Container Carriers – Issues

This article will touch on some of the issues faced by a Container Carrier (“CC”).

1. Mis-declaration of cargo:
   1. We have, in the recent past, seen mis-declarations made by cargo interests for shipments out of Singapore. The issue comes to the fore when the authorities at the destination become suspicious and hold the containers for inspection prior to delivery. If the inspection reveals cargo to be different than that declared, the containers along with cargo are impounded for further investigation and action. Invariably, the cargo interests are unavailable such that the CC is now left to deal with the investigation and the associated costs.
   2. It is a requirement for shipments exported from Singapore for an export permit (“EP”) to be submitted to the authorities. The general practice is for the Shippers to provide a copy of the EP to the CC for onward submission. It is also possible for the Shipper to submit the EP directly to the authorities and which does open a window for Shippers to mis-declare the cargo to the CC. This being the case, CC must always be on alert when the Shippers submit the EP to the authorities directly. 
   3. We recently attended a talk at Rajah & Tann (“R&T”), Singapore on “Avoiding Import, Export and Other Trade Violations”ⁱ in which the speakers touched on the various penalties imposed by the Singaporean Custom authorities for mis-declaration of cargoⁱⁱ. While it may certainly be difficult for the CC to pursue the cargo interests who has mis-declared the cargo (given it may not make commercial sense), they (the CC) should also consider reporting the mis-declaration to the authorities together with the complete details of the shipment. We were advised during the R&R seminar that the Singapore authorities do investigate such mis-declarations and impose fines as provided under the law. Hence, to deter such Singapore related mis-declarations, CC’s should make a report authorities for their further investigations.
2. Difference in terms:
   1. It is no longer necessary to be an Owner of the Vessel to be a CC. In fact, most of the CC operate either as an Operator (by chartering ships) or as a NVO. In addition to the cargo conventions (Hague, Hague Visby Rules) which are incorporated either by force of law or by contractual incorporation, Owners are also entitled to limit liability based on the tonnage / value (which occurs in case of a major casualty).
   2. The major tonnage limitation conventions are the International Convention relating to the Limitation of the Liability of Owners of Sea-Going Ships (commonly known as the “1957 Convention”), Convention on Limitation of Liability for Maritime Claims, 1976 (commonly known as the “1976 Convention”). USA is not a signatory to both these conventions but have their own act, Limitation of Liability Act of 1851, and which entitle the Owners to limit liability based on the value of the ship post casualty and the freight.
   3. The 1957 Convention and the US Limitation of Liability Act of 1851 only entitle the Owners to limit liability whereas the 1976 Convention also entitle the Charterers to limit liability on the basis of the provisions of the convention. Given that CC may sometimes be neither Owners or Charterers, there would therefore be a gap between the Owners and CC’s limitation entitlement. In the article, Dormant Risk – Tackling what lies behind, Mr Yu Bo of Market Internation Singapore has written in detail on this potential gap in the exposures to NVO’s.
   4. Accordingly, even if parties sign “back-to-back” contracts, much will depend on the size of the casualty and the applicable laws/conventions. This being the case, intermediate carriers/NVO’s should be aware of the gaps in exposure which may arise in major casualties and take appropriate risk management measures including insurances for this gap.
3. Security:
   1. Cargo interests, and for that matter other interests, in certain circumstances are entitled to seek security for their claims failing which they may, in some jurisdictions, arrest the vessel or a sister vessel. In this regard, there are two conventions, the International Convention Relating to the Arrest of Sea-Going Ships (the “1952 Arrest Convention”) and the International Convention on Arrest of Ships,1999 (the “1999 Arrest Convention”).
   2. Both these conventions entitle parties in certain circumstances to arrest vessels to seek security. The main difference between the two conventions is that the 1952 convention entitles a party to pursue the Owner/demise Charterers whereas the 1999 convention also includes a Time/Voyage Charterer. The actual application of the conventions would depend on how it has been legislated in a jurisdiction.
   3. Following a loss, cargo interests can certainly demand security from CC who may either Own or Charter vessels. This entitlement does not extend against a NVO’s given that they do not own or operate vessels.
   4. If, however, the NVO contracts with the Owner/Operator based on a slot charter and which provides for the Inter Club Agreement 2011 (“ICA 2011”) or earlier, then the Overlying party (say the Owner/Operator) is entitled to seek security from the NVOⁱⁱⁱ if they (Owner/Operator) had provided security to the cargo interests. There are other provisions in the ICA 2011 which change the legal position contractually and perhaps this is the reason why Transport Liability Insurers generally incorporate an exclusion to cover when the NVO acts as a slot charter.
4. Conclusion:
   1. It is advisable for CC’s to conduct a regular KYC to ensure that they deal with respectable parties. 
   2. On becoming aware of a mis-declaration, in addition to pursuing the cargo interests, CC’s should notify the relevant government authorities so that they (government authorities) may conduct their own investigations.
   3. In case of major casualties, a NVO may find themselves bearing a portion of risks without any potential from recovery from the overlying carrier.
   4. Contractual provisions such as ICA 2011 in Slot Charterparties would force NVO’s to provide counter security to their overlying contractual parties. 

ⁱ.https://nau.com.sg/08faa2f3-8cb8-4138-a92a-6221e33d364e/
ⁱⁱ.See Export Procedures (customs.gov.sg)
ⁱⁱⁱ.Clause 9 of the ICA 2011. See also Guidance note on ICA 2011 provided by UK P&I