THE TRANSPORTATION CONSUMER PROTECTION COUNCIL, INC.
A "TRUTH-IN-TRUCKING ACT"

The Transportation Consumer Protection Council believes that shippers urgently need relief to correct the oversights in recent deregulatory legislation and to restore an equitable balance between shipper and carrier interests. The Council's suggestions for a "Truth-in-Trucking Act" are as follows:

(1) Modify or repeal that portion of 49 USC 13710(a)(1) which requires carriers to furnish copies of their tariffs only "on request of the shipper".

(2) Modify or repeal 49 USC 14706(c)(1)(B), which carriers contend has the effect of permitting carriers to limit liability for loss, damage or delay without the written consent of the shipper.

(3) Modify or repeal 49 USC 13710(a)(3), which imposed a new 180 day notice requirement upon shippers and carriers for disputing freight charges (overcharges and undercharges).

(4) Require the DOT to assign separate Docket Numbers to applications for motor carriers, truck brokerage and freight forwarding licenses and permits, and require the applicants to use distinctive names for each type of operation.

(5) Repeal present definitions of intermediaries and create a new category of "Transport Provider" for all intermediaries between shippers and carriers (brokers, freight forwarders, shippers agents, consolidators, third party providers, etc.)

(6) Introduce legislation to prevent unreasonable penalties, such as loss of discount, for late payment of freight charges.



(1) Modify or repeal that portion of 49 USC 13710(a)(1) which requires carriers to furnish copies of their tariffs only "on request of the shipper".

The relevant portion of 49 U.S.C. 13710 is as follows:

(1) INFORMATION RELATING TO BASIS OF RATE- A motor carrier of property (other than a motor carrier providing transportation in noncontiguous domestic trade) shall provide to the shipper, on request of the shipper, a written or electronic copy of the rate, classification, rules, and practices, upon which any rate applicable to its shipment or agreed to between the shipper and carrier is based.

After enactment of TIRRA, rates which were "individually determined", as distinguished from being "collectively made", continued to be published in motor carriers' unfiled tariffs. After ICCTA, even collectively-made (bureau) rates are no longer required to be filed.

Rates and discounts may be negotiated freely with carriers. However, when a carrier's bill of lading form is utilized, it invariably incorporates the carrier's unfiled tariffs and the classification by reference, thus subjecting the shipper to the same tariffs it previously was bound to under the filed rate doctrine! Without an obligation on the carrier to inform the shipper of its rates, extra charges, and other restrictions, shippers are exposed to the same types of surprises which induced Congress to repeal the filed rate doctrine in 1994.

If the shipper does not insist on receiving a copy of the complete tariff, and all of the governing tariffs incorporated by reference therein, the payor of the freight charges may be surprised when it receives the carrier's bill.

This can occur due to a rule in the carrier's rules tariff that restricts the application of the rate or discount in some manner. Terms of payment of freight charges, interlining, arbitraries applying at certain destinations, cubic density rules on light and bulky articles, etc. are typical rules that result in extra, unanticipated charges. The late-payment penalties which are being sought in the Humboldt litigation are a classic example of a trap which has cost unwary shippers millions of dollars.

Even with contract carriage, there can be a problem because virtually all carrier-drawn agreements incorporate the carrier's rules tariff, usually "Rules Tariff No. 100". If the shipper fails to scrutinize that rules tariff carefully before shipping, it will be bound by all of the rules and charges contained therein, whether or not it knew of their existence. In essence, this is a form of "constructive notice" which the repeal of the "filed rate doctrine" was supposed to correct.

(2) Modify or repeal 49 USC 14706(c)(1)(B), which carriers contend has the effect of permitting carriers to limit liability for loss, damage or delay without the written consent of the shipper.

Section 14706 is the "Carmack Amendment" section as recodified in ICCTA. Subsection (c) relates to limitations of liability, and (c)(1)(A) states the general rule:

(1) MOTOR CARRIERS-

(A) SHIPPER WAIVER- Subject to the provisions of subparagraph (B), a carrier providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 may, subject to the provisions of this chapter (including with respect to a motor carrier, the requirements of section 13710(a)), establish rates for the transportation of property (other than household goods described in section 13102(10)(A)) under which the liability of the carrier for such property is limited to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation.

The problem, however, arises with the language in subparagraph (B) which provides:

(B) CARRIER NOTIFICATION- If the motor carrier is not required to file its tariff with the Board, it shall provide under section 13710(a)(1) to the shipper, on request of the shipper, a written or electronic copy of the rate, classification, rules, and practices upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier, is based. The copy provided by the carrier shall clearly state the dates of applicability of the rate, classification, rules, or practices.

