Previous installments of PARCEL Counsel looked at the six rules of contracting. These rules are general principles relating to the process of contracting. In this issue, we will consider the substantive content of transportation contracts.
The category of transportation contracts we will focus on are those between a motor carrier or transportation broker and their shipper customers. Shippers also enter into contracts with ocean carriers and, perhaps, with air carriers.
The ultimate goal of a contract for transportation services is to get the best possible business terms and conditions… with minimum risk… in a fully insured environment. This goal applies to the providers as well as to their customers.
The extent to which one can achieve this goal depends primarily on the relative financial strength of the parties. For instance, where it is contemplated that a shipper will be tendering over a one-year period a volume of shipments with freight charges in excess of $1,000,000, the shipper has significant bargaining power with small- to medium-sized carriers.
On the other end of the spectrum, shippers tendering only a trailer load or so of less-than-truckload shipments per week would have little, if any, bargaining power with large providers such as FedEx, UPS, and large national motor carriers. For that matter, shippers tendering “only” $1,000,000 in shipments with these large providers will also have limited bargaining power — especially when capacity is as tight as it has been over the last year.
Another goal in transportation contracting for the shipper customers is to contract away from the carrier’s standard terms and conditions. These terms and conditions will be found in the carrier’s tariff or service guide. However named, they are established and set by the provider. Again, the ability for a shipper customer to contract away from the standard terms and conditions is dependent primarily upon the volume of anticipated shipments.
With these goals in mind, the first critical element in transportation contracting is the obvious one — rates and charges. This is the element that businesspeople focus on. However, the other four elements we will look at are just as important in terms of protecting net revenues and minimizing legal and financial risks.
The second critical element relates to the limits of liability for loss and damage to cargo. For domestic shipments within the United States, these also can be negotiated. However, within Canada, there is a prevailing maximum liability of approximately $2 per pound. Canadian motor carriers are very reluctant to negotiate away from this limit.
For international air carriers or ocean carriers, the limits of liability are set by international treaties. For ocean shipments to or from the United States, the limit is set by the Carriage of Goods by Sea Act (COGSA) which is $500 per package. For the international air carriers, the liability limit is set by the Montreal Protocol and is approximately $11.75 per pound. It is extremely rare that these providers would negotiate a higher limit of liability.
In the next installment of PARCEL Counsel, we will look at the remaining three critical elements: time limits, issues of liability other than for loss and damage to cargo, and how and where disputes are to be resolved. 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 (PARCELindustry.com). Your questions are welcome at brent@primuslawoffice.com.
