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CONTRACTS OF CARRIAGE A Study of Controversial Provisions which Divide Shippers, Brokers and Carriers CONTRACTS OF CARRIAGE A Study of Controversial Provisions which Divide Shippers, Brokers and Carriers Delta Nu Alpha - June 26, 2008 Henry E. Seaton, Esq. Seaton & Husk, LP www. transportationlaw. net -and. Scott W. Mc. Mickle, Esq. Dennis, Corry, Porter & Smith, LLP www. dcplaw. com 1

Air & Expedited Motor Carrier Association Apex Capital LP Champagne Logistics Greatwide Truckload Management Air & Expedited Motor Carrier Association Apex Capital LP Champagne Logistics Greatwide Truckload Management Kings Express Landstar RMCS USA Transportation Services, International 2

About DNA l l l Fraternity of transportation professionals Open to all with interest About DNA l l l Fraternity of transportation professionals Open to all with interest in education Interdisciplinary – shippers, carriers, third party logisticians and students Traditional chapter format – Milwaukee, Chicago, Rockford, Nashville, Bowling Green, Grand Rapids, Louisville, Le High Valley Student chapters at Western IL University Scholarship program www. deltanualpha. org 3

Syllabus of Future Webinars Contains Chronic and Acute Industry Problems l l Format is Syllabus of Future Webinars Contains Chronic and Acute Industry Problems l l Format is issue presentation followed by open question and answer. Diverse opinions are encouraged. Goal is to assess issues, impart information and better prepare listeners as knowledgeable professionals in any industry which too frequently ignores day-to-day problems of contracts, claims and operations in favor of “supply chain management. ” CCPAC accreditation of 3 courses for cargo claims specialists. 4

Upcoming Webinar Topics 7/15/2008 8/19/2008 9/16/2008 10/21/2008 11/18/2008 FMCSA Safety Regulations The Scourge of Upcoming Webinar Topics 7/15/2008 8/19/2008 9/16/2008 10/21/2008 11/18/2008 FMCSA Safety Regulations The Scourge of Double Brokering Cargo Claim Mitigation, Adjustment and Salvage Issues INCOTERMS – The Language of the Global Economy Supply Chain Security Issues – Alphabet Soup and New Regulations For more information and to register, go to www. deltanualpha. org Approved for Certified Claims Professional Accreditation Council (CCPAC) Credit (1. 5 CEUs) 5

SHIPPER AND BROKER CONTRACTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. SHIPPER AND BROKER CONTRACTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Waiver of statutes and regulations Special and consequential damages Indemnification clauses “Additional insured” language The right of setoff Salvage / no duty to mitigate Shipper load and count / concealed damage waivers No penalties for nonpayment Homer provision / arbitration Integration clauses No recourse provisions; and No back solicitation agreements Shipper contracts making a broker into a “carrier” or “service provider” 6

What is a Waiver? Answer: Pursuant to 49 U. S. C. 14101(b): “If the What is a Waiver? Answer: Pursuant to 49 U. S. C. 14101(b): “If the shipper and carrier, in writing, expressly waive any or all rights and remedies … for transportation covered by contract, the [services] provided under the contract shall not be subject to the waived rights and remedies and may not be subsequently challenged on the grounds that it violates the waived rights and remedies. ” 7

What are the consequences of waiving federal “rights and remedies” and standard bill of What are the consequences of waiving federal “rights and remedies” and standard bill of lading terms and conditions? Answer: It takes 10 to 20 pages of fine print to address the issues you just excluded and in the details the carrier often loses. 8

61 Good Reasons Not to Waive Federal Transportation Law and Bill of Lading Terms 61 Good Reasons Not to Waive Federal Transportation Law and Bill of Lading Terms I. III. Introduction What is Waiver? 49 U. S. C. § 14101(b) What gets thrown out by a blanket waiver? A. Carmack (49 U. S. C. § 14706) 1. National uniformity and consistency of statute 2. Predictability v. state law variance 3. Uniform treatment of special and consequential damage issue 4. Removal to federal court, 28 U. S. C. § 1337 5. Venue flexibility for deciding and situs of loss, 49 U. S. C. § 14705(a) 6. Forum non-conviens, right to transfer to convenient venue, 28 U. S. C. § 1391 7. Burden of proof for negligence transferred to shipper 8. Document presumption of good order and case law lost. 9

