drafting transportation contracts: negotiating key terms...

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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

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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


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


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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


10

MANAGE RISKS

Certification Requirements:

U.S. Custom’s Customs-Trade Partnership Against Terrorism certification (C-TPAT)

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MANAGE RISKS Interlocking agreements

Clearly identify services and roles

Controlling authority and integration provisions

Protective liability provisions

Indemnification promises

Insurance requirements


12

MANAGE RISKS

Contract with parties from origin to delivery to manage and control risks.


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.


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


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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. “


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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


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MANAGING RISKS

Is Indemnification for 3rd party claims?

Will the promises survive termination?

What about incidental and consequential

damages?


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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


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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.


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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.”


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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).


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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

http://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)

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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.

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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

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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.

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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

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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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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

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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

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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

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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

http://www.transportationlaw.net/

www.strtrade.com

DRAFTING

TRANSPORTATION CONTRACTS A BROKER’S PERSPECTIVE

Michelle L. Mejia

© 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


• 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

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• 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


• 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


• 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

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“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

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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

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THANK YOU! Michelle L. Mejia

SANDLER, TRAVIS & ROSENBERG, P.A.

225 W. Washington St., Ste. 1640

Chicago, Illinois 60606

(312) 279- 2836

[email protected]

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