Waynes World - March 2004

DEFINING 3PL, FREIGHT BROKERING ISSUES,
INSURANCE DEDUCTIBLES, AND...

ADDRESSING SOME TOUGH
TRUCKING CONCERNS

By Wayne Schooling

Q: I have heard the term “3PL” but don't exactly know what it is. Can you tell me?

A: Actually it is quite simple (trucking is not rocket science). 3PL refers to “third-party logistics”. According to what I have been reading, over 40% of companies plan to outsource more from 3PL providers over the next five years. Major operations such as Ford, Procter & Gamble, General Mills, DuPont and CVS are already outsourcing various logistics-related tasks, from transportation management to fleet management. In the case of Ford, for instance, the automaker uses a 3PL to manage its import and export trade throughout North America.

MORE QUESTIONS AND ANSWERS

In this segment of my continuing series about the basics of trucking, I am going to try to answer some of the questions that I have seen come across my desk. My goal here is to pass on some hard-learned knowledge so you can maybe learn from it as well.

Q: We are primarily a warehousing company, however, we have a transportation program where we act, we believe, as a broker, in arranging the consolidation of Less than Truck Load (LTL) orders from various shippers into Truck Load (TL) routes via contract and regular carriers, on a regular schedule, in order to reduce the cost of transportation for our customers. We want to be in the business of transportation, so we are looking toward providing more complete services. First, we need your advice on the services above. Are we legally acting as a freight broker? We did get a brokerage license. Second, if we are paying the carriers and billing our customers (the shippers) for freight, can a customer withhold payment or deduct from future bills for a loss or damaged shipment? Can we do the same to the carrier? We do not believe either practice is legal, but we cannot find the code. Assuming this is not legal, is it therefore our responsibility to file the claim with the carrier since we arranged the transportation? If we do not have to file the claim, but if we do want to offer the service of handling the claims for our customers, what is the “right and professional” way to handle the customer’s credit for a loss or damage received?

A: It sounds as though you are providing services that fall into the category of a “freight forwarder”. The fact that you're consolidating shipments for one or more shippers, and using the services of a motor carrier, fits more within the definition of a freight forwarder.

As a forwarder, you would be assuming liability for loss or damage in the same way as if you were a carrier. In the freight forwarder relationship there are really two contracts of carriage: one between the shipper and the forwarder, and one between the forwarder and the carrier. Thus, you would be liable to the shipper for the loss or damage, and you would have to file your own claim against the motor carrier.

In regards to the question about deducting freight charges against loss and damage claims, this is a common practice and is not illegal. The best way to avoid this problem is to spell it all out in a written transportation agreement with your customers.

Q: I’m a 3PL who is using common carriers and household goods carriers to deliver items to residences. Do I need a broker’s license? If I do, where can I get one?

A: The definition of a “broker” is found in the FMCSA regulations at 49 CFR Part 371, and provides: (a) “Broker” means a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bonafide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.

On the other hand, (c) “Brokerage” or “brokerage service” is the arranging of transportation or the physical movement of a motor vehicle or of property. It can be performed on behalf of a motor carrier, consignor or consignee.

If your activities fall within the definition of a broker, the Interstate Commerce Act requires that you must register with the Department of Transportation (FMCSA) 49 U.S.C. Sections 13901 & 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.

The FMCSA has established regulations for registration under 49CFR Part 365. Application forms (Form OP-1) are available from the FMCSA, or you can get your license online at www.fmcsa.dor.gov or through NTA. I would suggest that you consult an experienced transportation attorney through the Transportation Lawyers Association at www.translaw.org for more assistance.

Q: We send shipments out by air freight and will declare a value of $1,000 per shipment, which is the amount of our insurance deductible, even though the value may be greater. My question is, by doing this, have we weakened our ability to collect the invoice value from the insurance company?

A: Yes. By declaring a lesser value, you have hampered your insurer’s ability to recover the full invoice value from the carrier. You need to review your insurance policy as some have a released rate or limitation of liability and some do not. Is the shipment domestic or international? The liability differs. Domestic could be anywhere from 50 cents per lb. or per piece to $9.07 per lb. or piece. International is now about $10.41 per lb. or piece.