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TRANSDIGEST Transportation & Logistics Council, Inc. George Carl Pezold, Executive Director William J. Augello (1926 – 2006), Founding Director Raymond A. Selvaggio, General Counsel Stephen W. Beyer, Editor VOLUME XIV, ISSUE NO. 133, MARCH 2009 Report on TLC’s 35 th Annual Conference Mexican Truck Update Reports on the State of Transportation Ships Idled, Orders Delayed Beware of Those Scammers! TWIC Update Cargo Theft Increases More Q & A’s ADVERTISE IN THE TRANSDIGEST CONTACT HEADQUARTERS VIA EMAIL AT [email protected]

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TRANSDIGEST Transportation & Logistics Council, Inc.

George Carl Pezold, Executive Director William J. Augello (1926 – 2006), Founding Director

Raymond A. Selvaggio, General Counsel Stephen W. Beyer, Editor

VOLUME XIV, ISSUE NO. 133, MARCH 2009

Report on TLC’s 35th Annual Conference

• Mexican Truck Update

• Reports on the State of Transportation

• Ships Idled, Orders Delayed

• Beware of Those Scammers!

• TWIC Update

• Cargo Theft Increases

• More Q & A’s

ADVERTISE IN THE TRANSDIGEST CONTACT HEADQUARTERS VIA EMAIL AT

[email protected]

TRANSDIGEST-Volume XIV, Issue No. 133, March 2009

Table of Contents REPORT ON TLC'S 35TH ANNUAL CONFERENCE ....................................................2 EDUCATION .......................................................7 INTERNATIONAL ...............................................7 MOTOR ..............................................................8 OCEAN .............................................................10

PARCEL EXPRESS ........................................... 11 QUESTIONS & ANSWERS................................ 12 RAIL ................................................................ 19 SECURITY........................................................ 19 ADVERTISE IN THE TRANSDIGEST ................ 21 PERSONAL....................................................... 21

REPORT ON TLC'S 35TH ANNUAL CONFERENCE

35TH ANNUAL CONFERENCE REPORT FROM ST. LOUIS by John Burke, Chairman of the Board

I start this report by first thanking the Council for the opportunity to serve these past years on the Board, but also the chance to move through the ranks and be your President. I have been a member of the Council since 1990, and I am very proud to be associated with all of the professionals that belong to this fine organization. I also firmly believe in a member-driven council, and we all want your input on how to meet the ever-changing needs and to make each of you successful.

The weather in St. Louis was not as bad as the weather folks predicted, but in spring in Missouri, anything can happen! It was just a little chillier than I would have liked it.

Before the Conference we started with three full-day optional seminars on Sunday and they were well attended as always. If you have never taken part in any of these, please make a note to look into it for next year’s conference, as they will again be offered.

We kicked off the program on Monday with an industry update from a great group of professionals. Bill Bierman moderated and presentations were given by Eric Starks from FTR Associates, Joe Bonney from The Journal of Commerce, Mike Regan from TranzAct Technologies, and Bob Voltmann, CEO of the Transportation Intermediaries Association.

Our Keynote luncheon speaker, Jeff Brashares of Pacer International, spoke about the current industry climate to a packed house and was very entertaining.

Our Tuesday luncheon speaker, James Smith of the Missouri Department of Transportation, gave a good overview of the agency, its oversight capabilities and responsibilities to the industry.

All of the educational general sessions and workshops were great successes, well attended and with outstanding panelists and presenters.

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The President’s reception on Tuesday evening is never a disappointment. The food and fellowship were great and many attendees went home with great door prizes.

Our friends with the Transportation Loss Prevention & Security Association did another good job of getting a great group of suppliers for our exhibit floor.

We cannot thank the suppliers and carriers enough for their financial support and all the companies that donated door prizes that make the conference fun for all!

Mark your calendars and plan on seeing all your new friends and industry peers at our 36th Annual joint conference next year!

NEW SLATE OF OFFICERS ELECTED Thanks to all the members who have served on the Board of Directors this past year! Congratulations

and best wishes to those who have been selected to serve for the upcoming year. John Burke, from UniPro Food Service, Inc., will serve as the Chairman and other officers and directors were elected as follows:

Officers: President, Carol Wynstra, Snap-On Tools Company; Vice President, Bob Hochwarth, Volvo Logistics North America; and Secretary/Treasurer, Jared Palmer, Advantage Freight Network.

Regional Directors: Reg. 1 – Rob Silverman, Atlas Traffic Consultants Corp.; Reg. 2 – Barbara Cafasso, Master Foods USA, a Mars Inc. Company; Reg. 3 – Rob Eller, Parker Hannifin; Reg. 4 – Steve Theissen, CCP, Square D Company; Reg. 5 – Douglas L. Arents, Rite Hite Corporation; Reg. 6 – Ray Eckard, Dillards; Reg. 7 – Jerrod Slaughter, Nike.

Assistant Regional Directors: Reg. 1 – Richard Haney, Capital Transportation Logistics (new to the Board); Reg. 4 – Nadia Martin, Blakeman Transportation (new to the Board); Reg. 5 – Brian Kiel, Nestle; Reg. 6 – Clark Van Orman, Sysco Corp.

HOSPITALITY SUITE SPONSORS TLC would like to extend its thanks to the following for their generous donations and sponsorship of

the Hospitality Suite at this year’s 35th Annual Conference:

Vendors Broussard Logistics, LLC Williams & Associates, Inc.

Shippers Transportation Arbitration Board

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Carriers Central Freight Lines Landstar Carrier Group Old Dominion Freight Lines, Inc.