9. Consignee duty to accept shipment unless practically worthless and to mitigate damage loss 9. Consignee duty to accept shipment unless practically worthless and to mitigate damage loss 10. State law liability standard inconsistent with cargo insurance coverage 11. Joint line apportionment-49 USC 14706 12. Liability imposed on connecting line carriers, issuance of bill of lading not required, 49 USC 14706(1) 13. Full actual value 14. Released evaluation 15. Preemption trumps state law causes of action B. Written Claims Requirements 16. Regulations establish standards of what constitutes a claim-370. 3(c) 17. Minimum claims requirements established-370. 3(b) 18. Adjustment and response procedures-deadlines, free astray certifications-370. 5 and 370. 7(c) 19. Administrative Ruling 65 and 128 -payment of freight charges/dispute resolution of claims vs. offset C. Uniform bill of lading or standard bill of lading provisions waived 20. Bill of lading is contract of carriage/waiver results in shipping documents becoming simple receipt for goods-VICS bill contains no terms and conditions 21. Loss of release rate notice and inadvertence clause, opportunity to declare higher rate 10

22. Loss of C. O. D. provision to require collection upon delivery 23. Special 22. Loss of C. O. D. provision to require collection upon delivery 23. Special instruction block for special service terms 24. Identity and definition of the party-who is the carrier in possession and control 25. Identify payor of charges/is shipment prepaid or collect or third party 26. Accurate description of commodity including hazmat certificate Back Side Terms and Conditions Omitted from Contract 27. Reasonable dispatch defined 28. Act of God exception Common Law Exceptions 29. Act of public enemy Trumped by Waiver 30. Authority of law 31. Inherent vice 11 32. Act or omission of shipper

33. 9 month rule for filing claims, statement in writing required-49 U. S. C. 33. 9 month rule for filing claims, statement in writing required-49 U. S. C. 14706(e)(1)(a) 34. 2 years after denial to file suit limitation, stated in writing 49 U. S. C. 14706(e)(1) 35. Carrier lien for freight charges confirmed-49 U. S. C. 80109, 49 U. S. C. 13707 36. Provision for warehouse statement of status upon wrongful rejection 37. Salvage provisions/non-perishable 38. Salvage provisions/perishable 39. Deduction of transportation charges from salvage after sale 40. No liability for items of extraordinary value 41. Hazmat protocol/shipper duty to identify 42. Payment of freight charges/liability of consignor and consignee (UBOL Section 7) 12

43. Instrumentalities of Transportation-Define the Parties l Consignor-49 USC 80101(2) l Consignee-49 USC 80101(1) 43. Instrumentalities of Transportation-Define the Parties l Consignor-49 USC 80101(2) l Consignee-49 USC 80101(1) l Broker-49 USC 13102(2), 49 CFR 371 l Motor Carrier-13102(14) l Not defined – 3 PL, Logistics company or “transportation service provider” 44. Pitfalls to broker of waiving statutory definition l Loses statutory definition as arranger, easily becomes “provider” entering the liability loop and chain of custody vs. the mischief of “Service Provider” status 45. Shipper pitfalls l Loses standard as “member of shipping public” and public utility analysis – prime contractor in supply chain 13

46. Broker recordkeeping and production of payment records waived-49 CFR 371. 3 47. Misrepresentation 46. Broker recordkeeping and production of payment records waived-49 CFR 371. 3 47. Misrepresentation provision separating broker from carrier-49 CFR 371. 7 48. Anti-rebate prohibitions waived-49 CFR 371. 9 49. Broker responsible for discharging shipper’s payment duties-371. 10 50. Prohibition against broker commingling of funds and requirements of segregation waived-371. 11 51. Basis for “constructive trust” under statutes and regulations waived Miscellaneous statutes 52. Off-Bill discounts, truth-in-billing-49 USC 13708 53. Overcharge, undercharge and duplicate payment regulations wiaved-49 CFR 378 14

