Q&A: Trying to Avoid a Trip to the Cleaners

Copyright 2009, Traffic World, Inc.

Q:

I am having a discussion with another carrier regarding whether a carrier is liable for prepaid freight charges that are not added to the merchandise invoice when a claim is filed for the destination value of a lost or destroyed shipment.

The other carrier wants to pay the claim at the full destination invoice amount, in addition to repaying the prepaid freight charges.

I thought my position was fairly basic to the claim rules. Have I lost my mind here?

I have included our e-mail stream.

What do you think?



A:

This is the kind of discussion that''s usually held between a shipper and a carrier, but it''s instructive withal.

Evidently this is a claim on an interline shipment for which you and the other carrier are jointly liable. A claim was apparently filed with the other carrier for destination value plus freight charges, and the other carrier proposed paying in full. Then the discussion went like this:

You: "From what you''re telling me, the invoice total was $1,067.92, nothing more, right?

"Shipper paid our freight charges of $436.69 and did not invoice that amount to the consignee/buyer. So, had this shipment delivered as intended, he would have gotten his $1,067.92, the destination value, that''s all. The freight charges of $436.69 are buried at that $1,067.92.

"If we pay them $1,504.61, the shipper gets his anticipated sales dollars and the $436.69 he never would have gotten."

Other carrier: "What am I missing? I don''t get this.

"Shipper''s product cost $1,067.92. Freight charges were $436.69.

"Product was lost so they should get $1,067.92 in compensation. Delivery service, which they paid for, was never performed so they should get reimbursed $436.69.

"As an analogy, suppose you pay for dry cleaning when you drop off your laundry. You pay $10 for the cleaning. When you go back to pick it up they have burned the shirt. Shouldn''t you get paid for the shirt and for the $10 service that they screwed up?

"That''s how I''m looking at it."

You: "This is the basic `freight charges prepaid and not added'' claim.

"The shipper sold his product for $1,067.92. The prepaid $436.69 freight expense was not invoiced to the buyer/consignee. The shipper is providing that service to the buyer as part of the sale price.

"The carrier is liable for the total invoiced amount (destination value) anticipated to be received by the seller.

"Had the shipper added the freight expense to the invoice, as a line item to the shipper, the carrier would pay that amount. Had the shipper filed his claim for origin value, the prepaid freight charges would be recoverable.

"By paying the shipper $1,067.92, we are paying him back his freight charges within that amount - we are not keeping that money.

"If we pay the claimed amount of $1,504.61, the shipper gets what he should have gotten had the loss not occurred plus we give him a second payment of $436.69. So the shipper ends up making an additional $436.69."

Other carrier: "So what you''re really saying is that the shipper should have filed his claim at cost and asked for reimbursement for his paid freight charges, right?"

You: "That is an alternative."

I couldn''t put either argument better.

Your math prevails here. The other carrier''s intention is laudably honorable, but its logic is flawed.

The dry cleaning analogy tells the story. When the other carrier took that shirt in for cleaning it was already worth whatever it cost; the $10 cleaning fee (it really needs to find a more reasonably priced cleaner) was for a service that didn''t enhance the shirt''s value, but instead merely was meant to restore that value to that of a clean shirt.

Therefore of course, in that case it''s entitled to both the cost of the ruined shirt and the cost of the botched service.

Here, however, the cost of transportation did serve the purpose of adding time-and-place value to the lost goods. That value was clearly incorporated in the price the seller was charging for the goods at the point of delivery - the destination price.

Had the claim been filed for origin value, adding freight charges would be proper. The service, after all, was not performed. Had it been filed by the consignee on a freight-collect shipment, the same would be so.

But in both those cases the freight charges would have been paid independent of the goods'' value. Here that''s not so.

As I wrote in my Manager''s Guide to Freight Loss and Damage Claims (Fort Valley, VA: Loft Press, 3rd ed., 2003, p. 221): "[I]f it''s necessary to separately include freight charges in order to restore the claimant to the economic position he would have occupied had there been no loss or damage, they are recoverable. Otherwise they aren''t."

As you correctly point out, in this case if the shipment had been delivered the claimant would have received $1,067.92 from the sale and been out of pocket the $436.69 freight charges. A claim payment of $1,067.92, without separate reimbursement of the freight charges, leaves it in that same position.



-- 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 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.







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