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Presenting a live 90-minute webinar with interactive Q&A
Drafting Transportation Contracts:
Negotiating Key Terms in Shipper,
Carrier and Broker Agreements Minimizing Loss and Liability Exposure in the Event of Loss, Damage or Non-Delivery of Goods
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, NOVEMBER 3, 2016
Michelle L. Mejia, Sandler Travis & Rosenberg, Chicago
Angela Alexander Savino, Perez & Morris, Columbus, Ohio
Henry E. Seaton, Partner, Seaton & Husk, Vienna, Va.
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Angela Alexander Savino
Perez & Morris LLC [email protected]
Drafting Transportation Contracts
Key Terms
November 3, 2016
Logistics Master Angela A. Savino 614-431-1500
6
Shipper’s Perspective Within a limited period of time and budgeted resources:
Navigate foreign lands
Travel international waters or air space
Transition through various modes of transportation
Understand applicable foreign laws, international treaties, federal and state laws
Survive shipping document terms
Angela A. Savino 614-431-1500
7
To contract or to not contract?
Contracting Adds Stability
Manage risks
Budget costs
Address distinct needs
Develop relationships
Increase efficiency
Promote success
Angela A. Savino 614-431-1500
8
MANAGE RISKS
Do laws govern the services?
Origin jurisdiction on movement to the ports
International treaties
Carriage of Goods By Sea Act
Hague Convention
The Warsaw Convention
Angela A. Savino 614-431-1500
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MANAGE RISKS
U.S. federal law and permits. Foreign Corrupt Practices Act Patriot Act U.S. Customs and Border Protection The Shipping Act The Carmack Amendment (per 49 U.S.C. Section
14101(b), must expressly waive the rights and remedies of Carmack in order for contract to govern).
U.S. Surface Transportation Board Federal Motor Carrier Safety Administration
State Laws and permits
Angela A. Savino 614-431-1500
10
MANAGE RISKS
Certification Requirements:
U.S. Custom’s Customs-Trade Partnership Against Terrorism certification (C-TPAT)
11
MANAGE RISKS Interlocking agreements
Clearly identify services and roles
Controlling authority and integration provisions
Protective liability provisions
Indemnification promises
Insurance requirements
Angela A. Savino 614-431-1500
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MANAGE RISKS
Contract with parties from origin to delivery to manage and control risks.
Angela A. Savino 614-431-1500
13
MANAGE RISKS Define the role of the contracting parties Who is the Shipper? Does it include the parent, affiliate, subsidiary or other related entities? Does it include franchisees? Who is the Carrier? Is it an agent, freight forwarder, vessel/aircraft owner or broker? Does it include parent, affiliate, subsidiary or other related entities per common ownership or global venture arrangement.
Angela A. Savino 614-431-1500
14
MANAGE RISKS
Controlling Authority: Other shipping documents
(e.g. bills of ladings, tariffs, receipts, manifests,
credit agreements, purchase orders, invoice
terms, etc.) can impact the terms and conditions.
READ THEM
Address unacceptable provisions
Identify which provisions control
Angela A. Savino 614-431-1500
15
MANAGE RISKS Sample Integration Clause: “This Agreement and the terms and conditions of Carrier’s BOL and tariffs in existence on the date of execution of this Agreement (to the extent applicable after giving effect to this Agreement and exhibits referenced herein) shall constitute the entire agreement for Services and incorporate all prior negotiations and understandings. In the event of a conflict between the terms and conditions of this Agreement, Carrier’s BOL and the Carrier’s applicable tariff(s), the Agreement shall govern. All agreements previously entered into between the parties for said services are hereby superseded and terminated. “
Angela A. Savino 614-431-1500
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MANAGING RISKS
LEGAL
AUTHORITY
C.O.G.S.A. Visby
Amendment
Warsaw
Carmack
LIMITATIONS OF
LIABILITY
($500US) per
“package” or
“customary
freight unit”
unless a higher
value is
declared.
“Customary
freight unit” is
used in US only
for goods not
shipped in
packages.
Special Delivery
Rights (SDR) of
International
Monetary Fund
666.67 units per
package or 2
units per kg =
whatever is
higher.
limits damages to $20/kg or 9.07/lb
unless the consignor has made a
special declaration of value and paid
a supplemental sum based on that
value, or unless there is willful
misconduct. Amended by Montreal
Protocol to 17 SDR per kilogram.
Hague Protocol establishes limit of
250 francs per kilogram.
Actual loss or injury to the
property, but can be limited by
contract to value declared for
property on shipping documents
Angela A. Savino 614-431-1500
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MANAGING RISKS
Is Indemnification for 3rd party claims?
Will the promises survive termination?
What about incidental and consequential
damages?
Angela A. Savino 614-431-1500
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MANAGING RISKS
Insurance should correspond to risk allocation
and provide security.
Impact of Shipper’s insurance.
Additional insureds.
Waiver of subrogation
Review and monitor certificates of insurance.
Cancelation and material changes in insurance
Angela A. Savino 614-431-1500
19
BUDGET COST
All rates should be mutually agreed upon in advance of services.
