Avoiding the Dirty Dozen
in Freight Contracts
Henry E. Seaton, Esq.
Henry E. Seaton
Seaton & Husk, LP
2240 Gallows Rd.
Vienna, VA 22182
www.transportationlaw.net
Henry E. Seaton is a graduate of Duke University (A.B. ’70) and Vanderbilt
School of Law (J.D. ’73). He has practiced law for 30 years in the Washington
D.C. area representing motor carriers of brokers. He is a member of the Vienna,
VA based law firm of Seaton & Husk. The firm specializes in freight claims,
freight charge collection, contracting issues, carrier representation before the
FMCSA and bankruptcy issues.
Mr. Seaton writes a monthly column on transportation for Commercial Carrier
Journal and is current chairman of the Federal Agency Practice Committee of the
Transportation Lawyers Association. He serves as commerce counsel for
Compunet Credit Services and the National Association of Small Trucking
Companies. He was the Delta Nu Alpha Transportation Professional of the Year
in 2001 and is a frequent speaker and lecturer at credit and collection seminars.
He can be reached at [email protected]. For articles and other information,
please see www.transportationlaw.net.
“Your book, Protecting
Motor Carrier Interests
in Contracts, is a great
boon to small carriers
like ourselves. It is
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every small carrier
should have.” Connors
Refrigerated Transport,
Inc.
Order form available at
www.transportationlaw.net
The basis of all carrier rights,
duties, liabilities and
remedies is
CONTRACT LAW
A contract is an agreement which
contains the following elements:
(1) Bilateral and mutual (between
shipper and a carrier)
(2) Mutual consideration (quid pro
quo) (Carrier agrees to transport
and safely deliver goods in return
for shipper’s agreement to pay
What documents constitute the
TRANSPORTATION CONTRACTS?
(1) Bill of Lading
(2) Carrier’s Service Conditions and
Rate Tariff
(3) Written and Signed Bilateral
Contracts
I. BILL OF LADING
“The bill of lading is the basic transportation
contract between the shipper/consignor and
the carrier; its terms and conditions bind the
shipper and carrier ... [u]nless the bill
provides to the contrary, the consignor
remains primarily liable for the freight
charges.” Southern Pacific Transportation
Co. v. Commercial Metals Co., 456 U.S. 336,
342 (1982).
Who issues a bill of lading and what
does it contain?
(1)
(2)
(3)
The carrier issues the bill, but all too often the
shipper prepares and the driver just signs
Drivers are not lawyers. They cannot be
expected to read or understand the bill of
lading.
Relying on shipper prepared bills can leave you
with:
(a)
No statement of your rights and
remedies (49 CFR 373); or
(b)
Duties and obligations you would not
knowingly accept.
What bill of lading terms and
conditions should you use?
(1)
(2)
(3)
(4)
Shipper Bill
VICS Bill
Uniform Straight Bill/NMFTA
Membership
Standard Truckload Bill of
Lading
1
3
5
2
A
6
4
7
8
9
10
14
11
12
13
15
Important items in USBL and
STBOL (Front Side)
(1)
(2)
(3)
(4)
(5)
(6)
Get your name on the bill as the
“Carrier”
Check C.O.D. box to be sure it is blank
Check “Special Instructions” box
Be sure to include “SL&C”
Be sure release rate box is blank
Be sure §7 box is not executed
(A)
Incorporation of Contracts and/or Rules
Why do you need the back
side of the Bill of Lading?
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Carmack/Common law exceptions (§1b)
Reasonable dispatch (§2a)
Released evaluation (§2b)
9 month rule for claims (§3a)
Statute of limitation (2 years + 1 day) (§3b)
Rejected shipments (warehouse liability, liens
and notice) (§4a)
Salvage (§4)
Collection Tools – consignor and consignee
recourse/liens (§7a-c)
Incorporates federal rights and remedies (§9)
even for exempt
So, how do you get the benefit
of the Standard or Uniform Bill
if you can’t actually insure its
use every time?
(1) Pro sticker
(2) Incorporate STBOL by
reference in contracts or
Service Conditions
II.
Service Conditions or
Rules Circulars
What every carrier should have and all
you really need.
