| TRUCKING
101: BACK TO THE BASICS.
THIS MONTH, WE'LL BE LOOKING INTO SOME...
COMMON ISSUES WHEN DEALING
WITH BROKERS
By Wayne
Schooling
Q:
We have a situation where a truck broker that we use has gone out
of business. We feel sorry for a trucker that has hauled our freight
but has not been paid because we have not paid the broker yet. The
question has come up if it would be permissible to pay the trucker
what he negotiated with the broker. Then, also, pay the broker for
the difference between what we were originally charged to cover his
commission. I’m worried that if we did that, the broker or their bank
could still come after us for the full price because the original
contract (bill of lading) was with them. Would there be an appropriate
document that could be created to relieve us from that risk?
A: In the situations where
you have not yet paid the defunct broker, you may pay the carrier
directly, but you must be extremely careful to avoid having the broker
(or its assignee or trustee, etc) come after you for the freight charges.
I would not recommend that you pay the carrier unless you get a written
authorization from the broker to pay the carrier directly or a “hold
harmless” and indemnity agreement from the carrier. It would also
be advisable to get a signed release from both parties.
Q: We are a small motor carrier
and carried a load a couple of months ago contracted through a broker.
After delivery, we billed the broker for the amount agreed upon in
the rate confirmation and submitted a signed and clear bill of lading.
They, in turn, sent payment for the load. I was informed a week ago
that there was a claim on the load for damages. Now they are withholding
payment on another load we hauled for them. Can the broker withhold
payment on the other load? Also, can the shipper file a claim for
damages when there is a clear bill of lading?
A: No, the broker cannot withhold payment
of freight charges which are due. The broker has no legal ownership
interest in the shipment and is merely a middleman who arranges for
transportation. Regarding the claim for loss or damage, the fact that
there was a clear delivery receipt does not preclude the shipper or
consignee from filing a claim. It could be “concealed damage” which
was discovered after delivery. The clear delivery receipt does place
a greater burden on the claimant to prove that the loss or damage
could not have occurred after delivery. The bill of lading also requires
the claimant file a claim in writing with the carrier as well, with
all of the appropriate supporting documentation.
Q: We have several questions. Is it okay if our broker
says it will pay all claims (rather than the carrier) and is willing
to sign an agreement to that effect? Can a broker assume liability
for claims under a contract, and what if the broker’s insurance company
refuses to pay? Our agreement states that the broker is compensated
by the carrier on freight bills paid by shipper to broker. The broker
dislikes this language, but this was written to reduce the exposure
resulting from having the broker act as an agent for the shipper.
Can we do this? And lastly, where are the claims procedures that used
to be at 49 CFR Part 1005 now located?
A: I see no reason why a broker
cannot assume liability for loss and damage claims as part of its
contract with the shipper. Contractually assumed liability would probably
not be covered by most “contingent cargo liability” policies. It would
be necessary to review the broker’s insurance policy to be able to
give a definitive opinion. It is common for the shipper to pay the
broker, and the broker to pay the carrier, retaining its “commission”
(profit) out of the check. When carriers are not paid by the broker,
they often try to collect from the shipper, arguing that the broker
acted as the agent of the shipper. Because of this fact, shipper-broker
contracts and broker-carrier contracts sometimes include language
to the effect that the broker acts as the agent of the carrier for
purposes of collecting freight charges. The former ICC claim regulations
are now found at 49 CFR Part 370 (under the FHWA Motor Carrier regulations).
The 49 CFR Part 1005 rules now apply to rail transportation.
Q: We are an exempt freight
broker and have been getting stuck in the middle between our customers
demanding that we pay freight claims and the carriers demanding that
we pay the freight charges, even though there are damage claims on
the shipment. What should we do?
A: As a freight broker, you
are legally considered an “independent contractor”. You are not a
shipper and you are not a carrier. You should always make this clear
to the people you deal with. In order to avoid these problems, you
should enter into written agreements with both your shipper customers
and the motor carriers that you use. Such a contract would make it
clear that you are not liable for loss or damage, and that the shipper
has primary liability for the freight charges (as well as other relevant
provisions).
Q: Sometimes on delivery, a
shrink-wrapped pallet does not clear a bar code scanner. Should we
have our drivers note this as an exception on the delivery receipt?
A: Yes, but only as a precautionary
measure. It would not be proper to report that pallet as a nondelivery
– merely report the fact that it would not scan properly. If there
is evidence of damage, shortage or breaking of the packages or shrink-wrap,
it should be counted and noted. Never have your drivers note an exception
like “One pallet damaged”. Always breakdown the pallet and count the
packages, then put “One pallet containing 150 pieces of which one
was broken” on the receipt. Now, as anyone can plainly see, the claim
is going to be for one piece. The proper procedure is to place the
freight on the dock where it can be counted and inspected. If there
is the remote chance of damage, inspect it. Remember that it’s not
their freight until you have put the exception on the bill of lading
and they have acknowledged it by signing for the delivery.
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