54. 55. 56. 57. 58. 59. 60. 61. Statutory time limits for identifying overcharges 54. 55. 56. 57. 58. 59. 60. 61. Statutory time limits for identifying overcharges and undercharges-180 day rule, 49 USC 13710 Broker’s bond registration and bond requirements waived Shipper load and count provisions which result presumption on shortage and damage claim waived 49 USC 80113 Possessory lien and duty to deliver-49 USC 8010949 USC 13707 Self-help provision, 49 USC 14704 Anti-lumping statute, 49 USC 14109 Payment liability, 49 USC 13706, 49 USC 13707, Credit Regulation at 49 CFR 377 Statute of limitation for collecting freight charges 15

Waiver Under § 14101 (b) Objectionable Language Acceptable Language “The parties expressly waive all Waiver Under § 14101 (b) Objectionable Language Acceptable Language “The parties expressly waive all rights, duties and obligations permitted under § 14101 (b)" “General principles of Federal Transportation Law, Statutes and Regulations shall apply to the extent not expressly waived herein. ” Partial List of Affected Items ü Preemption üFederal Court Jurisdiction ü Claims rules and salvage § 370 üCredit Regulations § 377 ü Overcharge and Undercharge § 378 Broker Accounting and Segregation ü ü Through routing and joint rates ü 180 Day Rule for auditing bills üCarmack üBill of Lading Terms ATA Broker 16

Special and Consequential Damages l Carmack – is “full actual value” No special or Special and Consequential Damages l Carmack – is “full actual value” No special or consequential damages l Shipper has duty to mitigate l l By contract shippers seek Payment of penalties for late deliveries l Waiting crane fees, missed market fees l l What can result Crushed new cars because of bent bumpers l $30, 000 charter plane bill to replace $500 delayed shipment l Imposition of penalties for delay beyond driver’s control which exceed guarantees of expediters like Fed. Ex, DHL or UPS l 17

Special and Consequential Damages Objectionable Language Acceptable Language “Carrier shall be liable for all Special and Consequential Damages Objectionable Language Acceptable Language “Carrier shall be liable for all loss resulting from loss, damage, or delay to cargo including but not limited to lost profits and sales, the cost of cover, the cost of expedited replacement, lost down time, additional handling and shipping costs, and restocking fees. ” “Carrier shall be liable for cargo loss and damage in accordance with federal law (49 U. S. C. § 14706) with respect to all shipments. Carrier shall not be liable for special or consequential damages. Carrier’s liability for cargo loss and damage shall be limited to the shipper’s actual cost of the articles, lost, damaged or destroyed and shall not exceed $___per truckload or $___per pound per article, whichever is less. ” What’s the Difference? ØDo you pay for plant shut downs, air freight replacements, waiting cranes, etc. ? ØThe Carmack Amendment limits liability – no state law remedy (emotional distress, punitives) ØReasonable dispatch only as per Bill of Lading ØDon’t admit “foreseeability” ØTime sensitive/JIT freight ATA/NITL Section 7 -No special or consequential without notice 18

Risk Transfer Provisions in Contracts l Contractual risk transfer involves an attempt to allocate Risk Transfer Provisions in Contracts l Contractual risk transfer involves an attempt to allocate potential legal liabilities which would arise in connection with the performance of a contract between the parties to the contract. These liability risks are often allocated in a manner that would not have occurred under common law or in the absence of contract. 19

Types of Contractual Provisions l Two types of contractual provisions are typically used to Types of Contractual Provisions l Two types of contractual provisions are typically used to effect non-insurance risk transfer from shippers and brokers to carriers. The are: (1) (2) Hold harmless or indemnity provisions; and Additional insured and related insurance provisions 20

What is a Hold Harmless and Indemnity Provision? l An agreement whereby one party What is a Hold Harmless and Indemnity Provision? l An agreement whereby one party (the indemnitor), assumes the other party’s (the indemnitee) legal liability to whatever extent delineated in the provisions. l Typically if a hold harmless and indemnity provision is limited to the extent the shipper or broker is held vicariously liable for injury or damage that the carrier causes, the indemnity clause is unobjectionable, yet many shippers and brokers seek broader indemnification for losses “arising out of” the services provided regardless of fault which extends the carrier indemnity obligation to include: l The negligent acts or omissions of third parties; l The contributory negligence of the indemnitee, if not indemnification for the sole negligence of the indemnitee (if prevented by state anti-indemnity statute) 21