All rate increases, surcharges, accessorials, bunker and fuel factors and other costs and expenses should be clearly addressed.
Ability to modify the agreement to adjust rates as needed.
Angela A. Savino 614-431-1500
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DISTINCT SERVICES
Independent Contractors “Nothing herein shall be deemed to create the relationship of employee and employer, principal and agent, partnership, or of joint venture. Carrier shall provide Services as an independent contractor and as such, will have sole and exclusive control over the manner in which it or its employees or agents perform Services under this Agreement. Carrier assumes full responsibility for Carrier’s employees’ and agents’ performance of Services hereunder. Neither party shall be liable for any debts or obligations incurred by the other, except as is expressly provided in this Agreement.”
Angela A. Savino 614-431-1500
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DISTINCT SERVICES
Independent Contractors Generally, one who employs an independent contractor is not liable for the harm caused to another by independent contractor’s negligence.
Harris v. FedEx Nat. LTL, Inc., 760 F.3d 780 (U.S. Ct. of Appeals, 8th Circuit recognizing Nebraska state law). Jones v. C.H. Robinson Worldwide, Inc., 558 F.Supp. 2d 630 (USDC, WD Virginia, recognizing Virginia state law).
Angela A. Savino 614-431-1500
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Summary of Legal Issues in Contracts for the Transportation of
Freight Henry E. Seaton
The Law Office of Seaton & Husk, LP
www.transportationlaw.net
1. Contracting Protocols
• Bill of Lading as contract of carriage
• Carrier’s Service Terms and Conditions:
• Must be available upon request • Often published on carrier’s website
• Written bilateral contract • Can trump Bill of Lading and Service
Terms by express waiver under Section 14101(b)
24
2. Principal Issues A. Identification of shipment, origins and
destinations
B. Name and Identity of Parties • Consignor or consignee, intermediary, third party
broker • Performing transportation entity:
• Carrier – U.S. DOT Number/licensed, authorized and insured • Intermediary – Disclose whether broker or forwarder,
provide U.S. DOT Number
C. Special handling requirements: • Hazmat • Temperature requirements / FSMA • Tarping to protect from moisture • Overweight and over-width permits, etc.
25
Contract Terms A. Term of Contract and Termination provisions
• Automatically renewed unless canceled
B. Typical Warranties:
• Carrier is licensed and authorized to provide service.
• Carrier enjoys a satisfactory or equivalent safety rating.
• Carrier warrants it will comply with all FMCSA and state safety
regulations.
• Carrier warrants sole responsibility for compliance with all federal
and state employment laws and worker’s compensation.
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Contract Terms (Cont’d)
C. Independent Contractor Status: • Broker logistics company treated as agent for customer. • Note: Broker or forwarder should avoid assuming carrier
duties for vicarious liability reasons.
D. Cargo claims: • Incorporate “General principles of federal transportation law.” • Carmack Amendment benefits:
• Uniform resolution procedures • Shipper not required to prove negligence • Presumption of liability if picked up intact and delivered with
damage • Allows for party to agree to released rate
27
Contract Terms (Cont’d) E. Insurance provision
• Carrier warrants BI and PD in minimum amount required by FMCSA
• General liability insurance required (as needed) • Cargo insurance warranty in needed • Note: Cargo insurance requirement is not the same as limit of
cargo liability • Worker’s compensation compliance necessary
F. Indemnification • Mutual indemnification that contracting parties will
indemnify each other for breach of warranty or for liability to the extent of their negligent acts or omissions.
• Note: Effect of anti-indemnity statutes.
