LTL Cargo Liability for Common Carrier Shipments and Importance of Insurance

Posted On 3rd November 2017

Freight Insurance

Have you ever read the Tariff of the Common Carrier you have chosen to use?  An attorney would tell you that you are flying blind if you have not.  In that Tariff are so many rules, little known rules that shift the legal responsibility for the shipment to the shipper and freight payer.   

There are many Tariff Rules that are completely counterintuitive and basically say, if you give the common carrier a shipment that is too large, they can charge you double, triple or quadruple the dollar amount per cubic foot.  Logically, even if you underestimated the amount of space it would take on their truck, the rules of fairness say that they should charge you the same dollar amount per cubic foot or per pound charged out to the greater volume or weight shipped.  But no, the Tariff’s logic –and it is a Tariff you accept by tendering freight to them -  is that common carriers make money only by having a certain optimal number of shipments in a truck, and that by taking up more space, your oversize shipment must be severely penalized because presumably, it is severely damaging their business model. Buried in every common carrier’s tariff is the Cubic Capacity Rule, and the even trickier Density Minimum Charge (DMC).  No, millennials, DMC does not stand for “Devil May Cry” in this case.  It is not a video game but a way to charge or to back into a Cubic Capacity Charge.  So, you need to be aware of the DMC and Cubic Capacity Rules of the Common Carrier you select. 

Another issue is how Common Carriers now settle claims for damaged and missing cargo. 

A huge issue lately is unexperienced receivers who only notice damage and missing items from the shipment AFTER they’ve already signed the Delivery Receipt free and clear.  They literally give up their rights – and yours if you are the shipper – to file a claim OR at least they are seriously damaging your ability to make a claim against the carrier. It is a serious technical weakness to your Claim for Missing or Damaged Goods if the receiver just signs that the freight was received in good condition.  After that, the carrier and/or insurance company can say “Receiver damaged the freight after receiving the goods.”

If you are a shipper of goods, or a third-party wholesaler/retailer or reseller of goods, we strongly recommend that you put into your Terms of Sale a clause reading something close to this:

“You have a responsibility to CAREFULLY and THOROUGHLY inspect the freight at the time of delivery BEFORE signing the DELIVERY RECEIPT.  You MUST note any shortage, missing items, and damage to the freight AT THE TIME OF DELIVERY AND ON THE DELIVERY RECEIPT.  We recommend carefully inspecting ALL SIDES of the delivery for penetrations by forklift tines or crushing of outside packaging.  Note which boxes are damaged and take pictures.  Then open any crushed or potentially damaged boxes.  Document on the Delivery Receipt all damage you see, and if you wish, you keep the undamaged goods and send back/reject the damaged portion of the delivery.  This is the legal responsibility of the RECEIVER.  If you fail to do so, you are declaring that all goods were received in good order and must pay in full for them.”

Also, prior to shipping or on the day of the shipment, we recommend you share with your receiver the tips we wrote in our blog “Responsibility of the Receiver

The second reason claims are often rejected is for “Insufficient Packaging.” If you are shipping loose boxes, UPS has some good tips.

PACKAGING TIPS IF YOU ARE SHIPPING COMMON CARRIER

Suffice it to say that if you are not putting your cargo in a seriously constructed wooden crate per the specific instructions of the National Motor Carriers Association, which are integrated and adopted into nearly every Common Carrier Tariff, then the carrier has a legal basis to reject your claim.  Seriously sturdy corrugated box solutions can work, but this packaging must be designed and certified by Packaging Engineers and preferably tested with your product.  For a manufacturer and shipper of standard products – such as cooking oil – this level of attention to detail in packaging is normal and necessary.  They are used to investing the time to get the packaging “to standard” to satisfy both their customers and to reduce their claim ratios.

