Shippers can pass the buck

Q Is the consignor (or shipper) ordinarily liable for payment of freight charges? If so, how can a shipper escape liability on collect and third-party shipments?

A The consignor that tenders the shipment to the carrier is primarily liable for payment of the freight charges. The 11th Circuit in National Shipping v. Omni Lines stated:

“The bill of lading is a contract between the carrier and the shipper and the carrier has a contractual right to expect payment pursuant to that bill. Should the shipper wish to avoid liability for double payment, it must take precautions to deal with a reputable [intermediary] or to contract with the carrier to secure its release.” National Shipping Company of Saudi Arabia v. Omni Lines, 106 F.3d 1544 (11th Cir. 1997).

The 5th Circuit in the Strachan case noted the rationale for consignor liability:

“Carriers have the expectation that payment will come from the shipper, even though it may pass through the [intermediary’s] hands. While carrier may extend credit to the [intermediary] there is no economically rational motive for the carrier to release the shipper. The more parties that are liable, the greater the assurance for the carrier that he will be paid.”

In Missouri Pacific v. Center Plains, the same court stated the well-established principle concerning recourse to the consignor:

“The payment of freight charges is the original responsibility of the shipper. This responsibility may be shifted to another party, generally the consignee of the shipment. But the transfer of this responsibility must be clearly established by agreement between the parties and the circumstances surrounding the receipt of the transportation of goods.

Typically transfer of responsibilities for payment of freight charges is done by the shipper exercising the privileges made available under Section 7 of the contract terms and conditions … by the simple and expedient marking of the Section 7 box of the bill of lading.” 720 F.2d 818 (1983). See also Southern Pacific v. Commercial Metals, 456 U.S. 336.

The new uniform bill of lading no longer mentions “Section 7” on its front side, but it still includes nonrecourse language for freight collect shipments that meet this notice requirement:

“If this shipment is to be delivered to the consignee without recourse, the consignor shall sign the following statement.”

By executing this provision, a consignor can put a carrier on notice that it extends credit to the consignee for freight charges at its peril. Regardless of the shipping documents used, the shipper or consignor is presumed primarily liable to the carrier for freight charges. If the consignor wants to escape this liability, it should execute such a nonrecourse provision or otherwise use language that gives fair notice to the carrier that it is unwilling to vouch for payment by the consignee or the third party intermediary it selected. See Bestway v. Gulf Forge, 100 F.2d 31 (5th Cir. 1996), L&N Railroad v. Central Iron & Steel, 256 U.S. 59.

Most sophisticated carriers school their drivers to look for the nonrecourse provisions on the bill of lading. In addition, the new uniform bill now has a provision that states: “Send freight bill to:”. Courts, however, have held that this language, standing alone, is insufficient to reverse the presumption of consignor liability. See the Center Plains case.

So a consignor that wishes to escape recourse should complete the “Send freight bill to:” block with the name and address of the third party and place clear language such as “without recourse to consignor” after the third party’s name and address.

If a consignor is unwilling to vouch for the payment obligation to its customer or to the third party it selects, it must give the carrier clear notice on the bill of lading that recourse is not available. If the shipper gives this notice, the carrier should beware. If the shipper will not guarantee payment of the freight charges, the carrier is assuming a greater risk of nonpayment.

Henry Seaton is a lawyer who represents carriers in contract disputes, collection matters, cargo claims and insurance questions. E-mail hseaton@eTrucker.com.