Category Archives: Logistics

Are You Being Hit with the “Double Payment” Problem in Your Shipping?

Logistics Management just ran an excellent article on “Logistics and the Law: Don’t Pay Twice”, by Brent Wm. Primus, J.D. of Primus Law Office that I think is a must read for anyone responsible for global shipping.

When a shipper engages a broker or when a shipper or a broker books a load with a carrier, they expect to be billed and to pay for the charges for moving the freight. What they don’t expect is to have to pay the charges twice. Unfortunately this does happen and, in the last few years, has happened with increasing frequency. This emerging issue is called the double payment problem.

As the article points out, there are three variations of this problem:

  1. The going-out-of-business broker.
    In the last weeks or month of its business life, a broker continues to book loads and collect payment for carrier charges, but fails to pay the carrier.
  2. The double-brokering carrier.
    A load is tendered to a carrier with the understanding that the carrier will be providing the actual transportation, but, instead of providing the transportation itself, the carrier uses its broker authority and tends the load to another carrier, which it fails to pay.
  3. The fraudulent broker.
    A fraudulent broker solicits loads that it then tenders to carriers with every intention of collecting from the shipper but with no intention whatsoever of paying the carrier

With respect to the first two variations of the problem, two competing legal theories have developed. The first theory is the well-established principle that under the traditional bill of lading contract, the consignor has primary liability for payment of the charges on “prepaid” shipments, and if the consignor fails to pay, then the consignee must pay. For “collect” shipments the consignee has primary liability and if the consignee fails to pay, then the consignor has to pay (unless the no-recourse provision of the bill of lading, known as “Section 7”, has been signed).

But what happens when the consignor or consignee has fully paid an entity under a good faith assumption that the entity is the carrier or paying the carrier? In this situation, a legal principle known as “equitable estoppel” has developed and applies in situations where Courts have held that it would not be fair or equitable to ask a party to pay twice. However, there are situations, such as Freight Lines, Inc. v. Sears Roebuck & Co. where the principle, though it had merit, was not applied by the courts.

With respect to the third variation, which has become a more significant problem as of late, typically no money ever reaches the carriers and you, as a shipper, will likely end up with full responsibility for the payment unless you can demonstrate that you had a reasonable expectation that the company was legitimate (and thus use the equitable estoppel argument). This of course means that you have to do your homework, and unless the company in question has hacked US Government Systems to make it look like they are affiliated with reputable companies (like Viacheslav Berkovich and Nicholas Lakes did), it might be hard to demonstrate a reasonable expectation of a reputable enterprise, especially if the broker is relatively new.

So what should you do? Especially when there is no sure fire way to eliminate the risk?

According to Steve Fernlund, the Executive Director of the Freight Transportation Consultants Association (FTCA), always know who you’re doing business with. Check payment practices and credit rating agencies to make sure there is minimal risk that the carrier and/or broker will default on its obligations. Have a standard procedure to qualify carriers and brokers and follow that procedure in every transaction. The latter will help you in the construction of equitable estoppel arguments should you ever find yourself in one of the first two situations, especially if the standard procedures cover everything you can be reasonably expected to do.

Furthermore, as the article points out, you have to monitor the carrier to ensure they are complying with the terms of the contract as some carriers will sign a contract and then ignore the prohibition against tendering to another carrier through their brokering authority. (This includes a spot check of delivery receipts to see if the carrier named as the delivering carrier is the one with whom you have a contract.)

When you’re using a broker, have a written contract that requires the broker have written contracts with its carriers. The broker’s contracts must require that the carrier specifically designates the broker as its agent for collection and that the carrier waives any right to collect from the consignor or consignee if the broker has been paid. Also require that copies of all contracts with all carriers the broker intends to use be forwarded to you for review and confirmation.

And, finally, if you truly want absolute protection, you could require that any broker you do business with post a surety bond greater than the amount of business you expect to do over a six-month time period. However, this will eliminate many brokers from consideration as most sureties require 150% collateral, which many smaller brokers will not have. It may also increase your brokerage fees, as they might insist that you pay the bond premium.

Share This on Linked In

What’s New in the Lift Truck Marketplace?

A recent article in Logistics Management titled “2010: Loads of Innovation” chronicled some of the new lift truck product introductions on the slate for 2010. Now, lift trucks might seem like a pretty boring topic, but they are the little workhorses of your physical supply chains, and if any of the improvements can improve efficiency, then they’re worthwhile.

