As this issue of PARCEL goes out to the readers, PARCEL Forum 2014 is just a few days away. I will be making a presentation at the Forum entitled, “The Five Most Important Things to Know about the Laws Governing the Supply Chain.” Because these matters are indeed so important, we will also examine them in this column.

The critical differences between a carrier and an intermediary:

By carrier, I mean the asset-based entities that actually transport the freight — trucking companies, railroads, steamship lines, and airlines. By intermediary, I mean companies whose function is to arrange for transportation on behalf of its customers with the carriers. They include truck brokers, ocean freight forwarders, and intermodal marketing companies.

One critical distinction between these two categories is that carriers have responsibility for the cargo in their possession and are liable to the cargo owners for any damage, loss and, to a certain extent, delay. On the other hand, intermediaries are not liable for cargo damage.

One important exception to this distinction is that an intermediary can assume liability for damage to cargo by contract with its shipper customers. Another exception is that the courts will impose cargo liability upon an intermediary if the intermediary holds itself out to the public, through its advertising or otherwise, so that it would be reasonable for a customer to believe that it was dealing with a carrier, not an intermediary.

Another critical distinction between a carrier and an intermediary is that when a shipper customer pays the carrier’s invoice for freight charges, the carrier has indeed been paid. However, payment by a shipper to an intermediary is not payment to the carrier. If the intermediary fails to pay the carrier who actually moved the freight, the shipper faces the problem of having to pay a freight bill that it thought it had already paid.

A third category of providers are entities which function both as a carrier and as an intermediary. These include surface freight forwarders, non-vessel operating common carriers (NVOCCs), and air freight forwarders (also referred to as indirect air carriers). From a legal perspective, they are a carrier with respect to the shipper…and a shipper with respect to the carrier. Although they may conduct drayage or other terminal operations, typically they do not actually transport the freight. However, since they are deemed to be carriers, they do have responsibility to their shipper customer for loss and damage to cargo regardless of whether they actually take physical possession of the freight.

With respect to freight charges, at least in theory, if a shipper pays one of these entities, they have paid the carrier and are not exposed to the potential of having to pay the actual carrier. I say “in theory,” as these are very tricky concepts to present to a judge who may have little, if any, familiarity with the distinctions we are discussing here.


Limitations on a carrier’s liability for loss or damage to cargo:

Over the centuries a legal concept has developed that carriers are responsible for the goods in their possession…but also that a carrier can limit its liability to a shipper in exchange for a lower rate. In the past, the “default position” was that motor carriers, rail carriers, and domestic air carriers had full liability unless the shipper specifically agreed in writing to a lower limit.

However, at the present time, unless the shipper takes affirmative steps to obtain a higher limit of liability, the tariffs and business terms of today’s carriers are written so that the carriers’ liability is limited to a stated amount, e.g., $25 a pound, $15 a pound, or even 50¢ a pound. These limits are set forth in the carriers’ tariffs or can be incorporated into an individually negotiated contract.

A different legal pattern prevails in international transportation. Ocean carriers and international air carriers have limits of liability set by international treaties. In the Unites States the Carriage of Goods by Sea Act (COGSA) establishes a limit of liability of $500 per customary shipping unit. For international air carriers, the Warsaw Convention, with its revisions, establishes a limit of liability of 19 Standard Drawing Rights (SDR) per kilo, or approximately $13.21 per pound as of August, 2014.

In the next installment of PARCEL Counsel we will examine the three remaining critical topics — i.e., the legal significance of bills of lading, time limits, and the distinction between a carrier’s liability for damage to cargo, cargo liability insurance and cargo insurance.

All for now!


Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (www.PARCELindustry.com). Your questions are welcome at brent@primuslawoffice.com.
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