The phrase "upon which any rate applicable to a shipment" is not found in subparagraph (A). Many carriers construe this language to permit incorporation by reference, in a carrier's bill of lading, the carrier's unfiled rules tariffs containing limitations of liability. More seriously, these carriers are contending that (1) no affirmative "written or electronic declaration of the shipper" or separate "written agreement between the carrier and shipper" is needed, and (2) that such limitations are binding on the shipper without notice. In effect, the carriers are re-creating a new "filed rate doctrine", but this time it is an "unfiled rate doctrine".

Shippers did not bargain for secret liability limitations when they urged Congress to repeal the filed rate doctrine in 1994. Shippers merely sought an end to the undercharge debacle by removing the sanctity of tariffs filed at the ICC in Washington, DC.

Instead, the truck lobby turned this long-needed reform into complete freedom from the ICC scrutiny over its tariffs and relief from the obligation to inform its customers of the liability limitations in advance of shipping.

This problem is particularly harmful to small business concerns lacking sophistication in the intricacies of carrier's tariffs. It is especially onerous without the oversight functions of the ICC. Congress apparently was not mindful of the combined effects of its repeal of the filed rate doctrine in 1994 when it enacted TIRRA, and the sunsetting of the ICC in 1995 when it enacted ICCTA.

Legislative relief from these unintended results of recent deregulatory laws is needed to protect the public from the unrestricted tariff provisions being incorporated into carriers' unfiled tariffs.

For example, some carriers are now reducing loss and damage claim payments by the same percentage discount as applied to the governing rate. This is patently unreasonable as the discount is calculated off grossly inflated rate bureau class rates. Moreover, the loss of discount bears no relationship for the carrier's liability for loss or damage.

Virtually every carrier has placed limitations on liability since the repeal of the statute requiring the ICC's prior approval of released rates. In many instances, these limitations are not brought to the shipper's attention before shipment, and are only raised when a claim is filed. Thus, the shipper has no opportunity to shop for competitive liability terms in the marketplace. Small shippers in particular are surprised by these limitations as they often request a carrier's rates but forget to ask for the carrier's liability rules and accessorial charges.

(3) Modify or repeal 49 USC 13710(a)(3), which imposed a new 180 day notice requirement upon shippers and carriers for disputing freight charges (overcharges and undercharges).

Congress enacted a new requirement in TIRRA, effective August 26, 1994, that shippers and carriers notify the other party within 180 days if they dispute a freight bill. The statute provides:

(3) BILLING DISPUTES-

(A) INITIATED BY MOTOR CARRIERS- In those cases where a motor carrier (other than a motor carrier providing transportation of household goods or in noncontiguous domestic trade) seeks to collect charges in addition to those billed and collected which are contested by the payor, the carrier may request that the Board determine whether any additional charges over those billed and collected must be paid. A carrier must issue any bill for charges in addition to those originally billed within 180 days of the receipt of the original bill in order to have the right to collect such charges.

(B) INITIATED BY SHIPPERS- If a shipper seeks to contest the charges originally billed or additional charges subsequently billed, the shipper may request that the Board determine whether the charges billed must be paid. A shipper must contest the original bill or subsequent bill within 180 days of receipt of the bill in order to have the right to contest such charges.

This new requirement was introduced during the negotiations for legislative relief from undercharges. It was designed to reduce the amount of time for audits of bankrupt carriers freight bills. Unfortunately for shippers, it also reduced the time that shippers have to audit their freight bills to 180 days.

Most shippers initially construed this as a condition precedent to a request to "the Board" for a determination. However, the STB has construed this section as a condition precedent to suit, notwithstanding the apparent conflict with the 18-month statute of limitations in 49 USC 14705. Thus, under the STB's ruling, if notice is not given within 180 days of receiving the bill, a party may not bring an action to recover the overcharge or undercharge.

Many small shippers without sufficient staff to audit bills internally are now hard pressed to detect overcharges and give notice of a dispute in time. Outside post-audit firms often are unable to complete their audits for their clients within 6 months, a task which once could be completed in 3 years, and later 18 months. Consequently, shippers are presently losing millions of dollars in uncollectible overcharges.

(4) Require the DOT to assign separate Docket Numbers to applications for motor carriers, truck brokerage and freight forwarding licenses and permits, and require the applicants to use distinctive names for each type of operation.

Many transportation companies today wear "multiple hats". They may have operating authority as a common carrier, contract carrier, freight forwarder or broker all at the same time. (They also may not have operating authority for all of the services they are providing or offering to the public!)