Importantly, indemnity provisions operate independently from the carrier’s insurance which may or may not Importantly, indemnity provisions operate independently from the carrier’s insurance which may or may not cover the risk assumed by the carrier in the contract 22

Indemnity Objectionable Language “It is the express intent of the parties to this agreement Indemnity Objectionable Language “It is the express intent of the parties to this agreement that carrier will indemnify the shipper for all loss, damage and claim of any kind arising out of this contract except for shipper’s sole gross negligence. ” Acceptable Language “Except with respect to cargo damage claims as set forth herein, each party will indemnify and hold harmless the other from all loss, liability or claims to the extent same is caused by a negligent or willful act or omission of their respective employees, agents or subcontractors in the performance of this contract. ” What’s the Difference? Ø“Arising out of” language is broader than coverage afforded by additional insured language in new standard ISO endorsement ØComparative ØCan ØSee Negligence Carrier can pay for shipper negligence? ATA/NITL Section 10 anti-indemnity statutes of CA, IN, KS, MD, NC, NE, SC, TN, TX, VA and WV 23

Two-Handed Pick Pocket The “two handed pick pocket” is the name given to the Two-Handed Pick Pocket The “two handed pick pocket” is the name given to the combination of overreaching indemnification provisions coupled with “additional insurance” requirements. 24

Indemnity Provisions and Insurance Coverage l Where a motor carrier is obligated to indemnify Indemnity Provisions and Insurance Coverage l Where a motor carrier is obligated to indemnify a shipper or broker by contract, the motor carrier’s general liability policy will respond to the obligation if and only if the coverage for the claim is not otherwise precluded by the terms of the policy. 25

A Caveat A motor cannot assume that a broadly worded indemnity will be automatically A Caveat A motor cannot assume that a broadly worded indemnity will be automatically covered by its commercial liability policy without a detailed analysis of the exclusions. l Even if the policy extends coverage to cover the shipper’s risk of loss by contract, indemnification beyond legal liability dilutes coverage and can increase loss runs. l 26

Motor Carriers Maintain: l BI & PD l l Cargo l l In an Motor Carriers Maintain: l BI & PD l l Cargo l l In an amount of $1 million which goes to pay injured third parties/ MCS 90 endorsement and BMC 91 X gives shipper assurance of payment for primary liability for carrier Policy loopholes exist Carmack is best that can be expected “Loss payee” status is of no help in extending coverage General Liability l l l Covers “non-auto” BI & PD (i. e. excludes coverage for truck wrecks) Shipper is automatically insured under contractual liability language New ISO form limits “automatic contractual coverage” to “to the extent caused by” 27

Shippers demand think they are getting more: l They seek: Coverage for their own Shippers demand think they are getting more: l They seek: Coverage for their own act of negligence (i. e. no contributory or comparative negligence). If motor carrier is 1% negligent it is responsible. l Protection from third party torts (i. e. if lumper runs over their dockhand while loading the carrier’s truck the want protection under “arising out of” language. l They want waiver of subrogation and protection against suit by carrier’s driver or owner-operator and their estates if carrier’s driver or agent is injured by shipper. l 28

Additional Insured Status l Additional insured status is a second contractual risk transfer device Additional Insured Status l Additional insured status is a second contractual risk transfer device intended to achieve a similar end without relying on the terms of the indemnity clause. l It makes the shipper or broker an insured in the carrier’s general liability policy and in the carrier’s auto liability policy subject to the terms and conditions of the policy and the additional insured endorsement. 29

