8 Ways to File Effective Freight Claims
No matter how much you try to prevent cargo loss and damage, well...stuff happens. Follow these eight steps to help recoup your losses.
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The carrier's representative verified that the packaging approach met shipping standards. The shipment, an 11-foot by 18-inch LED sign, was fully cushioned, crated, and secured to a skid. The driver whisked it away. Then the customer called the vendor to complain that the sign arrived heavily damaged, with no indication there was ever a crate. The customer questioned the vendor's packaging practices. Months later, the freight claim was still unresolved.
That was the experience of Erie, Pa.-based LED sign maker Signal Technologies when its previously reliable carrier suddenly stopped being so careful. Damage rates increased, and some claims were denied for its products, which are heavy but contain delicate electronic components. But this story has a happy ending. Signal sought help from Logistics Plus, a third-party logistics provider also headquartered in Erie. Despite using the same carrier, damages stopped, rates came down, and Signal received more flexible pickup times. For Signal Technologies, the lesson was clear: clout and volume are valuable tools in moving goods damage free.
The good news is that damage rates have declined as packaging processes improve, and more shippers use pallets and shrink wrap. Improved shipment visibility has also helped minimize loss.
Despite such improvements, damage, loss, and theft continue to occur. Planning for them is key to preventing claims and settling them quickly when they do occur.
"The industry tends to be reactive rather than proactive, focusing on a specific claim and then preventing that cause from reoccurring," according to Austin, Texas-based logistics security services provider FreightWatch International's Supply Chain Intelligence Center. "A more proactive approach is to understand the potential risks that exist, and put a process in place that will prevent problems before they happen. When you put a process in place to proactively mitigate risks, you usually take care of the 'reactive' side as well by having an auditable record for every shipment."
Through every stage of the shipping process, companies can take the following eight steps to avoid loss and damage, and to position themselves to recoup losses if they occur.
1. Select carriers with care. Carriers vary widely in service quality, and it can be tough to get data on carrier-specific or industry-wide loss, damage, and theft rates. These rates also vary by commodity, and how manufacturers measure damage, says James Hicks, president of claims management firm Progeny Claims Services, based in Crown Point, Ind.
Knowing how individual carriers handle claims is one benefit of working with a broker or third-party logistics (3PL) provider. "Third parties have more leverage and influence with carriers, so they usually can get an appropriate and quick response," says Bruce Kennedy, executive vice president of strategic initiatives for Logistics Plus. He urges shippers to ask about claims assistance services when selecting a 3PL.
To minimize shipment damage and loss, Kennedy recommends using regional carriers whenever possible, which avoids intermediaries and the extra handling that can occur.
The risk of damage is even greater when shippers make spot buys outside their carrier contracts. Without a contract, the terms listed on the bill of lading become the default terms, which can lead to a gray area if damage occurs. "Carriers are supposed to prepare the bill of lading, but shippers often do it," notes Raymond Selvaggio, general counsel for Huntington, N.Y.-based industry group Transport Logistics Council. It becomes unclear if the carrier's rules tariff then applies. Shippers creating their own bills of lading should seek counsel to make sure damage claims filing deadlines and other terms are correctly spelled out, Selvaggio recommends.
Carriers also vary in their ability to track cargo as it moves through their network. Many now offer detailed shipment visibility systems that can help prevent loss, and track down missing cargo. That's particularly valuable in the case of trailer drops, notes Hicks, because the shipper isn't present to inspect or sign for the shipment.
Some shippers turn to technology to protect their freight. For example, fleet tracking software developer Omnitracs, based in Dallas, uses GPS and cellular technology to create geofences that help fleets track their trailers. "Shipments are most vulnerable for theft or damage when a trailer is disconnected from a tractor," says Jim Sassen, senior manager of product marketing for Omnitracs. "Shippers using software such as Omnitracs' can tell if someone has reconnected the trailer, if it has moved or been opened, and if cargo has been removed, which trips a door sensor."
