The ICC International Maritime Bureau (IMB) recently established a register for the voluntary registrationi of NVOCC’sii involved in container shipping. In addition, the IMB launched a course, the IMB NVOCC Bill of Lading Certificate (“NBL”) targeted at the NVOCC’siii. To celebrate the official launch of the NBL, IMB organised a panel discussion on 18thJan 2019 at Singapore to discuss the problematic risks and vulnerabilities with respect to the issue of Bills of Lading by NVOCC’s. We recently viewed the videoiv and this article focuses on this new register and whether it is indeed the right way forward.
- The IMBvi is a specialized non-profit making membership organization of the International Chamber of Commerce (“ICC”). There are a number of different membership levels available with the IMB, as has been listed in their website, for the provision of services including due diligence searches. Given that IMB is part of ICC, it does appear that the IMB should be considering the interests of all parties involved in trade and which should also include NVO’s. However, the NVO register appears to have been primarily initiated to protect the interests of Banking / Financial institutions using the services of IMB for a fee.
- As was stated during the launch of the NLB, the overwhelming majority of NVO’s follow proper systems and procedures. However, given that there are some bad apples, the NVOCC register was initiated so that the NVO’s could be “regulated”. We have some issues on this “regulation” and which are as follows:
- Definition of NVOCC:
- There are two common definitions of NVOCC’s (“NVO”) – one of them being Non-Vessel Owning Common Carrier and the other Non-Vessel Operating Common Carrier. The difference between the two is that the Non-Vessel Operating Common Carrier is more expansive given that it includes Carriers who may operate without owning vessels i.e. say by chartering them. In this case, the Bills of Lading (“B/L”) issued is not an Owners B/L. There is an inherent advantage in certain jurisdictions to contract with a Vessel Owning Common Carrier (“VOCC”) in that a Claimant in certain circumstances may be entitled to arrestvii a vessel owned by the Carrier to seek security for their claim and found jurisdiction.
- The IMB’s definition of a NVO is Non-Vessel Owning Common Carrier. This being the case, Carriersviii who load on chartered or 3rd party vessels (for instance feeders) would not fall within the definition of a NVO. Registering of vessels as a special purpose vehicle (“SPV”) is a common risk fencing method employed by almost of all the major entities involved in the shipping industry.
- The target of the NVO register appears to be the smaller entities who do not own or operate vessels. The unfortunate fact is that given their size, the smaller NVO’s may not have a voice to reason out. The basis of creation of the register is that almost 95% of the fraudulent B/L were issued by NVO’six. However, no numbers were bandied on the actual number of NVO’s issuing B/L together with number of B/L issued by them vis-à-vis VOCC’s. While we are not aware of the number of NVO’s, we would estimate that they would exceed 100,000. With respect to VOCC’s, we believe that they would number 100 or so. If we are correct on this, the 5% of the fraudulent B/L issued by VOCC’s should also be a cause of concern to all including the IMB given the limited number of VOCC’s issuing B/L’s.
- There is a requirement for the NVO members to pay annual membership feesx. However, registration does not give any right to any information such as is available to a Banking member. This appears to be an asymmetric relationship and given that the IMB has a duty to all participants including NVO’s, we are therefore not comfortable with the “register” in the present form.
- The NVOCC code of conduct requires the NVO to confirm issuance of Bills of Lading basis any request made by any company with a legitimate interest. However, legitimate interest has not been defined such that any member bank, however, loosely connected may make this request. The code of conduct also does not consider the inherent and / or contractual duty of confidentiality which the NVO may have to the holders of the Bills of Lading. We submit that at the very least, legitimate interest should be properly defined and restricted to only holders of the original B/L at the time of making the requestxi.
- Definition of NVOCC:
- The majority of NVO’s are members of trade Organisations such as British International Freight Forwarders Association, Singapore Logistics Association, etc. One of the requirements for becoming a member of such trade associations is that the member has sufficient liability insurance and follows established trade practices. In fact, the membership requirements of these trade associations are more stringent than that propounded by IMB. This being the case, the IMB’s should have at least approached these associations prior to the formation of the NVO register to discuss and work out a process beneficial to all.
- If commercial pressure does indeed force NVO’s to participate in the IMB register, they would be saddled with not only annual membership fees but also administrative requirements for provision of information without any costs recovery. We submit that at the very least, NVO’s should only provide information if the party seeking is legally entitled to, say the holders of the original Bills of Lading, together with cost recovery for the provision of such information.
