How to reduce freight claims, limit liability, and mitigate risks

Managing and Reducing Freight Claims

Understand that as the driver/carrier of the shipment all responsibility and liability lies with you once the shipment is loaded onto your truck and the bill of lading is signed. If, once on your truck, the load is damaged, parts are missing or rejected for any valid reason, or if it was stolen while enroute—YOU will have to pay for the damaged, rejected, or undelivered load. Since, as the carrier, it was in your possession, either the trucking business owner or the owner-operator of the truck, will be held responsible for the cargo.

Even if the cargo was delivered in perfect condition with a clean bill of lading, a claim can still be filed against the carrier and it is the responsibility of the carrier to analyze and respond back in writing in at least 30 days or potentially be liable for a claim. This is why it is in the interest of the carriers to document each step of the process and collect as much data as possible to cover yourself and drivers from false claims.

Let’s start this journey with a little history lesson of how we got here

(Key the blurry vision and harp music)

The Carmack Amendment

This often unfamiliar Federal amendment, that actually updates freight-related legislation of 1887, was passed in 1935 and remains in force today. The purpose of the Carmack Amendment (49 U.S. Code § 14706) is to clearly define who is responsible for cargo damage or loss claims, and the Federal amendment puts legal liability directly on the motor carrier.

The first thing you need to understand about The Carmack Amendment is that it trumps state law. If it has to deal with transportation or cargo, it falls under The Carmack Amendment.

The second thing you need to understand is that The Carmack Amendment doesn’t include freight brokers under its authority, but that doesn’t mean they can’t be held liable in other ways.

The third thing you need to understand is that any private contract between any 2 transportation entities will be placed over The Carmack Amendment as this is a legally binding contract.

There are, however, five noteworthy exclusions for motor carriers. These exclusions are:

1. “Act of God”: This exclusion is a valid defense when the carrier is delayed, or the load is damage by an unpredictable natural disaster or physical anomaly. Note that “unpredictable” (or “unforeseen)” is a key term in this exclusion. A delay caused, for example, by an earthquake or act of  terrorism would qualify as “unpredictable.” A severe thunderstorm could be predicted, and is, therefore “foreseen.”

2. “Public Enemy”: This is interpreted as an act of military forces that are enemies of the United States that cause damage—blow up bridges, destroy roads, etc.—and prevent travel along critical highways. These are events that would be classified as Acts of War. Although no war with a declared enemy of the country has occurred, an act of terrorism on our homeland might allow this exclusion to be implemented.

3. “Act of Default of the Shipper”: Shippers are responsible for the security and packaging inside any sealed container they offer for shipping. The carrier is not responsible for the faults of the shipper if faults are found in packaging and/or errors in labeling of the shipment. Also, if the shipper is responsible for loading and securing the load, and does so improperly or inadequately, this exclusion may apply. The Bill of Lading is a critical document when questions of a shipment are in question.

4. “Public Authority”: Carriers are not responsible when the Government takes actions that affect shipping and/or cause cargo damage. Examples are road closures on critical travel routes or trade embargo's. For example, the nearly nationwide shut-down of highways following the 9-11 attacks resulted in more than $32 billion in insured losses being paid. This can also apply to the product being shipped, if for example, the Government issues a product recall while the product is enroute. In summary, the carrier cannot be held responsible for implemented government actions.

5. The Inherent Vice or Nature of Goods Transported: When shipping  perishable products, if the carrier takes all appropriate steps to protect perishable products but they become spoiled or otherwise unusable through no fault of the carrier, the carrier is not libel.

In summary, the Carmack Amendment protects carriers from having to take responsibility for events that are totally beyond their control. It also directs that claims be filed based on valid grounds, eliminating unnecessary legal wrangling, time, and expense. It applies to every freight contract.

Anyone involved in shipping and trucking, including freight brokers—and their legal representatives—should be familiar with the Carmack Amendment.

In summary, the Carmack Amendment directs that claims are filed based on the correct grounds, saving multiple parties from wasted time and money.

What Are the Primary Causes of Cargo Loss?

The leading causes of loss of cargo and liability claims are improper securement, trucking accidents, enroute damage, and theft.

Accidents are self-explanatory—they result in delays even if minor, may cause the power unit to be inoperative, or cause serious damage to the entire truck and its load. In any case the load will be delayed if not destroyed, and the fact that it was in an accident may lead to the items being rejected simply because the receiving agency may consider the possibility of undetected damage and refuse the load.

Damage to the load for any reason, including loading, unloading, and shifting of a load not properly secured may result in a claim. Legitimate reasons for a load to be rejected include crushed corners of cardboard boxes, other signs of potential damage, shrink-wrap that is torn or punctured, or there are signs of water damage or other fluid leakage.

