As 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. Intermediaries 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).

The amount of risk and exposure an intermediary accepts can vary greatly. Domestic cargo has less exposure as compared to international freight that can expose the BCO shipper to a greater share of risk, sometimes resulting in uncovered or minimally covered cargo claims, breach of agreement and E&O mistakes. All of which the intermediary may have to cover.

Prior to accepting contract terms from a shipper or BCO, it is advised that intermediaries understand the exposures and take precautions to protect their business. Not being aware of an exposure and accepting it without critical review can be detrimental to your business as the contract language will generally override any and all language on the Bill of Lading (BOL), motor carrier tariffs and load sheets. In the event of a claim, if the contract does not appropriately assign coverage responsibility, the intermediary will have to accept the loss because it could not be passed on to the underlying carrier—this applies to both rail and motor carriers.

Additionally, do not rely on the Carmack Amendment to protect you from damage liability as damage or loss to cargo can be completely excluded in a contract. Contract damages may be more than what the underlying carrier agrees to accept.

Protect Yourself from Uncovered or Minimally Covered Losses

As an intermediary you must ensure that the contracts you sign do not put your business at risk for claims that are not insured. It is advised that the BCO insure their own cargo. If this is not negotiable, place a surcharge for placing the “first party” cargo cover. This second option may be limiting due to stiff rate competition but should be considered. In all cases, don’t take risks that you can’t afford in the long run.

Managing Your Risk is Critical to a Successful Business

  • Understand Your Risk Contractual obligations must be clearly and completely passed through to the carrier. If this is not attainable, ensure the underlying carrier has the minimum, expected standard liability coverage.
    • Be aware that some contractual responsibilities are not insurable. Questions should be addressed with counsel and your insurance carrier.
  • Align Your Objectives Ensure that you and the cargo owner are on the same page about reducing and eliminating risks. A preliminary discussion can avoid some unlikely risks from being included in the contract.
  • Manage Your Risk Due diligence is critical. Confirm that the carriers you are doing business with are legitimate, as phantom carrier intercepting load sheet and load is common practice. Obtain, review and verify the motor carrier’s coverage. Review CSA scores and ask for written explanations of violations or high BASICs.

You must be vigilant in implementing and following through on loss control measures. Simple tracking devices, like GPS or theft deterrent procedures must be developed and adhered to.

Get in touch with a HUB advisor to learn more.