Decentralization of transportation functions: "Déjà vu"

It takes $100,000 in sales to offset a $1,000-transit loss if you operate at a 1-percent ratio. If your operating ratio is higher, use this table to determine the bottom-line cost of claims.

By Staff -- Logistics Management, 3/1/1999

Some corporate "ax wielders" appear to be decentralizing transportation functions again in an effort to shift high-salaried, skilled positions from the parent corporation's books to those of their subsidiaries and affiliates. Corporate America already has been through that experiment once and discovered that it did not work with respect to transportation and logistics. Why would the result be any different this time?

If management believes that the deregulation of transportation industries will relieve them of the need for transportation expertise at the corporate level, it will be disappointed. In fact, transportation personnel need more skills and training today than ever before. One important reason is that the Interstate Commerce Commission, now defunct, had performed many of the "watchdog" functions needed to protect shippers. Today, shippers and receivers must fend for themselves.

The loss-and-damage claims function provides a good example of why it doesn't pay to decentralize. "Dumping" the claims function on corporate affiliates brings varying results. Some companies will address the problem properly by training personnel to file, negotiate, and recover disputed claims properly and in accordance with claimants' and carriers' legal rights and responsibilities. Others will just deposit whatever checks their carriers voluntarily send them and file the declinations without an informed review. Unfortunately, still others simply will not bother to calculate their losses or even file claims.

The potential for improper handling of claims to cause financial harm is significant. Consider, for instance, that it takes $1 million in sales to make enough net profit to offset a $10,000 transit loss if the corporation is operating at a 1-percent profit ratio! (See chart.) Imagine the effects on the corporate bottom line, therefore, when the claims department of a large corporation is abolished and management lets untrained and inexperienced affiliates worry about losses.

Upper management simply does not appreciate the amount of expertise and training required to recover transit losses. Most believe that size and clout solve all claim disputes. Unfortunately, this is not generally how it works in the real world. It certainly does not work in the current environment, in which many carriers are limiting liability and finding new ways to evade liability for their negligence.

Rather than leave it to every branch, division, or affiliate, wouldn't it be more efficient to employ a few highly skilled transportation experts at a central location to deal with corporatewide problems? Consumers ultimately will pay for this inefficient method of arranging for the distribution of the nation's goods.

If you operate at a net profit of:

A claim for

$50 $100 $200 $300 $400 $500 $1,000

equals sales of:

2% $2,500 $5,000 $10,000 $15,000 $20,000 $25,000 $50,000

3% 1,666 5,000 6,666 10,000 1,333 16,666 33,333

4% 1,250 2,500 5,000 7,500 10,000 12,500 25,000

5% 1,000 2,000 4,000 6,000 8,000 10,000 20,000

6% 833 1,666 3,333 5,000 6,666 8,333 16,666

William J. Augello Esq. has practiced transportation law for 46 years. He also is the executive director of the Transportation Consumer Protection Council, an organization that is devoted to protecting shippers and receivers in transportation matters, such as freight loss and damage, undercharges, and contracts. He can be reached at (520) 531-0203 or via e-mail at augello@transportlaw.com.