The Carmack Agreement Defined
The Carmack Agreement is a legal contract that is commonplace in the shipping and transportation industries. As is the case with many other legal terms, it can be quite confusing to understand at first what it means or why it even exists. Although it is a complicated legal document that covers all aspects of the shipment of freight from Point A to Point B, the Carmack Agreement is actually intended to serve one simple purpose: to protect both the shipper and the carrier against loss or damage. Its name comes from an antiquated law , the Carmack Amendment, which in 1906 set standards for interstate shipping. While previous laws on shipping existed dating back to the days of colonial America, this amendment created a legal framework that has subsequently evolved into the document we know as the Carmack Agreement today. This agreement is in place to prevent disputes between shippers and carriers regarding liability for freight loss or damage, and is generally applicable to situations where the carrier transports the freight by train, truck, or other road transportation.
The Legal Basis of the Carmack Agreement
The legal framework surrounding the Carmack Agreement is built upon a specific set of statutes, regulations, and judicial opinions that together shape its enforcement and implementation. The Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. 14706, codified in the Motor Carrier Act of 1980, serves as the primary federal law governing claims for damages to goods lost or damaged during interstate carriage by a common carrier. Originally adopted in 1906, the Carmack Amendment was intended to establish uniformity and clarity in the liability of interstate carriers for lost or damaged goods.
In 1995, the National Motor Freight Classification System ("NMFC") was adopted by the ICC for the purpose of "improving rate making for less than truckload motor carrier service." Under the NMFC, the "Uniform Straight Bill of Lading" provided for a now-defunct compromise that allowed shippers and carriers to contractually agree to deviate from the liability limits established by the Carmack Amendment. The now-defunct liability limit compromise permitted shippers to declare the value of their shipment and to protect that value by adjusting the freight charges accordingly. The Uniform Straight Bill of Lading also permitted carriers to limit their liability to a predetermined amount per pound, or to declare an alternative and higher transportation charge based on the declared value. Under this system, compensation for damages to goods was limited to the amount agreed upon before transportation.
The Uniform Straight Bill of Lading has been supplanted by a more comprehensive "Uniform Order of Service," which is a standardized bill of lading format that governs the terms and conditions of each transaction between the shipper and the carrier, including liability restrictions. The Uniform Order of Service also contains space for both carriers and shippers to state the type of package transported, its weight, and the declared value.
The 1995 amendments to the Interstate Commerce Act eliminated the liability compromise alternative. 9 U.S.C. 14706 (c) (1). Under the amended provisions, an action against a carrier for property loss or damage must be brought under federal law. Earlier statutory provisions permitting recovery in state courts were deleted by the 1995 amendments and now all actions for damages to goods shipped across state lines must be brought under federal law.
The Carmack Agreement was drafted to replace the patchwork of state and local laws that had caused uncertainty in the shipping industry. The federal standards established a national system for shipment of goods, including nationally-uniform procedures for filing claims and structuring litigation. Carriers and shipper associations became key players in the process. Contracts and agreements now take precedence over the federal law provisions.
In addition to the general federal statutory provisions, there are specific regulatory provisions that control the formation and application of the Carmack Agreement. Under the Carmack Agreement standard, the carrier’s liability for lost or damaged goods extends to damages caused by the carrier itself and not by others. In cases of partial damage, the carrier is liable only for the actual damages sustained. Damages covered by the federal law include physical damage and deterioration but does not include loss of profits, communication or overhead costs.
The Carmack Agreement is also subject to many industry-specific regulations. For example, under 49 CFR 1056.5(b), a carrier may become liable for damages or loss to goods the carrier is not required to carry. The carrier becomes liable under this regulation when it attempts to recover charges advanced for transportation of the goods, yet fails to deliver the property within five days after payment has been made.
The legal framework governing the Carmack Agreement provides a comprehensive set of rules and regulations that govern the transportation and delivery of goods across state lines. While the federal law provisions provide a general framework for liability issues that are more or less uniform nationwide, specific regulations and provisions must be considered when applying the Carmack Agreement to an individual case.
Provisions of the Carmack Agreement Obligation
Before delving into the specific provisions of the Carmack Agreement, it is necessary to note that Bill of Lading terms and conditions are deemed incorporated into the Bill of Lading itself by reference to the carrier’s website (in this case, the XXX Carrier’s website incorporated the XXX Carrier’s ‘Rules Tariff’). As such, the Rules Tariff contains the Carmack Agreement as well as other terms-some may be favorable to the shipper and some may be favorable to the carrier. The parties to any agreement should read any form of agreement and the website incorporated in the agreement to understand their rights and responsibilities under the agreement and that incorporation has occurred.
