General Average – Freight Forwarders & Containers

1. Liability of a Freight Forwarder / NVOCC for a General Average:
   1. We had the opportunity to attend a webinar on “Simplifying General Average: An Insurer Guide” conducted on 11^th May 2023 by the Middle East branchⁱ of the Institute of Chartered Shipbrokers where Mr. Abdul Fahlⁱⁱ of TTMS shared his views. One of the points he discussed was on the liability of a Freight Forwarderⁱⁱⁱⁱ (“FF”) for a General Average (“GA”). He advised that as the FF are more often involved in arranging the shipment and do not have any assets on board the vessel, they should not be concerned or worried over providing any GA Guarantee to the Average Adjuster. The Average Adjuster may however contact the FF if they had issued BL’s and in which case, the FF should provide their BL so that the Average Adjuster can liaise directly with the cargo interests. This is sound advice given that the parties contributing to a GA should have some interest in the property or freight, if at risk^iv, involved in the adventure.
   2. The issue then would be whether the FF should be cautious whenever a GA is declared?
      1. If the cargo interests make payment of the GA contributions due and take delivery of the cargo on completion of voyage, then there would be no exposure. However, if the cargo interests refuse to provide security or take delivery of the cargo, say due to damage to the cargo, then the issue would be whether the Overlying Carrier (“OC”) is entitled to seek recovery of the container detention/demurrage and expenditure incurred to deal with the abandoned cargo from the FF/NVOCC (A FF in our view acts as an agent and do not issue their own B/L’s. As and when a FF issues their B/L’s, they become a NVOCC for that specific operation. Accordingly, we are considering the exposures for both FF and NVOCC).
         1. FF: We submit that there would be no exposure to a FF for GA contributions either under common law or York Antwerp Rules 1994^v (or later versions) given that the FF has no interests in any property involved in the adventure. However, some Carrier’s booking note^vi may provide for the FF to be a party to the contract of carriage (B/L) such that they (FF) are jointly and severally liable for any and all claims. This being the case, it may be possible for a Carrier to pursue a FF for both the container detention/demurrage and costs of disposal should the cargo interests refuse to provide security and take delivery of the cargo resulting in additional costs for container detention/demurrage and disposal.
         2. NVOCC: The main difference between a FF and NVOCC is in the role i.e. the NVOCC is in a contractual relationship both with the cargo interests and the OC. In addition, a NVOCC may use his own equipment (containers) in which case, they would also need to provide security and contribute to any GA for the value of their containers. If a claim is pursued by an OC against a NVOCC, they (NVOCC) should, in turn, pursue their contractual party below for recovery. If the party below (cargo interests) do not respond, then the NVOCC would have to deal with the claim pursued by the OC. A possible defence available to both the cargo interests and NVOCC is when the cargo is no longer in specie and in which case, it could be argued that container detention/demurrage are only applicable if the cargo is in specie and that the costs for abandonment should be  solely borne by the OC.
      2. Transport Liability Policies provide cover to their insured for GA contributions^vii which they may be held liable for. This being the case, a NVOCC/FF should notify their liability insurers of any GA in which they (NVOCC/FF) may have an interest in so that they (liability insurers) can maintain a watching brief and step in should the situation warrant, say by forcing the OC to take mitigatory steps to reduce the exposure arising from the cargo not providing security/ abandoned. Additionally, container detention/demurrage and cargo abandonment charges are strictly not GA but liability exposures and for which the liability policy is meant to deal with.

