News / Warning to forwarders as appetite for fake goods will rise alongside trade war tariffs

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Forwarders must protect themselves from the risk of shipping counterfeit goods, trade in which is forecast to increase.

The business of fakes is expected to get a boost from the next round of tariffs on $200bn-worth of Chinese goods, including handbags, leather and silk.

“A tariff on a genuine bag is a subsidy for a fake,” Susan Scafidi, a New York fashion lawyer,” told the Washington Post this week.

In June, six US trade associations wrote to the US government noting: “The administration’s … tariffs place significant barriers on the fight against harmful fakes. US tariffs on critical imported machinery not only hurt industries, but the additional costs trickle-down to consumers thus, affecting their choices.

“Rather than pay more for legitimate goods, we fear that consumers might seek cheap counterfeits as a replacement, whether knowingly or unknowingly. In other words, US policy could help legitimise fake goods at the expense of rightful intellectual property owners.”

And with an additional 10% on prices from Monday, the lure of cheaper but fake goods is likely to grow among consumers. One case in five involves trademark infringements of US companies.

Forwarders face significant penalties if they are found to have shipped counterfeits – even unknowingly.

A case in August saw two forwarders and a customs broker found liable for moving 10 containers of counterfeit Nike shoes into the US, and were sentenced for failing to operate with “reasonable care”.

City Ocean Logistics and City Ocean International, registered in China and California respectively, and customs broker Eastern Ports Customs Brokers argued that they had no knowledge of the goods and had no intent to violate the law. They also claimed they had no direct contact with the shipper.

However, the court found they taken responsibility for the goods and made presentations as to the nature of them.

Eight containers had been retrieved by the buyer, although the forwarders told the court they did not know who that was. The final two boxes were seized at the port of Newark after arriving on a China Shipping vessel.

The court found the forwarders liable, even though they argued they had “merely booked a cargo container with an ocean common carrier for the shipper”.

They believed they were “innocent service provider[s]” who “neither knew nor had any reason to have known that [their] services were being used by the actual, direct counterfeiters to assist in the shipment of product from China to the US.”

The shipment was labelled as “ceramic tiles”.

Ned Kiley, legal counsel of the US Airforwarders Association, told Voice of the Independent this month: “Forwarders need to check the documents and verify accuracy. That’s ‘reasonable care’. The watchword for forwarders, especially on shipments from places known for this stuff, is check and double-check the parties and the documents,” he urged.

Intent is also not a relevant argument, and according to the court, “becomes relevant only at the damages stage of the inquiry”.

“Violations of trademark/copyright are what is called ‘strict liability’ offences,” explained WCA forwarder network attorney Michael McMullen to VOTI. “It doesn’t matter that the defendants didn’t know, or didn’t intend, or even didn’t want to violate – they moved the goods in commerce, hence they are strictly liable. No ‘intent’ is required.”

City Ocean International underlined its responsibility for the goods by being identified as the consignee on the master bill of lading.

“From a legal standpoint, I have often wondered why a forwarder would list his company as the ‘consignee’ or the ‘shipper’ on any bill of lading. The effect of that is he increases his risk, without any compensation to cover that risk,” said Mr McMullen.

“How can a forwarder protect himself? Don’t list yourself on the bill of lading as consignee or shipper,” he advised.

“Simple common sense dictates that you have some contact [with the consignee or shipper], some way to reasonably verify who is who, what is what and what is being shipped/received. If you don’t, don’t do the movement,” he warned.

In this case, Nike argued for damages of $3.2m from the customs broker, owing to the number of trademarks infringed – eight – and the value of the shipments. The court found the broker liable for $240,000 – but the maximum amount could have been $16m.

Another recent case, involving some 22 containers packed with fake handbags and other designer goods and found in New York ports, is also destined for the courts. It represented a loss to US companies of nearly $500m.