For example, the Rules Tariffs for the XXX Carrier incorporates the Carmack Agreement, and states that the terms and conditions apply:
USA: Limited Liability Release of Exemption – Shippers, Consignees, Motor Carriers, Owner-Operated Carriers and Agents who accept services of carrier named herein and all terms and conditions stated herein shall be subject to Rules Tariff published on Carrier’s web site at www.xxx freight.com. Carrier’s liability for loss or damage to property shall not exceed the replacement value the lesser the following: (a) the value declared on the bill of lading or freight waybill; (b) if not declared, $0.50 per pound per article, (c) if not declared and excess valuation charge not prepaid, $0.10 per pound per article. Any amounts in excess of these published limits are to be paid by the Shipper. The Shipper agrees from the outset that the Shipments of such Shipper are to be prepared for transportation in such a manner as to permit freight weight and freight cubic measurements to be determined from estimates made at origin and further the Shipper agrees that where it is determined by estimates made at origin that the actual weight and/or measurement of Shipper’s Shipments is different than the estimate stated on the Bill of Lading or freight waybill that the Bill of Lading will be deemed to have been issued for the actual weight and/or measurement of the Shipper’s Shipment at origin and the Shipper’s Bill of Lading charges will be adjusted pro-rata.
The relevant provisions of the Carmack Agreement as it was incorporated into the XXX Carrier’s Rules Tariff, provided:
(1) that the XXX Carrier would "assume liability [for any loss or damage] up to the stated value or $2.00 per pound per article, whichever is greater," with higher limits available on request and with an additional charge; (2) that the "Shipments cannot be recovered in excess of the named value of the product being shipped," and "in no way shall the rules in the Tariff restrict the right of the carrier to declare a limitation of liability"; (3) that the freight rate did not include insurance or Insurance; (4) the carrier would not assume the risk of any consequential damage to the Shipper or third parties; (5) that claims against the carrier must be submitted by the claimant within nine months of delivery (or within nine months of delivery of the final shipment "in the case of an series of shipments carried under a single contract" and must be filed with the carrier in writing within the nine-month period or no suit would be brought against the carrier; and (6) that if the carrier paid a claim, there was subrogation of the Subrogation party’s rights to the carrier and the carrier had no liability until full payment had been made by the indemnitor of any amount paid by the carrier.
The Effect of the Carmack Agreement on a Shipping Arrangement
The Carmack Agreement is a key component of the scope of duties owed in standard shipping contracts. The Carmack Agreement provides a uniform national regime for the allocation of risks that arise in interstate shipments of goods by motor carriers. 49 U.S.C. Section 14706. The statute defines "reasonable dispatch" as "in such time as is usual, having regard both to the nature of the property carried and the route usually traveled." 49 U.S.C. Section 14706(1). The meaning of reasonable dispatch for any given shipment will thus depend upon the particular circumstances surrounding each individual shipment.
As a result of these provisions, a shipper’s claim for lost or damaged freight during shipping has to be litigated with the terms and conditions of the Carmack Agreement in mind. Importantly, the cumulative effect of the Carmack Agreement generally prevents a shipper from bringing common law claims for loss or damage to freight whereby the shipper attempts to invoke public policy concerns to receive broader substantive relief than the Carmack Agreement would otherwise afford.
While the Carmack Agreement provides broad preemptive principles to freight loss and damage claims, it equally provides strong legal arguments to challenge the enforceability of contractual limitations of liability and other provisions designed to limit the liability of a carrier in its shipping contracts. 49 U.S.C. Section 14706(f)(1) expressly provides, in pertinent part:
A carrier or freight forwarder providing transportation or service (other than service subject to section 10526) under an agreement filed with the Federal Motor Carrier Safety Administrator under section 14101(b) of this title may impose any terms, conditions, and limitations of liability, including rules limiting recovery to a value established by the shipper or agreed to by the parties, as well as additional charges for services provided, that are not contrary to the provisions of this subtitle relating to the maximum and minimum levels of charges (as applicable) established under this subtitle or by the United States while relating to interstate or foreign service in commerce, if—
(A) the agreement is in writing;
(B) the agreement supersedes all prior rate agreements, tariffs, classifications, and practice, and is expressly stated in the agreement as a superseding agreement; and
(C) the agreement is signed by the shipper.
49 U.S.C. Section 14706(f) sets forth a non-exclusive list of the terms that may be agreed upon by the shipper and the carrier. These terms include:
- (1) Recovery of loss or damage to cargo limited to a set sum per kilogram or per package;
- (2) Recovery limited to the amount of declared or agreed value;
- (3) Recovery limited to specified causes of loss (e.g. fire, theft, bad packing, etc.);
- (4) Recovery governed by the rules, regulations, and limitations of liability contained in carrier tariffs.
These provisions also provide significant arguments in favor of enforcing contractual provisions whereby a shipper has agreed to a specific rate for specific types of loss or damage (i.e., actual loss or damage) versus inquiring into general commercial usage of similar shipments or making other arguments to enforce the common law style of recovery. In essence, it is possible to make a competent argument in favor of enforcing the express wishes of the shipper as they are written into the contract.
