58 Million Reasons To Do Your Due Diligence!

“A New Mexico jury awarded the family of a person killed in a 2010 truck involved accident $58.5 in damages.” As reported by Transport Topics April 8, 2013, “the complaint alleged that Zia Standard and Bergstein (an oil services firm) allowed trucks to run with numerous safety and traffic violations as well as improper repair and maintenance issues.”

How many more multi-million dollar judgments will have to be awarded before shippers take notice?  Beyond a moral responsibility to hire safe carriers that share the road with our neighbors and loved ones, shippers are getting a slap on the wrist in a big way – to the tune of millions of dollars – for not exercising due diligence in the sourcing of their carriers.

It just takes one carrier with an unsafe rating to be involved in an accident to turn your world upside down. That is why shippers, and their brokers, need to know the details for 100% of the carriers they are doing business with and have a systematic process for evaluating and monitoring the carriers that haul their freight on an ongoing basis.

Over the past couple years, we have highlighted that while most companies have written policies and procedures to vet and select their corporate suppliers, they apply a different and more “relaxed” set of standards when it comes to selecting their motor carriers.

The baseline for service, cost and safety expectations is the contract shippers hold with their carriers. Based on experience, very few companies have contracts for 100% of the carriers that haul their freight. Many shippers believe they are the exception until they realize that 100% means 100% and includes contracts for carriers that haul inbound freight on a collect basis, or contracts for carriers that are hauling on a “spot” basis…there are no acceptable exceptions.

As an ex-internal auditor, here are some “audit” questions for you to consider:

• Where is your contract file? Is there a hard copy contract library complete with associated rules tariffs somewhere in the building, or do you have a link for a comprehensive on-line contract library?

• Take a report listing carriers your company has paid in the past twelve months and verify that your company has a contract for each and every one of the carriers included on this report?

• Do you have an ongoing follow thru process to ensure you carriers is meeting the terms of the agreement? If not, how could this affect the business or expose your organization to risk?

• Do you have a plan in place to replace carriers that do not meet the terms of your agreement, or are you so reliant on ‘preferred’ carriers that you would be willing to sacrifice exposure to risk?

Going forward, shippers should know that despite what they may read or hear, a carriers’ safety record is important. We want to remind those groups who believe that since the CSA is, a flawed program, shippers can choose to ignore CSA scores in selecting motor carriers: There is no excuse for negligence. The debate really isn’t over whether or not you should check CSA scores . Here is the real issue: Do shippers have a fundamental responsibility to exercise due diligence in selecting “safe” carriers to haul their freight? Clearly, the $58.5 Million New Mexico verdict and many other say ‘Yes’.

And that is why shippers should be monitoring their carriers practices regarding operations and safety. The FMCSA’s CSA scores can be one tool in helping you do your homework. 

In addition to measuring whether carriers are “safe,” shippers also need to follow these guidelines:

• First, make sure the carrier has a valid operating authority. A valid DOT Operating Authority is the carrier’s license to do business. Do you really want to have to explain to a judge or a jury that the carrier you selected didn’t have a valid operating authority?  And since a carrier can lose their operating authority due to lapses in their insurance, (which makes the accident and loss consequences much more serious), the consequences of contracting with a carrier without operating authority can be extremely serious.

• Second, check the carrier’s insurance coverage. Evaluating carriers’ insurance is more complex than simply accepting a certificate of insurance which states the amounts of coverage. You must understand the terms and conditions of each policy, particularly any exceptions that might affect coverage. If your carrier is not insured (or not sufficiently insured), you face significant consequences and financial losses.

• Finally, make sure your carriers are financially stable. Every year, many carriers (and brokers) declare some form of bankruptcy. The cessation of a carrier’s operations has multiple consequences. Any freight in transit is in immediate jeopardy; that freight can be delayed, or never make it to its intended destination.

  If you are still wondering about whether it is important to know the carriers you’re doing business with, go back to the headline at the top of this blog and ask yourself this question: How would a $58 million judgment affect my company? Please take our advice and follow the 11th Commandment in working with your carriers: Thou shalt know who you are doing business with!