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Abandonment of Cargo

Jagan - May 4, 2014 - 0 comments

  1. The first question to ask is what abandonment of cargo is and why does this happen?Abandonment of cargo refers to the action taken by the cargo interests to avoid / deny their interests in the cargo and thereby avoid liability associated with it (custom duties, port charges, carrier’s charges by way of detention and or demurrage). Here we are not discussing on abandonment of cargo in Insurance parlance and which is required to for an insured to claim for a Constructive Total Loss (“CTL”) from their Marine Insurers (section 62 of the English Marine Insurance Act 1906 deals with this).
  2. Abandonment of cargo could occur for cargoes loaded in various types of vessel i.e. bulk, break bulk, Ro-Ro, Containers, etc. In the case of bulk cargoes, considering that there is generally a charterer (time, voyage) involved and that cargoes shipped are in huge quantities, abandonment would be rare and would occur only when the cargoes are damaged during transit. In this case, the carrier’s liability policy would generally engage (P&I Policy) and their Insurers would assist in the mitigation of the loss. With respect to the additional costs incurred for abandonment of cargo, carriers could pursue both the cargo interests and the charterers.
  3. With respect to liner cargo (break bulk, ro ro, containers, etc), it becomes a bit more complicated as the cargo is firstly discharged and stored at the terminal pending delivery. If delivery is delayed due to the cargo interests not having the Bills of Lading available to submit or due to the custom formalities not being accomplished, the consignee (the person to whom the shipment is to be delivered) may become liable to charges such as port demurrage, container detention, etc. If the cargo value is low and the charges incurred are high, the consignee may well wish to avoid taking delivery so as to avoid these charges. However, the Carrier may still remain liable for the discharge and other associated charges to the terminal / port and the custom authorities for the cargo abandoned.
  4. While the Bill of Lading issued can be a straight (to a named consignee) or negotiable (To Order”), the consignee can only become liable when he takes or demands delivery from the carrier (see Section 3 of the English COGSA 1992 or the Bills of Lading Act Singapore and which is the corresponding act in Singapore). This being the case, if the consignee do not come forth or demand delivery, it would be difficult for the carrier to pursue them for the accrued charges (which continue to grow till the cargo is removed from the terminal / port). However, the carrier can still pursue the shipper of the cargo as they were the original parties to the contract and this will obviously depend on the creditworthiness of the shipper, jurisdiction where the shipper is based and finally commercial consideration.
  5. If the cargo interests do not come forth for delivery within a reasonable time, the carrier should notify all interested that they would take actions to protect their interests. In this regard, it would be appropriate for the carrier to send a notice to the Shipper, the consignee, notify party and any other party involved the shipment giving them a deadline in which the goods needs to be taken delivery failing which the carrier will dispose of the cargo.
  6. If the cargo interests still do not come forth for delivery, the carrier must then consider whether they are entitled to dispose of the cargo under the terms of the Bill of Lading contract or whether they should approach the courts to seek assistance. The advantage of going to the Courts is that cargo interests cannot pursue the carrier for conversion. The other issue is the passing title to the cargo to the buyers in the sale. As the carriers act as bailee, they do not have any title to the cargo which they could pass to the buyer. However, if the sale is conducted through the order of a court, then the buyer would receive a clear title to any cargoes bought.
  7. Some port authorities do have legal powers to auction of uncleared cargoes and in this way allow a free title to pass to the buyers. This should be an option which the carriers can consider.
  8. If the cargo is of very low value, there may be no bidders to purchase the cargo during the sale/auction. As a consequence, the carrier would then have to consider incurring additional costs (such as devanning the cargo, destruction of the cargo) etc so as to avoid further charges. In this regard, some of the liability policies for carriers do provide cover for uncleared cargo provided it is brought to the notice of their insurers within the relevant notice period. Otherwise, the carriers would have to incur these additional expenses as a cost of doing business.
  9. In order to avoid such issues, carriers could take the following precautions:
    1. Carry cargo of known Shippers or Shippers of repute
    2. Be aware generally of the value of the cargoes being carried. If the cargoes are of low value, then the carriers should be on caution as any extra charges incurred would tip the consignees to abandon the cargo.
    3. Ensure that their Bills of Lading have a clause entitling them to conduct a private sale / auction after relevant notices have been given.
    4. Manage costs pro-actively by looking at various options when cargo is abandoned by the consignee.
    5. Explore potential for pursuing the intermediaries involved for recovery of the costs involved for the cargo abandoned(Freight Forwarder, Booking agent, etc)
  10. In conclusion, it is important for the carrier to know their customers and cargoes which they are carrying so as to avoid any unrecoverable charges. Further, carriers should implement proper risk management process to deal with any uncleared cargo as and when they arise so as to avoid / minimise costs. We at NAU can assist in reviewing your standard operating procedures to try and minimise the exposure and if you wish to explore do feel free to drop us a note.

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