Freight security — an instructive example

   The circumstances surrounding a recent federal court decision, when examined from the shipper’s perspective, illuminate some effective strategies in combating the problem. The decision discusses a suit brought by an electronics shipper and its insurer against a truckload carrier. The shipper tendered the carrier a load of computer parts in excess of $500,000, which was subsequently stolen from the carrier’s storage yard. The two had a contract which limited the carrier’s liability to $100,000 per load except in certain instances, including breaches of security when the carrier would be liable for the full load value.  The trailer was stolen out of the carrier’s yard while unattended; the gate of the yard was open and no security guards were present.

   One lesson shippers can glean from this court decision relates to the kinds of agreements they negotiate with their providers. A shipper can save transportation costs by agreeing to cargo liability limits while still maintaining its ability to recover the full value of a load in certain situations. This is accomplished by making freight security a “material” part of the contract. When the contract outlines security procedures that are to be followed and states that liability limits won’t apply when they’re not, security becomes “material” and the shipper is enabled to recover the full value of its load if the carrier has failed in its security-related obligations. If a shipper has selected a particular transportation provider due in part to that provider’s promises regarding theft prevention and risk management measures, it is perfectly reasonable for the shipper to insist that this be part of the agreement. The contract in this scenario required that the carrier use best efforts, follow generally accepted practices, and take all reasonable precautions to protect the freight. The court determined since the carrier didn’t follow its own internal procedures—the trailer was left unattended in a yard with an open gate—reasonable precautions were not taken and best efforts were not made. The shipper was therefore able to recoup the full value of the stolen load, upwards of $500,000.

   As illustrated by this series of events, it is one thing for a transportation company to make promises and another for it to keep them. It’s wise for shippers to construct shipping schedules that minimize the amount of time that trailers must sit in storage yards (or anywhere else), but to the extent that storage yards must be utilized, it’s more than a good idea to view them in person. Business partners visit one another all the time; it would make perfect sense for a company whose property is regularly kept at a certain location to see and ask questions about that location. Alternatively, or additionally, anyone with a stake in freight security might develop contacts with law enforcement or other cargo theft prevention networks, so that qualified personnel may assess the quality of storage facilities as well as carriers’ security practices.

   Use of intermediaries—logistics companies, brokers, and forwarders—can be a large part of an effective strategy in dealing with freight theft possibilities, depending on the intermediary’s attitude and practices toward the subject. A shipper who hires a skilled intermediary to make sure its truckloads consistently get from origin to destination can rely on the competence of the intermediary for freight protection purposes. One indication of such competence is the character of the intermediary’s security protocols. An adept logistics company will use various methods to vet storage yards, including in-person yard visits and engagement of independent freight security companies, and can hold carriers to agreements about methods that drivers will use to deter cargo thieves. Use of GPS devices, in combination with dedicated security personnel who monitor trailer movements, is another sign of an expert intermediary that is sincerely interested in safeguarding a shipper’s cargo and will take extra measures to do it. A shipper who contracts with an intermediary can use similar contract negotiation techniques to those discussed above to protect its assets. In so doing, the shipper may conserve some of its own resources, without sacrificing anything in the freight security effort, by contractually obligating the intermediary to ensure effective theft deterrence.

   The more frequently freight shipments don’t arrive at their destination, the larger the number of unhappy freight consignees. Shippers who take note of the events described here, the court’s decision in this case, and the lessons that can be extracted will have a distinct edge on their competitors in customer relations.  

   Tabor is a 25-year loss prevention expert and vice president of supply chain support for AFN, a freight brokerage, third party logistics, and transportation management services provider. He can be reached by email at JTabor@afnww.com.