Case Examples of the Carmack Agreement
Numerous cases have sought to interpret and apply the Carmack Agreement in practice. In a notable South Carolina case, Brooks v. Great Atlantic Fiber & Terminals Corp., 242 S.C. 198 (1962), the court examined the definition of "goods." In doing so, the court concluded that "goods" under the Carmack Amendment did not encompass containerized waste because it was not commercially fungible, but rather, uniquely identifiable. In addition, the containerized waste was not provided by the carrier or the shipper to be shipped. Thus, the court held that the Carmack Agreement could not attach.
The case of Economy Fire and Casualty Co. v. Underwriters Adjusting Corp. examined the policy issue of whether an entry in a cargo carrier’s bill of lading regarding the dollar amount of the carrier’s liability, or a conspicuous provision in a contract of carriage stating that the carrier’s liability would be limited or that the carrier would not be liable for certain losses, effectively precludes the shipper from seeking the difference in damages that result from failure to provide proper notice. 508 F.2d 132 E.D. Pa. 1974. In that case, the court found that there should be no difference in coverage based on whether the boat was one of many items on a particular shipment or whether it was shipped alone. The bottom line was that the value of the vessel should be compensated regardless of its shipper or manner of shipment, but the court also held that the omission of the oil spilled from the vessel due to the negligence of the carrier could not be recovered from the cargo insurer because it represented an item which was opaque, exceptional, and known only to one party. In other words, if a shipper lists multiple items to be shipped and fails to accurately report their value in the bill of lading, the shipper cannot expect to then recover damages that exceed the total value listed on the bill of lading just because the shipper forgot to disclose the quantities and value of each specific item on the bill .
In the case of Tennessee Farmers Mutual Insurance Co. v. United Parcel Service, 787 F. Supp. 225 (W.D. Tenn. 1992), the court had the opportunity to examine how the Carmack Amendment would apply when the property damaged was not owned by the shipper, but was owned by one of the shipper’s customers. In examining the statutes, the court noted that the liability under the Carmack Amendment is specifically eliminated when "the owner of the goods has stipulated the value thereof, and inserts such limitation in the receipt or bill of lading, or in writing signed by the claimant, the carrier and the shipper." Id. at 229. In Tennessee Farmers Mutual, the court found that both of these circumstances were applicable: "the owner of the goods (the owner of the vehicle) stipulated the value in the bill of lading"; and "the value of the vehicle was inserted in the record of the carrier (UPS), signed by [the shipper and the carrier] and containing the signature of the insured." Id. at 230. In that case, even though the property had been owned by the insured, the court did not allow the recovery of the full value of the property because the insured had not personally stipulated the value of its property and failed to use the proper forms to ensure that all parties agreed that the bill of lading was correct and binding.
With regard to the application of the Carmack Agreement to Internet or telephone offers, courts have held that Internet offers and forms are sufficient to constitute a contract as long as they meet general legal standard. Тhe physical presence of one party in the state in which the offer is made need not be established. In such cases, the terms of the electronic agreement (if they can be located) govern interpretation of the parties’ rights and duties under the Carmack Agreement.
Weaknesses and Objections of the Carmack Agreement
Despite its many advantages, the Carmack Agreement also presents certain challenges to the parties involved. One key criticism is that the agreement sometimes leads to scenarios where shipping companies might exploit contractual terms to evade liability for damages. For instance, small print on standard forms, known as "blanket exclusions," may not always be immediately noticeable, and some customers may overlook the limitations set by these exclusions when agreeing to terms.
Another criticism of the Carmack Agreement is that it can lead to disputes over what constitutes "damage" or "loss." Determining the extent of damage done to a shipment is not always a black-and-white issue, and these disagreements can lead to protracted legal battles. To complicate the matter even further, the term "intermodal transportation" is not universally defined within the context of the Carmack Agreement. This can make it difficult to resolve questions about which laws and agreements apply. Where one mode of transport ends and another mode begins often becomes a question that requires lawyers and judges to litigate.
The sheer number of parties and jurisdictions involved in most transport and logistics operations involving Carmack Agreements is another challenge. The combination of all of these parties, assets, people, infrastructure and locations increases the number of potential variables that can be factored in to any given situation. Because of this, the customers (the cargo owners) are frequently caught in the middle of a web of legal battles in multiple jurisdictions, with multiple parties fighting over culpability.
Outlook of the Carmack Agreement in the Transport Industry
The future of the Carmack Agreement may very well depend on the evolution of the transportation industry in areas such as technology, regulations and infrastructure. With the advent of smart equipment, for example, the industry is already beginning to see significant changes in freight tracking, inventory management and logistics planning. This trend of automation, data tracking and immediate access to information is sure to continue over the coming years as shippers demand more sophisticated methods of storing, tracking and processing freight. At the same time, proposed emissions regulations , congestion pricing and other government initiatives have the potential to add significant compliance costs to various players in the supply chain. Such changes could make transportation services more expensive, or drive some value-conscious customers out of the market, leaving fewer, larger players in the industry. Those players who thrive will be highly efficient organizations capable of controlling their costs, mitigating risks and properly leveraging data for greater efficiency. Only time will tell how far the Carmack Agreement will evolve with the industry whose framework it provides.