FREIGHT LOSS AND DAMAGE

WHAT PARTY HAS THE RIGHT TO RECOVER?

Reproduced with the Permission of Miles L. Kavaller

While carriers may set certain rules for cargo claims such as the time for filing (9 months under the uniform domestic non-negotiable straight bill of lading) the contract between the buyer and seller of the cargo will establish the party who make submit a claim for loss, damage or delay. This is commonly referred to as the F.O.B. (meaning literally "Free On Board") term in the contract for sale or the purchase order.

When the contract provides for F.O.B. seller's plant, warehouse or distribution center (e.g. "F.O.B. Los Angeles") the risk of loss passes to the buyer when the cargo is tendered to a carrier for transportation. See California Commercial Code Sections 2319(1)(a) and 2504. The purchaser/consignee and not the consignor then has the right to submit a claim. A claim submitted by the consignor should not be paid and the consignor told that the consignee must submit the claim. If the wrong party is paid the carrier may well have to pay a claim twice.

The consignor can avoid this problem if it obtains an assignment of the consignee's interest in this claim. An assignment is a contract where one party gives another party the right to proceed on a matter. An assignment can be a simple document but, like any other contract, requires consideration, i.e. generally some form of payment. An assignment should not be undertaken without the assistance of an attorney since it is a legal instrument and if prepared incorrectly can have unintended consequences.

Frequently, freight charges for F.O.B. origin shipments are collect. That payment obligation is contained in the bill of lading, the contract between the shipper and the carrier. Collect shipments are consistent with the F.O.B. term where the consignee is paying for the transportation and assumes the risk of loss at the point of sale.

Claims personnel of both carriers and shippers must be aware of these issues when considering claims. Failure to do so can result in payment to the wrong party subjecting the carrier to liability to pay the claim twice. On the shipper's side, it can lead to a failure to timely submit a claim thereby losing the right to sue.