So what improvements are coming?

  1. Better Information Management
    More monitoring devices tied to better fleet management systems that track numerous metrics on lift truck utilization that can be used to create better fleet allocations. The systems also track driver certifications and operator checklists to ensure that trucks are only assigned to personnel certified on the trucks and that all daily operator checklists are completed and captured electronically on a daily basis.
  2. Improved Safety Systems
    Mitsubishi Caterpillar Forklift America is adding presence detection as a standard feature on CAT trucks. If an operator leaves the seat, the transmission automatically disengages to halt travel or hydraulic movement.
  3. Better Internal Combustion Engines
    Models are now available with oil pressure management, on-demand cooling and self-clearing, which can remedy an issue that can cost operators up to 4,800 a year if they’re always blowing out the radiator. Other models track fuel utilization and allow operators to choose between economy and productivity modes. The trucks are being built to last longer.
  4. Powerful Electric Engines
    A new generation of 80-volt trucks, which have been employed in Europe for years, are coming to North America. These trucks can easily handle up to 10,000 pounds with a much better battery life.
  5. New Hybrid Engines
    For example, the new hybrid from Toyota Material Handling USA that uses a battery to power all drive and hydraulic functions will cut your emissions in half and be twice as efficient as traditional IC trucks.

Share This on Linked In

Relocation Cost Reduction – Harder Than You Think

I recently stumbled upon a white-paper by SIRVA on “Breaking Through the Relocation Cost Reduction Paradigm: The Total Cost of Ownership Approach” that I found quite intriguing. While they made a few points in the white-paper I’m not sure I agree with (although I will admit I’m not an expert in relocation services or the housing market), they made a very good point that I’m sure most companies are overlooking when they source relocation services. Relocation services fees are usually less than 3% of the total cost of employee relocation while home sale related costs are usually 41%. In other words, it doesn’t matter how much you save on the relocation service fees because if the house doesn’t sell fast at a competitive commission rate, it’s going to cost you a fortune in duplicate housing costs. Since your employee won’t be able to buy a new house until their old one sells, you’ll be paying their rent, electricity, water, etc. until it does.

Furthermore, if you look at the total relocation cost breakdown provided by the report:

  • 41% – Home Sale Costs
  • 14% – Household Goods (HHG)
  • 11% – New Home Purchase
  • 11% – Tax Liabilities
  • 6% – Temporary Accommodations (during move)
  • 6% – Miscellaneous Allowance
  • 3% – New Home Location
  • 3% – Service Fees
  • 2% – Final Move
  • 2% – Spousal Assist
  • 1% – Expense Management

You quickly see that this is really the only expense that matters. There’s no leeway on tax liabilities, and most buyer purchase costs are fixed. You might be able to save 10% on HHG and Temporary accommodations above and beyond what a frugal and cost-conscious consumer will save, but that will only knock 2% off the total relocation cost. And it’s quite clear that the other costs are too small for cost reductions to make much of an impact.

So how do you reduce home-sale costs? If you look at the TCO, which is duplicate housing costs plus commission and bonus, you might think the answer is to aggressively negotiate down temporary accommodation costs and commission and bonus fees, but negotiating on either cost could end up costing you dearly. If you cut a broker’s commission from 6% to 4%, then you make them hungrier for the highest selling price they think they can get. They’ll assess your employee’s property high, advise them to list high, and then advise your employee to hold out on accepting an offer until that number is hit. A home that could sell in 60 days at a more reasonable assessment (that your employee might be very happy with) might now take 180 days or more, even in a good market. And if you spend all your time negotiating down temporary relocation costs, you’re missing a key savings opportunity. The fact of the matter is that if your employee can sell their old house and buy a new house that they can move right in to during the week they will be relocating, you don’t have any duplicate housing costs (and duplicate housing cost reduction becomes a moot point).

Thus, the ultimate key to relocation savings is helping your employee sell their home and find a new one fast! Furthermore, not only are rate and fee reductions of little significance, but successful attempts to reduce certain fees can actually cost you more in the long run! Considering that SIRVA found that the average cost to relocate a homeowner has risen by 20% to $77,000 over the last two years, risking additional costs in the long run is not something you want to do.

So how do you help an employee sell their home fast? Well, as far as I can tell you have three options.

