In this installment of PARCEL Counsel, we will take a look at consignee chargebacks — a topic not previously addressed in this column. As used here, the term “consignee chargebacks” refers to a process whereby a purchaser of goods deducts a certain dollar amount when paying the seller’s invoice.
Consignee chargebacks have been around in various forms for a long, long time. However, in recent years a new form has arrived which gives rise to a new set of problems for sellers of goods and their carriers.
The older form of consignee chargebacks occurs when the seller ships the wrong product or quantity. Not receiving what it intended to buy, the purchaser adjusts the invoice amount to correspond to the goods actually received. The more recent form of consignee chargebacks arises out of a problem with the manner or way in which the goods are delivered — as opposed to a problem with the goods themselves.
A frequent example of this category of chargebacks is when the seller’s carrier misses a delivery appointment. For instance, a receiver may require the delivery appointment to be made 24 hours in advance. If the carrier arrives at destination outside of a specified window of time, the receiving buyer reduces the seller’s invoice by a certain amount, that is, a chargeback.
It should be noted that the term “shipper” is usually used in this column to refer to a customer of a carrier. However, from a broader viewpoint, a particular company will typically both ship and receive goods. For instance, a manufacturer who receives raw materials and ships finished products.
This means that a particular company will, depending upon the situation, be a receiver or consignee with respect to its vendors and be a consignor with respect to its consignee purchasers. Accordingly, a company could have a schedule of chargebacks that it imposes upon deliveries made to it by its customers…while at the same time it is subject to chargebacks when delivering its products. This also means that a reader of this column could be on either — or both — sides of this issue.
While it may not be unreasonable for a receiver to use monetary sanctions to help regulate or manage a constant flow of trucks with a finite amount of dock space, over time the dollar amount of chargebacks can have a significant economic impact on the shipper consignor. In addition to deductions for missing a delivery appointment, there can also be chargebacks for rescheduling a delivery appointment and other sundry items such as a missing packing list. It is my understanding that these chargebacks can range from $100 to as much as $500 or even more. For certain deliveries there could be multiple chargebacks.
Up to this point, we have only considered the relationship between the selling consignor and the purchasing consignee. However, as a seller starts to feel the economic pinch of the chargebacks, the carriers also become involved. This is because the seller will look to the carrier for compensation and file a claim with the carrier to recover its loss. However, the carriers will almost universally reject such claims on the grounds that they are in the nature of “consequential or incidental damages,” which, as a general principle, are not recoverable unless reasonably foreseeable.
Given all of the above, it may be hard, if not impossible, for a “shipper of goods and receiver of chargebacks” to eliminate them entirely. However, there are steps a company could take to attempt to minimize them.
From a legal perspective, the point in time to best address consignee chargebacks is when negotiating purchase agreements or supply contracts. Do not put chargebacks in the “by the way” category. In the context of a $500,000 sale, a $100 chargeback may seem insignificant…but it isn’t. To take one not at all improbable example, a $500 chargeback for a shipment of $1,000 in goods on one pallet would probably eliminate any profit.
From an operational viewpoint, establish systems to track chargebacks by category, carrier, and vendee as well as amount. An analysis of those results could reveal patterns in the underlying causes for chargebacks that could lead to a change in shipping patterns or procedures that could in turn reduce the chargebacks.
For instance, if certain carriers are triggering more chargebacks than your other carries, a discussion with them would be in order to try to further identify the problems — and possible solutions. Depending upon a shipper’s bargaining power with the carrier, a shipper might even get the carrier to agree by contract to “share” at least a portion of the dollar amount of the chargeback.
Alternatively, if certain receivers or locations are the source of more chargebacks than other receivers or locations, than a discussion as to why this is so would also be in order. In saying this I am well aware of the fact that the “problem receiver” might be one’s largest customer… but hey! It never hurts to ask.
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 on the PARCEL website by searching PARCEL Counsel. Your questions are welcome at brent@primuslawoffice.com.
