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Road Haulage Risks

Jagan - July 29, 2016 - 0 comments

Service Providers (Contractual Carriers and Freight Forwarders) may provide haulage services (Road/Rail or Water) in addition to the Ocean carriage. This article focuses on Road haulage provided by the Contractual Carriers (“CC”) and / or Freight Forwarder (“FF”) to facilitate the transportation of goods from the hinterland to the port.

  1. This article focusses on the risks management issues which may arise in the carriage of goods by Road (both Domestic and International) together with insurance coverage available to the Service Providers. As mentioned above, cargo may need to be transported from the hinterland to the CFS / Port so as to facilitate loading on board a vessel for ocean carriage.
  2. Service Providers (FF’s and CC’s which include NVOCC’s, VOCC’s, MTO’s & CTO’s) may be involved in the carriage of goods from or / to an inland destination in addition to the international sea carriage. While this road carriage may be international, in the majority of cases, this would be domestic i.e. movement from / to the seaport in question, within the country. In the case of International Road Transport, Road Carriage Conventions such as the CMR Convention (CMR Convention applies to every contract for the carriage of goods by road in vehicles for reward, when the place of taking over of the goods and the place designated for delivery, are situated in two different countries, of which at least one is a contracting country (as provided in Art 1(1)) may compulsorily apply to govern the responsibility and liability of the carriers, and in its absence, may be regulated by the local legislation in force (for instance The Indian Multimodal Transport of Goods Act 1993 governs the provisions for shipments out of India and The Indian Carriage of Road Act 2007 governs domestic carriage, The Carriage of Goods Act, New Zealand governs carriage within New Zealand). If there are no conventions / local legislation governing road transport, then the provisions of the contract (for instance – Truck WayBill or the Combined Transport Document) would apply.
  3. The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (popularly known as The Rotterdam Rules) applies to other modes of transport including road (unless there are other international conventions which compulsorily apply and in which case, the Rotterdam Rules will not apply as provided in Art 26 & Art 82) provided there is sea carriage involved and the other modes of transport complement the sea carriage (Article 1(1)). The Rotterdam Rules was adopted by the UN General Assembly in 2008 and since then 25 countries including USA have signed the convention – however, it is presently ratified by 3 countries (Spain, Togo and Congo) and which means that it will take quite some time for it to come into force (The Rotterdam Rules requires ratification by 20 countries before it will come into force). As and when The Rotterdam Rules come into force, CC’s who provide multimodal / combined transport carriage, may then become liable on the basis of its provisions.
  4. A service provider (FF) may provide the haulage purely as an agent i.e. they do not provide the services by themselves and instead contract with haulage service providers on behalf of their clients. The liabilities of the FF, if any, would generally be restricted to their own negligence (incorrect instructions, etc.) and not for the faults / negligence of the hauliers (who may have damaged the cargo). However, as the FF is considered to be an expert, he will be under a professional duty to ensure that they contract with haulage companies having the requisite expertise to deal with the cargo. In addition, the FF would be expected to check the track record together with the risk management procedures of the haulage companies. Failure to do so may result in the FF being liable to their clients for any loss which they may suffer. In case of any concerns with the haulage companies (for instance – if they are the only option available), the FF must bring this to the attention of their clients and seek express confirmation prior to their engagement so as to avoid any claim for breach of their professional duty.
  5. The Service Provider (CC) may also undertake to carry the cargo by road by themselves or by sub-contracting with a road haulier.
    1. By themselves: The responsibility of the CC would depend on the compulsorily applicable legislation / conventions and / or the contractual provisions for the road haulage (as mentioned in 2 & 3 above). In the absence of compulsorily applicable convention / legislation, the CC should either consider incorporating suitable clauses in their contract entitling them to exclude and limit their liability or contract on the basis of their Standard Trading Conditions (which would entitle them to exclude and / or limit liability). Failure to incorporate any such clauses / terms may result in the CC being considered as “Common Carrier” (“Public Carrier” in Civil Law jurisdictions) and which would result with limited defences and exposure to the full value for any loss or damage to the cargo.
    2. Sub-contracting: While the CC would be liable to their customers, they (CC) can pursue the Road Haulier for recovery given that they would be performing the actual haulage. However, there may be differences in the exposures and this would depend as to whether the Road Hauliers role is restricted to domestic or international haulage. Domestic haulage will generally attract lower limits compare to International Haulage under the applicable legislation / International Conventions in force and therefore there may be gaps in the exposure of the CC and which would have to be borne by themselves.
  6. In some jurisdictions, it is a requirement that Service Providers (both FF & CC) are insured for their liabilities arising out of the services provided (for instance, The Indian Multimodal Transport of Goods Act 1993 makes it a requirement that Multimodal Transport Operators in India have appropriate liability insurance). In other jurisdictions where there is no requirement for an insurance cover, it would always be prudent for the Service Provider to be covered under an appropriate insurance policy as a part of their risk management exercise.
  7. Insurance coverage: One of the requirements under most liability covers is for the Service Providers (FF/CC) to contract on the basis of compulsorily applicable legislation and/or on the basis of terms and conditions seen and approved by their Insurers. Additionally, if the CC is providing haulage by use of sub-contractors, policy wordings would generally require that the sub-contractor engaged is well qualified to perform their role and have sufficient risk management procedures to deal with any claims which may arise (say by way of liability insurance). Failure to follow these requirements may lead to a breach of the policy terms such that it may entitle the Liability Insurers to deny cover. It is therefore important that the FF & CC be aware of the terms and conditions in their insurance policy and ensure that they are adequately fulfilled to avoid any issues arising with respect to policy coverage.
  8. In conclusion
    1. Service Providers should be aware of their role in the road haulage (whether they act as CC or as FF).
    2. If acting as FF, they should ensure to vet the haulage companies and if found suitable, engage them.
    3. If acting as Principals, the CC must be aware of their exposures applicable by law and / or contract and have appropriate resources to deal with claims (say by way of Risk Transfer including Insurance).
    4. If insured, the Service Provider (FF & CC) must be aware of the policy terms and conditions and ensure compliance to ensure the engagement of the policy to deal with any claims which may arise.

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