Brokers Add Risk with Expanded Services

Transportation intermediaries seeking to increase their revenue stream by expanding their menu of value-added services should be aware that they are taking on added liability as well.

"If you are advertising that you will protect shipments from the beginning to the end, and you only play a part in the shipment, you may take on more liability than you thought," Peter Powell Sr., senior counselor to the National Customs Brokers & Forwarders Association, told that group's annual conference Monday in Rancho Mirage, Calif.

There is a growing trend among cargo interests to sign contracts that push more risk for shipments gone awry on to their service providers, said Greg Kritz, vice president of Roanoke Trade Services.

Customers are going so far as to ask their brokers and forwarders to indemnify them even in cases of shipper negligence, Kritz said.

Brokers, forwarders and cargo consolidators may want to consider such requests if taking on the added risk translates to higher revenue, but they should first determine the value of the business compared to their profit margin, Kritz added.

Transportation intermediaries who progress beyond basic processing of import and export documentation to stuffing containers, booking trucking services or offering credit to shippers take on a significant amount of risk.

For example, if the intermediary books freight with a motor carrier that has a history of mishaps and that carrier is involved in an accident that results in death or serious injury, the victims will likely sue the intermediary as well as the trucker. These suits are often settled for millions of dollars.

It is crucial that the forwarder or broker check the motor carrier's insurance certification and credit rating. Likewise, if due diligence indicates that the customer presents a high risk, it is best to drop the account.

When in doubt, transportation intermediaries also have the option of purchasing credit insurance in order to protect themselves from "shock loss" events. "Banks like to see insured receivables," he said.

Brokers, forwarders, third-party logistics companies and cargo consolidators should always have contracts reviewed by legal counsel, especially when the client has inserted language that goes beyond what is contained in a normal bill of lading.

"Be aware of contractual language that overrides the ordinary bill of lading liability," said Douglas Fischer, regional vice president of Navigation Management Co. Inc.