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Freight Claims: Avoiding Costly Legal Battles

Transporting goods from Point A to Point B might sound like a simple proposition to an outsider but those within the industry realize that many other factors are involved. Throw in a shipper, consigne...


March 1, 2005
By Pulp & Paper Canada

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Transporting goods from Point A to Point B might sound like a simple proposition to an outsider but those within the industry realize that many other factors are involved. Throw in a shipper, consignee, freight broker, trucker(s), perhaps a marine freight forwarder and add a possible subcontractor or two into the equation and a routine procedure can become a major headache to solve should any problems arise.

What kind of problems?

“The trucking industry is a pretty sophisticated industry,” said Bill Johnstone, Director of Global Technical Services, Crawford Adjusters Canada. And yet, Johnstone explained, there are many points at which problems might surface.

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Damage to the cargo tops the list, although a myriad of reasons can account for a defective condition. Difficulties may occur during loading, unloading and, of course, transit. If there is damage during the latter through a rollover or shifting, the cause might seem obvious and the responsibility easily assigned. However, there are mitigating factors that must be considered. The most common problem is in improper loading. Was the load unbalanced? Was it firmly braced, strapped or otherwise secured? Did it shift during a steep climb or a sharp turn? Was there chaffing and scuffing during shunting (rail) or sharp turns (road)? Was the responsibility ultimately with the way the cargo was loaded or the logistics of the transport itself?

Was the trailer or railcar itself in good condition? Many cargo claims from paper companies deal with wet rolls, but even then there are many potential causes for the paper to have become damaged in this way and there might be confusion about when and where the damage occurred. Had it been loaded/unloaded under dry conditions and/or protection from inclement weather? Was the trailer or railcar itself water-tight ? Leaky trailer floors or doors can wreak havoc on rolls of paper. Had the cargo been loaded into a cold trailer while it was still hot, causing condensation? Or had the car itself been damaged during loading?

Other problems might arise due to a lack of instruction from the company whose goods are being transported. If a load needs to be tarped or temperature-controlled, those instructions must be made available, but to whom? This information is vital throughout the chain of responsibility.

Other factors can include recent reductions in staff dedicated to damage control or prevention. This can exacerbate any negative effect and make it more difficult to pinpoint the instigating factor unless it is due to a recurring situation. In addition, some damage may not be obvious at the time of delivery and there is a time limit to submitting a claim.

“The obligation of the shipper is to inspect the cargo before moving away from the dock,” says Johnstone. “This cuts down on those issues that deal with damage during loading.”

The right to inspect during unloading is also an important consideration and should be done by both the receiver and the transport representative.

“We give the trucker the responsibility but not the means,” points out David Gerstel, of Transportation Specialties. “In many cases, the trucker is not allowed on the dock during loading and so might not be in a position to fully assess the condition of the cargo which he is accepting.”

Importance of paperwork

According to experts, the most important document in the assessment of a cargo loss is the bill of lading. As defined by the International Trade Data System (ITDS), a bill of lading is the document issued by the transportation carrier to the shipper, acknowledging receipt of the shipment and confirmation of transport for a particular destination. It also states the terms in which these goods received are to be carried.

Johnstone agrees that the bill of lading serves as a legal contract and is the most important document associated with cargo claims. “It allows adjusters to identify all the parties to the contract, the goods being shipped, the dates of shipment, the origin and destination, the weight of the shipment, etc.,” he said. It should also include any special instructions to the carrier and the signatures of all parties.

Gilles Caron, VP Finance, SGT 2000, further explained that it is important to understand that the bill of lading is a document governed by the laws of each province and that each jurisdiction sets out its own form and wording requirements. “For example,” he pointed out, “Quebec sets out a lot of fine print which must be on the document for it to be legal.” Caron described a recent examination of the bills of lading issued by SGT’s Quebec paper shippers which had revealed that none had the prescribed wording. The consequence of this state of affairs is that the shipment is in a legal no-man’s-land and the shipper may not benefit from the protection he thought the bill of lading afforded it. “It must be remembered that an Ontario bill may well not conform to British Columbia or Nova Scotia requirements,” Caron added, “so paper shippers must ensure that each mill’s documents conform to local requirements because the applicable law is that of the shipping jurisdiction, at least for intra-Canada shipments.”

All partners in transportation have a direct interest in loss and damage, cargo insurance and freight charges and have exposure to liability whether using or proving common or contract carrier services. To add to the complexity, the deregulation of various modes of freight transport in the United States and increased intermodalism can make handling of loss and damage claims complicated. Often times, several modes of transport are employed to transport a shipment. Intermediaries such as agents and forwarders can also be involved in the transportation.

An additional problem, according to Gerstel, is the conflicting or overlapping responsibilities that are the result of different systems between different provinces and between Canada and the U.S.

Gerstel stressed the importance of another consideration. “What I tell everybody,” he said, “is to make sure that you have insured your own product.”

According to law

“Justice is quicker today,” said Michael Goodhue, a partner in the law firm of Gasco Goodhue and a member of the Transportation Lawyers Association. “The number of civil cases has gone down in Quebec.”

