What is a "sophisticated shipper"?

By William J. Augello Esq. -- Logistics Management, 11/1/1999

The question of what is a "sophisticated shipper" is a perplexing one. That issue becomes a concern when a shipper moves its goods on a bill of lading that incorporates by reference the carrier's classification and tariffs, but the shipper never receives copies of those documents. As a result, the shipper may not fully understand the terms of carriage--a situation that can lead to litigation between shipper and carrier.

Often, courts find that the shipper/plaintiff is a "sophisticated shipper"--a "commercial enterprise capable of understanding the agreement it signs"--and therefore it is charged with "constructive notice" of every rule, charge, and penalty in a carrier's unfiled tariffs and freight classification. This has been occurring more frequently since the demise of the Interstate Commerce Commission and the end of tariff filing.

Take, for instance, Neiman Marcus Group Inc. v. Quast Transfer Inc., No. 98-C-3122, U.S.D.C., N.D. Ill., E.D., June 21, 1999, (Unreported) (1999 WL 43689 N.D. Ill.). In Neiman Marcus's case, goods worth more than $300,000 were destroyed by fire while in Quast Transfer's possession. Quast's tariff contained a limitation of liability that reduced the claim to $30,874. The shipper, however, was unaware of that limitation because it did not have a copy of the tariff.

The court enforced that liability limit because: 1) the shipper did not request a copy of the tariff before shipping; 2) the shipper issued the bill of lading, which contained a certification that it was aware of the terms of the tariff and the bill of lading; 3) the bill of lading specifically incorporated the tariff; 4) no value was inserted in the space designated for declaring a higher value; and 5) the plaintiff was held to be a "sophisticated shipper."

The court in this case did not address whether carriers must offer shippers different rates in exchange for limiting their liability, as other courts have held. But it did decide that Neiman Marcus had a reasonable and fair opportunity to specify a higher liability limit but failed to do so.

Other courts, however, have found that because tariffs are no longer filed, there is no presumption that shippers know what is in carriers' tariffs. See, for instance, Toledo Ticket Co. v. Roadway Express Inc., 133 F. 3rd 439 (6th Circuit 1998). But why gamble on which precedent a court will follow when a loss occurs that results in litigation?

A truly "sophisticated shipper" will take steps to protect itself from such risky situations. Sophistication starts with selecting the proper bill-of-lading form. Rather than risk another "Neiman Marcus" situation, shippers should use the "Shippers' Domestic Truck Bill of Lading" published by the Transportation Consumer Protection Council Inc. This form precludes the application of a carrier's tariff or classification except as agreed to by the two parties. It is based on the principle of informed consent.

If a carrier insists on incorporating its rules tariff into an agreement or contract, shippers should demand a copy of that tariff, then search for unfavorable terms, charges, and penalties. They then can negotiate for more acceptable terms.

The intent of deregulation was to create a more competitive marketplace for the shipping public's benefit. To thrive in a deregulated environment, though, shippers must retain their sophistication in the art of shipping. As more companies downsize their logistics departments, however, it appears that many are losing their sophistication in shipping goods and are paying the penalty in unrecoverable transit losses, loss of discounts for late payments, and other surprise "undercharges."

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 in Tucson, Ariz., at (520) 531-0203 or via e-mail at Williamaugello@worldnet.att.net.