(1) It is your service and you get to dictate the
terms
(2) There is no “filed rate doctrine” but you still get
to set the rates and the service conditions
(3) Learn from the LTL carriers
(4) You do not have to reinvent the wheel or argue
over every accessorial charge
(5) There are efficiencies in standardization
What are the basic issues to be
covered in a carrier’s Rule Circular?
(1)
(2)
(3)
(4)
(5)
(6)
Governing publications –
mileage guide, bureau tariff,
rate tariff, bills of lading
Scope of operations
Accessorial charges
Claims liability and limitation
Claims processing and salvage
Collection of freight charges
What are some of the beneficial
provisions of a good Rules Circular?
(1) You can incorporate the STBOL or USBOL for
all shipments and provide that drivers sign nonconforming bills as receipt only (110, 120)
(2) You can apply rules to exempt and intrastate
(225, 230)
(3) Shipper load and count (260)
(4) Substituted service (270)
(5) Accessorials – detention, free time, truck
ordered and not used, stop off,
reconsignments, loading and unloading, pallet
exchange, POD charges, empty miles,
expedited fees, fuel surcharges
(6)
Release rates – how to limit liability to
$_____/lb. (400)
(7) Salvage and claim procedures (500)
(8) Interest and attorney’s fees (640)
(9) Recourse and third party billing (650)
(10) Liens for freight charges (670)
(11) Payment without offset (630)
How do you give notice of the
Rules Circular?
(1)
(2)
(3)
(4)
(5)
On sales brochure
On rate sheets
On summary of conditions
On website
CoWS
Effective Date: ______ _____ _______
ST AT EM ENT O F SERVICES PRO VIDED
(O PE RA TIO NS CIR CU LAR #1)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
________ _____ _____ ________ is a licensed for-hire carrier holding authority pursuant
to M C -______.
G overning Publications
(a)
________ _____ _____ ________’s M otor Freight R ate C atalogue.
(b)
________ _____ _____ ________’s R ules Circular ___________.
(c)
Standard T ru ckload Bill of Lading. O ther shipping docum ents exe cuted by driver
as receipt for goods only.
(d)
M ileage rates based on _______ _____ _____ _____
Ins urance Infor m ation and Liability Limits
(a)
PI and PD (personal injury and physical da m age)
(i)
$___________ per occurrence limit, BM C -91X on file
(ii)
Insurer __________ _____ _____ _____, certificate of insurance available
upon request.
(b)
C argo Liability
(i)
Carm ack , subject to $____ per pound per article ($_______ truckload
limit) BM C -32 on file.
(ii)
Insurer __________ _____ _____ _____, certificate of insurance available
upon request.
(iii)
Carrier liability for cargo over $_______ by special request.
C laim s Processing and Statute of Limitation - G eneral principles of Federal com m erce
law apply. See Elm ore v. Stahl, 377 U .S. 134; ST BO L and 49 C .F.R . §370. C laim s
must be filed w ithin 9 mo nths.
Spotting and D etention - Spotting for shipper's convenience by special arrang em ent.
Free tim e for pick-up and/or delivery tw o (2) hours; detention thereafter $_____ per
hour.
Pick-Ups, Deliveries, Appoin tm ents - Pick-ups and deliveries made between 7:00 a.m. 5:00 p.m ., local tim e or by special arrang em ent. Appoin tm ents m ade at no charge.
Pay m ent of Freight C harges - Due _____ days from date of invoice without offset;
PO D s provided upon request; finance charge is ____% per m onth on delinquent
accounts w ith collection charge of $_____ per ship m ent.
Pallets - Provided by special arrange m ent.
Stop-O ff Service - $_____ per stop, excluding original pick-up and final delivery.
T hird Party Billing - Provided for shipper's/be neficial ow ner's convenience w ith recourse.
N on-Back Solicitation of Inter m ediaries - As otherw ise agreed.
W eight Lim itations - 45,000 lbs. per truckload, or as otherw ise agreed.
Sim plified Pricing - U nless otherw ise indicated, all com m on carrier ship m ents are rated
as Freight All Kinds for named custom ers and are subject to a m axim u m cargo liability
of $_____ per pound or $_______ per truckload shipm ent w hichever is less.
Effective Date: ___________________
STATEMENT OF SERVICES PROVIDED
(OPERATIONS CIRCULAR #1)
14.