Law Firms

Benesch, Friedlander, Coplan & Aronoff – Eric Zalud, Marc Blubaugh & Martha J. Payne Dongell Lawrence Finney LLP – Hillary Arrow Booth Foster, Swift, Collins & Smith, PC – Bob McFarland, Esq. & Dirk Beckwith Franklin & Prokopik – Robert Franklin & Colin Bell Hanson, Bridgett, LLP – William Taylor Looney & Grossman – Wesley S. Chused Metge, Spitzer & Kried – Bruce Spitzer Nowell, Amoroso, Klein, Bierman, PA – William Bierman Pezold, Smith, Hirschmann & Selvaggio, LLC – Gerard Smith Rawle & Henderson, LLP – James Wescoe Ryley, Carlock & Applewhite – Jeffrey Simmons Scopelitis Garvin Light Hanson & Feary, P.C. – Kathleen C. Jefferies & Michael J. Tauscher Transportlawtexts.com – Brent Primus

DOOR PRIZE DONORS Thanks also to the generosity of the following companies for their door prize donations:

AFN Avalon Risk Management C. H. Robinson Lowes Marten Transport Nestle

Rite Hite Corporation Schneider Logistics Sun Maid Growers of California Transplace Wooster Brush

EXHIBITORS Thanks to the following exhibitors for helping make this year’s conference an outstanding success:

E. J. Brooks Co. – Al Benkert & Dave Hawking Cargo Salvage Claims – Donna Wyss CCPAC – John O’Dell & Marcus Hickey Electric Guard Dog – Bill Mullis, Jack DeMao & Greg VanDeweel ITW/Gale Wrap – Greg Jones & Michael Klear ITW Shippers/Centerload – Mark Caires, Dan Greitzer & Joelene Franco Kapstone Paper Corp. – Randy Keller & Tom Hensby Recovery Management Corporation – Kelly Smith Regiscope Digital Imaging – John Adams Rimkus Consulting Group, Inc. – Kimberly A. Stanton, AIC Sigma Breakthrough Technologies – Eric Senkowsky & Ray Young TLP&SA – Ed Loughman Transport Security – John Albrecht

TRANSDIGEST-Volume XIV, Issue No. 133, March 2009

PHOTOS FROM THE MEETING

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EDUCATION

FOURTH EDITION OF FREIGHT CLAIMS IN PLAIN ENGLISH The fourth edition of Freight Claims in Plain English is now available. This long awaited update of

a venerable classic of freight claims is a must for all persons involved in transportation. Details available at http://www.transportlawtexts.com/freight-claims-in-plain-english.php.

"Q&A IN PLAIN ENGLISH - BOOK VII" AVAILABLE Transportation & Logistics - Q&A in Plain English - Book VII is now available. This is the seventh

in this series of the Council's popular texts, and contains a compilation of over 100 new “Q&As” from the TRANSDIGEST.

These are actual questions from shippers, carriers and logistics professionals, with clear, concise and informative answers by George Carl Pezold and Raymond A. Selvaggio, two leading transportation attorneys. Readers will find this text to be a useful deskbook and handy reference. It will also serve as an indispensable teaching aid for students and newcomers to the transportation and logistics field.

“Q&A IN PLAIN ENGLISH - BOOKS 1, 2 & 3 - A COMPILATION” “Q&A in Plain English - Books 1, 2 & 3” is a compilation of the first three of the Council’s popular

texts that were originally published in 1999, 2001 and 2003. As these were about to go out of print, the Council decided to re-publish this valuable reference material in a single CD version.

This compilation is a “gold mine” of information with some 577 questions and answers, a table of contents, topical index and table of authorities - over 300 pages if produced in a print version, and now available on a single CD.

For further information, or to purchase copies of these publications, contact Diane Smid at the Council, (631) 549-8984 or use the attached Order Form.

INTERNATIONAL

MEXICAN TRUCKS The issue of whether the cross-border trucking program, which allows Mexican trucks access to the

U.S. beyond the border area, continues to be contentious. Started under the Bush administration in an effort to move toward compliance with terms of the North American Free Trade Agreement (“NAFTA”), the cross-border pilot program faced significant opposition. In December 2007, Congress passed a spending bill that prohibited the Department of Transportation (“DOT”) from spending money “to establish a crossborder motor carrier demonstration program.” The DOT responded that the law didn’t apply to the existing, already operating program.

Now, a provision of the $410 billion 2009 Omnibus Appropriations Act spending bill prevents the DOT from using any money for this program in the 2009 fiscal year. According to the Act, “None of the funds appropriated or otherwise made available under this Act may be used, directly or indirectly, to establish, implement, continue, promote, or in any way permit a cross-border motor carrier demonstration

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program to allow Mexican-domiciled motor carriers to operate beyond the commercial zones along the international border between the United States and Mexico.” This language should be clear and unequivocal enough so as to not allow any wiggle room.

While this move pleases those opposing the program (the Teamsters union, the Owner-Operator Independent Drivers Association (“OOIDA”) and Public Citizen), it has created a potential trade war with Mexico. In retaliation to what the Mexican government calls “protectionist actions”, it has imposed new tariffs on some 90 U.S. products valued at about $2.4 billion in trade in 2007 from 40 states. In addition, trucks of the U.S. participants of the program are no longer allowed into Mexico and Mexico’s principal trucking group, Camara Nacional del Autotranporte de Carga, or Canacar, has indicated that it was “moving forward” with a lawsuit seeking damages from the United States over the border closure.

Looking to resolve this issue, Transportation Secretary Raymond LaHood will meet with members of Congress so that the DOT can fashion a program that Congress will accept, stating that “There is going to be a Mexican truck program.” However, not even waiting for a new proposal, the OOIDA has expressed its opposition to any cross-border program by writing to President Obama asking that he suspend any immediate plans to re-establish the U.S.- Mexico cross-border trucking program.

MOTOR

HOURS OF SERVICE Despite what appears to be improved highway safety since the current hours of service (“HOS”)

rules went into effect, the Teamsters union and several safety advocacy groups are petitioning the Obama administration to tighten its stance on the rules. The groups have also filed a petition with the U.S. Court of Appeals in Washington seeking a review of the rules for what would be the third time. And while there are those that oppose the current HOS rules, others support them. The American Trucking Associations (“ATA”) has filed a motion to intervene in support of the regulations.

The ATA said it was intervening to protect the interests of its motor carrier members, and that the Federal Motor Carrier Safety Administration has done “an outstanding job explaining the scientific underpinnings of its decision to retain the HOS provisions.”

DECLINE IN FREIGHT According to the Bureau of Transportation Statistics (“BTS”) the Freight Transportation Services

Index (“TSI”) fell 2.3 percent in January from its December level, falling for the third consecutive month to its lowest level in more than five years.

The freight TSI measures the month-to-month changes in the output of services provided by the for-hire freight transportation industries. The index consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight. The TSI is a seasonally adjusted index that measures changes from the monthly average of the base year of 2000. It includes historic data from 1990 to the present.

Go to http://www.bts.gov/press_releases/2009/bts011_09/html/bts011_09.html for more information.

