to pay, the carrier can go back to the shipper for payment.

Freight Charges - Statute of Limitations

Q:

What is the applicable statute of limitations for a trucking company to collect freight charges, when the shipper paid the broker and the broker went "belly up" and never paid the trucker? The trucker says it is the 5 years, which is the statute of limitations in our state. The shipments in question moved from New York to Nebraska.

A:

The applicable statute of limitations is the 18 month time limit in 49 USC 14705.

Prior to the ICC Termination Act (effective 1/1/96) there were other statutes of limitation in effect, see former 49 USC 11706. For many years the statute of limitations was 3 years; it was shortened by the Negotiated Rates Act of 1993 in two phases - first to 2 years, then to 18 months. You might try researching former section 11706 for additional case law.

Note: The only exception that comes to mind is if the carrier was acting as a contract carrier (as opposed to a common carrier) in which case the parties could have included some other time limit for bringing suit in their contract.

I would also observe that there is a body of case law which supports the position that a shipper which has paid a broker cannot be liable ("double payment") to the motor carrier.

Freight Forwarders - Legal Requirements

Q:

I am starting a freight forwarding business and was wondering what laws apply to international and domestic freight forwarding?

A:

There are laws, but it depends on what you are planning to do.

· Domestic surface freight forwarders are required to register with the FHWA and must file evidence of insurance and registered agents for service of process.

· Ocean freight forwarders are regulated by the FMC and must be licensed and bonded.

· Air freight forwarders are not regulated by any government agency.

If you need further assistance, TCPC Headquarters can refer you to experienced professionals.

Holding Freight for "Ransom"

Q:

We are a freight forwarder that periodically has had a vendor or supplier hold our freight as ransom in order to have past due debts paid, or to collect COD shipments.

Is this legal, and can we recover our freight from off their dock, even if we prepaid for the shipment?

A:

From the information in your memo, it is not clear what the problem is, particularly what you mean by "our freight". As a freight forwarder, you normally have no ownership interest in the goods.

Assuming you are talking about your line-haul carriers holding freight or refusing to deliver because you owe them freight charges, carriers have a lien for freight charges on shipments they are transporting, and can lawfully refuse to deliver until the freight charges are paid. It should be noted that in most states, the lien only applies to the current shipment being transported, and not to freight charges on past shipments. In California, however, the law permits carriers to hold freight for all past freight charges.

Household Goods - Estimates

Q:

Is there any remedy when a HHG "estimate" is exceeded by 50% when the actual weight is calculated and used to calculate the freight charges?

A:

Your only remedy is to pay the estimated freight charge plus 10% to obtain delivery of your belongings and then to contest the balance. If the shipper did not receive a "binding estimate", or competitive bids, you are at the mercy of the carrier.

One of the recurring problems with estimates is "low balling" the estimate to get the contract, and then charging for the actual weight. Another problem has been "ballooning" the weight when the truck is placed on the scale. Therefore, if other bids are obtained, at least they may be used to contest the actual weight and freight bill. Another suggestion is to complain to the FHWA (202) 927-5554, as they still have jurisdiction over household goods.

Household Goods Damages

Q:

I recently moved my household goods from Michigan to Colorado vie North American Van Lines. The sales representative assured me I would receive a "professional move" and my goods would be handled with care.

Some of my furniture was damaged due to gross mishandling. For example: they dropped a large china cabinet 2 times moving out of my old residence and once moving into my new residence. While moving my dining room table into my new residence, they set it upside down on the driveway, damaging a corner of the top surface.

Additionally, they did not place items as instructed. Items labeled for the garage ended up on the second floor in my child's room, etc, etc. They also packed light boxes under heavy boxes in the truck. Most of these were PBO cartons. Although nothing was damaged it appeared to be a clear message as if to say "we will teach you a lesson for not having us pack these boxes" In some cases boxes weighing over 75 lb. were packed on top of boxes weighing 3 lb. Even one of the local NAVL people who assisted in unloading said he had never seen a mover pack so irresponsibly.

We carried upgraded insurance on our goods. When we did file a claim, they had an estimator come out and he "allowed" $90 for repair of the china cabinet. The china cabinet is a $3,500 unit and needs a new back and an new glass panel. I checked the price of the glass itself, and it is over $90 not including installation. The total of their "allowance" conveniently came to $225, just under my deductible.

I have requested a partial refund due to their failure to meet the contractual requirements and they have stated that it is "illegal for them to do so".

Does your council assist people in my situation? How can I proceed with this matter?

A:

Unfortunately, you are not alone in having "nightmare" experiences with a household goods mover.

At this stage, the only suggestions which I can give you are as follows:

1. For damaged items, get an independent written repair estimate. Check with a good antiques dealer or store, or look in the Yellow Pages. If appropriate, take photos of the damage.

2. For missing items, try to find a purchase receipt or other proof of the original cost of the item; if this is not possible, determine the replacement cost - either refer to a catalog or identify a store or vendor which has the item for sale together with the address, item description and price.

3. Submit your claim in writing with the supporting documentation to the carrier. There are standard forms for presentation of loss and damage claims. Usually the carrier will provide these, or you may be able to get them from a stationer. As a general rule, claims must be submitted in writing within 9 months of the date of the loss (delivery).

4. Be persistent; don't take "no" for an answer. Make sure all communications are in writing.

5. You can try filing a complaint with the Federal Highway Administration - they do have limited jurisdiction over interstate household goods movers, but don't really have the resources to provide much help to shippers. Also, in many states the state D.O.T. or Public Service Commission has a department which will investigate complaints.

6. If you cannot reach a satisfactory settlement of your claim, you may have to commence a law suit. If the claim is small (check the jurisdictional limits in your state) you can file a complaint in your local small claims court. If the claim exceeds the limits of the small claims court, you will probably have to hire a lawyer and file suit in a higher court.

7. As to the last part of your question, household goods movers are required to have a tariff containing their rates and charges; technically, they are not allowed to charge either more or less that the tariff rates and charges. On the other hand, if you have lost or damaged items, you should be able to include a pro-rata portion of the freight charges (attibutable to the lost/damaged portion of the shipment) as part of your claim.

If you want to read up on the law of freight loss and damage, I would recommend "Freight Claims in Plain English" (3rd Ed. 1995). If this is not available in your library, it can be obtained from the Transportation Consumer Protection Council at (516) 549-8984 or their web page: www.transportlaw.com.

ICCTA - Clarification

Q:

Could you provide some clarification on the acronym ICCTA. What does it stands for? Of what relevance is it to the average citizen consumer?

A:

"ICCTA" stands for the ICC Termination Act of 1995, which was effective on January 1, 1996. This was the most recent legislation intended to deregulate the trucking industry which started with the Motor Carrier Act of 1980, followed by the Negotiated Rates Act of 1993, the Trucking Industry Regulatory Reform Act of 1994, and the Federal Aviation Administration Act of 1994 (which deregulated intrastate trucking).

ICCTA abolished the ICC and transferred the remaining functions to the Department of Transportation (FHWA or Surface Transportation Board). It also re-codified the Interstate Commerce Act, and incorporated or modified provisions or the earlier legislation.

For an in-depth explanation of these laws, I would recommend the following texts which are available from TCPC:

* Doing Business Under the New Transportation Law: The Negotiated Rates Act of 1993 (Jan. 1994)

* Supplement No. 2 to "Doing Business..." (Feb. 1995)

* A Guide to Transportation After the Sunsetting of the ICC (2nd Ed., Feb. 1997)

* Protecting Shippers' Interests (Sept. 1997)

You can order these through the TCPC web page or by calling (516) 548-8984.

Improper Loading - Act of Shipper

Q:

We recently shipped a machine from Portland to Memphis. The machine was professionally loaded into the trailer by licensed machinery movers. The driver slept thru the process, and then left to get a meal. The dock area is on the side of our building and open to the public. The load was additionally insured. The driver closed up the trailer.

The machine was damaged extensively. The trucking company is denying any liability saying that the driver was denied access to the trailer during the loading and therefore implies that all damage was ours due to inappropriate loading. We strongly disagree.

What should we do?

A:

The legal principles are fairly straight-forward: the claimant has the burden of proving that the machine was tendered to the carrier in good order and condition, and arrived in damaged condition. The carrier has the burden of proving that the sole and proximate cause of the damage was one of the "excepted causes" - in this case an "act of the shipper" - improper loading, blocking or bracing. These principles are explained in "Freight Claims in Plain English" (3rd Ed. 1995) at Section 5.2 and 6.5.

Whether the driver participated in the loading or not, it appears he did have the opportunity to witness the loading. In addition, Federal Highway Administration regulations place a duty on the driver to make sure cargo is properly secured, see 49 CFR Section 392.9, discussed in FCIPE at Section 4.8.3. Last, but not least, If the machine was not properly loaded or secured, the driver should have refused to accept it.

