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Shipper Load and Count, Broken Shipper Load and Count, Broken Seals and Terrorist Threats in Seals and Terrorist Threats in the Foodstuff Supply Chainthe Foodstuff Supply Chain

2008 Refrigerated Division Annual Meeting2008 Refrigerated Division Annual MeetingJuly 9-11, 2008July 9-11, 2008

Hyatt Monterey ResortHyatt Monterey ResortMonterey, CaliforniaMonterey, California

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Henry E. SeatonHenry E. SeatonSeaton & Husk, LPSeaton & Husk, LP2240 Gallows Rd.2240 Gallows Rd.Vienna, VA 22182Vienna, VA 22182

www.transportationlaw.netwww.transportationlaw.net

Henry E. Seaton is a graduate of Duke University (A.B. ’70) and Henry E. Seaton is a graduate of Duke University (A.B. ’70) and Vanderbilt School of Law (J.D. ’73). He has practiced law for 30 years in Vanderbilt School of Law (J.D. ’73). He has practiced law for 30 years in the Washington D.C. area representing motor carriers of brokers. He is the Washington D.C. area representing motor carriers of brokers. He is a member of the Vienna, VA based law firm of Seaton & Husk. The firm a member of the Vienna, VA based law firm of Seaton & Husk. The firm specializes in freight claims, freight charge collection, contracting specializes in freight claims, freight charge collection, contracting issues, carrier representation before the FMCSA and bankruptcy issues.issues, carrier representation before the FMCSA and bankruptcy issues.

Mr. Seaton writes a monthly column on transportation law for the Mr. Seaton writes a monthly column on transportation law for the Commercial Carrier Journal (CCJ) and is the author of Commercial Carrier Journal (CCJ) and is the author of Protecting Motor Protecting Motor Carrier Interests in ContractsCarrier Interests in Contracts. He serves as commerce counsel for the . He serves as commerce counsel for the National Association of Small Trucking Companies. He was the Delta National Association of Small Trucking Companies. He was the Delta Nu Alpha Transportation Professional of the Year in 2001 and is a Nu Alpha Transportation Professional of the Year in 2001 and is a frequent speaker and lecturer regarding cargo claims, freight charges, frequent speaker and lecturer regarding cargo claims, freight charges, contracting and risk/insurance issues effecting carriers and brokers. Mr. contracting and risk/insurance issues effecting carriers and brokers. Mr. Seaton can be reached at HESeaton@aol.com. For articles and other Seaton can be reached at HESeaton@aol.com. For articles and other information, please see information, please see www.transportationlaw.netwww.transportationlaw.net..

..

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SummarySummary The shipper load and count statuteThe shipper load and count statute The presumptionsThe presumptions The effect of seal on presumptionThe effect of seal on presumption Hours of service and shipper load and Hours of service and shipper load and

count in the 21count in the 21stst Century Century Use of shipper load and count and other Use of shipper load and count and other

limitations in rules tariffslimitations in rules tariffs Dealing with theftDealing with theft Acts of the public enemyActs of the public enemy TSA and shipper inspection issuesTSA and shipper inspection issues

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The StatuteThe Statute49 U.S.C. §80113 provides:49 U.S.C. §80113 provides:A common carrier issuing a bill of lading is not liable for non-receipt, misdescription or improper loading and (1) the goods are loaded by the shipper; and (2) the bill contains the words “shipper’s weight, load, and count,” or words of the same meaning indicating the shipper loaded the goods.

SL&C or words of similar import must appear on SL&C or words of similar import must appear on bill. See bill. See Allied Tube & Conduit Corp. v. Southern Allied Tube & Conduit Corp. v. Southern Pac. Transp. Co.Pac. Transp. Co., 211 F.3d 367, 377 (7th Cir. Ill. , 211 F.3d 367, 377 (7th Cir. Ill. 2000)2000)

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Two criteria:

• the shipper must load the goods; and • the bill of lading must contain a notation to

that effect. See Leigh Ellis & Co. v. Payne, 274 F. 443 (D. Ga. 1921), aff’d 260 U.S. 682 (U.S. 1923).

