Lack of Outsourcing Limits

Lack of Outsourcing Limits

Copyright 2004, Traffic World, Inc.


Just read your Feb. 23, 2004, article about a shipper who said the 3PL it hired to handle its "millions of dollars" in freight is refusing to pay substantial amounts of its (the 3PL''s) contract carrier''s freight bills in a dispute over applicability of mileage rates. The dispute centered on whether point-to-point or ZIP-code-based mileages would apply; there was apparently a significant difference. The carrier had applied to the shipper for the unpaid amounts.

My question is, who drafted the contract? What about the point that any ambiguity is usually decided against the drafter? With "millions of dollars" of freight involved, doesn''t the shipper have its own contract with the carrier? Seems like the tail (the 3PL) is wagging the dog (the shipper) on this issue.


I, too, was a bit taken aback that a shipper with this sort of volume would turn its transportation procurement function so totally over to a 3PL. Contemporary managerial thinking, however, leans toward outsourcing activities not directly related to a company''s primary business activity and evidently this shipper follows such a policy rigorously.

So even though you and I may view this as somewhat the tail wagging the dog, it''s by the dog''s own choice that the tail has been put in charge. A bit confusing for those who aren''t sure which end of the animal to pet, but if shippers are going to outsource without proper internal oversight, this is the sort of thing that''s going to happen.

As for your key question - who drafted the contract? - that''s pretty much irrelevant. You''re quite correct that documents are ordinarily construed against their makers. See, for example, Burrus Mill & Elevator Co. v. C., R. I. & P. Ry., 131 F.2d 532, 535 (U.S.C.A.10, 1942); St. Louis Cooperage Co. v. N. Y. C. R. R. Co., 258 I.C.C. 532, 602; and others as to tariffs.

But in contract law, it''s largely irrelevant which party put the words down on paper. Contracts are bilateral agreements binding both parties and both are deemed equally responsible for ensuring that the written document that both have signed properly reflects their agreement. It''s possible to overturn the document if there''s clear proof that, due either to inadvertence or to fraud or deception perpetrated by one party (generally the actual drafter) on the other; but only limited types of evidence are acceptable for this purpose, and it must be quite powerful.

So in this case, I''d have to say that whether the 3PL or the carrier did the drafting, both will in almost all cases be bound by the language of the written contract. As I wrote before, that''s where the answer must derive in this case.


No recourse against shipper

I teach transportation courses and a student of mine who''s employed by a shipper recently brought up this question in class.

My student''s company sent a collect shipment f.o.b. origin to a consignee in Texas. They signed section 7 of the bill of lading.

The carrier got stiffed by the consignee and after a four-month wait took the consignee to small claims court in Texas and received a judgment against them. The consignee still did not pay the bill. So the carrier came back to the shipper for the money, saying they exhausted all legal means of trying to collect and still can''t get paid. Now they will not handle either prepaid or collect freight from that shipper until they are paid. I looked through your books and Bill Augello''s "Transportation Law" and my opinion is that the carrier has no recourse against the shipper. Yes, no?


Of course you''re right. The real question is whether this carrier is a true idiot or only an aspiring moron.

Section 7 doesn''t tell the carrier, in effect, "gee whiz, we''d really rather not pay freight charges, so try real hard to get your money out of the consignee." It also doesn''t tell the carrier, "well, if you come back with a good enough sob story we agree to pay you." What it does do is instruct the carrier unambiguously not to deliver the shipment until it gets paid. Period.

As often happens, this carrier violated that instruction by extending credit to the consignee rather than demanding its money up front. That''s breach of the B/L contract for the consequences of which the shipper cannot be held legally liable; the carrier extended that credit at its sole risk.

When it recognized that the consignee was uncreditworthy, the carrier momentarily displayed good sense by suing the consignee. But then it apparently made little or no effort to enforce the judgment by proper legal means such as seeking a lien on assets. Instead, it lazily threw up its hands and went back to the nonliable shipper and in the process compounded its stupidity by attempting to enforce payment through voluntary renunciation of the traffic of what used to be a perfectly good customer.

I''d say all this carrier has managed to do is lose that traffic forever. If the carrier can find a lawyer ignorant enough to take its case to court, the shipper not only has an unimpeachable defense but should be able to countersue for its legal costs on the grounds of frivolous litigation. On the whole, I think I opt for idiot; mere morons generally know better than this.

-- Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76, Morganton, Ga. 30560: phone, (706) 374-7201; fax, (706) 374-7202; e-mail, Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.