Damage also includes spoilage or late delivery of any perishable products where timely delivery and/or proper temperature control are necessary to ensure freshness or suitability to the customer’s business.

Theft of cargo is estimated to be a $15-to-$30 billion annual problem in the United States. Cargo liability insurance will cover the loss of a load due to theft, provided the carrier has exercised due diligence to prevent that theft. It should be noted that a portion of that theft takes place at intermediate locations such as warehouses and transfer stations rather than directly from the hauling truck. Still, trucks are subject to being broken into, hijacked, or stolen.

Cargo Loss Due to Theft

According to one national report, cargo theft from road vehicles accounted for 84% of all thefts from all modes of transportation and warehousing. Based on Federal Bureau of Investigation (FBI) data, cargo thefts are serious enough to threaten the nation’s economy. These crimes cost the U.S. about $30 billion annually, according to Kevin L. Perkins, assistant director of the FBI. And, as the nation’s economy rebounds following the COVID slowdown, trucking companies are beginning to receive more orders to transport goods attracting thieves and increasing cargo theft incidents—enough that it is a threat to the U.S. economy and national security.

Tractor-Trailer Trailer Trucks Are Being Targeted

Tractor-trailers and their drivers are being targeted. The reason are clear. First, security is limited. Typically, most trucks have only one driver who must concentrate for safe driving. Safe driving is a key element in avoiding accidents and damage—the first major cause of loss is damaged cargo. Trucks carrying valuable loads of goods and equipment are protected by relatively low quality locks and are often parked in non-secure areas including truck stops and road-side rest areas. This all adds up to making trucks attractive targets—easier than breaking into stores and warehouses.

The “bad guys” are not just “getting lucky” finding high-value loads that they can sell quickly. They may have access to load manifest information or knowing that certain carriers and routes involve high value products (electronics, consumer goods, medical equipment, even construction materials, either through business reputation or inside informants).

Carriers and drivers with their own authority should consider cargo liability insurance that protects the value of these loads—protects them from being held libel for loss of damage to the cargo. Just to be clear, this is cargo liability insurance that covers the loss or damage to the load you are carrying. This is not basic accident liability insurance that covers injuries to third parties and for the loss or damage to the property (vehicle, etc.) owned by the injured persons—that does NOT cover the loss of the value of the cargo.

Carrier Liability versus “Cargo Insurance”

There are opportunities for terms to become confused when discussing insurance and liabilities. “Carrier Liability” is insurance purchased by the trucking operator to protect against being judged liable for loss or damage of the load on his truck. Carrier Liability can be written for a specific load, or as blanket insurance based the value of a typical load. It may not cover the total value of every load.

“Cargo Insurance” may be purchased by the shipper to cover the value of its product(s) loaded on your truck.

The Blame Game

Improper securement or otherwise damaged during loading, transportation, and unloading are among the most common causes of damage to freight. Cargo not properly secured with sufficient or faulty devices, or protective equipment such as edge protectors, dunnage, blankets, or tarps. Items not properly secured on pallets, faulty pallets, or improperly loaded material may easily fall off when loading and unloading, especially when crews are in a hurry to load/unload a truck. This is why it’s the responsibility of the driver to document each step of the progress and look at the material being loaded.

You might ask or wonder “what if I’m not allowed on the loading dock while they load the cargo?” This is where the proper documentation needs to happen on the BOL. Get with your dispatch or fleet manager to understand how you should document on the paperwork that you can not count all the boxes, or see everything that was loaded. ABOVE all things inspect what you can before you sign that BOL and leave, because once you sign all the responsibility falls on you.

If, after delivering a load, it is determined by the recipient, that a significant portion of the product is damaged, or missing. The investigation begins into “when, where, and by whom” was the product damaged.

This is when the “blame-game” begins. Unfortunately, it is often easiest to blame the trucking company (see the Carmack Amendment). A responsible trucking company will have cargo liability insurance and has to analyze and respond in writing with in 30 days or be liable to be at fault automatically. Most brokers, shippers and receivers know this so with any issue they can just cast their net out hoping to catch someone even if it wasn’t your fault. Again this is why it’s a absolute necessity for your company to document every step for any load. If you can quickly prove it wasn’t you then you stand a much better chance of not paying that claim.

There can be many reasons why cargo is damaged or spoiled and there are also many ways that the damage can occur. Packaging can be an issue, especially for one-of-a-kind or uniquely-shaped products for which custom packaging does not fit well with other items. Packers and shippers must be especially diligent in protecting these unique products.

To reduce being the victim of the “blame game,” take the effort to ensure that your equipment is in good condition. Clean, dry trailers suggest a professional freight operation. If cooling is required, be sure the refrigeration unit is working properly.