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The PresumptionsThe Presumptions Shipper load and count versus presumption of Shipper load and count versus presumption of

good order at time of pickup:good order at time of pickup:

• Under shipper load and count, carrier is liable for Under shipper load and count, carrier is liable for damage caused by improper loading only if defect in damage caused by improper loading only if defect in loading is patent.loading is patent.

• If defect is not apparent to the ordinary observation of If defect is not apparent to the ordinary observation of the carrier, carrier should not be held liable. the carrier, carrier should not be held liable. Modern Tool Modern Tool Corp. v. Pennsylvania R. CoCorp. v. Pennsylvania R. Co., 100 F. Supp. 595 (D.N.J. ., 100 F. Supp. 595 (D.N.J. 1951). 1951).

• Carrier under “shipper load and count” bill of lading is Carrier under “shipper load and count” bill of lading is not liable for damage due to improper loading, not liable for damage due to improper loading, Robinson Robinson v. New York C. R. Co.v. New York C. R. Co., 282 N.Y.S. 877 (N.Y. App. Div. , 282 N.Y.S. 877 (N.Y. App. Div. 1935), aff’d 270 N.Y. 659 (N.Y. 1936).1935), aff’d 270 N.Y. 659 (N.Y. 1936).

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When shipment moves as shipper load and count and is When shipment moves as shipper load and count and is delivered to consignee in damaged condition, a shipper delivered to consignee in damaged condition, a shipper must submit adequate proof that the product was in good must submit adequate proof that the product was in good condition when delivered to carrier to overcome the condition when delivered to carrier to overcome the presumption that damage occurred at origin. See presumption that damage occurred at origin. See Minat v. Minat v. B&O RailroadB&O Railroad, 558 F.2d 1277, 1280 (D.C. Cir. 1978)., 558 F.2d 1277, 1280 (D.C. Cir. 1978).

The ordinary presumption of good order at point of pickup The ordinary presumption of good order at point of pickup is reversed and the shipper has the initial burden of is reversed and the shipper has the initial burden of establishing its establishing its prima facie prima facie case. See case. See Frosty Land Foods Frosty Land Foods International, Inc. v. Refrigerated Transport Co.International, Inc. v. Refrigerated Transport Co., 613 F.2d , 613 F.2d 1344 (5th Cir. Ala. 1980) .1344 (5th Cir. Ala. 1980) .

Omission of the term “shipper load and count” does not Omission of the term “shipper load and count” does not impose liability as a matter of law on carrier for damage in impose liability as a matter of law on carrier for damage in transit, but does shift the burden to the carrier to show the transit, but does shift the burden to the carrier to show the damage was due to the fault of the shipper. damage was due to the fault of the shipper. Modern Tool Modern Tool Corp. v. Pennsylvania R. CoCorp. v. Pennsylvania R. Co., 100 F. Supp. 595 (D.N.J. ., 100 F. Supp. 595 (D.N.J. 1951).1951).

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In In Cargill, Inc. v. Merit Distrib. Servs.Cargill, Inc. v. Merit Distrib. Servs., , 2003 Tex. App. LEXIS 4598 (Tex. 2003 Tex. App. LEXIS 4598 (Tex. App. Austin May 30, 2003) the Court App. Austin May 30, 2003) the Court found:found:• Shipper held liable for metal shavings in Shipper held liable for metal shavings in

poultry / load shift in transit on SLC load, poultry / load shift in transit on SLC load, improper packing and breaking or improper packing and breaking or inherent vice was proximate causeinherent vice was proximate cause

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Interesting Facts: SLC load of cigarettes, sealed Interesting Facts: SLC load of cigarettes, sealed before driver could inspect. Load stolen and only before driver could inspect. Load stolen and only part recovered (or destroyed by shipper because part recovered (or destroyed by shipper because of “quality concerns”)of “quality concerns”)

Court Found:Court Found:• “…“…where the contents of a shipment are not visible or where the contents of a shipment are not visible or

open for inspection, as may be the case when cargo is open for inspection, as may be the case when cargo is transferred to the carrier in a sealed container, a clean transferred to the carrier in a sealed container, a clean bill of lading is not sufficient to establish delivery of the bill of lading is not sufficient to establish delivery of the goods in good condition.”goods in good condition.”

