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LTL truck shipping 101
Historic Background Deregulation: Congress began regulating transportation services in 1887 by passing the Interstate Commerce Act. The Interstate Commerce Commission (ICC) was then created to regulate all transportation of goods (including what was to become the trucking industry). The industry was strictly regulated by the ICC until the late 1970's when it's regulatory scope was gradually curtailed in an effort to encourage competition. Revolutionary, deregulatory changes began in 1980, culminating with the elimination of the ICC in 1995. The Undercharge Issue: Early deregulatory actions spurred on fierce competition, and the practice of discounting rates (rates that were supposed to be "filed" with the ICC). Many carriers were unable to survive the newly competitive environment, and in the ensuing years, several thousand trucking companies went bankrupt. The trustees of many of these defunct carriers began billing former clients for freight bill "undercharges". The undercharge claims were based on the trustee's contention that the discounts were not applicable because the carriers had not properly filed them with the ICC (as was required by law at the time). While the undercharge claims had only limited success in the courts, many businesses decided to pay or settle the claims to avoid litigation. The relative success in collecting revenues encouraged the trustees of other defunct carriers to follow suit, and by 1993, the total amount of undercharge claims reached $3 Billion USD. Congress finally acted to address transportation issues with the "Negotiated Rates Act" of 1993, the "Trucking Industry Regulatory Reform Act" of 1994, and the "Interstate Commerce Commission Termination Act" (I.C.C.T.A.) effective Jan. 1 1996. . Today: The legislative actions of the mid 1990's not only addressed the undercharge issue, but also reduced the remaining regulatory oversight of the industry. Most importantly, the ICC (and all of it's consumer protection functions) was eliminated. The following is a summary of these important changes, and their effect on the modern purchaser of transportation services. Published Tariffs Tariffs are schedules of rates, and rules that a carrier uses in the sale of their services. At one time, public notice of these tariffs were required by filing them with the ICC for approval. Public notice is no longer required, and carriers are free to change their tariffs unilaterally and without notice. In most cases shippers will receive notice of tariff information only when they specifically request it. Carriers typically have one or several rate tariffs, another rules tariff, and another liability tariff. These tariffs generally refer to one another, the National Motor Freight Classification tariff (N.M.F.C.), and the tariffs of other carriers with which it may interline. Any or all of these tariffs may be applicable to any given shipment. Note: I.C.C.T.A. Public Law 104-88, section 13710(a)(1) requires a motor carrier to furnish all information relating to pricing, rules, and practices upon request. When a consumer requests a copy of the rules tariff, they usually receive an abbreviated version with references to the much larger, and more complex, governing publications. The Bill of Lading: The "uniform bill of lading" (B.O.L) is still a contract of carriage; however, the only "uniform" aspect of the B.O.L. is the fact that it binds all parties involved to the very un-uniform tariffs. Carriers rules tariffs generally state that regardless of what type of B.O.L. is used, the "Uniform" B.O.L. (as outlined in the N.M.F.C.) will govern all shipments tendered. The purchaser of transportation services may wish to spend some time reading fine print on the back of a uniform B.O.L. Then spend a few weeks gathering and reading all of the referenced publications. It is not surprising that most of today's "multi-tasking" managers do not have the time to read several hundred pages of lawyer-speak. It is also not surprising; therefore, that the US domestic trucking industry remains fraught with misunderstandings, and litigation. Contracts: A properly drafted contract drawn by an experienced logistics professional, or transportation attorney would address any concerns regarding transportation services; however, a consumer's ability to acquire favorable contracts is limited by market forces. Large shippers, such as General Electric, Halliburton, or the Federal Government, benefit greatly from transportation contracts, other shippers generally do business under the terms in the carrier's tariff (as referenced in the Bill of Lading Contract). Worth noting is that a transportation "agreement" supplied by the carrier, that includes a reference to tariffs, or other publications is simply an agreement to do business under the carrier's tariff rules, perhaps with a few exceptions. Note: This paper is intended to address the "less than truckload" segment of the US trucking industry. It refers to the historical definition of "common carriers". Relatively simple transportation contracts are still commonplace in the full truckload segment of the industry. The smaller "Truckload" carriers