Perfecting the dialogue (page 3)

-- Logistics Management, 11/1/2005

Page 3 of 3
In essence, the High Court ruled that a freight forwarder, after contracting with a shipper to handle a consignment as the shipper's agent, may negotiate lesser liability terms for that cargo when dealing with a carrier. This was an important development, since the true extent of the freight forwarder's insurance coverage is critical to the contractual relationship. (For details, see the sidebar on Page 48.)

Since that ruling, transportation liability experts have been urging shippers to take additional precautions to protect themselves. "The key to negotiating insurance policies with a forwarder—or any carrier—is to look out for exclusions," suggests William Augello, Esq., Tucson-based transportation attorney and author of the textbook Transportation, Logistics and the Law. "If he tells you he has $1 million worth of coverage, you have to ask what is not covered, such as electronics or commodities with a high risk of theft. And always stipulate in the contract that the forwarder cannot change liability limits when it goes on to negotiate with a carrier."

Shippers should always ask about forwarders' and carriers' liability limits, agrees SEKO's Greenberg. If their experience has mostly been with trucking, he notes, they may assume that motor carriers' limits would also apply to a contractual agreement with a freight forwarder, airline, or ocean carrier. But that's not the case. Instead, he says, each mode of transportation has its own liability regime; accordingly, liability for multimodal shipments can get tricky.

Sharing Success

As we've seen, a variety of factors influence the success or failure of shipper-forwarder relationships. How much influence each factor will have depends on individual shippers' specific needs and circumstances. But it's clear that the most successful relationships have something in common: exemplary two-way communication.

"Establishing the relationship or maintaining it depends on communication," Greenberg sums up. "The more information the shipper and forwarder continue to exchange, the better the relationship will be."

Author Information

John Paul Quinn reports on a broad range of business topics for journals in the United States and Europe.

Shipper Beware: Navigating the Regulatory Straits

Contractual, legal, and regulatory issues have always had an impact on shippers, but many probably associate them with carriers rather than with freight forwarders. About a year ago, though, shippers got a harsh reminder that the law applies to every segment of their supply chains.

In 1997, James N. Kirby Co. hired a forwarder to handle a shipment of 10 ocean containers of machinery, valued at $1.5 million in the original shipper-forwarder contract. The forwarder arranged for multimodal transportation from Australia to the United States under a second contractual bill of lading, which bound the shipper to a liability limit of $500 per "package" while the cargo was in transit by sea and on land.

Once the cargo arrived in the United States, it was transferred to a rail carrier, and a derailment occurred. The shipper filed a loss-and-damage claim for $1.5 million, but the railroad would only pay $5,000, or $500 per container. The shipper and the railroad fought that decision through several rounds of litigation, eventually bringing it to the U.S. Supreme Court as Norfolk Southern Railway Co. v. James N. Kirby.

In November 2004, the High Court reversed an earlier Circuit Court decision regarding ocean carriers' liability limitations, extending these same limitations to inland carriers. The court also ruled that a freight forwarder that contracts with a shipper to handle a consignment as the shipper's agent may negotiate lesser liability terms for that cargo when subsequently dealing with carriers. To make matters worse, the court interpreted the term "package" to apply to ocean containers.

"The Supreme Court case Norfolk Southern v. Kirby is critically important for shippers who use ocean freight forwarders," says transportation attorney William Augello. "The shipper has to be aware that when it is doing business with an ocean freight forwarder based outside the U.S., it is actually designating that forwarder as its negotiating agent with the ocean carrier and with inland carriers in the U.S. as well. In the case in point, the shipper had no idea of this arrangement or what its actual liability coverage was."

In effect, Augello continues, the Court ruled that a forwarder can simply negotiate a separate contract with different liability limits that then bind the shipper—and without its knowledge. "The bottom line of Kirby is that from now on, the shipper has to negotiate a contract with the forwarder that prohibits any changes in the initially agreed-upon liability limits," he says.

For more on the issues addressed in Kirby, see "Supreme Court hears multimodal liability case" in the November 2004 issue of Logistics Management, available at www.logisticsmgmt.com.

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