What are the primary motives of shippers and brokers for requiring additional insured status What are the primary motives of shippers and brokers for requiring additional insured status on liability policies? l l l Additional insured status may reinforce risk transfers that would otherwise be invalidated by state anti-indemnity statutes (e. g. Condor Express) It may give the indemnitee direct rights under the carrier’s insurance, particularly with respect to defense coverage It may prohibit the indemnitor’s insurer from subrogating against the indemnitee when the loss is caused by the indemnitee’s act or omission It may avoid having losses impact the shipper’s loss run history, avoiding increased insurance premiums in the future It may lessen the chance of the shipper having to sue the carrier to be made whole following a claim 30

Additional Insured Objectionable Language “Shipper shall be included as an additional insured, with respect Additional Insured Objectionable Language “Shipper shall be included as an additional insured, with respect to the insurance policies required above. All insurance required and provided by Carrier shall be primary and any insurance maintained by Shipper shall be excess and not contributing with Carrier’s insurance. ” Problems Most shippers think you are buying them indemnity covering their own negligence; most insurers don’t agree. Shippers can outsmart themselves and lose their own coverage. Acceptable Language “Carrier warrants that it maintains personal injury and property damage insurance ($1 Mil per occurrence and cargo insurance as required by the Fed. Motor Carrier Safety Admin. (Form BMC-91 X and BMC-34 on file). In addition Carrier warrants that it maintains workman’s compensation insurance as required by state law and all risk cargo insurance in the amount Note: less than ___ per occurrence. of not Ø If shipper insists on “additional insured” for 3 rd party liability, you should exercise extreme caution, providing policy and insurers written endorsement warranting nothing about what ATA/NITL Section 5 31 is covered

Avoid the Complexity of Indemnity/Insurance Issues è If you are foolish enough to try Avoid the Complexity of Indemnity/Insurance Issues è If you are foolish enough to try to extend your policy to cover a shipper’s negligence (1) you may be covered but don’t bet on it; (2) as a general rule, say no, and be EXTREMELY careful with exceptions. è Examples of horror shows involving the two handed pick pocket. 32

l Carrier agreed to indemnify shipper and to acquire insurance protecting the shipper against l Carrier agreed to indemnify shipper and to acquire insurance protecting the shipper against injured driver suit (Quaker v. Condor) Shipper’s negligence injures driver l Indemnity found against public policy under state law l Carrier required to pay because it did not procure insurance for shipper l 33

l Indemnity under UIIA – no coverage for brokered load Chicago drayman checks out l Indemnity under UIIA – no coverage for brokered load Chicago drayman checks out container and chassis and gives load to another carrier l Subcontractor hit a bridge l Indemnitee (chassis owner) sues drayman’s insurer for indemnity l Insurer denies coverage (brokerage excluded from auto liability; auto coverage was excluded from general liability) l $10 million verdict against drayman l 34

l Indemnity Trumps Carmack and Bill of Lading Limitation l Air waybill limits liability l Indemnity Trumps Carmack and Bill of Lading Limitation l Air waybill limits liability to $100, 000. l Forwarder pays $692, 000 claim and turns to carrier under shipper/carrier contract for “indemnity” l No contract limitation found, no Carmack or bill of lading limitation applied l Carrier has to pay $692, 000 35

Groping for Solutions l l Limit indemnity to “to the extent caused by” Work Groping for Solutions l l Limit indemnity to “to the extent caused by” Work with your insurer to meet shipper’s needs Be sure “waiver of subrogation” request is acceptable and does not vitiate worker’s comp l Examine use of broadly worded CG 2026 or CG 2010 which should meet shipper’s needs for general liability coverage. It can dilute carrier coverage, but no gaps in coverage if 2 handed pick pocket is otherwise limited. l “Additional insured” status may give shipper assurances of representation in vicarious liability BI-PD auto case but won’t necessarily “extend” coverage to shipper for its acts of negligence. (Carrier spills diesel/shipper’s employee lights a match and throws it on the spill. ) l Know your insurance and offer the shipper only what you have! l 36

Time to Take a Break 37 Time to Take a Break 37

Offset l What is it? When shipper deducts a contested cargo claim from a Offset l What is it? When shipper deducts a contested cargo claim from a carrier; OR l When a broker pays a contested cargo claim and deducts from carrier l l Why do shippers and brokers offset? Carriers and their insurer do not settle claims; OR l Because the carrier’s insurance contains loopholes which allow denial of coverage and the carrier factors its bills l l What is the result? Cargo claims are not adjusted in accordance with 49 CFR 370 l Insurers will not pay carrier l Carrier is deprived of needed revenue l 38

