Third-Party Logistics Beware of Taking on Too Much Risk


post-imageAs competition among transportation freight intermediaries stiffens, third-party logistics (3PLs) providers are increasingly agreeing to take on risks that may be uninsurable under the carrier’s insurance policy. They are more willing to accept risks by agreeing to accept terms that are uninsurable in order to win business from shippers and beneficial cargo owners (BCOs).

Understanding contractual exposures is critical and intermediaries need to take precautions to protect their business before accepting a new contract. Not being aware of an exposure and accepting it without critical review can be detrimental to the business as the contract language will generally override any and all language on the Bill of Lading (BOL), motor carrier tariffs and load sheets. If a claim arises, and the contract does not appropriately assign coverage responsibility, they may have to accept the loss because it could not be passed on to the underlying carrier.

Intermediaries should also ensure that the contracts they sign do not put their business at risk for claims that are not insured. BCO’s should insure their own cargo and if they won’t, include a surcharge for placing the “first party” cargo cover. In any case, an intermediary should not take risks that they can’t afford in the long run.

The key to protection is a clear understanding of contractual obligations, aligned objectives with the cargo owner and follow-through on all loss control measures.

HUB International Transportation experts provide guidance and offer solutions to reduce contractual exposures covered by multiple parties. Get more insight into third-party contractual risks and if losses occur, review our bulletin Cargo Claims Handling for Consignees to better understand your options and your rights.