The Basics You Should Know About Freight Claims
Anyone associated with shipping knows that damages or loss can occur. This is where a freight claim comes in to legally claim damages or losses of freight. Here are some tips that may help to eliminate the headache of filing a freight claim.
Four Types of Freight Claims
When filing a claim, there are four types of claims to describe it as:
- Damages: cargo that falls under this category must have visible damages upon receiving. These damages should be noted in the proof of delivery document in the form of a picture or video.
- All Short: this is when the entire shipment does not (for whatever reason) make it to the consignee/destination.
- Shortage: shortages are different than “All Short” shipments in that they are usually the result of an incorrectly filled out bill of lading. Rather than the shipment being “All Short,” you are instead delivered fewer numbers of an item than recorded on the Bill of Lading.
- Concealed damage or shortage: if damage or shortages are discovered after freight is inspected and the proof of delivery is signed clear, the claim is considered “concealed.” NOTIFICATION OF CONCEALED DAMAGE OR SHORTAGE MUST BE REPORTED IN WRITING TO THE CARRIER WITHIN 5 DAYS OF DELIVERY. It is more difficult to receive reimbursement in this case but you should document these claims anyway (Note: stamping or writing on the POD such statements as “Subject to Concealed Damage Inspection” does NOT cover the consignee in claims such as this. This is a common misperception.).
Choosing the Carrier
Transit time and cost are generally the two things that are reviewed when making the choice of who will move your freight. However, you should also take into consideration a carrier’s limits of liability. You may be moving a high dollar item that only weighs 150 pounds. If that carriers’ limits of liability only cover $2.00 per pound, your $7,000.00 damaged item is only covered for $300.00.
Things to consider so the full value of your freight is covered if a claim is filed
- Carrier Limits of Liability
- Extraordinary Value noted
- All risk freight insurance
Proper Packaging Is a Must!
The best way to avoid damaged freight is to ensure its properly packaged for the specific mode of transportation. Most people realize that packaging is the smallest cost to the overall logistics budget, but you would be surprised how many companies skimp on using low-quality supplies or methods for packaging to protect their valuable freight. Skimping on the packaging can have a significant impact on the potential of damaging your freight.
As such, the first best practice to follow is to create packing procedures for your commodities that will protect it for specific modes of transport. If you sell one item that can be shipped via air, ground, or LTL/FTL, make sure to create a system of controls or packaging procedures that will protect your items.
Packaging Requirements Per NMFC – is a basic guideline for the general rules of packaging. If you have additional questions, you can consult your ATS Rep.
Educate Your Receiver
The signed delivery receipt is the most important step in filing a freight claim.
The Delivery Receipt (DR) is a very important document, it serves as proof that the carrier’s contract to move a shipment has been completed. By signing the delivery receipt as clear, complete, and without any exceptions indicating carrier mishandling; the consignee has attested that the shipment was delivered without damages/shortages.
Make a note of any damage or shortages on the Bill of Lading (BOL) and DR. Just because an exception is noted on the BOL does not mean you have to file a claim. However, if there are no exceptions noted, your claims representative will be in a very difficult situation to successfully collect on any claim.
A misconception is the notation of “Subject to inspect”. This is not a sufficient notation of damage or loss and will not be considered as such by the carrier. A notation of crushed, damage, or forklift hole should be used.
In the LTL world there are provisions for hidden damage, but this is still difficult to win. A good receiving clerk notes all irregularities on any shipment at the time of delivery.
Concealed Damage or Loss
If the freight was received and the driver has left, it is imperative that the shipment gets inspected as soon as possible. If there is any damage or shortage it must be reported to the carrier in writing within 5 days of delivery.
If concealed damages/shortages are found, the question becomes establishing responsibility for the damage/loss. Logically, damage/loss could have been caused by any entity in the chain of custody: the shipper, the carrier, or the consignee. The challenge in concealed damage/loss claims is providing evidence. The burden of proof is on the claimant to prove that the carrier is at fault.
