Logistics and the Law: Double Trouble (page 3)

-- Logistics Management, 2/1/2006

Page 3 of 3 -- The court concluded that "these obligations are not onerous." Shippers, brokers, and 3PLs, however, disagree with the court's conclusion. It is the FMCSA's duty to check the safety of the carriers it registers for interstate transportation.

When hiring trucks, time does not permit delving into each carrier's database to determine how many accidents it had in the past, how many trucks and drivers have been taken out of service, the carrier's SafeStat score, and more. (A DOT score above 75 is not acceptable; the carrier in Schrammhad a score of 74.) It should be sufficient to check a carrier's record the first time it is used and then recheck it periodically to be certain that it continues to maintain a "satisfactory" rating.

Many truckers have not been rated by the FMCSA but brokers need to hire them nonetheless. Yet this court ruled that "… it seems entirely reasonable to require firms, including third-party logistics companies, who assist newcomers with market entry, to evaluate carriers' safety-control measures in the absence of a DOT rating."

The broker/3PL in this case presented evidence that it deals only with carriers that have "full insurance coverage," verifies that coverage, and keeps a copy of documents that prove the carrier has Federal Operating Authority and a current insurance certificate with a minimum of $750,000 auto liability coverage. The company also testified that it regularly checks with carriers to make sure their coverage is current and has been renewed at necessary intervals.

This is a good procedure to follow, but how often must one check a carrier before hiring? If the hiring party did not check on the date it was hired but instead relied upon year-old information, plaintiff's argument will certainly allege negligence in not performing a more current inquiry of the carrier's safety status. It will be a no-win situation for any party that hires trucks.

Accordingly, the best preventive measures that shippers, brokers, and 3PLs can take when hiring a motor carrier include:

• Reviewing and strengthening procedures for hiring carriers, to the fullest extent possible.
• Insisting upon staff's strict compliance with these new procedures.
• Using private services that update information when there are changes in carriers' insurance and licensing.
• Conducting an independent investigation of carriers that do not have a DOT safety rating.

In light of this court decision, brokers and 3PLs would be wise to review contracts, bills of lading, documentation, and sales and marketing materials to be certain that it is clear to existing and potential customers that they are not carriers.

These entities have exposed themselves to allegations that they are operating as carriers by changing their corporate names to include the word "Logistics," permitting their name to be shown on documents as the carrier, paying loss and damage claims, and purchasing cargo insurance policies.

There are legally correct ways to operate as an intermediary without being exposed to potentially devastating lawsuits. Shippers that hire intermediaries will want to be cognizant of how the Schrammdecision could affect their service providers while at the same time making sure that they, too, will not be harmed as a result.

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