Drafting Transportation Contracts: Negotiating Key...

Drafting Transportation Contracts: Negotiating

Key Terms in Shipper, Carrier, and Broker

AgreementsMinimizing Liability Exposure in the Event of Loss, Damage, or Non-Delivery of Goods

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THURSDAY, MAY 14, 2020

Presenting a live 90-minute webinar with interactive Q&A

J. Michael Cavanaugh, Partner, Holland & Knight, Washington, D.C.

James F. Mahoney, James F Mahoney PLC, Scottsdale, Ariz.

Jameson B. Rice, Partner, Holland & Knight, Jacksonville and Tampa, Fla.

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Drafting Transportation Contracts: Negotiating Key Terms in Shipper, Carrier, and Broker Agreements

Minimizing Liability Exposure in the Event of Loss, Damage, or Non-Delivery of Goods

Presented by:James F. Mahoney - James F Mahoney PLCJ. Michael Cavanaugh – Holland & Knight LLPJameson B. Rice – Holland & Knight LLP

May 14, 2020

Drafting Transportation Contracts –Considerations and Concerns

P re s e n te d B y J a m e s F M a h o n e y P LC

• MOTOR CARRIER/SHIPPER AGREEMENT

(please see Exhibit A)

• THIS MOTOR CARRIER/SHIPPER AGREEMENT (this "Agreement"), is made and entered

• into as of the 17th day of May 2020 by and between ABC Inc., a Texas corporation ("Shipper"), and Too Good to be True LLC , a Kansas limited liability company("Carrier");

• Shipper and Carrier are individually referred to herein as a "Party" and together as the "Parties;"

• WHEREAS, Shipper desires to hire Carrier to perform motor carrier transportation service for Shipper in accordance with the terms and subject to the conditions of this Agreement; and

• WHEREAS, Carrier desires to perform motor carrier transportation service for Shipper in accordance with the terms and subject to the conditions of this Agreement;

• NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual agreements and provisions hereinafter set forth, the Parties hereby mutually agree as follows:

• Term. This Agreement shall remain in full force and effect for a ___ year period

• beginning on the date first written above and continuing thereafter on a year-to-year basis.

• Either Party may terminate this Agreement at any time, with or without cause, upon thirty (30) days' written notice to the other party, unless otherwise specified in this Agreement.

1. Scope of Agreement. Carrier is a motor carrier under 49U.S.C. 13102(12), is duly registered with the Department ofTransportation pursuant to 49 U.S.C. 13902 and 13905 with aMotor Carrier Safety Rating of " ", and will providelawful and responsible transportation service to Shipperunder contract. Shipper will tender Carrier freight fortransportation. The scope of the service contemplated by theParties is set forth in Appendix A. Carrier shall be anindependent contractor of Shipper. As between the Parties,Carrier shall have the sole and exclusive responsibility for thecosts and over the manner in which its employees and/orindependent contractors perform the transportation service,including the equipment provided.

Rates, Charges, and Payment Terms

Freight

Documentation

Cargo Liability

Indemnification

Insurance

Cargo Liability

Dispute Resolution

Broker Considerations

Presented by Jameson Rice

Drafting Transportation Contracts

Broker Concerns

• Brokers connect shippers with carriers but do not perform the transportation themselves

(although can be relatively hands on with respect to dispatch).

• Brokers are worried about taking on carrier liabilities

− responsibility for an accident

− responsibility for freight damage

− responsibility for missed pick-up / delivery windows

• Brokers prefer for the Carrier to remain liable for these items (which is the default, and at

one time was most common).

• Broker margins on loads are typically small, but aim for a high volume. Taking on liability

for each load as if it were a carrier can have a substantial impact on the economics of

brokering the loads.

Shipper Concerns When Using Brokers

• Shipper has a contractual relationship with the Broker, not the Carrier.

• Shippers want to be able to turn to its Broker, the party it has as relationship with, in the

event of an incident to be responsible for solving the problem.

• Broker solvency: want to make sure the broker pays the carrier to avoid double payment.

