Logistics: Bite-Size Insights - August 2021

Welcome to the latest edition of Logistics: Bite-Size Insights, where this month we focus on warehouse risks, including risks to hauliers providing additional services, contractual considerations and warehousing at freeports.

 

Warehouse space demands | Risks of providing additional servicesWarehousing at freeports

The fight for warehouse space

According to the United Kingdom Warehousing Association, in 2015 there was 428 million square feet of large warehouse space in the UK. That's now risen by 32% to 564.9 million square feet! Reports from the industry are that logistics providers across the UK simply cannot build suitable warehouses quickly enough to meet demand. That demand has soared during the COVID-19 pandemic with the boom in online shopping – both in terms of high street and food retail.

The demand for warehouse space is set to only increase. We look at what responsibilities and liabilities arise from that increase in demand for such services.

Contacts: Shaan Burton and Chris Chatfield

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The grey line between haulier and warehouse keeper…

The haulage industry has reported an increase in suppliers asking hauliers to provide warehousing services rather than using their own warehousing facilities. The supply chain and ‘who does what’ is constantly adapting to the current environment and using hauliers for warehousing is seen as a cost saving solution. This has been a particularly prevalent move during the COVID-19 pandemic where the logistics industry has been pushed from all angles and the need to keep costs low has been a real necessity.

However, it is important to remember that providing additional services, such as warehousing, attracts very different risks and liabilities to providing pure haulage services. It is not simply a case of ‘adding on’ a bit of warehousing to a transit movement. Whilst there are of course risks in transit, such as road accidents, temperature deviations and thefts, some of those risks (and indeed different risks) are also present in warehousing; sometimes on a greater scale – stationary goods are a lot easier to steal than those that are moving!

If the contract is for transit only, then a specific contract provisions need to be considered for any ancillary services; this applies not just to warehousing, but also services such as inventory management, packing, labelling, customs documentation etc.

It is important that hauliers realise these additional risks and make sure that there are contractual terms in place that protect against that additional liability. Hauliers should make sure that they discuss with their customer its obligations with regard to carriage and storage in an attempt to determine when one service starts and the other ends. This rarely appears in such contracts but hauliers could find themselves with a significant uninsured claim if their insurance policies only provide cover under certain conventions/terms and conditions. It is not uncommon for a freight liability policy to provide cover for liability only under specific standard terms – if a haulier unwittingly finds that he has liability outside of those conventions due to agreeing to provide additional services, then the insurers may consider declining cover.

A summary of the different standard trading terms (and the CMR Convention) is set out below.

Terms and conditions Time bar

Limitation points to note

British International Freight Association Standard Trading Conditions (BIFA) 2021 Nine months

From the date of the event or occurrence alleged to give rise to a cause of action against the company

Road Haulage Association Limited’s Conditions of Carriage (RHA) 2020 One year

From the date the transit commenced

Convention on the Contract for the International Carriage of Goods by Road (CMR) One year

Nevertheless, in the case of wilful misconduct, the period of limitation shall be three years

United Kingdom Warehousing Association Conditions of Contract (UKWA)

Nine months

Proceedings must be served, as well as issued within the nine month time bar

Hauliers need to be asking themselves whether they are trading under the correct contractual terms – both from a liability perspective and an insurance aspect.

Contact: Shaan Burton

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Where are we with providing warehousing at freeports?

Freeports are essentially designated areas in which normal taxes and tariffs do not apply. This allows goods to be imported, manufactured and re-exported without certain charges being paid (that is providing those goods do not leave the freeport).

The UK Government’s plan to introduce post-Brexit freeports was unveiled in August 2019 and confirmed in the March 2021 Budget with the announcement of the locations of eight freeports to be established in England. As well as the purported domestic objectives of freeports such as local regeneration, job creation and innovation, freeports are designed to facilitate economic activity and simplify the international movement of trade.

Given the necessity for goods to be stored at freeports, there is inevitably an element of warehousing involved - so what does the government’s plan to re-introduce freeports mean for those hauliers providing warehousing to their customers within those freeports?

The reaction has largely been one of indifference; the UK already has in place customs special procedures aimed at enhancing trade and supply chains. These procedures allow for relief from, or suspension of, customs duties or other import taxes due on goods being carried, stored, temporarily used, processed or repaired.

One practical benefit is that goods stored in freeports are automatically subject to such benefits, whereas the benefits of customs special procedures arise by application only. Hauliers providing warehousing services will no doubt be extremely relieved at the prospect of less paperwork – particularly in the wake of the additional paperwork needed for international deliveries following Brexit.

Hauliers may wish to review their current practices when it comes to warehousing at ports to assess whether there is some benefit to focusing on freeports as opposed to those ports that didn’t make the list. There could, potentially, be some costs savings – even if just from an administrative aspect. Hauliers should, however, make sure that any change in storage location is covered under its insurance terms – policies often list locations that cover is provided; it would be rather unfortunate for a claim to be rejected on the basis that the goods are being stored an unnamed port.

At present, it is unclear what the cost of using freeports will be and whether there will be any significant benefit of freeports over customs special procedures, particularly as the customs special procedures process has been recently been streamlined, removing the requirement to provide a bank guarantee. It may, however, allow forwarders and hauliers to handle goods within the Freeport areas without assuming the contingent liability associated with handling, carrying and storing goods in bond. It remains to be seen whether the freeports initiative will result in any significant shift in the current status quo, particularly in circumstances where long term storage in freeports is prohibited.

One incidental but potentially substantial benefit to the logistics industry of a successful re-introduction of freeports is the anticipated increase of international trade given that the industry is critical to the international movement of goods.

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Contacts: Shaan Burton, Ingrid Hu and Craig Boyle-Smith

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