Category Archives: Blog

Carmack Amendment Argument Doesn’t Hold up in Stolen Load Case & Reinforces Need for Excess Cargo Insurance

If high-value cargo is stolen, is the interstate carrier’s liability limited to only the value of the cargo that is listed on the bill of lading? That’s what the Carmack Amendment claims. However, according to a case recently decided in Ohio, the language in the Master Transportation Services Agreement between the broker and the carrier can’t be preempted by the Carmack Amendment.

An article in Overdrive reports that a federal judge just awarded $5.9 million to Excel, Inc., in its suit against Southern Refrigerated Transport. In 2008, a shipment of pharmaceuticals was stolen from a rest stop in Tennessee while en route from Excel’s warehouse in Pennsylvania to Memphis. Excel filed a claim with Southern Refrigerated Transport of more than $8.5 million. The carrier denied the claim, stating that its liability was limited to the amount on the bill of lading, which was less than $57,000.

However, the article noted, the transportation agreement between the broker, Excel, and the carrier, Southern Refrigerated Transport, stated that — in the event of a lost load — the carrier was responsible for the replacement value for the shipper’s freight. In absence of such language, the carrier’s liability would have, in fact, been covered by the Carmack Amendment, which was designed to limit the liability of interstate carriers.

An Ohio-based attorney with knowledge of the case stated that it is a good reminder to everyone in the marketplace to be sure they completely understand the provisions of the contract that they’re signing, as the difference between federal language and MTSA language can, as in this case, mean a difference of millions of dollars.

In situations where you have signed indemnity agreements between the Carrier & Broker/Shipper it is always a good idea to have enough cargo insurance to cover the full value of the shipment. If the limits are too low there are products available, such as our Freight Insurance ASAP Coverage, which will allow you to instantly bind Excess Cargo Insurance over the transportation providers underlying limits. These costs can often passed on to the shipper and further reduce exposures for all parties involved.

Weighing The Options, BMC-84 vs BMC-85

In October of 2013, the FMCSA raised the financial security requirement for freight brokers from $10,000 to $75,000. The two options available to meet the financial security requirement are, to purchase a security bond, BMC-84 or obtain a trust fund agreement, BMC-85. Either one guarantees payments to shippers or carriers should the broker not fulfill their contract.

The $75,000 broker bond (BMC-84) carries the cost as a percentage of the bond amount, or premium, paid to the surety provider, much like an insurance policy. The bond guarantees to pay for potential claims against the broker. The trust fund option (BMC-85) requires $75,000 deposited with a bank, held in escrow for the duration of the broker’s license.

Here are a few things to take into consideration when deciding between a BMC-84 or BMC-85, otherwise known as a broker bond or trust fund.

The trust fund or BMC-85 requires an initial outlay of cash, plus an annual fee, normally a percentage of the fund. The fees range between 1% to 2.50%. Ask yourself if you can afford to tie up this amount of cash for an unspecified period of time. Claims against trust fund  agreements are settled with cash from the fund. If the claim is found to be false, funds may be returned, but it can take several weeks.

The broker bond or BMC-84 is a percentage of the full amount of the bond paid annually. This is less costly up front. Should a claim arise, surety companies work with bonding agencies to resolve claims quickly.

No matter which option you choose, it is important to do thorough research before making a decision. Look for an experienced surety agency, as fees and rates may vary. Some surety agencies also require audited financial statements, which can cost from $2,500 to $5,000 per year.

Once you’ve made the decision to use a broker bond, look for a specialist in issuing these types of bonds. They’ll guide you through the freight broker bonding process.

 

The Emergence of Third Party Logistics as a Key to a Globalized Supply Chain

As the global transportation industry continues to evolve, Third Party Logistics or 3PL is becoming a global norm, part of the expectations for businesses, who expect door-to-door delivery and total management of their delivery needs at every place in between. At this very moment, intensive market research is underway to study Third Party Logistics, the sudden growth of 3PL and future prospects for this avenue of business.

