Damaged Freight: Settling a Dispute at the Origin

Q: We made a shipment under free-on-board-origin, freight-prepaid terms to one of our customers, applying pricing from our customer’s contract with the carrier.

The shipment arrived with 11 cases damaged, which was duly marked on the delivery receipt returned to the carrier a few days later. The customer deducted the value of the damaged cases from its payment to us, and we filed a claim with the carrier.

The carrier has denied our claim, saying its contract with the customer calls for returning “any exceptions within 72 hours of our spotting the trailer, failing which they have agreed that shipment is considered delivered clear and (we are) free of any liability.” The delivery receipt wasn’t returned to the carrier within the 72 hours.

We pointed out we aren’t party to their contract with our customer, the consignee, but they say we’re bound by its terms anyway. I’ve never heard of such a denial as this. How can we be bound by a contract we never agreed to?

A: There’s good news and bad news. The bad is that I agree with the carrier 100 percent. I’d even say 110 percent except this bit of common hyperbole is mathematically impossible. The good news is you still shouldn’t be out a thin dime as long as you’re willing to stand up to your customer.

You’re making way too much of this business of not being party to the contract between your customer and the carrier. So what? That fact gave you no hesitation about accepting a benefit deriving from the contract — that is, the (presumably) beneficial rate you paid for the carrier’s service. Did you think it came free of charge?

Once you bought into one part of that contract, you necessarily bought into the whole thing, warts and all. If the contract had required you to stand on your head and spit wooden nickels to sustain a claim, the only advice I could give you would be to get a big mouthful of wooden nickels and practice your gymnastics. This contract says no notice within 72 hours, no sustainable claim, and you’re stuck with it.

(Please don’t write back and complain about how you didn’t know anything of the 72-hour requirement. Whose fault is that? If you’re going to take advantage of a contract rate negotiated by somebody else, it’s up to you to familiarize yourself with the other contract terms as well. You can’t cherry-pick the contract to take only the parts you want and pitch the rest.)

But you also told me you’d shipped f.o.b.-origin and then your customer deducted the value of the in-transit damage from its payment to you. Whoa. That’s not how it’s supposed to go.

When you sell under f.o.b.-origin terms, title to the goods passes to the buyer at origin. It owns the goods as soon as they’re stowed aboard the carrier’s vehicle, and thus assumes the risk of in-transit loss or damage.

So this isn’t your claim under the sales terms you describe; it’s your customer’s. Indeed, even if the carrier were inclined to pay, you’d be hard-pressed to assert your entitlement to that payment, inasmuch as you had no ownership stake in the goods when they were damaged. The carrier would be within its rights to demand an assignment of the claim from your customer to you before giving you any money.

As it stands, for one reason or another, you’ve allowed your customer to pass the claim-filing buck to you by means of its improper deduction. Maybe the two of you have some informal agreement to this effect, maybe it’s simple confusion, maybe it’s oversight or maybe it’s something else. Who cares? It still isn’t according to your sales terms.

So go back to your customer and tell it politely that, “Oops, there must be some misunderstanding,” because it owned the goods when they were damaged and therefore must claim. Tell it to make good the deducted amount and fight its own battles against the carrier.

There’s a certain rough justice to this. I mean, you may not have known about the 72-hour requirement in the contract, but your customer whose contract it is certainly knew. It also must have known you were shipping under the contract rates, and probably instigated that.

So it’s the one who should have reported promptly to the carrier. Seems appropriate that it should be the one to bear the consequences of its own failure, doesn’t it?

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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