Can Shipper Claim for Invoice Value?

Can Shipper Claim for Invoice Value?

Copyright 2008, Traffic World, Inc.

Q:

A motor carrier lost a shipment of 15 cases of our product that was going to a customer.

We replaced the shipment immediately and thus did not lose the sale. Now, though, the carrier says our claim should be only for the production cost of the goods, not the amount of the invoice to our customer.

Their argument is that since we shipped another 15 cases we did not forfeit the sale or profit. I argued that the claim, given it was destined for a customer, should be honored at the invoiced price.

The other 15 cases that we sent as a replacement could have been sold to an entirely different customer, which would have netted us the full invoiced value of the goods.

That is, we didn''t lose this sale, but we lost money due to their having lost our saleable goods.

A:

I get this question far too often. But I haven''t written about it in a while, so perhaps it''s time again.

You''re of course right, for pretty much the reason you give, and the carrier''s wrong. But oh, my, do carriers get stubborn about it; they come all over funny about the idea of somehow giving you a double-profit windfall because of the loss.

"[I]f a sale has been completed, to the point that the only remaining thing to be done to consummate it is physical delivery of the goods, the profit has already been earned by the shipper, and must be paid by the carrier as part of the claim if the goods are lost in transit," I wrote in my Manager''s Guide to Freight Loss and Damage Claims (Fort Valley, Va.: Loft Press, 3rd ed., 2003, p. 180).

"And this holds true without regard to whether a replacement shipment is made and accepted by the consignee, as to which the shipper may reap a second profit."

Court cases in point include Gore Products, Inc. v. T. & N. O. R. Co., 34 So.2d 418 (in which the court offers a particularly cogent explanation); Nashville, C. & St. L. Ry. v. W. L. Halsey Grocery Co., 121 So. 16; Anderson, Clayton & Co. v. Yazoo & M. V. R. Co., 141 So. 453; and see also I. C. R. Co. v. Crail, 281 U.S. 57 (1930).

The point is that, as the U.S. Supreme Court held in Hicks v. Guinness, 269 U.S. 71 (1925), "[t]he loss for which the [claimant] is entitled to be indemnified is ... what the [claimant] would have had if the contract had been performed" and the goods delivered intact.

Well, if that had happened you would have had your invoice price, wouldn''t you? That, therefore, is what the carrier owes you.

As I continue in my book (pp. 181-182):

"Another, and simpler, explanation of the rationale behind including profit as a proper claim element is based on the self-evident thesis that a carrier''s liability should not be variable depending on such extraneous factors as the identity of the claimant.

"If goods are shipped F.O.B. origin, so that the consignee takes title when they are dispatched and is therefore their owner at the time of the loss or destruction, obviously the carrier will be liable for the vendor''s/shipper''s invoice price (including its profit element), which the consignee is obliged to pay notwithstanding the in-transit calamity.

"How can it be proper for the carrier to be liable for less merely because terms of sale are such that the shipper owned the goods in transit and therefore it is he, not the consignee, who files the claim?"

There may, however, be justification for some deduction off the invoice price. You don''t specify who was responsible for freight charges, but there''s certainly at least a possibility that they were to be prepaid - paid, that is, by you.

Well, you most likely didn''t pay them, given that the carrier lost your shipment. But if the shipment hadn''t been lost you would have owed them as part of your expense of the sale.

If that cost was built into your invoice to your customer it should therefore come off your claim. You wouldn''t, that is, have netted the full invoice amount, you would have netted it less your cost of shipping. And it''s only this to which you''re entitled.

I''ll conclude by offering a word of advice to other shippers who find themselves in this position: if you make a replacement shipment to the same customer, don''t let the carrier against which you''re claiming know about the replacement.

Bluntly, it''s none of the carrier''s business whether you do or don''t replace a lost shipment. There''s absolutely no requirement that you tell it about the replacement. And if you don''t this silly issue is a lot less likely to come up.

To be sure, carriers can get pretty pushy about demanding that information. But it''s your own proprietary business information and there''s no obligation that you divulge it to the carrier. I''m not saying you need tell a bald-faced lie or even get sneaky about it, just refuse to answer when they ask. You''ll have a lot less trouble collecting the invoice-value claim to which you''re entitled whether the shipment was replaced or not.



-- 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. Later compilations by request.