The TRUTH behind Cargo Liability in Cross-Border Shipments

Often, U.S. and Canadian companies doing business in Mexico question, and even fear, the liability of Mexican Motor Carriers for cargo loss or damage. Most of the time the challenge is the inability of Carriers to purchase the same level of cargo liability coverage for shipments traveling in Mexico, there is almost no market to do so. It’s important to arrange additional cargo insurance for the Mexican portion of the journey, which you can usually do through your logistics service provider.

While Carriers in the U.S. and Canada are required by law to carry cargo insurance, Carriers in Mexico follow a very different law landscape. Despite this, not offering any coverage for loss and damage in Mexico is generally not a viable legal option, commonly US Carriers offering door-to-door service have limited or no liability coverage for shipments once they cross the border into Mexico.

Under the North American Free Trade Agreement, cross-border shipments between the United States, Canada, and Mexico were intended to be subjected to the cargo liability requirements of the nation of origin. Here is a comparison of coverages between countries, note the inequality of liability between them.

  1. For shipments originating in Canada have a maximum cargo loss or damage value of $2.00 CAD per pound.
  2. For shipments originating in Mexico have a maximum cargo loss or damage value of $0.025 USD per pound.
  3. For shipments originating in the United States, Carmack applies, and unless shippers otherwise have limited your cargo exposure lawfully, carriers could be liable for a $1 million cargo loss if an expensive machine originating in the United States was damaged beyond repair.

So, you can now see the existing imbalance; let’s take a closer look at what happens in Mexico.

Mexican Law Background

Article 66 of the Mexican Law provides that: “…When the user of the service does not declare the value of the goods, liability will be limited to an amount equivalent to 15 days of the minimum daily wage in force in Mexico City per ton or the corresponding proportionate part of a metric ton that was damaged or lost…”

At the current U.S. Dollar/Mexican Peso exchange rates, this amount is the equivalent of about USD $0.025 per pound. Obviously, shippers should be concerned about such a low liability limitation in the event of damage, theft, pilferage or hijacking of trucks carrying their goods. Unfortunately, U.S. Dollar/Mexican Peso exchange rates have made an impact since the Mexican Peso has been devalued significantly during the last 5 years.

Under the Law of Roads, Bridges, and Federal Motor Transportation, if the shipper chooses to declare the value of the goods, it must agree to pay an additional charge so that the carrier may secure insurance coverage for the goods. If the shipper exercises the option to declare the value of the goods (and pays the higher rate), the carrier will be liable for the loss or damage up to the value declared, even when the cause is due to force majeure or fortuitous cause. Article 67 establishes the value declaration requirement, but it does not specify where or how the declaration needs to be done.

Options to consider:

Although some Mexican carriers believe that the value of goods must be declared on the bill of lading itself, a blanket declaration of value in a contract between the parties is sufficient to hold a carrier liable for the higher amount.

The FIRST option is to negotiate a transportation agreement with a logistics provider with a footprint in Mexico, where their carriers provide either full liability or a more acceptable limitation related to the value of the goods, such as $25 per pound or $100,000 per trailer or container.

SECOND option is for the shipper to obtain its own inland marine (cargo) insurance. Most U.S. policies do not cover transit loss or damage in Mexico, but it is possible to obtain an endorsement for this coverage. In order to cover for the value of freight while it’s in Mexico, many shippers add a separate endorsement to their global insurance policy for cargo coverage.

THIRD option is to arrange additional cargo insurance for your cross-border shipments as a whole or even only for the Mexican portion of the journey, with your logistics provider.

Third-party logistics companies, freight brokers, freight forwarders and/or customs brokers can manage more coverage options than your common Carrier, and better still if they have a footprint in all three areas.

Key considerations by service type and transport mode:

Full Truckload

  • Shortages within pallets, missing pallets, and damages can remain hidden until the product is unloaded at its destination when using Direct Services (same trailer all the way), therefore, it is quite complicated, and lengthy, to prove where the OS&D incident originated.
  • When using Transloading Services (different trailers), shortages within pallets, missing pallets, and damages can be discovered at the border by the company performing the unloading/loading, which can be the Carrier (if they offer those services), or a warehouse or a freight forwarder, but more often, this occurs at customs broker facilities. The condition of the cargo should be documented and reported immediately to the shipper for claims before the cargo crosses the border.

Less-than-Truckload

  • Shortages within pallets, missing pallets, and damages should be discovered by the freight forwarding or customs broker company that receives the cargo before crossing the border. If there is any OS&D incident, it has to be reported immediately to the LTL Carrier, so they can send an adjuster in order to recognize the event. If you cross it, shipper loses the ability to file a claim.

When the unexpected happens within Mexican territory:

  1. The Mexican Carrier’s Legal Representative files a police report immediately for its trailer and tractor. The police report stays open indefinitely until they find it; they may find the tractor but not the trailer.
  2. The owner of the cargo can file a claim to the Carrier for total theft including cargo cost, weight, and dimensions.
  3. With this claim, the Carrier has the obligation to pay the limited liability dictated by Mexican Law.

Best practices

  • Remain calm and contact your logistics provider immediately after an incident notification.
  • Open a dialogue with your logistics provider to have the facts straight.
  • Learn about their procedures; most carriers have a special team to handle unexpected situations.
  • Talk to them about expectations.
  • Check your own insurance coverage and theirs.
  • Be patient until the police finds the trailer and cargo, keep in mind GPS trackers are for tractors, not for trailers, if only the trailer is stolen, it’s going to be more difficult to find your cargo.
  • Set a contingency plan, you don’t know how long it will take to find your cargo or when there will be a final resolution.

