Don't Get Railroaded
By Henry E. Seaton
September 2008
Reprinted from

Q What is the difference in carrier liability for cargo loss or damage when shipping by truck or in substituted rail for motor service?

A There are important distinctions in cargo liability between motor carrier service and substituted rail for motor service. The Carmack Amendment, 49 U.S.C. 14706, is the statute that governs all regulated interstate moves by truck. Among other things, the statute made the motor carrier a virtual insurer for loss or damage and required it to pay the “full actual value” for any cargo lost, damaged or destroyed in transit. In addition, certain presumptions favorable to the shipper apply. Unless “shipper load and count” conditions apply, the carrier’s signature on the bill of lading at time of pickup is prima facie evidence that the shipment is received in good order and is braced properly for shipping.

Like truck transportation, rail service once was subject to the Carmack Amendment, but that changed after the Staggers Act. The resulting liability standards imposed by rail circulars now are decidedly different. The railroads now have their own standards for bracing shipments that are much stricter than truck standards. If the cargo is upset in transit short of derailment, the burden of proof basically is reversed, and the shipper must show that it met the more stringent rail packaging and brace requirements. So in the case of a multimodal cargo claim, the shipper likely will find that a claim valid for an interstate highway move is denied by the railroad. Moreover, shortened time limits for presenting and litigating the claim often apply. And the shipper might have to pursue arbitration or mediation before it could sue.

From the point of view of a third-party logistics (3PL) provider or property broker arranging for both highway and intermodal transportation, these differences pose real risks. Although 3PLs have no direct liability for cargo loss or damage, they assume liability for breach of contract and negligence by diverting a highway shipment to rail without the shipper’s approval and acceptance of rail terms and conditions. A motor carrier must advise its shipper when a movement is being diverted from motor to substituted rail for motor service, and 3PLs should do likewise despite the potential to pocket the extra margin from the undisclosed substitution.

With the cost of diesel fuel, diversion from motor to rail is an increasingly common practice. Shippers, brokers and carriers need to be sophisticated and informed of the risk of slower transit times and different cargo handling and claims requirements before freight is diverted from truck to rail.
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