Carriers should be vigilant during loading. In a load of mixed products, make sure the heavier items are loaded on the deck, and lighter items on top. Make sure that there are no spaces (voids) that will allow items or boxes to move around during transit. Make sure that all boxes and items are restrained and will remain in place throughout the trip. Provide braces, blocking, or other restraints when there are spaces between the load and the interior walls of the trailer. It is a good idea to quickly inspect boxes and other packaged items to make sure the packaging is not damaged before or during loading.

If you follow this procedure, assuming the products have been properly packaged by the shipper and securely loaded onto the truck, you can be confident that the products will not be damaged during transit.

If a driver is concerned about the condition of his load, he inspect it before delivery. Boxes that have been damaged or shrink wrap is ripped, or a pallet has fallen, the freight packaging can be repaired or replaced at a nearby facility before it has the chance to be rejected.

The receiving party may also perform an inspection of products upon arrival.

Top Reasons Freight is Rejected

• Paperwork errors
• Temperature range
• Shifted or fallen freight
• Improperly shrink-wrapped freight
• Damaged cases and skids
• Crushed, dented, or bent corners
• Water damage or leakage
• Late delivery
• Wrong product
• Trailer concerns (dirty, dampness)

There have been cases where the recipient of a load refused delivery because of crushed corners on boxes or torn or loose shrink-wrap—without inspecting the conditions of the products inside. To guard against this, some carriers will inspect a load just prior to delivery. If they see signs of crushed corners on boxes or shrink-wrap that is torn—but damage to the product is unlikely, it is possible to have the packaging repaired just prior to delivery.

Finally, packages packed by the shipper that arrive in what appear to be good condition, but the product is damaged inside the package, the liability for that package should go back to the shipper—either it was “broken” when packed or was improperly packed by agents of the shipper.

Record detailed descriptions of the receiving inspection. Are there exceptions? Exceptions are notes on possible damage, which do not necessarily lead to a claim, for example “…bottom corner on box crushed about two inches.” In practice, if a package is damaged, but the goods inside the container are unscathed, then you should not have to file a damage claim.

Similarly, make sure the unloading process moves along smoothly, ensuring that no part of the load is dropped or punctured by forklifts and other equipment. Any such event should be noted immediately—even take a photo if possible. Any damages to packaging should be noted before removal from the truck or loading dock.

While these steps may require more effort and time, it will prevent being involved in the loss of a load and a legal battle over responsibility. And keep in mind that while you are dealing with the legal battle, you are probably in court and not on the road.

Protect Yourself from Unscrupulous Cargo Loss Claims

You have done everything correctly and delivered the load you were given—complete and undamaged—and moved on to your next loads. Two weeks later, you learn a claim has been filed against you for that load for missing and/or damaged goods.

You are certain that the damage or loss did not occur while the load was in your possession.

What could you, the carrier, have done to protect yourself against an erroneous assumption of liability on your part for loss or damage?

Vigilance is the best strategy. First, know your shipper and know your shipment. Ensure the condition of the shipment as it is loaded. That is, boxes and crates are in good condition—with no signs of breakage or crushing of the containers or boxes. In this day and age of inexpensive digital cameras or smart phones with cameras, it is easy to record (photograph) cargo as it is loaded, including pallets of shrink-wrapped cargo.

Do not accept cartons with crushed corners or punctures in the sides without the shipper acknowledging them and annotating the BOL of the exterior damage—and take photographs. For perishable products, make sure the BOL indicates the any expiration dates of the products and if refrigeration is required, the required temperatures are indicated.

Use your digital camera to document refrigeration settings and any temperature indicators in the vehicle. Also make sure that the photos include time stamps that coincide with the pick-up and delivery dates. It is also practical to establish a computer file for these photos, and save each set of files, perhaps identified by the BOL number and date, so that you can retrieve the photos if and when needed.

Use security tags on trailer doors once the load is ready for departure. It is a good idea to check the security tag before departing any stop for fuel or rest to ensure the security tag is still in place. Maintain a log of your stops. If the seal must be broken due to an official inspection, replace and log the new tag and obtain a signature from the inspecting authority.

If driving a refer, periodically check the temperatures in the trailer and the operation of the refrigeration unit.

Upon arrival at you destination, whether it is the final delivery address or a transfer station, monitor the off-loading process for the condition of the cargo. You want to be able to document the conditions of the cargo when it was off-loaded from your truck. Note the date and time of the delivery.

Note on the BOL, and photograph, any cargo that appears to be damaged during travel. This will also help with any insurance claim you may have to make.

At your delivery point, make sure the receiver’s agent signs the documents accepting the cargo. More photos during off-loading will show that the cargo was still in good condition. That way, you will not be blamed for something that happened at the receiver’s end, after the cargo was off-loaded.