15.
16.
17.
Alternative Rates Available - Shipper may obtain rates for shipments with higher release
values from Carrier’s Director of Pricing by calling _____________. Any such
alternative rate shall be reflected by the insertion of the higher release rate value and
appropriate tariff item on the bill of lading at time of pick-up.
Inadvertence Clause - If a shipper declares a value exceeding $_____ per pound or
$_______ per truckload without insertion of the corresponding tariff item, the shipment
will not be accepted, but if the shipment is inadvertently accepted, it will be considered
as being released to a value of $_____ per pound or $_______ per truckload, whichever
is less and the shipment will move subject to such limitation of liability.
Remedies - Possessory lien rights apply to violation of credit terms.
Fuel Surcharge - Rates will be increased by $0.01 per mile for every $0.05 per gallon by
which the weekly DOE prices exceeds a fuel peg of $1.16 per gallon (see below).
DOE Fuel
Index Range
116-120
121-125
126-130
131-135
136-140
141-145
146-150
151-155
156-160
161-165
166-170
171-175
(a)
18.
Fuel Surcharge
Cents per Mile
0
1
2
3
4
5
6
7
8
9
10
11
T he U.S. average diesel fuel price issued by the DOE’s Energy Information
Administration, National Energy Information Center (202) 586-6966 #1 each
Monday will be the weekly fuel cost used. If the fuel index is not issued on
Monday, the next index issued will be used.
(b)
T he fuel surcharge will be calculated weekly.
(c)
T he fuel surcharge will be effective two days after the diesel fuel price referred to
in (a) is issued by DOE. Example: For a fuel index issued on Monday, the fuel
surcharge will be effective the following Wednesday.
Visit www._______________.___ for complete service terms and conditions.
CoWS
Conditions
Website
Stamp
Written Contracts
I. Conflicting Interest
¾
¾
¾
Payment terms/collection issues
a)
Who is liable for freight, when is payment due
b)
Right of set off or offset
c)
Interest and attorney’s fees
Accessorials
(Shipper detention, pallets, fuel surcharge)
Claims issues
a)
Carmack Amendment §14706
b)
No special or consequential
c)
Salvage rights/mitigation
d)
Limits to cargo liability (released rates=insurance
coverage
Written Contracts
II. Uniform Contracts
¾
¾
¾
¾
ATA/NITL Model Contract
NITL/TIA Model Contract
TCPC
PMCIC, App. B + C
a) Spot Market
b) Carrier/Broker
SHIPPER-CARRIER THIRD PARTY CONTRACTS
ATA
Indemnification (ATA Clause 10; TIA Clause 4
• Mutual Indemnification
• Unlimited vs. Negligence, Intentional
Misconduct, Violation of Law
• Comparative Fault
• Exclusion of Incidental, Consequential,
Punitive or Exemplary Damage
Cargo Liability (ATA Clause 7; TIA Clause 7)
• Applicability of Carmack Amendment
• Option to Limit Monetary Damages
• Released Rates
• Special Damages, Punitive Damages
Exclusion
Freight Charges (ATA Clause 3; TIA Clause 4)
• Shipper Guarantees Payment
• Shipper Assumes No Responsibility to
Carrier
TIA
The Dirty
Dozen
SHIPPER AND BROKER CONTRACTS
„
„
What to Watch For (The Dirty Dozen)
1. waiver of statutes and regulations
2. special and consequential damages
3. indemnification clauses
4. “additional insured” language
5. the right of setoff
6. Salvage / no duty to mitigate
7. shipper load and count / concealed damage waivers
8. no penalties for nonpayment
9. homer provision / arbitration
10. integration clauses
And, in broker contracts
11. no recourse provisions; and
12. no back solicitation agreements
(1) Waiver Under §14101 (b)
Objectionable Language
Acceptable Language
“The parties expressly waive all
rights, duties and obligations
permitted under § 14101 (b)"
“General principles of
Federal Transportation Law,
Statutes and Regulations
shall apply.”