Refusing Freight for Damage
It should be determined before refusing the freight if the shipper will accept the return of the damaged item(s).
As a claimant, it is your obligation to mitigate any losses involved. Per NMFC Item # 300150, it is the legal duty that a party associated with this shipment, when there is substantial value in the salvage, must accept and handle it in such a manner as to mitigate the carrier’s loss as much as possible.
Since no party is in possession of the goods to properly assess and determine if there is any salvage value, no attempt has been made to mitigate the loss. In the event a claim is filed for this shipment, it is subject to declination for failure to mitigate. The freight can be returned to the shipping origin or a return warehouse free astray for claim inspection and mitigation purposes.
Pictures Are Worth a Thousand Words
Take pictures of how the shipment was shipped and received! Pictures of the freight on the carrier’s truck are golden. Any pictures of packaging and pictures of the damaged item will help your claim.
Pictures of how the shipment left the manufacture have been critical in recovering a missing item or proving that the packaging was sufficient for shipping.
Keep the Items and Pay Your Freight Bill
Two major mistakes shippers make are discarding the damaged freight after the carrier leaves and/or refusing to pay the freight charges when the shipment is delivered with damages or shortages. Some shippers will refuse to pay the freight bill on principal, but all freight claims must be accompanied by a paid freight bill. Not paying your bill will impede your ability to resolve your claim quickly.
Discarding damaged items also hurts your chances of successfully resolving a claim. Carriers have the right to inspect freight when damage claims are made, and they also can take possession of the freight and salvage it if the claim awards full value for the freight.
Make sure to keep the damaged product and its associated packaging material and handle it as little as possible. This gives the carrier the opportunity to inspect the damaged freight. If this is not possible, you should carefully record and take digital images of the damaged units as well as write-up a short explanation as to why the damaged freight needed to be inspected before the carrier had a chance to do likewise.
Understand the Carmack Amendment
Adopted in 1935, the Carmack Amendment is a piece of legislation that details the liability of carriers under receipts and bills of lading. The Carmack Amendment protects carriers against unreasonable freight claims and limits their liability to the actual loss or injury to the property being shipped. It also sets the timeframe that shippers must file claims to no less than nine months from the date of delivery. The timeframe for filing lawsuits is no less than two years from the date in which the claim is denied.
Under the amendment, carriers may deny liability for cargo damage for five reasons:
- Acts of god: a physical phenomenon or natural disaster that the carrier cannot control. In terms of weather, it must be severe and unexpected (e.g. a tornado).
- The public enemy: hostile acts committed by military forces that are enemies of the government (understandably, this is exceptionally rare in the U.S.).
- Act or default of a shipper: the carrier can prove that damage or loss was the result of negligence of the shipper (e.g. improperly packed or loaded cargo).
- Public authority: damage or loss caused by the government (e.g. quarantines, embargos, etc.).
- Inherent vice or nature of the goods transported: damage caused by natural traits of the products shipped (e.g. the natural decay of perishable goods).
The Basic Documents That Will Be Requested When Filing a Freight Claim:
- Bill of Lading
- Signed Delivery Receipt
- Concealed damage notification (if delivery receipt is signed clear)
- Complete original invoice
- Repair invoice if applicable
- Pictures
- Paid Freight bill (claim settlement will not be released until the freight bill is paid)
- Replacement shipment BOL
Timelines to Consider
- 5-day notification of concealed damage (will require what item is damaged and value)
- 9 months from day of delivery to file a formal claim with the carrier
- Lost Freight – Carriers vary on the “reasonable” timeline to recover misdirected freight. Time must be given to perform dock checks and allow for APBs to be sent out to other terminals. Two weeks is the average to allow the carrier to recover the freight before having a replacement shipped or filing a freight claim.
We at ATS Logistics hope that all your shipments arrive at their destination without issues. But if something goes awry, we are here to help.