BEWARE OF THOSE SCAMMERS! The two California men, Nicholas Lakes and Viacheslav Berkovich, involved in an Internet load-

board fraud scheme that included hacking the Federal Motor Carrier Safety Administration’s website pled guilty to defrauding dozens of truckers and brokers of at least $2.4 million. See TRANSDIGEST 128 for

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previous coverage and more details. The pair operated under various business names, including Cargoland Brokerage Inc., Progressive Trucking, Vega Trucking and Barkfelt Transport. Lakes was also involved in the factoring company “Burbank Capital Corporation”.

The two defendants are scheduled to be sentenced by U.S. District Court Judge John F. Walter on June 29. At sentencing, Lakes faces a maximum statutory sentence of 70 years in federal prison, and he has agreed to forfeit his interest in $1.14 million in an investment account. Berkovich faces a maximum sentence of 45 years in prison.

Visit http://www.usdoj.gov/criminal/cybercrime/lakesPlea.pdf to read the U.S. attorney’s press release.

In another, unrelated case, Freddie Ford and David Hernandez were sentenced February 25 by a federal court in Memphis for a scam involving selling bogus freight bills to a factoring company. Hernandez was the general manager for Airtrans, Inc., a trucking company owned by Freddie Ford located in Dyersburg, Tennessee. According to the indictment, the pair were accused of defrauding Allied Carriers Exchange, a Denver, Colorado, company that purchased accounts receivables and collected the amounts due on them. The men allegedly presented fake invoices to Allied. In order to accomplish the fraud, Ford established a shell company and used a Mississippi freight-brokerage company as vehicles for billing for non-existent freight shipments.

Visit http://www.usdoj.gov/usao/tnw/press_releases/2009/2009JAN27FFord.html to read the U.S. attorneys press release for this case.

TRANSPORTATION INFRASTRUCTURE – FINANCING OUR FUTURE The National Surface Transportation Infrastructure Financing Commission (“NSTIFC”), a bi-

partisan Congressionally-created commission, is recommending a transition to a highway tax system based on the number of miles driven instead of the gallons of fuel consumed. This is a fundamental shift in the way the federal government collects revenues to fund transportation infrastructure. Culminating nearly two years of study and deliberation, the NSTIFC offered its consensus view and roadmap for sweeping reform of the nation’s transportation infrastructure funding approach with the release of its final report Paying Our Way: A New Framework for Transportation Finance.

According to the report, the United States should phase in a Vehicle Mileage Tax (“VMT”) by 2020 to be the main source of highway construction and maintenance funds, replacing taxes on fuel. The commission is also recommending an immediate increase in fuel taxes by 10 cents per gallon for gasoline and 15 cents for diesel fuel, both indexed for inflation, for short-term survival of the Highway Trust Fund (“HTF”). The extra taxes should add some $20 billion per year to the trust fund. The gas tax, which is not currently indexed to inflation, has lost 1/3 of its purchasing power since 1993, the last time the tax was increased.

Additionally, according to the report, real highway spending per mile traveled has fallen by nearly 50 percent since the HTF was established in the late 1950s. Total combined highway and transit spending as a share of gross domestic product (“GDP”) has fallen by about 25 percent in the same period to 1.5 percent of GDP today. In recent years the HTF has teetered on the brink of insolvency because motorists are driving less, and cars are more fuel-efficient. Last September, Congress approved an $8 billion capital infusion from general revenue to keep the fund afloat, but officials said it was only a temporary fix.

The full report can be accessed through the NSTIFC website at http://financecommission.dot.gov/ and clicking on the link.

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FREIGHT FACTS AND FIGURES 2008 The Office of Freight Management and Operations has published its report, Freight Facts and

Figures 2008, which is a snapshot of the volume and value of freight flows in the United States, the physical network over which freight moves, the economic conditions that generate freight movements, the industry that carries freight, and the safety, energy, and environmental implications of freight transportation. The report states:

This snapshot helps decision makers, planners, and the public understand the magnitude and importance of freight transportation in the economy. An electronic version of this publication is available at www.ops.fhwa.dot.gov/freight.

Chapter 1 summarizes basic demographic and economic characteristics of the United States that contribute to the demand for raw materials, intermediate goods, and finished products. Chapter 2 identifies the freight that is moved and the trading partners who move it. Chapter 3 describes the freight transportation system; volumes of freight moving over the system; the amount of truck, train, and other activities required to move the freight; and the performance of the system. Chapter 4 highlights the transportation industry that operates the system. Chapter 5 covers the safety aspects, energy consumption, and environmental implications of freight transportation.

Many of the tables and figures are based on the Economic Census, which is conducted once every five years. The most recently published data from the Economic Census are for 2002.

Several of the tables and maps in this report are based on the Freight Analysis Framework (FAF), version 2.2, which builds on the Economic Census, to estimate all freight flows to, from, and within the United States except shipments between foreign countries that are transported through the United States. Shipments to and from Puerto Rico are counted with Latin America.

FAF covers all modes of transportation. The truck, rail, and water categories include shipments transported by only one mode. Air includes shipments weighing more than 100 pounds moved by air or by air and truck. Intermodal includes all other shipments transported by more than one mode, such as bulk products moved by water and pipeline and mixed cargo hauled by truck and rail. Intermodal also includes shipments weighing less than 100 pounds sent via postal and courier services. Pipeline includes a small quantity of shipments moved by unknown modes. Visit www.ops.fhwa.dot.gov/freight/freight_analysis/faf for more information.

Freight Facts and Figures 2008 is available for review online at http://www.ops.fhwa.dot.gov/freight/freight_analysis/nat_freight_stats/docs/08factsfigures/index.htm

OCEAN

SHIPS IDLED, ORDERS DELAYED With collapsing cargo volumes and tumbling freight rates around the world, ocean carriers are idling

vessels. As of March 16, 2009 there were some 484 idle container ships, 11.3% of global capacity, with many of them floating outside the harbors of Hong Kong, Singapore and other South-East Asian ports. In other terms, this idled capacity represents a record 1.41 million twenty-foot equivalent units (“TEUs”).

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This is the highest ship unemployment rate in the history of container shipping and is over three times the 3.5 percent ship jobless figure at the worst of the 2002 bear market. The idled capacity has nearly tripled since the beginning of the year when it stood at 550,000 TEUs (210 ships). In late October the idled fleet was only about 70 ships totaling 150,000 TEUs.

