GUELPH, Ont. – Paperwork and contracts are not everyone’s favorite part of the job, but they’re an important part of the trucking business nonetheless.
Transportation lawyer, Richard Lande, spoke at the Private Motor Truck Council of Canada’s (PMTC) first regional seminar of the year about third-party contracts and some of the clauses that, in his opinion, are crucial to include as a shipper or consignee. This is an increasingly important topic, according to the PMTC, as more private fleets look to outsource some of their freight or engage in for-hire trucking to fill trucks during backhauls.
Over the course of his legal career, Lande estimated that he has drawn up more than 300 contracts.
“In this day and age, everybody needs a contract,” he advised. “You should never just have faith that the Bill of Lading will cover it…Normally when you get a contract, you get a template, and it has everything you need in the contract.”
From there, he said, you can modify the clauses within the contract to your liking and in the interest of your business.
This clause is especially important in the trucking industry, explained Lande. And it is where you would outline, who you would ideally want to be transporting your product.
“When you’re going to a trucking company you want them to have competent drivers,” he said. “Maybe you want them to have two years’ minimum (driving) experience and not to have any DUIs, for example.”
And as long as the criteria is reasonable, then you can legally put it in the contract, Lande said.
“Some companies want drivers who are more than 21 years of age, if this is something which is of concern to you, you can stipulate it in the contract.”
In the contract, you want to make sure you know the carrier is a safe one, said Lande.
So, there is a clause you can add that stipulates that if there “is a change in their CVOR status, they alert you.”
Lande said this is important because if the CVOR rating does change, and you want to cut ties with the carrier, you can do so if you stipulate that in the contract.
“This makes it possible so you can decide if you want continue with them or not,” he said.
“Insurance is a big deal,” Lande warned. “You’re going to need a carrier with insurance.”
He said that the ideal carriers should have three kinds of insurance: commercial generalized liability insurance, automotive insurance and cargo liability insurance.
“Typically, I would recommend $5 million of CGL and automotive and that’s per occurrence,” he stressed. “Please remember this. Not just $5 million. Insist on $5 million per occurrence.”
In addition, Lande said, if you’re dealing with a broker, make sure they have contingent liability insurance.
“This is standard practice,” he said. “Do not let your broker tell you that all they’re going to do is vet the carriers to ensure they have insurance. You have a contract with the broker, so you want to make sure your broker has insurance. Let the broker indemnify you.”
If you have a Bill of Lading, explained Lande, the normal carrier liability is $2 per pound.
“However, the beauty of a contract, is the shipper/consignee can ask for more than $2 per pound,” he said. “Typically, what people have in their liability clause is if the carrier damages product, then I would like the carrier to pay either the wholesale value of the product, the retail value of the product, or the warehouse value of the product, etc. You can put down in your liability clause, what value you want attributed to the product.”
He noted that especially is your product is light, you want make sure in the clause that it’s valued at more than $2/lb.
“If you’re transporting computer chips or pharmaceuticals, for example, this is important. A pallet of oxycodone is over $250,000. So, make sure you have a value that you want in your contract,” he said.
Indemnification is the most important part of any contract, according to Lande.
“What it means is that the carrier will indemnify the shipper for any accident, loss, or damages which occur during the transportation,” he explained.
Having an indemnification clause in your contract is crucial because if there is an accident during transportation, you have in it the contract that the carrier will indemnify you if there is a lawsuit.
Subcontracting needs to be an exercise you are aware of as a consignee, Lande said.
“Anytime your carrier decides they want to use another carrier, you want to make sure that you have the required ability to authorize it.”
Lande advised the audience to include a clause in the contract that stipulates that the carriers they want to subcontract should have the same obligations are the original carrier.
“Because sometimes they could be using a carrier that doesn’t have enough insurance, or doesn’t have a good record or an unsatisfactory CVOR,” he said.
And as a consignee or shipper, he pointed out, you don’t want them to be subcontracting with that carrier.
“So, if you notice, all of this is not in the Bill of Lading,” Lande said. “So if you’re happily going on in life, thinking that look it’ll all sort itself out…chances are – and I hope it doesn’t happen to you – something will happen with one of the third-party trucks. And then you’re dealing with a critical issue for your own company.”