Within the grain industry, hiring third-party motor carriers or logistics providers for transportation services is a common occurrence used for hauling grain, fertilizer, feed or ingredients between facilities, non-owned terminals or end users. However, hiring an outside entity transfers the physical operation to another company, but it does not transfer all the risk.
Here’s the scenario: an independent truck driver was hired to move grain from one location to another. On the way, they got into a fatal crash with a car at an intersection. When the hired driver’s insurance limits are exhausted, your company is now potentially exposed.
If your business hires an individual or company to transport products, is it a handshake deal or is a formal written contract in place? Regardless of frequency, whether it is a single load or multiple loads on a recurring basis, if a formal written agreement is not in place, there are potential exposures to your business.
These uncontrolled exposures could involve your business in a lawsuit and increase uncertainty should the hired carrier be involved in an accident. This uncertainty increases when there is an absence of a clear transportation agreement.
There are numerous types of transportation agreements depending on the nature of the business involved, the type of transport needed (truck, rail, ocean, air, intermodal, etc.), products transported, frequency of use and the agreement itself. We will focus on truck freight operations with a Master Transportation Agreement (MTA) and Transportation Services Agreement (TSA) and how they may help manage the risk your business is exposed to with hauling materials.
Master Transportation Agreement (MTA)
The MTA provides the legal framework for a long-term relationship between a shipper and carrier and is commonly used when your business expects transportation needs to be conducted by third parties on a regular basis with the same individual or company acting as the carrier.
Transportation Services Agreement (TSA)
The TSA defines how transportation services must be performed by carriers you work with, covering terms and conditions related to products being shipped. In most cases, both the MTA and TSA are used together and regularly reviewed.
Within most transportation contracts, the MTA and TSA are combined with annual updates to redefine terms, conditions and rates. When separated, the MTA stands as a continual legal document while the TSA allows for changes in the commodity transported, terms and rates when necessary. Regardless of the terminology, a formal written transportation agreement or contract should be in place whenever you hire another person or entity to haul products your business owns.
Areas of Risk
Within the insurance industry, we encounter multiple scenarios in which transportation-related claims occur, usually without a contract or with inadequate terms and conditions. Handshake agreements with one of your growers to haul grain or feed ingredients do not provide the same level of risk clarity and mitigation as a formal contract. While this list is not exhaustive, some common pitfalls to be aware of include:
Insurance Limits: Hired carriers may not have adequate insurance limits for your business. For grain, fertilizer and feed, standard cargo limits are often adequate, but liability limits can be insufficient. If a hired carrier only maintains federal minimum liability limits of $750,000, your company could face increased exposure if the hired unit is involved in a severe accident.
Policy Exclusions: Cargo coverage may have various exclusions. Review the carrier’s cargo coverage for moisture and/or contamination exclusions. If these exclusions are in their policy, loss or damage could become your responsibility when the load is rejected by the recipient.
Loaning or Leasing Vehicles: Loaning, leasing or renting vehicles or trailers to other people or businesses creates a liability exposure. Often these activities are conducted for the sake of business relationships, and if an accident occurs, your deductibles and coverage may be exposed by the activities of the hired operator. Loaning out vehicles or trailers on your policies is always discouraged, but if needed, a clear, well-written and legally reviewed rental or lease agreement can help clarify responsibilities.
Carrier Safety Ratings: The Federal Motor Carrier Safety Administration (FMCSA) safety ratings should be reviewed and unacceptable ratings outlined before entering into an agreement or contract with a carrier. Additionally, it is recommended to ask the carrier to provide its most recent Compliance, Safety, Accountability (CSA) scores and consider establishing an expectation that no category can be in alert-level status. If a hired carrier is involved in a severe accident while transporting your products, a portion of liability could be placed on your company for failing to have proper safety procedures in place.