Partial List of Affected Items
9 Claims rules and salvage §370
9 Overcharge and Undercharge §378
9 Through routing and joint rates
9Credit Regulations §377
9Broker Accounting and Segregation
9180 Day Rule for auditing bills
ATA/NITL Section 22
(2) Special and Consequential Damages
Objectionable Language
Acceptable Language
“Carrier shall be liable for all loss resulting “Carrier shall be liable for cargo loss and
from loss, damage, or delay to cargo
damage in accordance with federal law (49
including but not limited to lost profits
U.S.C. §14706) with respect to all
and sales, the cost of cover, the cost of
shipments. Carrier shall not be liable for
expedited replacement, lost down time,
special or consequential damages.
additional handling and shipping costs,
Carrier’s liability for cargo loss and
and restocking fees.”
damage shall be limited to the shipper’s
actual cost of the articles, lost, damaged or
destroyed and shall not exceed $___per
truckload or $___per pound per article,
whichever is less.”
What’s the Difference?
¾Do
you pay for plant shut downs, air freight replacements, waiting cranes, etc.?
¾The
Carmack Amendment limits liability – no state law remedy (emotional
distress, punitives)
¾Reasonable
dispatch only as per Bill of Lading
¾Don’t
admit “foreseeability”
¾Time
sensitive/JIT freight
ATA/NITL Section 7-No special or
consequential without notice
(3) Indemnity
Objectionable Language
Acceptable Language
“It is the express intent of the
parties to this agreement that
carrier will indemnify the shipper
for all loss, damage and claim
of any kind arising out of
this contract except for shipper’s
sole gross negligence.”
“Except with respect to cargo
damage claims as set forth
herein, each party will indemnify
and hold harmless the other
from all loss, liability or claims
to the extent same is caused by
a negligent or willful act or
omission of their respective
employees, agents or
subcontractors in the
performance of this contract.”
What’s the Difference?
¾“Arising out of” language is broader than coverage afforded by additional insured language
in new standard ISO endorsement
¾Comparative Negligence
¾Can Carrier can pay for shipper negligence?
¾See anti-indemnity statutes of various states
ATA/NITL Section 10
(4) Additional Insured
Objectionable Language
“Shipper shall be included as an
additional insured, with respect to the
insurance policies required above. All
insurance required and provided by
Carrier shall be primary and any
insurance maintained by Shipper shall
be excess and not contributing with
Carrier’s insurance.”
Problems
Acceptable Language
“Carrier warrants that it maintains
personal injury and property damage
insurance ($1Mil per occurrence and
cargo insurance as required by the Fed.
Motor Carrier Safety Admin. (Form BMC91X and BMC-34 on file). In addition
Carrier warrants that it maintains
workman’s compensation insurance as
required by state law and all risk cargo
insurance in the amount of not less than
___per occurrence.
Note:
Most shippers think you are buying them ¾ If shipper insists on “additional insured” for
3rd party liability, you should exercise extreme
indemnity covering their own negligence;
caution, providing policy and insurers written
most insurers don’t agree. Shippers can
endorsement warranting nothing about what
outsmart themselves and lose their own
is covered
coverage.
¾Watch cargo loopholes and Accord
exclusions
ATA/NITL Section 5
Avoid the Complexity of
Indemnity/Insurance
Issues
Î
Î
Î
Most standard liability policies (both auto and CGL) are
written on ISO forms which (1) exclude contractual
liability but include “insured contracts.” Insured
contracts are contracts pertaining to your business in
which you assume the tort liability of another for bodily
injury or property damage.
Beware of change in CGL policy language – “arising out
of” is GONE!
If you are foolish enough to try to extend your policy to
cover a shipper’s negligence (1) you may be covered
but don’t bet on it; (2) as a general rule, say no, and be
EXTREMELY careful with exceptions.
Skating Naked
“arising out of”
indemnity
%
“additional insured”
promises
%
third party
negligence
(lumpers)
'
uninsured
exposure
“arising out of”
indemnity
%
“additional insured”
promises
%
contributory
negligence
of indemnity
(packaging
defects)
'
uninsured
exposure
Frost Bite Example 1
Carrier signs broad
indemnity and hires
subcontracting
carrier
Ambulance chaser
sues shipper and
subcontracting
carrier
+
+
Shipper loads
overheight shipment
on subcontractor’s
truck without carrier’s
knowledge
Shipper demands
indemnity for
$10 million liability
judgment
+
Low bridge accident
causes loss of life
+
Motor carrier has no
coverage (CGL not
applicable, broker
exclusion in auto
liability)
Frost Bite Example 2
Carrier signs “arising
out of” indemnity
and agrees to
provide shipper with
insurance
Carrier required to
indemnify shipper,
no insurance for
shipper negligence
+
+
Shipper top loads
dog food which
falls on driver’s
head
Carrier closes
doors.
