Outsourcing Trends

By Chris Cline
President, Corporate Traffic, Inc.

Somewhere out there in the vast network of the nation’s roadways, a lawsuit with your name on it may be lurking. Accidents happen, and big dollars are at stake. So are human lives. Playing it safe has never been more important for shippers, carriers, brokers and 3PLs alike. What are you doing to stay on the safe side? Are the procedures you’ve always followed good enough? Do you need to re-examine your due-diligence methodology? Chances are, you do. This article aims to tell you how to do it, starting with the story of how we got to this point.

How We Got Here

Transportation outsourcing is more common than ever. Recent focus on corporate cost cutting has put a new emphasis on money-saving logistical solutions, such as intermodal shipping. As a result, brokers and 3PLs are playing more prominent roles in logistics. Today, even asset-based 3PLs outsource transportation, and the methods used to evaluate the safety of carriers assume an increasingly important role in choosing the most appropriate carrier to provide the business. Client relationships ride on it. So may the very future of your company.

If you don’t believe that, think about the headline-grabbing lawsuits that have appeared in recent years.

Until 2004, shippers, brokers and 3PLs had been able to manage their risks mainly by confirming that carriers had the required minimum insurance coverage and operating authority from the Federal Motor Carrier Safety Administration (FMCSA). Third-party logistics providers could pretty much count on their freight being delivered safely based on the carrier’s expertise and record. Then Schramm v. Foster came along.

In that now-famous case, the family of two young people involved in an accident with a truck sued both the carrier involved, Groff Brothers, and the 3PL that hired the carrier, C.H. Robinson Worldwide. The result was a $23.7 million judgment against the transportation companies, including Robinson, which was found negligent because it hired the carrier found responsible for the accident.

Since then, other cases have cropped up with similar results. Perhaps the most significant was Puckrein v. ATI Transport. In this case, the shipper that hired the carrier was held liable under the principle of vicarious liability.  Shippers and 3PLs both must keep in mind that nearly everyone involved in the supply chain can now be held liable; therefore, reinforcing the need for both shippers and 3PLs to conduct due diligence when it comes to safety.  Sometimes, though, shippers do not have the resources to check the safety records of its carriers.  The good news is that those companies may be able to hire a 3PL to monitor their carriers.

Clearly, the judicial decisions previously discussed illustrate that the chain of liability is extending farther and farther up the logistics path, rendering the traditional methods of performing due diligence in regard to safety and liability no longer appropriate. Needless to say, pricing alone no longer plays the primary role it once did in selecting a carrier. In addition, liability extends beyond getting the vehicle to its destination safely. As always, assuring the integrity of the cargo itself is also vitally important.

What to Do about It

There are many measures companies, whether it be 3PLs or shippers working directly with their carriers, can take when vetting carriers in light of today’s litigious environment. They may require some extra work, meticulous attention and a bit more time, but if you question the cost/benefit ratio, consider the size of some of the judgments that have gone against transportation companies in recent years. Following are some of the ways you can help insulate your company against a similar fate.

• Dedicate yourself to it. It is wise to dedicate an entire department to the task of performing due diligence regarding safety. Depending on the size of your company, make it the primary responsibility of at least one person – even more, if your volume justifies it. Unless someone has primary responsibility for due diligence, it can easily fall through the cracks.

• Scrutinize everybody. Every carrier you work with must fall under the microscope. That includes truckload carriers, less-than-truckload carriers, railroads, airlines and more. Don’t fall into the trap of excluding drayage companies from your scrutiny. They are just as responsible for safety as any other type of carrier.

• Put it on the record. Create and maintain records on every carrier you rely on. These should include, at a minimum, FMCSA operating authorities, insurance filings and safety ratings. If a carrier has an “unsatisfactory” rating, look elsewhere, regardless of how much money it might have saved you. A truly useful records system will also incorporate procedures to make sure safety and reliability issues are captured for repeat reference and are not lost. The system should be able to capture “red flags” as warnings about carrier incidents. And those red flags should be clearly visible to anyone in your company who books carriers.

• When it comes to insurance, don’t trust—verify! Up-to-date insurance is, of course, mandatory for each and every carrier. But it is all too easy for a carrier to obtain insurance and then let it lapse after a short time. The real problem is that they can still retain their certificates of insurance to show you. So be sure to get solid verification before making any decisions. Contact the insurance company for every carrier—and do it for every shipment.

• Be SAFER. Use the FMCSA’s Safety and Fitness Electronic Records (SAFER) System regularly. Operated by the U.S. Department of Transportation, this system contains searchable safety records of carriers through the use of SafeStats. Do not, however, let this system lull you into a false sense of security. Use it as a vital part of your due diligence—but only as part of it.  Please note that these systems will be changing as of December 1, 2010; please reference the bottom of this article.

• Go independent. There are several outstanding independent sources of safety information. These include Carrier411, TransCore Freight Solutions and TIA. Use them liberally as part of your overall due-diligence efforts. The nightly safety downloads from Carrier411 can be especially helpful in keeping you up to date.

• Experience counts. As in many aspects of life and business, experience really does count when it comes to safety. Rely on carriers that have been around a while and have spent years or decades conscientiously building solid safety records.

• Monitor every shipment. It’s not enough to monitor every carrier you use. Every shipment should be monitored, with the information on it retained in your record-keeping system. Examine every carrier, every load, every day.

• Consider the cargo. As touched on earlier, avoiding highway accidents is just part of the safety issue. Making sure the cargo itself arrives safely and intact is critically important. Losses due to careless handling or mishandling can be expensive. In addition, the possibility of theft should always be a concern. Be sure to track cargo safety for carriers as carefully as you track highway safety.

• Set your own standards. Industry standards for safety are very good; however, if you’re truly committed to limiting your losses and your liability, look for ways to exceed industry standards by following some of the suggestions that have been outlined here.

Many shippers, brokers and 3PLs have undertaken safety programs like the ones described here, yet the sad truth is that not enough of them have done it – and many of those who have begun such a program have simply not gone far enough. As always, a word to the wise is sufficient.

A New Source of Information

On December 1, 2010, FMCSA is expected to release its new Carrier Safety Measurement System (CSMS) to the public, replacing the current SafeStats, a system under SAFER. This new system will analyze data from seven Behavior Analysis and Safety Improvement Categories (BASICs) instead of just three Safety Evaluation Areas (SEAs), as has been done with the SafeStats. This is one part of the Comprehensive Safety Analysis initiative that the FMCSA has been rolling out over the past year to further reduce commercial vehicle crashes, fatalities and injuries on our nation's highways. It is good news, indeed, that we will have more data that we can use when qualifying carriers to move freight.

No matter what due-diligence methods you use, safety must be of paramount importance when evaluating carriers in today’s transportation environment. The very existence of companies hangs in the balance – more importantly, so do peoples’ lives. The methods outlined here have been proven to be reliable in performing due diligence. They may require added time, effort and resources, but with so much at stake, can you afford to do without them?

About the Author

A veteran of the logistics industry, Chris Cline is president of Corporate Traffic, Inc. of Jacksonville, Florida. Founded in 1992, the company is a third-party provider of logistics and transportation services, including asset- and non-asset-based logistics solutions, truckload (TL) and less-than-truckload (LTL) shipping, ocean services, expedited air freight and intermodal services.