We listed multiple example exposure areas to hired transportation. Here are some scenario examples to consider:
- Making exceptions for the sake of business relationships. We see them all the time in the industry, and most of us are compelled to do good things for others when the opportunity arises. However, business relationships can quickly sour when accidents happen and leave you without adequate protection.
- Consider this: one of your customers experiences a truck breakdown while in the middle of fulfilling contracted grain deliveries to your elevator. To help keep things moving, the location manager lends them your tractor trailer for a few days. What could go wrong? What happens when your customer is involved in a fatal accident while driving your truck? Most likely, your insurance is implicated to cover the loss. Your tractor, your trailer, your deductible, your insurance!
As noted above, always review CSA scores for both companies and owner-operators before contracting with them. Remember, if they are transporting your products, you may still have exposure.
Another situation we frequently encounter involves an owner-operator hooking their tractor to your trailer. If this occurs, it is critical to have a well-written contract in place ahead of time. That contract should include clearly defined performance standards and termination thresholds. In addition, you should actively monitor CSA scores at least annually, and more frequently when hauling activity is ongoing. If an owner-operator is involved in a fatal accident while pulling your trailer, your company’s name could become associated with the incident and appear in the news for months.
Essential Topics for a Transportation Agreement
We are not providing legal advice, and any contract should be reviewed by a licensed attorney, but based on our risk management experience, here are some contractual terms commonly seen in transportation-related agreements:
- Term: Length of time the agreement is active.
- Termination: Detailed description of activities that would cause termination of the agreement.
- Service Requirements: For carriers as designated by the shipper. Don’t forget to add commodity-specific requirements for grain, seed and feed, including prior and incompatible commodity statements.
- Rate Confirmations: All rates discussed must be written into the contract.
- Indemnification: Liability statements with indemnification and hold harmless provisions included in the contract.
- Insurance Requirements: Carrier must provide proof of insurance for multiple coverage areas including workers’ compensation (where applicable), commercial liability, umbrella or excess liability, auto liability and proper cargo coverage. Carrier coverage limits should be equal to or greater than the amounts on your policy, but at a minimum of $1 million commercial and auto liability limits per occurrence and $2 million for umbrella or excess liability. Cargo limits should be adequate to cover the cost of goods being transported.
- Additional Insured: If an ongoing agreement is in place, the shipper should be listed as an additional insured on the carrier’s policy.
- Duty of Care: Carrier duty-of-care statement and terms related to vehicles and equipment operated by the carrier or provided by the shipper (when applicable).
- Operating Authority: Carrier acknowledgement and confirmation that it has proper operating authority and promises to comply with all laws and regulations.
- Relationship Statement: The carrier is an independent contractor and not an employee of your business, with sole responsibility for the carrier’s operations, safety and employees.
- Avoiding Excess Operational Control: Transportation agreements often state that the carrier is an independent contractor. However, in practice, the degree of control a shipper exercises over the manner of performance can affect how the relationship is characterized. Excessive day-to-day direction or supervision of the carrier’s drivers, equipment, routing, dispatch or safety management may increase the risk that liability associated with the carrier’s operations is alleged against the shipper. As a risk management practice, focus on defining performance outcomes and site safety requirements, and consult legal counsel regarding appropriate contract language and operational boundaries.
Transportation is a daily necessity for many agribusinesses, but undue risk does not have to be. Every informal or handshake arrangement introduces potential exposure that can far outweigh the perceived convenience. Well-structured transportation agreements, regular review of carrier safety and insurance, and clear contractual expectations are not administrative burdens. They are essential.
If your operation relies on third-party transportation in any form, now is the time to review or establish your agreements and ensure they reflect the realities of today’s risk environment. When an accident happens, it is too late to wish a contract had been in place.
With over 30 years of experience serving the grain and feed industries, Colin Fettig is the risk managing consultant at Berkley Agribusiness, using his expertise to advise business leaders on safety and risk mitigation across the country. Email Colin:cfettig@berkleyag.com