Specifically, the Coronavirus has led to several port disruptions throughout the shipping industry.
The Club alerts that there are restrictions due to labour shortages at ports and cancellations of inland transport links within China, constraints in the supply of goods due to factory closures and reduced schedules of air, ocean and rail carriers, which may expose forwarders to claims arising from delivery delays and cargo deterioration.
It is highlighted that the operator's service to their customers and their protection against future liability claims is based on good, accurate communication.
Up-to-date status reports on their cargo’s progress, or lack of it, are vital to shippers ... Forwarders and logistics operators will certainly prove their mettle if they can consistently make customers aware of the ongoing attempts to problem-solve. Careful recording of communication trails detailing such actions will also help in any disputes in the future
... emphasises TT Club’s Risk Management Director, Peregrine Storrs-Fox.
Impacts on freight forwarders and logistics operators
The customer revenue could be affected by a possible reduction in goods. Also, there is a risk that important customers lean on forwarders to provide, without a contractual obligation to do so, more expensive "workarounds", such as airfreight and using non-core ocean service providers to perform voyages.
Following the office closures in China,many companies have restricted their travel regimes; This leads to expected business travel related to securing transactions or continuing servicing relationships are likely to being disrupted.
It will be important to maintain clear and open communications.
Legal Assessment - Special Contracts
Although the industry doesn't need negotiated contracts, some forwarders have in place supply chain or freight management agreements with their key customers. In those cases, it is crucial to review all specific customer contracts for ocean-related services and identify the obligations on the supplier to perform in contexts such as the coronavirus.
- Is the forwarder or its agent required to issue FCRs and/or bills of lading?
- Is the operator required to undertake consolidations?
- Is it responsible for export customs formalities, etc.?
Some agreements are based on the customer’s standard purchasing terms and may consequently be very customer friendly with few exclusions to benefit the supplier. As well as identifying obligations, forwarders should identify any "force majeure" clauses in their agreements, such as China proposed, and preemptively send notices to customers setting out the problems in China and invoking their force majeure right to be discharged from their obligations to perform.
Industry Standard Terms
In a case where the operator trades based on industry standard terms, such as national association forwarding conditions, it is safe to send force majeure notices.
Communications to customers
Freight suppliers should always keep their customers up to date concerning any problems experienced by other stakeholders in the given supply chain, such as vendors, hauliers, lines, agents and terminals.
To rely upon a force majeure clause or to be discharged of an obligation under general law, an operator needs to evidence that the customer’s losses and any failure to perform were caused by matters genuinely and reasonably outside its control. Suppliers will generally be contractually required to consider and implement any reasonable "workarounds" if they involve modest additional cost.
Communications to other supply chain stakeholders
Keep written records of communications with supply chain stakeholders and contractors and send them notices holding them to their contractual obligations.
TT Club states that freight forwarders and logistics operators should maintain a paper trail to minimise the risk of claims and to evidence that they did everything reasonable to avoid the customer's losses. Also, a high-level summary of the steps taken and problems encountered should be included in communications to customers.
If original bills are not produced and/or not couriered to destinations, there is the risk that forwarders, purchasers and lines will have to find "workarounds".
Under the condition that a shipping line's original bill of lading is sent to the Chinese agent or network office of the customer’s forwarder but it has not found its way to the destination forwarder/agent owing to reasons outside its control, then as a "workaround", the line is likely to demand a letter of indemnity (LOI) at destination prior to delivering the container to a party who is unable to present the original bill.
If a part fails to provide a line with a LOI, this could impact the goods being released and result to container detention charges being incurred. Moreover, this can easily turn into a large sum if the line exercises a lien and stores the container at the terminal for a long time.
The Club advises that
Given that the freight forwarder will want to pass all costs payable to the line onto the customer, it should keep the customer informed about all detention and hold the customer responsible for it. If large detention sums are demanded, legal advice should be sought.
Another risk is the risk of house non-vessel operating carrier (NVOC) bills not arriving. During the coronavirus outbreak and also in general, operators are advised to be extra careful and take great care before releasing goods without the receiver presenting an original house bill.
Insurance coverage will be prejudiced where claims arise from intentional release of cargo without presentation of an original bill. Legal advice should be obtained and, if the operator agrees to accept an LOI from the customer/receiver, it should ensure that the wording clearly responds to the risks arising and the party issuing the LOI is good for its money.
LOIs should be signed by a first class bank as the party providing the indemnity or as guarantor of the customer as the indemnifying party. If the customer/receiver refuses to provide an acceptable LOI, legal advice should be sought.
There is a possibility that customers/ receivers abandon the cargo in case they find no bill, “stop” instructions have been issued by vendors and/or substantial detention charges have accrued. Forwarders should work proactively to avoid the costs, customs complications and operational problems arising from abandoned cargoes.
The Club proposes
Specifically, avoid the temptation of doing nothing in the hope that the problem will resolve itself.
Claims in China
There is a risk of claims from sellers against forwarders and logistics operators and/or their Chinese agents/network offices.
- If sellers fail to get paid owing to clerical or data entry problems, or because the buyer has received the goods but failed to pay, they are likely to claim against the party issuing the forwarder’s cargo receipt (FCR) or NVOC bill in China.
- Before any goods are released to receivers, operators should check that sellers have not issued stop notices to them or their Chinese agents/network offices or intimated a claim should the goods be released. LOIs provided by buyers/receivers should expressly cover this risk. If stop notices or claims have been intimated then operators are advised to seek legal advice