TT Club recently published an article on “Mitigating Risks of uncollected cargo”1 and which lists ways to identify and prevent this risk. The suggestions made in the article are noteworthy and therefore we would recommend all container operators to consider the same to deal with issues arising from uncollected / abandoned cargo. This article will comment further on the issues arising to a Transport Operator (“TO” and who can be a Freight Forwarder/ NVOCC / Container Carrier) from uncollected / abandoned cargo.
- What is uncollected / abandoned cargo? As suggested in “TT Talk – Tackling uncollected cargoes”2, a shipment is deemed to be “unclaimed” when upon a reasonable period, the intended consignee has manifested no intention to take delivery. The question would be as to what is a reasonable period? The same article of TT Talk suggests that the reasonable period would be the “container demurrage free period” i.e., the free time provided by the port or terminal for the container after discharge. There are however some ports where containers or specific cargoes are rarely collected within the free period allowed due to customs and local issues. In this case and for such locations / cargoes, we submit that the reasonable period would be the time generally taken to take delivery of such cargoes. With respect to abandoned cargo, the requirement is generally for TO’s to require a letter of abandonment from the consignee that they have no further interests in the cargo. However, if the consignee’s have not come forth for delivery, say by surrendering the Original Bills of Lading, the question would be whether the consignees are indeed the “Title” holders for the subject cargo such that they are entitled to provide any letter of abandonment.
- What happens if cargo/container remains uncleared?
- Container Demurrage & Detention: If containers / cargo remains uncleared, the Port / Terminal would seek payment of container demurrage after the free time provided. They would generally pursue the TO for recovery given that they (Port / Terminal) have a contractual relationship with the TO, say by way of a Terminal Services Agreement. The TO (who could be a NVOCC), would also have provided some free time for the return of their empty containers after devanning of the cargo (in some parts, the time for container return will count from the date of discharge). Failure to return the containers within the free time would result in the TO also seeking payment of container detention from the consignee listed in their Bill of Lading (“BL”).
- Auction of cargo to mitigate Carrier’s loss: If the consignee comes forth to take delivery, say after paying the accrued charges (for both the container demurrage and detention), this would be generally be the end of the matter. However, if the charges incurred exceed the value of the cargoes, the consignees may not come forth for delivery at all. Additionally, if they (consignees) have evinced such thoughts to the TO i.e. they will not be taking delivery, then on the basis of MSC v Cottonex3, it appears to us that the contract is frustrated such that the TO would not be entitled to any recovery of further container demurrage / detention. The TO would then have to take measures to mitigate their loss, say by devanning the cargo and proceeding with an auction of the cargo, if allowed under the conditions of carriage. Alternatively, the TO could approach the local authorities or courts to seek an order permitting the conduct of an auction of the cargo. Subsequently, the TO could pursue the cargo interests for the recovery of these charges (including the container detention / demurrage prior to the date when the contract became frustrated). Having said this, the practical issue that the TO may face is that in some jurisdictions, it would be difficult, if not impossible, to seek permission from the relevant authorities/Court to proceed with the auction of the cargo. This being the case, the TO is then left with a container or containers loaded with cargo which nobody wants and with no or very limited opportunity to devann and recover (risks of doing business in some jurisdictions).
- Recovery: As mentioned above, if the contract is frustrated, then the TO is not entitled to any further recovery of container detention. In this case, the TO could pursue for recovery of the costs incurred for dealing with the issue (cargo auction / disposal and all associated costs from the date the contract became frustrated). The TO should also consider whether it is worthwhile to pursue the Shipper for recovery, particularly if the Shipper is located in a difficult jurisdiction where delays are a common feature of the court process.
- Cargo interests may use the services of a Freight Forwarder (“FF”) to act as their agents to facilitate their shipments. The FF would make relevant arrangements including booking of freight with the TO. Some TO’s contract on the basis of Standard Trading Conditions of the Associations4 of which they are a member of and which entitle them to pursue the FF, in addition to the cargo interests, for recovery of the charges incurred at destination. We have recently seen a practice being initiated by TO’s requiring FF’s (booking party) to provide a LOI if the BL’s lists a different party as the Shipper. The wordings of these LOI require the FF to be responsible for all costs including container detention and demurrage should the containers remain uncleared at destination. While the FF may have no choice but to accept commonly used Standard Trading Conditions prevailing in the location where they trade, we would caution against providing such LOI’s given that they (FF) would be under attack for charges which they (FF) have no control. Additionally, provision of such LOI’s may result in FF prejudicing their liability cover (Transport Liability Policies generally require the Insured’s to contract on terms which are approved or on the basis of compulsorily applicable laws5).
- Insurance cover: While Transport Liability Policies6 do provide cover for uncleared cargoes, the limits are much lower (generally USD 25,000 or USD 50,000 any one incident or occurrence and in the aggregate) as Insurers are un-comfortable with these risks. In addition, the policy wordings generally provide cover for the costs incurred solely by the failure of any party to collect cargo7 (wordings underlined by us for emphasis). Hence, any increase in costs, say by not taking appropriate action may not be covered, as these costs are not by, say the failure of the cargo interests in taking delivery but due to the delay in taking action by the TO.
- Possible Solutions8:
- Know Your Customer (“KYC”): In order to deal with such risks, TO’s should conduct regular KYC’s to understand their customer and in particular, whether they would respond to deal with such issues including payment of the charges as and when they accrue. In addition to KYC, FF’s should be aware of the cargoes and the potential for it to being abandoned, particularly, if the cargoes are of low value. If the customer or the cargo type is found wanting, the TO should consider limiting their risks by say restricting the volume or types of cargoes they accept for shipments.
- If the role of a TO is that of a FF acting as agents, they must have robust information systems in place such that they are aware of the status of delivery of the cargo at destination (even though they may not be listed in the B/L). Knowledge of the status of the shipment, would prompt the FF to contact all interested parties to deal with the issues at hand so as to mitigate the situation as and when it arises.
- Finally, a TO should consider the prevailing trading climate and whether this would affect their ongoing business together with actions which they could take to assist their clients (e.g. the prevailing NCovid 19 pandemic is a case in point wherein many cargo interests and TO’s have been found wanting to deal with issues arising from various outages).
3 See our earlier article http://nau.com.sg/validity-of-detention-demurrage-clauses/
4 See Clause 18 (f) of the Singapore Logistics Association Standard Trading Conditions
5 See Clause 2.1.1 of TT Club – Transport and Logistics Operator Wordings 2020.
6 See our earlier article on Transport Liability Policy – What Limits? at https://nau.com.sg/transport-liability-policy-what-limits/
7 See Clause 1.7 of TT Club – Transport and Logistics Operator Wordings 2020.
8 See note from Peter Lole Insurance Brokers at https://www.peterlole.co.uk/uploads/files/downloads/Peter%20Lole%20demurrage_v2.pdf