− If a broker is paid by the shipper, but doesn’t pay the carrier, by default, most often the carrier is entitled to be paid by the shipper for the services performed for the shipper, resulting in a double payment.

Cargo Damage

• Most Brokers do not want to be responsible for freight damage, because they lack

control. They are willing to be a liaison between the broker and the carrier (and the

carrier’s insurance company) to facilitate payment for cargo damage, not to pay

themselves.

• Brokers tend to be more willing to take on cargo damage responsibility when:

− They are affiliated with a carrier and will frequently tender the cargo their carrier affiliate

− For high volume customers

Insurance

• Broker-specific insurance

− Contingent Liability and/or Truck Broker Liability

− Contingent Cargo Liability

− Logistics Errors and Omissions Liability insurance

• Risk to shipper is indirect.

− Shippers are rarely beholden to one broker in such away that they could not switch.

− Shippers want the broker to remain solvent, to be able to withstand a lawsuit, and to pay carriers.

Indemnity

• Shippers would like the Broker to indemnity Shipper for the acts of the Carrier.

• Additional shipper indemnity concerns include:

− driver misclassification claims (especially important for last mile, or “branded” transportation service, and in certain states where such claims are prevalent)

− claims against shipper alleging negligent hiring/control (respondeat superior)

• Brokers would only like to provide indemnity for their own negligence, if any indemnity at

Scope of Services

Accessorial Charges

Detention Charges

Fuel Surcharges

Bill of Lading(please see Exhibit B)

Shipper – Broker Contracts

Broker-Carrier contracts

Time for Questions

FRFABRIKAM RESIDENCES

Thank You.Jim Mahoney

602 900-1800 jim.mahoney@jfm-lawfirm.com

https://jfm-lawfirm.com

J i m M a h o n e y c o n c e n t r a t e s h i s p r a c t i c e i n t h e T r u c k i n g a n d

T r a n s p o r t a t i o n I n d u s t r y.

J i m o f f e r s e x p e r t i s e i n : F M C S A r e g u l a t o r y c o m p l i a n c e ; e m p l o y m e n t i s s u e s ; t r a n s p o r t r i s k m a n a g e m e n t ;

f r e i g h t b r o k e r a g e a n d 3 P L o p e r a t i o n s a n d e x p o s u r e ; i n t e r n a t i o n a l a n d

c r o s s - b o r d e r i n j u r y a n d c a r g o c l a i m s ; o w n e r - o p e r a t o r i s s u e s ; t r u c k i n g

Wo r k e r s ’ C o m p a n d p r o p e r t y l o s s .

J a m e s F M a h o n e y P L C

j i m . m a h o n e y @ j f m - l a w f i r m . c o m

JimMahoney

Negotiating Intermodal Agreements

Presented by Jameson Rice

Intermodal Transportation

• What is intermodal?

− Transportation using two or more modes of transportation, generally in a container that does not require transloading in order to change modes.

− Most ocean freight must also be transported by an inland means of transportation.

− For certain rail commodities (e.g. coal) shippers have rail facilities and all transportation is conducted by rail, but other moves by rail and truck, among other modes.

• Benefits of rail intermodal

− Can be less expensive than using truck alone (especially over longer distances).

− Potentially safer/less likely to sustain certain kinds of damage.

− Greener (consider corporate commitments to carbon footprint).

• Drawbacks of rail intermodal

− Less control and visibility to the location of the goods, and therefore less flexibility.

− More touchpoints and more minor impacts to the container, and therefore more opportunities for incidents.

− May not be more economical for shorter routs.

− Equipment considerations.

Intermodal Shipping with Railroads

• Railroads “wholesale” their service for intermodal to Intermodal Marketing Companies

(IMCs).

• Intermodal Marketing Companies (IMCs) sell intermodal rail services.

• IMC customers can be shippers, but are often carriers in other modes (ocean carrier or

motor carrier), who in turn have a relationship with the shipper. The motor carrier or

ocean carrier establishes by contract the terms by which it can transfer its cargo to rail,

so that it can offer intermodal service to its customer.