If you are currently considering which Third Party Logistics companies are right for your business, or deciding whether 3PL is the way to go, bear in mind that sooner is better. As a growth industry, Third Party Logistics is one way to get ahead of the curve, into an area where many of your competitors have likely already gone, or will consider going in the future.

Third Party Logistics encompass a broad range of end-to-end transport needs, not only transporting goods, but maintaining inventory logs and travel insurance, shielding against property loss while ensuring the most efficient delivery system possible. By placing the responsibility for transportation with a third party, corporations can tap global resources, while maintaining a level of insulation from operations so as to avoid costly unnecessary complications.

For example, lets say there is a commodity trader which transports goods on a regular basis through ten or more different countries, without knowing for certain what countries they will be shipping to and from on any given day. Even if localized with the United States, there are state and local regulations and particularities to be taken into account. In order to maintain their reach, such a company would be wise to utilize a business specializing in global and interstate transportation, while focusing on what they know best: the products they buy and sell, and the supply and demand of those products.

If such a company waited until they were hit by an unexpected regulation in one of those countries, it might be too late to avoid a costly mistake. A last-minute phone call with even the best experts may not get the job done in time. Infrastructure and a working business relationship takes time. Third Party Logistics companies work best when allowed time to study and work with a business to develop an overall plan, whatever the stakes.

Third Party Logistics companies are changing the face of business in a globalized world. Is today the time to find out if Third Party Logistics is right for your company? If you are thinking about incorporating a Third Party Logistics company into your business, one thing is sure: the sooner you get started, the better it will be.

U.S. & China Strategic and Economic Dialogue July 2014

Shipping goods over seas is always a hazardous operation. Due to the enormous amount of freight that travels between the U.S. and China, these two countries continually exchange dialogue in order to make the process safer and more efficient. Recently in the Sixth Meeting of the U.S. – China Strategic and Economic Dialogue (S&ED) in Beijing US Secretary Jacob Lew and Chinese officials discussed a few key strategies to develop The US/China relationship.

One major topic of this meeting was a commitment to high-level exchanges. Secretary of State John Kerry and his Chinese counterpart reinforced previous agreements that the American and Chinese heads of state had reached and arranged for future meetings. A thorough discussion of security issues, the dialogue at the fourth round of the Strategic Security Dialogue (SSD) was candid, in-depth and constructive. It was beneficial for enhancing mutual understanding and trust.

Other matters included Military Relations, Mechanism Building, a Legal Advisers Consultation, Non-Proliferation Cooperation, Counterterrorism Dialogue, Law Enforcement Cooperation and others. Promote Exchange rate liberalization to promote growth between US & Chinese Corporations. Greater Transparency by the Chinese state owned enterprises.

Government officials convened these gatherings in order to nurture and sustain relationships. In much the same way, GSIS Inc. is your link to security for your materials and your business. We partner with both you and the international community so as to smooth the way. It is this kind of teamwork that makes our Ocean Freight Insurance an indispensable component of your international shipping.

We continually commit ourselves to your business, facilitating its growth as well as insuring its future. We keep abreast of both geopolitical and economic developments so that we may serve your interests most effectively.

Please see our website for more information. Our twitter feed will also be of interest to you.

The Purpose of OTI (Ocean Transport Intermediary) Surety Bonds

An  Ocean Transport Intermediary (OTI) Bond is not an insurance policy, although it does serve a similar purpose of a financial guaranty. It is a regulatory requirement of the Federal Maritime Commission (FMC). The company serving as an ocean freight forwarder or a Non-Vessel Operating Common Carrier (NVOCC) must be able to guarantee their legal obligations for the shipment of cargo will be met, payments for shipments will be made and they will comply with FMC regulations. Unlike a standard insurance policy, if a claim is filed against an OTI Bond, the bond company can hold its customer liable for the full amount of the bond.

Once the FMC qualifies a company to act as a freight forwarder or NVOCC, the company has 120 days to obtain an OTI bond or the FMC will cancel its license to operate in the US. In addition, the bonding company providing the bond must be on the US Treasury’s Listing of Approved Sureties (Dept. Circular 570).

