Liability Also Runs Downhill

Liability Also Runs Downhill

Three years ago I began a column on transportation contracts by stating how puzzled I was that so few carriers had contracts with customers while many others flat-out refused to see the value in them.

My, how things have changed. Today, three-pronged contracts between customers, carriers, and third parties are all the rage. At a recent seminar for the Ontario Trucking Association Summit Council, Matthew Yeshin, managing director of Marsh Canada, said there are “too many contracts and not enough time to review them.”

Yet the lack of savvy when it comes to contracts is still a big problem.

Consider what happened in 2015 to Southern Refrigerated Transport. The fleet lost a $6 million judgment over a load of stolen pharmaceuticals being hauled for a freight broker. Their freight contract established liability at replacement value, trumping the Carmack Amendment.

Imagine having to write a cheque that size and what it would do to your business. The word “bankruptcy” comes to mind.

During the Summit Council discussion, I was struck by the enormous amount of risk that carriers unwittingly take on by signing contracts they don’t read or don’t understand.

If I ran a trucking company, here’s what I’d be doing sooner rather than later to eliminate any risk.

Determine Current Risk

When I sold MSM Transportation in November 2012, we did not have one formal contract with a customer.  We figured a handshake and a bill of lading liability were all we needed to protect the business.

In today’s litigious climate, your first order of business should be to find every customer contract you have and determine the implications if the dung ever hit the fan.

Involve the Pros: Part A

Next, call a lawyer who can help you decipher exactly what you signed when you agreed to haul that weekly rounder from Dallas.

The local yokel in the strip mall who handled your third divorce won’t cut it. Consider the potential foe: In most cases you’re signing contracts with large shippers and freight brokers. They have legal teams whose sole pur-pose is to pass cargo loss and contingent lability to some-one else.

Don’t go into battle with a squirt gun. Get yourself a  veteran transportation lawyer.

Involve the Pros: Part B

Your next call should be to your insurance broker and underwriter. They can help you come up with a plan to handle poorly written and badly managed contracts, including agreements signed by the wrong person with little or no time to review or amend them. I’m thinking of dispatchers who’ll sign anything just to get two extra skids on the back of the truck.

If you think your situation is a mess, I guarantee that your insurance broker has seen worse. Don’t let pride stand in your way. Get help from a seasoned pro.

The best Defence

It’s a mistake to sit back and react to the “transactional” contracts that are becoming commonplace. At the Summit Council presentation, every panelist agreed that this trend will get worse before it gets better. If large customers insist on contracts for  transactional business, insist they use yours. Between your legal and  insurance partners you should be able to come up with a  simple contract that covers your behind.

And if they don’t like your contract…

Just Say No

A contract that puts your company at risk is not worth that customer’s freight. Who cares how good the rates are? Who cares how quickly they pay?

We need to recognize  when the liability is too high and have the courage to  walk away. Better yet, we need to cover our butts with a well-written contract. It’s a business skill we all should master.

Speaking of mastery, a big shoutout to the panelists who participated in the Summit Council: Mark Bylsma from Spring Creek Carriers; David Carruth from One for Freight; Marcia Robitaille from Traffic Tech; Luca Torresan from Effective Logistics Solutions; and Yeshin from Marsh Canada. Your insight made for an educational, engaging, and entertaining discussion.