Cargo Claim - Cost vs. Profit

[AccountsReceivable@DRC]

Wondering if I can get some input on a scenario.

I am dealing with a pending cargo claim. The customer is insisting the full value of the goods be paid (cost + profit) - stating all claims are to be paid on the value of the goods at the time of shipment. The invoice they have provided is inflated.

Cargo claims - in my experience - always require the vendors cost of the goods and an invoice to reflect this cost only. Potential profit on the goods cannot be claimed. Only the cost of the damaged cargo.

Can anyone add to this? Or provide a legal reference to clarify?

Thanking in advance.

 

[stressbeater]

DRC, "terms of sale" will dictate ownership of the goods in transit, and subsequently the actual value, and claimant for product loss. The carrier liability is bound by the BOL and, if applicable, any contract that may exist between the parties.

Terms of Sale can be determined from the chart below for any "North American" transactions, an INCO Chart would be required for International movement.:

QUICK REFERENCE| MEANING OF THE TERMS OF SALE
FOB Origin
Buyer -- Pays freight charges
Buyer -- Bears freight charges
Buyer -- Owns goods in transit
Buyer -- Files claims (if any)
FOB Origin, Freight Collect
Buyer -- Pays freight charges
Buyer -- Bears freight charges
Buyer -- Owns goods in transit
Buyer -- Files claims (if any)
FOB Origin, Freight Prepaid
Seller -- Pays freight charges
Seller -- Bears freight charges
Buyer -- Owns goods in transit
Buyer -- Files claims (if any)
FOB Origin, Freight Prepaid & Add
Seller -- Pays freight charges
Buyer -- Bears freight charges
Buyer -- Owns goods in transit
Buyer -- Files claims (if any)
FOB Destination
Seller -- Pays freight charges
Seller -- Bears freight charges
Seller -- Owns goods in transit
Seller -- Files claims (if any)
FOB Destination, Freight Collect
Buyer -- Pays freight charges
Buyer -- Bears freight charges
Seller -- Owns goods in transit
Seller -- Files claims (if any)
FOB Destination, Freight Collect & Allow
Buyer -- Pays freight charges
Seller -- Bears freight charges
Seller -- Owns goods in transit
Seller -- Files claims (if any)
FOB Destination, Freight Prepaid
Seller -- Pays freight charges
Seller -- Bears freight charges
Seller -- Owns goods in transit
Seller -- Files claims (if any)

Cheers

 

[lowmiler88]

The claim can only be the cost of goods - not profit and you cannot let them get away with this because the next one will be bigger and you will not be able to fight them on it. If it is crossing the border you can use the Customs Doc's to determine the cost of goods if it is in Canada it is the good old $2 a lb. It may be easier to let your insurance agent deal with it then it is out of your hands.

 

[theman]

You need to check your contracts with customers because some do indeed try to sneak in 'sale price' of goods rather than cost of goods sold. When we see this, we usually strike it, and at the very least limit the cargo liability to a set amount per shipment.

 

[AccountsReceivable@DRC]

Good points here guys - thanks so much. Really appreciate you taking the time. Think I got this one figured out now.

 

[RK in AB]

I would say that normally the $2/lb valuation would be what you use to decide unless the customer advised you of a higher value at the time of accepting the load. That could change things. If you were advised of a higher valuation you had an opportunity to get (and charge for ) an insurance rider and if you didn't get one you are more than likely out of luck. On the other hand, if your customer didn't advise you of the higher valuation until after the load was accepted and loaded, you could argue that the higher valuation was a condition not negotiated in the original agreement and therefore is not your responsibility.

Either way, profit is not a component of cost and shouldn't be paid out. Unless you were hauling souvenirs for a once in a lifetime event and there would be no further market for the product after a specific point in time maybe, but that isn't likely.

My 2 cents.

 

[TransAction]

The claim can only be the cost of goods - not profit and you cannot let them get away with this because the next one will be bigger and you will not be able to fight them on it. If it is crossing the border you can use the Customs Doc's to determine the cost of goods if it is in Canada it is the good old $2 a lb. It may be easier to let your insurance agent deal with it then it is out of your hands.

Isn't the $2.00 / lb applicable in Canada and the USA?

 

[Jim L]

I definitely suggest that you have your insurance company handle the claim. They are fully aware of the limitations and you can blame any shortcomings from the customers expectations and the insurance payout on them. The insurance company also can identify whether there is an inflated amount or not for the goods and can work out any salvage costs.

Of course you are stuck with your business relationship with your customer. That is when you have to decide if the extra payout is worth the business....

 

[loaders]

TransAction, US shipments are covered for replacement value. Canadian shipments, are $2.00/lb unless a declared value is noted on the Bill of Lading and as mentioned earlier, an additional charge over and above the agreed freight rate can be applied for the higher declared value.

 

[Michael Ludwig]

DRC ... a lot of well-meaning, but somewhat confusing information above ... it's pretty simple really;
1) If the load originated in, and/or was destined for, the United States, it falls under Carmack. You pay the invoiced value of the damaged goods. Profit may or may not be a component of that value. The receiver is required by law to mitigate the loss.
2) If the load originated in, and was destined for Canada, it falls under TTA. You pay the manufactured cost of the damaged goods. Profit is not a component of that value.
3) If you have not been paid for transportation costs, you owe the claimant nothing.
4) If the claimant has NOT followed the claims procedure exactly, you pay nothing.

There are a lot of other intricacies involved as well. Know the law and processes like the back of your hand.

If you are in any way, shape, or form, not completely familiar with what you are facing, walk away right now, and let your insurers handle the claim ... even if you have to pay them to do so. They have experts on staff that literally strike fear into the hearts of shippers trying to make claims, whether the claims are legitimate or not.

There used to be a lady that worked in the claims department at Kingsway a number of years ago ... she would make grown men cower in the corners of their office mumbling incoherently, sucking their thumbs, and crying for their mothers when she was done with them ... God I loved to watch her work ... LOL

 

[loaders]

Michael, your enthusiasm regarding frivolous freight claims is admirable. As we all have come to expect, you have shed some valuable knowledge and experience on this very common problem. However, in some instances, shippers do suffer valid freight damages. As a responsible carrier whose wish is to develop long lasting, mutually beneficial business relationships, is an adversarial approach to legitimate freight claims the correct choice? As we all know, even the most experienced carpenter will, on occasion, hit his thumb with the hammer. It is my belief that in those cases where a shipper (your customer) has suffered a verifiable loss, the best course of action is to assist them in their efforts to mitigate their loss. Working with your customer will usually help to cement their attachment to you. I know that we all would like our claims expenses to be zero, but at what cost to the over all health of your business?

 

[Michael Ludwig]

Legit claims are a whole different ball game. However, as DRC pointed out, this particular claim is headed down the fraudulent path.