+
Driver collects
worker’s comp
and sues shipper
for negligent
loading
(5) Right of Offset
Objectionable Language
Acceptable Language
“Compensation paid to Carriers may be
withheld to satisfy claims or shortages,
or any debt owed by carrier to
shipper/broker at shipper/broker’s
sole discretion.”
“Shipper/broker shall pay freight
charges within 30 days
without offset”
OR
“Freight charges shall be paid in
accordance with the terms of
carrier’s Service Conditions.”
See www.___.com
Reasons to Reject Offset
¾Spiral of death to carrier
a) Insurer won’t pay
ATA/NITL Section 3(a)-No Offset
b) Factoring terms are violated
c) Cash flow interrupted
¾No mitigation of loss – broker or carrier takes full unadjusted amount of loss
¾Rules circular deal with important collection issues
¾Brokers who have no cargo liability take advantage of carrier to keep shippers happy
(6) Salvage/No Duty to Mitigate
Objectionable Language
“Neither shipper nor its customers
shall have a duty to mitigate
damages. In the event of damaged,
branded or labeled goods, shipper’s
customer may determine, within its
sole discretion, whether all or part of
the shipment may be salvaged and
the value of such salvage.”
Acceptable Language
Delete and incorporate Service
Conditions which contain
salvage rules – Bill of Lading
also includes the shipper and
consignee common law duty to
mitigate unless agreed
to the contrary.
Reasons for Objection
¾Objectionable language makes “wrongful rejection” legal
¾Consignor has duty to accept shipment unless its “effectively worthless”
¾Don’t let one broken pallet cost you a truckload
¾“Distress sale” of rejected shipment will produce losses a consignee can avoid by using
undamaged product in stream of commerce
¾Issue on-hand notice and get an expert
ATA/NITL Section 7(d)-Shipper and
consignee have duty to mitigate
(7) Shipper Load and
Count/Concealed Damages
Objectionable Language
“Carrier will provide spotted
trailers for shipper’s convenience
in loading and unloading.
Notwithstanding the use of
spotted equipment carrier will
accept responsibility for the
loading and counting of each
shipment.”
Note:
¾Carrier rules circular will address this issue
¾Accept pallet count not individual piece count
Acceptable Language
“Carrier shall not be responsible
for shortage on shipments
loaded and counted by
consignor where the trailer is
received at destination with seals
intact. Failure to indicate
“SL+C”, “Subject to shipper load
and count” or like notations on
shipping documents shall not be
a conclusive determination of
carrier liability when driver is not
present during the loading or
unloading of shipment.”
ATA/NITL–SL&C is standard/consignee
has duty to accept broker seals
(8) No Penalties for Non-Payment
of Freight Charges
Objectionable Language
Acceptable Language
“Payment will be made within
60 days receipt of carrier’s
invoice including the original
delivery receipt to which no
exception is noted – Carrier
waives any lien it may have
on shipments for freight
charges.”
“Freight charges are due
within 30 days of receipt of
invoice and certified copy
of the delivery receipt (via
fax, mail or EDI). Freight
charges not paid within 45
days are subject to interest
and collection fees (see
Carrier’s Rules Circular).”
Note
¾Carrier can ill afford to provide interest free loans
¾Collection remedies must be incorporated into contract or by reference in Rules Circular and
be referenced on each invoice (49 CFR 377)
ATA/NITL Section 3(a)-Interest
but no penalties
(9) Homer Provisions/Arbitration
Objectionable Language
Acceptable Language
“Carrier consents to exclusive
jurisdiction and venue in
shipper’s/broker’s hometown of Hilo,
HI. The laws of the State of HI will
apply. All disputes will be subject to
binding arbitration at shipper’s
election before the arbiter of its
choice at its home town.”