Since you apparently hired a rigging company to load the machine, I would suggest that you get a detailed written statement from the people who did the actual loading, together with any loading diagrams, photos, etc. that may exist, and submit these with the claim.

Insurance Requirements - Courier & Messenger Services

Q:

What insurance requirement do couriers and messenger service carriers have today?

A:

Most local courier and messenger services only operate within an exempt commercial zone and, as such are not subject to federal requirements governing interstate for-hire motor carriers. If they do operate trucks in interstate commerce they would be required to register with the FHWA, and would be subject to regulations requiring public liability and cargo insurance, including the BMC 32 cargo endorsement.

Interstate vs. Intrastate

Q:

As the office manager of a small interstate contract for-hire carrier, I have the following question. We have received a citation from the Pennsylvania PUC., for picking up and delivering within the state of PA. The problem is that this was not an INTRASTATE movement. The load was loaded thru a freight forwarding company at Atglen, PA and the load had 7 stops in PA, 1 stop in NY and a final with 2 stops in OH (our home state). What law or regulation covers this type of movement (picking up in one state with intermediate deliveries in the same state but with a final delivery in another state, all from the same shipper).

A:

There are no "regulations", but there is a section of the Interstate Commerce Act which essentially defines Interstate Commerce as it applies to the regulation of motor carriers: 49 U.S.C. Section 13501. Under that definition and the relevant court decisions, the movement you described would be considered "interstate" in character.

There is a lengthy discussion of Intrastate vs. Interstate Commerce in "Freight Claims in Plain English" (3rd Ed. 1995), at Section 1.2 which should be helpful.

Late Payment Charges

Q:

We have recently been contacted by a trucking company on a small number of invoices that we paid on an over 60 days basis. They are trying to eliminate our discount on these old and paid invoices because they were paid late.

Are these claims valid?

A:

First, I am not surprised that other carriers are starting to press to collect their late payment penalties in view of the recent decision in Humboldt Express v. The Wise Co. (which is on appeal to the 4^th Circuit Court of Appeals, by the way).

Whether late payment penalties are enforceable depends on a number of factors including whether the carrier complied with the ICC's credit regulations, whether there was a proper notice on the original freight bills, etc. There is also the question of whether the late payment charges are an unreasonable penalty of forfeiture. Usually, each case must be evaluated on its own particular set of facts. I would advise you to consult an experienced transportation attorney.

Liability - Carrier’s Liability on Refused Shipments

Q [JJW6] :

This question applies primarily to LTL transportation. Regarding storage on refused shipments, I have been unable to find anything in the NMFC rules that sets time limits on when a carrier can begin charging storage on refused shipments. Depending on the carrier and the business volume associated with a specific carrier, the rules change. Since I handle multiple shipping locations, I a trying to get some consistency in our OS&D program and would like to know if there are any rules governing storage and the carrier's obligation to notify the shipper (mode of notification) on refused shipments.

A:

Assuming that you are shipping by common carrier under a Uniform Straight Bill of Lading, the relevant provisions are found in Section 4 of the terms and conditions on the reverse side of the bill of lading. This section provides:

If the consignee refuses the shipment... the carrier's liability shall then become that of a warehouseman. Carrier shall promptly attempt to provide notice...to the shipper of party, if any, designated to receive notice on this bill of lading.... Storage charges, based on the carrier's tariff, shall start no sooner than the next business day following the attempted notification...

In other words, the Uniform Straight Bill of Lading essentially defers to the individual carrier's tariff for details as to storage rates and rules.

This is one of the reasons why shippers must always be careful to demand a copy of the carrier's rules tariff before doing business, since these tariffs contain the rules governing storage charges (as well as other rules governing accessorial charges, credit terms, liability limitations, etc.).

I would point out that the problems you discuss can be obviated by a properly drafted Transportation Contract, and we always recommend that our clients use such contracts with their motor carriers.

Liability - Custom Order Goods

Q:

A custom order that we shipped was partially damaged and the consignee refused delivery because the product could not be used. Because this was a custom order, there is no salvage value so we filed a claim for the full amount, which was declined by the carrier on the basis that it was not on notice of the nature of the goods. What is our recourse?

A:

By basing its declination on lack of notice of the nature of the goods, it appears the carrier is declining this claim on the basis that you are seeking "special damages". However, this is incorrect and damage to a shipment which consists of something specially made for a consignee would be characterized as general damage making the carrier liable for its full invoice value less any salvage value. The fact that the shipment was specially designed does not transform the damages into special damages. See Section 7.4.4 of "Freight Claims in Plain English" (3rd Ed. 1995) for a discussion of this issue and Section 7.3 et seq. for a detailed discussion of "special" versus "general" damages.

Liability - Limitation When Broker Involved

Q [JJW7] :

We used a broker to move an interstate shipment in January 99. The item was damaged beyond repair by the carrier. We filed our written claim February 23rd. Finally today we were advised the carrier will issue a check based on their coverage terms on their Bill of Lading which is $0.50 per lb. or $50.00, whichever is greater.

We were not made aware of these terms by the broker we used. The reimbursement comes to 20% of the product value.

I read 49 USC 10730 and 11707 but still am confused. Are we bound by the carrier's clause on their Bill of Lading as noted above or is the carrier responsible to pay in full the invoice value of the item they broke? What are our options/recourses? Can you please reprise our options?

A:

Your experience illustrates one of the dangers of using brokers to arrange transportation on your behalf. It would appear that your broker may have used a carrier which had a limitation of liability either in its bill of lading or a tariff which was incorporated by reference through the bill of lading.

If you have a written contract with your broker or have otherwise made it clear that the broker is only to ship at full liability, and may not agree to released rates or limited liability, you may have a claim against the broker. If this requirement was not made clear to the broker, it could be argued that he had the authority to agree to limited liability in return for a cheap freight rate.

Whether the motor carrier can enforce a limitation of liability is another question. This depends on the bill of lading that was used, whether there was adequate notice of the limitation of liability, whether there was a choice of full vs. limited liability, and whether the carrier maintained a proper tariff containing the liability limitation. The subject of limitations of liability is discussed in detail in "Freight Claims in Plain English" (3rd Ed. 1995) at Section 8.0. If the amount in dispute is significant, I would certainly recommend that you have a qualified transportation attorney review the file to determine if the carrier can lawfully enforce its limitation of liability. In other words, don't take "no" for an answer.

Liability as a Rate Factor

Q:

We have witnessed carriers setting liability limits on our freight, which they could not previously publish. Can we now force the National Classification Committee to drop liability as a factor in classifying our freight?

A:

Good thought, as the carriers are not offering a reduction in rates as a quid pro quo for the reduction in liability. Shippers should use this argument to oppose new liability limitations proposed by their carriers. It would be a waste of time and effort to suggest that liability be dropped as a classification factor as shippers have no real or effective vote on the Classification Committee, which may be going out of existence soon.

Liability for Stolen Freight - Carrier's Terminal

Q:

Is a carrier liable for goods stolen from it while they were being held after rejection by the consignee? They were stolen from the carrier's terminal which had no alarm, no security, but the pin lock was broken and the trailer stolen.

A:

With goods being held after rejection, the carrier's liability is that of a warehouseman. It is then liable only for negligence, as it must exercise reasonable care such as that of a reasonably prudent person caring for his own goods.

Therefore, the question is whether a prudent person would have had an alarm and security guards in that particular location to protect his own goods. See Sections 14.4-14.8 in Freight Claims in Plain English (3rd Ed. 1995) for cases.

Liability on Sealed Container Shortage

Q:

I have a situation where I am not sure who is at fault. I have a vendor that had the driver, when picking up a rail container, sign it "Shipper Load, Driver Count." The container was sealed at the pickup point with the driver in attendance and the above notation then placed on the Original Bill of Lading. When delivered we cut the seal (same number) and unloaded the trailer without assist. Our dockman came up 40 cartons short. Against whom do we, as the consignee, have a claim?

I am not sure if we file against the vendor or the carrier that picked up the container.

A:

Obviously, you have a mystery on your hands.

Ordinarily, "shipper load, driver count" would shift responsibility to the carrier for any shortage discovered upon delivery at destination.

However, when the container is sealed, and if the original seal is intact at destination, it is strong evidence that the shortage could not have occurred in transit. There are cases where seals have been tampered with - opened up and re-attached, or glued back with "crazy glue", etc., and where door hinges have been removed without breaking the seals, but I assume you made a thorough inspection of the container and ruled out such possibilities.