Security Ins. Co. v. Old Dominion Freight Line, Inc.Security Ins. Co. v. Old Dominion Freight Line, Inc.,,391 F.3d 77 (2d Cir. N.Y. 2004) 391 F.3d 77 (2d Cir. N.Y. 2004)

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Ergo…Ergo…

• When a carrier is prevented from independently When a carrier is prevented from independently inspecting cargo, the plaintiff must present inspecting cargo, the plaintiff must present additional evidence, either direct or additional evidence, either direct or circumstantial, in order to establish the initial circumstantial, in order to establish the initial contents and condition of the cargo.contents and condition of the cargo.

See examples: See examples: A.I.G. Uru. Compania de Seguros, S.A. v. AAA Cooper A.I.G. Uru. Compania de Seguros, S.A. v. AAA Cooper

Transp.Transp., 334 F.3d 997, 1004 (11th Cir. Fla. 2003), 334 F.3d 997, 1004 (11th Cir. Fla. 2003) National Transp., Inc. v. Inn Foods, Inc.National Transp., Inc. v. Inn Foods, Inc., 827 F.2d 351, , 827 F.2d 351,

354 (8th Cir. Neb. 1987) 354 (8th Cir. Neb. 1987)

Summary Judgment for shipper’s insurer Summary Judgment for shipper’s insurer reversed for shipper’s failure of proof of reversed for shipper’s failure of proof of good conditiongood condition

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The Effect of Seal on PresumptionThe Effect of Seal on Presumption Statute does not mention the term “under seal” Statute does not mention the term “under seal”

yet the establishment of delivery with seal intact yet the establishment of delivery with seal intact is important to the shipper load and count statute is important to the shipper load and count statute because:because:• Continuation of the shipment under seal makes it more Continuation of the shipment under seal makes it more

difficult for the shipper to reverse the presumption and difficult for the shipper to reverse the presumption and show that the carrier was negligent because:show that the carrier was negligent because:

The possibility of pilferage, theft, or inadvertent shortage at The possibility of pilferage, theft, or inadvertent shortage at cross-dock is eliminated; andcross-dock is eliminated; and

The possibility of damage due to top loading, rehandling, or The possibility of damage due to top loading, rehandling, or tampering with cargo is removed.tampering with cargo is removed.

• Where SLC is listed on bill of lading and shipment is Where SLC is listed on bill of lading and shipment is delivered with seal intact, shipper is left to show upset in delivered with seal intact, shipper is left to show upset in transit to overcome presumption that loss or damage transit to overcome presumption that loss or damage was not result of: was not result of:

Inherent vice; orInherent vice; or Act or omission of shipper in loading and counting shipmentAct or omission of shipper in loading and counting shipment

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Hours of Service and Shipper Load Hours of Service and Shipper Load and Count in the 21and Count in the 21stst Century Century

Increasingly, product is shrinkwrapped, making piece count Increasingly, product is shrinkwrapped, making piece count impossibleimpossible

Hours of service change has led to spotted trailers which are Hours of service change has led to spotted trailers which are loaded without driver present and unloaded after deliveryloaded without driver present and unloaded after delivery

Because of worker’s comp claim, many warehouses refuse to Because of worker’s comp claim, many warehouses refuse to even allow driver to be present on freight dock when shipment is even allow driver to be present on freight dock when shipment is loadedloaded

Loading of shipments by tow motor precludes accurate count or Loading of shipments by tow motor precludes accurate count or confirmation of loading practicesconfirmation of loading practices

Shipper, not truck driver, is most familiar with fragility of product Shipper, not truck driver, is most familiar with fragility of product and best loading proceduresand best loading procedures