The minimum amount of the bond is $50,000 for freight forwarder, $75,000 for a NVOCC plus an additional $10,000 for every separate branch office that a forwarder or NVOCC maintains. For foreign based companies, the minimum amount is $150,000.

A NVOCC active in the US-China trade may also file an optional $21,000 rider to its bond. This rider is intended to cover any fines or sanctions the Chinese government might levy against a US company operating in its country. The rider can be cancelled without affecting the status of the bond. Either the bonding company or the NVOCC may cancel the bond at any time. But if so, the NVOCC has only 30 days after the FMC has received official notice of the cancellation to obtain a new bond or the FMC will revoke its license.

OTI Bonds provide stability and the free flow of trade by ensuring that the companies are financially able to make restitution in the event a cargo does not reach its intended destination on time, intact and with all payments rendered.

Cargo Theft Increases over Holidays & How Insurance and Risk Management Can Help Mitigate Your Exposures

Holidays like the Fourth of July provide you all with rest from work, a chance to reconnect with family and friends and time for fun. Who would think that holidays also provide thieves with opportunities to steal the cargo that you work so hard to protect?

According to a recent report from Property Casualty 360° crooks see the holiday as a time to take advantage of undermanned police, tired and anxious transport workers and other holiday by-products to increase their ill-gotten gains. They stated, “According to CargoNet, a division of Verisk Crime Analytics, 30 thefts were reported between July 2 and July 7 last year, and in 2012, 39 thefts were reported for the same period.”

New Technologies Create New Threats

Sophisticated criminals are using technology to help them create fake bills of lading, web sites, insurance certificates and other documents to help them steal and then hide the thefts. Voice over IP phones can be used by clever thieves in the commission of their crimes.

Of course, you can use new technology to help combat theft with tracking devices hidden in cargo to help you track your product.

Best Practices

  • Keep cargo moving. Every stop is a chance for thieves to hijack cargo.
  • Make sure information about vehicles is up to date.
  • Prepare your carriers. Make sure that personnel are ready to deal with theft. Training is key.
  • Make sure that carriers know what to do after a hijacking. What are your policies and procedures? What are the best ways to contact the police or other authorities?

In the end, cargo insurance is a critical investment. In the case of cargo theft or hijacking, insurance protects you from loss. If you have any questions about preventing loss and protecting your shipments, please contact us.

FMCSA Asks Congress to Raise Minimum Insurance Requirements for Truckers

FMCSA (Federal Motor Carrier Safety Administration) has a proposed rule to change. They are asking the U.S. Congress to Raise the Minimum Level of Insurance on Trucks.  Here is a brief summary of what is behind the proposal sponsored by Rep. Matt Cartwright (D) Pa.

A recent study commissioned by MAP-21 (U.S Department of Transportation Federal Highway Administration – “Moving Ahead for Progress in the 21st Century”) reported, “The agency (FMCSA) seems to be bowing to the economic objectives of the personal injury attorneys and mega-trucking companies who have been campaigning for higher insurance requirements.”

FMCSA states, “while catastrophic motor carrier crashes are rare, the costs for resulting severe and critical injuries can exceed $1 million. Current insurance limits do not adequately cover these costs, which are primarily due to increases in medical expenses and other crash-related costs.”

According to Rep Cartwright, “This legislation is essential to protecting our nation’s highways and ensuring that victims receive the proper amount of compensation for their losses.” He further stated that outdated insurance limits “shifts the burden of crash costs to motorists, taxpayers, medical insurance carriers and Medicare. 

Historical Highlights

  • The current $750,000 minimum coverage was established in 1980
  • With the increased cost of medical care,  $750,000 is equivalent to $4.4 million
  • More than 100,000 people have been killed in commercial vehicle collisions since 1980

Perspective

Understanding the millions of miles logged each year by Motor Carriers, there are going to be accidents. Here are accident statistics for the two leading express package delivery companies: In the two years from 2010 to 2012, FEDEX trucks were involved in 497 crashes, 197 involving injuries, including 11 deaths and UPS in the same period had 1,448 crashes, 541 involving injuries, including 39 deaths.  Every single accident involved insurance coverage, litigation and every Motor Carrier will no doubt be impacted by the ruling.