Only five years ago huge demand from China meant that all these ships, and more, were desperately needed. Between the end of 2006 and July 2008, shipyards received enough commissions to double the world’s fleet. Now these new ships—more than 9,000 vessels—are taking to the water just as demand has collapsed. The world is awash with ships and this affects both charter rates and the value of the vessels.

To see how the recent boom and bust has affected value, a Hong Kong broker cites a 150-ton “Cape class” ship that sold in 2003 for $18.5 million in the used market. Critical to the price was the prevailing charter rate, then $15,000 a day. By last summer this had risen to $175,000 a day, and an identical ship sold for $85 million. Rates peaked shortly thereafter at $300,000 a day while today rates are back where they were in 2003. Rather than try to find a buyer for another identical ship, albeit one that needed repairs, the owner dumped it for $7 million to be used as scrap.

In this environment, orders for new ships have collapsed and existing orders are undergoing close scrutiny with regard to which can be canceled and which can be delayed. Because ship orders often require significant advance payments, cancellation of orders can be costly. It is to the advantage of both the carriers and shipyards to delay delivery as opposed to canceling orders. However, much of the construction costs are financed with credit, largely from banks which are hardly in a generous mood and are fully aware that their collateral, if the buyer stumbles, has just depreciated.

In this difficult environment, some yards and some carriers will not make it. New vessels will only serve to suppress rates and until demand matches capacity, the industry will be under pressure.

PARCEL EXPRESS

U.S. POSTAL SERVICE LOSSES According to testimony given by Postmaster General John Potter on March 25 before a House panel,

the United States Postal Service (“USPS”) faces losses of historic proportion. From Potter’s testimony:

Assuming that we achieve our planned $5.9 billion in savings, the Postal Service is still projecting a loss of $6 billion in 2010. This follows last year’s loss of $2.8 billion, and, in 2007, a loss of $5.1 billion. Mail volume is expected to plunge to only 180 billion pieces by the time we close our books on 2009 at the end of September. Declines are possible beyond that point. Looking ahead, and considering projections for the overall economy, we do not expect any near-term improvement. We anticipate continued volume decline and a loss of more than $6 billion for next year, based on the latest forecasts from Global Insight.

These losses could lead to cutting delivery from six days a week to five, which could save as much as $3.5 billion.

Visit http://www.usps.com/communications/newsroom/testimony/2009/pr09_pmg0325.htm to read Potter’s full testimony.

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QUESTIONS & ANSWERS By George Carl Pezold, Esq.

FREIGHT CLAIMS – PASS-THROUGH OF GOODWILL PAYMENT Question: We are an insurance company, and in addition to providing cargo legal liability coverage

to our insureds (mostly smaller truckload carriers), we also act as their cargo claim handling agent when cargo claims are filed against them. A great majority of our insureds have transportation contracts with freight brokers who in turn have contracts with their customers.

We need help in determining how we should approach a specific claim situation. You noted in your January 2009 issue of TRANSDIGEST (“Carrier Liability Limitation Upheld”) that the Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby established the carriers’ liability as that (when an intermediary/carrier contract is involved) to which the intermediary and carrier agreed. We have no problems with claims filed directly against our insureds by the brokers’ customers, as we use the liability noted above.

However, what is our insured’s cargo liability for any claim filed against our insured by the freight broker who proves in a subrogation action that he (the freight broker) has paid his customer and is now the party suffering the (monetary) loss? I must point out that our insureds have two types of contracts with their freight brokers. The first makes our insured liable to the freight broker for any cargo loss/damage claim. And the second makes our insured liable to either the freight broker or the freight broker’s customer.

The problem I have involves the situation where the freight broker wants payment from our insured. My concern is that without a copy of the freight broker/customer contract, which may contain a limit of liability on the part of the freight broker, we may pay more than that required by this contract. A freight broker may make a higher payment than is required in his contract with his customer because 1) the customer is a highly valued account and the freight broker wants to maintain the business or 2) the broker expects to get paid in full from the carrier (our insured) since the broker/carrier contract provides for full liability on the part of the carrier.

My question is, as I do not believe under the circumstances described above that our insured should be required to participate in such a “goodwill” payment, can we legally demand a copy of the broker/customer contract and, in the event there is a limit of liability, can we take advantage of this lower limit and legally pay this amount rather than the full liability required in the freight broker/carrier contract?

NOTE: Our insured’s contract with the freight broker provides the following paragraph under the contract heading “Carrier’s Cargo Liability and Claims” ---

Carrier shall be liable for the full, actual value of the shipments tendered by BROKER to CARRIER. No released value rates, or other limitation of cargo liability, shall be valid or enforceable against BROKER or its customers unless expressly agreed to by BROKER in a signed writing separate from any bill of lading or other delivery receipt issued by CARRIER.

Since the freight broker represents their customer, I contend that the agreed to “… writing separate from any bill of lading or other delivery receipt issued by CARRIER” portion of the sentence could be interpreted as a contract (in addition to one between the freight broker and the carrier) between the freight broker and their customer which may contain a limitation of liability and that this limit of liability should apply to the carrier (our insured).

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Answer: Brokers sometimes assume liability for loss or damage in transit and voluntarily pay a claim to a shipper-customer (even though the broker may not be legally obligated to do so), and then subrogate to the shipper’s claim against the carrier. Such an assumption of liability may arise out of a formal broker-shipper contract in which the broker has assumed liability, or may just be done to retain a valuable customer relationship.

Although I have seen many broker-shipper contracts in which the broker has assumed liability for loss or damage, I have never seen or heard of one where the broker’s liability is subject to a liability limitation. In other words, the scenario that you have described is very unlikely.

In any event, you ask whether you would be entitled to a copy of the broker's contract with its shipper-customer.

The Federal Motor Carrier Safety Administration (“FMCSA”) does have regulations that are applicable to brokers. 49 CFR Section 371.3 states:

371.3 Records to be kept by brokers.

(a) A broker shall keep a record of each transaction. For purposes of this section, brokers may keep master lists of consignors and the address and registration number of the carrier, rather than repeating this information for each transaction. The record shall show:

(1) The name and address of the consignor;

(2) The name, address, and registration number of the originating motor carrier;

(3) The bill of lading or freight bill number;

(4) The amount of compensation received by the broker for the brokerage service performed and the name of the payer;

(5) A description of any non-brokerage service performed in connection with each shipment or other activity, the amount of compensation received for the service, and the name of the payer; and

(6) The amount of any freight charges collected by the broker and the date of payment to the carrier.

