Shipper-carrier contracts could expose fleets to massive losses

John G Smith

When it comes to contract language, the devil is in the details. And trucking companies might want to pay closer attention to the details that can leave them exposed to crippling risks.

The focus becomes particularly important when looking to protect against the “.001% scenario” that involves personal injury lawyers working their way through supply chains in the search for massive awards known as “nuclear verdicts”, says Gordon Hearn, a partner in Toronto-based Fernandes-Hearn LLP.

“This is bet-the-company stuff,” he noted during an online presentation hosted this Thursday by the transportation, trade, and business law firm.

(Photo: iStock)

While such nuclear verdicts have yet to emerge in Canada, “the question is not if but when,” he said. And those who ship goods into the U.S. are already exposed.

Hearn cautions against common legal boilerplates that can include traps for those who sign them. They come in the form of phrases like “carrier shall indemnify, defend, and hold harmless shipper … against and from all loss, liability, damage, expense, claim, or cause of action.”

Depending on a contract’s structure, carriers might be agreeing to hold a shipper or broker entirely harmless for virtually any risk associated with a load.

Legal gravity

To compound matters, one of the challenges for truck fleets comes in the form of legal gravity. Shippers are looking to download risks onto brokers. The brokers are looking to pass the risks onto carriers.

But the language can still work both ways.

“There are scenarios where the shipper might be implicated or blamed,” Hearn said, referring to a load that might have an unexpected high center of gravity, or a shipper who instructs a driver on what to do.

Carriers might look to add “push-back” language including guarantees that customers are providing “transit-worthy cargo”, or protecting them from shippers who fail to disclose restricted commodities, he says.

Limited liability provisions, while rarely seen, can specify that carriers are only responsible for their own negligence if they’re solely at fault. If the exposure extends to include negligence they participated in, an intermediate liability provision may come into play. But with a full liability provision, a carrier might pay for everything.

Managing risks and loads

Fernandes Hearn looks to protect its clients by asking for sliding scales under partial indemnity clauses, to help share a “proportionate” level of risk.

Brokers or carriers might want to ask for language that says they’re willing to indemnify shippers unless the shipper’s negligence caused the issue in the first place.

Hearn also cautions brokers against pushing for overly restrictive language in the contracts for another reason. While protecting against risk, the language could interfere with the practical realities of moving a load.

“You might lose efficiency or flexibility in the transportation logistics,” he says, noting how language could prevent the assigning of spot loads. “You don’t want to be telling the carrier what drivers to use. You don’t want to be doing facility audits.”

Fleets need to strike a balance as well.

“The carrier might just accept this as a fact of life,” Hearn says of the language. They just need to be aware of the risks they shoulder.

“We need to pick apart and pay attention to these rather ugly, sleep-inducing clauses. The devil is always in the detail.”

John G Smith

John G. Smith is the editorial director of Newcom Media's trucking and supply chain publications -- including Today's Trucking, trucknews.com, TruckTech, Transport Routier, Inside Logistics, Solid Waste & Recycling, and Road Today. The award-winning journalist has covered the trucking industry since 1995.

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