Tractor-trailer operators increasingly integrate shipment visibility data with information about the driver's identity, creating a chain of custody that is invaluable in the claims process, as well as for locating lost cargo. Omnitracs' sister companies offer technology that equips drivers with mobile computers to scan barcodes, capture signatures, and photograph damages, further enhancing accuracy as well as fueling the claims process.
2. Know your risks. Watching for freight movement patterns and trends can help shippers prevent damage and loss incidents. For example, the rate of fictitious pickups and driver theft is rising in the United States, with 70 percent of incidents occurring on weekends or holidays, according to FreightWatch. The company recommends that shippers and carriers pursue background investigations, security awareness training, and quantifiable in-transit security programs that include tracking technology and real-time monitoring.
"Freight transportation policies should acknowledge high-threat areas and no-stop zones, actions required by the shipper and the carrier throughout the duration of the shipment, actions to take or countermeasures to employ during a suspected or actual threat event, and contingency plans to respond to mechanical difficulty or required route deviations," the firm advises. "Careful analysis must be applied to the enterprise's logistics footprint to determine the most feasible and applicable in-transit security policy."
Shippers can also track their own damage and loss patterns to identify and address recurring trends.
3. Forge solid contracts. Freight liability is covered by a large body of law, and varies by mode and country. These regulations are important to understand. But shippers should also make sure they are adequately protected and insured through the documents that define their relationships with their carriers.
Most important are the carrier's rules tariff and/or the contract between the carrier and shipper. The bill of lading may also spell out these terms. This language states the carrier's level of liability, typically by dollars per pound up to a maximum, as well as the exceptions to those terms.
Liability and terms differ by mode; a parcel limit may be $100, an LTL shipment might be $1 per pound, and a truckload would be regarded as a single shipment and have a higher liability limit. Most carriers offer insurance for shipments exceeding these limits, or they can be added as a rider to the shipper's own insurance.
Shippers sometimes make assumptions about carrier liability. During the sales process, for instance, carriers often point to the amount of liability coverage they maintain. "But it may be lost on shippers that the insurance is to protect the carrier, and may not cover the claim," warns Selvaggio. So while a shipment may be worth $300,000, it only qualifies for a limit of 50 cents per pound up to $10,000 because of the terms. Shippers must know the value of their goods and how well they align with the carrier's liability limits.
While shippers have some wiggle room to negotiate liability terms in an individual carrier contract, "carriers have become much more strident in maintaining the maximum levels of liability and the exceptions," compared to the unlimited liability they once offered, says Kennedy. Carrier insurance is costly, and many carriers are self-insured.
Shippers should also be careful not to negotiate away their rights, such as those granted under the CarmackAmendment, adds Hicks, and make sure they're comfortable with the terms, such as how quickly the carrier will address any claims.
Another important consideration to address in a contract is what happens to damaged product. The law states that in the absence of specific contract terms, the shipper and the consignee have the primary duty to salvage the product, says Selvaggio. If they decide the product has no value, they can dispose of it or allow the carrier to salvage it. But typically, the right to salvage or dispose of product is written into contracts. The nature of the product is key here—food products, for example, are extremely delicate. A broken seal is often grounds to destroy the product because a brand doesn't want to risk compromised food entering the commerce stream. Even non-foods can be a risk; imagine damaged building materials ending up being used during construction.
4. Package with care. The best way to prevent damage and loss is to ensure freight is fully secure and protected. Poor packaging and labeling is the most common error when preparing a shipment, says Vickie L. Visser, a claims prevention director for Holland, an LTL carrier based in Holland, Mich. "When using an LTL carrier, a shipment could end up being handled or loaded on multiple trailers between pickup, transit, and delivery, depending on the destination," she notes.
All ground shipments should be protected with proper packaging in compliance with the National Motor Freight Classification, Visser advises. Shipments of high value or prone to potential theft should be transported on a shrink-wrapped skid with high security tape around the skid noting: "Do Not Break Wrap." Every piece of a shipment should be labeled with shipper and consignee names and addresses to ensure the entire shipment arrives together. The information on the freight must match the bill of lading. It's also important to understand the shipping mode you are using. Packaging demands for truckload or rail shipments are different than for LTL shipments.