My suggestion would be to talk to the shipper and ask for independent verification that the goods were actually loaded. Ask for their loading records or a stroke tally, and have them check their inventory to see if the goods may still be in the warehouse. If you are satisfied that the goods were loaded into the container, and feel that you can prove this to the carrier, then file your claim with the carrier.

Lastly, check your terms of sale. If the shipment was "FOB Origin", the risk of loss would be on the buyer (consignee); if the shipment was "FOB Destination", the risk of loss would be on the seller (shipper).

Limitation of Liability - No Bill of Lading

Q:

A carrier picks up a shipment but fails to issue a bill of lading. The shipment is damaged in transit. The carrier claims that its liability is limited to $50/load because the shipper did not declare a value on the bill of lading. Can the carrier enforce its limited liability provision?

A:

No. It is the carrier's responsibility to issue a bill of lading. Because the carrier failed to issue the bill of lading the shipper had no notice of the terms of the bill of lading and thus had no opportunity to declare a value.

Loading and Unloading - Driver Injuries

Q:

We are a large concrete accessories manufacturer and in 1993 we shipped some construction materials to a job site through a broker. The driver working for the broker decided to assist in unloading the product when he arrived at the site without our request to do so. He injured himself and he is now waiving his rights to workman's compensation and is suing the broker and my company instead. We did not have a specific contract with the broker at the time (our mistake), so I believe that there is not a hold harmless clause to protect us. Where does our legal liability end in such a situation?

A:

This is not a simple question. There are dozens of reported court decisions involving liability for "loading and unloading" accidents. Many of these involve interpretation of insurance policies and various state laws, and often the cases are very fact-specific. A formal opinion as to your company's liability would require thorough analysis of the facts, research into applicable state law, etc.

I assume that your company has appropriate general liability coverage, and that this matter has been turned over to your insurance company for the legal defense of the lawsuit. If not, this should be done promptly.

Regarding contracts with brokers or motor carriers, we strongly recommend that shippers use properly drafted transportation agreements. Such agreements may contain provisions for indemnification, which would be helpful protection in situations such as you have described.

Lumping Fees

Q:

What should we do when we encounter receivers who require the trucker to pay unloading fees without any compensation to the truck operator? Doesn't the Interstate Commerce Act prohibit this?

A:

Yes, section 14103 of the Interstate Commerce Act prohibits "lumping." This section provides that if the shipper or receiver requires a carrier to be assisted in loading or unloading a truck, the shipper or receiver must either provide the assistance or compensate the carrier for the cost. This is a federal statute and violation is a federal crime. While there is no guarantee of a response, it is recommended that you report violations to the Federal Highway Administration and ask them to enforce the law. Try writing to them at:

Federal Highway Administration

Office of the Chief Counsel, HCC-10

Room 4232

400 Seventh Street, SW

Washington, DC 20590

The phone number for the Chief Counsel's office (Jerry L. Malone) is 202 366 0740.

Measure of Damages - Limits & Consequential Damages

Q:

We recently purchased a used blueprint machine and had it shipped via common carrier to our business. When it arrived, on a pallet with 'Fragile' markings, the machine packaging was torn up. Upon inspection we found concealed damage.

We called a local company to repair the damage, noting the $25.00 per pound allowance on the freight bill. The final repair cost was less than $25/lb, but more than the value of the machine.

The carrier does not want to pay more than the value of the equipment, but we have found Rule 600 paragraph (A) of the Interstate Commerce Act that states 'carriers are liable for the full actual loss, damage or injury actually caused by such carriers while property is in their care...'.

This is not like a car, where a total loss can get you a similar one of the same value. This machine is hard to find. We also needed the machine the day it arrived, and could not wait for a replacement.

Who is right?

A:

First of all, you should understand that the $25.00 per pound is a "limitation of liability"; if properly set forth in the carrier's bill of lading and/or tariffs, it would be a maximum amount the carrier would have to pay.

Second, there is a general principle that a shipper or consignee has a duty to "mitigate" the loss. Normally this means that you should not spend more to repair a damaged item than it would cost to purchase a replacement unit.

Third, the usual measure of damages - as set forth in the court decisions - is "destination market value". See "Freight Claims in Plain English" (3rd Ed. 1995) at Section 7.0. Usually this is established by the invoice price from the seller plus the freight charges. However, there are exceptions to this general rule and there are cases in which a consignee of a shipment is entitled to the cost to replace a lost or damaged item.

In your case, you suggest that you were unable to purchase a replacement from the original vendor. This raises the question as to what it would have cost to buy a replacement locally (or somewhere else and have it shipped to you). What I would suggest is that you obtain quotes for a similar used machine, and if they are more than what you spent to repair the machine, submit them to the carrier as evidence of the replacement value.

Lastly, there may be an issue of what is called "special or consequential damages". You indicate that you could not wait for a replacement and had to have it repaired the same day. The carrier is not responsible for any additional damages (over the value of the property lost or damaged) unless it has some actual or constructive notice, at the time of shipment, that such damages may be incurred. In other words, if the carrier did not know that you had an immediate need for the machine, it should not have to pay for the amount which the cost of repair exceeded the replacement value.

Measure of Damages - Released Rate Shipment

Q:

When we released a shipment of pharmaceuticals at $2.00 per lb. and the shipment is stolen, are we entitled to the invoice value, or only $2.00 per lb., or as the carrier's insurance company claims, only our manufactured costs?

A:

You are entitled to recover based on your invoice value if the goods had been sold, and were stolen while in transit to a customer. However, in most cases it doesn't matter whether invoice value or manufactured cost is used. If there is a valid limitation of liability, the most you can collect is $2.00 per lb. times the weight of the shipment.

Measure of Damages - Repair Cost

Q:

We purchased a used machine that is hard to find, but it was damaged en route. As we needed it the day it arrived, we were forced to have it repaired the same day. The repair cost was greater than the cost of the machine, but less than the carrier's $25 per lb. limit. Are we entitled to recover the repair cost?

A:

If you can obtain quotations for the cost of the same machine, use them as evidence of the replacement value. See Freight Claims in Plain English (3^rd Ed. 1995) at Section 7.0 for cases on the market value, including replacement costs.

Measure of Damages - Return Shipment

Q:

We filed a claim against a carrier for the full invoice value of a shipment that they (the carrier) had lost. The carrier offered the shipment for delivery but the consignee refused it because the purchase order was cancelled.

Disposition was issued to the carrier to return the merchandise. Subsequently. the goods were lost by the carrier.

The carrier, while admitting liability, claims that the proper measure of loss should be the manufactured cost of goods. Their reasoning is that, since the shipment was refused by the consignee, there was no longer a consummated sale. Once there was no sale, the argue, the value of the goods reverted to manufactured cost.

We reaffirmed our position that invoice value was the correct measure of loss citing Polaroid v Schuster's Express, but the carrier rejected our rebuttal. The pertinent part of their rejection follows: citing the following:

"In Bernet, Craft and Kaufman Milling Company v. NYC and St. L. 260S.W. the court ruled that the the owner of the goods would be entitled only to his actual loss as determined by the evidence that was presented to the court."

* * *

"In Baltimore & O C Terminal R Co v Becker Milling Mach Co, 272 F. 933 (C.C.A.7 (Ill.) 1921), the court did exclude the profit that was normally made on a shipment to a customer when that profit had not been earned."

We are not familiar with these citations and don't even know if they are legitimate (your comments would be appreciated).

In a case such as this, where the consignee refuses merchandise, what is the correct measure of loss, invoice value or manufactured cost of goods?

A:

This is an interesting fact pattern, and I am not aware of any decisions directly on point.

The usual measure of damages is the "destination market value" and this is most often established by using the invoice price to the customer. However, since the P.O. was canceled (and the invoice also), the case falls more closely into the rationale of the Polaroid and Kodak cases (warehouse to warehouse movements), see Freight Claims in Plain English (3rd Ed. 1995) at Section 7.2.7. These cases essentially say that the claimant is entitled to its selling price (less expenses not incurred) because the goods would have been sold within a short time.

I am attaching a memo which was recently provided to another client on a similar claim.

As I understand it, your customer returned goods for which Square D agreed to give a credit of the original invoice value. The goods were lost or damaged en route and you filed a claim based on the invoice value. The carrier has denied the claim and argues that the measure of damages is your inventory cost.

I am not aware of a case factually on point, but the closest analogy would the "warehouse-to-warehouse" situation in Polaroid Corp. v. Shusters Express, Inc., 484 F.2d 349 (1st Cir. 1973) where the court stated:

The fact that the plaintiff was transporting goods to its own warehouse and not to a buyer does not change the measure of damages. The affidavits established a more than reasonable likelihood that the hijacked goods would have been sold at the claimed market price.