- Even if it is ascertained that the B/L issued by a NVO is genuine (which is generally the case), a party may still be able to perpetrate a fraud (e.g. the goods loaded in the container may not match the details provided in a FCL/FCL B/L). This being the case, systems and procedures followed in the trade transaction should not only be robust but also be shared so that one can learn from the experience of one another. One of the panel speakers, Mr Baldev Bhinderxii at the NBL launch, mentionedxii that Banks do not share the information within themselves (other banks) and that is why double financing (fraud) comes about. Creation of a NVO register therefore does not go far enough to deal with the issue . We submit that it would instead be preferrable to have a data base amongst the banking members wherein they share information on such issues to deal with fraud. Additionally, when they (banks) become aware of any fraud, irrespective of whether their financial position has been remedied or not, they must pursue the fraudster such that it becomes an example for the trade and dissuades others from considering such behaviour.
- Given the number of NVO’s and the parties involved in the trade transaction, we believe that policing by way of the IMB NVO register would be difficult, if not impossible. One way is to perhaps for various jurisdictions to require that the B/L’s be bonded such as imposed on foreign Ocean Transport Intermediaries trading into USA by the Federal Maritime Commission. However, this will not only impose additional costs to the NVO’s but would also require the various jurisdictions to incur costs to police this new requirement. We do not propound this as this may only add “red tape” instead of dealing with the problem at hand.
- If there are any weakness in the trade systems, opportunities will arise for fraudsters and who will take advantage of the same. In this regard, we chanced upon the article of Mr Ian Teoxiv of Helmsmann LLC published in the Manifold Timesxv and which discussed the various banking frauds perpetrated in the recent past. We submit that in order to avoid any fraudulent transaction, it is incumbent on the trade financing party to not only understand their clients but also the trade that they are involved in instead of relying only on the B/L issuedxvi. The question therefore should be whether the Bank/Financial Institution is providing credit basis the B/L or the party submitting the B/L. If the credit is basis the party submitting the B/L, it is then incumbent on the Bank to conduct a proper due diligence search on their clients in addition to verifying the validity of the B/L’s presented.
- We had, prior to writing this article, contacted IMB to ascertain the number of NVO’s in their register. While we were not advised of the exact numbers, we were advised that the number of signatories were increasing. However, given that no specific numbers were mentioned (or whether the sign up were in 3 digit or 4 digit numbers), it does appear that the sign up’s are not significant. If what we say is correct, perhaps, it is time for IMB to relook at the NVO register and consider whether it would be worthwhile to work with trade associations and banks to have proper systems in place to combat fraud (which is of benefit to all including the bank members).
- To conclude, only time will tell if the NVO register of the IMB achieves its objective to root out B/L frauds. If not, it is time for interested parties to consider working towards a systemic solution instead of a piecemeal solution.
ii. See article on IMB’s NVOCC’s register by Gard and which can be viewed at http://www.gard.no/web/updates/content/28322481/the-imb-nvocc-register-protection-against-fraudulent-bills-of-lading
v. The author of this article was previously employed by an NVO and is presently involved in dealing with various types of Transport Liability Claims on behalf of both the NVO’s and their liability insurers.
vii.See section 20 (2)(h) of the UK Senior Courts Act 1981, section 3h of the Singapore High Court (Admiralty Jurisdiction) Act (Chapter 123).
viii. We conducted a company search on Maersk A/S who sign as Carriers in the Maersk Line B/L and note that while they have interests in about 319 vessels, they are listed as the registered owners of 30 vessels. This being the case, they would fall within the definition of NVO for containers loaded on the other vessels which they operate.
ix. The figures bandied are basis what has been posted in https://icc-ccs.org/index.php/nvoccregister/shipping-freight .
x. The NVOCC code of conduct lists the payment of a membership fee but does not give any exact membership fee (https://icc-ccs.org/index.php/nvoccregister/code-of-conduct).
xi. See our earlier article http://nau.com.sg/should-customers-shipment-information-be-provided-to-3rd-parties/ which commented on requests for information by IMB. Similar view had earlier been propounded in an article of Gard and which can be viewed at http://www.gard.no/web/updates/content/20822985/third-party-requests-for-verification-of-bills-of-lading-and-other-shipping-documents
xvi. We make this comment as most of the panel members at the NBL launch mentioned that the banks primarily relied on the B/L. I