While many of the claims do not reach the court system in that province, Goodhue explained that mediation means it is important for people to understand the different laws which might apply to the case. For instance, while the law might be simple in Quebec, having an international broker can confuse the issue.

One of the points that he emphasizes is the importance of being open and ensuring that proper paperwork is used. In this way, he explains, everyone understands what their own risks are.

“We do need to ensure a healthy transportation system,” stated Goodhue, “and the paperwork is there to protect everybody.”

In the United States, the laws governing claims made in individual states to recover for damage or loss incurred as a result of interstate shipment of goods are preempted by a federal law known as the Carmack Amendment. This law governs the liability of carriers for lost or damaged goods and is a uniform national liability system for interstate carriers which provides certainty to both carrier and shipper. It specifically allows a carrier to require that all claims for loss or damage by a shipper be made in writing within nine months from the date of the loss. It also allows a carrier to limit its liability if all prerequisites have been met.

There are many pitfalls for those who do not carefully consider the laws affecting the international transport of their goods. With differences in time periods set out by law, shippers could be faced with unanticipated limitations of carrier liability. Clearly, when dealing with uncertain responsibilities, the best time to consider legal advice is before tendering freight to a carrier or intermediar
y and not after the freight is unloaded at the consignee’s dock in a damaged condition.

It is a fine line between balancing the legalities and taking care of good customers. It is not unusual for the carrier to pay a small claim that is not legally due, if it is in the interest of a long-standing business relationship and if the customer does not abuse the privilege.

However, in this era of truck shortages, the client companies should not plan on improving their bottom line by forcing carriers to swallow dubious freight claims. Shippers and receivers should not act in a cavalier fashion and expect a carrier to swallow claims. Transport companies might also take issue with claims which are offset against payment of freight charges to the carrier.

In the end, both sides must realize that they have rights but also obligations and that there are legal parameters that need to be addressed.

Sources: Gilles Caron (SGT 2000), Michael Goodhue (Gasco Goodhue), W.W. (Bill) Johnstone (Crawford Adjusters Canada), Steven C. Weiss (findlaw.com) and the Institute of Logical Management

POINTS THAT SHOULD BE ADDRESSED IN CARGO CLAIMS

1.Who are the parties involved in the transport? This can get quite complex in certain cases when there is a shipper, consignee, broker, trucker, marine freight forwarder, subcontractor etc.

2.Have proper written notices of a possible claim been sent within the shortest delays to all of the parties who might be involved in transport? This is very important and notices should be sent to as many parties as possible.

3.What jurisdiction applies to the transport? Is it American law, Quebec law, Canadian law or a foreign law?

4.Has a person been named to co-ordinate the claim? Have all of the individuals involved been identified and warned as to with whom they may or may not speak?

5.Has every document and/or record of discussion relating to the transport (starting with the initial communication) been obtained? This documentation may very well set out the contractual relationship between the parties.

6.Have all of the Insurers who may be on risk for the different parties been identified?

7.Is the quantum controlled?

8.Examine any potential limitations of liability, either contractually, in the bill of lading or in virtue of a law.

9.Identify any potential defences which may be available.

10.Beware of delays in instituting proceedings under various statutes of limitations.

Suggestions from Michael Goodhue of Goodhue Gasco

FREIGHT CLAIM MANAGEMENT

The objective of freight claim management is to explain carrier liability for loss and or damage via all modes of transportation. Among the necessary responsibilities:

1.Differentiate the legal requirements affecting each mode of transportation, supported by pragmatic documentation and legal statutes applicable to the appropriate jurisdiction.

2.Explain what legal recourses are available to both shippers and consignees when loss and/or damage occurs in transit.

3.Specify the rules and regulations for preparing and filing claims against carriers, with particular emphasis on the statute of limitations and the appropriate documentation. This specific area of business logistics is necessary for professional competency and to understand the liability of domestic and international carriers, contracts of carriage, the liability terms contained in the bill of lading, tariff rules pertaining to liability, the process of preparing and filing claims and the options available for recovering monetary damages.

RECOMMENDATIONS

The following practices were suggested by a transportation expert in order to minimize claims and ensure a good relationship between the industries involved:

* The load should be properly braced,

* Doors should be sealed with plastic film or the equivalent.

* Be aware of the temperature difference between the cargo and the trailer.

* Receivers should allow drivers to attend unloading in order to inspect the cargo.

* Damaged rolls should be made available to the carrier for salvage.

* Damages should be properly documented. If a receiver signs for a clean delivery and subsequently “remembers” damage, don’t expect the carrier to pay.

* If the load is comprised of palleted goods, put a seal on the trailer door.

* Claim your cost, not your selling price.

* Mitigate your damages.

Training, sequential loading and minimal handling are recommended practices for all involved. Paperwork is of primary importance, with responsibilities clearly indicated. Best done before shipping, the value of the goods should be established and accepted by the shipper and consignee. However, once the damage has occurred, it is good to have an independent view of whether the goods are usable or repairable or even saleable in a secondary market.