Q: We have an agreed FAK ("freight all kinds") rate with a motor carrier at Class 70, and have been shipping under this agreement for some time without problem.
Recently, though, a load arrived with damage. We documented the damage and filed a claim with the carrier for the dollar amount (it was about $3,500). We expected to be paid promptly.
Instead the carrier came back to us with a request for the manifest of the entire shipment. I couldn't see how this was relevant because the rest of the shipment was undamaged, but they were very insistent so we complied.
A couple of weeks later we got what purported to be a settlement check from them — for $283.14! I was shocked and immediately called them to find out what was going on.
The way they explained it to me was this: First, they said, their tariff sets a dollar ceiling on liability unless a greater value is declared. The article that was damaged was rated at Class 125, and their ceiling on that was $15.81 a pound. Well, I said after getting out my calculator, that's fine; the damaged item weighed 286 pounds, so that works out to $4,521.66 as a ceiling, more than the amount of the claim.
Well, no, they told me. This was an FAK shipment that included other items rated as low as Class 50. Since we hadn't identified each article separately on the bill of lading, their liability was capped at the lowest value of anything in the shipment. Their liability ceiling on Class 50 is 99 cents a pound, so that's all they owe us!
I don't understand this at all. The law (49 U.S.C. Section 14706(a)(1)) holds carriers liable for “the actual loss or injury,” which was $3,500. I know shippers and carriers can agree to lower amounts, but we never agreed to anything like that. Can they legally rip us off this way?
A: Yup, they can. Probably.
Your problem was that when you negotiated your rate with this carrier, you didn't extend your negotiation far enough. You didn't opt out of their tariff rules, and you also didn't itemize your bill of lading sufficiently to comply with the fine print of those rules. So they likely can hand you a “gotcha.”
I've read over the carrier’s tariff, and it says exactly what they’ve told you. “If the shipper does not properly describe the freight on the bill of lading or uses a description of ‘FAK’ or ‘Freight All Kinds’ or other language that does not properly identify the commodities shipped, subsequent claims for shortage or damage will be based on the lowest value of any commodity contained in the shipment.” That means your coach turns into a pumpkin for purposes of this claim.
This business of carriers unilaterally limiting their liability by means of tariff provisions goes back about a quarter century to a case identified as NASSTRAC v. U.S., 887 F.2d 443 (U.S.C.A.3, 1989), affirming the Interstate Commerce Commission's ruling in NASSTRAC v. Consolidated Freightways (unreported; ICC docket MC-C-30302, slip opinion served Jan. 13, 1989), cert. den. 495 U.S. 918 (1990). The ICC, which back then dictated what tariffs might and might not say, said this approach was OK, and carriers have been doing it ever since.
The idea is that, by agreeing to ship subject to the carrier's tariff, you therefore agree to any liability limits set forth therein. The agreement, that is to say, doesn't have to be explicit; it can be implicit in your tendering the shipment in the first place.
Now, not every court has approved. Some have gone along with the program, others have disagreed, and still others have sought to draw some kind of distinction based on whether the shipper is or is not "sophisticated." (Don't ask me what that means, but it probably has more to do with the shipper's experience in transportation rather than whether it holds a teacup with the pinkie extended or attends cultural events and visits museums and art galleries regularly.)
So it's possible that, if you challenged this application of the carrier's tariff in court, you might prevail. It's about equally possible that you might not, though. And given the comparatively small sum at stake here, the idea is a non-starter either way. That being the case, I think you're stuck.
For the future I'd suggest that you broaden your negotiation base with your carriers beyond just base rates and get its general tariffs out of the picture. Otherwise, that fine print will get you every time.
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.