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How to Reduce Cargo Freight Claims

How to Reduce Cargo Freight Claims

Today’s freight industry runs at rapid speeds to meet customer delivery demands, but one event that can disrupt the flow of your freight management operations and supply chain is damaged or lost cargo. The majority of shipments are picked-up and delivered on-time and intact, but knowing what to do and who to contact if you need to file a freight claim can be a key differentiator to minimizing downtime (and keep being a happy customer)

Next 4 guidelines will help keep your supply chain operating efficiently:

  1. Avoiding Freight Claims
  2. What to Do if a Claim Occurs
  3. Common Reasons Carriers Decline Claims
  4. Tips for Faster and More Efficient Freight Claims Experience

1. Avoiding Freight Claims

Choose quality over price (when selecting a carrier)

Sourcing a carrier based on price over quality of service could result in a lot of headaches (as the saying goes, you get what you pay for). If you’re shipping products regularly, do your research and make sure the carriers you use have been thoroughly vetted with the highest level of safety and quality standards. Know the ratio of a carrier’s total shipment count versus their claims count, and find out what other shippers are saying about their experience with that carrier. Front-end research can eliminate potential disruptions.

Package your shipments properly

Proper packaging is critical to preventing cargo damage. If you’re packing items in boxes, make sure your commodity doesn’t exceed the weight limitations of the box. Select a proper box size that allows your item(s) to fit securely inside without excessive empty space. Ensure your product is protected by cushioning material on the inside of the box and stacked on proper pallets and shrink wrapped. If items are shipped loose, your cargo could experience a lot of turbulence, so make sure to package your items to withstand typical LTL shipping treatment. Freight claims can’t be filed on packaging damage alone. The purpose of packaging is to protect your goods from damage.

Label your shipments

To prevent cargo loss, make sure your delivery and return address information is listed clearly and accurately on your shipment. Labels and stickers should be positioned on top of the box, and all former labels need to be removed or covered. Make sure you place labels on an even surface of your package and not on the flap or seals.

2. What to Do if a Claim Occurs

When receiving a shipment, be sure to take your time examining the delivery and paperwork. Using the Bill of Lading (BOL) and delivery receipt, verify delivery address, shipment information, count the items on the BOL compared to the quantity being delivered, and inspect the condition of the shipment. If you identify any damage or discrepancies, follow the below tips.

Record specific damage and/or loss details on the delivery receipt

The delivery receipt is a legally-binding document. You must notate all damages, shortages or evidence of pilferage to cartons and containers on the delivery receipt and Bill of Lading (BOL) prior to signing. If a shipment is accepted without exception (i.e., the receiver doesn’t note specific information about what is damaged and/or shorted on the delivery receipt at the time of delivery), then a freight claim will be considered “concealed,” and difficult to resolve in your favor. All damage and loss notation must be clear and specific. Phrases such as “subject to count/inspection,” “potential damage,” and “subject to review,” will not be considered an exception. It’s also a good idea to take pictures of the damage for claim documentation.

Retain the freight at either the shipper or consignee location, not the carrier

Before the carrier resolves a freight claim, they will want the shipper or consignee to retain the goods. If the consignee cannot keep the products, then the shipper must ask the carrier to return the shipment. Keep in mind that the carrier will charge you storage fees if it holds the shipment. Do not dispose the goods prior to claim resolution or the carrier may decline your claim.

Ask the carrier to inspect the damaged freight

Once the shipper or consignee retains the freight, ask the carrier to inspect the goods. Most carriers will only investigate if the damage is greater than $1,000 or may waive their right to inspection. Nonetheless, still make the request. Having the shipment inspected before you submit the claim can help expedite resolution time.

Gather documentation to support your freight claim

By law, you must provide three pieces of evidence to support your claim:

  1. Prove the goods were in good condition when shipped.
  2. Prove the goods were damaged when delivered (or weren’t delivered at all).
  3. Support the value of what you are claiming as damaged/missing.

Ensure you complete the appropriate claim form, detailing every item you are claiming. Include quantity, weight, and value. Collect the invoice showing what your cost was (i.e., your vendor invoice or manufacturer invoice) and the sales invoice (i.e., indicating the amount for which you sold the goods). Also, provide pictures, packing list, signed BOL, and signed delivery receipt.