(b) Brokers shall keep the records required by this section for a period of three years.

(c) Each party to a brokered transaction has the right to review the record of the transaction required to be kept by these rules.

As you can see, under sub-section (c) the motor carrier (a party to the transaction) would have the right to information pertaining to the freight charges, the broker’s compensation, etc. However this section does not really address the handling of a loss or damage claim.

You can, of course, demand a copy of the broker’s contract with its shipper-customer, but I don’t think the regulations would require the broker to provide information about its liability for loss or damage that may be contained in its broker-shipper contract. I would note that in the event of litigation, you would probably be entitled to disclosure of any such documents.

I am only aware of one court decision that involved issues similar to the ones you have described, Covenant Transport, Inc. v. Liberty Mutual Insurance Company, No. 1:01-CV-224 (E.D. Tenn. March 20, 2003). However this case is distinguishable because the intermediary was a freight forwarder (not a broker), and the legal relationship between a freight forwarder and the motor carrier is different, namely the relationship of shipper to carrier.

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FREIGHT CLAIMS – DOCUMENTING VALUE ON IMPORTED FOOD Question: I have received a claim from a large customer for a shipment of asparagus that was

rejected due to “out of temp”. The claim is for 384 cases of asparagus @ $53.20 per case. I felt it would be prudent to verify what their retail pricing is for a bundle of asparagus. According to the produce manager, I was told that bundles were being sold at $3.48. I confirmed that there were 12 bundles to a box, for a retail case price of $41.76. This left me questioning how we were being claimed for $53.20 a case when they are selling the product for less than what they are paying for it. I sent them a request for further documentation since their invoice was not supplied within the supporting documentation. I stated that “Under the Carmack Amendment, the shipper is only entitled to recover from the carrier ‘the actual loss or injury to the property’. A shipper’s recovery is limited to the replacement cost or wholesale cost of the damaged cargo.”

I insisted they provide an invoice from their supplier quoting the text of 49 CFR Part 370, Investigation of Cargo Claims subsection B. “The original invoice, a photographic copy of the original invoice, or an exact copy thereof of any extract made therefrom, certified by the claimant to be true and correct with the respect to the property and value involved in the claim; or a certification of prices or values, with trade or other discounts, allowance or deductions, of any nature whatsoever and the terms thereof, or depreciation reflected thereon.” I stated “Without a valid invoice, I am unable to process your claim. Upon receipt of the requested documentation, I will then be able to continue the investigation of your claim.”

They provided the following response: “Your declination is declined. All of the shipments are import freight. Import suppliers do not send invoices as their invoices are paid via bank draft through our direct imports department. You have been provided with a document that shows the item number and the cost of the product. All of our carriers receive this document on import loads in lieu of an invoice since the import suppliers do not submit payment via invoice. This claim will remain valid and open for payment.” The document they provided is a screen print titled “P O Maintenance - Item Review”.

I’ve been told I have to handle this claim with “kid gloves” because to be black balled by this customer would mean a loss of millions of dollars in revenue for the company. However, this claim, including their proportionate freight charges, is over $22,000. Even by paying “retail” for the cost of the asparagus, would mean a savings of around $10,000. Am I correct in believing they should provide a copy of the invoice to verify their costs? Is this a common practice to pay vendors based on no documentation? I’ve even offered a settlement in lieu of an invoice, which they have subsequently denied. What recourse do I have at this point?

By the way, when I discovered your website, with all of its questions and answers, I felt I had come across the “Holy Grail” of claims information. It made my day! Thank you!!

Answer: The measure of damages is a factual question that usually depends on the specific facts and circumstances of each situation. While the courts have often used the “destination market value” of the goods, it is also recognized that other measures can be used where appropriate.

I assume that this claim is from the importer that is the consignee of a shipment that originated in a foreign country. The consignee would normally be entitled to claim its actual landed cost (including freight, duty, etc.). Under certain situations, where the consignee has already re-sold the goods to its customer, it may be entitled to its invoice price to its customer.

It would seem to me that the claimant should be able to provide documentation that shows its landed cost since all goods imported into the United States are usually accompanied by a commercial invoice.

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FREIGHT CHARGES – BROKERED TRUCKLOAD Question: We shipped a truckload to a customer on a freight collect basis and did not sign section 7.

Customer assigned JBH to pick up, delivery was completed and we got paid for our products.

Three months later, we received a collection agency demand to pay for the freight charges. Apparently JBH assigned the shipment to a broker (ST), who assigned it to another company (JT).

Our customer paid JBH’s invoice, JBH paid ST’s invoice, but ST folded (out of business) and did not pay JT. ST’s phones are disconnected.

Answer: As a general rule, a shipper remains liable for freight charges even if the bill of lading is marked “collect”. The only exception is if the bill of lading contains a “non-recourse” clause - often referred to as a “Section 7” clause - and the shipper has executed the non-recourse provision. If so, then the carrier can only look to the consignee for payment of its charges.

Your fact pattern is a little different from the simple shipper-carrier situation since your customer apparently arranged with a carrier to pick up the shipment, the carrier assigned the shipment to a broker, and the broker made arrangements with the actual carrier that transported the shipment.

In the situation where the shipper has paid an intermediary, the courts are divided. Some adopt the theory that the shipper remains liable even if it has paid the intermediary, since the bill of lading creates a contract between the shipper and the carrier. Others say that the intermediary is an independent contractor, that there is no privity of contract between the shipper and the carrier, and that the carrier essentially agreed to look solely to the intermediary for payment.

I realize that in your case, the consignee paid the first carrier, who paid the broker, and the broker failed to pay the actual carrier. It appears that there was no privity of contract whatsoever between your company and the actual carrier.

However, the answer to your specific question could possibly turn on whether the bill of lading shows the name of the actual carrier that transported the shipment. If it does not, I think the carrier would have difficulty in collecting its charges from your company.

FREIGHT CHARGES – 3PL CONTACTING CONSIGNEE FOR PAYMENT Question: I work for a logistics provider, “L”, that has its own tariffs with carriers and as a service

provides and manages all outbound freight for customer “A” under our tariff. L handles all freight issues for customer A directly with carrier to include P/U call in, claims and invoice audit. As per our agreement with customer A, upon completion of each freight delivery L invoices A for freight charges and in turn L pays all freight charges directly to carrier. The bill of lading (“B/L”) lists L as third party pre-paid bill to and there is no mention on the B/L as to who is responsible for freight charges in case of default of payment by customer “A”.

