In this issue, we will begin a review of six basic principals of contracting and, in particular, how these rules apply when contracting for transportation services. The first rule is “Know with Whom You Are Dealing.” This rule applies in any business situation, not just in transportation, and invokes all of the factors generally considered as part of a duly diligent inquiry regarding a potential business partner ----- credit worthiness, reputation in the industry and trade references, as well as other similar factors.

    There is a very basic concept that gives rise to this first rule. Even the best contract drafted by a team of legal experts will be of little use if the party with whom you are dealing is either unwilling or unable, even with the best of intentions, to perform their obligations.

    However, in transportation contracting, there are other critical inquiries that must be made. The first is to determine the exact nature of the proposed service provider. Are they a carrier such as a motor carrier or an air carrier, or an intermediary such as a property broker, colloquially known as a “truck broker”? This distinction becomes critical in issues involving loss and damage to cargo, as a carrier is liable for such damage while a broker or other intermediary is not.

    The distinction between a carrier and intermediary is equally critical when dealing with issues involving the payment of freight charges. Payment to a carrier extinguishes any obligation of the consignor or the consignee to pay for the freight charges. However, payment to an intermediary, such as a truck broker, does not constitute payment to a carrier. Suffice it to say here, if a shipper pays a broker who fails to pay the carrier, problems arise!

    It is also important to know which type of carrier the carrier is. Are they a “regulated” motor carrier or an air carrier? If an air carrier, are they a domestic “deregulated” air carrier or a “kinda regulated” international air carrier? If a regulated motor carrier, there are certain laws and regulations relating to the filing of claims for loss and damage, time limits to initiate legal actions, and so on with which the carrier must comply. International air carriers must also comply with certain laws. However, a domestic “deregulated” air carrier is pretty much free to set its own terms and conditions as published in their tariff or service guide. As an aside, it should be noted that the primary reason to enter into a contract with a carrier, other than pricing, is to establish terms and conditions more favorable to a shipper than those which would apply in absence of an individually negotiated contract.

    Another issue of particular importance when dealing with motor carriers is the carrier qualification process. A discussion of such a process is beyond the scope of this article, but the process begins by determining if the corporate entity with which one is contracting, and not an affiliate or similarly named entity, is the holder of the requisite motor carrier authority.

    Finally, it must be noted that the two largest carriers with whom Parcel readers deal with --- UPS and FedEx --- are very complex legal entities and, broadly speaking, provide services in many capacities, e.g., as a motor carrier, as a domestic air carrier, and as an international air carrier. Thus, any contractual agreements with them should attempt to set forth as clearly as possible in which capacity they will be acting from time to time and, as appropriate to a particular situation, have separate contractual terms depending upon the capacity in which the carrier will be acting.

    All for now!


    Brent Wm. Primus, J.D., currently serves as the General Counsel for the Freight Transportation Consultants Association, Senior Editor of transportlawtexts, inc., and CEO of Primus Law Office, P.A. Your questions are welcome at brent@transportlawtexts.com
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