In the United States, the general rule is that the carrier gets paid. Excel Transportation Services, Inc. v. CSX Lines, LLC, 280 F.2d 617, 619 (S.D. Tex. 2003). In other words, if a shipper pays an intermediary, but the intermediary does not forward the funds to the carrier, then the shipper is obligated to issue a second payment to the carrier. A shipper bears the risk when it chooses to pay for freight charges through a broker rather than directly to the carrier. Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co., 513 F.3d 949, 959 (9th Cir. 2008).

There are a number of policy considerations that support this general rule. The Excel Transportation court did recognize that it is unfair to force a shipper to pay twice for the same shipment. However, the court believed allowing a shipper the benefit of carriage without compensating the carrier would eventually cripple the shipping industry, as the carriers would be forced to devote their time to investigating potential customers. In addition, the Oak Harbor court found that the shipper is in the better position to avoid liability for double payment by dealing with a reputable freight forwarder by contracting with the carrier to eliminate the shipper’s liability, or by simply paying the carrier directly. Finally, in Strachan Shipping Co. v. Dresser Indus, Inc., 701 F.2d 483, (5th Cir. 1983), the court explained that the carrier expects payment will come from the shipper, although it may pass through a freight forwarder’s hands. The carrier may extend credit to a freight forwarder, but there is no economically rational motive for the carrier to release the shipper. The more parties that are liable, the greater the assurance the carrier has that it will be paid. 

Liability

Generally, the bill of lading will determine who is liable. Oak Harbor Freight Lines, Inc., 513 F.4d at 954. Liability also can be determined by a contract entered into prior to the preparation of the bill of lading. See Toyo Kisen Kaisha v. W.R. Grace & Co., 53 F.2d 740, 742 (9th Cir. 1931). 

If the bill of lading controls, the abbreviated notations will determine who is liable:

  •  Prepaid means the shipper is obligated to pay
  • Collect means the consignee is obligated to pay 
  • If the nonrecourse box has been signed by the shipper, then the shipper is free from liability 
  • Bill to third party means a third party will be paying but does not relieve the shipper of liability (unless the nonrecourse box is signed).  

There are two main defenses to double payment liability for a shipper: contract modification and estoppel. If the shipper has a written contract with the carrier, then the contract will govern the payment, even if the terms of the bill of lading conflict. Parties are free to assign liability for payment through a contract. Oak Harbor, 513 F.3d at 956. The contract must be between the shipper and the carrier directly. A contract between a freight forwarder and a carrier does not absolve the shipper’s liability to the carrier. See Id. at 956-957.

Estoppel applies if (1) the carrier makes a misrepresentation, such as a false assertion of prepayment on the bill of lading, and (2) the shipper relies on the representation to its detriment. Double payment alone is not enough to establish estoppel. As a result, shippers have a difficult time proving estoppel. As explained above, courts believe the shipper should bear the risk of double payment and so do not view them as “an innocent party.”

Takeaway

While the end result is certainly unfair, a shipper can easily avoid the risk of double payment − the easiest way is to deal with the carrier directly. Unfortunately, cutting out the middle man is not always possible. Intermediaries exist for a reason. Some shippers do not always have the time, energy or expertise to arrange for the carriage of their goods. 

In the event an intermediary is a necessity, it’s important to do the research to ensure that the shipper you are dealing with is reputable! A simple Google search can reveal a lot about a company. You are placing a great deal of trust in the intermediary you select, not only to ensure payment to the carrier but also to complete any transaction. Before selecting an intermediary, make sure they are worthy of your trust because their actions can impact your relationship with your purchaser.