Contracts: Do you know what you are signing?
November 25, 2014
Author: Bill King, Sales Executive
In order to do business and make money as a trucking company, it’s likely you’re going to have signed contracts in place with the shippers that are paying you. Depending on your customer base, it’s possible that you have many contracts in place at any given time, and not all contracts are written the same. Are you reviewing everything that’s included in the contracts that you’re signing? Do you know the wording that’s used in each of the contracts that you’ve signed? When it comes down to it, and something bad happens, what are you actually on the hook for?
A starting point in understanding your responsibility as a cargo carrier is knowing what the Carmack Amendment says as far as what you are responsible for. Since it’s an amendment to the Interstate Commerce Act, if you’re doing interstate commerce, your responsibilities for the cargo that you’re hauling will first fall under the Carmack Amendment. According to the Carmack Amendment, the carrier is responsible for goods damaged in transit, without need from the shipper to prove that the carrier was negligent. All the shipper needs to show is that the cargo was given to the carrier in good condition, and was damaged in some way upon arrival. Aside from the few exceptions to the Carmack Amendment (act of God, inherent vice or nature of the goods, etc.), once you pick it up, it’s on you to get it to the destination safely. However, the contracts you sign can change everything you know the Carmack Amendment to take care of.
How much of the load are you actually liable for? The shipper is going to want you to be responsible for the entire load. A lot of the times, that’s just the way that it is, and that’s what you do. Depending on what you’re hauling, are there opportunities to limit your liability with the shipper? Does the contract say that you’re responsible for a certain amount per pound by weight hauled, or perhaps a specified limit per individual conveyance for the goods that you’re hauling. Have you taken a load that was valued more than you had in cargo limits? If so, did you buy additional insurance, or were you allowed to take the load with the limits that you had, essentially self-insuring the rest? Would you have been able to get the shipper to take responsibility for some of that load, capping what you’re on the hook for? The contract, and what you’re able to put in / take out will dictate all of that. The shipper will be looking out for their own good. Will they be willing to make any changes to the contract as you look out for yours?
Do you know how the load you’re hauling is being valued in the contract? You could run into a bad situation if you think that the load is being valued at actual cash value, but the contract says that the load will be valued at selling price. In a case like that, even if you have the appropriate limits in your cargo policy, do you have the appropriate coverage…i.e. do you have a selling price endorsement from your insurance carrier, saying that they’ll pay the damages at selling price as the contract demands? Or will you just be unknowingly offering to pay that difference yourself?
Let’s say that you’ve been in an accident, and there is some damage to the cargo, but some of the load is still in good shape. Does that matter? What does your contract say about salvage, and who has the rights to salvage? Perhaps you’re hauling for a food company with a well known brand name. If they don’t want an undamaged portion of the load to be used, because it was a part of a load that was in a known accident, the contract may dictate what you get credit for in salvage, if anything. Shipper rights to damaged and /or undamaged product, and your ability to get credit for salvage, can be written in a contract, and can make a big difference at the time of the claim. It can also make a big difference in your loss runs that affect your insurance renewal premiums.
There are some risks that you’ll need to take, and some liability that you’ll be willing to accept to do business. If you’ve entered into a written contract with a customer, it’s possible that your responsibilities have changed, which could be for the better or for the worse. It’s your duty to know what you’re signing, what it means, and how those changes can affect your bottom line.