The reasoning in Polaroid has been adopted in Eastman Kodak Co. v. Westway Motor Freight, Inc., 949 F.2d 317 (10th Cir. 1991) In Eastman Kodak, the Tenth Circuit held that the defendant had not sufficiently established "special reasons" for departing from the market value rule. The court noted that, "Kodak produced evidence that it sells virtually all of its sensitized photographic merchandise shortly after production is completed. This evidence tends to show that any damaged merchandise that could not be sold would result in lost profits." The court thus held that the full invoice (wholesale) price was the correct measure of damages since the carrier presented no evidence that the merchandise would have been sold at a lower price.

See also an earlier case involving Kodak, and reaching the same result, Eastman Kodak Co. v. Trans Western Express, Ltd., 765 F.Supp. 1484 (D. Colo. 1991).

Cases involving goods which had been sold to a customer, and which awarded the invoice price, include:

Philips Consumer Electronics Co. v. Arrow Carrier Corp., 785 F.Supp. 436 (S.D. N.Y. 1992)

Corning Incorporated v. Missouri Nebraska Express, 1996 WL 224673 (E.D. Pa. Apr. 29, 1996)

Robert Burton Associates, Ltd. v. Preston Trucking Co., unreported, Civ. No. 96-745(NHP), (D. NJ Mar. 24, 1997), aff'd on reh., (D. NJ May 22, 1997), reversed in part and remanded, 1998 WL 381711 (3rd Cir. Jul. 10, 1998)

The Burton case also makes it clear that where a carrier asserts that some other measure of damages should be used (such as "replacement cost"), the carrier would have the burden of proving that the shipper did not lose any sales:

On the remand Preston, as the carrier, will have the burden of proof to demonstrate that its loss of the 81 cases of cigarette papers did not cause Burton any loss of sales. ...But, if Preston cannot establish that Burton did not lose any sales by reason of the loss of the goods, the district court will enter judgment against Preston for $55,928.99, the invoice price. If the district court finds that Burton lost sales by reason of the loss of the merchandise it should not attempt to quantify the inherently uncertain amount of the loss. Thus, unless Preston establishes that Burton did not lose any sales by reason of the loss of the 81 cases of cigarette papers, it will not have demonstrated that the court should deviate from the market value rule.

Measure of Damages - Return Shipment

Q:

When freight is refused from the carrier because the purchase order was cancelled, the carrier wants our claim to be amended to reflect "manufactured cost" because there was no longer a consummated sale. The carrier cites Bernet, Craft & Kaufman Milling v. NYC and ST.L, 2606 S.W., and B & O v. Becker Milling, 272 F. 933. Are these cases controlling?

A:

It is apparent from the citations that these are old decisions obtained from Miller's Law of Freight Loss & Damage. Note that the citations do not include the year of the decisions, which is typical in Miller's citations.

You will find more current law in Freight Claims in Plain English (3^rd Ed.), Section 7.2.7. The Polaroid and Kodak cases discussed therein hold that if you can establish that the goods would have been sold within a short period of time (usually by introducing records of storage turnover rates for the products involved), you are entitled to the invoice value, not merely manufactured costs.

Notice of Claim - Rail Shipments

Q:

We are having a problem with railroads declining claims because they were not notified of the damage or shortage within 24 hours of delivery. This seems unrealistic. Is it legal?

A:

While this seems unreasonable, it is probably enforceable if the 24-hour notice requirement is part of your contract or is included in the railroad's Exempt Circular.

However, liability conditions such as this can and should be negotiated out of the agreement at its inception. There are also many other unreasonable rules in railroad contracts and Exempt Circulars that you can be bound by, so it is imperative that any agreement with the railroad be reviewed and revised as appropriate

Notice of Refused or On-Hand Freight

Q:

When a Bill of Lading instructs the carrier to bill a third party, and the shipment is refused by the consignee, who should the carrier notify, the consignor (shipper) or the third party?

A:

Section 4. (a) 1. of the Uniform Straight Bill of Lading requires the carrier to attempt to provide notice to "the shipper or the party, if any, designated to receive notice" on the bill of lading. It does not require the carrier to notify a party merely designated as the "bill to" party.

On the other hand, since the carrier was placed on notice that a third party had an interest in the shipment, it would be reasonable to assume the carrier should have some obligation to send a copy of the notice to that party.

This question illustrates the benefit of having a formal transportation agreement which clearly spells out the obligations of the parties.

NVOCC'S and Ocean Freight Forwarders

Q:

What is an "NVOCC" and how is it different from an ocean freight forwarder?

A:

Prior to the Ocean Shipping Reform Act, an "NVOCC" (non-vessel-operating common carrier) was defined as "a common carrier that does not operate the vessels by which the ocean transportation is provided, and is a shipper in its relationship with an ocean common carrier", 46 CFR 510.2(k). Typically, NVOCC's consolidate less-than-container shipments into full container loads, which are then tendered to the ocean carrier. The NVOCC issues bills of lading to its shippers, and is liable to the shipper for loss or damage in transit. Rates and charges were required to be filed in tariff form with the FMC.

Ocean freight forwarders, on the other hand, were not carriers. Ocean freight forwarders were defined as "a person in the United States that: (1) Dispatches shipments from the United States via common carriers and books or otherwise arranges space for those shipments on behalf of shippers; and (2) Processes the documentation or performs related activities incident to those shipments", 46 CFR 510.2(n). Forwarders act as agents of the shipper, prepare documentation, make shipping and insurance arrangements, handle billings and payments, etc.

The Ocean Shipping Reform Act created a new category of "Ocean Transportation Intermediaries" or "OTI's" which includes both NVOCC's and ocean freight forwarders.

OTI's are required to be licensed by the Federal Maritime Commission, and are required to file surety bonds. The FMC regulations continue to distinguish between an OTI that performs "NVOCC' functions and one that only performs "freight forwarder" functions. See 46 CFR Part 515.

It may be noted that, in countries other than the U.S., there is usually no distinction between an NVOCC and a forwarder, and forwarders often perform the functions of both.

Offsetting Claims Against Freight Charges

Q:

Where does the law prohibit a shipper from deducting claims from freight charges owed to a carrier?

A:

It doesn't. At one time carriers were prohibited from offsetting claims against freight charges on the grounds that it could result in discrimination among their customers. However, the anti-discrimination statute was repealed in ICCTA

However, before offsetting claims, a shipper should check the carrier's tariff rules for penalties, such as a loss-of-discount, for failure to pay freight charges within a specific time,. Some carriers prohibit offsetting in their rules tariff. Shippers can negotiate to waive these rules, and contract shippers can insert appropriate provisions in their contracts.

Overcharge Claims - A Solution to the 180-Day Rule?

Q:

As new members of TCPC, we were wondering if you could please tell us if the below statement made at the time of freight bill payment legally fulfills the requirements of the 180-Day Rule?

"In compliance with Public Law 104-88-December 29, 1995, Section 13710, paragraph (a)(3)(B), we hereby contest all freight charges being billed and paid on the below listed invoices and, thus fulfill the requirements of the 180-Day Rule."

If so, we would recommend that a shipper make this statement at the time of freight bill payment by way of an attachment to the check, a check stub statement or even a stamp reading this way on each paid freight bill.

Please let us know your opinion of this strategy to extend the statute for the filing of overcharge claims.

A:

Your suggested procedure is novel, but it should work. There is no specific procedure to "contest" freight bills set forth in 49 U.S.C. Section 13710(a)(3)(B). I don't see any difference between your form of notice and the notices that carriers often print on the back of their freight bills or invoices.

Refused or Rejected Freight

Q:

What happens with freight collect shipments that are refused by the consignee? (The refusals were not related to damages.) It is my belief that, once abandoned, the carrier would dispose of the goods through sale or auction of some sort.

A:

I think you have correctly evaluated the situation. The carrier has certain responsibilities when a shipment is refused or can't be delivered. It must use reasonable efforts to protect the property, notify the shipper and owner that the goods are on hand, etc. The carrier has a lien for its freight charges, and can sell the goods to pay its lien, provided that certain procedures are followed. If the goods are sold, the proceeds would then be first used to offset the original outbound freight charges and pay any expenses associated with the sale. If the sale did not generate enough revenue to cover the freight and expenses, the balance would be billed to the shipper. If the freight and expenses were fully paid from the sale revenue, the balance should be sent to the shipper.

Take a look at Section 4(a) of the contract terms and conditions on the reverse side of the Uniform Straight Bill of Lading, and also see Section 10.10, Salvage Procedures, in Freight Claims in Plain English (3rd Ed. 1995) for a full explanation.

