Date : 19 May 2020
The difficult commercial realities of COVID-19 has increasingly led to a situation of abandoned cargo, as companies in precarious situations look to cut their losses and walk away from the goods. This leaves freight forwarders in a tricky situation, faced with the predicament of increased charges for storage of the cargo and how to dispose of the goods. How should freight forwarders deal with such a situation, and how can they mitigate their losses and ensure a fair apportionment of costs?
The following considerations may be helpful for freight forwarders in determining how to proceed:
1) Speed is key – how can a freight forwarder minimise losses from the outset?
It is vital to act quickly as storage costs can quickly mount up and even exceed the value of the cargo itself. Action should be taken even before expiry of the free period, when it becomes apparent that the consignee has manifested no intention to take delivery. Close monitoring and communication with the shipper/consignee is therefore key and notice should be sent to all interested parties with a clear deadline. At all times, it is important to retain a record of all correspondence and ensure a proper paper trail in the event of any legal dispute.
Depending on the requirements of the particular jurisdiction, other cheaper storage solutions should be considered. Where possible, this may include un-stuffing the cargo to be moved to a bonded warehouse and returning the containers to the ocean carrier in order to stop demurrage charges. Local rules and the customs status of the cargo will often have a bearing in this instance.
2) Is the freight forwarder acting as ‘Agent’ or ‘Principal’ under the Master Bill of Lading (MBL)?
A key question for the purposes of liability under the Merchant Clause in conditions of carriage is identification of the named shipper, and therefore the contractual party for the purposes of the MBL. Unless the forwarder has placed his customer in a direct contractual relationship with the shipping line, they will likely be the Principal and cannot be considered an Agent. This is context-specific and may vary according to jurisdiction. In general, however, the status of freight forwarders as Principal has become particularly prevalent today given the expansion of forwarding services to include comprehensive logistical operations.
As Principal, the freight forwarder will be directly liable to the shipping line. This includes liability for the costs of storing the abandoned cargo, including quay rent and demurrage and detention charges, as well as destruction and other associated costs. Such risks may be assuaged to some extent where a destination delivery agent is used in accordance with the Bill of Lading. The potential liability freight forwarders face will make any actions taken to mitigate storage costs ever more vital. In addition, freight forwarders should communicate with their liability insurer at an early stage to see if it can be invoked to cover any associated costs.
Caution should be taken against the presumption that there is no liability on the part of the freight forwarder where the freight forwarder has booked the shipment ‘as Agent’ under the MBL, with the actual shipper being the shipper and contractual party in the MBL. Whilst it will be the shipper, not the freight forwarder, who will be in direct contractual agreement with the shipping line, the freight forwarder might be liable through the Merchant Clause.
3) Does the freight forwarder have a lien over the goods?
Freight forwarders often have a right of lien over the goods in question, which may be particularly important where the customer has ceased trading or simply disappeared. This gives the freight forwarder a property interest over the goods, without the requirement of actual possession, to which they can have recourse in order to secure payment of amounts owed to the forwarder, such as transport and storage costs.
Conclusion: Being left with abandoned cargo is frustrating, and too often consignees are simply walking away from goods to cut their losses in today’s COVID-19 crisis. Speed is key, and freight forwarders are advised to consult with local agents and their liability insurer in all cases to ensure appropriate steps are being taken. The need for swift action also becomes ever more essential amid the COVID-19 crisis, in order to facilitate the fluidity of the supply chain and minimise port congestions exacerbated by abandoned cargo.
Now is also the time for freight forwarders to be particularly vigilant when contracting. In particular, this means to ensure that they know their customer, to understand who is the Principal and Agent under the MBL and what this entails, and to ensure that the appropriate contractual clauses, such as associations’ standard terms and conditions, have been appropriately incorporate.
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