There are court cases settled recently that set some serious precedents in relation to how you manage your carriers and how you should qualify the safety of the carriers moving your freight. If you want to read the cases in more detail, please Google them under “vicarious liability” to find a more in-depth explanation of each individual case.

My objective today is to convince you that carrier selection and management has some serious implications for your business and you need to take it seriously. I know with budget cuts and downsizing, many companies like yours have done away with the traditional transportation manager position and have re-assigned this workload to purchasing, or pushed it down to customer service. In these scenarios you have people unfamiliar and inexperienced in the trucking industry buying freight services. Buying freight services is not like buying office supplies! There are many contractual and safety issues to consider before engaging the services of a transportation provider.

General Liability Insurance:

There are statutory minimum levels of insurance required by your carriers. In a recent court case, the shipper did not ensure the carrier had the proper insurance and was ordered to pay damages to victims of a traffic accident. It’s critical to have a system in place to monitor and verify that your carriers have valid insurance in place. You can do this by obtaining a certificate of insurance from their insurance company.

Cargo Insurance

Did you know that freight picking up in the US is covered under US law, more specifically, the Carmack Amendment? This means that it rides at full value and the carrier is liable for full value in the event of a claim. However, read your fine print! Many carriers can, and do offer you pricing discounts in exchange for limited liability. I’ve seen some as low as 10 cents a pound. Be careful make sure you ask the question, especially with high value freight.

Did you know your carrier has no liability if your freight is damaged by: Act of God, Act of Civil Authority, Inherent Vice in the Goods (ie: insufficient packaging), or act or omission on behalf of the shipper (like loading it properly). You should have insurance that covers your goods in transit and specific situations where your carrier is not liable.

Did you know that freight originating in Canada has a maximum carrier liability of $2.00 per pound? If you declare more, you will be charged a fee, if you don’t declare a value $2.00 per pound is all you’ll get in the event of a claim.

It’s good practice not to be named as an “additional insured” on a cargo policy. You may limit your right to file a claim under the policy. You can’t file a claim against yourself!

Does your transportation broker have Errors and Omissions Insurance? They should! In a case where your broker “forgot” to tell the carrier to heat a freezable shipment in the winter, the carrier would be off the hook because they were not contracted for heat. The broker would have to take on the liability of a cargo claim in this situation. You need to ensure they have coverage.

How much is the deductible? Your transportation provider may be reluctant to pay a sizable claim if it’s under their deductible on the policy.

Workers Compensation

If you’re contracting with Ontario based carriers, you should have a WSIB clearance certificate on file for the carrier or transportation provider you’ve contracted with. If your subcontractor is not in good standing with the WSIB, you could be liable for their WSIB premiums as a percentage of the contract cost you paid them. This is scary! They can go back years. Make sure you have a WSIB certificate on file for any transportation provider based in Ontario that you do business with.

Cargo Theft

There are more and more cases of identity theft in the transportation industry. A typical scheme is where a “thief” poses as a legitimate carrier and then gets all the credentials to pick up a shipment. The thief carrier goes in and picks up a shipment, never to be heard from again. You can reduce the risk of this by doing your homework and checking insurance certificates, the carriers website and real phone number, check with the FMCSA to make sure the carrier has an active operating authority, and if the rate seems to good to be true, it probably is.

Safety

In recent court case, the central issue was the safety rating of the carrier involved in an accident. You should be checking SAFERSYS to make sure your carriers have a SATISFACTORY safety rating. This is easily done online and should be monitored regularly, because it can change. If you are using carriers with CONDITIONAL or UNSATISFACTORY safety ratings you could be putting your company at risk in the event the carrier gets in an accident where there are injuries or death.

In addition to SAFERSYS, there is a new safety rating program that started in late December 2010. It’s called CSA – Compliance, Safety, Accountability. It’s a safety ranking system that ranks a carrier on seven BASIC’s. Each BASIC is a safety related category that ranks the number of violations and warnings for the carrier against all carriers in the industry. There is a threshold value for each one. Once exceeded, it opens the carrier up to greater inspections and interventions by the FMCSA. In the context of due diligence you should know if your carriers have any safety alerts (above the threshold value) in any safety categories. This is a great program, but it puts more onus on shippers to check up on the carriers they are contracting with.

Conclusion

Contracting with a carrier or transportation provider is serious business. It’s not like sending a package by FedEx! There are complicated rules and regulations that govern transportation contracts as well as, a history of common law practice. Most of the time, if nothing goes wrong, no one notices. In the event of a chemical spill, an accident, a cargo claim, or cargo theft, everyone goes looking for someone to blame. Don’t let that person be you. Make sure you have a tight policy on carrier selection and qualification and make sure you have clearly defined who can approve new transportation providers.

 

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