As a result, SL&C should be the norm for truckload shipmentsAs a result, SL&C should be the norm for truckload shipments

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By contract and by tariff, truckload carriers should utilize the By contract and by tariff, truckload carriers should utilize the following provision or similar:following provision or similar:

SHIPPER LOAD AND COUNTAll shipments shall be loaded by the consignor and unloaded by the consignee. Carrier’s drivers are instructed to sign bills

of lading as shipper load and count or “SLC”. Inadvertent omission of this notation shall not result in a presumption

of carrier liability for shortage or damage (in the absence of upset or accident) where the driver was either not present or

not allowed to observe the loading and unloading.

Many carriers use “pallet count” rather than piece count specification, Many carriers use “pallet count” rather than piece count specification, i.e. “22 pallets said to contain 1416 pieces” to conform with realityi.e. “22 pallets said to contain 1416 pieces” to conform with reality

Truck driver should be instructed to place “SL&C” on every bill of Truck driver should be instructed to place “SL&C” on every bill of lading in which he was denied the opportunity to count or observe the lading in which he was denied the opportunity to count or observe the loading of freightloading of freight

Why? Because many warehousemen break warehouse shortage over Why? Because many warehousemen break warehouse shortage over carrier’s backcarrier’s back

Use of Shipper Load and Count and Use of Shipper Load and Count and Other Limitations in Rules TariffsOther Limitations in Rules Tariffs

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Dealing with TheftDealing with Theft

The $80 billion elephant in the roomThe $80 billion elephant in the room• Theft of cargo heightens issue of seal Theft of cargo heightens issue of seal

integrityintegrity• Both “mysterious disappearance” and Both “mysterious disappearance” and

theft are included in carrier liability but theft are included in carrier liability but excluded from many cargo policiesexcluded from many cargo policies

• Possibility of risk of loss due to theft Possibility of risk of loss due to theft raises importance of SL&C and seal raises importance of SL&C and seal integrityintegrity

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The Importance of Seal Integrity The Importance of Seal Integrity in the Post-9/11 Worldin the Post-9/11 World

Shippers have an absolute duty to accept a Shippers have an absolute duty to accept a shipment unless “practically worthless” shipment unless “practically worthless”

When 1 or 2 pallets have been pilfered, the When 1 or 2 pallets have been pilfered, the shipper should accept the other 20 plus pallets, shipper should accept the other 20 plus pallets, then file a claim only for those which are not then file a claim only for those which are not delivereddelivered

Yet, shippers involved in the foodstuff supply Yet, shippers involved in the foodstuff supply chain wrongfully believe the USDA requires chain wrongfully believe the USDA requires destruction of an entire truckload of product destruction of an entire truckload of product when seal integrity is compromised due to “fear when seal integrity is compromised due to “fear of terrorists” (e.g. One Fine Pickle)of terrorists” (e.g. One Fine Pickle)

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The Bioterrorism Act of 2002 contains no such The Bioterrorism Act of 2002 contains no such limitation on the acceptability of foodstuffslimitation on the acceptability of foodstuffs

There has been There has been nono precedent for concluding that precedent for concluding that the compromising of seal integrity is indicative of the compromising of seal integrity is indicative of anything other than petty thieves who could not anything other than petty thieves who could not fence the foodstuffs they discoveredfence the foodstuffs they discovered

In In Security Ins. Co. v. Old Dominion Freight Line, Security Ins. Co. v. Old Dominion Freight Line, Inc.Inc., the Court held that destruction of recovered , the Court held that destruction of recovered portion of shipment because of “consignee portion of shipment because of “consignee quality concerns” undercut shipper’s assertion quality concerns” undercut shipper’s assertion that goods were in good order at origin. A that goods were in good order at origin. A shipper’s quandary: shipper’s quandary: • ““So what is wrong with the goods that require their So what is wrong with the goods that require their

destruction? destruction? • Who is responsible?”Who is responsible?”

