Will your 3PL protect your interests?

By William J. Augello Esq. -- Logistics Management, 5/1/2000

Shippers' increasing dependence on third-party logistics providers (3PLs), together with the frantic race by business today to perform every function electronically, may prove harmful to some companies unless they learn-before hiring a prospective logistics provider-whether it will be able to fully protect their interests.

PowerPoint sales pitches usually do not reveal where a third party stands on crucial issues that frequently lead to conflicts later on. By asking the following questions of third parties during the interview or negotiation stages, shippers can make sure they will be adequately protected. Be sure to insist on getting the answers in writing! If your company already is dealing with a 3PL, it would be advisable to ask these questions anyway, even though it may be too late to change things.

• Does the 3PL interpret the current Carmack Amendment [49 USC 14706 (a)(1)(A) & (B)] as permission for a motor carrier or freight forwarder to limit its liability through its unfiled tariffs, without a shipper's knowledge or written consent, when the shipper fails to request a copy of that tariff? If the answer is "yes," you can assume that the 3PL is controlled by a carrier and that it may have a conflict of interest when it must choose between protecting the shipper's or the carrier's interest. If the answer is "no," then ask if it will go on record as supporting a legislative effort to enact a "Truth in Trucking Act" requiring carriers to notify shippers of their liability and other terms before accepting freight.

• When a loss or damage claim is filed, will the agreements the 3PL has signed with the carriers it has selected reimburse claimants for the invoice value of the goods or only for their "manufactured costs?" If the answer is "manufactured costs," you can be sure that you are dealing with a carrier-dominated service.

• What policies on settling concealed loss or damage claims do the carriers it uses adhere to?

• Does the contract call for a penalty if a freight bill is paid one day later than the agreed-upon deadline, and if so, does it include a loss of discount, a surcharge of 200 percent of the freight charges, court costs and attorney fees, etc.? Or will you be subject only to interest charges of 1.5 percent per month?

• If the shipper pays freight charges to the 3PL but the 3PL fails to transmit those payments to the carriers, how will the shipper be protected against lawsuits from carriers seeking payment?

These questions and many others that need to be asked may appear to be of little importance when measured against the projected savings that for many companies are the reason for outsourcing to third parties, but the answers will reveal the true mindset of your prospective partner. One may wonder whether the word "logistics" should be changed to "lo-tricks-tics" to remind shippers that conducting business through third parties can be tricky.

William J. Augello Esq.