Ramifications & Impact

In 2012, there were over 500,000 trucking companies in the United States owning over 26 Million registered trucks driven by 3 Million Drivers who logged nearly 400 Billion Miles. There were 6.8 million people employed in jobs that relate to trucking activity.

Over 9 Billion tons of freight was moved in that year representing $603 Billion in gross freight revenues. The trucking industry transports 67 percent of the cargo moved in the country each year.

When the amount of insurance currently paid by these companies increases, the result will be a ripple effect of increased costs for virtually everything companies transport and consumers purchase.

How Maritime Law Impacts Domestic Freight Insurance

Domestic Freight Insurance in a broad sense, covers road, rail, air and sea shipping and is primarily designed to protect the interests of the shipper of goods. The primary coverage is for damage to products while in transit or while in the custody of the carrier.

The subject of this article is how courts have interpreted Maritime Law as it relates to Domestic Insurance and the impact that has on Insurance Companies and their clients.

There are a number of court cases that illustrate how Maritime Law has evolved and how it is impacting both shippers and carriers today. Here is an example of how the U.S. Supreme Court interpreted Maritime Law in the case of Norfolk Southern Railway Co. v. Kirby: Federal Maritime Jurisdiction Pushes Inland – “Consistent with its previous decisions, the Supreme Court held that limitation clauses can be contractually extended to downstream carriers such as Norfolk Southern. This ruling, however, has extended the maritime jurisdiction of the federal courts inland.” 

GSIS Inc. provides Risk Management Consulting services to companies involved in both Domestic and International Logistics.  As such, we strive to understand how three sets of Maritime Law impact Freight Insurance.

To begin, recognize that Maritime Law has been around a long time and the various laws and rules included have been the subject of legal interpretation and litigation for many years. As a result there is an ever growing compendium of case law regarding Maritime Law and we will not even be scratching the surface on the subject.

We will however refer you to other documents and articles that are useful in understanding how the various legal proceedings have impacted the Domestic Freight Insurance Industry. For example, here is a link to just one attempt to summarize how courts have interpreted the various rules, laws and acts over the years. This “Primer” alone is 56 pages long and it focuses only on the most recent developments (as of 2004) impacting Cargo Claims.

Here are the three primary Maritime Laws that govern International and Domestic Shipping:

  • Hague-Visby Rules – International shipping was first governed by the International Convention Regarding Bills of Lading, AKA the “Hague-Visby Rules” date back to the 17th Century. The most recent amendments to the Hauge-Visby Rules which are the foundation of International Maritime Law occurred in 1979.  The rules are designed to protect the interests of both shippers and carriers.
  • Law of the Sea Treaty – The United Nations originally created these treaties in 1958 and 1960 in an attempt to protect national interests for natural resources, and then amended in future years, The United Nations created and amended the United Nations Convention on the Law of the Sea (UNCLOS), AKA Law of the Sea Convention and Law of the Sea Treaty. This is an international agreement signed by at least 60 countries and was enacted to define “the rights and responsibilities of nations in their use of the world’s oceans, establishing guidelines for businesses, the environment and the management of marine natural resources.” It is uncertain, however “as to what extent the Convention codifies customary international law.” One of the most fundamental issues resulting from UNCLOS was countries extending their national boundaries. “By 1967, only 25 nations still used the old three-mile (5 km) limit, while 66 nations had set a 12-nautical-mile (22 km) territorial limit and eight had set a 200-nautical-mile (370 km) limit. As of 28 May 2008, only two countries still use the three-mile (5 km) limit: Jordan and Palau.”  The conference further stated “developments since the United Nations Conferences on the Law of the Sea held at Geneva in 1958 and 1960 have accentuated the need for a new and generally acceptable Convention on the law of the sea.”
  • COGSA – Concerned that the Hague-Visby Rules did more to protect the carrier than the shipper, the United States created The Carriage of Goods by Sea Act (COGSA) which increased the Minimum Insurable Value of a “Package” (the product being shipped) from 100 English Pounds to 500 U.S. Dollars. Additional information about COGSA is available here. Again, this is a very long document that has been interpreted in many different ways over the years. 