Right of Offset Objectionable Language “Compensation paid to Carriers may be withheld to satisfy Right of Offset Objectionable Language “Compensation paid to Carriers may be withheld to satisfy claims or shortages, or any debt owed by carrier to shipper/broker at shipper/broker’s sole discretion. ” Acceptable Language “Shipper/broker shall pay freight charges within 30 days without offset” OR “Freight charges shall be paid in accordance with the terms of carrier’s Service Conditions. See www. ___. com” Reasons to Reject Offset ATA/NITL Section 3(a)-No Offset ØSpiral of death to carrier a) Insurer won’t pay ATA Broker b) Factoring terms are violated c) Cash flow interrupted ØNo mitigation of loss – broker or carrier takes full unadjusted amount of loss 39 ØRules circular deal with important collection issues ØBrokers who have no cargo liability take advantage of carrier to keep

Duty to Mitigate l Under common law, a the consignee must accept goods unless Duty to Mitigate l Under common law, a the consignee must accept goods unless “practically worthless” l Consignee cannot reject 22 pallets because 2 are damaged – the mitigation test is one of reasonableness 40

l By contract, shippers seek waiver of duty to mitigate using “sole discretion” language l By contract, shippers seek waiver of duty to mitigate using “sole discretion” language l They require return of rejected shipments at the carrier’s expense and dump the goods 41

Examples of Duty to Mitigate Abuse l Dumping of good foodstuff without inspection due Examples of Duty to Mitigate Abuse l Dumping of good foodstuff without inspection due to broken seals l Pickles l Orange Juice l Coca-Cola l Crushing damage new cars because of bumper 42

Salvage/No Duty to Mitigate Objectionable Language Acceptable Language “Neither shipper nor its Delete and Salvage/No Duty to Mitigate Objectionable Language Acceptable Language “Neither shipper nor its Delete and incorporate customers shall have a duty to Service Conditions which mitigate damages. In the event contain salvage rules – Bill of of damaged, branded or labeled Lading also includes the goods, shipper’s customer may shipper and consignee determine, within its sole common law duty to mitigate discretion, whether all or part of unless agreed the shipment may be salvaged to the contrary. and the value of such salvage. ” Reasons for Objection ØObjectionable language makes “wrongful rejection” legal ØConsignor has duty to accept shipment unless its “effectively worthless” ØDon’t let one broken pallet cost you a truckload Ø“Distress sale” of rejected shipment will produce losses a consignee can avoid by using undamaged product in stream of commerce ØIssue on-hand notice and get an expert ATA/NITL Section 7(d)-Shipper and consignee have duty to mitigate 43

Shipper Load and Count New HOS rules have proliferated use of spotted trailers l Shipper Load and Count New HOS rules have proliferated use of spotted trailers l Carrier’s drivers are not there to count freight on or off trucks l Bill of Lading Act contemplates “SL&C” and says carrier is not liable for count or upset due to loading when: l Loaded by shipper, unloaded by consignee l Phrase “Shipper Load and Count” or similar is on bill l Carrier should not be responsible absent negligence for delivery of spotted trailer with seal intact l Many shipper contracts make carrier responsible for count and warehouse shortage resulting from short counts l 44

Shipper Load and Count/Concealed Damages Objectionable Language Acceptable Language “Carrier shall not be responsible Shipper Load and Count/Concealed Damages Objectionable Language Acceptable Language “Carrier shall not be responsible “Carrier will provide spotted trailers for shortage on shipments loaded for shipper’s convenience in loading and counted by consignor where and unloading. Notwithstanding the trailer is received at use of spotted equipment carrier destination with seals intact. will accept responsibility for the Failure to indicate “SL+C”, loading and counting of each “Subject to shipper load and shipment. ” count” or like notations on Note: shipping documents shall not be a ØCarrier rules circular will address this issue conclusive determination of carrier ØAccept pallet count not individual piece count liability when driver is not present during the loading or unloading of shipment. ” ATA/NITL–SL&C is standard/consignee has duty to accept broker seals 45