1. Contributory Values for Containers:
   1. We had written earlier in our article, GA & Salvage – Value of Containers, that the containers should be valued on the basis of their replacement value^viii. In that article, we focused on laden containers (containers with cargo) and did not consider empty containers^ix which we may be on board the vessel and are shipped to locations of demand either on payment of freight/slot charter or as property of the Operator/Owners.
   2. In the container freight industry, contracts invariably provide for the freight to be earned on loading. This being the case, the freight is not at risk and will be due to the carrier irrespective of whether the voyage is completed or not. In this case, the freight becomes merged with value of the cargo. What about freight paid for empty containers?
   3. The YAR 1994 makes mention of Cargo, Freight and Vessel but does not mention containers. Instead, it refers to property^x. The question would be whether containers would fall under the definition of cargo, vessel or property?
      1. While containers bear similarity to both Vessel and Cargo, given that they are not expressly stated in the numbered rules (which are strictly construed to and take precedence over the lettered rules), we submit that containers should be considered as property.
      2. Rule XVII of YAR 1994 deals with contributory values and refers to property. The first line of this Rule states “The contribution to a general average shall be made upon the actual net values of the property at the termination of the adventure except that the value of cargo shall be the value at the time of discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from the shipped value”. Given that we have argued that containers are not cargo, the question would then be as to what would be the actual net value of the container at the termination of the adventure? Would this be the Depreciated Value (“DV”) or Replacement Value (“RV”)? Although it could be argued that the correct value to be considered is the RV (as suggested in our earlier article GA & Salvage – Value of Containers), we believe that this would be incorrect given that the empty containers are being shipped to not only avoid expenditure (container storage) but also to earn freight for future voyages. Accordingly, we submit that the correct value for these empty containers should be the RV + freight / slot hire paid for the movement of the empty containers.
   4. The question would then be who should contribute for the freight element? 
      1. We submit that given that freight is not at risk, the receiver of the freight need not contribute to the freight element. Instead, the freight becomes merged to the value of the container (as stated in 2cii), the contributions will be due from the Container Owners^xi.
      2. Container Owners as slot charterers:
         1. Voyage charter forms such as the Slothire provide that the hire is earned upon the commencement of voyage^xii. Accordingly, the charter hire is not at the risk of the overlying contractual party (who may be the Operator or Owners). The situation is similar to cargo (freight is not at risk and becomes merged with the value of the cargo) and therefore we submit that the freight/charter hire paid becomes merged with the value of the containers.
         2. The issue is something different when the Container Owners who have a slot charterparty but have not loaded any containers say due to weight or cargo/container restrictions/availability). In this case, there is no container/ property to merge the freight with. However, the slot charterer would continue to pay the charter hire. While an argument can be made that the hire earned should contribute, the fact is that the hire is not at risk as it is earned on commencement of the voyage. Hence, we submit that as there is no property on risk, there is nothing for the hire to be merged with. Accordingly, no contributions will be due for such payments made.
      3. If the Container Owners are the Operators of the vessel, then they (Operators) may have chartered the vessel either on a voyage or time basis. If the vessel is chartered on voyage basis, then the same provisions as suggested in 2dii would apply. With respect to Time Charter, it is not treated as a contributing interest although the shipowner / deponent owner may be obliged to participate in making contributions in respect of voyage freights under a bill of lading contract of a sub-charterparty^xiii. If the Charter Party provides for the hire not to contribute to GA^xiv (which is usually the case) then Owners will not make any contributions. Instead, the contribution will be borne by the party receiving the freight.
   5. We do admit that in most voyages, the value of containers and freight involved for empty containers may be insignificant compared to the value of the other property involved in the voyage. This being the case, the freight element for the empty containers may not have a significant effect on the contributions due from the other parties. However, the freight for empty containers in some voyages do have an impact and therefore it is appropriate that the freight element also be considered in order to preserve equity.
      

ⁱ. The Middle East Branch of the Institute of Chartered Shipbrokers is one of the most active branches and regularly conducts various professional talks/events. We must appreciate the zeal of the office bearers who are doing a wonderful job developing the next generation of Shipping professionals.
ⁱⁱ. https://www.ttclub.com/contact-us/offices/dubai/abdul-fahl/
ⁱⁱⁱ. TT Club takes an expansive view of a Freight Forwarder in that it includes both a Freight Forwarder acting as an Agent (who does not issue their own Bills of Lading) and one who issues their Bills of Lading (in which case they become, in our view, a NVOCC).
^iv.   Freight is never at risk given that the contract of carriage invariably provides for the freight to be earned upon loading.
^v. The Bills of Lading issued by contractual carriers would generally provide for the General Average to be adjusted on the basis of York Antwerp Rules 1994 (“YAR 1994”). However, there are later versions of the York Antwerp Rules such as 2004 and 2016 which are yet to have to same acceptance as the YAR 1994.
^vi. Invariably the Bills of Lading issued in the Liner Industry have a Merchant Clause which allows the Carrier to pursue a party who may have an interest in the shipment. While the scope of the Merchant Clause is very wide, we submit that the actual application of this clause will depend on whether 3^rd parties (who are not listed in the Bills of Lading) were advised of the terms of the Bill of Lading and had agreed to the same prior to the carriage.
^vii. See Clause 1.6 of T5 Costs of the TT Club Wordings 2023 and which provides “General average & Salvage – Cargo’s contribution for which you are liable and which you cannot recover from your customer”.
^viii. The advisory committee of the Association of Average Adjusters, UK had considered that the method most correct in principle was to adopt the current replacement cost, less depreciation for age etc. We do not quite agree given that the current replacement cost would actually have factored the depreciation. The Association further suggests that on grounds of simplicity, the insured values could well be adopted. Again, we do not quire agree and would prefer if this is settled say by a court judgement or by the provisions in a numbered rule and which would then strictly apply – this perhaps can be one of the amendments in future editions of YAR.
^ix. For instance, the Chittagong / Singapore or Malaysia trade in which the movement ex Chittagong consists of equal number of laden and empties. If the empty freight is say USD 300/20’, based on the vessels which ply this trade, the total freight for Chittagong / Singapore would be USD 150,000 or so (say 500 or so containers X Freight of USD 300)
^x. There are 10 references to Property in the YAR 1994 (RA, RC, RII, RV, RVI, RVIII & RXVII).
^xi. We admit that our thoughts on this subject are different from the majority view and are happy to hear comments on why our thoughts are incorrect on this aspect.
^xii. See Clause 5 on the Slot Charter Hire
^xiii. See Para 17.69 of Lowndes & Rudolf, XV edition.
^xiv. As provided in Clause 25 of the NYPE 1993