Remedies - Carrier Holding Freight Hostage

Q:

We have had some disputes with a trucker over freight bills. We found he was overcharging based on his tariff, and cut the bills back to the proper rate. Yesterday we gave him a shipment, and now he is holding the shipment "hostage" for the total amount that he claims is due (about $3,700). The freight for this particular shipment is only $360. Can he do this?

A:

Carriers have a "carrier's lien" on any shipment they are transporting, but only for the freight charges relating to the shipment in their possession, and not for previous shipments. If you tender the $360 for the freight charges on this shipment, the carrier legally must release the shipment. If he doesn't, he will be "converting" your property and you have a remedy in court.

Responsibility for Consequential Damages

Q:

I am the Assistant Manager of an automotive component manufacturer with numerous facilities. We are a major "tier one" supplier for the Big Three in North America, Canada & Mexico. We also supply parts to most of the North American automotive transplant operations as well as various automotive joint venture operations.

We are currently in a very delicate position with one of our customers located in Canada. Our terms of sale with this customer are "F.O.B. DESTINATION" but the transportation system is controlled by this customer and they pay all transportation costs.

In January, we were notified by the customer that we had short-shipped on a previous shipment and that we needed to make an expedited shipment to prevent a line shut-down. In order to make the delivery before their line shut-down, our only option was to arrange an air charter from our Missouri plant to Canada.

We immediately began making such arrangements and everything was in place to get the parts to Ontario airport by 2:00 p.m. that same day. When we contacted our customer to inform them of our arrangements and make a delivery appointment, the customer instructed us to cease our efforts. They informed us that they wanted their carrier to handle this expedited delivery.

They instructed us to arrange for an expedited carrier to pick up the shipment, take it to their carrier's consolidation facility in Ohio. We were informed that their carrier would arrange the air charter from their consolidation point in Ohio to Canada. Since this customer normally controls and arranges the transportation, we consented to their direction for this shipment also.

The expedited carrier picked the shipment up from our facility and took it to their consolidation location in Ohio where is was put on a truck, not an airplane, for delivery to Canada. Needless to say, the truck did not make it to the plant in time to prevent the line shut-down.

Now the customer is attempting to hold us responsible for $20K in down-time expenses for the "delivery failure."

We are contending that we should not be held responsible because we were not in control of the transportation arrangements. Had we been in control, the shipment would have arrived at their location several hours before the stated shut-down time.

The customer is alleging that because the terms are "F.O.B. DESTINATION", we are liable for these charges. I am arguing that the F.O.B. point is irrelevant in this situation because the parts themselves were undamaged and in acceptable condition at time of delivery. It was their delivery system which failed and caused the line shut-down. Our parts did not cause this line shut-down.

As far as a contract between our company and this customer, one does not exist to my knowledge. I am trying to get a copy of this customer's Purchase Order to us to see if it addresses the issue of consequential damages, but my initial guess is, no such issues are addressed.

I feel that this customer is being directed by their carrier to hold us responsible because the carrier doesn't want to be held responsible. I believe that if we could present the opinion of a "recognized authority" in matters such as these to the customer, the customer would be able to see where the responsibility for the failure truly lies.

Please give me your opinion.

A:

I will attempt to reply based on your description of the facts.

First, there are two separate contracts involved: (1) between buyer and seller, and (2) between shipper and carrier.

The first contract appears to be a "just in time" arrangement between a supplier and its customer, although you indicate that there is no written contract between the parties. As to the purchase order, it would be helpful to have a copy to review in order to determine what (if any) provisions cover delays or late deliveries.

The "terms of sale" (FOB Destination) which you refer to generally relate to risk of loss in transit, i.e., loss or damage to the property while in the hands of a carrier. If the terms of sale are FOB Destination, under UCC 2-319, there is a presumption that the seller has risk of loss in transit. However, I do not see how this provision of the UCC (or the related provisions such as 2-503, 2-509, 2-510, etc.) would have any bearing on your customer's claim for consequential damages.

It would be my opinion, (in the absence of contrary provisions in the JIT contract or the purchaser order) that your customer, by having made the transportation arrangements with its own carrier, assumed responsibility for any delay resulting from the use of that carrier.

The second contract is between shipper and carrier and is subject to principles of transportation law, e.g. the "Carmack Amendment", etc. As to a possible claim against the trucker, a claim for "down time" resulting from delay is a classic example of "special damages". Special damages are recoverable from a carrier only if there is actual or constructive notice, at the time of shipment, of the consequences of delay or non-delivery. If the carrier was on notice of the urgency of this shipment and that delay would cause a plant shutdown, it is possible that the carrier could be held liable. There is an extensive discussion of special damages in Section 7.3 of "Freight Claims in Plain English" (3rd. Ed. 1995), if you wish to explore this in greater depth.

From what you have told me, I would suggest that your customer should pursue its claim for damages against the carrier, and not against your company.

Retention of Bills of Lading and Similar Documents

Q:

How long should shippers keep bills of lading, freight bills, etc?

A:

Bills of lading and freight bills may be important if you have a dispute with a carrier over freight charges, or if the carrier goes bankrupt and its "auditors" try to assert claims for undercharges or late payment penalties. The time limit in the Interstate Commerce Act for a carrier to bring an action for freight charges is now 18 months. However, under the Bankruptcy Act, statutes of limitation are extended by 2 years from the date the petition in bankruptcy is filed. Thus, to be safe, you should probably hang on to these records and documents for a minimum of 3 1/2 years.

Also, if you have a loss and damage claim pending for a long period of time, you should keep all files on that shipment until it is closed. You will need those files to establish good condition at origin, invoice prices, sales contracts, quality control documents, loading diagrams, etc. in the event of trial. These records should be kept for at least two years after declination of the claim if you intend to institute suit within that period.

Retention of Shipping Documents

Q:

In light of the most recent changes to the Interstate Commerce Act, what period of time do you recommend we use for shipping document retention? We want to direct a uniform document retention plan for our Distribution Centers.

A:

Unlike carriers, who are required by the Code of Federal Regulations (CFR) to maintain certain documents for various periods of time (49 CFR §379), there are no similar provisions for shippers. Therefore, we generally recommend that freight bills and bills of lading are retained for a minimum of 3 1/2 years. The reasoning is that the statute of limitations on recovery of freight charges by a carrier is now 18 months and statutes of limitation can be extended by 2 years if a carrier files for bankruptcy. Note that this recommendation does NOT take into account any record retention requirements that might be imposed by the IRS, SEC, other federal, state or local jurisdictions or other regulatory agencies.

Return of Damaged Goods

Q:

Could you please comment on carrier responsibility for return of damaged goods.

I ship regularly with a specific carrier and have experienced some minimal damages. The problem is that, due to the nature of our product, it must be returned to our facility for verified disposal. My question is related to the return of damaged product.

Who is responsible to pay for the return of damaged goods to my facility?

The carrier has, until now, been returning the product on a free astray basis. They have recently informed me that, since I am filing claims on this damaged and unusable product, I am responsible for the cost of returning the product to our facility. I disagree.

It seems to me that since THEY damaged the product, THEY should be responsible, not only for the cost of the damaged goods, but also for any related costs incurred as a result of this damage. In my view, due to the necessity of disposal at our facility, they are responsible for the free astray return of the goods.

If they do decide to "charge" me for the return transportation, am I within my rights to include those charges in my claim.

A:

There are no "black and white" answers when you get into the area of measure of damages for a loss and damage claim. However, let's start with the concept that you have a duty to mitigate damages. This means that reasonable costs and expenses to sort, segregate, inspect, repair, etc. are part of your damages and thus includable in your claim. If damaged goods have to be brought back to your facility as part of the salvage procedure, any freight charges for the return of the goods should be a legitimate element of damages. (As you note, many carriers handle this on a "free astray" basis without any charge.)

You can find an extensive discussion of damages in Section 7 of "Freight Claims in Plain English" (3rd Ed. 1995); "Freight Charges" are covered in section 7.4.9.

Risk of Loss in Transit

Q:

Our company purchased some goods FOB Seller's Plant. When the goods arrived at our dock, it was clear they were damaged, so we refused the goods. The carrier took the goods back to the seller, who refused to accept them. Now the carrier is demanding that we pay them, but the carrier is probably at fault because the carrier signed the BOL without objection at the seller's dock. What do we do? I don't want to pay for the goods because they are non-conforming, but both the carrier and the seller are pointing the finger at each other.

A:

1. As a general rule, if the terms of sale were "FOB Seller's Plant", the risk of loss in transit is on the buyer/consignee. In other words, if conforming goods were tendered by the seller/shipper in good order and condition to the carrier at origin, you will have to pay the seller for the goods, even though they arrived damaged.

2. If there was transit damage (caused by the carrier) you, as the buyer/consignee, should have filed a loss and damage claim with the carrier. Freight charges, if paid, are includable as part of your claim.

