When Does Carrier Custody Begin?

When Does Carrier Custody Begin?

Copyright 2004, Traffic World, Inc.


Due to the Sarbanes-Oxley Act, companies have closely evaluated their practices and adherence to Generally Accepted Accounting Principles. Although transportation and logistics may not have been a main focal function of this scrutiny to this point, I have run into a problem with a very common practice that I need advice on.

The problem involves the close out and invoicing of shipments at the end of the month. Due to the manufacturing and handling characteristics of our products, we load primarily using staged trailers.

Our problem, and potential conflict with GAAP, occurs when we close out and invoice loads that have been accepted by our carriers, yet are scheduled to be picked up later that evening, or even over a weekend that crosses into another fiscal month. If the carrier is either delayed or fails to pick up the load before the clock rolls over into the next fiscal month, we may be in conflict with GAAP because we have invoiced and taken credit for the sale of products that have not left our premises or control.

I know one possible fix would be to separate the physical closing of the shipment from the actual invoicing of the product. By doing so, we could simply enter the actual date and time the load was actually picked up, and let the sales fall in the appropriate fiscal month. However, I don''t want to initiate such a major systems change until I better understand the legal requirements.

My concern is whether the legal requirement to stay in compliance with GAAP is a matter of intent (i.e., a carrier committed to picking up the load by a certain date and time), a matter of transference of responsibility (the carrier actually signs the bill of lading), or a matter of physical removal of the load from the premises? If this a matter of intent, then it would seem that having an acceptance from a carrier and scheduled pickup would be enough. If this a matter of responsibility, would having the carrier sign for the load and/or attach their seal to the trailer meet the legal requirement for transference? If this is a matter of actual removal from the premises, what would prevent a shipper or carrier from simply having the load moved across the street regardless of the true intent to deliver the product to the customer within a reasonable period?

If they haven''t already, a lot of transportation and shipping departments may soon run into this conflict as sales departments want orders closed out and booked, yet accounting wants to ensure that we don''t violate GAAP and possibly the law. I''m sure your guidance would be greatly appreciated by many of us struggling with this issue.


Not being an accountant, I can''t speak directly to this question. But what I can tell you may relieve your concerns considerably.

In law, a carrier takes custody of goods "as soon as delivery to it is complete. ... Delivery cannot be complete if anything remains to be done by the shipper before the goods can be sent on their way; but if the thing to be done is something which it is the duty of the carrier to do, without further act on the part of the shipper," then the carrier has legal custody as of that moment. Corpus Juris Secundum, 13 C.J.S. ? 145(a) (1939 ed.).

This holds true even if the carrier does not have physical possession or control of the goods. Once you''ve notified a carrier that goods are ready for pickup and have provided (or made available) shipping instructions, and the carrier has accepted your commission to provide the service, from that moment on it has custody. If it delays actual pickup for its own convenience and in the meantime the goods are lost or damaged due to circumstances out of your control, the carrier will be just as liable as if the loss or damage took place after physical pickup.

I know this seems a little hard to believe, but there''s a whole raft of court cases on this point. I won''t bore everybody with a lengthy list of citations but it''s well-established law.

The underlying idea is that shippers should not be compelled to extend their own responsibility for their shipments for the convenience of the carriers they have engaged to transport those shipments, but that the carriers should take responsibility for their decisions to delay physical pickup.

Which means that, although the goods may not yet have left your premises, they have left your "control" from the moment you stage a loaded trailer for pickup and notify the carrier of its availability. It''s therefore immaterial, at least as a matter of transportation law, when the carrier actually arrives to haul that trailer off.

You don''t tell me your specific terms of sale, but your question strongly implies that you''re selling f.o.b. your facility. Since custody for staged trailers has been given over to the carrier, it appears to me that your sale has been consummated as of that time. Accordingly, I see no great need for you to concern yourself if the carrier delays physical pickup into another fiscal period.

Unless someone with greater accounting expertise than I can tell me authoritatively otherwise, I''d say you should book the sale for both sales and accounting purposes in the fiscal period in which you stage the shipment.

-- 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, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.