What is a carrier's liability for replacement shipments?

By William J Augello -- Logistics Management, 9/1/1998

How much money should a carrier pay to a shipper when that shipper must replace goods because the carrier failed to deliver them to the shipper's customer? That is one of the most controversial loss-and-damage issues today.

Some carriers attempt to adopt the age-old insurance "gimmick" of offering to pay only the shipper's "cost of manufacture," on the theory that because the shipper made a profit on the replacement goods, it should not also make a profit on the shipment that was lost or damaged by the carrier. In other words, carriers argue that a claimant is only entitled to be "made whole" and is not entitled to make two profits on one sale. The case most frequently cited to support this erroneous position is a Missouri state court decision, Meletio Seafood v. Gordon's Transports, 191 S.W.2d 983 (St. Louis Ct. App. Mo. 1946).

Shippers, on the other hand, cite federal case law, which holds that a shipper is entitled to earn a profit on every item it produces. Otherwise, a shipper could be exposed to a situation in which a carrier repeatedly loses or damages products and the shipper would have to manufacture replacement products continually, earning a profit only on the product that eventually arrives safely.

The leading authority for this ruling is Polaroid Corp. v. Schuster's Express Inc., 484 F.2d 349 (1st Cir. 1973). This U.S. Circuit Court of Appeals decision is more authoritative than the state court decision in Meletio. See also the more recent decisions in Philips Consumer Electronics Co. v. Arrow Carrier Corp., 785 F.Supp. 436 (S.D.NY 1992) and Corning Inc. v. Missouri Nebraska Express, 1996 WL 224673 (E.D.PA, April 29, 1996), both of which are federal court decisions.

It's important for shippers confronted with conflicting court rulings to know that federal court decisions have greater weight than do state court decisions. Shippers also must determine whether any decisions cited to support their position have been reversed, appealed, affirmed, distinguished, and so forth. This can be done readily by using computerized research services such as Westlaw or Lexis. Claimants also must check the date the shipment in question moved to be certain that the court has applied the appropriate statute or regulation in effect on that date. This is particularly important if the shipment was made during the deregulation era (1980-1996). Effective Jan.1, 1996, the Carmack Amendment was modified in an attempt to preserve carriers' use of "inadvertence" clauses. Shipments moving thereafter are certain to result in controversial claims and litigation over whether the claimant gave its written consent to any tariff limitation.

For more information about how to identify and evaluate court decisions, see the Introduction of my book Freight Claims In Plain English, 3rd Edition. I also suggest consulting the Transportation Consumer Protection Council's newsletter, TransDigest, for summaries of current court decisions on claims and other transportation disputes. For more information on either of these publications, you are welcome to contact me at the telephone number listed below.

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 (516) 427-0100 or via e-mail at augello@transportlaw.com.