In a happy coincidence of timing, the Eleventh Circuit Court of Appeals recently issued an entertaining opinion addressing the Carmack Amendment, which is a federal law limiting the liability of motor carriers[1] for loss or damage of goods during shipment.  The opinion will allow us to continue our discussion of mitigating shipping risks, introduced in the last installment of this column.

By way of background, the Carmack Amendment limits the liability of a motor carrier in the event your goods are lost or damaged during shipment.  It is sometimes called a strict liability statute, but that’s misleading.  In fact, it merely creates a presumption of the carrier’s liability when the shipper (you) can prove the contents of the shipment, and the condition of the contents.[2]

But that presumption can be valuable, so you want to be able to prove what you tendered to the carrier.  That’s one of the issues discussed in the Eleventh Circuit opinion linked above, UPS Supply Chain Solutions, Inc. v. Megatrux Transportation, Inc.

In that case, a company called Seagate Technology wanted to ship disk drives.  It retained UPS to handle the transportation logistics.  UPS subcontracted with a company called Megatrux to handle the Los Angeles to McAllen, Texas leg of the disk drives’ journey.  Unbeknownst to UPS or Seagate, Megatrux subcontracted that duty to Stallion Carrier Corporation.

The disks went missing.  In what I can only imagine was the result of Oceans Eleven-esque hijinks, the prevailing theory is that the disks were “stolen by drivers posing as employees of Stallion.”  Lawsuits followed.  Seagate assigned its claims against Megatrux to UPS as part of a settlement.

UPS (standing in Seagate’s shoes) sought to prove the contents of the cargo, as part of its effort to trigger the Carmack presumption of liability.  The Eleventh Circuit affirmed that UPS adequately did so by presenting customs invoices, photographs, and some of the disk drives that had been recovered by Seagate’s investigators.  In so holding, the Court noted that the customs invoices “were generated contemporaneously with shipment, carried penalties for falsification,” and that Seagate “paid duties based upon their contents.”   The Court also cited a prior case, in which the presumption arose upon proof that an automated program created a contemporaneous record of a package’s contents at the time the package was sealed, notwithstanding that there was no testimony from a person who saw what went into the package.

Taken as a whole, the key (at least in the Eleventh Circuit) is being able to prove that you created acontemporaneous record of what went into the package that was tendered to the carrier, and that there was no incentive to falsify the record.  Conversely, non-contemporaneous documents such as bills of lading will not be enough to trigger the presumption if the goods are lost in transit and the package is sealed when delivered to the carrier.[3]  Nor in that instance is a series of documents evidencing receipt of the goods by prior shippers sufficient to trigger the presumption.  What is required, in the words of the Eleventh Circuit, is “direct evidence” such as eyewitness testimony or documents created contemporaneously with packaging.

This need for contemporaneous documentation is frustrating, but creation of those records should be part of your risk management efforts.  It is important not only for purposes of the Carmack Amendment, but also for potential disputes with insurers or buyers, and for theft deterrent purposes.  The difficult part is determining how you can integrate the documentation process into your existing, value-creating processes.  For instance, a sophisticated automated system like the one discussed above could reduce labor costs and allow you to better track bottlenecks in your processes.  Alternatively, imposing a final check immediately prior to packaging can also serve as a useful quality control and theft deterrent device.  Done correctly, this important piece of risk mitigation can be done at a fairly low cost.