February 14, 2017
transportation report | Motor Freight

Less-than-truckload carriers shift cargo liability to shippers

Less-than-truckload carriers shift cargo liability to shippers

For over a century, the Carmack Amendment has provided liability protection for motor freight shippers. But a carrier group's unilateral policy change last summer upends decades of what many thought was settled law.

By Mark B. Solomon

Since 1906, the federal law governing liability for lost or damaged cargo has been the so-called Carmack Amendment, authored by Edward Ward Carmack, a Tennessee lawmaker, lawyer, and publisher who in 1908 was gunned down by a political rival on the streets of Nashville in what is still regarded as the city's most notorious murder.

The amendment, attached to the landmark Interstate Commerce Act signed into law 19 years before, holds a carrier responsible for proving it wasn't negligent in its handling of in-transit cargo that was lost or damaged. The shipper's sole obligation is to show the cargo was in good condition when it was tendered. To avoid liability, a carrier must demonstrate that loss or damage was due to one of five events: an act of God, actions of the shipper, the "authority of laws" such as a government edict, the presence of a "public enemy," and the "inherent vice" of, or a defect in, the shipment itself. The amendment, which became so familiar through the decades that it was simply referred to by the author's last name, was designed to eliminate a hodgepodge of state laws that made it difficult for shippers or carriers to determine their rights and obligations in a given situation.

For decades, the amendment has been a basic tenet of the uniform bill of lading, which is the default—and still widely used—contract of carriage between a shipper and carrier. But the road has been a rocky one. Carmack survived numerous challenges in state courts before the U.S. Supreme Court in 1964 finally upheld Carmack on grounds the amendment rightly protects shippers who can't travel with the carrier and have no way of knowing how their goods were being handled or how they were lost or damaged.

Carmack held firm until last July 14. On that date, the National Motor Freight Traffic Association (NMFTA), a 450-member carrier body that oversees a system of freight classifications used to set tariff rates mostly for less-than-truckload (LTL) services, announced a series of changes to the uniform bill of lading, all of which took effect Aug. 13. The most far-reaching was to shift to shippers the burden of proving carrier negligence. NMFTA also added "riots, strikes, or any related causes" to the list of carrier defenses to a cargo claim. Opponents have argued the change runs counter to more than a century of settled law, including the core position taken by the Supreme Court in upholding Carmack, and puts shippers at an extreme disadvantage in liability disputes.

Other NMFTA changes didn't sit well with shippers either. One put the liability burden on the carrier whose name appears on the bill of lading, rather than on the carrier in physical control of the goods. Dealing with two different carriers could delay the recovery of a loss-and-damage claim should the carrier that caused the damage argue that the shipper must pursue the carrier listed on the contract, according to industry experts.

Another change shortened the nine-month window for filing a claim on a loss by starting the clock from the bill of lading date, instead of from a reasonable time after delivery should have taken place. Altering the deadline for filing a claim before it is time-barred would hurt shippers that generally want the expiration date to be as late as possible so they have more time to investigate the incident, shipper advocates say. "I've been involved in claims on both sides that turn on whether or not a shipper has made a timely claim," said Marc S. Blubaugh, a Columbus, Ohio-based lawyer at Benesch, Friedlander, Coplan & Aronoff.

The cumulative changes will affect millions of shipments that move under the uniform bill of lading. Though LTL carriers account for most of NMFTA's membership, truckload carriers are also in the group. In addition, many parties rely on terms of the uniform bill even if they are not part of NMFTA, according to Blubaugh. The changes have "broad implications for shippers, brokers, and carriers involved in truckload as well as less-than-truckload shipments," he said.

IN THE DEAD OF NIGHT

The NMFTA disclosed its changes with no prior public notification and with no input from stakeholders, according to shipper and broker advocates. The Transportation and Logistics Council, a group of practitioners and attorneys, asked the U.S. Surface Transportation Board (STB), the agency that oversees what is left of economic regulation of the transportation industry, to block the rules' implementation. The board denied the request but said it would conduct an investigation to determine if it has the statutory authority to intervene. The matter was still pending as the calendar turned.

NMFTA has argued that the STB has no power to grant relief because there is no agreement in place that falls under its jurisdiction. Opponents, unsurprisingly, disagree with that assessment.

The STB's involvement in trucking issues has been nearly nonexistent since its forerunner agency, the Interstate Commerce Commission (ICC), was sunset by Congress in 1995 and virtually all the ICC's motor carrier responsibilities were transferred to the U.S. Department of Transportation. Perhaps the agency's last notable truck-related action came in 2007, when it stripped rate bureaus of their long-held antitrust immunity to collectively set rates.

NEW RULES FOR A NEW AGE

NMFTA said its changes are consistent with the framework of a modern-day trucking industry, noting that much of the language that was revised last July dates back to 1936. Shippers and carriers today have access to various contractual alternatives to the uniform bill of lading where specific terms and conditions, including those involving liability, can be negotiated, according to the group. What's more, the uniform bill of lading doesn't apply to the overwhelming number of truckers operating in interstate commerce because most are not part of the system that NMFTA administers, the group said.

Opponents concede that shippers have contractual alternatives available to them. Yet the majority of shippers still rely on the uniform bill of lading as their contract, they maintain. "Many shippers today are unaware of any other bill of lading and are unaware that they are not required" to use it, the shipper group NASSTRAC told the STB in August. Even shippers who have pursued outside contracts discover that many shipments, such as those arranged by brokers and other third parties, still move subject to the uniform bill of lading, the group said.

Brent Primus, a Minneapolis-based attorney who represents shippers, brokers, and a handful of carriers, said in a phone interview that a carrier is unlikely to negotiate contracts outside the scope of the uniform bill unless a customer tenders at least $1 million worth of freight a year. Even deep-pocketed shippers with the power to negotiate separate contracts often find that carriers don't want to deviate from language contained in the uniform bill, Primus said.

Primus said NMFTA is acting as a prudent steward of its members' interests by attempting to limit their collective liability exposure and push more of the responsibility onto the shippers. "From their point of view, it is smart business practice," he said.

Blubaugh of the Benesch law firm said the new rules will widen the divide between large, sophisticated shippers that negotiate contracts that supersede the uniform bill of lading or carriers' tariffs, and shippers that operate on a transactional basis—or largely in the non-contractual, or spot, market—and who rely on the uniform bill as their contract of carriage. The latter group "would have to change their contract management and administration in significant ways" to migrate toward nonstandard contracts, Blubaugh said in an e-mail.

Shipper and broker groups contend that last summer's actions are another step in NMFTA's efforts to tilt the playing field toward its members. In 2014, the association decreed that disputes relating to loss and damage claims, as well as rates and charges for shipments subject to the terms of the uniform bill, be submitted to arbitration instead of litigated in court. Meanwhile, most major carriers have added a provision to their tariffs barring class actions of any type. Critics contend that few shippers have the knowledge or the resources to challenge the association's actions, given the arbitration provisions and the tariff language barring class actions, both of which inhibit shippers' ability to muster a legal challenge.

Primus said the changes to the uniform bill of lading, in aggregate, amount to what lawyers refer to as a "contract of adhesion," defined as a standard contract drafted by the side with stronger bargaining power and generally accepted by the weaker party because it has no leverage to negotiate modifications. There will be few shippers with the clout to resist the NMFTA's contractual changes now in effect, he added.

This article appeared in our February 2017 print edition under the title "NMFTA: Hit the road, Carmack!"

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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