Will looming rates war lead to forwarder smash & grab?
Service the key for indie forwarders
If you are facing unprecedented delays in shipping and route cancellations that are compounded by the inability to get your containers out of the port, with huge charges for demurrage and detention adding insult to injury, you are not alone.
I have seen numerous articles talking about these issues, but none advising on practical steps to take. Here is that long overdue article.
Let’s take these issues one by one:
If delays cause damage to the product because it goes bad or too ripe to sell, you can file a lawsuit or arbitration against the carrier under the US Carriage of Goods by Sea Act (COGSA). This is a federal statute that governs the rights and responsibilities between shippers of cargo and shipowners regarding ocean shipments to and from the US. Typically for these claims, the bill of lading/sea waybill is going to be the governing contract. The BL/SWB may require another similar international treaty to apply, but usually where goods are going to or from the US, the BLs/SWBs require that COGSA apply.
Best practice here is to get a pre-loading inspection to confirm the state of the goods before they are turned over to the carrier for the voyage. This is very helpful in reducing the risk that a carrier can successfully challenge the claim based on the goods being loaded in already damaged condition. Although most issues occur after loading, when the cargo is in the carrier’s possession, a pre-loading inspection is key to proving that when the carrier received the cargo, it was in good condition.
On arrival, a prompt inspection is key. USDA is great, and/or a joint survey with the carrier. Document everything as much as possible.
Make sure to read the reverse of the BL/SWB and notify the carrier of the claim as soon as possible. You may not even have all the information at hand yet, and that is fine. The last thing you want is to lose an otherwise winning claim because you did not meet the deadlines for notice in the BL/SWB.
For temperature-sensitive goods, it is best practice to have your own temperature recorders in place in each container. Often carriers do not voluntarily provide their temperature recordings, so it is best to have your own.
If the carrier is not informing you of delays that are not public knowledge, or if their systems are never accurate as to estimated arrival dates, there may be grounds for a negligence claim. Again, document everything.
Sometimes these claims are resolved by sending a demand letter to the carrier, but lately, due to the volume of problems, we are seeing that informal claims such as these are being denied. As a result, clients are pursuing litigation and arbitration.
Cancellation of voyages despite contract
If you have a service contract with a carrier and the carrier is taking vessels out of service on the designated route, or cancelling the route altogether, you may have a claim for breach of contract. The key here is to document all the losses you are incurring in detail. If you now have to pay higher shipping rates, the difference is part of your damages. If you have to truck the product part-way, that is also part of your damages. You will need documentation for each item. Again, look carefully at the contract’s provisions regarding notice of claim.
In addition, a sudden elimination of a stipulated voyage or route may be a violation of 46 USC §41102(b)(2) of the Shipping Act of 1984, which states that no party may operate under a maritime service contract “if . . . the operation is not in accordance with the terms of the agreement . . .”. In that case, you must file a proceeding before the Federal Maritime Commission, which has exclusive primary jurisdiction over matters under the Shipping Act. Mediterranean Shipping Co USA v. Cargo Inc, 46 F Supp. 3d 294,301 (SDNY 2014) (citing Gov ‘t of Guam v American President Lines, 28 F3d 142, 144 (DC Cir 1994) (affirming a district court’s dismissal of a Shipping Act claim due to lack of jurisdiction); DL Piazza Co v West Coast Line, 210 F2d 947, 948 (2d Cir 1954) (explaining that “the Federal Maritime Board has exclusive primary jurisdiction over matters under the Shipping Act”)).
Demurrage and detention charges
This is the most pressing issue clients are facing right now. Under the Shipping Act of 1984, a marine carrier cannot “fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property” 46 USC § 41102(c).
The Federal Maritime Commission (FMC) started looking into this and issuing guidance a few years ago, and the importance of these issues has only increased as the global supply chain problems and heavy congestion at ports compound. As a result of these challenges, D&D fees have increased dramatically.
On 28 April 2020, the FMC announced a final “Interpretive Rule on Demurrage and Detention Under the Shipping Act”, effective 18 May 2020. The rule essentially expands the factors the FMC can look to when assessing the reasonableness of D&D practices. Overall, the FMC “will consider the extent to which demurrage and detention are serving their intended primary purposes as financial incentives to promote freight fluidity”. 85 Fed Reg 29638, 29666 (18 May 2020). This rule does not prevent the FMC from considering other factors in addition to these, nor does it prevent the FMC from considering arguments and evidence outside those listed in the rule.
Under 46 CFR § 545.4, the following are required to make a claim: (1) the respondent has to be a “an ocean common carrier, marine terminal operator, or ocean transportation intermediary” as those terms are defined in the regulations and statutes; (2) respondent’s activity that is the basis of the complaint has to be occurring regularly, not just once; (3) the practice or rule must “relate to or is connected with receiving, handling, storing, or delivering property”; (4) the practice has to be “unjust or unreasonable”; and (5) the practice or rule has to be the direct cause of the damages claimed.
So how do you get the demurrage & detention rates deemed “unjust or unreasonable”? You must file a claim with the FMC and follow its administrative disputes procedure. If your claim is for $50,000 or less, it will follow a specific procedure for small claims known as Section S, which aims to reduce costs and time for smaller claims.
In all cases, document, document, document. Reach out to your attorney as soon as you can to make sure you are notifying the carriers on time and proceeding in a way that will not inadvertently waive any claims you may have.
This is guest post by Tiffany Comprés, a partner at US law firm Fisher Broyles and a board-certified expert in international law who has been recognised as an expert on the UN Convention on Contracts for the International Sale of Goods (CISG) and the Perishable Agricultural Commodities Act (PACA).
[This column is published for the purposes of providing a general understanding of the law and does not constitute legal advice. It is in no way a substitute for individual legal consultation and anyone with a legal problem should not rely on these answers but should instead consult their attorney. If you have a legal problem and do not know an attorney, call your local Bar Association’s Lawyer Referral Service.]