The "black hole" on the border

By Dr. James R. Giermanski -- Logistics Management, 6/1/2000

As U.S. shippers moving goods into Mexico know, there are numerous inefficient and costly practices associated with crossing the U.S.-Mexico border. The current method of using drayage or transfer motor carriers to move cargo from one side of the border to the other is one example.

For U.S. shippers, cross-border drayage represents a "black hole"-an area in which they have little or no information about their shipments. This poses several problems. For one thing, it's difficult to determine who is responsible for the integrity of the cargo. Also, shippers lack documentation to demonstrate custody-a serious problem should goods be damaged or lost during the cross-border movement. This practice, moreover, is inconsistent with federal law.

These problems arise due to a missing link in the chain of legal responsibility between shipper, carrier, and consignee. That missing link is the bill of lading (B/L). For all carriers that are subject to the U.S. Department of Transportation's jurisdiction, a bill of lading is the legal document that serves as a receipt, a contract for carriage, and in some cases, a means of conveying title. A B/L does not become effective until the carrier (in the case of trucking, the driver) signs it. But once the B/L is signed, the carrier is responsible for any loss or damage to the cargo caused by the receiving carrier, the delivering carrier, or any other carrier that transports the cargo in the United States or Mexico, as required under the Carmack Amendment (Section 14706 of the U.S. Code).

On the southern border, the use of the bill of lading is almost nonexistent. Typically, U.S. longhaul carriers deliver cargo to a freight forwarder on the U.S. side, who signs a copy of the carrier's bill of lading to acknowledge receipt of the property. At this point, the custody of the shipper's motor carrier may terminate, even though the shipper is responsible for all costs to (in the case of Laredo) the "middle of the bridge."

Once authorized by the Mexican customs broker, a drayage carrier (which may be either a U.S. or a Mexican carrier) picks up the cargo from the freight forwarder without executing or providing a bill of lading to the freight forwarder for the movement across the Mexican border. Who now is responsible for the cargo? Some say it's the freight forwarder. Some say it's the drayage carrier. And some say it's the longhaul carrier if that carrier issued a through bill.

U.S. law clearly states that drayage carriers are obligated to provide a contract of carriage for a cross-border move. According to the Interstate Commerce Commission Termination Act (ICCTA), transfer carriers on the southern border must issue B/Ls because they are defined as interstate carriers. Section 13501 of the U.S. Code says that a motor carrier that provides commercial transportation between the United States and a foreign country is subject to ICCTA. Section 13102, moreover, says that a motor carrier that is "domiciled in a contiguous foreign country" and enters the United States is subject to ICCTA.

Freight forwarders also are subject to ICCTA. They are defined under Public Law 104-88 as carriers and are required to issue bills of lading. The same section says that failure to issue a B/L does not relieve freight forwarders of their liability.

How can a U.S. shipper protect itself when delivering cargo to the southern border for delivery to Mexico? There are three options. The first would be to use a term of sale in "Incoterms 2000" that reduces or eliminates the shipper's risks at a border crossing. DAF (delivered at frontier) or FCA (free carrier), among others, would ensure that the shipper's responsibility ends when or before the border freight forwarder accepts the goods. Second, the shipper could state the full value of the goods on the bill of lading's face, which obligates the carrier to assume liability for that value, even in Mexico. For this to succeed, the Mexican customs broker would have to add the full value to the face of the Mexican B/L. And finally, the shipper could independently insure the shipment from the time it leaves the freight forwarder's premises until it reaches the Mexican destination.

The drayage system thrives because trucked merchandise must be handed over to freight forwarders on the U.S. side before entering Mexico. Until this system disappears, only a well-informed shipper can avoid having its property fall into this "black hole."

Dr. Giermanski