3. The claimant (in this case the buyer/consignee) has a duty to "mitigate loss". Unless the goods were damaged so as to be substantially worthless, you probably should have accepted them and attempted some kind of repair or salvage. Since you refused them to the carrier, the carrier also has a duty to mitigate the loss if it is reasonably possible to do so. Any salvage proceeds should be credited against your account.

I should note that these subjects are covered thoroughly in "Freight Claims in Plain English" (3rd Ed. 1995), available from TCPC.

Salvage - Food Products Damaged in Transit

Q:

Our company ships edible foods, and when product is rejected by a customer, the carriers usually claim that the product is saleable. We usually find, however, that the product is far below our product standards and is not edible. What can we do to protect our company against product liability suits, and recover for the value of goods damaged in transit?

A:

The owner of damaged goods has a right to determine whether or not a shipment meets its quality standards, or is fit for human consumption under F&DA rules. An affidavit from a qualified expert will suffice. If not fit for human consumption, it may have some value for animal feed, and that value must be established and credited to the carrier. The owner must control the disposition of all damaged goods to protect against release of questionable products to the public, at the risk of being sued for personal injury or death from the damaged goods

Salvage - Inspection of Damaged Shrubs

Q:

We had a shipment of shrubs (junipers, etc. ) in one gallon containers on the floor of the trailer. The driver did not run the reefer unit and the shrubs were refused due to heat damage. Now the carrier wants us to inspect all 6000 pieces and determine which ones can possibly be saved. Part of the problem is that you can't really tell whether they will survive without watering them and waiting a few weeks to see what happens. What should we do?

A:

The claimant does have a duty to mitigate damages - sort, segregate & salvage. You should have a USDA or Plant expert inspect the damaged goods and get a formal written report. You can do a representative sample rather than a 100% inspection.

You should file a claim for the entire amount. The amount of the claim can be reduced later if there is salvage value.

Salvage Allowance - Safety Risk

Q:

Our company ships automotive lamps and other types of light bulbs. When a box is damaged the product is no longer safe to use due to the nature of automotive lamps (they may appear useable, however, the testing to determine if they are safe costs more than the bulbs are worth). The carrier maintains that these broken light bulbs have salvage value, but we do not wish to release these bulbs over to the carrier due to the fact a bulb may have internal damage making it a possible fire or explosion hazard. With a product of this nature what type of salvage value would it have?

A:

This is always a gray area, because shippers have an obligation to mitigate damages when it is reasonable, under the circumstances, to do so, see "Freight Claims in Plain English" (3rd Ed. 1995) at Section 7.1.4, Duty to Mitigate Loss.

You make two good arguments for not allowing salvage: (1) the cost of testing exceeds the value of the light bulbs, and (2) there is a legitimate concern over exposure for product liability, see FCIPE at Section 10.10.6, Product Liability Considerations.

I would think that if you make these points known to the carrier, it should pay the claim in full and not expect a salvage allowance.

Salvage Allowance; Arbitrary Percentage

Q:

We ship resin, which can become contaminated in transit. Once a package is opened, the resin can become contaminated by dirt, pieces of packaging or other foreign material that can jam processing machinery or cause flaws in the finished products. Moisture can also cause problems for our customers, and therefore, they absolutely refuse to accept any product when the package has been compromised. Therefore, our corporate quality control policy requires that all damaged product be returned by carriers, and we deduct a 10% salvage allowance on our claims. Some carriers claim that they can sell this damaged product for 25%. How do we proceed to resolve this dispute?

A:

Your policy of requiring the return of all damaged product is the correct procedure when contaminated product can cause further damage or injury. However, the problem is that any arbitrary percentage for a salvage allowance is just that: arbitrary. Obviously, the shipper wants the product to be returned to prevent it entering the market as distressed merchandise, and possibly compromising its trade name, reputation for quality, etc. or creating a possible product liability or warranty problem. If the product is not substantially worthless due to the damage, the shipper does have a duty to mitigate damages and attempt to salvage what it can. (See Freight Claims in Plain English (3rd Ed. 1995) at Section 10.9 - 10.10 for a detailed discussion.) However, 10% (or 25%) may not reflect the real salvage value. You really should attempt to determine what it actually costs to inspect, handle, re-process, re-package, etc. and what the salvaged product can be sold for. Then you will be in a better position to argue with the carrier as to the proper amount as a salvage allowance.

P.S. If the shipper has a written transportation contract with its carriers, it can include provisions governing salvage of damaged product and avoid this kind of dispute.

Salvage Value - Returned Damaged Freight

Q:

When our freight is delivered in damaged condition we have the carrier return the freight to us to protect our product name. Although the carrier agrees to return the freight, it denies our claim for damages because it has agreed to return the damaged freight to us. Can they do this?

A:

No. The carrier is entitled to a credit for the salvage value, if any, to reduce the amount of the damage claim and may even charge you freight charges for the return shipment. (Since you want the freight returned to you, it would be incumbent upon you to establish the salvage value.) But the carrier cannot simply decline the claim because it agreed to return the damaged freight.

Shipper Liability for "Dropped Trailers"

Q:

Our carrier drops reefer trailers at our facility which we subsequently load. What sort of liability are we incurring, if any?

A:

There are really two issues involved with regard to carrier trailers dropped at your facility for loading. First, you may become a "bailee" of the equipment, i.e., since you have possession and control over another person's property, you become responsible for it. You could become liable if the trailer is damaged (or stolen) while on your premises. Your should have your risk manager or insurance department check to make sure your general liability policy adequately covers the equipment.

Second, you should always inspect trailers before loading product into them, especially refrigerated food products. Any trailer that is defective, dirty, etc. should be rejected. There should be no additional liability exposure because you inspected a carrier's equipment.

You should note that there is a line of cases involving liability for improper loading, where the improper loading causes an accident (load shift, cargo falling off the truck, etc.) or an injury to a driver, shipping/receiving employee, etc. Liability, as between the shipper and carrier, usually turns on whether the defect is "latent" or "patent". However, as far as the carrier's equipment is concerned, it is clear that federal (FHWA) regulations make the carrier primarily liable for the safety of its equipment.

Shipper's Duty - Proper Loading

Q:

I heard about a court decision which said that a shipper has a common law duty to verify its carrier has properly secured its load for shipment. This bothers me tremendously, I do not see how a company can be held responsible for an area that is not within a company's expertise. The securing of loads should be left up to the carriers who are both responsible and have the experience in this area, not people out on a company's floor. Just looking for your view on this and any suggestions as to what the outcome might be.

A:

According to a number of recent court decisions, shippers do have a common law duty to properly prepare, package, etc. and, if the shipper does the loading, to do it safely. On the other hand, both the case law and the federal DOT/FHWA regulations make it clear that the carrier is responsible to check the load and make sure it is properly secured.

Shipper's Load & Count - Multiple Stop-off Shipments

Q:

Our carrier has denied a shortage claim on the basis that the shipment was "Shippers Load & Count." In addition, the shipment involves multiple stop-offs. What should we do?

A:

If the shipment was actually "SL&C", the burden of proof essentially shifts to the shipper as to what was loaded into the trailer. In other words, if there is a shortage at delivery, the shipper must establish, through appropriate testimony, documents, etc. that the goods were actually tendered to the carrier at the origin.

If you load, count and seal the trailer and the driver is not present to witness the loading, it is properly a SL&C shipment. Merely asking a driver to break the seal (at origin) and look into a trailer loaded to full visible capacity would probably not change the nature of the SL&C shipment as there is no way for the driver to verify the pallet or carton count.

On multiple stop-off shipments, the driver is responsible to make sure that the right pallets or cartons are delivered to the right consignee, and get a count and signature on the delivery receipt. Your best protection is to require your carriers to provide copies of delivery receipts as a condition for payment of their freight bills.

Shipping Records - Retention

Q [JJW8] :

In light of latest provisions of the ICC Termination what period of time do you recommend for retention of shipping documents? I would like to prepare a uniform document retention plan for our Distribution Centers.

A:

We generally recommend a minimum of 3 1/2 years to retain freight bills and bills of lading. The reasoning is that the statute of limitations on recovery of freight charges by a carrier is now 18 months and statutes of limitation can be extended by 2 years if a carrier files for bankruptcy.

Shortages - Rail Shipments

Q:

Is the railroad liable for shortages when a car is shipped from a warehouse without a signed bill of lading, and delivered without a consignee's signature?

A:

As a general rule, the railroad is still a "common carrier" and should be liable for loss or damage occurring in its possession. However, your rail boxcar shipments are probably exempt and subject to the railroad's "exempt circular" (tariff). Most rail circulars provide that the railroad will not accept liability without physical evidence of a forced entry into the car. Railroads usually will not pay shortage claims if there is a sealed car and the seals are intact at the destination.