Freight Payment Terms l l Carriers are general unsecured creditors Bankruptcy is rampant l Freight Payment Terms l l Carriers are general unsecured creditors Bankruptcy is rampant l l l l l Goody’s Dan River Rust Belt 3 PL won’t guarantee payments Fuel cost of 80¢ per mile must be paid immediately Shipper increasingly want 45 to 60 day credit terms/no interest or penalty Most small carriers must factor paying 1. 5% to 3% per month - cost on many exceeds profit margin Carriers must get paid early and on time to avoid “preferences” Factors can and will pull the sting if a major shipper goes down Carriers are the last to get paid by failing shipper 46

No Penalties for Non-Payment of Freight Charges Objectionable Language Acceptable Language “Payment will be No Penalties for Non-Payment of Freight Charges Objectionable Language Acceptable Language “Payment will be made within “Freight charges are due within 30 days of receipt of invoice and certified copy of the delivery receipt (via fax, mail or EDI). Freight charges not paid within 45 days are subject to interest and collection fees (see Carrier’s Rules Circular). ” 60 days receipt of carrier’s invoice including the original delivery receipt to which no exception is noted – Carrier waives any lien it may have on shipments for freight charges. ” Note ØCarrier can ill afford to provide interest free loans ØCollection remedies must be incorporated into contract or by reference in Rules Circular and be referenced on each invoice (49 CFR 377) ATA Broker ATA/NITL Section 3(a)Interest but no penalties 47

Homer Provisions/Arbitration Objectionable Language Acceptable Language “Carrier consents to exclusive jurisdiction and venue in Homer Provisions/Arbitration Objectionable Language Acceptable Language “Carrier consents to exclusive jurisdiction and venue in shipper’s/broker’s hometown of Hilo, HI. The laws of the State of HI will apply. All disputes will be subject to binding arbitration at shipper’s election before the arbiter of its choice at its home town. ” Note: “General principles of federal transportation law, jurisdiction and venue state apply. Subject to the approval of carrier’s cargo insurer, cargo claims not paid within 120 days may be subject to binding arbitration initiated by either party before the arbitration services of the Trans. Lawyers Assoc. ” ØFederal law not state law should apply ØShippers choice of venue is often irrelevant to dispute, just a difficult place to sue ØArbitration or ADR (Alternative Dispute Resolution) is in both parties’ interest and expedited arbitration or mediation is to. Section 22 -General principles of ATA/NITL be preferred. federal transportation law/ADR is voluntary 48

Integration Clauses Objectionable Language “This contract contains each and every term of the agreement Integration Clauses Objectionable Language “This contract contains each and every term of the agreement between shipper/broker and carrier and no provision of any carrier published tariff or rule applies. This contract may only be modified by a signed written amendment. ” Note: Acceptable Language “The terms and conditions of the Standard Truckload Bill of Lading and Carrier’s Rules Circular (www. carriers. com) shall apply. This contract otherwise includes all of the terms and conditions of the agreement between the parties and may be modified only by a signed written agreement. ” Ø Be sure the Bill of Lading and your Service Terms and Conditions are incorporated by reference and are not excluded. ATA/NITL – has integration/must incorporate rules tariff and standard BOL 49

Carrier Recourse to Consignor l The majority rules is the broker is agent of Carrier Recourse to Consignor l The majority rules is the broker is agent of shipper and carrier has bill of lading recourse to shipper if (1) carrier is not paid and (2) carrier has not surrendered recourse for signing Section 7 or waiving recourse. l See Contship Container Lines, Inc. v. Howard Industries, Inc. , 309 F. 3 d 910 (6 th Cir. 2002); Hawkspere Shipping Company, Ltd. v. Intamex, S. A. , 330 F. 3 d 225 (4 th Cir. 2003); National Shipping Co. Of Saudi Arabia v. Omni Lines, 106 F. 3 d 1544 (11 th Cir. 1997); Exel Transp. Servs. v. CSX Lines L. L. C. , 280 F. Supp. 2 d 617 (D. Tex. 2003); Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co. , 513 F. 3 d 949 (9 th Cir. 2008) l 75% of collection cases involve broker non-payment l Scourge of double brokerage to be covered in August l Major fault line between carrier and broker industry 50