Contracting for Rail Intermodal Service

• Rail Circulars

− Rail circulars, directories, or tariffs govern the rules, including limitation of liability, for rail service. Because shippers do not negotiate with the railroads directly, there is not typically a substantial deviation from these requirements.

− Freezing requirements is one negotiating possibility.

Contracting for Rail Intermodal Service

• Volume Commitment

− Volume commitments are very common for purchasing rail service.

− Volume commitments can be

• in absolute terms

• on a percentage basis

• on a lane-by-lane basis (Origin-Destination Pair)

Contracting for Rail Intermodal Service Continued

• Equipment

− Operating on a railroad means accounting for the railcar. These can be provided by the railroad (rail controlled) or provided to the railroad by the shipper (private).

− Intermodal containers can be carried on a flat car, or on a well car, double stacked in many instances (truck trailers can also be carried on a flat car).

− Charge for empty return of rail car/balance of equipment flow is a consideration for true private railcars.

• Terminal Services

− Lift fees and demurrage are potential points of negotiation.

Contracting for Rail Intermodal Service Continued

• Most Favored Nations

− For very large shippers, “most favored nations” pricing may be a point of negotiation.

• Force Majeure

− Force majeure clauses protect a carrier that cannot perform the service due to a force majeure.

− Force majeure clauses protect a shipper that cannot meet it’s volume commitment due to a force majeure.

• Fuel Surcharge

− Indexed to cover fuel costs.

− Sometimes negotiated as an additional discount to the shipper.

Negotiating Rail Agreements

Presented by Mike Cavanaugh

Negotiating Issues – Rail Agreements

Example – Attachment X – Rail Service Agreement. This is a very complex agreement

between a large industrial shipper and a railroad that serves its complex and interchanges

with Class I railroads. Note differences between Line Haul Railroads and Switching &

Terminal Railroads.

A service agreement may be pure volume/rate agreement, but may include physical rail

services, intermodal services with marine terminals, other carriers.

• Rates and Charges

Freight – Tariff vs Contract

Service charges

Fuel Surcharge and Adjustment

Effective period – Initial Period Rates

Escalation provision and AAR indices

Escalation caps and collars

Detention and Demurrage

Physical Rail Services

• Switching Service

− Frequency and Timing

− Special Features

• Car Storage

• Car Supply and Selection

• Car Maintenance and Repair

• Unit Train Service

• Car Cleaning and Weighing

Legal and Liability Issues

• Freight Documentation

• Bill of Lading - Waybills

• Carrier Liability

• Insurance

• Indemnification

Service and Financial Features

• Key Performance Indicators

• Car Leases

• Exclusivity

• Protection against degradation of service or abandonments

• Tracking & Visibility

• “Most Favored Nation” Provisions

Negotiating Ocean/Intermodal Agreements

Presented by Mike Cavanaugh

Negotiating Issues – Ocean/Intermodal Transport

• Ocean Service Contract Example – Comprehensive shipper-oriented ocean freight

service contract that can be used with either a vessel-operating common carrier (VOCC)

or non-vessel operating common carrier (NVOCC)

• Role of Transportation Intermediaries – NVOCCs, Ocean Forwarders

• Ocean freight service contracts in US trades are regulated by Federal Maritime

Commission under the Shipping Act of 1984 and 1998 OSRA Amendments.

• Rates and terms must either be in a published ocean tariff or in a contract compliant with

FMC regulations. VOCCs must file their contracts with FMC; NVOCC service contracts

no longer have to be filed.

• Service contracts must have a minimum quantity commitment (MQC). If Shipper does

not book the contract MQC amount, the carrier must either re-rate the shipments to

applicable tariff rates, or charge liquidated damages for the shortfall.

• Carriers may not rebate or discount off tariff rates, other than by use of a service

contract.

• Basic Service Description – Port to Port, Door to Door, CFS or FC terms.

• Intermodal service – carrier typically subcontracts with trucking, rail and marine terminal

services providers, whose charges are included in the carrier’s rate to shipper.

