Paul Stewart, BBA, MA, JD
Logistics and Transportation Law/Commercial Transactions- Representing National Logistics Companies, Shippers and Carriers; Mergers and Acquisitions; General Corporate Counsel
Most shippers are unaware of the potential liability to pay freight charges twice, until faced with a demand by a carrier who was not paid by a broker or non-delivering carrier. The original concept was fostered by the days of regulation which put emphasis on all filed rates being collected equally in order to avoid preference to members of the shipping public. Of course, such a purpose is gone with deregulation and the right to contract for rates and service.
However, the general concept of “carrier gets paid” is still fostered by collection agencies and others who seek to collect from shippers and consignees in instances where the ultimate carrier has not been paid, unbeknownst to the shipper. Usually, such an occurrence happens when a broker, subsequent broker, or non-delivering carrier has further brokered a load to a carrier not initially on the bill of lading, the shipper has paid the broker, and the ultimate carrier was never paid.
The case law on this situation is too complicated to fully review here, but generally, a shipper/consignee may limit their exposure for “secondary liability” by:
1. Having contract with the third party (broker, 3PL, etc) which requires the third party to indemnify, and have contracts with all carriers requiring they look only to the third party for payment.
2. Signing the Section 7 on the bill of lading in all instances, thereby giving notice to carriers that the load is shipped “without recourse”.
3. Protecting the consignee by marking the bill of lading as “Prepaid”, unless the consignee is accepting the responsibility for payment to the carrier.
4. Confirming that no carrier is allowed to be listed on the bill of lading other than the carrier assigned originally by the third party.
5. Not allowing any unknown carrier to pick up load, or to issue a subsequent bill of lading other than original bill of lading which designates the original carrier as delivering carrier.
While there may be exceptions to all such limitations, they are very rare, if documents and procedures are well disciplined. Finally, brokers or other third parties should never pay a demand by a collection agency or subsequent carrier unknown to them without advice of counsel.