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The Role of “Act of Public Enemy” The Role of “Act of Public Enemy” in the Defense of Such Claimsin the Defense of Such Claims

President Bush declared “War on Terrorism.”President Bush declared “War on Terrorism.”

Al Quaeda is a “Public Enemy.”Al Quaeda is a “Public Enemy.”

If product is destroyed solely because the seal If product is destroyed solely because the seal was broken and shipped, it is because of “fear of was broken and shipped, it is because of “fear of act of terrorism.”act of terrorism.”

Doesn’t the common law defense become Doesn’t the common law defense become relevant?relevant?

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Old El PasoOld El Paso Shipment delayed in transit due to driver Shipment delayed in transit due to driver

malfunction – seal intact, attempted delivery 10 malfunction – seal intact, attempted delivery 10 days later, rejected by broker, shipment days later, rejected by broker, shipment reconsigned reconsigned

Carrier’s insurer deserts the loadCarrier’s insurer deserts the load Upon reconsignment entire product dumped Upon reconsignment entire product dumped

although seal intactalthough seal intact Shipper alleges delayed delivery “violates its Shipper alleges delayed delivery “violates its

quality control and production standards”quality control and production standards” No inspectionNo inspection Broker sues carrier in OhioBroker sues carrier in Ohio

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Citrus WorldCitrus World Shipment tendered to carrier under sealShipment tendered to carrier under seal Thieves broke seal, took 2 cases, could not fence Thieves broke seal, took 2 cases, could not fence

the restthe rest Load put in warehouse, balance tendered to Load put in warehouse, balance tendered to

consignee, consignee claimed load would be consignee, consignee claimed load would be rejected due to USDA regulationsrejected due to USDA regulations

As counsel for insurer, I issued on-hand notice As counsel for insurer, I issued on-hand notice requiring consignee to accept loadrequiring consignee to accept load

Consignee rejected shipment examined and Consignee rejected shipment examined and certified as fit, balance of load in boxes, in certified as fit, balance of load in boxes, in tamper-proof containerstamper-proof containers

Consignee required destructionConsignee required destruction Carrier made clear claim would be honored only Carrier made clear claim would be honored only

for missing casesfor missing cases

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Intermodal Loads/Pepperidge FarmIntermodal Loads/Pepperidge Farm

Seal integrity damaged, consignee Seal integrity damaged, consignee accepts load subject to inspectionaccepts load subject to inspection

Carrier sends in USDA expert to Carrier sends in USDA expert to inspect balance of loadinspect balance of load

Carrier maintaining balance of load is Carrier maintaining balance of load is fit for human consumption and fit for human consumption and should not be destroyedshould not be destroyed

Case in progressCase in progress

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Effects of Forthcoming TSA RegulationsEffects of Forthcoming TSA Regulations

50% screening rule by next year will 50% screening rule by next year will provide packing security measures, provide packing security measures, i.e. tamper-proof tape, locks, etc.i.e. tamper-proof tape, locks, etc.

If good enough for air freight, should If good enough for air freight, should be good enough for perishable and be good enough for perishable and other commodities other commodities

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SuggestionsSuggestions Insist on shipper load and countInsist on shipper load and count Establish supply chain/seal integrity procedures:Establish supply chain/seal integrity procedures:

• Photograph shipments at time of loadingPhotograph shipments at time of loading• Take pictures of all shipments delivered shortTake pictures of all shipments delivered short• Establish seal integrity records including affidavits from Establish seal integrity records including affidavits from

drivers when seals are broken by police for inspection, drivers when seals are broken by police for inspection, etc.etc.

• Inspect wrongfully rejected product, including sampling, Inspect wrongfully rejected product, including sampling, take pictures of undisturbed containers, cartons, bottles take pictures of undisturbed containers, cartons, bottles and jarsand jars

Use technology where appropriate:Use technology where appropriate:• Trailer trackingTrailer tracking• RFID scanning to be encouragedRFID scanning to be encouraged

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Avoid Shipper Drafted “Waiver of Mitigation Avoid Shipper Drafted “Waiver of Mitigation Language” in ContractsLanguage” in Contracts

Objectionable Language Acceptable Language

“Neither shipper nor its customers shall have a duty to mitigate damages.

