Speaking at TIA’s fall meeting here, President Robert Voltmann said another version of the contract first developed in 2007 was needed because of regulatory changes such as the federal Compliance, Safety, Accountability program and a welter of lawsuits such as a $23 million jury verdict against largest broker C.H. Robinson Worldwide Inc.
“It was time for a refresher,” said Voltmann, who explained that the new model contract should be done by the end of 2011 or in March for the group’s annual meeting. “It’s a starting point for contracts. It’s also a negotiating tool when brokers meet with major shippers, who are going to want terms to go more in their way.”
Chris Gerst, C.H. Robinson’s associate general counsel, said the company uses the TIA-NITL model contract as a model for its own standard agreement that includes payments, volume and service commitments, claims and indemnification.
Gerst said that the company hasn’t changed its contracting process after an Illinois jury found for the plaintiffs in a case where C.H. Robinson arranged a shipment moved by a carrier whose crash cost two lives (11-14, p. 1).
“What we have changed is the procedures,” to more clearly detail responsibilities for carriers, shippers and brokers in documents such as load delivery confirmations, he said.
“As brokers, we don’t make up the terms” for paperwork such as delivery confirmations, Gerst said.
Gerst and Wayne Johnson, manager of global carrier relations for Owens Corning Inc., spoke at TIA’s meeting, advising brokers to create shipper-broker and broker-carrier contracts that are consistent and reflect the reality of business relationships.
“We have to have a document that both the broker and the shipper can sign,” said Johnson, who worked on the committee that created the first model contract. The revision also is being worked out by a committee from both groups, Voltmann said.
“You need to line [the broker-shipper] contract up with your motor carrier contract,” Gerst said. “There has to be a uniform set of promises [terms] from the carrier that are flowed up to the shipper.”
Gerst also urged brokers to pay close attention to features such as whether it is a “must haul,” meaning that a broker has to take the load tendered by a shipper, or a “may haul,” which gives them the option to turn down unattractive freight.
Volume clauses aren’t needed in contracts, either, Gerst said, because they can be restrictive.
Johnson, whose company does 400,000 truckloads a year, disagreed, saying that, when the shippers find themselves short of capacity, they will press brokers for contracts.
“Even if the volume commitment isn’t there today, you will see more of it” when capacity gets tight, he said.
Johnson cited a potential pitfall in contracts that contain “line shutdown” clauses, which hold a carrier responsible if plant operations have to be halted because a carrier fouls up a shipment.
“We had a plant shut down because of a contaminated shipment” that closed operations for a day and a half because a small carrier with 15 trucks delivered 90 tons of the wrong type of sand used to make roof shingles, creating a $400,000 claim, Johnson said.
“We in logistics have a choice,” he said. “Do we put [the carrier] in Chapter 7 [bankruptcy] today or tomorrow? We settled that claim for $20,000. I don’t like to break carriers and have them go into Chapter 7 or Chapter 11 as long as he understands that the next time it happens, he will be Chapter 7 or 11.”
Another option, Gerst said, is to negotiate limited liability clauses, which many shippers will accept because the risk of a line shutdown is “pretty remote.”
Liability is an important factor, Gerst said, for broker-carrier agreements because brokers need to be sure they have immediate access to each of their carriers’ liability limits in those documents.
“If you don’t know how much cargo liability your carrier has, you are going to have a hard time managing cargo liability loss with a shipper,” he added.
Gerst provided one other insight: “If you can provide transportation brokerage without a contract, you are better off doing that all day long,” he said. “If a shipper gives you a contract, they are doing so to pass along some of the risks. If there isn’t a contract, freight still will move.”