When it enacted ICCTA, Congress specifically restated the registration requirements for motor carriers, freight forwarders and brokers. It also directed the DOT to promulgate appropriate regulations and to issue a report within 24 months (December 1997). 49 U.S.C. 13908 provides, in relevant part:

(a) REGULATIONS REPLACING CERTAIN PROGRAMS- The Secretary, in cooperation with the States, and after notice and opportunity for public comment, shall issue regulations to replace the current Department of Transportation identification number system, the single State registration system under section 14504, the registration system contained in this chapter, and the financial responsibility information system under section 13906 with a single, on-line, Federal system. The new system shall serve as a clearinghouse and depository of information on and identification of all foreign and domestic motor carriers, brokers, and freight forwarders, and others required to register with the Department as well as information on safety fitness and compliance with required levels of financial responsibility...

While the DOT report has not yet been issued, the Council believes that any registration system which is adopted should clearly identify and delineate the type and scope of service authorized. For example, registrations could be coded with a prefix such as, for motor carriers "MC-12345", broker licenses "BR-12345", and freight forwarder registrations "FF-12345".

In addition, the regulations should require that the entity adopt and use in its holding out to the public a different and suitably descriptive name for each service it offers, ie., which identifies whether it is acting a carrier, forwarder or broker.

It may be observed that appropriate regulations of this nature could well have precluded the extensive and costly litigation in the Superior Fast Freight cases pending in the Bankruptcy Court for the Central District of California. In that litigation, Superior sued thousands of former customers for freight undercharges based on common carrier tariffs, and a critical threshold issue was whether Superior had been holding itself out as a motor carrier or a freight forwarder.

(5) Repeal all definitions of intermediaries and create a new category of "Transport Provider" for all intermediaries between shippers and carriers (brokers, freight forwarders, shippers agents, consolidators, third party providers, etc.)

Congress ended the contract carrier charade by repealing the definition of "contract carriage" in the ICCTA and giving all motor carriers the right to contract. However, many intermediaries are creating controversies regarding liability for transit losses and liability for freight charges. Why not complete the process and address the confusion being created by intermediaries who have been changing names and legal entities to avoid regulation, the posting of bonds, etc.?

By creating a new category of "Transport Provider" for all intermediaries and enacting new legislation, many disputes and much litigation could be avoided. For example:

(1) Many truck brokers offer to pay loss and damage claims to obtain shippers' business, despite the fact that they have no legal obligation to do so. By holding out to pay claims they take the risk of being held liable as the "carrier" for transit mishaps. Brokers offering to pay loss and damage claims generally have a "Contingency Cargo Liability" policy as a back up for their carriers' policies, even though brokers have no legal liability for cargo losses. Contingency insurers have been known to renounce a policy when a large claim is filed on the ground that the broker had no insurable interest, and thus the policy was improperly issued! Why not legalize these policies by enacting appropriate legislation and thus enable brokers to lawfully offer the shipping public single source liability as a "transport provider"? Let the marketplace determine who will pay claims in the future.

(2) Surface freight forwarders have been playing a similar game ever since 1986 when they were exempted from ICC controls, except from cargo liability and insurance regulations. Many brokers changed their operations alleging to have become a "freight forwarder" to avoid posting a broker's surety bond, and to offer shippers protection against undercharges, but they had to accept responsibility for loss and damage claims and provide cargo insurance. However, many overlook the statutory definition of a "freight forwarder" requiring assembly, consolidation, breakbulk and distribution services in the ordinary course of their business. This definition would appear to preclude handling truckload traffic, but forwarders generally are moving truckloads without regard for the statute. By repealing this antiquated, unnecessary definition, truck brokers and freight forwarders could offer the same services as a "transport provider" and offer door-to-door transportation and protection against claims without exposure to undercharge claims. The major change would be the posting of a bond by forwarders.

(3) Shippers associations were formerly considered "exempt freight forwarders" (former section 10562(3) of the ICA). Such associations were (are) supposed to be nonprofit membership organizations. In the course of enacting the Freight Forwarder Deregulation Act of 1986, P.L. 99-521, section 10562 of the ICA was "repealed", effective Oct. 22, 1986. There are a number of entities operating today which call themselves "shipper associations", but their legal status is far from clear, and liability for freight charges and loss and damage claims is a frequent source of dispute.

(4) Air freight forwarders who regularly ship freight via truck would also fall into the category of a "transport provider," and thus terminate the controversies over whether they are liable as an indirect air carrier or truck line when shipping over-the-road.

(5) Third party logistics providers are similarly walking a fine line when they provide transportation services to shippers. Many of these entrepreneurs do not appear to know their legal status. Some are performing brokerage, freight forwarder or even motor carrier services without registering with the DOT. A statutory definition of these new services is urgently needed to avoid future litigation. It should encompass any entity, which provides or arranges transportation services for the owner of the goods or for the owner's agent, but is not the over-the-road carrier.

