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Inspection DO for cargoes loaded in containers

Jagan - March 20, 2014 - 0 comments

  1. We have come across many requests made by the consignee that they would wish to inspect the cargo inside the container prior to taking delivery. For this, the consignee would take the appropriate permission from the custom authorities to conduct an inspection at the terminal / CFS. If the Shipping Line (“hereinafter known as “SL”) accedes to this request, they would issue something known as an “Inspection DO” to facilitate breaking of seal and inspection of cargo. This is obviously an incorrect practice and fraught with difficulties to the SL.
  2. During the opening of the container if the cargo is found to be in order, this will generally be the end of the matter in that the consignee will proceed to submit the B/L and make payment of the charges and effect delivery.
  3. However, if the cargo is found off spec or mis – declared, then the consignee will generally proceed to reject the cargo by not taking delivery. The SL is now left with a problem in their hands in that they have a laden container to which no one wishes to take delivery. Further, the port / terminal will continue to charge the port storage charges after the normal free time (this charge increases depending on the no of days the container remains uncleared). If the container is leased, the SL will have to continue to pay lease rentals and at the same time loose use of the container till such time it becomes empty.
  4. The SL Line would then have to consider ways and means to dispose of the cargo to stem the costs associated with it (Port storage charges). The Bills of Lading issued may have a clause entitling the SL to auction of the cargo in such circumstances. However provision of clear “Title” of the cargo to the buyer may be an issue. The other way is either to approach the Port to proceed with the auction (some ports have the authority to do this) or to approach the Courts to seek an order for auctioning of the cargo.
  5. If the cargo is mis-declared, the cargo would generally be some waste material for which no one would be agreeable to make any offer during the auction. The SL would then have to consider disposing of the cargo after taking the relevant permissions from the relevant authorities (costs for transportation, disposal costs, etc). This whole exercise may not only be time consuming but would also be costly. Further, in some jurisdictions, the Custom Authorities may penalize the SL for the loss in duty.
  6. The obvious problem of agreeing to an “inspection DO” is that the Shipping Company / Line is unnecessarily exposing themselves to potential costs and claims.
  7. The duty of a carrier is to deliver the cargo to the holder of the original bills of lading. Once the holder presents an original bill of lading to the carrier, the carrier generally collects relevant charges (such as terminal handling charges, port storage, container demurrage and detention, etc), they would issue a Delivery Order (may be a paper delivery order or an electronic delivery order) entitling the consignee or his agents to take delivery of the container with cargo.
  8. The consignee or his agent will proceed to take delivery of the container and truck it to their nominated warehouse / CFS to devann the cargo. At this time, if they do find discrepancy / damage to / in the cargo, they could pursue the party at fault as would be generally provided in the sale contract. This should be the correct way to pursue instead of involving the SL in the claim.
  9. In the case of an “inspection DO”, the consignee would request the SL to first inspect the cargo without providing the original Bill of Lading. This obviously is irregular and if the SL agrees to do this, it would be in breach of its obligations under the Bill of Lading contract.
  10. While the consignee’s / cargo interests would certainly consider pursuit of the SL for the alleged discrepancy to the cargo, it is to be noted that the SL would generally not be involved during the loading of the cargo inside the container. Further, the SL would generally issue a Bill of Lading claused with terms such as “said to contain” (while the carrier has noted details of the cargo loaded in the container in the B/L, they have not verified the same), “Shippers Load Count Stow & Sealed” (Container were loaded and sealed by the Shipper and that the SL was not involved in this process). On the other hand, if the SL was involved in the loading of the cargo, they would not clause the B/L and accordingly be responsible for the cargoes mentioned in the B/L.
  11. If the SL is pursued by the consignee, they could defend the claims on the basis of their B/L’s being claused “Shippers, Load, Stow, Count and Sealed” or “Said to Contain”. Alternatively, the SL could consider pursuing the shipper for an indemnity as the claim arose from their failure to accurately reflect the cargo in the B/L. Having said that, such acts would only be done by Shippers who have either covered their tracks or untraceable after the incident.
  12. If the SL have appropriate liability cover (Insurance provided by Insurers for Transport Liability Operators), they should notify their Insurers to ensure that the policy engages for the incident. Generally the cover is for the costs incurred for defending the claim and may also pay the costs for the removal of the uncleared cargo. It would therefore be appropriate for the SL to ascertain the terms of the cover to ensure that all such claims are reported within the time allowed under the policy and that they are not in breach of the policy.
  13. In summary, we would suggest the following:
    1. Do not agree to issue any “inspection DO”
    2. If a claim is pursued by the consignee / cargo interests on the basis that the cargo in the container was different from what was mentioned in the B/L, provided the B/L is appropriate claused, deny the claim and direct the consignee / cargo interests to pursue the Shippers for the subject claim.
    3. Consider pursuing the Shipper for the costs incurred for defending the claim arising out of their failure to reflect the cargo properly in the B/L.
    4. Ensure to notify the liability insurers so that they are aware of the loss and allow them to deal with the matter (policies would generally provide for the Insurers to direct the handling of the claim).

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