The Contract Mistake Nearly All Freight Brokers Make

Too often freight brokers lose out on the opportunity to establish safety nets in their contracts.

Freight brokers occupy a unique space in transportation. They arrange for transportation of cargo from point A to point B by selecting a qualified carrier, communicate with the shipper and consignee about special needs or instructions, and work with the carrier to ensure safe delivery (among other responsibilities).

However, unlike shippers, carriers, and consignees, brokers do not take physical custody of the cargo. They do not load, unload, or transport it. Because of this, the Carmack Amendment[1] does not assign any liability to brokers for the cargo. And, in fact, the Interstate Commerce Commission Termination Act (“ICCTA”), generally prevents state law negligence claims against brokers. In short, brokers are insulated and protected from cargo claims.

That said, there are some things the ICCTA and Carmack Amendment do not protect brokers against—chief among them, their own contracts. Brokers can, and (unfortunately) often do, sign shipper/broker contracts that contain unfavorable provisions that eliminate their protections. For example, I recently reviewed a contract for a broker-client containing the following provisions:

“Shipper and Broker expressly waive any rights and remedies they may have under the Interstate Commerce Commission Termination Act of 1995 (“ICCTA”) to the extent such rights and remedies are contrary to those contained in this Agreement.”

“Notwithstanding any terms or provisions which may be contained in any agreement between Broker and Carrier, as between Shipper and Broker, Broker shall be directly and primarily liable to Shipper for any cargo loss, damage, or delay claim.”

“Broker will indemnify, defend, and hold Shipper harmless from any and all liabilities, judgments, fines, penalties, orders, decrees, awards, costs, expenses, including attorneys’ fees, settlements, and claim arising from or in any way related to this Agreement.”

Each of these provisions eliminates brokers’ protections and makes them directly liable to the shipper for potential cargo claims.

Contracts like these are all too common, perhaps because brokers simply fail to catch such provisions, or because they figure that’s just the way things work. Or maybe they fear changing them runs the risk of losing potential business. Whatever the thinking, provisions like these leave the door wide open to unnecessary liability.

The good news is there’s an easy fix. Reviewing your contract with an experienced attorney is an easy way to ensure the law is working in your favor. Unsure about yours? We invite you to reach out to us directly.

[1]  Under the Carmack Amendment, carriers—not brokers—are liable to a shipper for cargo lost, stolen, delayed, or damaged in transit. This makes sense. After all, the carrier is the one hauling the cargo and the broker never takes possession of it. Moreover, most courts hold the Interstate Commerce Commission Termination Act (“ICCTA”) prevents a shipper from pursuing a negligence claim against the broker. The Carmack Amendment and the ICCTA insulate and protect a broker from cargo liability.

Nathan Anderson

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