[Federal Register Volume 61, Number 223 (Monday, November 18, 1996)]
[Notices]
[Pages 58678-58679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29427]


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DEPARTMENT OF DEFENSE

Department of the Army


Cargo Liability of Carrier

AGENCY: Military Traffic Management Command (MTMC), DOD.

ACTION: Notice.

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SUMMARY: This is a final notice. Affected rules are MTMC Freight 
Traffic Rules Publication No. 1A (MFTRP No. 1A), Items 112, 113, 115, 
and 116, effective April 24, 1990. The new liability will be: ``For all 
shipments weighing less than 15,000 pounds, the carrier's liability for 
lost and/or damaged cargo will be limited to the lowest dollar amount 
of either $50,000 or the actual amount of the loss and/or damage to the 
article(s). Should a shipper desire to declare and establish a cargo 
liability for an amount greater than $50,000, the carrier agrees to 
provide this increased liability coverage for $____ per each $100 
increase in lost and/or damaged cargo liability over the maximum 
liability. For all shipments weighing 15,000 pounds and over, the 
carrier's liability for lost and/or damaged cargo will be limited to 
the lowest dollar amount of either $150,000 or the actual amount of the 
loss and/or damage to the article(s). Should a shipper desire to 
declare and establish a cargo liability for an amount greater than 
$150,000, the carrier agrees to provide this increased liability 
coverage for $____ per each $100 increase in lost and/or damaged cargo 
liability over the maximum liability.''

DATES: This change will become effective February 1, 1997.

FOR FURTHER INFORMATION CONTACT: Military Traffic Management Command, 
5611 Columbia Pike, Falls Church, VA 22041-5050. Point of contact is 
Mr. Julian Jolkovsky, MTOP-T-SR, (703) 681-3440, or Ms. Crystal Hunter, 
MTOP-QER, (703) 681-6579.

SUPPLEMENTARY INFORMATION: Based on a careful and thorough review of 
comments received by MTMC, the policy change that was recommended on 
March 14, 1996, will become effective on February 1, 1997. The original 
proposal is in keeping with recommendations made in the General 
Accounting Office (GAO) report, ``Defense Transportation: Ineffective 
Oversight Contributes to Freight Losses'' (GAO/NSIAD-92-96). GAO 
pointed out that under MTMCs current carrier liability limitations, 
recoveries on lost or damaged motor freight shipments average 30 cents 
for every dollar of actual value of the cargo and have been at or near 
this average for at least the previous three fiscal years (October 
1992-September 1995). MTMC's own review of FY 96 claims data reveals 
that the Government is collecting less than 31 cents from carriers for 
every dollar of claims involving lost and/or damaged property. This is 
not a responsible use of tax dollars and serves to benefit only the 
carrier industry. The proposed change is expected to permit DOD to 
recover actual value on at least 90 percent of lost or damaged 
shipments.
    Notices in the Federal Register (FR), March 14, 1996, and June 6, 
1996, provided notice of MTMC's proposed change to motor carrier 
liability limitations for Freight All Kinds (FAK) shipments moving 
under motor carrier voluntary tenders, other than Guaranteed Traffic. 
Only one set of comments on this proposal was received from the carrier 
industry by the deadline date of August 5, 1996, from the legal 
representatives of the National Motor Freight Traffic Association, the 
Regular Common Carrier Conference, and the Transportation Loss 
Prevention and Security Council in a letter dated August 2, 1996. One 
comment alleged that MTMC is attempting to engage unilaterally in 
``rate making'' practices and insisted that current released valuation 
policy, which is based on a per pound rate, should be maintained. 
Essentially, this comment misconstrues MTMC's intent. With few 
exceptions, rate making and rate submissions in response to MTMC 
movement requirements are carrier responsibilities. MTMC's intent in 
changing the level of carrier liability is to establish levels which 
will reasonably reimburse the Government for carrier-caused loss and/or 
damage to DOD-sponsored shipments. After careful review of information 
presented in the comments, MTMC's position is that to continue the use 
of released valuation limitations of $1.75 or $2.50 per pound is not a 
prudent use of tax dollars, severely restricts the Government's ability 
to obtain reasonable reimbursement for carrier-caused loss and/or 
damage to DOD sponsored shipments, and would be in direct conflict with 
the recommendations set forth in the June, 1992, GAO report. 
Furthermore, these low levels of valuation for loss and/or damage to 
Government property may induce carriers to offer less than a full level 
of safety, security, care, and handling to these shipments.
    As a matter of background information, beginning in December, 1994, 
MTMC implemented the same change in carrier liability limits for 
Guaranteed Traffic (G/T) shipments. This change raised no complaints 
from the carrier industry and has shown positive benefits for the 
Government in monetary recoveries from freight claims filed against G/T 
carriers for shipments which have incurred loss and/or damage. It is 
also noted that many motor freight carriers participate in both the G/T 
and voluntary programs; therefore, standardizing carrier liability 
levels between the two programs will enhance administrative shipment 
planning and movement procedures.
    During FY 94, DOD tendered over 1 million freight shipments to 
motor carriers at a transportation cost in excess of $400 million. The 
total value of goods moved by commercial carriers is indeterminable; 
however, the value represents a significant taxpayer investment in the 
equipment and supplies used to support the Armed Forces. On any given 
day, the motor carrier industry may be entrusted with providing 
transportation services for over 50,000 less-than-truckload and 
truckload shipments. The timely, damage-and loss-free movement of these 
supplies directly impact military readiness. Lost, partially damaged, 
or totally destroyed supplies and equipment provide little benefit to 
the military services and negatively impact readiness. Furthermore, the 
inability of DOD to recoup equitable monetary reimbursement from 
carriers because of artificially low carrier liability levels, to 
repair or replace damaged or lost supplies, substantially impacts 
budgetary and program funding. Increasing carrier liability levels will 
cure some of these shortfalls.
    The commentator also stated that MTMC was not negotiating with the 
carrier industry as required by DOD regulations. MTMC's view is that 
regular negotiations are conducted with industry at partnering meetings 
and other public forums. Under the Motor Carrier Act of 1980, the level 
of carrier liability is negotiable between the shipper and the carrier. 
However, at the same time, MTMC, as single transportation manager for 
DOD surface freight shipments, is well within its authority to 
determine the level of liability that best protects DOD shipments. 
Also, the carrier is free to offer any rate that it feels will 
adequately compensate it.
    MTMC accomplishes ``negotiation'' of terms and conditions of 
service through

