In the previous two installments of PARCEL Counsel, we took a look at two of three relatively recent changes to the National Motor Freight Classification (NMFC). Those changes related to (1) establishing a 180 day time limit to submit claims for refunds of duplicate payments and (2) reducing the 15 day grace period for submitting notice of concealed damage to 5 days. In this installment we will complete the review of these new provisions with a discussion of the requirement for mandatory arbitration now found in the NMFC.

Mandatory Arbitration

The new provision relating to arbitration requires the parties to commence the arbitration process "within thirty (30) days after the parties are unable informally to resolve the dispute or claim." This requirement appears in both NMFC Tariff Item 300160-A titled "Procedures Governing the Investigation and Disposition of Freight Claims for Loss or Damage" and Item 300530-A titled "Procedures Governing Billing Disputes."

While at first the new provision may appear to the reader to be just a legal technicality, the true significance of the new requirement arises out of the fact that the two most frequent areas of disagreement or conflict between shippers and carriers are, guess what, loss & damage claims and billing disputes. This means that virtually all commercial disputes between shippers and carriers would be subject to mandatory arbitration• if the carrier's tariffs control.

Admittedly, arbitration can be an appropriate method of resolving disputes, but certainly not always. Other methods of what are known as Alternative Dispute Resolution (ADR) include mediation, non-binding arbitration, and other variations as well. Indeed, contracts negotiated at arm's length between shippers and carriers will often specify one or more of these options or even a combination of these options. For instance, there might be a provision stating that disputes regarding loss and damage claims up to a certain dollar amount be submitted for arbitration to the Transportation Arbitration Board (TABS), which has a primary focus on the resolution of cargo claims.

Another concern is that, with respect to loss and damage claims, there has been at least one Circuit Court of Appeals that struck down a mandatory arbitration provision in a carrier's tariff on the grounds that it violated the Carmack Amendment — the federal statute governing loss & damage claims for motor carriers. This is because the Carmack Amendment specifically provides that a carrier may be sued in either a US district court or in a state court.

It should also be noted that the requirement for mandatory arbitration removes not just the right to have a case tried before a judge, but it also eliminates the right to have a dispute decided by a jury. While it is often the case that in complicated commercial matters both the shipper and the carrier would be willing to waive those rights, and often do, it is this writer's opinion that it should be a mutual decision made by the shipper and the carrier, not by the carrier community unilaterally.


So what is a shipper to do if it does not believe that it is fair or proper to be required to report duplicate payments to the carrier within 180 days (keeping in mind that there is absolutely no reason or justification for the carrier to have the right to obtain a windfall occurred through inadvertence); OR if a customer does not have the ability to inspect each and every package before the driver leaves the point of destination; OR if a shipper is not willing to always be subject to mandatory arbitration?

There is really only one option• get a contract! While the drafting and negotiating of a contract can be a complicated process, it is virtually the only way that a customer of a carrier can avoid all of the surprises and pitfalls that are to be found in the carrier's tariffs and within the NMFC.

A contract also provides an opportunity to avoid disputes before they arise by clarifying the obligations of the parties. Having practiced transportation law for many years, I have come to realize that there are numerous gray areas in the law. This could be because a particular statute or regulation is subject to differing interpretations. Further grayness arises out of the fact that different courts will issue differing opinions — even though they are deciding cases where the underlying facts are virtually the same.

Examples of where contracts can avoid disputes before they arise would be the measure of damage for lost cargo, e.g., invoice value or manufactured cost, lengthening or shortening time limits which would otherwise be applicable, payment terms, as well as both the place and method of dispute resolution. It is infinitely easier and less expensive to resolve such issues at the time of contract negotiations• rather than after they arise, forcing the parties into court or arbitration.