Don’t contract out loads lightly

Q A couple of large shipper customers want to give my small trucking company more freight, but I don’t have the equipment to accommodate them and they won’t let me broker the loads. Can I contract with other small carriers to haul for me under my authority yet have their insurance company hold me harmless for any liabilities, whether cargo claims or accident claims?

A Your question is a complicated one, and I get it often from both large and small trucking companies. I suspect there are two reasons your large shippers refuse to let you broker traffic.

First, they fear that the carrier you retain may not have adequate cargo insurance. Most cargo policies are substandard, and there is no way for you or your shipper to easily determine that. The Accord certificate you obtain from the subcontracting carrier merely states that a policy has been issued. But the numerous exclusions – wetness and moisture, temperature damage, theft from an unguarded vehicle, exclusion for specific commodities and restrictions to named vehicles, to name a few – can all too frequently result in your shipper’s claim being denied.

Second, shippers are particularly nervous about negligent entrustment. Presumably they have checked you out and know that you are properly licensed, insured, and safe. But if you broker the traffic, they have no similar assurance. Shippers fear, without much justification, that they will be dragged into a lawsuit in the event of a catastrophic accident.

You ask whether you may contract with other small carriers to haul “under your authority.” This scenario is only possible under the leasing regulations at 49 C.F.R. Sec. 376, and the arrangement is not akin conceptually to brokerage or interlining. You would be required to lease the other carrier’s truck with driver for the movement of your shipper’s traffic. In the old days, trip leasing was used frequently because the carrier providing the substituted service lacked the requisite operating authority.

As a practical matter, the procedures for leasing equipment with drivers between carriers have been greatly simplified, but still carriers seldom do it. You must identify the equipment with your logo while the other carrier handles the traffic, and there must be a written, signed agreement concerning the equipment. A copy of the agreement or notice of a master agreement would have to be in the truck during the move (See Sec. 376.22). And most important, you would be responsible for control and full legal liability for the equipment’s operation from the time you took possession of the equipment until the lease was broken and the equipment was returned. It’s a cumbersome process that makes the leasing carrier and its insurer ultimately responsible for regulatory compliance and safe operation during the haul.

Your shipper would have no basis for objecting to such an arrangement since your liability and cargo insurance would be on the line if a proper trip lease were entered. But even if you could obtain proper indemnification by the lessor carrier, compliance issues and the probable objection of your insurance companies make this arrangement virtually unworkable. All other means of providing service with another carrier’s equipment involves providing service that is really not under your authority because the equipment will be operated under the placard, dominion and control of the carrier you hire.

As I have written before, I believe a carrier can enter a concurrent, interline, or logistics contract with another carrier to legally provide services it is contractually obligated to haul. But just because you can legally do this does not mean it is wise to do so or that your shipper’s concerns will be satisfied.

What could happen if your shipper puts your name on the bill of lading as the carrier of record and you then hire a subcontracting carrier to provide substituted service by concurrence, bilateral contract or otherwise? The shipper can certainly look to you as the origin carrier and the carrier named as the bill of lading for the safe delivery of the goods under the Carmack Amendment. If there’s a claim, you will have to answer for it. If you are satisfied with the contracting carrier’s cargo insurance, financial worth and feel properly indemnified, then such substitution of service may be an acceptable risk with respect to cargo liability.

With respect to accident liability, the subcontracting carrier’s BMC-91X filing with the FMCSA, as long as maintained, should give you and your shipper the assurance that at least the statutory minimum is available to pay dollar one of any claim that is involved. The federal filing is of little help, however, if a catastrophic loss exceeds the statutory minimum.

These aren’t simple issues. Because I don’t consider trip leasing another carrier’s equipment to be feasible, I don’t believe that providing service using another carrier’s equipment “under your authority” is possible. I do think you can, with your shipper’s acquiescence, contractually reserve the right to provide a portion of the service utilizing other carriers while warranting that in such cases the carrier will be properly licensed, authorized and insured. This contract provision would further hold that as the named carrier, you remain liable for any cargo loss or damage under the bill of lading contract and the terms of any agreement you sign.

Increasingly, I am seeing deals like this being structured by shippers with asset-based carriers who understand the need to augment fleet capacity through subcontractors. After the Interstate Commerce Commission Termination Act of 1995, a carrier is authorized to provide for-hire “transportation,” and transportation includes “arranging for pickup and delivery.” I believe the shipper’s objectives and the transaction you want to accomplish can be legally done with the carrier you hire operating under its own authority.

But beware. This approach is inherently risky business because you will be assuming legal liability and indemnity obligations for another whose operations are beyond your control. By far, carrier interests are better protected by using a broker affiliate to handle excess capacity loads while insuring that your carrier entity is not liable pursuant to the bill of lading for the safe delivery of the load.