  1. Follow the white-paper’s recommendation, which is to find a very successful broker and incentivize them to sell quickly with an early sale bonus (since this will be significantly less than what it will cost to keep your employee in temporary housing for the six months it can easily take a house to sell in today’s market).
  2. Negotiate a sale agreement with a large brokerage firm that will buy the employee’s house at a price mutually agreed upon up-front if the house does not sell within a pre-defined timeframe.
  3. Buy the house from your employee at a mutually agreed upon assessed value so they can immediately buy a new house. (For example, the average of the assessed value from the tax authority, the assessed value from a national market assessment firm, and the assessed value from an independent local assessor.)

For companies that do a number of relocations on an annual basis, I think options (2) and (3) might actually be the best ones. Option (2) allows you to limit your total costs. Even though you’ll likely have to provide additional compensation to the employee with option (2), since most realtor’s will only agree to buy at xx% of current market value (and you can’t expect an employee to sell for less unless you agree to compensate them), you’ve limited your duplicate housing costs and total relocation cost. While option (3) does provide some risk that a drop in the housing market could cost you some dollars if the market deteriorates before you sell, it also offers you the ability to actually make money, especially if you do a significant number of relocations. If you do a significant number of relocations annually, you could hire a property specialist who would manage the outsourced agreements to the national realtor organization and property maintenance organizations with whom you’d be able to get much better deals with due to the sheer volume of houses you’d be sending their way. Plus, in a heated market, you could let the property sit on the market longer and make money as the cost of monthly lawn maintenance (which is considerably less than the cost of temporary housing) would be a small fraction of the additional profit you could make on the sale. It’s something to think about.

Share This on Linked In

The Netherlands … That’s In Tennessee, Right?

Check out this Shipment Travel History from FedEx (posted by an anonymous shipper). Apparently, to get a package from Ontario, Canada to Antilles, Netherlands you ship it to Indianapolis, Indiana, USA then to Paris, France, then to Memphis, Tennessee, USA then back to Paris, France, then to Newark, New Jersey, USA, then back to Memphis, Tennessee, USA …

It looks FedEx needs a new routing algorithm. I’d certainly be happy to help …

Opportunities for Transportation and Logistics Operators Part II

In addition to the presentation of 18 theses around the continued scarcity of energy resources, Volume 1 of the Transportation & Logistics 2030 report on “how supply chains will evolve in an energy-constrained, low-carbon world” by PriceWaterhouseCoopers and the Supply Chain Management Institute also identified some (emerging) opportunities for transportation and logistics operations that are worth close scrutiny by any provider looking to differentiate themselves in the marketplace.

The report provided opportunities in four areas:

  • Products & Services
  • Finance & Accounting
  • Processes & Organization
  • Strategy & Policy

Today, we’re going to overview the process, organization, strategy, and policy opportunities.

Processes & Organization

  • Innovation Management
    Innovation management has not yet been systematically implemented by the majority of logistics companies and offers a significant opportunity for substantial benefits for operations of all sizes.
  • Scenario Culture
    Companies that “think in scenarios” and plan for “alternate” futures can make decisions that maximize their likelihood of success.
  • Research Cooperation along the Supply Chain
    Research efficiency can be significantly enhanced by the participating in research initiatives.
  • CO2 Driven Supply Chains
    Companies may be able to realize competitive advantages over the long-term by reducing CO2 emissions in their processes, documenting such reductions, and actively promoting them to the marketplace.
  • Total Emissions Management
    Leading companies that have already implemented total emissions monitoring systems can take actions to reduce their total emissions and gain additional customers by way of their reduced environmental footprint.

Strategy & Policy

  • Local Patriot
    As consumers demand more locally produced products, those logistics companies that focus on efficient “local” transportation could be the the preferred partner for “local” companies.
  • Corporate Social Responsibility & Ethics
    Logistics companies that develop expertise in the design and implementation of sustainable supply chains will be able to differentiate themselves and win more customers through combined transportation and consulting services.
  • High Tech Logistics
    High-tech logistics providers that provide the latest technology for interaction will gain prominence among customers looking for more visibility into, and control over, their supply chains.
  • Home Delivery Specialist
    Logistics service providers who are able to develop a full,flexible palette of intelligent city solutions which fulfill any newtraffic restrictions could find a promising market as homedelivery specialists.

Share This on Linked In