Rail cars should be sealed immediately upon loading, their seals checked before opening the doors, and product counted carefully during unloading. Doors and seals must be carefully checked and their condition recorded before removing product from the rail site. Shortages should be reported immediately to allow the carrier to inspect the car, its doors, seals, etc. Keep the seals and show them to the rail inspector if you suspect tampering.

Special Damages - Customer Chargebacks

Q:

I have two concerns about special damages.

First, we have a customer that has been charging us approximately $100-$200 per shipment if the envelope of related documents (packing list) is missing. We list this envelope on the bill of lading as a piece of freight, and the driver signs for all the freight, including the envelope of related documents.

When I filed a claim against the carrier for the missing envelope, the carrier denied the claim, because it doesn’t represent "full actual loss, damage, or injury to such property." They also attached a portion Miller’s Law, Fourth Edition to emphasize their point. In other words, the carrier believes that our company or our customer is trying to make a profit from this claim. On the other hand, aren’t we alerting the carrier to the value of the envelope by listing it on the bill of lading? Shouldn’t the carrier be liable, since they signed for the envelope, and they lost it? What is a reasonable charge for a missing envelope of related documents?

Second, we have several customers that are charging us approximately $100 per shipment for bad pallets. I filed a claim for $100.00 for bad pallets. We tendered the freight to the carrier on slip sheets, and the carrier placed the freight on pallets for their own convenience. When the shipment delivered, the customer documented "5 bad pallets" on the delivery receipt. Despite this, the carrier is denying my claim, because it falls under special damages. Shouldn’t the carrier be liable for providing unsolicited pallets to our customer?

I appreciate any help, as more customers are starting to charge us for errors of this nature.

A:

1. The carrier is definitely liable for the loss of your document package. However, the question is: what is the proper measure of damages?

Since you don't "sell" the documents to your customer, or place a dollar value on them in your invoice to the customer, it could be argued that the value is merely the cost to reproduce another set and send it to the customer. The carrier is somewhat correct in arguing that the $100 - $200 "charge" from your customer is "special damages" because it is not within the contemplation of the parties or foreseeable at the time of shipment. See "Freight Claims in Plain English" (3rd Ed. 1995) at Section 7.3 for a full discussion of "special damages". If you don't have a copy, it can be ordered from TCPC at (516) 549-8964 or through the web page.

If you want the carrier to be liable for a specific dollar amount, you probably would have to put some explicit language on the bill of lading to the effect that the carrier will be liable for $xxx if the document package is not delivered to the consignee along with the shipment.

Obviously, if you have a transportation agreement with your carrier, this would be a provision which could be negotiated and included in your contract. (We recommend to all our shipper clients that they enter into written transportation contracts with their carriers. If you need assistance in this regard, please contact us.)

There is another issue here also: what gives your customer the right to charge you for missing documents? Is this some provision in the contract of sale or in the purchase order? If not, you don't have to accept the charge.

2. I don't understand how (or why) a customer would charge you for "bad pallets" (or "good pallets" for that matter). The customer is not paying you for the pallets, and I presume that the pallets would normally be returned to the carrier. You shouldn't be involved in this at all, and the same comment as above (is there a provision in the contract of sale or purchase order) applies here also.

Special Damages - Express Freight Charges

Q:

We ship transformers that are manufactured in Puerto Rico and then warehoused in El Paso, TX. When a transformer is damaged it often has to be sent back to Puerto Rico for the repairs to be made. However, because the customer often needs to have the product back quickly, it needs to be sent back by air. Is the LTL carrier responsible for damaging the transformer obligated to pay this additional expense, and if not, what can we recover?

A:

Questions as to recoverable damages require analysis of the specific facts and circumstances of each shipment. There are cases in which express freight charges for replacement of lost or damaged shipments have been allowed, and cases in which they have been denied (as "special damages"). Freight Claims in Plain English (3rd Ed. 1995), Chapter 7, Damages, has an in-depth discussion of these issues.

In this situation, it could be argued that the air freight charges are reasonable and foreseeable as an effort to mitigate the damage, i.e., to have the transformer repaired and delivered to the consignee as promptly as possible. Be prepared, however, for the carrier to say that the air freight charges are "special damages" because it was not given notice of the consequences of failure to deliver with reasonable dispatch.

Statutes and Regulations

Q:

Can you tell me what are the important DOT, OSHA, or any other regulations or laws that may apply to the transportation industry. Particularly to shipping docks and land transportation.

A:

The principal statute is the Interstate Commerce Act (Title 49 of the U.S. Code), and the principal regulations are the DOT and Federal Highway Administration regulations (Title 49 of the Code of Federal Regulations). These are available from any law library and the regulations can be purchased directly from the Government Printing Office. Most of this info can also be obtained on line through the Internet.

I should also mention that The Transportation Consumer Protection Council publishes a monthly TransDigest which covers a variety of current issues including cargo security, loss and damage, etc. There are also texts and other educational materials dealing with loss and damage, although not specifically with the role of a security manager.

Storage on Refused Shipments

Q:

This question applies primarily to LTL transportation. When can a carrier begin charging storage on refused shipments. I have been unable to find anything in the NMFC rules that sets time limits on this.

Depending on the carrier and the business volume associated with a specific carrier, the rules seem to change. Since I handle multiple shipping locations, I am trying to get some consistency in our OS&D program and would like to know if there are any rules governing storage and the carrier's obligation to notify the shipper (as well as the required mode of notification) on refused shipments.

A:

"If the consignee refuses the shipment... the carrier's liability shall then become that of a warehouseman. Carrier shall promptly attempt to provide notice...to the shipper of party, if any, designated to receive notice on this bill of lading.... Storage charges, based on the carrier's tariff, shall start no sooner than the next business day following the attempted notification..."

In other words, the Uniform Straight Bill of Lading essentially defers to the individual carrier's tariff for details as to storage rates and rules.

I would point out that the problems you discuss can be obviated by a properly drafted Transportation Contract, and we always recommend that our clients use such contracts with their motor carriers.

Surface Transportation Board

Q:

What is the Surface Transportation Board? What responsibilities and/or authority does it have in relation to freight transportation?

The Surface Transportation Board was created by the ICC Termination Act of 1995 (effective 1/1/96) to take over the remaining responsibilities of the ICC after it was "sunset" by Congress. The STB has some of the powers of the former ICC to investigate complaints, adjudicate disputes, and to enforce specified provisions of the Interstate Commerce Act, such as the freight undercharge provisions in the Negotiated Rates Act.

Other regulatory functions of the former ICC were transferred to the Federal Highway Administration or to the Secretary of Transportation.

Tariffs - Participation by Carriers

Q:

Is a carrier required to execute a power of attorney to participate in a collectively-made tariff that has been obtained by a shipper through a license agreement for the purpose of establishing rates in a contract between the carrier and shipper (e.g., NFTB 2000, CZAR-Lite, etc.)?

A:

Carriers are required to "participate" through a power of attorney all in collectively-made tariffs, e.g., the National Motor Freight Classification or the class rate tariffs published by the rate bureaus (MAC, RMB, SMC, etc.) see 49 U.S.C. section 13704.

However, you have to distinguish between collectively-made tariffs and proprietary tariff products which they may publish. for example, Czar-Lite is a proprietary product of SMC. As such, carriers would not have to participate if you want to incorporate Czar-Lite into your transportation agreement. if you want to confirm this, call Jack Smith at Southern Motor Carriers, (404) 898-2265.

Time Limits - Collecting Freight Charges

Q [JJW9] :

I represent a motor carrier and filed an action for unpaid freight charges and penalties in state court. Prior to suit the shipper was represented by a freight consultant who disputed the classification of the freight and therefore the rate charged. Although most of the invoices were more than eighteen months old at the time, he never mentioned a statute of limitations defense. When I filed the lawsuit, one of the twelve invoices was within the eighteen month statute of limitation period.

The shipper's attorney raised a statute of limitations defense to all but the one invoice.

Does the statute of limitations run from the date of last account activity, e.g., charge or payment, or is each invoice viewed separately? Does the fact that part of the amount being sued for is penalties and not freight charges per se make a difference as to the running of the statute? Is there anyway to keep the case in state court where the state statute of limitations (3 years) would apply?

Does a partial payment on an invoice change the time from which the statute is deemed to begin running?

A:

As you probably are aware, 49 USC 14705 provides:

"A carrier providing transportation or service subject to jurisdiction under chapter 135 must bring a civil action to recover charges for transportation or service provided by the carrier with in 18 months after the claim arises."