Pay your freight bill

If you don’t pay your freight bill, then the contract hasn’t been completed between the two parties. Throughout the claim process, the freight bill remains valid—the invoice is not put on hold and isn’t voided automatically. If the carrier provides a legitimate declination on the freight claim, they are still owed payment on the freight bill. If a claim is approved and carrier negligence is demonstrated, the carrier won’t pay if the freight bill remains outstanding. If shipping with a 3PL, note the 3PL isn’t the liable party unless otherwise stipulated in your contract.

3. Common Reasons Carriers Decline Claims

When presented with a claim, a carrier must prove they were not negligent. The carrier may also decline liability by using one of these five defenses outlined in the Carmack Amendment, a law created for uniformity in rules governing interstate shipping.

  1. Act of Nature: like hurricane, weather and driver sustains injury outside of control
  2. Public enemies: terrorism or armed robbery
  3. Act or default of the shipper (may happen)
  4. Public Authority: the Government or vehicle impound
  5. Inherent vice or nature of the goods transported

It’s not often we see claims declined for reasons 1, 2 or 4. If a carrier does reject a claim, it’s usually for reasons 3 or 5.

The following are the principal reasons carriers deny claims:

Improper/Insufficient packaging

The carrier will deny the freight claim if the shipment wasn’t packaged according to industry standards, or if it couldn’t adequately protect the load.

Concealed claim

The carrier cannot decline a claim because the receiver didn’t notate damages/shortage on the delivery receipt, but if no additional evidence can be provided to prove the carrier caused damages during transit, they will decline the claim.

Carrier delivered precisely what they tendered

The only piece-count the carrier is liable for is the unitized pieces they pick up, not individual pieces found under shrink-wrap or within a crate. Regarding shortage claims, if the driver picks up one shrink-wrapped pallet and drops off one shrink-wrapped pallet, the contract is fulfilled. If the driver wasn’t present while the individual pieces under the shrink-wrap were counted and loaded, they aren’t liable for that piece count. Note: The driver will typically record the actual piece count when signing the BOL.

4. Tips for a Faster, More Efficient Freight Claim Experience

Give carriers time to investigate

Carriers have 30 days from the date of the claim submission to acknowledge receipt of the claim, then 120 days after that to investigate. The National Motor Freight Traffic Association (NMFTA) also allots carriers additional 60-day blocks of time after the initial 150 days, if they haven’t reached a decision, as long as they provide written status updates. Create a calendar reminder every 15-20 business days to track the age and status of the claim.

Provide additional documentation or information if the carrier requests it

Throughout the process, there may be multiple people reviewing a claim, especially for high-value shipments. One person may spot something that another person missed and need information from you to properly investigate. These requests can come any time within the 150-day process, and the clock is paused when the carrier sends an inquiry. Sometimes, a phone call to the carrier is all that’s needed to clarify the inquiry.

Complete as much work as you can before submitting your claim

Because everything else in the freight industry moves so quickly, it’s easy to assume that if a claim isn’t submitted just as fast, it could slow down the process. This isn’t true. It’s better to collect all the necessary documentation, inspect the goods first, and make sure this shipment is in the hands of the consignee or shipper prior to submitting your claim. You’ll save time by anticipating what the carrier may need during its investigation. Legally, a shipper has nine months from the date of delivery (pickup, if lost) to provide a formal cargo claim to the carrier.

Mitigate the product or goods

This is a fancy way of saying the shipper must: salvage, discount, or repair the commodity. If you can fix a $10,000 machine for $100, it’s better to make the repairs and file a claim for the cost of the repairs. Remember to first ask the carrier to inspect the products and confirm with them that you may mitigate before proceeding with then claim. Carriers also have rights to the salvage if they pay a claim.

Purchase shippers Interest Insurance

Unless otherwise stated in your contract with a carrier and 3PL, every LTL shipment will fall under the carrier’s limits of liability. The liability limits may be based on class/weight (e.g., class 60 pays $1.50 per pound), products (e.g., furniture pays $2 per pound), and whether the product is new or used (i.e., used is typically $0.10 per pound). The carrier may pay per a general maximum liability (e.g., $15 per pound) or decline the claim entirely because the products are listed on their “restricted/excluded” list. Purchasing shippers interest insurance confirms your products are covered at the invoiced value, and not limited to carriers’ published tariffs.

Planning Eliminates Future Surprises

Navigating the freight claims process doesn’t need to be a daunting task. With the right amount of planning and following the above guidelines, you’ll avoid most of the “road hazards,” while saving time and cost in the process.

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