[[Page 58679]]

the FR, because it is impractical to deal with and discuss the nature 
of MTMC's business and its requirements individually with more than 500 
approved carriers. Also, such negotiation does not mean that MTMC will 
allow carriers to dictate the terms of the program. Under 49 U.S.C. 
13712, formerly 49 U.S.C. 10721, motor carriers may quote a reduced 
rate to the government; however, it does not provide that the 
Government must accept the rates offered. In any event, 49 U.S.C. 
section 13712 no longer applies to motor carrier freight. It only 
applies to household goods and certain water shipments. Carriers may 
now offer any freight rates they want to anyone.
    MTMC's procurement authority is derived from the Armed Services 
Procurement Act (10 U.S.C. 2301, et seq.) MTMC has the authority to 
make its own arrangements, and has the right to contract on its own 
terms on behalf of its DOD customers. Accordingly, MTMC's proposed 
changes to carrier liability levels has been endorsed by major DOD 
shippers, MTMC's customers.
    Because the policy change applies only to motor shipments of 
general cargo, Freight All Kinds, the motor carriers have the 
opportunity to offer whatever rates they hold to be reasonable for the 
level of liability that DOD requires. MRMC recognizes that increases in 
carrier liability may result in somewhat higher line haul charges. 
However, MTMC expects that those carriers which have aggressive safety, 
claims prevention, employee training, and quality control programs will 
have little or no difficulty in accommodating these changes and will 
continue to provide quality service at reasonable rates to the DOD. In 
addition, MTMC expects any increase in line haul charges to be offset 
by the beneficial aspects of corresponding increases in recoveries from 
carriers for lost and damaged freight and, as service improves, a 
decrease in administrative costs to process claims. Shifting a greater 
level of monetary responsibility to carriers for carrier-caused loss 
and damage removes the burden for these occurrences from DOD and the 
taxpayer and places them on the carrier. Maintaining artificially low 
levels of liability for loss and damage acts as a distinctive to 
promoting and maintaining a safe, damage- and loss-free Defense 
Transportation System.
    An effective date for these changes of February 1, 1997, will 
afford carriers an opportunity to adjust their rates, if necessary, to 
accommodate any forecasted increases or decreases in their operating-
costs based on their historical incidences of loss and/or damage to 
shipments.
Gregory D. Showalter,
Army Federal Register Liaison Officer.
[FR Doc. 96-29427 Filed 11-15-96; 8:45 am]
BILLING CODE 3710-08-M