The problem; customer A has run into financial difficulties and claims it cannot pay its freight charges totaling $18,500 nor can it pay any partial amount. They also claim they may file for bankruptcy any day now, yet they continue to move product with a different carrier. L has notified A that it will now concentrate on contacting consignee for payment in full. Customer A has threatened to sue L for defamation if consignee is contacted for payment. Customer A signed the original credit application that clearly states “All cost of collection or attempting to collect of any overdue charges, including reasonable attorney fees, shall be the responsibility of the applicant.” Does L have the legal right to contact the consignee without facing a lawsuit by customer A?

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Answer: Without seeing your contracts, tariffs, application forms, etc. I can only give you a qualified opinion.

You state that the original credit application states “All cost of collection or attempting to collect of any overdue charges, including reasonable attorney fees, shall be the responsibility of the applicant.” I don’t think that this language prohibits your company from attempting to collect freight charges from the consignee.

However you should be aware of the following:

On a “prepaid” shipment, a consignee may be liable for freight charges on the theory that it has received the benefit of the transportation services. However, there is a well-established line of court decisions in which the principle of “estoppel” has been applied. Where goods are shipped on a “prepaid” bill of lading, and the consignee-purchaser has paid the shipper-seller for the goods (including the transportation charges), this principle protects the consignee against “double payment” liability for the freight charges.

Also, if your shipper-customer does file for bankruptcy, your only remedy may be to file a claim as an unsecured creditor. It can be a violation of the “automatic stay” to pursue the consignee under those circumstances.

FREIGHT CHARGES – COLLECTING FROM BROKER WHEN SHIPPER DEFAULTS Question: We provide trucking during the off-season. A broker/sometimes carrier/sometimes third

party logistics provider (“3PL”) convinced a shipper to use our trucking services (since we were both cheap and dependable). In the beginning the shipper used our services, and usually called us (not the broker) to arrange pickups. We sent our bills directly to the broker and broker paid the bills. Now with $40,000 of trucking charges outstanding, the shipper files for Chapter 11 and what we thought was the broker tells us that it was not a broker but just a paying agent and therefore it will not pay unless it gets paid. This broker/3PLP says that the bill of lading (“B/L”) acts as the only contract and since it is not listed our only recourse is against the shipper (now in Chapter 11) or maybe the consignee. We have no written contract with broker. But we do have a history of working with the broker in a broker/carrier capacity. Two questions:

1. Is he a broker (i.e., negotiates a price on behalf of shipper and pays the trucking charges)?

2. If broker is not listed on B/L and if we don’t have written contract with broker is it true that the B/L is our contract?

Answer: It is possible that the intermediary you refer to is a broker or a freight payment agent, depending on the facts surrounding the arrangements and how it is holding itself out to the public.

In any event, the shipper’s liability for freight charges is usually based on the “contract of carriage” (the bill of lading), and the shipper is primarily liable for freight charges.

The relationship between a broker and the carrier is a separate contractual relationship and brokers can be liable to the carrier even if they are not paid by their shipper-customer. This relationship does not need to be reflected in a formal written contract -- rate confirmations or a course of dealing, etc. can be sufficient to establish a contract.

It is possible to determine from the Federal Motor Carrier Safety Administration website if the intermediary holds operating authority as a broker.

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TRANSDIGEST-Volume XIV, Issue No. 133, March 2009

FREIGHT CLAIMS – SALVAGING GOODS TO MITIGATE DAMAGES Question: A shipment moved from Michigan to Jacksonville to a freight forwarder and the delivery

receipt (“DR”) was signed damaged; the cartons were torn, and the consignee wrote on the DR that 2 chairs has missing castors and 8 cartons were crushed and torn--damage unknown. The chairs went on to Puerto Rico. The claim is being settled by the land carrier and they want the salvage. Who is responsible for getting the salvage back to the mainland?

Answer: From your description it appears that the damage occurred on the inland movement from Michigan to Jacksonville, and the claim was filed with the domestic motor carrier, who now wants the damaged goods for salvage.

Frankly, it would seem to me unreasonable (more expensive) to return the goods from Puerto Rico, and that the proper solution would be to have the goods repaired and/or sold for salvage in Puerto Rico. Then the claim would be amended to show either the cost of repair or the invoice price less the salvage receipts.

FREIGHT CLAIMS – GOVERNMENT SHIPMENTS Question: I previously worked for an inland motor carrier and currently handle claims for a marine

transportation company; we move containers and vehicles on our barges to and from Puerto Rico. Are claims filed by U.S. government agencies subject to the same claim regulations as “normal” claims? The claims are primarily filed regarding military shipments and at both companies I have been told they are exempt from the normal requirements but the only explanation is that “it’s the government and they do what they want.” Your assistance is appreciated.

Answer: I wasn’t sure of the answer to your question, so I asked my colleague, Hy Hillenbrand. Here is his response:

“This is a complicated question without sufficient information to give a response. If the shipment moved was on a government bill of lading under a section 22 quote, then we would have to look at the contract to determine the answer. If the shipper is an ordinary shipper who was shipping government property under its own contract, bill of lading or contract, the shipment being governed by the Harter Act, unless the contact incorporates COSGA as many bills of lading to Puerto Rico do, then the fact that is government property does not make a difference and it’s an ordinary claim. However, here again, we do not have a copy of the contract.”

LIABILITY – LIMITATIONS UNDER CARMACK AND UCC Question: After reading your Editorial from January I was reading through the Uniform

Commercial Code (“UCC”) Article 7 for rules applicable to exempt motor carriers. I noticed that under 7-309(b) that carrier liability can be limited under the UCC if rates are dependent on the value of the goods shipped and the consignor has an opportunity (and notice of the opportunity) to declare a higher value. Curious as to why it would be the consignor rather than the shipper that is entitled to this notice and opportunity? Carmack counterpart provision refers to an agreement with the shipper. If I hire a carrier and send it to a pick up point, shouldn’t I be the one given the opportunity to declare a higher value?

Also, I’m wondering if the UCC would apply to the airfreight forwarders example you mention in the editorial?

Answer: First, I would note that the terms “shipper” and “consignor” are essentially the same.

