Shippers get burned again!

By William J. Augello -- Logistics Management, 11/1/2000

Another federal district court has "burned" a shipper for being "sophisticated" (defined as "of at least equal economic stature and commercial awareness or acuity" as the carrier) (see Logistics, July 2000, " 'Sophistication' works both ways!"). What's wrong with this principle today?

In the real world, small shippers generally rely on their carriers for assistance in shipping because transportation is the carriers' principal business: Carriers are the pros in transportation; shippers are the pros in manufacturing. That worked fine when the Interstate Commerce Commission (ICC) was scrutinizing carriers' filed tariffs and only authorizing a small number of released-rate orders that limited the carriers' liability to levels below full actual value. But since the demise of the ICC, carriers are burying all sorts of limitations on their liability in unfiled tariffs and incorporating those limitations into bills of lading without notifying their customers in advance of shipping. Many of these would never have been permitted by the ICC under the law then prevailing. Maximum limitations are a prime example: They began at $50 per pound in 1996 and are now at $25 per pound for half the LTL carriers and at lower levels-some as low as $1 per pound-for the other half.

The recent decision that burned a shipper involved a flatbed shipment of a helicopter that hit a low bridge in transit. The carrier had quoted only one rate. The shipper, which used a bill of lading that incorporated the carrier's tariff by reference and left the "declared value" clause blank, failed to ask for a copy of the carrier's tariff or to inquire about its liability-which proved to be a fatal mistake despite testimony that the carrier's representative didn't know about the tariff limitation at the time the load was booked. The carrier offered to pay its tariff limit of $2.50 per pound, or $3,000, on a shipment valued at $914,349. Thus, unless this decision is reversed on appeal, the shipper's innocence, combined with the carrier's negligence, will result in a loss of close to $1 million.

The underlying problem, in this writer's judgment, is the erroneous application of pre-1996 case law and statutes to shipments moved after the Interstate Commerce Commission Termination Act (ICCTA), which took effect Jan. 1, 1996. The courts miss the fact that pre-ICCTA tariffs contained only ICC-approved restrictions on liability and that carriers were required by common law and the governing statute to obtain a shipper's written consent to a lower liability limit if offered by the carrier. That requirement remains in the Carmack Amendment today, but some courts are ignoring it.

Under common law, there must be a "fair opportunity" to choose between a full-value rate and a limited-liability rate. Today, however, most courts are holding shippers to limitations brought up by a carrier for the first time after a loss has occurred, claiming that the shipper never asked about liability!

These days, leaving the bill of lading clause for declared values blank has a different meaning than it did under pre-ICCTA law, when there had to be an ICC-approved released-rate order and a filed tariff provision offering the shipper a choice of rates. Today, some courts appear to be binding shippers to unfiled tariff limitations without the shipper's knowledge or written consent, and without a choice of rates, claiming that ICCTA's revision of the Carmack Amendment permits such an interpretation.

William J. Augello is an adjunct professor at the University of Arizona in Tucson and also serves as executive director of the Transportation Consumer Protection Council Inc. (TCPC). He may be reached in Tucson at (520) 531-0203, at TCPC's headquarters in Huntington, N.Y., at (631) 549-8984, or via e-mail atwilliamaugello@worldnet.att.net.