As a general rule, this statute of limitations is applicable to any interstate transportation of property by motor carrier with the exception of (1) property which is "exempt" under 49 USC 13502 - 13506, and (2) property transported under a written transportation contract pursuant to 49 USC 14101 where the contract expressly waives the provisions of the statute.

Section 14705 expressly provides the claim arises upon delivery of the shipment. I am not aware of any cases that indicate that hold that partial payment affects the running of the statute of limitations.

Time Limits - International Air Freight; Partial Loss

Q:

Last Fall '98, we uncovered a clever scheme by someone wherein they were resealing opened cartons with a tape that camouflaged their activity/theft. Unfortunately, several cartons from previous shipments were not uncovered until ten days after receipt. In our operation, we have a "case reserve" situation where only cartons/items that are required in our "active picking" warehouse are opened and checked in (or if there is evidence of pilferage). I reported these concealed/post-dated freight claims to our forwarding agent who prepared a "notice of concealed pilferage" to airlines. I subsequently filed a freight claim with the air carrier. Our insurance company in Italy last week informed me that due to the passing of "7 days after receipt" on filing "notice of concealed pilferage," they will not honor claim. Claim is for around $3000.

A:

I assume this is an international shipment, in which case the air carrier's liability is governed by the Warsaw Convention. Article 26 of the Convention states that "...in the case of damage" a claim must be made within 7 days from the date of receipt of the goods.

However, this section does not specifically address a non-delivery or partial loss. The court decisions come up with different (and sometimes conflicting) results, depending on the particular facts and the terms and conditions of the air waybill. You may well be able to avoid the 7-day time limit, based on what you have outlined.

I would refer you to Section 16.4.6 of "Freight Claims in Plain English" (3rd Ed. 1995) for a detailed discussion of this issue.

Time Limits for Filing Overcharges

Q:

We used a transport tanker company for over two years and shipped to several customers on a regular basis. We do not have a signed contract. Our problem is that the freight charges have not been consistent, even on similar shipments. How far back can we go to seek relief from the transport company for overcharged invoices?

A:

The first question is what was the basis of the original rates? Were these negotiated over the phone, documented in writing in any way, based on the carrier's tariffs, or what? In order to have an "overcharge" you must have some agreement as to what rate was supposed to be charged. It is difficult to answer your question without this information.

The answer would also depend on whether the transportation involved was interstate or intrastate. If the shipments were intrastate, it is possible the state's statute of limitations for contracts may govern (which varies from state to state, but generally ranges from 3 to 6 years). If the shipments were interstate, the time limits for filing overcharges with motor carriers, are in 49 U.S.C. §13710(a)(3)(B), which provides:

"If a shipper seeks to contest the charges originally billed or additional charges subsequently billed, the shipper may request that the [Surface Transportation] Board determine whether the charges billed must be paid. A shipper must contest the original bill or subsequent bill within 180 days of receipt of the bill in order to have the right to contest such charges."

Most motor carriers interpret this section to mean that overcharge claims must be submitted within 180 days or they will be time-barred.

Furthermore, even if you "contest" the freight bills within 180 days, 49 U.S.C. §14705(b) requires that a civil action must be commenced within 18 months after the claim accrues.

Time Limits: Exceptions to "9-Month" Rule for Filing Claims

Q:

Are there any exceptions to the rule that a claim must be filed within 9 months or the carrier need not pay it? We filed a claim form but left the "Amount of Claim" box blank because we didn't know the exact amount of our loss. The carrier's agent told us that we should file the claim immediately even if we didn't know the amount actually lost.

A:

Yes, there are exceptions. However, the first question should be whether the documentation filed within 9 months met the legal requirements for a claim. The regulations require that the claim state a "specified or determinable amount of money." Therefore, some amount must be stated, preferable the maximum value of the shipment, or an estimate of that value. If no amount is stated, some courts have found under these circumstances that no claim was filed within the 9 months limit.

When an estimated amount was stated within 9 months, the 9th Circuit has held that a claim was sufficient even when the actual loss was not determined until later. See INA v. G.I. Trucking, 783 F. Supp., 1251 (N.D. Cal. 1991), reversed on appeal, 1 F.3d 903 (9th Cir. 1993), cert. den., 114 S.Ct. 690, 126 L.Ed 2nd 658 (1994).

As to your being told by the carrier's agent that it wasn't necessary to know the amount of loss before filing, some courts have applied the principles of waiver and estoppel under similar circumstances. See Sections 8 & 9 in Freight Claims in Plain English (3rd Ed. 1995) for a thorough discussion of this subject.

Time Limits; 9-Month Limit for Filing Claims

Q:

Is there any way to get around the fact that a claim was not filed against a carrier within 9 months? The carrier was notified by telephone of a $12 million claim in time, and we attempted to salvage the damaged goods, but failed to finalize the claim until after 9 months.

A:

Assuming that the shipment moved on a uniform straight bill of lading, the shipper was required to file a claim in writing within 9 months of the date of delivery. The court decisions generally uphold the 9-month time limit in the uniform bill of lading, with only a few exceptions. (The subject of "Time Limits" is discussed in detail in Chapter 9 of Freight Claims in Plain English (3rd Ed. 1995); also see Section 10.2.3, "No Formal Claim Filed".) I would say that, even though there were other communications that might have led the shipper to believe the carrier was still considering its claim, this would still not cure the late filing. However, a claim of this size would appear to warrant extensive research and study of the facts and circumstances.

Transportation Contracts - Requirements

Q:

Is there any need to include "distinct needs" or refer to a "series of shipments" in new motor carrier contracts? I know I should purchase your model contracts disk, but I am wrestling with a deadline. My feeling is that motor contracts no longer require these little tricks.

A:

Technically, there is no longer a requirement for "distinct needs" or "a series of shipments" in a motor carrier contract. The previous ICC regulations were eliminated and the statutory requirements were superseded by the ICC Termination Act of 1995. The only statutory provision (49 USC 14101) says that a carrier "may enter into a contract with a shipper... to provide specified services under specified rates and conditions..."

We still include language in the boiler plate contract which refers to distinct needs and a series of shipments (out of an abundance of caution); this is only because if a contract were to be questioned, it might be easier to convince a court that the transportation services were contract as opposed to common carriage.

Truck Drivers - Overtime

Q:

I have searched but have never been able to find any of the laws that actually exclude the trucking industry from paying their employees "overtime" when working in excess of the "standard" 40 hour week.

I fully understand the regulations concerning the 70 hour/8 day rules and 60 hour/7 day laws, BUT those are plainly stated as MAXIMUMS.

In the State I live in (Utah) there are numerous trucking companies who never pay their drivers ANY overtime, regardless of how many hours they work.

I guess I have a couple of questions for noW: 98

1. Can a Company "force" you to work more than 40 hours in any consecutive 7 day period?

2. If you do work the full 70 hours in 8 days, why no overtime after 40 hours?

It appears to me that this has just become more of a "standard practice" instead of being actual laws. please enlighten me.

A:

The answer to your question involves the interaction of a number of federal and state laws. I would suggest the following:

1. If you are a member of a union, contact your union representative. Overtime compensation is usually covered in the collective bargaining agreement between the union and the employer.

2. If you are not in a union, contact the personnel or human resources department in your company and ask them about the company's overtime policy.

3. If you are not satisfied with the result, contact the local office of the department of labor in your state.

Unreasonable Rules in Railroad Contracts

Q:

I need your opinion on the following matter. Railroads often insert statements like "we must be notified of damage or shortage within 24hrs of delivery". This statement seems somewhat unreasonable in real terms. They then use this statement to decline claims not reported within the specified period.

Is this valid? Shouldn't there also be a statement that says they will decline claims for damage not reported within their terms?

Is this a legal procedure?

Any light you can shed on this would be greatly appreciated.

A:

Check your railroad contracts or Exempt Circulars for the claim rules. Some require 24 hr. notice as a condition for liability. Yes, this is unreasonable, and should be negotiated out of the agreement at its inception. There are many other unreasonable rules in railroad contracts.

We can help by reviewing them for you and negotiating changes. Let us know if you are interested.

What's in a Name? - Carrier Mergers and Shipper Liability

Q:

We are experiencing carrier mergers, acquisitions, etc, and are receiving bills of lading with the old carrier's name on them. Are we safe in continuing to ship on these bills without naming the new carrier? Some say "an affiliate of _______".

A:

Based on our experiences with undercharge cases, shippers must insist on legally correct bills of lading and contracts showing the proper carrier name. Bankruptcy lawyers will attempt to renounce any contract in the name of a carrier that was merged or acquired unless there has been an adoption of the contract or tariff. A properly drawn contract would have a clause referring to the assumption of the contract by successors, but only with the shipper's consent. Without such a restriction, a shipper could readily acquire a contract carrier controlled by undesirable interests.

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