As consumer demand diminishes and global economies are predicted to hit record recessions, demand for goods and for raw materials has seen a corresponding collapse. The lockdown imposed across the world has seen markets freeze and traders are no longer in a position to use goods already ordered and in transit.
This inevitably leads to goods being held at ports, at warehouses and forwarders’ premises and elsewhere in the supply chain. Such issues are not new - each recession sees contracts rescinded and purchasers walk away from unwanted cargo. However, the COVID-19 situation had already left many containers locked up in ports and at warehouses. As businesses close through the extended enforced lockdown, many of these goods will now be abandoned. This will leave goods stranded in the supply chain, often loaded in containers.
The cargo issue
When goods are held up in the supply chain, they become increasingly vulnerable to theft and damage. This is particularly so in relation to perishable goods such as foodstuffs and pharma products which often need the provision of specialist containers and power sources which can be of limited supply in certain areas. Often, when receivers refuse to collect the goods, this can give rise to difficulties with customs authorities which may, in certain countries, be inclined to seize and the auction the goods.
If cargo has a limited shelf life, such delays can render it useless for commercial on-sale even if the cargo is released before its shelf life expires.
These problems give rise to some interesting challenges under cargo policies. Such policies aim to provide cover for loss and damage to cargo but often exclude liability where this is caused by delay, or seizure. They also do not intend to provide cover for commercial losses where the intended buyer simply refuses to take delivery of the cargo. This is seen as a credit risk which cargo insurers do not intend to cover. Many policies are now endorsed with pandemic exclusions - although many such exclusions are being incorporated too late to impact upon the issues created by COVID-19.
Where cargo has been held up for extended periods due to lockdown measures and then suffers loss or damage, it can be very difficult to ascertain whether such loss and damage is caused through the initial lockdown, the commercial impact of COVID-19 on the market or the specific contract or through a covered cause such as negligence in the care and handling of the cargo. Causation arguments in such situations are never easy. English law does not apply a “but for test” when considering causation. Rather, it looks for the proximate clause (Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd ). There will be interesting debates on policy coverage where claims are made on the basis that the container was only exposed to the risk of loss or damage because it was delayed by reason of measures imposed due to the pandemic. Where a series of events converge in such situations, determining the “proximate” cause can be a difficult factual task.
A further problem arises in relation to accumulation of cargo. If cargo becomes delayed at ports or in warehouses, it can accumulate to levels which expose the cargo owner to potential losses in excess of the policy limits. Moreover, such delays can interrupt the ordinary course of transit and, potentially, the cover under many marine cargo policies. Insureds and brokers may need to consider extensions to cover during such periods.
Managing the problem
In such uncertain and volatile times, it is not possible to completely avoid the risks of cargo becoming clogged up in the supply chain. However, it is possible to monitor the position and mitigate such risks. Shippers of cargo must appreciate that they retain an interest in their customer collecting the cargo. They cannot simply wash their hands of matters once it crosses the ship’s rail. If their customer does not collect the cargo, they can incur considerable liabilities and costs.
Likewise, forwarders need to keep an eye on the position throughout the logistics chain. They will often have an obligation to inform their customer of problems encountered in the supply chain and if they do not do so, they may be faced with claims for many of the losses which occur. Furthermore, as the party with the logistics expertise, forwarders may also have an obligation to manage and mitigate the problems arising in such situations.