Share
In our previous article we looked at the challenges encountered by cargo owners, shippers and insurers as a result of goods being held at ports, at warehouses and forwarders’ premises due to the COVID-19 crisis.
The COVID-19 situation has already left many containers locked up in ports and at warehouses and these goods can attract considerable charges and liabilities. This includes container demurrage charges which can quickly spiral into the tens of thousands of dollars. Quay rent and general handling charges also add up pretty quickly. Indeed, these charges can quickly exceed the value of the goods. By that stage, the consignee will have little or no interest in collecting the goods and incurring those charges. Questions then arise as to who should bear such charges and liabilities.
These mounting costs will give rise to problems for both cargo owners and the forwarding agents appointed to transport the goods.
Increased charges
When cargo is detained at a port or in a warehouse, a number of charges can accrue. In addition to container demurrage, quay rent and storage charges, if no one claims the cargo they might also include disposal and clean-up costs.
This issue affects both cargo owners and freight forwarders alike. Whilst the cargo owner may have a contractual obligation to pay for the charges, freight forwarders will often have a corresponding obligation to the ocean lines, port operators and other service providers. If the forwarder’s customer is in financial difficulty, any right to indemnity from the customer can be of limited practical comfort to the forwarder.
Furthermore, the forwarder’s right to exercise a lien can be of very limited assistance. On the one hand, the value of the cargo is often much less than the charges outstanding. Indeed, on many occasions this is why the cargo remains unclaimed. Moreover, by exercising a lien, the forwarder can adopt a primary responsibility for the cargo whilst it is being held subject to the lien. The forwarder may also, by exercising possessory rights over the cargo, be accepting responsibility for any further charges which are incurred in holding onto the goods pursuant to the lien.
Cargo owners may challenge the forwarder’s right to pass on such charges. If the cargo owner considers that the charges have become excessive because the forwarder either didn’t seek instructions for disposal of the goods in time or failed to provide proper instructions for the storage or disposal of the goods, the forwarder may find itself struggling to pass on charges down the chain. As the immediate point of contact for the carriers and any other service providers, the forwarder may well find itself in the direct line of fire.
The English courts’ approach
Such charges are often open to challenge. Where goods are held due to government lockdown, the parties should consider the contract terms carefully. Force majeure clauses may have been designed to relieve carriers of liability but can often benefit cargo owners in such circumstances.
English Courts have made it clear that where the commercial purpose of the contract is at an end, carriers cannot use container demurrage charges as a licence to indefinitely print money (MSC v Cottonex Anstalt [2015]). However, if these charges are to be challenged or, better still, avoided as far as possible, it is best to identify the risks early on and manage the storage, disposal or further handling of the goods. All too often, cargo owners and forwarders avoid addressing the issue assuming that this is all the problem of the receiver - until the carriers start looking for alternative targets. By that stage, the charges have accrued to significant levels and, moreover, the carriers often have a legitimate argument that no-one would provide them with instructions.
Forwarders cannot necessarily assume that such increased costs will be covered by their liability policies. Such commercial operational costs are not necessarily the sort of liability picked up by a freight liability policy. insurers will argue that they do not cover increased costs of operating - such costs are part of the commercial risk taken by the forwarder.
Managing the problem
As recognised in the first instalment, 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 manage such risks. For example, storing goods on a quayside in a container is a pretty expensive way to deal with a hold-up in the supply chain!
Forwarders need to be proactive in their management of cargo throughout the logistics chain. It is not enough to load the cargo on a vessel and assume that it will all go smoothly from there. If the consignee doesn’t collect the cargo and it remains within the supply chain, this may still be within the forwarders’ contractual responsibility. Even if the forwarder does have a potential right of recourse under its lien or against the original shipper of the goods, such rights can be difficult and expensive to enforce. Moreover, they are sometimes of limited practical benefit.
Forwarders 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 many of the charges incurred. This obligation is best discharged before the costs are incurred and before they exceed the value of the cargo concerned. Furthermore, as the party with the logistics expertise, forwarders may also have an obligation to manage and mitigate the losses arising from such situations. Forwarders may well find that they are the target for any outstanding charges and they may have difficulty passing these on.
Read others items in Marine Brief - July 2020
Related items:
Shipping and international trade
Transport and logistics
Insurance and reinsurance