Ensuring that all shipping documents (BOL, etc.) are correct, accurately include the nature of the load and the number of boxes, containers, or pallets, and that the document is properly signed. Having a record of the condition of the cargo during loading and offloading (photos), will help authorities determine the condition of the load when it was unloaded, reducing the chance that you as the carrier will be responsible for any damage or theft that occurs after off-loading.

These steps are especially important when accepting loads from and delivering loads to facilities and personnel that are unfamiliar to you.

If you have a clear photographic record of loading and off-loading it will be more difficult for an unscrupulous shipper to hold you accountable for any losses due to theft or damage.

The documentation, supported by photos demonstrates due diligence in carrying and protecting the cargo.

Security

After the truck is loaded as described above and ready to travel, your next concern is security.

Once the truck doors are closed, secure the door, attach the security tag, and record the identification number of the tag. Assuming that you arrive at your destination without having to open the cargo doors, the tag is your evidence that the load has not been tampered with. While the security tag may not prevent theft, it demonstrates due diligence to maintain the security of the load. If you do have to open the trailer for an official inspection, be sure to use and record a new security tag and note the reason for the change. If possible, also get the signature of the inspecting official.

Preventing/ Avoiding On-the-Road Theft and Hijacking

In this day and age, almost anything is possible. Travelers Insurance said it best, “Cargo thieves are looking for whatever they can steal and sell quickly.”  If you are carrying a high-value cargo—and today many things are high value including electronics, tools, clothing, shoes, food, etc., be vigilant about your surroundings, especially during fuel stops and rest stops. Try to plan your rest stops at busy truck stops or popular rest areas where there are likely to be other truckers around. Avoid remote areas or parking on the shoulder of a highway, especially in rural, unlighted areas.

The New York Post and other major publications have reported a significant spike in cargo theft. The more that the supply chain is backed up, the more significant opportunity for thefts.

Here are some tips to reduce your exposure to thefts.

Communicate

Communicate regularly with your home office or dispatchers. When you stop, let them know where you are, the reasons for the stop (fuel or rest) and give them your location and how long you plan on being there. You may even want to ask them about any recent cargo theft news, especially anywhere along your route. There are areas at higher risk for theft. Truckinginfo.com reported that about 48% of all recorded thefts in 2020 occurred in California (20%), Texas (18%), and Florida (~11%). Obviously, you cannot always avoid specific areas, but you will want to know where to be especially alert for the possibility of thefts.

Keep Moving

The best tactic for avoiding thieves is to keep moving. Obviously, when driving alone, there will be mandatory rest stops. One solution is to consider team driving, that will allow you and your co-driver to reduce the number and length of stops.

Team driving can be a challenge. Each driver has his or her own preferences about seat position, what to eat, and radio stations, etc. But if you can find a compatible team driver, you not only reduce your exposure to theft during longer mandatory rest periods; you will also complete trips in much less time.

Park in Secure Areas

When you must stop, always check your surroundings, and select the most secure parking spot available. When possible, avoid leaving your truck unattended. Park in a well-lighted area. On the road and when exiting to go into a fuel stop or rest area, be alert for a vehicle that appears to be following you or staying within visual range.

Be especially alert during holiday seasons when the threats of theft increase.

Frequently Asked Questions

1. What is the difference between “carrier liability insurance” and “cargo or freight insurance”?

Once the cargo is loaded onto the truck, the carrier is liable for any damages due to loss of the cargo. Carrier “liability  insurance” is insurance purchased by the trucking company or trucker that will pay for those damages, and in some cases also pay the carrier or driver some or all of what he expected to be paid for the load.

Cargo or freight insurance is purchased by the shipper to protect them against loss of their property for any reason before it is delivered. This would include loss of the product while in storage or lost on any other truck before it was delivered.

2. What are the advantages of having “carrier liability insurance”?

Pays the cargo liability damages when the driver is judged at fault for the loss of the load.

The carrier’s cash flow is protected from unforeseen stoppages

Profits are still generated if coverage includes it

Efficient procedure for claims because of professional service

Simplified reporting of losses

3. What is the Carmack Amendment?

The Carmack Amendment (1935) clearly defines who is responsible for cargo damage or loss claims, and the Federal amendment puts legal liability directly on the motor carrier. There are five exclusions for motor carriers that hold them NOT responsible  or liable for failure to deliver a load.

4. What are the three most common reasons for loss-of-cargo trucking claims?

• Trucking accidents
• Damage or spoilage enroute
• Theft

5. What are some things a truck driver can do to prevent or discourage hijacking or theft of his load?

Maintain regular contact with his dispatcher.

Park in busy truck stops or busy highway rest areas (many of them have routine highway patrol visits)

Consider team driving with another driver – no extended rest stops.

Be aware of suspicious vehicles traveling along his route.