(6) Intermediaries who arrange for the consolidation or volume movement of rail, TOFC and COFC traffic should be included in the definition of "Transport Provider." Many of these services offer to process cargo claims as a service to their customers, but railroads and truckers performing the through service are liable for transit losses only to the extent stipulated in the contracts negotiated by the intermediary. The owner of the goods is often unaware of these liability terms until a loss occurs. Doesn't it make more sense to place responsibility for transit losses on the party who arranges the transportation, or at least give that party the option of assuming responsibility for claims?

(7) Security for the payment of freight charges to carriers continues to be a major problem. Shippers and consignees are continually being dunned or sued by motor carriers for unpaid freight charges, even though they have paid the broker or intermediary. The posting of a minimum amount of a surety bond (at least $10,000) should be required of all transport providers, but the amount could be increased in proportion to that party's gross revenue. New operators should be required to post a minimum bond of $10,000.

(8) Intermediaries in international trade could also be covered by this legislation, particularly in the likely event that ocean trade is deregulated. NVOCC's, consolidators, etc. would also be treated as "transport providers."

(9) Perhaps ownership of an intermediary by a shipper of goods should be prohibited, because such control would necessarily siphon off revenue from the carriers performing the service in the form of a rebate to the shipper.

(10) Liability for loss, damage or delay. One way to deal with the liability issue is to include language in the statute that a "transport provider" must file a statement as to whether it assumes liability for loss and damage, and that it must also give the shipper a written notice, which states whether the transport provider is acting as:

(a) An agent of the shipper for the purpose of arranging for transportation and that it assumes no liability for loss or damage, or

(b) An indirect or direct carrier and that it assumes full liability for loss or damage.

If the "transport provider" fails to give the shipper written notice, there should be a presumption that it is acting as a carrier, and the "transport provider" will have the burden of proof to establish that it was not acting as a carrier.

If the "transport provider" assumes liability for cargo loss and damage, the liability standard should be the Carmack Amendment's "full actual loss" unless a lower value is declared or agreed in writing by the shipper. Note that this requires that the lower rate offered in return for a limitation of liability be "fair, open, just and reasonable" under the circumstances surrounding the transportation and that the limited liability be "proportioned to the amount of the risk." Adams Express v. Croninger, 226 U.S. 491, 509-510 (1913).

And, of course, "transport providers" assuming carrier liability would need to have an indemnity action against the carriers responsible for the losses.

If a "transport provider" elects to assume cargo liability, it should be required file evidence of cargo insurance, such as a BMC 32 Endorsement. In addition, all such parties should be required to file a surety bond to secure the freight charges received from shippers for the carriers' account.

In sum, all entities acting as intermediaries between shippers and carriers in negotiating, arranging and providing for intrastate, interstate and foreign commerce should be defined as "transport providers" and be exempted from government regulation (except as to cargo liability and surety bonds, as discussed above).

It is suggested that these legislative changes are needed to keep pace with the rapid expansion of outsourcing in transportation and distribution, and to simplify the legal problems being created by attempting to fit square pegs into round holes.

(6) Introduce legislation to prevent unreasonable penalties, such as loss of discount, for late payment of freight charges.

The DOT's authority to regulate carrier credit terms is found in the Interstate Commerce Act section governing payment of rates (former 49 U.S.C. 10743; now 49 U.S.C. 13707). The relevant portion of this section reads as follows:

(a) TRANSFER OF POSSESSION UPON PAYMENT- Except as provided in subsection (b), a carrier providing transportation or service subject to jurisdiction under this part shall give up possession at the destination of the property transported by it only when payment for the transportation or service is made.

(b) EXCEPTIONS-

(1) REGULATIONS- Under regulations of the Secretary governing the payment for transportation and service and preventing discrimination, those carriers may give up possession at destination of property transported by them before payment for the transportation or service. The regulations of the Secretary may provide for weekly or monthly payment for transportation provided by motor carriers and for periodic payment for transportation provided by water carriers.

The present regulations were originally promulgated by the ICC, and now fall under the jurisdiction of the Secretary of Transportation (former 49 C.F.R. Part 1320; now 49 C.F.R. Part 377).

The regulations provide a mechanism under which carriers can collect liquidated damages from customers that do not pay within the established credit period. Most carriers today publish credit rules in their tariffs that result in late payment penalties, including the loss of negotiated discounts when the freight charges are not paid within a specified time, such as 30 days. Some carriers provide that if an outside collection agency is used to collect charges, all discounts will be voided, and full, non-discounted rates will be applied.

