Forget the Aspirin Bottle! Get a Contract!!

By Brent Wm. Primus, J.D.

William J. Augello was one of the country’s foremost transportation lawyers and a champion of shippers’ rights. In this column, we attempt to answer readers’ questions as we believe he would. These columns, as well as those of Bill Augello, may be found in the ‘Content Library’ on the PARCEL website (www.PARCELindustry.com).

In the November 2007 issue of PARCEL, we addressed the topic of parcel carriers, in a legal sense, and their varying characteristics, again, from a legal point of view. In the September issue, we discussed the importance of shippers being familiar with their carriers’ rules tariffs and service guides.

My sense is that for some readers, this is just all too much information: ‘Good gosh, all I want to do is ship a box from here to there, not go to law school!’ However, there are significant, and probably detrimental, economic effects for transportation managers who adopt an ‘I don’t care; just ship the box and send me a bill’ approach to shipping.

So, is there a shortcut through all of the variations of the carriers and their many, many pages of rules, terms and conditions? The short answer is ‘yes, but’? The ‘yes’ part is to get a contract with your carrier. The ‘but’ part is that you will still need to know what you are doing in order to arrive at a beneficial contract. In particular, what are the contract terms that are most critical to your company, and how do you successfully negotiate for them?

Let’s look first at traditional trucking companies or LTL (less-than-truckload) carriers. By and large, for shippers offering significant volumes, these carriers will negotiate a contract to encompass virtually all aspects of the relationship. This can include not just the pricing of the transportation rates, but also a satisfactory level for a limit of liability (or no limit at all), eliminating late payment fees and penalties and clarifying time limits for the filing of claims and lawsuits by either party against the other. The overall goal of the negotiation is to get all aspects of the agreement between the shipper and the carrier, as lawyers say, ‘within the four corners of the document.’

It should be noted that there is also a hybrid between a full contract and the carriers’ tariffs, i.e., a ‘pricing agreement.’ Typically a pricing agreement will specify rates but will ‘incorporate by reference’ all of the carriers’ rules tariffs and their other standard terms and conditions. Accordingly, a shipper who could be adversely affected by one or more of the standard terms and conditions should attempt to incorporate an exception to them into the pricing agreement.

The concept of an overall master contract negotiation discussed above does not apply to large parcel carriers such as UPS, FedEx and DHL. Here a shipper may be tendering millions and millions of dollars of shipments per year and yet, to its dismay, discover that it has little, if any, negotiating clout. The goal with such large parcel carriers is to try to negotiate exceptions or variations to the standard rates and terms that are the most critical to the shipper, as well as favorable pricing. Mike Williams’ article on negotiation in the November issue of PARCEL provides an excellent overview of contracting in this environment.

The thing I would like to add to that article is that many times, the carrier will be acting in different capacities with regard to the shipments tendered to it; that is, it may provide the transportation services for one shipment in its capacity as an air carrier, and for another shipment or shipments as a motor carrier, and on yet other shipments act as an international freight forwarder. Even if such a large carrier may not be very flexible in negotiating prices and terms, I believe that it would behoove the shipper to at least get a signed document setting forth the criteria for the shipper to know in which capacity the carrier is acting with regard to a particular shipment and what the relevant limits of liability and time period for filing claims and lawsuits would be for a particular shipment. Ideally, a shipper would like to negotiate an agreement where the liability limits and time limits would be the same, regardless of the mode that the carrier was acting in. All for now!

Brent Wm. Primus, J.D., currently serves as the General Counsel for the Freight Transportation Consultants Association and is the CEO of transportlawtexts, inc. and Primus Law Office, P.A. Your questions are welcome at brent@primuslawoffice.com.