Mis-declared cargo – 2

1. We have recently seen some instances of mis-declared cargo by Shippers and due to which container operators (“Carriers”) had to deal with the disposal and the port storage costs at the destination (the consignee did not come forth to take delivery as they suspected that the customs became aware of the mis-declaration). The reasons for mis-declaration could be many including avoiding payment of customs duties at load or discharge port or to ship the goods as general cargo instead of dangerous cargoes (and thereby avoid Dangerous Goods Surcharge)ⁱ.
2. The unfortunate fact is that the Carriers rarely verify the goods loaded and instead base it on the declarations provided by their contractual counterparty i.e. Freight Forwarder or Shipper. This is understandable to some extent given that the Carriers are rarely in contact with the actual Shipper but with an Intermediary (Freight Forwarder as Carrier or as Agent and with the shipments being effected on FCL/FCLⁱⁱ basis). If there are no mis-declarations, then all is fine. However, if there are any mis-declarations and which result in a loss or expenditure, then the Carrier will have to deal with this exposure. Subsequently, the Carrier may seek recovery from the mis-declaring party but rarely succeed given that these parties have generally understood the lacuna’s available and use them to avoid any exposure.
3. Some of the ways to avoid dealing with mis-declared cargo are
   1. Background check of counterparty and which should include checking that they are capitalized to a reasonable amount so as to bear any resultant claims.
   2. In some jurisdictions, the Carriers have access to the cargo details filed with the customs (Shipping Bill, Goods Declaration Receipt, etc.) and therefore should establish a way to check if the details tally with what is filed with them (Carrier).
   3. Name and Shame: On becoming aware of any mis-declaration, Carriers and their agents must share this information with the industry at large to caution the trade so they can avoid dealing with those parties.
   4. Filing a complaint with the relevant authorities / police and ensuring that the parties involved in mis-declaration are put to task. Obviously, this would require use of personnel to follow up with the authorities to ensure that they enforce the law of the land.
   5. Screening software’s to detect mis-declared and undeclared dangerous goodsⁱⁱⁱ. While this is certainly helpful for dangerous goods, there appears to be a gap given that this software appears to focus on dangerous goods.
4. Intermediary in the chain: A Freight Forwarder (“FF”) may be involved as an intermediary and may either act as a contractual party to the Shipper by issuing their own Bills of Lading (FF as Carrier) or act as an agent to the Shipper (FF as Agent).
   1. FF as Carrier: The FF would, in turn, be contracting with the Actual Carrier as a contractual party such that the Carrier can pursue them for recovery.
   2. FF as Agent:
      1. The FF would generally direct the Carrier to claim from the Shippers given that they are the contractual parties at least in the Bills of Lading issued by the Carriers. Carriers may prefer to pursue the FF instead of the Shipper given that they (FF) are generally a bigger and better target then the Shipper.
      2. Additionally, the Carrier would have conducted KYC as their risk management process on the FF and not on the Shipper. While the FF may argue that they were innocent, the fact is that they (FF) would have to take some responsibility, either contractually or otherwise.
      3. Some Carrier’s booking conditions permit the Carrier to hold the FF jointly and severally liable for all costs and claims arising from any mis-declared cargo^iv.
   3. While a FF may indeed be covered for their liabilities, failure to do a background check on their counterparty prior to accepting business may be construed as reckless behavior, and if the policy conductions permit, allow the Insurers to deny cover! In this case, the FF would have to deal with the exposure by themselves. 

4. In conclusion,
   1. The issues related to mis-declared cargo continue unabated and due to which Carriers and all other parties in the contractual chain must continue to be ever vigilant.
   2. Technology / screening software’s may be one way to take a pro-active approach to deal with this risk.
   3. Once a Carrier becomes aware of any mis-declared cargo, they must immediately stop further carriage, say by discharging in transit, and if possible ,take the mis-declaring party to task.  
   4. Carriers must not only name and shame the mis-declaring parties but also lobby with the authorities to ensure that the wrongful parties are taken to task. 

^i. See our earlier articles, Mis-declared Cargo & Mis-declaration of Cargoes – Penalties. Also see white paper published by National Cargo Board on mis declared and undeclared dangerous cargo.
^ii. FCL: Definition, Usage, Cost – Guided Imports^.
iii. Hapag-Lloyd adopts dangerous goods screening software.
^iv. The argument generally made is that the FF as Agent falls within the definition of Merchant stated in the Bill of Lading issued by the Carrier. We have difficulty in accepting this argument given that the BL would list the actual Shipper and Consignee and not the FF (if they do, they will only mention their role as Booking agent).