The real problem with such rules is that carriers rarely enforce them, or bring them to their customers' attention while they have an ongoing business relationship. After a customer discontinues doing business with a carrier, or files for bankruptcy, an audit of the carrier's billing results in the filing of undercharge claims based on an alleged late payment of freight charges. This is exactly the situation in the voluminous litigation presently pending before the U.S. Bankruptcy Court in North Carolina in the Humboldt Express cases involving over a thousand shippers and millions of dollars.

Shippers understand that freight charges must be paid in a timely manner but, in the real world, it is often difficult to do so. Shippers also understand that extra costs are often incurred by a carrier in collecting late payments, and most shippers do not object to paying some reasonable charges. A loss of the negotiated discount off grossly inflated class rates, however, results in a penalty which is in most cases greater that the charge for the actual service provided by the carrier and bears no relationship to a carrier's collection costs.

The Options:

A. Petition the DOT to eliminate unreasonable penalties such as a loss of discount, etc. Request that they substitute a maximum interest such as 1-1/2% per month (18% per annum) and/or a maximum late charge such as $5.00 on bills under $100 and $10 on bills over $100; and any charges over these amounts would be deemed to be an unenforceable penalty.

If the DOT cannot be convinced to modify the regulations to preclude loss of discount and to limit the amount of interest and late charges that carriers can charge, legislation may be needed to modify or repeal the present law.

B. Repeal Federal Credit Regulations To Permit State Laws To Apply To Carrier Credit Practices.

Carriers' credit rules often impose penalties that greatly exceed amounts allowable under state laws, such as those which limit commercial interest and late charges.

Typically, many carriers' penalties are stated in terms of loss of discount, which could result in a penalty in excess of 100% of the original freight charge, or a percentage such as 25% of the freight charges. In contrast, under typical state laws, maximum interest rates may be limited to 1 1/2 % per month and late charges may be limited to $5 or $10.

By enacting credit regulations it may be argued that federal government has preempted the states from applying state usury laws to interstate transportation charges, although this issue has never been specifically addressed by the courts. Cf. Robins Motor Transportation, Inc. v Associated Rigging & Hauling Corporation, 944 F. Supp. 409 (E.D. Pa. 1996).

Furthermore, the enactment of the Federal Aviation Administration Authorization Act of 1994, now recodified at 49 U.S.C. 14501, which preempts state regulation of intrastate motor carrier activities, could be construed as preempting state law remedies, see In Re: Industrial Freight System, Inc. (Salisbury v. S.B. Power Tool), 191 B.R. 825, 1996 Fed. Carr. Cas. (CCH) 84,005 (Bankr. C.D. Cal. Jan. 25, 1996); In re St. Johnsbury Trucking Co., Inc. (Mead Johnson & Company, et al.), 199 B.R. 84, 1996 Fed. Carr. Cas. (CCH) 84,021 (S.D.N.Y. Jul. 22, 1996); In re: Palmer Trucking Co., Inc. (Noonan v. Cellu Tissue Corporation), 201 B.R. 9, 1996 Fed. Carr. Cas. (CCH) 84,030 (Bankr. D. Mass. Sept. 23, 1996); In re B.C.B. Dispatch, Inc. (Ring v. Wegmans Food Markets, Inc.), 201 B.R. 629 (Bankr. W.D.N.Y. Oct. 2, 1996); Deerskin Trading Post, Inc. v. United Parcel Service of America, Inc., 972 F.Supp. 665 (N.D. Ga. 1997).

Thus, if federal regulations were to be repealed, it would be necessary to expressly provide that state laws applicable to extension of credit by motor carriers, including any liquidated damages, charges or penalties for late payment, etc. are not preempted.

As a further observation, one may question the wisdom of having to deal with different laws in each of the states, the choice of law problems, etc.

C. Amend 49 U.S.C. 13707

Such legislation could merely require carriers to send customers notices if they intend to pursue late payment penalties, and that such penalties have not been waived.

An alternative would be to specify parameters or limits as to what the credit regulations of the Secretary may contain. Possible language could be:

. . . no such regulation shall permit liquidated damages, penalties or late charges for late payment of freight bills in excess of interest at one and one-half percent per month on the unpaid balance, plus late charges of $5 on freight bills under $100 or $10 on freight bills over $100.

D. Amend 49 U.S.C. 13709

Another alternative would be to add language to the present "NRA" defenses and settlement options in 13709 to clarify that they were intended to apply to collection of late payment charges or penalties. This would give shippers the small business and unreasonable practice defense and the settlement options.