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Both the Carmack Amendment and UCC assume that the shipper would be the one to enter a released value (or a declared value) since the carrier is required to “issue” a bill of lading or receipt to the shipper -- the one tendering the goods for transportation.

This does not prevent someone other than the “shipper” that contracts with the carrier from making a binding contractual agreement as to the carrier’s liability. In other words the agreement as to the carrier’s liability can be in a separate writing, and doesn’t necessarily have to be on the face of the bill of lading.

As to air freight forwarders (for domestic shipments), I would think the UCC should apply since Secion 7-309 uses the word ‘carrier’ and is not limited to motor or rail carriers. Even if it does not apply, the common law requirements of notice, choice of rates, etc. are essentially the same.

First Follow-up Question: Thanks George, but I did want to point out that UCC 7-101 defines consignor as the party supplying the goods & the shipper as the party that contracts with the carrier.

I take it from what you are saying however that it’s the party that contracts for the carriage that must agree to any limit on liability, regardless of what a literal reading of the text of the UCC might suggest.

First Follow-up Answer: I don't want you to mis-construe my comments. The party that contracts with the carrier CAN make a binding contractual agreement as to carrier liability. However, if that party does not have a written agreement as to liability, the default liability provisions would normally be the bill of lading and any tariffs that are incorporated therein by reference.

By the way, the definitions in the New York version of Article 7 of the UCC (7-102) do not include a definition for “shipper”.

Second Follow-up Question: Sorry to pester you with this. But here's where I'm struggling:

If I hire a carrier, and we agree to a rate without any liability limitation, and it picks up from my consignor (and lets say we’re under UCC here), and the carrier issues a bill of lading limiting liability to $.50 a pound, this could prevent me from recovering the actual value of any damaged goods, even though I was never presented with this limitation?

I would assume that if I'm unaware of the limitation (and did not agree to it), then no limitation applies. This idea that if the consignor is made aware of a limitation it binds me is what I'm struggling with...

Second Follow-up Answer: If you have a proper written agreement with the carrier that spells out the liability, and says that it supersedes any provisions of the carrier’s bill of lading and/or tariffs, that should be sufficient.

FREIGHT CHARGES – EXPEDITED SERVICE ON REPLACEMENT SHIPMENT Question: Question 1 - FedEx National picked up goods at our dock and the driver noted that there

were freeze tags on some of the boxes. Driver left with our time sensitive shipment but returned four days later indicating that they do not handle freezable goods. FedEx National advised that the bill of lading (“B/L”) must indicate that the shipment included freezable goods. Who is liable for the cost incurred to get the shipment to our customer on time?

Question 2 - FedEx customer service advised that the only service they offer that would get the shipment to the customer the next day was FedEx Custom critical. Our warehouse assumed that the charges would be waived given the four day delay was caused by FedEx National. Who owes the charges for the FedEx Custom Critical service?

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TRANSDIGEST-Volume XIV, Issue No. 133, March 2009

Answer: I understand why you feel that FedEx National should have some responsibility for the delay and the extra charges for expedited delivery -- and they might agree if you explain the situation to them.

However, most likely FedEx has provisions in its tariff or service guide that deal with protective services such as refrigeration or protection from freezing. Unfortunately, the law only requires carriers to provide copies of tariffs, service guides, etc. “on request of the shipper”, so the burden of knowing what is in the tariff or service guide generally falls on the shipper.

RAIL

RAILS IDLE EQUIPMENT AND LAY OFF EMPLOYEES The nation’s largest railroads have been idling equipment and laying off employees as a result of the

economic slowdown. The Union Pacific Railroad (“UP”) has furloughed 3,100 train and engine workers so far and lost 3,900 in all. It has reduced its number of power units by 1,500 locomotives, with 1,200 of them stored. In addition, UP has 48,000 railcars in storage. BNSF Railroad has 700 locomotives and 35,000 railcars in storage and in the East, CSX has laid off 1,600 workers and has 400 power units in storage.

SECURITY

TWIC UPDATE The final compliance date for all workers who require unescorted access to secure areas of maritime

facilities and vessels, and all U.S. credentialed mariners, to have their Transportation Worker Identification Credential (“TWIC”) is April 15, 2009. Now, once workers have their TWICs, there has to be a way to use them. The U.S. Coast Guard (“USCG”) is taking the first step in defining how facilities should use readers for the TWIC.

The USCG has published an advance notice of proposed rulemaking entitled “Transportation Worker Identification Credential (TWIC) — Reader Requirements,” asking for industry comments to help them draft a proposed rule to this effect. Following is the March 27, 2009 USCG press release:

The U.S. Coast Guard announced today the Federal Register’s publication of an advance notice of proposed rulemaking entitled “Transportation Worker Identification Credential (TWIC) — Reader Requirements.” This advance proposed rulemaking discusses the federal government’s preliminary issues on potential requirements for owners and operators of certain vessels and facilities regulated by the Coast Guard under 33 CFR Chapter I, subchapter H, for use of electronic readers designed to work with Transportation Worker Identification Credentials as an access control measure.

The notice also indicates additional potential requirements associated with Transportation Worker Identification Credential readers, such as recordkeeping requirements for those owners or operators required to use an electronic reader, and amendments to security plans

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TRANSDIGEST-Volume XIV, Issue No. 133, March 2009

previously approved by the Coast Guard to incorporate Transportation Worker Identification Credential requirements.

The potential requirements seek to enhance the security of ports and vessels by ensuring that only persons who hold valid Transportation Worker Identification Credentials are granted unescorted access to secure areas on vessels and port facilities. The advance proposed rulemaking also is a step toward full implementation of the Maritime Transportation Security Act of 2002 transportation security card requirement, as well as the requirements of the Security and Accountability for Every Port Act of 2006, for regulations on electronic readers for use with Transportation Worker Identification Credentials.

A public meeting will be held for this advance notice of proposed rulemaking; details on the date and location will be published in a subsequent Federal Register notice.

The Coast Guard encourages the public to participate in this rulemaking by submitting comments and related materials to the docket at http://www.regulations.gov, docket number: USCG-2007-28915. All comments received will be posted without change.

The USCG press release is available at http://www.piersystem.com/go/doc/786/263006/. The deadline for public comment on the preliminary proposal is May 26. The text of the proposed rule may be found online at http://edocket.access.gpo.gov/2009/E9-6852.htm.

