Category: SOLUTIONS

Freight fraud is on the rise. Again.

U.S. shippers and receivers of fresh produce are falling victim to the repeated schemes by unprincipled freight brokers. The most common occurrences: you pay the freight broker, but the freight broker skips town and doesn’t pay the carrier; or the freight broker reassigns the job to another broker, who doesn’t pay the carrier, or even worse, steals the load. In the produce industry, where sales are made at lightning speed to keep up with the transportation of highly perishable commodities, by the time the deception is discovered, it’s often too late. The cause may be a broker’s insolvency, negligence, or willful wrongful acts. The effect is the shipper and receiver can suffer loss of the perishable agricultural commodities and are exposed to liability for double payment for the freight charges.

The problem is exacerbated by debt collectors buying up freight claims because they assert they have two pockets for recovery: the shipper and the receiver. These debt collectors or law firms representing them send demand letters citing court cases that seem to support double payment from a shipper. These debt collectors do not care if you’re a shipper who prepaid for the shipment by paying the broker. They hedge bets that you, as a shipper, will double pay for a shipment rather than trouble your customer/receiver for an unpaid freight bill.

Generally, payment of freight charges is the responsibility of the shipper unless otherwise agreed. Freight payment terms are either freight collect (receiver/consignee pays after delivery) or freight prepaid (shipper/consignor pays before shipment).

Older versions of the U.S. Uniform Straight Bill of Lading included a non-recourse provision, which provided a method for a consignor to avoid liability for freight charges on a collect shipment by entering a signature or endorsement in the box containing the provision (“Section 7” of the bill of lading). If the carrier accepted the shipment for carriage, then the carrier did not have recourse against the consignor for the freight charges in the event the consignee did not pay.

The non-recourse provision in the Section 7 box was a safeguard for a shipper because it relieved the shipper/consignor from liability for freight charges on collect shipments, i.e. that the carrier would have “no recourse” against the shipper because the receiver/consignee had primary liability for payment of freight charges on collect shipments. Shippers also used the provision to protect it from liability on “prepaid” shipments for additional freight charges after delivery.

In December 2022, the U.S. National Motor Freight Traffic Association published a revised Uniform Straight Bill of Lading and removed the Section 7 box and non-recourse provision. Instead, the back side of the current Uniform Straight Bill of Lading’s terms and conditions states:

Sec. 7. (a) The consignor, consignee, or shipper shall be liable for the freight and other lawful charges accruing on the shipment, as billed or corrected as specified in 49 U.S.C. §13710, and carrier may require prepayment of the charges prior to delivery and refuse to give up possession at the destination until payment is made, as specified in 49 U.S.C. § 13707(a).

Put simply, the shipper and receiver bear responsibility for the freight charges if the carrier does not receive payment, unless there is a specifically negotiated agreement stating otherwise. Shippers and receivers should use a tailored bill of lading (not the revised Uniform Straight Bill of Lading) making it clear who is responsible for freight payment and to have the carrier waive recourse against the appropriate non-responsible party.

Here are ten steps to fight back against freight fraud in the U.S.:

1. Verify Broker Credentials: Ensure that the freight broker is properly licensed and registered with the Federal Motor Carrier Safety Administration (FMCSA). You can check their USDOT number and MC number on the FMCSA website here SAFER Web – Company Snapshot (dot.gov).
2. Require a Bond and Insurance: Verify that the broker has appropriate insurance coverage and bonding. This provides financial protection in case of fraud or negligence. Licensing & Insurance Carrier Search (dot.gov)
3. Investigate Broker Reputation: Research the broker’s reputation by checking online reviews, asking for references from other clients, and looking for any complaints filed with industry associations (The Blue Book Services) or regulatory bodies (FMCSA website here SAFER Web – Company Snapshot (dot.gov)). In addition, contact your attorney to research litigation history of the broker and other public records databases to verify the identity of the principals and freight broker before you enter into a contract or send any funds.
4. Use Established Brokers: Work with well-established and reputable brokers with a proven track record of reliability and honesty in the industry.
5. Have a Robust Contract with Broker: Contact your attorney to prepare a robust broker contract that clearly states the broker’s obligations, with hefty indemnification provisions, insurance requirements, and clear payment terms.
6. Use a Customized Bill of Lading: Use a well-drafted customized bill of lading that includes terms and conditions that accurately state the payment obligation and that require the carrier to waive recourse against the shipper.
7. Obtain Documentation: Request and review all necessary documentation for each shipment, including insurance certificates, proof of delivery, and bills of lading.
8. Monitor Shipments: Keep track of your shipments through tracking systems and regular communication with both the broker and carrier. Promptly address any discrepancies or concerns.
9. Payment: Consider paying only after confirming delivery of the produce.
10. Report Suspicious Activity or Theft: If you suspect fraud or encounter any irregularities, report them to the appropriate authorities such as the FMCSA or local law enforcement agencies.

By taking these precautions and staying vigilant, U.S. shippers and consignors can reduce the risk of falling victim to freight broker fraud. Contact your agribusiness attorney to develop strategies and customize contracts and other documents to minimize your risks of freight fraud.

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© 2024 – Fennemore, LLP. All rights reserved. The information in this article has been prepared by Fennemore, LLP for informational purposes only and does not constitute legal advice.

This article is republished with permission and was originally written by June Monroe of Fennemore with offices in California, Arizona, Nevada and Colorado.

June Monroe is a director and attorney at the Irvine office of Fennemore, LLP. June practices agricultural law, employment law, commercial law, secured transactions and general business law. She concentrates on federal litigation, in district court and bankruptcy court, to enforce produce suppliers’ statutory rights under the Perishable Agricultural Commodities Act (PACA). June also assists growers, marketers, and shippers with drafting growing, marketing, packing, and supply contracts.

June is the current Chair of the Agribusiness Committee, Business Law Section, of the California Lawyers Association for the State Bar of California.

Outside of work, June is a weekend painter and enjoys painting fruits and vegetables for her agribusiness clients. June posts her artwork on her LinkedIn page: June Monroe | LinkedIn