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Freight Management Services
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900 Dudley Avenue
Cherry Hill, NJ 08002
Phone: (856) 317-9600
team@tuckerco.com
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The 'Downside' of Making Brokers Liable
This is in response to the recent letters from Bill Augello and Bob Voltmann about a new type of cargo loss and damage insurance which is designed to make brokers "primary" parties supplied with "primary" CL&D insurance to protect the shipper, in place of the motor carrier.
Because 'of the potential harm to the vital brokerage industry and the shippers, I felt they had to be responded to. Ultimately, the market participants, brokers and shippers, not the insurance salesmen or lawyers of trade associations, will decide what insurance products work for them. They will decide by buying or not buying the products offered. The products that work will survive and those that don't will die. That's the beauty of the free market mechanism. CL&D policies making the broker "primary" have some serious side effects injurious to the broker's and the shipper's health.
There is an old, very clear, well-defined CL&D law and precedent in freight which mandates the possessor of the freight in transit is fully responsible to protect it. The carrier is primary, no one else can be.
The shipper at origin and the carrier co-sign the bill of lading agreeing that everything is in order before departure. They are the only primary parties that can.
The receiver at destination and the carrier co-sign the delivery receipt stating the condition of the freight at arrival and unloading. They, too, are the only ones that can.
The law requires the carrier to carry primary CL&D insurance. No one is suggesting that be discontinued.
The relatively few losses and damage incidents in the billions of freight transactions per year are, by and large, processed to completion quite simply with a minimum is is etters mum of lawyering.
The CL&D regime is not broken. Since deregulation the amount of lawyering and complexity has probably decreased since the parties can more freely and practically negotiate claims settlements; and get back to business.
Both during regulatory days and since, if a broker had arranged the shipment or not, the same two primary parties were involved in the settlement: the shipper and the carrier. The broker could assist or not, depending on the facts.
About 1985, after deregulation, the broker community, working with insurance companies, began developing variations of broker "contingency CL&D insurance" These policies are designed to further pro-
CL&D policies making the broker 'primary' have some serious side effects injurious to the broker's and the shipper's health.
tect the shipper by providing additional insurance funds in the event the trucker and its primary CL&D insurance could not pay.
There seems to be no groundswell of demand coming from the shipper-carrier-broker marketplace for recasting the broker as a "second primary' (an oxymoron for sure) party responsible to protect the goods in the carriers' possession. The market participants buy contingent insurance in large quantities.
There are many unknowns about the broker volunteering to put himself into a "primary" position by holding out that he will pay CL&D claims prior to and independent of the carrier's response. It takes three or more years of actuarial experience for the insurance industry to even begin to quantify risk. The ongoing availability and price of primary broker insurance is a crap shoot. It is experimental at best, while the present motor carrier primary risk and insurance is well known, simple and works. Encouraging shippers to look to the broker for settlement of CL&D claims will begin to erode the shipper's historic, strong claim status against the carrier.
Settlement of broker "primary" CL&D cases will dramatically increase lawyering and court time. Little wonder lawyers and insurance salesmen lead the charge to encourage brokers to volunteer to be "primary"!
For the first five years of so of legal wrangling over these 'new "second primary" settlements, decisions will come out with wide varieties of nonsense. The appellate court and/or regulatory "wisdom" which someday sets the rules may not be easy for carriers, shippers and brokers to live with, but it will be out of the market participant's hands by that time. This is the negative that bothers me the most.
The new "broker primary" insurance is higher-priced than contingency now, even at the "loss leader" introductory stage. It can never come down. The scary unknowns of where it will ultimately settle is guaranteed to be financially harmful (fatal?) to brokerages and shippers.
All the unknowns yet unknown if this "secondary primary" risk is ventured into will not have the ability to further simplify the shipper-carrier-broker's CL&D needs, only to complicate them and drive the cost to move freight up. The freight market is aware of this "broker second primary" option. Only the market participants are qualified to evaluate it and will do so with their purchase dollars or lack thereof. The lawyers, trade association officials, media, politicians and government administrators, God bless them, are studiously unqualified to evaluate it.
Until the market participants sort it out, the non-market observers should keep the sideline cheerleading, kudos and stampeding to a dull roar. Let's realize some of the nature and stakes of what's being proposed and evaluated. The highly touted benefits don't really seem to be buying anyone much of anything, especially the shipper. The downside looks like it is going to be way down, dark and dirty, especially to the shipper.
WILLIAM J. TUCKER,
PRESIDENT, TUCKER CO.
CHERRY HILL, N.J.
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