Transportation of goods continues to increase. In this online-purchasing age, shipments are at an all-time high, according to the Bureau of Transportation Statistics (see chart).
While the vast majority of freight is shipped successfully, damage and loss can occur. Damaged or missing freight is expensive and time-consuming for manufacturers, distributors and retailers. It is essential for these groups (the shippers) to understand the claims process and how to succeed in recovering loss. In this article, we will discuss the basic freight claims process and some concrete steps you can take to win your claims.
The freight claims process is initiated by the shipper or 3PL (third-party logistics company) on behalf of the shipper. The shipper is typically a retailer, manufacturer or distributor. The goal of the claim is financial restitution for the damage or loss. There are a few different types of freight claims.
Damaged freight is the most common claim. The damage must be visible and noted on the bill of lading or delivery paperwork.
Freight loss occurs when the product was never delivered. In this case, the shipper and receiver must verify the counts on the bill of lading and receiving paperwork.
A sub-case of freight loss is a partial load, or shortage, where some of the goods are delivered, but not all.
Related to both of the above is concealed damage or shortage. This occurs when there is no physical damage, but items inside of shipping containers are damaged or missing. For example, a box has opened and some parts fell out, then the box was re-taped. Damage can include contamination from water, bugs, etc. This claim is harder to prove and the claim must be made quickly.
Motivation for Shippers
Carriers understand that the burden of proof lies with the shipper. When a carrier takes freight from point A to B, the legal ramifications are related to a breach of contract, not negligence. The contract is for the goods to travel completely and undamaged to their destination. The shipper (claimant) must prove the claim of damage or loss in order to shift the burden to the carrier. According to the Carmack Amendment, the claimant must prove:
Condition of the goods at the source
Condition at the destination
The actual amount of damage or loss (the shipper cannot make a profit on the claim)
The consequences of freight loss are significant. Unrecovered freight loss goes directly to the bottom line, impacting profitability. For example, if you have a 10% net margin and the loss is $5000, you need $50,000 in sales to make up for a failed claim. While the success rate of shipments is high -- one carrier noted that they have 99.7% shipment success rate -- the cost of failed claims adds up quickly. Using 0.3% loss translates into a $3000 loss for every $1M in shipments.
Improving Your Success Rate
Taking some basic steps that can increase your chances of success with claims.
First, the shipper must maintain proper and accurate records. These records should include photos of the items that are shipped. SDG Systems offers a software solution, PhotoTag, that quickly associates barcodes, NFC tags or other information with the photos. A typical workflow is for the shipper to scan the job number, bill of lading, or pallet number, then take photos of the staging, wrapping and/or shipment of goods. These photos should show the condition and quantity of the items that are shipped. The shipper should also capture a picture of the signed bill of lading, indicating that the driver received the items. Photos can easily be recalled by customer service or shipping professionals using the PhotoTag web or mobile interface.
Photos should also be taken of any damaged goods, including concealed damage or loss. The combination of photos before and after the shipment documents the specific damage to the goods.
To verify product quantities, companies can use barcodes or RFID tags with handheld or fixed readers. Tracking software, such as TallyFlow, can associate quantities with shipment times and locations, as well as the photos that are being taken.
Second, you should file your claim in a timely manner. While the Carmack Amendment provides up to 9 months to file a claim, timely filing is prudent. Concealed damage should be filed within 5 days to increase your probability of success. The longer you wait to file a claim, the more difficult it is to prove that the damage did not occur after the freight was delivered.
Third, you should keep the damaged freight until the claim is resolved. Even though you have documented the damage or loss, an inspector may come to inspect the damage. Carriers have 120 days to settle the claim, but must respond within 30 days.
Fourth, pay your freight charges. While it may seem counterintuitive, withholding payment for the freight charges can actually delay your claim. Maintaining a good relationship with your carriers is essential to being able to work through shipping challenges.
Finally, additional education on the freight claims process can help companies who process a high volume of shipments. Becoming a Certified Claims Professional (CCPAC) provides evidence of professional competence and conformance to industry standards. Further education can also cover areas not included in this article.
The freight claims process can seem somewhat intimidating, but the key, like many work issues, is to have a process in place. Being organized with your documentation and photos is important. Claims will occur, and when you are prepared for them, it gives you confidence to present your case for restitution in a timely and efficient manner.