Ocean Marine Cargo Insurance Defined – Ocean Marine Cargo Insurance is specifically designed to protect the interests of property holders who are shipping internationally.  Domestic Freight Insurance can be a subset of Ocean Freight Insurance and is therefore subject to the interpretations cited. Should you have additional questions, please feel free to contact us. We are GSIS Inc., Domestic and International Logistics Consultants.

Cargo Theft on the Rise in United States, Protect Yourself with Cargo Insurance

According to Business Insurance, the average loss in cargo thefts has increased in the United States. 2014’s first quarter compared to a year ago indicates the average loss due to theft per incident increased 38.2%. Food and drinks were the product type most often stolen, followed by home and garden products. California was the state with the highest rate of theft, followed by Florida, Georgia and Texas.

Freight Watch International reports that in the United States, there was a sustained rate of 2.59 cargo theft incidents per day. 80.97% of these were full-truckload or container thefts. Within these incidents, deceptive pickups as a means of cargo theft increased 763%. As Freight Watch reported, this trend shows confrontational stealing is being replaced by making appointments and using fake identities to steal cargo. The use of technology is contributing to this type of cargo theft.

Another interesting statistic is that cargo theft, more often than not, takes place over the course of the weekend when cargo is stationary and unattended. Freight Watch reports that in 2012, 71% of facility thefts occurred on a weekend with most of these in an unattended lot such as a truck stop, public parking area or carrier lot. However, the rate of theft also rose slightly where lots are secure.

These statistics tell us that it is more important than ever to have and understand cargo insurance. Cargo insurance will cover what you are hauling if you have the right policy. Look for “Named Peril” or “Special Cause of Loss.” Read and know the policy to be certain it covers theft and that theft is not listed in an exclusion or endorsement.

Court Decision Confirms Limits of Liability Under Carmack Amendment

A recent Fourth Circuit Court decision in the case of ABB Inc versus CSX Transportation illustrates the importance of completing a proper bill of lading (721 F.3d 135 4th Cir. 2013.) Although this case concerned a rail carrier (ABB), the regulations for motor carriers under the Carmack Amendment are nearly identical.

To establish carrier liability under the Carmack Amendment, a shipper must deliver the freight in good condition to the carrier; show that the goods arrived damaged; and state the amount of damages. A bill of lading document that the carrier has received the goods; detail the terms of shipment; and functions as evidence of contract.

In this court case, an electric transformer worth $1.3 million transported by CSX from ABB’s plant in St. Louis to a customer in Pennsylvania was damaged in an amount over $550,000. CSX maintained that under the bill of lading, its liability was limited to $25,000. The federal district court affirmed the limitation but under appeal the Fourth Circuit overturned the decision. The court determined that the Carmack Amendment (49 U.S.C. 11706) made CSX fully liable for the shipment and that the bill of lading, as completed, did not change CSX’s degree of liability (see 49 U.S.C.14706 for motor carriers.)

The court referred the Eleventh Circuit Court case of Siren, Inc. versus Estes Express Lines, which ruled in favor of the motor carrier because the BOL stated twice that the shipment would move under Class 85, which limits liability to a specific amount per pound of freight.

The Fourth Circuit court concluded that the bill of lading was silent as regards to CSX’s liability. Instead of noting the rate and liability, the rate authority space on the BOL was left blank. In addition, the BOL did not reference any particular classification, rate authority code, price list (4605) or any other proof of limited liability by CSX. The language of the Carmack Amendment requires the carrier to show that the parties concluded a written agreement that limits the carrier’s liability even when drafted by the shipper.

Carriers must ensure that the bill of lading specifically states the classification, rate authority or price list containing the provision for limited liability.

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