In the event of damaged, branded or labeled goods, shipper’s customer may

determine, WITHIN ITS SOLE DISCRETION, whether all or part of the

shipment may be salvaged and the value of such salvage.”

Delete and incorporate Service Conditions which contain

salvage rules – Bill of Lading also includes the shipper and

consignee common law duty to mitigate unless agreed

to the contrary.

Reasons for Objection

Objectionable language makes “wrongful rejection” legalConsignor has duty to accept shipment unless its “effectively worthless”Don’t let one broken pallet cost you a truckload“Distress sale” of rejected shipment will produce losses a consignee can avoid by using undamaged product in stream of commerceIssue on-hand notice and get an expert

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Use Rules Tariff Provisions EffectivelyUse Rules Tariff Provisions Effectively

(1)(1) Count and Pulp ProvisionCount and Pulp Provision

(2)(2) Temperature Recorders as EvidenceTemperature Recorders as Evidence

(3) (3) Duty to MitigateDuty to Mitigate

(4) (4) Payment without OffsetPayment without Offset

(5) (5) Disposition of Contested Cargo Disposition of Contested Cargo ClaimsClaims

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(1) Count and Pulp Provision(1) Count and Pulp Provision

Where spotted trailers are loaded and Where spotted trailers are loaded and sealed by the consignor at point of origin sealed by the consignor at point of origin or where carrier’s employee is otherwise or where carrier’s employee is otherwise precluded from counting or, in the case precluded from counting or, in the case of refrigerated product, pulping the of refrigerated product, pulping the cargo at time of load, there shall be no cargo at time of load, there shall be no presumption of tender in good order.presumption of tender in good order.

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(2) Temperature Recorders(2) Temperature Recorders

Evidence of the temperature maintained Evidence of the temperature maintained during transit and the laws of during transit and the laws of thermodynamics shall be given probative thermodynamics shall be given probative effect in assessing inherent vice and effect in assessing inherent vice and alleged acts or omissions of the shipperalleged acts or omissions of the shipper

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(3) Duty to Mitigate (3) Duty to Mitigate Duty to Mitigate - Foodstuffs and Related Duty to Mitigate - Foodstuffs and Related

ProductsProducts.  Consignors and consignees shall have .  Consignors and consignees shall have the bill of lading and common law duty to the bill of lading and common law duty to mitigate carrier's loss including the obligation to mitigate carrier's loss including the obligation to accept partial shipments tendered in their original accept partial shipments tendered in their original shipping containers, boxes or shrink-wrap shipping containers, boxes or shrink-wrap notwithstanding the absence of trailer seal notwithstanding the absence of trailer seal integrity unless otherwise agreed in writing.  Any integrity unless otherwise agreed in writing.  Any decision by a customer to require the destroying decision by a customer to require the destroying or dumping of product in the absence of proof of or dumping of product in the absence of proof of damage, unfitness for human consumption, or damage, unfitness for human consumption, or deterioration in quality shall be non-compensable deterioration in quality shall be non-compensable by carrier." by carrier."

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(4) No Offset Provisions(4) No Offset Provisions

PAYMENT WITHOUT OFFSET

• Consignor and/or Consignee shall pay all freight charges when due without offset for any cause, including but not limited to, cargo claims. All claims for loss or damage shall be governed by this Circular and following and neither consignor nor consignee shall deprive carrier of proper cargo insurance adjustment by unilateral deduction of claims from payment of freight charges due.

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(5) Disposition of Contested Cargo Claims

Unless the parties agree to voluntary alternative dispute resolution, disputed claims will be subject to 49 U.S.C. §14706 (the Carmack Amendment) subject to any applicable released evaluation. Claimant waives any right to setoff or offset of contested and unliquidated cargo claims against freight charges otherwise due to carrier as a precondition of service. Claimants agree to forfeiture of any contested claim asserted by it as a setoff after notice and demand for freight charges.