Watch for Traps in Contracts
By Henry E. Seaton

June 1999
Reprinted from

According to some experts, as much as 90 percent of the U.S. truckload traffic moves under written contracts. By statute, if the parties expressly agree in writing, a contract can supersede the terms and conditions of the uniform bill of lading, the carrier's rules tariff and other general rules of commerce.

Contracts no longer have to be written for multiple shipments or meet any distinct shipper need. There are no standard and accepted terms and conditions in shipper/carrier or broker/carrier contracts. But many shippers and brokers insist you sign their contract if you want their loads. A smart trucker reads and understands every word of each contract before signing. Failure to do so can result in nasty surprises.

The fine print in some shipper and broker contracts can hide provisions for special and consequential damages that your cargo insurance doesn't cover. In some cases, carriers have unwittingly agreed to accept potential cargo claims of up to $5 million per occurrence. Some provisions even require you to pay the shipper for damages that are not your fault. Indemnity clauses requiring you to hold a shipper harmless from all losses arising out of the loading or transportation can require you to defend the shipper when it is sued for its own acts of negligence.

In many cases, shippers or brokers reserve the right to deduct unliquidated cargo claims out of carrier settlement. Armed with provisions like this, unscrupulous brokers can keep their shippers happy by quickly paying even questionable claims with your freight charge money. When this happens, you have no way to recover your freight charges or get your cargo insurer to reimburse you for the alleged loss. You could file a lawsuit, but some contracts have "homer" provisions requiring you to litigate in a shipper's hometown - an option that often isn't practical.

Other provisions to watch out for include consignee chargebacks for missed appointments and language making you responsible for lumpers and pallets. Overly broad covenants not to compete can hamstring your sales department in soliciting future business.

The qualities that make a good dispatcher or customer service representative - an affable, positive people person - are not characteristics of good lawyers, who tend to be suspicious, plotting and nitpicking. So there is a real mismatch when your dispatcher or customer service rep has to stand by the fax machine to review and sign a multi-page contract to get a single Friday afternoon load coming home. Don't fall into the trap of signing without reading each paragraph carefully. Mark out objectionable language and initial your changes. Develop and use your own standard language wherever possible. Consult with a commerce lawyer before you execute any long-term contracts. A small group of carriers and brokers is testing a basic and simple standard contract to preserve some generally acceptable rules of commerce. Under the proposed standard contract, destination market value for loss or damage to goods is the measure of a cargo loss. It incorporates by reference standard claims rules in the terms and conditions of the uniform straight bill of lading. Carriers must commit to maintaining all-risk cargo insurance at an amount agreed upon.

The proposed contract allows for released rates and includes a reasonable indemnification from the carrier's negligence. It also provides for inclusion of any special shipping instructions that could give rise to special or consequential damages.

The goal is a document that protects the parties' interests in an even-handed and concise manner and offers both carriers and brokers a starting point for doing business in a deregulated environment.
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