CARGO THEFT INCREASES Perhaps as a result of hard economic times, cargo theft appears to be on the increase. An article,

“Truck firms struggle to reverse sharp rise in cargo thefts,” by Zack Phillips in the February 2, 2009 online Business Insurance, related some interesting facts and figures.

• U.S. truck cargo thefts, defined as full truckloads stolen, increased 13% from 2007.

• The vast majority of cargo thefts come from stealing unattended vehicles and occur within 200 miles of the origin.

• Using a gun or knife to steal cargo is considered hijacking or armed robbery, and only happens in 3% of freight theft cases.

Visit http://www.businessinsurance.com/cgi-bin/article.pl?articleId=27039&a=a&bt=cargo+theft to view the entire article.

TAPA WARNS CARGO CRIME TO RISE The Transported Asset Protection Association (“TAPA”) predicts that the economic downturn will

lead to an increase in cargo crime. TAPA is a unique forum that unites global manufacturers, logistics providers, freight carriers, law enforcement agencies, and other stakeholders with the common aim of reducing losses from international supply chains. Some excerpts from TAPA’s March 2, 2009 press release:

Latest statistics from the Association’s Incident Information Service (IIS) for the Europe, Middle East and Africa (EMEA) region show 3,756 reported incidents of cargo crime during 2008 with a total loss value of more than €170.6 million. This figure will continue to grow with incident data still being collated for last year.

Just over 10% of crimes reported in 32 countries in EMEA in 2008 were classified by TAPA as ‘major incidents’. Over 72% of the reported crimes were received from the UK,

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representing 2,720 incidents. Spain and Germany were the second and third highest reporting crime areas with 254 and 207 reported thefts.

In addition, 1,775 incidents of truck theft were reported involving empty vehicles.

* * *

Statistics for 2008 show the number of vehicle thefts (laden or unladen) nearly doubled to 2,067. The majority of these incidents occurred in non secured parking areas in the UK, Germany and France.

In recent years, attacks on trucks have been the preferred modus operandi of criminals, although thefts from vehicles fell by 20%, according to data captured last year.

One of the most alarming trends in 2008 was the 50% increase in reported thefts from facilities to 102 cases – following a downward trend in recent years – while fraud rose 24% to 31 incidents. A 47.4% decrease in the number of vehicle ‘hijackings’ may be the result of additional training companies are giving to drivers to help them to avoid violent attacks while on route.

Visit http://www.tapaemea.com/download/TAPApredictseconomicdownturn.pdf to view the complete press release.

ADVERTISE IN THE TRANSDIGEST

TRANSDIGEST ADVERTISING Full page and one-half page ads are now being accepted for the TRANSDIGEST. Reach a highly

selective audience with information on your products and/or services at a reasonable cost.

Rates are available for 3, 6 or 12 monthly issues, and include both print and electronic issues. Interested persons should contact Headquarters at [email protected] or call at 631-549-8984 and speak with Diane Smid or Stephen Beyer.

PERSONAL

FOUND IN THE “ATTIC” A lot of folks who have attended our conferences like to collect the lapel pins that were given out.

While housekeeping, we discovered a number of extra pins for the years 1996 and 1998-2008. They are available free to TLC members on a first come, first served basis. Please contact Diane in Membership for further info: 631-549-8984 or e-mail: [email protected].

Copyright © 2009 Transportation & Logistics Council, Inc. All rights reserved.

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APPLICATION FOR MEMBERSHIP

Membership in the Council is open to anyone having a role in transportation, distribution or logistics.Membership categories include:

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All members receive: An email subscription to TRANSDIGEST (TLC's monthly newsletter) NOTE: There is an additional $50annual fee to receive the TRANSDIGEST hard copy by First Class mail.

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New Members also receive: A complimentary copy of "Freight Claim Prevention in Plain English”A complimentary copy of "Transportation Insurance in Plain English"

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Transportation & Logistics Q&A in Plain English – Book VII

This is the seventh in this series of the Council's popular texts, based on hundreds of actual questions submitted to the Council's “Q&A” forum and published in the TransDigest.

These are real questions, from business people - shippers, carriers and logistics professionals - with a wide range of day-to-day transportation and logistics problems. The answers are by George Carl Pezold and Raymond A. Selvaggio, two leading transportation attorneys, and are clear, concise and to the point.

"Transportation & Logistics - Q&A in Plain English - Book VII" contains over 100 new questions and answers, together with a table of contents, topical index and table of authorities.

The text is intended to be a useful deskbook, and a refresher and handy reference for experienced transportation and logistics professionals. It will also serve as an indispensable teaching aid for students and newcomers to the transportation and logistics field.

The text is available in a print version, 65 pages, or on a CD. Prices and ordering information are below.

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Transportation & Logistics Q&A in Plain English

Books 1, 2 & 3 – A Compilation “Q&A in Plain English – Books 1, 2 & 3” is a compilation of the first three of the Council’s popular texts that were originally published in 1999, 2001 and 2003. Since these were about to go out of print, the Council decided to re-publish this valuable reference material in a single CD version. Based on actual questions submitted to the Council’s “Q&A” forum and published in the TransDigest, these are real questions, from business people – shippers, carriers and logistics professionals – with a wide range of day-to-day transportation and logistics problems. The answers are by George Carl Pezold and Raymond A. Selvaggio, two leading transportation attorneys, and are clear, concise and to the point. This compilation is a “gold mine” of valuable information with some 577 questions and answers, a table of contents, topical index and table of authorities – over 300 pages if produced in a print version, and now available on a single CD. The text is intended to be a useful deskbook, and a refresher and handy reference for experienced transportation and logistics professionals. It will also serve as an indispensable teaching aid for students and newcomers to the transportation and logistics field. If purchased separately, the total cost of all three books would be $75.00 (member) $90.00 (non-member). The CD version is a savings of $30.00.

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New Member List February/March 2009

Regular Member Ronald Woods Tom Jones Ruiz Foods, Inc. Horizon Logistics 501 S. Alta Ave. 600 E. Las Colinas Blvd, Suite 550 Dinuba, CA 93618 Irving, TX 75039 [email protected] [email protected] Conal E. Finnegan Purolator USA, Inc. 1370 Hamilton Parkway Itasca, IL 60143 [email protected]

Multiple Subscriber Brian Brueggeman Terry Lee ABB, Inc. Ruiz Foods, Inc. 4350 Semple Avenue 501 S. Alta Ave. St. Louis, MO 63120 Dinuba, CA 93618 [email protected] [email protected]