As with any industry, there are times when unscrupulous parties will try to take advantage of unfounded claims and vague references to the “law” in order to gain leverage over innocent parties that are not aware of all the facts. Such is the case with a recent campaign by some collection agencies to use misleading information in an effort to collect transportation charges that are not owed by shippers and consignees of freight.
These collection agencies will often use incorrect statements of the law and facts in order to put pressure on carriers, shippers, consignees or third-party logistics companies to pay freight charges that these collection agencies were unable to collect from the party who actually owes the charges. Quite simply, their tactics assume that if they threaten to make demand on valued customers, the innocent party will pay them, rather than have such an issue come to the attention of the customer. Since many shippers, brokers and third-party logistics companies are probably unfamiliar with the background for such claims; we should reveal and clarify this practice.
EXAMPLE # 1 Collection Agency claims that shipper owes a carrier other than the carrier they paid:
The first principle relied upon by the collection agencies is a well founded concept in the law that absent provisions in the bill of lading to the contrary, a carrier can look to the shipper/consignor or consignee for payment of all lawful charges, should they fail to receive payment from their expected source of payment (e.g., a 3PL or broker). The collection agency will try to generalize this application by threatening to involve the shipper, or will make demand upon the shipper, without informing them that the bill of lading terms can absolve them of any responsibility:
“The bill of lading is the basic transportation contract between the shipper-consignor and the carrier; its terms and conditions bind the shipper and all connecting carriers.” See S. Pac. Transp. Co. v. Commercial Metals Co., 456 U.S. 336, 343 (1982).
The bill of lading, however, also contains “nonrecourse” and “prepaid” provisions that, if marked by the parties, release the consignor and consignee from liability for the freight charges. If the nonrecourse clause is signed by the consignor and no provision is made for the payment of freight, delivery of the shipment to the consignee relieves the consignor of liability. Illinois Steel Co. v. Baltimore & Ohio R.R., 320 U.S. 508, 512–13 (1944). Collection agencies take many debts where the actual carrier took the load from the carrier that has been paid and has not paid the carrier who actually transported the load. However, the collection agency does not inform the shipper/consignor that they have no obligation if they have signed the Section 7 (Nonrecourse provision).
EXAMPLE #2 Collection Agency makes demand on the consignee of the load where shipper does not pay, usually just to bring pressure on the shipper or broker.
In a legitimate case where the consignee was to pay the charges there might be some credibility to such a demand. However, where the parties have provided otherwise, the collection agency is simply attempting to use economic coercion to get payment. This instance of misleading methods has also been well established in the law for some time. Similarly, when the prepaid provision on the bill of lading has been marked and the consignee has already paid its bill to the consignor, the consignee is not liable to the carrier for payment of the freight charges. See Missouri Pac. R.R. Co. v. National Milling Co., 409 F.2d 882, 883–84 (3d Cir. 1969); In re Penn-Dixie Steel Corp., 6 B.R. 817, 822 (Bankr. S.D.N.Y. 1980), aff’d 10 B.R. 878 (S.D.N.Y. 1981).
Again, even though they know that the consignee has no liability for such charges, unscrupulous collection agencies will make such demands upon the consignee intending nothing more legitimate than to bring economic pressure on the business relationships of the shipper, carrier, broker, and consignee. These limited examples are but two of the many unethical practices by now being used by collection agencies in their desperation to collect by coercion, misrepresentation, and fraud. However, all such practices require that all potential victims develop an affirmative policy with regard to such instances that may affect their customers. A limited list of suggested policy includes:
1. Build into your Broker/Carrier Agreement provisions that require carriers to agree:
A.) That they will not subcontract any customer’s load to another carrier. B.) That they are relying exclusively on your credit and that they will look only to you for the payment of all freight charges, and never make demand upon any customer or consignee, or any party other than you. C.) That they will be responsible for any claims of non-payment, should they subcontract any load to another carrier, and indemnify you and your customer, should such a claim be made.
2. Consider guaranteeing to all of your customers that all legitimate transportation charges will be paid to the contracted carrier and proof of payment will be provided to any customer should they at any time receive from a carrier or collection agency demand for any claim of non-payment.
3. Let your customers know that you will assume responsibility for responding to and, if necessary, defending any unfounded claim by any collection agency or other party for any claim of payment to a carrier contracted by you.
In addition to the foregoing, should you or your customer receive such a demand, the most important first step is to take a strong stand with such collection agencies and contact an attorney experienced with the many nuances of this type of unethical collection practice.