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July27, 2015

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Q&A 52 THE JOURNAL OF COMMERCE JULY 27.2015 By Colin Barrett SPECIAL PROCESS FOR SPECIAL DAMAGES Q: WE'RE A DISTRIBUTOR of spe- cialized steel products, and recently bid on an order for a customer and got the job. The vendor we went with quoted the job with one total price for all 24 various-sized pieces. We received the order at our ware- house and in turn shipped it to our customer via a major less-than-truck- load carrier. We shipped prepaid, f.o.b. destination. Upon receipt of the mate- rial, damage was noted on five pieces. The customer was unable to use them and informed us immediately that he needed the five pieces replaced so he could finish the job. We reordered the five pieces from the same vendor, but our cost was then higher because the quantity was lower. When we filed a claim with the carrier, I explained that the cost I was claiming was higher and enclosed the replace- ment invoice to reflect my cost. The carrier has declined, calling the increase "special damages." It says that "in order for a carrier to be liable for special damages, the shipper must notify the carrier at the time of shipment and then the carrier must agree to accept." Do we have any other recourse? More than half of our shipments are "special orders" so do we need to include a statement on our bill of lad- ing regarding "specified extraordinary charges and expenses" (quoting the carrier)? A: THIS IS WHY IT'S A poor idea to act as your own lawyer even if you happen to know a bit about the law. The carrier is right about special damages, but that's not the issue here. Evidently, you're basing your claim on your acquisition cost of this material, but that's the wrong basis. You say this was a presold order, which I'm sure you marked up in your own invoice to your customer. That means your proper claim is for, not your acquisition cost, but your marked-up sale price — the amount for which you invoiced your cus- tomer. And in the ordinary course of commerce, that markup (your profit) is probably a good deal more than the difference in your replace- ment cost. "(I)f a sale has been completed, to the point that the only remaining thing to be done to consummate it is physical delivery of the goods, (any) profit has already been earned by the shipper, and must be paid by the carrier as part of the claim if the goods are lost (or, as in your case, destroyed) in transit." See my Man- ager's Guide to Freight Loss and Damage Claims (Fort Valley, VA: Loft Press, 3rd ed., 2003), p. 180. When you thus amend your claim, you'll likely send the carrier right into orbit. Its argument will run roughly thus: "You still have your profit from your customer by replacing the damaged units. You can't expect us to pay you a second profit and thus make more than you originally would have had!" (Actu- ally, its argument will probably be a good deal more pungent, but let's tone things down for publication.) Oh, yes, you can, according to the law. As one court wrote, "no duty rest(s) on (the buyer) to order another shipment to replace the lost (or destroyed) goods"; Nashville, C. & St. L. Ry. v. W. L. Halsey Grocery Co., 123 So. 36, and see also Gore Prod- ucts, Inc. v. T. & N. O. R. Co., 34 So.2d 418. The fact that your customer did order a replacement doesn't inure to the carrier's benefit. The replacement constitutes a separate transaction, for which you're entitled to reap such additional reward as you can. "Another, and simpler, explana- tion of the rationale behind including profit as a proper claim element is based on the self-evident thesis that a carrier's liability should not be vari- able depending on such extraneous factors as the identity of the claim- ant," I wrote in the Manager's Guide (pp. 181-182). "If goods are shipped f.o.b. origin, so that the consignee takes title when they are dispatched, and is therefore their owner at the time of the loss or destruction, obvi- ously the carrier will be liable for the vendor's/shipper's invoice price (including its profit element), which the consignee is obliged to pay, not- withstanding the in-transit calamity. How can it be proper for the carrier to be liable for less merely because terms of sale are such that the ship- per owned the goods in transit and therefore it is he, not the consignee, who files the claim?" So the carrier's rationale for its declination merely cuts into your second profit that the carrier won't want to pay, but must. I think you can live with that, can't you? JOC Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010. When you amend your claim, you'll likely send the carrier right into orbit.

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