do not typically maintain independent tariffs. Third Party Shipping: Though a third-party freight service provider may offer a useful service, shippers should understand the relationship so they can make informed business decisions. All third-party freight services (or "logistics providers") that arrange for the truck transportation of cargo belonging to others, without actually taking possession of it, are defined by the US Dept of Transportation as a freight "Broker". A Broker negotiates their own pricing, and rules of carriage, with for-hire carriers who provide the actual transportation service. Unless a legally binding contract is executed, brokers do not assume responsibility for cargo, and have very little legal liability for any problems that may arise from the transportation service. Shippers that transport their product using brokers are generally subject to the tariffs of the carrier providing the service. In addition to the contents of the carrier's tariff, the financial stability of the broker is another area that should be of concern when shipping via third party transportation providers. All major LTL carriers address the issue by clearly stating that if the broker fails to pay them for their service, both the shipper and the consignee remain liable for the freight charges. In other works, if the broker doesn't pay them, you do (even if you've already paid the broker). Cargo Liability: Shippers should not simply assume the amount stated on a cargo insurance policy is applicable to a shipment tendered to a carrier. The I.C.C.T.A section 14706(a)(1) states that liability is for the actual loss or injury to property caused by the carrier. However, section 14706(c)(1) provides for a "shipper waiver" which allows for a limitation of liability by written agreement between the shipper and carrier. Carriers interpret the Bill of Lading (in which the parties agree to the "classification, tariffs, and rules in effect at the time of shipment") as a written agreement. Since this "written agreement" contains a reference to the rules tariff, the shipper has agreed to the liability limitation specified in the rules tariff. Under current regulations (or lack thereof) carriers are free to create, and amend liability limitations unilaterally and without notice. It should be of no surprise that, as carriers struggle to maintain rising costs, they have been increasing the limitations on liability specified in their tariffs. Note: Many carriers now sell cargo insurance. Purchasing additional cargo insurance does not guaranty payment for damaged shipments. It would be wise to consult with an insurance provider when shipping high value items. Billing Practices: Legislation closed many doors to the collection agents of bankrupt carriers seeking to collect "undercharges". Most collection agencies will no longer attempt to collect "undercharges" based on rate tariffs. They will however, be inclined to bill shippers based on the timeliness of bill payments. All carriers have penalties in their rules tariff for payments received after a specified period of time (generally between 15-30 days). The form of penalty is usually either a loss of the otherwise applicable discount, a fixed percentage of outstanding freight bills, or both. Some of these penalties have been found by the courts to be excessive, and recent decisions indicate questionable enforceability unless the carrier specifically states the terms on their freight bill. Carriers only selectively enforce the most extreme provisions when they no longer wish to do business with a slow paying client, but trustees of bankrupt carriers are not concerned about future business. Collection agents for trustees can, and do, review payment histories, and apply the applicable penalties. Both overcharge, and undercharge claims must be filed within 180 days. The 180 day rule does not over-ride bankruptcy law. An attorney should be consulted with regard to bankruptcy applications. Off-bill Discounting: Off bill discounts are not allowed for shipments paid by government agencies; however, this law does not provide the same level of protection for the private sector. The person directly responsible for payment must be advised if any reductions or allowances were paid to another party. The payer need not be informed of the exact amount of payment, just that a payment had, or will occur. In other words if your freight bill contains a notation of "allowances", a third party has received some type of payment, or compensation related to that shipment. This is the first of what will be an on-going series of articles related to commercial trucking, that will be completed when the author is not too busy selling pallet jacks, pallet scales, and the pallet jack shipping scale! About the author: Joe Deasy is the President of United Shippers Corporation of NY, and the author of www.uscargotools.com. He currently spends his time developing the US Cargo Tools product line, and providing the logistics experience that is required to offer "free shipping" on pallet trucks, pallet scales, platform trucks, and other items that ship via LTL freight. Written by: Joe Deasy
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