Intermediaries and Motor Carriers – perspective from the United States

1. Intermediaries and Motor Carriers –perspective from the United States Prasad Sharma Senior Vice President and General Counsel American Trucking Associations, Inc.

2. The Role of Intermediaries • Transportation intermediaries generally arrange the efficient and economical transportation of goods on behalf of others, by others, via multiple modes of transportation (including road transportation) • May be called freight brokers, 3PLs, 4PLs, NVOCs, OTIs, IACs • According to TIA, directed the purchase of $162 billion in transportation services in 2007

3. The Role of Intermediaries • “The interstate shipment of goods is a complicated business. Moving a given quantity of goods from one part of the country to another frequently involves several unrelated carriers using different modes of transportation, ranging from trucks, railroads, and freighters to the occasional plane.  Locating and contracting with multiple carriers for a multistate shipment may be prohibitively expensive for the average shipper. So third parties fill the gap by negotiating lower rates with a number of carriers around the country and selling their logistical services to would-be shippers.” – REI Transp., Inc. v. C.H. Robinson Worldwide, Inc., 519 F.3d 693 (7th Cir. 2008)

4. Definitions • Broker – A person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation – 49 U.S.C. § 13102(2).

5. Definitions • Broker - a person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport. – 49 C.F.R. 371.2(a)

6. Definitions • Freight Forwarder – a person holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and in the ordinary course of its business – • (A) assembles and consolidates, or provides for assembling and consolidating, shipments and performs or provides for break-bulk and distribution operations of the shipments; • (B) assumes responsibility for the transportation from the place of receipt to the place of destination; and

7. Definitions • Freight forwarder (continued) • (C) uses for any part of the transportation a carrier subject to jurisdiction under this subtitle. The term does not include a person using transportation of an air carrier subject to part A of subtitle VII. -- 49 U.S.C. § 13102(8).

8. Definitions • So, it’s clear, right? Hardly. • “The difference between a carrier and a broker is often blurry . . . The law determines status according to the services offered by an entity, rather than by its corporate character or declared purpose.” Delta Research Corp. v. EMS, Inc., 2005 U.S. Dist. LEXIS 18353(E.D. Mich. 2005) • Same applies to distinction between broker and freight forwarder

9. Translation of Definitions • In simplest form, a broker arranges transportation but differs from a motor carrier in that it does not provide transportation • A broker differs from a freight forwarder in that it does not assume responsibility for the shipment from point of origin to point of delivery • A freight forwarder provides a greater array of services than a motor carrier

10. Functions • Freight forwarder – • Arranges for shipper the transportation from place or receipt to place of delivery assuming liability • May provide consolidation/assembly and/or break-bulk distribution with respect to a particular load but does not have to • Contracts with ocean, rail or motor carriers to perform some part of the transportation

11. Functions • Broker – • Contracts with shipper to arrange transportation on shipper’s behalf • Does not provide actual transportation or assume liability for the shipment • Serve as shipper’s traffic department • Contracts with carriers to actually provide transportation (providing carrier’s business)

12. Contractual FrameworkBroker • Broker has two contracts: 1) with shipper and 2) with carrier. No privity of contract between shipper and motor carrier. • TIA has a model contract covering both contractual relationships; ATA has a model contract covering the second

13. Contractual FrameworkFreight Forwarder • Freight forwarder has a contract with the shipper and, depending on the situation, a contract with a motor carrier or other intermediary

14. Liability - Brokers • Brokers are liable to shipper/customer for the obligations assumed under the contract • General default rule is that broker is not covered by strict liability regime for loss or damage to goods of the Carmack amendment (49 U.S.C.§ 14706) [but see Ameriswiss Technology, LLC v. Midway Line of Illinois, Inc., 888 F.Supp.2d 197 (D.N.H. 2012) • However, broker is liable for state law claims and thus assumes responsibility to exercise due care in selection of carriers (but see Ameriswiss)

15. Liability - Brokers • Brokers are liable to motor carriers for obligations assumed under contract • Broker is liable for payment of freight charges (shipper may also be liable for payment) • Default rule is that claims procedures are governed by Carmack amendment Brokers can bind shippers with respect to motor carrier liability limitation – Werner Enterprises, Inc. v. Westwind Maritime, Int’l, Inc., 554 F.3d 1319 (11th Cir. 2009)

16. Liability - Brokers • Brokers can be liable to the public under negligence theories for accidents/injury • Two most common theories: 1) broker acting as a carrier; and 2) negligent selection of carrier (reminder, Ameriswissheld otherwise)

17. Liability – Freight Forwarders • FFs are liable to shipper for loss and damage to goods as a carrier to the extent covered by the issued bill of lading (perhaps not if only acting as shipper’s agent) • FF’s in the U.S. can limit their liability for cargo loss and damage

18. Liability – Freight Forwarders • FFs are liable to carriers as though the FF was a shipper • Similarly, carriers are liable to FFs as though the FF was a shipper • FFs can bind shipper to downstream liability limitations – Norfolk S. Rwy. Co. v. Kirby, 543 U.S. 14 (2004) • On multimodal, through BOLs substantially involving maritime transport, FF can extend liability limitation to motor carriers under COGSA, but Carmack does not apply to inland leg – Kawasaki Kisen Kaisha Ltd. V. Regal-Beloit Corp., 561 U.S. 89 (2010)

19. Entering the Business • Given the complexities and uncertainty, if you still want to be an intermediary: • For freight forwarders, register under 49 U.S.C.§ 13903. • For broker, register under 49 U.S.C. § 13904.

20. Conclusion • The law is evolving. Portions will be sorted out by Congress and the courts.