“General principles of federal
transportation law, jurisdiction and
venue state apply. Subject to the
approval of carrier’s cargo insurer,
cargo claims not paid within 120
days may be subject to binding
arbitration initiated by either party
before the arbitration services of the
Trans. Lawyers Assoc.”
Note:
¾Federal law not state law should apply
¾Shippers choice of venue is often irrelevant to dispute, just a difficult place to sue
¾Arbitration or ADR (Alternative Dispute Resolution) is in both parties’ interest and expedited
arbitration or mediation is to be preferred.
ATA/NITL Section 22-General principles of
federal transportation law/ADR is voluntary
(10) Integration Clauses
Objectionable Language
Acceptable Language
“This contract contains each and
every term of the agreement
between shipper/broker and carrier
and no provision of any carrier
published tariff or rule applies.
This contract may only be
modified by a signed written
amendment.”
“The terms and conditions of the
Standard Truckload Bill of Lading and
Carrier’s Rules Circular
(www.carriers.com) shall apply.
This contract otherwise includes
all of the terms and conditions of
the agreement between the parties
and may be modified only by a
signed written agreement.”
Note:
¾ Be sure the Bill of Lading and your Service Terms and Conditions are incorporated by
reference and are not excluded.
ATA/NITL – has integration/must
incorporate rules tariff and standard BOL
(11) Nonrecourse Provision
(in Broker Contracts)
Objectionable Language
“Carrier authorizes Broker to invoice
shipper for freight charges as agent on
behalf of carrier. Payment of freight
charges to broker shall relieve shipper of
any liability to the Carrier for non-payment
of charges…Broker shall be agent for
Carrier for collection of freight charges.”
Acceptable Language
“As agent for its customer, broker shall
transmit freight charges to Carriers in
accordance with the federal regulations
applicable to property brokers (49 CFR
371). Carrier will abstain from invoicing
shipper for payment until all methods of
collection from broker have been
exhausted.”
The Differences
¾ Objectionable provision cuts off Carrier’s recourse to shipper and consignee
under Bill of Lading in the event of non-payment
¾Acceptable provisions makes broker the agent of the shipper who hires it,
preserves recourse (so long as Bill of Lading is correctly executed, and
requires constructive trust
Note:
¾ More helpful language is incorporated by reference into the Carrier’s
Service Conditions
(12) Back Solicitation Provision
Objectionable Language
Acceptable Language
None
“Carrier recognizes broker as its
exclusive agent with respect to any
customer for whom it provides
service under this agreement. Broker
agrees to pay broker liquidated
damages 20% of the revenue it
receives for shipments handled for
such shippers without broker’s
expressed authorization and for a
period for two years following
termination of this agreement.”
-OR“Carrier will not back solicit Broker
with respect to traffic first tendered
to Carrier by Broker for a period of
one year following termination of
this agreement. As liquidated
damages, Carrier agrees to pay
Broker a 10% commission for
shipments handled in violation of
this covenant for a period of one
year following cancellation of this
agreement.”
Back Solicitation Provision
The Differences
¾ Objectionable language can bar you
from responding to an unsolicited offer to
bid on a shipper’s traffic
¾ Objectionable language can preclude
you from handling unrelated traffic lanes
for Corporate 500 shippers without paying
a commission
Summary
9
Use your Bill of Lading and Services Conditions (COWS)
9
Use your contract as starting point
9
If forced to work from shipper or broker contract
a) Incorporate your Service Conditions on rate sheet
b) Watch out for the DIRTY DOZEN
(1) No setoffs
(2) Limited indemnity
(3) No “additional insured”
(4) Don’t waive rights
(5) Standard cargo rules, salvage and shipper load and count
9
Enforce:
a) Standard released evaluation to limit cargo claims
b) Credit and collection provisions to assure timely payments
Request Form – Fax to (703) 573-9786
Please provide me with additional information concerning:
The STANDARD TRUCKLOAD BILL OF LADING AND ITS USE
[ ]
Sample Terms and Conditions of a TRUCKLOAD RULES CIRCULAR
and how to use it
[ ]
STANDARD CONTRACT TERMS acceptable for Carrier use
[ ]
Information on ways to legally limit liability for cargo loss and
damage
NAME___________________________________________________
COMPANY_______________________________________________
ADDRESS_______________________________________________
EMAIL___________________________________________________
[ ]