Warehousing
Effective Freight Claims
No matter how much you try to prevent cargo loss and damage, well…stuff happens. Planning for them is key to preventing claims and settling them quickly when they do occur.
Through every stage of the shipping process, companies can take the following eight steps to avoid loss and damage, and to position themselves to recoup losses if they occur –
- Select carriers withcare
Carriers vary widely in service quality, and it can be tough to get data on carrier-specific or industry-wide loss, damage, and theft rates. These rates also vary by commodity, and how manufacturers, suppliers and buyers measure damage, says ES Shankar, Compliance Director at OSV 3PL (Logistics and FTZs).
Knowing how individual carriers handle claims is one benefit of working with a third-party logistics (3PL) or 4PL provider. “Third parties have more leverage and influence with carriers, so they usually can get an appropriate and quick response,” says Harsh Takkar, Sales Director at OSV 3PL (Logistics and FTZs). He urges shippers to ask about claims assistance services when selecting a 3PL and Logistics Service Provider.
To minimize shipment damage and loss, it is recommended using regional carriers whenever possible, which avoids intermediaries and the extra handling that can occur.
- Know your risks
Watching for freight movement patterns and trends can help shippers prevent damage and loss incidents.
For example, the rate of fictitious pickups and driver theft is rising in the United States, with 70 percent of incidents occurring on weekends or holidays.
OSV 3PL (Logistics and FTZs)recommends that shippers and carriers pursue background investigations, security awareness training, and quantifiable in-transit security programs that include tracking technology and real-time monitoring.
Shippers can also track their own damage and loss patterns to identify and address recurring trends.
- Forge solid contracts.
Freight liability is covered by a large body of law, and varies by mode and country. These regulations are important to understand. But shippers should also make sure they are adequately protected and insured through the documents that define their relationships with their carriers.
Most important are the carrier’s rules tariff and/or the contract between the carrier and shipper. The bill of lading may also spell out these terms. This language states the carrier’s level of liability, typically by dollars per pound up to a maximum, as well as the exceptions to those terms.
Liability and terms differ by mode; a parcel limit may be $100, an LTL shipment might be $1 per pound, and a truckload would be regarded as a single shipment and have a higher liability limit. Most carriers offer insurance for shipments exceeding these limits, or they can be added as a rider to the shipper’s own insurance.
Shippers sometimes make assumptions about carrier liability. During the sales process, for instance, carriers often point to the amount of liability coverage they maintain. But it may be lost on shippers that the insurance is to protect the carrier, and may not cover the claim. So while a shipment may be worth $300,000, it only qualifies for a limit of 50 cents per pound up to $10,000 because of the terms. Shippers must know the value of their goods and how well they align with the carrier’s liability limits.
Another important consideration to address in a contract is what happens to damaged product. The law states that in the absence of specific contract terms, the shipper and the consignee have the primary duty to salvage the product.
If they decide the product has no value, they can dispose of it or allow the carrier to salvage it. But typically, the right to salvage or dispose of product is written into contracts. The nature of the product is key here-food products, for example, are extremely delicate.
A broken seal is often grounds to destroy the product because a brand doesn’t want to risk compromised food entering the commerce stream. Even non-foods can be a risk; imagine damaged building materials ending up being used during construction.
- Package with utmost care
The best way to prevent damage and loss is to ensure freight is fully secure and protected. Poor packaging and labelling is the most common error when preparing a shipment.
When using an LTL carrier, a shipment could end up being handled or loaded on multiple trailers between pickup, transit, and delivery, depending on the destination.
Shipments of high value or prone to potential theft should be transported on a shrink-wrapped skid with high security tape around the skid noting: “Do Not Break Wrap.”
Every piece of a shipment should be labelled with shipper and consignee names and addresses to ensure the entire shipment arrives together.
The information on the freight must match the bill of lading.
It’s also important to understand the shipping mode you are using. Packaging demands for truckload or rail shipments are different than for LTL shipments.
Carriers may refuse to handle shipments that don’t meet packaging standards because this increases the likelihood of loss or damage – and a claim. A third-party packaging expert like OSV 3PL (Logistics and FTZs) can help ensure packaging materials and practices meet carrier standards, and balance cost vs. protection.
- Establish strong shipping and receiving practices
What happens at shipping and receiving has a major impact on how quickly and smoothly claims are resolved.
Establishing solid processes is key.
“Small companies typically have small shipping and receiving departments,” says Neha Pandey, Manager – Business Development at OSV3PL (Logsiticsand FTZs)
As a result, shipping and receiving practices may not be consistent, so when damage is discovered, they realize they lack the right notations or paperwork.
- File promptly
Missing filing deadlines is a leading reason shippers cannot recoup their losses. Freight terms determine which party files a claim – generally it’s the owner of the goods, whether that’s the shipper or the consignee. Deadlines differ by mode and carrier.
For example, the carrier may want initial notification of damage within 15 days, a claims filing within nine months, and a lawsuit within two months and one day.
Filing typically entails filling out a claim form with data including the specific nature of the loss or damage, the value of the goods, the cost of the goods, and receiving documents such as the bill of lading, delivery receipt, packing list, and photos.
Complete documentation speeds the claims filing process.
Shippers sometimes get tripped up by mistaking informal communication with the carrier about the claim as formal notification. Some shippers even decide it is worthwhile to outsource claims management to a third party, especially when they file 500 or more claims annually.
Outsourcing saves money through more efficient processes, and claims tend to get resolved more quickly.Some 3PLs also offer claims assistance, while others provide advice and education. So, choose an integrated solution provider just like OSV 3PL (Logistics and FTZs)
- Prepare for inspection
Carriers may choose to inspect a damaged shipment, usually within one week of delivery, though they may have up to 120 days to do so. The value of the shipment and extent of damage determine whether the carrier will want to inspect.
Carriers are reducing their use of inspections.Skill sets are eroding as the carrier workforce starts to reach retirement age. New inspectors have fewer chances to get out in the field to gain a real-world perspective on freight handling and damages.
Carriers use data about damages to improve processes. The investigators are then familiar with how the freight is packaged, and if damages are normally mitigated. They watch for trends by reviewing the frequency of claims.
It is also a win for the claimants as they get to work with the same claims investigator.
- Await carrier feedback
Carriers usually have about 30 days to initially acknowledge a claim, but the entire claims process may take anywhere from weeks to months, with some carriers responding faster than others.
Claims involving shipments that are lost and never found tend to get resolved quickly, while those damaged due to poor packaging can take some time. If carriers decline some or all of the claim, they must explain why.
It may be tempting to simply reduce payment to the carrier by the amount of a pending claim, or even a settled one. But typically carriers prohibit that although shippers can negotiate into their contract the ability to take a set-off for claims in which the carrier has admitted liability.
Conclusion:
While preparation and prevention can go a long way, freight damage, loss, and theft will never disappear.
While claims management is not the appealing area of supply chain operations, shippers that create solid carrier contracts and implement shipping and receiving processes with claims in mind can reap dividends in lower costs and happier customers.
If you want a free consultation on how you can optimize your next freight forwarding, contact one of our experts now and reap benefits worth millions!!!