Nonrecourse Provision (in Broker Contracts) The Major Issue – Separating Carriers and Brokers Objectionable Nonrecourse Provision (in Broker Contracts) The Major Issue – Separating Carriers and Brokers Objectionable Language “Carrier authorizes Broker to invoice shipper for freight charges as agent on behalf of carrier. Payment of freight charges to broker shall relieve shipper of any liability to the Carrier for nonpayment of charges…Broker shall be agent for Carrier for collection of freight charges. ” The Differences Acceptable Language “As agent for its customer, broker shall transmit freight charges to Carriers in accordance with the federal regulations applicable to property brokers (49 CFR 371). Carrier will abstain from invoicing shipper for payment until all methods of collection from broker have been exhausted. ” ØObjectionable provision cuts off Carrier’s recourse to shipper and consignee under Bill of Lading in the event of non-payment ØAcceptable provisions makes broker the agent of the shipper who hires it, preserves recourse ØNote: More helpful language is incorporated by reference into the Carrier’s Service Conditions MAJOR UNRESOLVED ISSUE – AFFECTS CONSTRUCTIVE TRUST TIA ATA 51

Back Solicitation Provision The Differences Ø Objectionable language can bar you from responding to Back Solicitation Provision The Differences Ø Objectionable language can bar you from responding to an unsolicited offer to bid on a shipper’s traffic Ø Objectionable language can preclude you from handling unrelated traffic lanes for Corporate 500 shippers without paying a commission 52

Back Solicitation Provision Objectionable Language “Carrier recognizes broker as its exclusive agent with respect Back Solicitation Provision Objectionable Language “Carrier recognizes broker as its exclusive agent with respect to any customer for whom it provides service under this agreement. Broker agrees to pay broker liquidated damages 20% of the revenue it receives for shipments handled for such shippers without broker’s expressed authorization and for a period for two years following termination of this agreement. ” Acceptable Language None -OR“Carrier will not back solicit Broker with respect to traffic first tendered to Carrier by Broker for a period of one year following termination of this agreement. As liquidated damages, Carrier agrees to pay Broker a 10% commission for shipments handled in violation of this covenant for a period of one year following cancellation of this agreement. ” TIA 53

Broker Required to Accept Contract as “Carrier” l Increasingly major shippers insist brokers sign Broker Required to Accept Contract as “Carrier” l Increasingly major shippers insist brokers sign their shipper/carrier contracts with little or no changes. l Often the only change is in the recitals saying that the broker holds a license and bond. 54

l It is virtually impossible to redline a 30 page carrier contract to sort l It is virtually impossible to redline a 30 page carrier contract to sort out the role of the broker as an “arranger” not a “provider”. l Result in “an open trap” for broker liability for cargo loss, third party liability, not covered by insurance and “negligent hiring” or contractor/subcontractor employment issues l Shipper/3 PLs will say, “Sign as is, everybody else does” - Broker regulations make this misrepresentation a regulatory violation 55

The Lessons of Schramm v. Foster and Jones v. CH Robinson l Don’t assume The Lessons of Schramm v. Foster and Jones v. CH Robinson l Don’t assume carrier’s responsibility or safety warranties l Courts do not understand role of 3 PLs – neither to government appointees. See Jones v. C. H. Robinson Worldwide, Inc. , 2008 U. S. Dist. LEXIS 45325 (W. D. Va. June 10, 2008) 56

Solution Use a wraparound logistics agreement identifying broker as “arranger” who will use “licensed, Solution Use a wraparound logistics agreement identifying broker as “arranger” who will use “licensed, authorized and insured carriers” contingent liability and contingent cargo l Attach Shipper/Carrier Contract as Appendix A, represent that broker will endeavor to retain a carrier to meet needs set forth therein l Modify Appendix A in wraparound as needed l Require name of actual carrier on bill of lading and be careful not to misrepresent status of ARRANGER on bill of lading l 57

Questions 58 Questions 58