• Freight Documentation

− Booking note

− Shipper’s Loading Instruction (SLI)

− Forwarder’s Cargo Recept (FCR)

− Dock Receipt (DR)

• Bill of Lading (B/L or BL) or Sea Waybill (SWB)

− Contract of carriage, but may also be a title document

− Negotiable or “Order” B/L – word “order” is in CONSIGNEE box; this is a title document, and only the holder of a duly-endorsed original B/L may receive goods from carrier at destination

− “Straight” or “Direct Consignment” Bill of Lading – word “order” is not in CONSIGNEE box; carrier must deliver to named Consignee, unless shipper directs otherwise

− Sea Waybill – contract of carriage only, not a title document

• Master Bill of Lading - (MBL; always a SWB) issued by VOCC to NVOCC shippers

• House Bill of Lading - (HBL, may be negotiable, straight or SWB) – issued by NVOCC to

Shipper

• Basic Carrier Liability Terms

• Under COGSA and Hague-Visby Rules, the ocean carrier may limit liability in most cases

to a fixed amount, in US $500 per package, internationally 666.67 Special Drawing

Rights (about US $910)

• This limitation applies by law for goods on the vessel “tackle to tackle”) but carrier may

extend it by contract to inland transport before and after the ocean voyage

• Carrier’s Bill of Lading will always include a “Himalaya Clause” extending its limitation of

liability to subcontractor truck, rail, warehouse and terminal service providers

• Key shipper negotiating points:

− Shipper may declare higher value, and pay extra for insurance for coverage above the carrier’s per-package limitation.

− Key issue is what is the “package” stated on the front of the B/L? This is negotiable. Carrier may try to state on B/L that the container is the package. Most US courts reject that and look to identified smaller packages, e.g., pallets or smaller units.

− Special issues on very “high-value” containers, like pharmaceuticals, with large number of small units. Parties usually negotiate a special arrangement with agreed carrier cap.

Commonly Negotiated Issues

• Limit on General Rate Increases, Peak Season or Congestion Surcharges

• “Most Favored Nation” provision on rates and charges, i.e., shipper will receive

equivalent terms to others with similar volumes (occasionally still see the “Crazy Eddie”

clause, i.e. carrier will match best market terms for similar volume shippers)

• Mitigation of Fuel Surcharge Increases – Carrier has fuel hedging program, and can offer

bigger shippers less than full pass through of fuels index price increases

• Termination Rights – Should provide that MQC is reduced to amount already shipped if

contract is terminated by carrier or by shipper without fault – e.g., shipper may have right

to terminate or reduce MQC if carrier reduces its number of available sailings

Common Shipper Service Features

• Electronic Date Interface (EDI) requirements, cargo tracking and visibility

• Container condition

• Chassis arrangement – usually a pool

• Late Gates

• No Liens Provision

• Deviation Rule – covers shipper request to re-route cargo in transit at “cost plus fee”

amount (avoids re-rating to high FAK or NOS tariff rates)

• Special Terms (Clean Truck, Pier Pass, California delinquent dray contractor list)

• Claims Procedure – time for notice and filing of claims, time for resolution, special terms

• Demurrage and Detention Charges – shipper may ask carrier to bill these to Consignee,

or require prompt billing, or certain D&D mitigation provisions

• Key Performance Indicators (KPIs) – large volume shipper usually requires a high

percentage of on-time delivery of B/Ls and other documents, error-free documents, cargo

making the schedule sailing, on-time sailings and arrivals of shipments, remedy may be

rate reduction

• Choice of Law – Always state parties’ choice, adverse location is better than none

• Disputes Resolution - Arbitration vs. Litigation; Forum Selection

• New York Convention – recognition and enforcement of foreign arbitral awards

• US law – recognition and enforcement of foreign money judgments

• US vs Foreign common law on recognition and enforcement of judgments

“Yes sir, you have my personal

assurance your cargo is on the water”

Thank You

J. Michael Cavanaugh

202.828.5084

michael.cavanaugh@hklaw.com

Jameson Rice

813.227.6402

jameson.rice@hklaw.com

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