28
Contract Terms (Cont’d)
G. Confidentiality and no back solicitation • Confidentiality agreement is standard
• No back solicitation typical in broker or forwarder contracts
• No “double brokerage” provisions to preclude the following: • Increased vicarious liability
• Claims and cargo insurance problems
• Double payment
• Note: Specify retained carrier must issue bill of lading and provide pickup in properly placarded equipment which is owns and/or operates
• Important chain of custody issues
29
Contract Terms (Cont’d)
H. Payment of freight charges (the quid pro quo) • Line haul rates should be attached to contact or specified in
load confirmation sheet • Standard accessorial charges should be specified
• Free time • Detention • Truck ordered not used
I. Payment Terms • Electronic invoicing / need for POD • Credit terms / days to pay • Interest and collection fees on late payment • Preservation of recourse and liens • Unilateral right of setoff
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Contract Terms (Cont’d)
J. Overcharge or undercharge • Federal rules at 49 C.F.R. 378
K. Miscellaneous • Venue and jurisdiction
• Integration clauses
• Incorporation of standard bills of lading terms to fill in lacuna
• ADR – alternative to litigation
31
3. Best Practices for Intermediaries in Signing Shipper Contracts
• Never accept carrier or transportation service provider duties
• Do not accept direct liability for cargo loss or damage
• Avoid cargo liability beyond carrier’s insurance
• Do not permit unilateral offset of cargo claims against freight charges due
• Do not accept SMS vetting in credentialing carriers
• Limit indemnification “to the extent” of your negligence
32
Best Practices for Intermediaries in Signing Shipper Contracts (Cont’d)
• Do not accept direct liability for retained carrier safety compliance
• Do not waive shipper’s duty to mitigate damages
• Avoid promising more than reasonable dispatch or micromanagement of carriers in transit
• Avoid fixed rate guarantees and long term commitments
See “Rules of the Road” Chapter 7 33
4. Problem Areas for Carriers in Customer-Prepared Contracts
1. Waiver of statutes and regulations
2. Indemnification clauses
3. Special and consequential damages
4. “Additional insured” language
5. The right of setoff
6. Salvage/no duty to mitigate
7. Shipper load and count/concealed damage waivers
8. No penalties for nonpayment
9. Homer provision/arbitration
10. Integration clauses
11. Nonrecourse provisions
12. Intermediary as carrier’s agent
13. Back-solicitation provisions
14. Use of SMS methodology
15. Brokering without permission
16. Improper cargo liability
See “Rules of the Road” Chapter 5, p. 83 34
5. How Shippers Can Avoid Vicarious Liability in Contracts
A. Protect customer/vendor relationship (1) Avoid control and coercion provisions in contracts (2) Don’t second guess FMCSA by adopting high safety
credentialing criteria
B. Think like plaintiff’s bar (1) When more is counterproductive/why didn’t you do more? (2) Do you really want access to all carrier telemetrics? (3) Keep it simple (a) Reasonable dispatch (b) Early notice if delivery cannot be made for rescheduling (c) Warranties of compliance not specific duties (d) E.g. New Uber model
35
Rules of the Road: A Practical Guide to Legal Issues in Truck Transportation aims to help motor carriers and brokers steer clear of potentially catastrophic pitfalls in contracts and day-to-day business relationships. Rules of the Road provides more than 300 pages of vital tips and information that will make it an indispensable reference guide you will consult again and again. To order, go to www.transportationlaw.net
36
www.strtrade.com
DRAFTING
TRANSPORTATION CONTRACTS A BROKER’S PERSPECTIVE
Michelle L. Mejia
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved. 38
THE ROLE OF THE BROKER
Shipper
Broker
Carrier
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
• FMCSA Licensing
• Check the safety status (www.safersys.org) of all
carriers that are engaged.
• Require a satisfactory safety rating in broker
contracts.
• Verify motor carrier insurance.
• Obtain the proper liability insurance coverage.
DUTIES OF BROKERS
39
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
• Best Practice: Have a formal transportation
agreement with each customer that contains all
of the relevant terms and conditions.
• Using a bill of lading – may contain language
incorporating by reference the carrier’s tariff.
• Include notice on the face of any rate quotation,
confirmation or sales material that states that
your services are subject to the T&C’s and have
it available on request.
• Have them available on your website.
Establishing Customer T&C’s
40
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
• Do not identify as the carrier on the bill of lading
and don’t allow the carrier to affix broker’s name
as the carrier on the bill of lading.
• Don’t refer to carriers as “partners” in marketing
materials or on website. Avoid making claims
about “control over all aspects of the operation.”
• Don’t assign the carrier driver routes or
otherwise route loads. Refrain from scheduling
pickup and delivery times whenever possible.
OTHER CONSIDERATIONS
41
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
• Segregate Your Warehousing, Carrier, and Brokerage
Operations; Segregating different service offerings in
different entities forces an operator (and its sales force)
to think clearly about the services that it is offering and to
document those services accordingly; also helps profit
and loss analysis
• Review not only your contracts but your practices for
indicia of “control” if you are brokering loads
– Fines
– Monitoring of Driver
– Constant communication with Driver
Practical Advice
42
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
• Claim Requirements
– Time Limits
• In the absence of a contractual provision, the tariff will apply
• Best practice: draft a time limit chart for each carrier in your
routing guide
– Right to Setoff
• A broker may stand “in the shoes” of the shipper (49 U.S.C.
14706)
– Salvage Rules
CARGO CLAIMS
43
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
“Each party will indemnify and hold harmless the
other from all loss, liability or claims to the extent
same is caused by a negligent or willful act or
omission of their respective employees agents or
subcontractors in the performance of this contract.”
- If you use “arising out of” language, you may be
contracting to indemnify more than that which is
covered by your insurance!
INDEMNIFICATION
44
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
PROHIBITS INDEMNIFICATION PROVISIONS REQUIRING
THE CARRIER TO INDEMNIFY THE SHIPPER FOR
DAMAGES THAT ARE CAUSED BY THE NEGLIGENT OR
WRONGFUL ACTS OF THE SHIPPER.
- MORE THAN 30 STATES HAVE ADOPTED ANTI-
INDEMNIFICATION LAWS
ANTI-INDEMNIFICATION
45
© 2015 Sandler, Travis & Rosenberg, P.A. All rights reserved.
THANK YOU! Michelle L. Mejia
SANDLER, TRAVIS & ROSENBERG, P.A.
225 W. Washington St., Ste. 1640
Chicago, Illinois 60606
(312) 279- 2836
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