One useful article written by a packaging engineer of the National Motor Freight Transportation Association (NMFTA) can be access here 

However, the expensive packaging required by the NMFTA is often beyond the means of many irregular shippers or traders of goods these days.  Often the investment in expensive packaging and extra time required to figure it all out is not justified by the value of the new or used goods being shipped.  If you decide to ship with uncertified packaging, trusting your shipping personnel or your vendor’s shipping department to get it right, keep in mind the risk you are taking – a total loss on the cargo that will not be covered.  This can be alleviated by buying additional insurance, but be sure to carefully read the terms of the supplemental insurance you buy.

You can significantly reduce your risk of damage by requiring your shipper to put extra cardboard sheeting on all sides and on the top of the pallet.  This cardboard sheeting should be two layers thick, if possible, and placed over the corner protectors.  Then shrink-wrap and binding (from both sides/directions of the skid) need to be wrapped around the cardboard sheeting.  Tell the shipper that not a drop of rain or water from a leaky truck roof should be able to penetrate the skid!  The skid should be wrapped and protected in such a way that it is ONE PIECE of freight.  Require pictures of the packaged freight prior to the shipment.  The following instructions should be provided to the shipper, and be documented on the PO:

“Shipper has legal responsibility to pack the freight in a rigorous enough manner to avoid the normal rough handling of common carrier transfers through multiple terminals.  If a damage claim is rejected due to “insufficiently rigorous packaging”, you the shipper will be held liable for such damage or missing items.”

COMMON REASONS FREIGHT DEPARTMENTS AVOID PAYING CLAIMS

Common misconceptions freight payers have is that because they have shipped a certain class, they are therefore entitled to the normal “release value” (the maximum dollar amount per pound) a carrier lists for that class. 

One solution might be supplemental insurance purchased from a third party – but request a copy of the policy so you can be sure they cover what YOU ARE SHIPPING at full value and of course, ask what the deductible is.  If you are shipping used goods – you may not be covered at all – check!

IF YOU ARE SHIPPING VALUEABLE USED GOODS

If you are shipping expensive items such as furniture or art, you should not ship common carrier.  You should get a price for “Blanket Wrap Service” and require a direct drive service with no transfers, and even a dedicated truck and crew.  When doing so, request a copy of the insurance policy of the carrier your 3PL or broker finds for you. 

You should create a customized contract between yourself, the broker and the carrier such that you have transferred as many of the risks of carriage as possible to them or their insurance companies.  Keep in mind that the most credit worthy are the insurance companies behind the carrier.  It is their policy so you or our broker should speak to them to clarify what is and what is not covered.

The details are vital here.  Pay attention to them.

Of course, blanket service might be a good idea for awkward machines and certain freight, but your packaging should still be well conceived and executed.  A top-heavy machine might need to be taken apart because the center of gravity is too high.  A fragile and valuable credenza should probably go in a custom crate that takes all weight off the legs and is therefore protected from sudden stops and starts on the highway.  The crate should be foam-lined with soft and hard foam and even blanket wrapped inside to protect certain surfaces from rubbing or scratching in transit. 

CONCLUSIONS

The goal is not only to make sure any claim will be paid if there is damage or loss, but to avoid claims entirely. 

You can pack your freight SO WELL that even if the truck is in an accident, the freight will be undamaged.  Packing a shipment to make it “bomb proof” isn’t always possible because it simply costs too much – but direct shipping and extra packaging can make a huge difference and reduce your claim percentage to nearly zero. 

For normal commercial transactions of limited value cargo, take all the cost-effective precautions possible for each shipment.  Consider buying Third Party Insurance.  Warn the shipper to pack things properly.  Warn the receiver to carefully inspect the cargo. Put all this in writing to every party.  Pay attention to the details and protect yourself from these risks as much as possible.  Ask to speak with our Shipping Specialists about the details of your cargo and what else can be done to protect you, and do this in ADVANCE of shipping.

With a little prevention, preparation and patience, you can avoid 99.9% of the risks and hassles associated with shipping.  We hope your eyes are wide open after reading this article.

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