3PL Americas ™ T H E M A G A Z I N E O F I W L A I N N O R T H A M E R I C A • W I N T E R 2 0 1 5 THE 2015 IWLA CONVENTION + EXPO PORT OF SAVANNAH PM 42128520 www.IWLA.com
TRANSPORTATION CONTRACT LAW “What’s the Big Deal if I Sign This Contract?” By Marc Blubaugh M OTOR CARRIERS are regularly presented with contracts by their pro- spective or existing customers in a “take it or leave it” fashion. The motor carrier quickly weighs in its mind the benefjt of the very real and immediate business opportunity (i.e., top-line revenue and a possible long-term customer relationship) against what appear to be distant, theoretical risks (e.g., freight loss or damage, shipment delay, a personal injury or non-payment) that may never come to pass. Oftentimes, without a clear understanding of the contract, or without even reading the contract at all, the motor carrier simply signs and moves forward. Not until a high-dollar cargo claim or a catastrophic personal injury arises does the motor carrier begin refmecting on the signifjcance of the piece of paper that it has signed. Of course, by then, it is too late. Motor carriers who are in transportation for the long term should take a more-thoughtful approach, particularly when transporting high-value freight or doing business with sophisticated shippers whose contracts may strip the motor carrier of many traditional rights. At the very least, any motor carrier should understand and, where appropriate, walk away from the following contractual provisions: ■ No Limitation of Liability In the ordinary course of business, motor carriers have the benefjt of a limi - tation of liability in their bills of lading or transportation contracts. After all, a motor carrier cannot be the virtual insurer of every high-value load. However, Too often, motor carriers too often, motor carriers neglect to consider the ramifjcations of entering a transportation contract without a limitation of liability. For instance, earlier this neglect to consider the year, a federal court entered judgment against a motor carrier for $5.9 million, ramifications of entering because a load of cellphones that it was hauling was stolen. The motor carrier a transportation contract undoubtedly had no appreciation for the fact that it could be liable for the entire without a limitation value of the load – and certainly did not have a $5.9-million cargo-insurance policy in place. The motor carrier would have undoubtedly charged a great deal of liability. more than it did for its services (or refused to haul altogether) if it knew that its exposure could approach $6 million. Consequently, every motor carrier should ensure that it has a limitation of liability in place with its customers. A limita- tion of liability of $100,000 to $250,000 per occurrence is fairly typical. Higher limits can be negotiated under special circumstances. ■ Broad, Unilateral Indemnifjcation A mutual indemnity obligation between a shipper and a motor carrier is fairly typical. However, increasingly, certain shippers have attempted to cram down one-sided indemnity agreements upon motor carriers. A motor carrier who agrees to indemnify a shipper for the shipper’s own negligence can fjnd itself fac - ing extraordinary liability. For example, a shipper’s negligent loading (resulting in an unstable trailer) could cause a fatal highway accident. Even though the ship- per is at fault, the motor carrier may end up paying for the shipper’s attorneys’ fees, as well as any judgment taken against the shipper if the indemnity agree- 10 3PL Americas — Winter 2015
ment is suffjciently broad and unilat - shipper is essentially making itself Including a waiver of consequential eral. Of course, while most states now judge and jury of the freight claim damages in a transportation contract have some version of an anti-indem- regardless of the actual merits of the is essential. nification statute that prohibits the claim. Similarly, the shipper will of- ■ No Duty to Mitigate enforcement of such provisions under ten fail to mitigate damages if it can many circumstances, the better part simply perform a set-ofg. A basic principle of contract law is of caution is to avoid these provisions that both parties to a contract must ■ Consequential Damages altogether in the fjrst instance. use every reasonable means to lessen Consequential damages are dam- any damages caused by the other. ■ Lien Waiver ages that fmow naturally, but not nec - When a freight claim arises, the ship- Motor carriers in most jurisdic- essarily, from a breach of a carrier’s per has the burden of proof to dem- tions have a lien upon the freight that obligations. Examples of consequen- onstrate the amount of damages that they are transporting in order to se- cure payment of freight charges. This provides the motor carrier with le- verage if a payment dispute emerges between it and its shipper before the load is released. For instance, with over-dimensional loads, many factors may ultimately inform the amount due from the shipper. The parties to such contracts are not always as clear as they should be when memorializ- ing a pricing structure. The presence of a carrier lien, which may permit the motor carrier to hold the freight “hostage” pending a resolution of the freight-charge dispute, can motivate resolution. Many shippers, however, will try to require a motor carrier to waive its lien and sacrifjce this cus - tomary right. Indeed, they may even include a contractual provision im- posing an award of attorneys’ fees in favor of the shipper if the motor carri- tial damages include lost profjts, lost it has sufgered. The shipper must also er attempts to exert a lien of any kind. customers, third-party contractual try to salvage the freight or otherwise penalties, and the like. Typically, a mitigate its damages. This is because ■ Set-off motor carrier expects its shipper cus- the shipper is likely the party who Traditionally, the law has treated tomer to waive pursuit and recovery is in a better position to dispose of the payment of freight charges and of these damages. After all, conse- damaged goods since the shipper is the payment of freight claims as sepa- quential damages can be of extraordi- in the business of trading in the type rate and distinct obligations. Indeed, nary magnitude and are not covered of merchandise involved in the fjrst prudent motor carriers expressly by conventional cargo policies or oth- place. However, when a shipper’s prohibit a shipper from setting ofg a er insurance policies. Nevertheless, contract states that it has no duty freight claim against freight charges more and more shippers are attempt- to mitigate, these traditional obliga- due and payable. However, shippers ing to strike such a waiver or even tions are thrown out the window. For are increasingly imposing a contrac- include an affjrmative statement that instance, a consignee who sees one tual right to set off freight claims such damages are recoverable – par- pallet with some ants crawling on it against freight charges at their discre- ticularly if they are involved in a “just- might wrongfully reject the entire tion. Permitting such a set-ofg in the in-time” operation. Such contractual load, and the shipper may conclude event of a freight claim can dramati- provisions (or even the mere absence under the contract that it has the cally afgect the motor carrier’s cash of a waiver) could mean that a motor discretion to donate the pallets to fmow. As transportation is typically a carrier that intended to make a tiny a landfill. If the motor carrier has “pennies business,” the unilateral set- profjt ofg of a load is now suddenly agreed in the contract that the ship- ting ofg of a high-dollar freight claim exposed to exponentially greater lia- per has no duty to mitigate, the motor against freight charges can function- bility arising from having a plant shut carrier has now once again exposed ally bankrupt a motor carrier. The down by virtue of a delayed shipment. Continued on page 15 11 3PL Americas — Winter 2015
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