Difference in Risks – NVO’s

1. A Non Vessel Operating Common Carrier (“NVO”) would generally book with an overlying carrier on similar termsⁱ such that should they face any exposure for damage to the cargo from the downward contractual parties/cargo interests, they could look for an indemnity from the overlying contractual parties. It appears to us that the initial development of NVO’s was more to ensure that the commercially sensitive information was withheld from the overlying contractual parties/carriers such that in periods of reduced demand the threat of loss of business is limited i.e. the the overlying contractual parties/carriers will not have easy access to canvass support directly from cargo interests. Since then there have been various developmentsⁱⁱ resulting in some NVO’s contracting with overlying parties on terms different from what they contract with their underlying parties.
2. Examples of such difference are:
   1. NVO’s issuing a Through BL to their downward contractual parties, and in turn, contracting with overlying carriers/Vessel Operator only on Port to Port basis. The NVO’s would arrange to undertake the transshipment by themselves either directly or by their agents.
   2. The NVO contracting with VO’s on slot charterparties but contracting with the downwards contractual parties on the basis of their Bills of Ladings terms and conditions.
3. Issues when contracting on differing terms:
   1. Liability exposures
      1. The liability exposure of NVO’s to their downward contractual parties would be based on the compulsorily applicable cargo conventions, or in their absence (if the document is not a Document of Titleⁱⁱⁱ), by contractual incorporation of either The Hague or The Hague Visby Rules^iv (known for this article as the “HVR”). The HVR not only entitles the Carriers to exclude^v and/or limit^vi liability. In addition, there many other provisions including Time Bar^vii and the requirement of fault^viii for any successful pursuit of the Shipper.
      2. The liability exposure of the NVO’s to the upward contractual parties would be on the basis of the slot charterparty (“Slot C/P”) and which would provide for various provisions including time bars, safe ports and NYPE Inter Club agreement^ix. In this case, the upward parties do not need to focus on there being any fault on the part of the NVO but instead on the allocation of risks as provided by the Slot C/P.
      3. We were advised recently by one of the NVO’s that after shipment of a properly declared DG Cargo accepted by the Vessel Operator, the cargo could not be discharged due to the discharge port authority making changes in the approval process. Consequently, the Vessel had to deviate to another port to discharge the DG cargo and for which the VO incurred costs for the deviation, loss  of use/hire charges, additional moves etc. The VO subsequently recovered these costs successfully from the NVO on the basis of the terms of the slot C/P. We submit that if the NVO had contracted with the overlying parties on the basis of a BL agreement and which provides for the application of the HVR, they would have been entitled to defend such claims pursued by the Overlying parties on the basis of the absence of fault as provided in Art IV(3) of the HVR (which would also be the case for the Shippers under the NVO B/L).
   2. Insurance coverages: While insurance is not mandatory in most jurisdictions, a responsible NVO would ensure to be covered for their potential exposures^x. NVO policies generally exclude coverage for any risks associated with chartering of vessels^xi. If the NVO’s are also covered for their role as slot charterers^xii, it appears to us that the available cover in the market is insufficient given that it is mainly geared to the Bulk Industry and would not deal with the exposures as detailed in our example stated in 3iii above. 
4. Conclusion:
   1. Should a NVO decide to contract on different terms (between the overlying and underlying parties), they must be aware of their potential exposures and the gaps in their existing insurance coverage.
   2. A NVO should regularly revisit their risks and discuss with their Insurance Brokers to consider whether these risks should be dealt by themselves (self-insurance) or by risk transfer (insurance) by seeking additional cover.

^i. See our earlier article, Back to Back Contracts.
^ii.See an article Freight Forwarders’ House Bills of Lading – Myth, Facts and Hope by Dr Simone Lamont-Black.
^iii. See article on The Bill of Lading as a Document of Title at Common Law by Nick Curwen.
^iv. See article by the Standard Club – Contracts of carriage and bills of lading.
^v. See Art IV(2) (a-q) of the HVR.
^vi. See Art IV(5)(a) of the HVR.
^vii. See Art III(6) of the HVR.
^viii. See Art IV(3) of the HVR.
^ix. See The Standard Club Article on the Inter-Club Agreement.
^x. See our earlier article, Transport Liability Policy – What Limits?
^xi. See Clause 5.3 and 5.4 of G1 General Exclusions of the Transport and Logistics Operators 2024 Wordings of TT Club (other Insurers provide coverage on similar wordings).
^xii. See cover provided by Charterama and which provides Charterers Cover.