DOT liability report supports shippers' stance

Despite truckers' push for a per-pound liability limit, a DOT study recommends continuing the full-value standard set by the Carmack Amendment.

By Staff -- Logistics Management, 10/1/1998

The cargo-liability pendulum appears to have swung back in favor of shippers, thanks to a recent Department of Transportation (DOT) report on that subject. The report recommends that carriers continue to compensate shippers for the full value of goods that are lost or damaged in interstate commerce, the current practice under the Carmack Amendment to the Interstate Commerce Act.

The DOT report on cargo liability was commissioned by Congress when shippers and carriers could not agree on liability issues during negotiations prior to passage of the Interstate Commerce Commission Termination Act of 1995 (ICCTA). Carriers wanted a dollar limit to be placed on liability; shippers, however, objected to any uniform limitations. In an attempt to resolve that impasse, Congress asked the DOT to examine the Carmack Amendment's loss-and-damage provisions and make recommendations.

Enacted in 1906, Carmack requires full-value compensation, unless the shipper agrees to reduce the carrier's liability in return for a lower rate, either by writing those terms into a contract or by agreeing to a "released-value rate." The DOT study concluded that Carmack's system of recovery should be enforced until shippers and carriers agreed on an alternative liability regime.

Shippers had expected the DOT to reach a different conclusion. "My first reaction to the study was surprise," says Stu Slifkin of Tiffany & Co., president of the National Small Shipments Traffic Conference (NASSTRAC). "From the rhetoric we heard, we expected the DOT to recommend limiting liability to some fixed amount per pound. But we are pleased with the results."

The American Trucking Associations (ATA), which supports a per-pound limit, was highly critical of the report. "This DOT study fails to provide meaningful recommendations to modernize our liability system," said the ATA. "Where it does provide recommendations, they are based on lack of understanding of the law, the intent of Congress, and the operational needs of carriers. It is a disappointing study, to say the least." The ATA statement also criticized the DOT for leaving it up to private industry to work out a solution.

In addition, the report examined the issue of whether carriers were obligated to notify shippers of any changes in liability coverage. Under Section 14706(C)(1)(B) of ICCTA, a carrier must provide a shipper with a copy of its rates, classifications, and rules--including limits on liability--upon the shipper's request. Carriers have interpreted that provision to mean that they can change limits on liability without notifying shippers. "Congress expressly indicated that ... it was the obligation of the shippers to inquire about liability limitations, just as they inquire about rates," the ATA's statement said.

The DOT disagreed, recommending instead that carriers obtain shippers' written consent before changing liability terms and limits. That position is staunchly supported by shipper groups. "Shippers ... argue that Congress did not intend to repeal the time-tested requirement in the law that requires the shipper's written agreement to lower the carrier's liability in return for a reduced rate," said the Transportation Consumer Protection Council (TCPC), a shipper advocacy group, in a recent newsletter. Joseph F.H. Cutrona, NASSTRAC's executive director, agrees. "It is necessary for carriers to be proactive in informing shippers of any changes [to liability coverage]," he says. Cutrona notes that under the old system of filed rates, the ICC reviewed liability limits for reasonableness. Shippers lost that safeguard with the ICC's demise.

Slifkin says the DOT's recommendation will have the greatest impact on small shippers because most large shippers address liability in their contract negotiations. In its argument against retaining the Carmack liability regime, ATA seized on that fact, contending that contracts and released-value rates had eroded Carmack to the point where it now governs only 25 percent of all interstate shipments. The ATA also argued in favor of a $2.50-per-pound limit, noting that it would provide full-value coverage for 46 percent of the cargo that moved domestically. A $5-per-pound liability system, now the standard in Europe, would fully cover 74 percent of domestic general freight shipments, the group said.

More Work to Come

Although shippers generally are pleased with the study, there is still work to be done, Slifkin says. For example, he believes that shippers and carriers should reach an agreement on liability for catastrophic losses. "Carriers deserve protection," he says.

But Kevin M. Williams, chief executive officer of the ATA's Distribution and LTL Carriers Association, counters that a change to the law in the area of catastrophic loss would not be meaningful because most carriers already have caps on catastrophic losses.

Williams says the ATA will meet with its members "to test their pulse" and determine whether they wish to pursue legislation in light of the DOT's recommendations to Congress. "Any changes to the law will require congressional action," he says.

For some carriers, though, the DOT's study is enough of a mandate. Slifkin reports that one carrier with which his company does business has responded to the report by providing detailed information of its own accord. "For the first time, a carrier came to my office and handed me something more than a rule sheet or pamphlet," he says. "This information included the carrier's maximum liability per pound as well as all the rates, rules, and regulations." Slifkin believes that indicates some carriers have accepted the DOT's recommendations and will do business in accordance with them.