EP America can work with your company to set a plan to mitigate as much as possible the risk of shipping freight to/from/within Mexico. Some of our cargo coverage solutions for your Truck & Rail Shipments to/from/within Mexico are very affordable with premiums as low as 35.00 USD minimum for new general merchandise.

Pros if exporting all the way to Mexico

Why you should consider shipping door to door in Mexico. You might be missing a good opportunity…

 

If you have exports to Mexico but only ship to Laredo and let your client assume responsibility in Mexico you may have missed a good opportunity to strengthen your relationship with your Mexican customers.
Today most US companies doing business with Mexico send their goods Ex Works (EXW) to avoid any issues with border crossing, documentation, taxes and fees.
On the other hand, companies who sell their goods with freight included (DAP) find that they often improve development and growth in their businesses including generating more revenue.
There is more control of the supply chain since there is greater visibility for your clients allowing them to track their cargo more easily and having a single point of contact to make decisions. You also ensure the fast processing of your shipment and avoid down time strengthening your process.

 

You also strengthen the shipper’s or consignee’s purchasing and negotiating power being a longer distance to quote.

 

In conclusion, the level of satisfaction of your customers increases by removing the burden of the process, resulting in greater loyalty and stronger business relationships with them. At EP America our specialists are ready to help you exceed your clients’ expectations by assisting you until your cargo is delivered.

I don’t need a Freight Forwarder… or do I?

If you work in logistics you have most likely received at least one call or email from one of them telling you about their services and how they will tackle all the frustrating aspects of your process so you don’t have to worry about details. So you know who they are and what they do, and have probably made up your mind on whether they bring something to the table, but do your really know what a freight forwarder could do for you?

 

1. Save you time and provide flexibility

Imagine the company you work at just closed new business and needs to start shipping on a lane your current carriers cannot cover for. Arranging these type of shipments can be very time consuming when you have little or no experience on a new route, especially if it’s international. This is where freight forwarders come in! They remove the burden of scrutinizing carriers, comparing prices and negotiating using their knowledge and experience.
But even though we will never be able to foresee market changes or know what the shipping needs of your company or clients will be in the future, can you imagine having an expert taking care of these shifts while you just seat back and receive notifications on how it’s all being solved?

 

2. Provide you with simplicity and control

Now imagine that one of your international shipments got diverted to a wrong destination or got delayed at the customs. A forwarder will use its expertise, resources, and networks to find the origin of the problem and immediately take action while still giving you full control with only one vendor and a single point of contact to make decisions. Have you ever had a hard time with a shipment? To forwarders it is just another day at the office.

 

3. Save you money

The most common misconception about forwarders is that they are just “intermediaries”, who will make profit out of something a shipper could be doing itself. While this could be true with other third party services, a forwarder knows what carrier is better for each route, has stronger relationships with them, and is able to achieve economies of scale by negotiating volume. Additionally, when there’s an increased seasonal workload, a forwarder can save your company the costs of hiring and training new staff.

So you thought forwarders could only benefit shippers?
Carriers are always busy making arrangements or handling overcapacity! While it might take you a while to get a hold of your contact, a forwarder is much more customer friendly and reduces the carrier’s workload by filtering inquiries and requests. On the other hand, forwarders serve as salespeople for carriers, expanding their market and giving them stability without having to invest on hiring their own agents.
In the end, each company will use the service that better fits its process and needs, but whether you handle daily shipments or have your customers route their cargo, keeping an experienced forwarder handy is always good for emergencies or if you are looking to make your process simpler, faster or even reduce some costs.
EP America, provides the most reliable service for OTR shipments going to or coming from Laredo, TX and Mexico, our specialists in our offices in the U.S. and Canada are ready to assist you on your next shipment.

NAFTA Myths vs Facts

Ever since the North American Free Trade Agreement was signed over 20 years ago, a lot of speculation on whether the treaty brought more benefits than downsides to the three countries involved arouse.

Many politicians, investors, finance executives and business owners have given their opinion on how this agreement has improved or affected their ventures, but truth is that only by the use of numbers we can reveal the extent to which its critics have been proven wrong:

 

Myth

  • The US has experienced job losses since NAFTA came into effect
  • NAFTA has not resulted in any benefits for the US agriculture
  • NAFTA has made the US lose its sovereignty and independence
  • NAFTA negatively impacts the North American manufacturing base
  • The treaty has given rise to Environmental Damage

 

Fact

  • Commercial trade with Mexico and Canada has originated over 14 million US jobs and around 35% of these jobs come as a result of the constant increase in NAFTA commerce.
  • Canada and Mexico accounted for 37% of the total growth of US agricultural exports during the first 15 years since the treaty was signed.
  • NAFTA has allowed American farmers to increase their commerce. In average, one in every ten acres is destined for Canada and Mexico exports.
  • NAFTA as any other international treaty, is an agreement signed voluntarily between countries, in which each of their own governments ratified, meaning that Canada. Mexico and the US are forced to comply with the agreement by International Law and are not ruled by the laws of the rest of the countries.
  • NAFTA has opened doors for new sources of materials, technologies, capital and more competitive talent acress North America.

 

NAFTA members created the North American Agreement on Environmental Cooperation (NAAEC) and some of its initiatives include:

  • Handling practices for toxic chemicals;
  • Creation of the first Mexican National Air Emissions Inventory;
  • The North American Bird Conversation Initiative
  • Promotion of best practices to perform commercial trade without affecting the environment.