Beware of 'Air Freight' Loads
By Henry E. Seaton

February 2000
Reprinted from

With the demands of just-in-time inventory systems and the premium that shippers put on expediting freight, more shipments are being tendered to air freight forwarders that move the shipments over the road in exclusive use. These forwarders subcontract the surface movement to motor carriers, which often don't know whether the freight has moved - or ever will move - by air. As the motor carrier, you may not even know the nature, origin or destination of the shipment.

This system works fine if the shipment arrives on time and intact - and if the motor carrier receives its contracted price. But payment or claims problems can confuse the parties' obligations. Depending on the facts, a court may find the air freight forwarder exempt from regulation, treat it as a regulated property broker or consider it a surface freight forwarder with carrier duties and obligations. Likewise, a court might judge you under normal motor carrier rules or exempt you from all regulation because the motor carriage is incidental to air transport. In some cases, your over-the-road movement could even be governed by the Warsaw Convention, an international aviation treaty.

Such uncertainties can cause significant claims problems. First, your exposure can be great. Air freight shipments often are high-value articles - computer parts, electronic equipment, software disks, etc.
Second, the statutes, regulations and practices governing surface and air transportation are quite different. A motor carrier providing interstate transportation ordinarily is governed by the Carmack Amendment. In the absence of properly executed release rates, Carmack provides for full destination market value cargo liability in the event that a shipment is lost or stolen. Shippers don't have those protections with unregulated air freight, so they often must agree to a release rate of $5 per pound - even as low as 50 cents per pound - and obtain their own insurance to cover additional loss.

This disparity may make you a target when there's a claim. A shipper's insurer may pay the claim and then sue the air forwarder's subcontracting motor carrier, arguing that the carrier hasn't properly established release rates under Carmack. There is case law holding that air waybill limitations don't apply when an air freight forwarder substitutes motor transport for air service. So it's up to you to make sure you don't pay for the air forwarder's contractual mistakes.

Because you aren't a party to the agreement between the air freight forwarder and its shipper, you must seek protection against high-value claims in your contract with the air freight forwarder or other intermediary. And because you don't know whether the shipment moved by air before or after you received it, make sure your contract meets Carmack standards. Establish by contract that your freight rate is based upon a release rate amount consistent with your coverage.

Require the intermediary to guarantee that it is authorized to act on behalf of the shipper or beneficial owner and to indemnify you against any claims that exceed the agreed-upon release rate. At the same time, avoid broad language requiring you to indemnify the air freight forwarder. As a subcontractor, you don't know the terms of the contract obligations between the shipper and the air freight forwarder. There may be severe penalties for late deliveries or release-rate language that holds the air forwarder liable for risks you can't evaluate.

To avoid "choice of law" legal arguments, specify that your rules tariff, terms and conditions of the uniform straight bill of lading, and all federal transportation rules and regulations applicable to regulated motor carrier service apply.

Don't agree to anything more or less than nine months for the filing of cargo claims in keeping with regulations governing the handling of motor carrier claims (49 CFR Part 370) and the federal statute for filing lawsuits (49 USC Sec. 14705). Finally, set your own credit and collection provisions and stipulate that contingent damage claims can't be offset against freight charges.

If you handle air freight shipments carefully, they can be a good source of freight. If you don't, they can be a nightmare.
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