Carriers may refuse to handle shipments that don't meet packaging standards because this increases the likelihood of loss or damage—and a claim. A third-party packaging expert can help ensure packaging materials and practices meet carrier standards, and balance cost vs. protection.
5. Establish strong shipping and receiving practices. What happens at shipping and receiving has a major impact on how quickly and smoothly claims are resolved (see sidebar). Establishing solid processes is key. "Small companies typically have small shipping and receiving departments," says Sara Schweda, manager of client solutions for Hudson, Ohio-based 3PL GTS. "As a result, shipping and receiving practices may not be consistent, so when damage is discovered, they realize they lack the right notations or paperwork."
6. File promptly. Missing filing deadlines is a leading reason shippers cannot recoup their losses. Freight terms determine which party files a claim—generally it's the owner of the goods, whether that's the shipper or the consignee. Deadlines differ by mode and carrier. For example, the carrier may want initial notification of damage within 15 days, a claims filing within nine months, and a lawsuit within two months and one day.
Filing typically entails filling out a claim form with data including the specific nature of the loss or damage, the value of the goods, the cost of the goods, and receiving documents such as the bill of lading, delivery receipt, packing list, and photos. Complete documentation speeds the claims filing process.
Shippers sometimes get tripped up by mistaking informal communication with the carrier about the claim as formal notification, adds Selvaggio.
Some shippers decide it is worthwhile to outsource claims management to a third party, especially when they file 500 or more claims annually. Outsourcing saves money through more efficient processes, and claims tend to get resolved more quickly, Selvaggio adds. "And shippers handling claims in-house should centralize the process, and make sure they hire skilled individuals who know the manufacturing network and inventory processes," advises Hicks.
Some 3PLs also offer claims assistance, while others provide advice and education. "We don't process claims, but we educate customers by offering feedback and knowledge," says GTS's Schweda. "We make sure shippers are informed on how to file freight claims and what to expect from carriers."
7. Prepare for inspection. Carriers may choose to inspect a damaged shipment, usually within one week of delivery, though they may have up to 120 days to do so. The value of the shipment and extent of damage determine whether the carrier will want to inspect. "If the damage was noted on delivery, the product is low value, and the customer has taken good photos, we will likely waive an inspection," says Holland's Visser.
Carriers are reducing their use of inspections. "Skill sets are eroding as the carrier workforce starts to reach retirement age," notes Hicks. New inspectors have fewer chances to get out in the field to gain a real-world perspective on freight handling and damages. "Claims is about networking to find different ways and means to resolve them," he says. "Today's market is far less confrontational on claims than it was 25 years ago."
Carriers use data about damages to improve processes. For example, "claims investigators at Holland handle specific accounts by shipper, not by claimant," says Visser. "The investigators are then familiar with how the freight is packaged, and if damages are normally mitigated. They watch for trends by reviewing the frequency of claims. It is also a win for the claimants as they get to work with the same claims investigator."
8. Await carrier feedback. Carriers usually have about 30 days to initially acknowledge a claim, but the entire claims process may take anywhere from weeks to months, with some carriers responding faster than others. Claims involving shipments that are lost and never found tend to get resolved quickly, while those damaged due to poor packaging can take some time. If carriers decline some or all of the claim, they must explain why.
It may be tempting to simply reduce payment to the carrier by the amount of a pending claim, or even a settled one. But typically carriers prohibit that, says Selvaggio, although shippers can negotiate into their contract the ability to take a set-off for claims in which the carrier has admitted liability.
Shippers occasionally need to dispute the carrier's findings. Many rules tariffs include a requirement for arbitration: UPS Freight's rules tariff, for example, requires one for disputes concerning freight valued at less than $15,000. Larger disputes may end up in court. Given the cost of that route, Hicks recommends negotiating on claims up to $100,000.
Reducing Costs Through Claims
While preparation and prevention can go a long way, freight damage, loss, and theft will never disappear. While claims management is not the sexiest area of supply chain operations, shippers that create solid carrier contracts and implement shipping and receiving processes with claims in mind can reap dividends in lower costs and happier customers.
The content in this article is provided for informational purposes only and does not constitute legal advice.