Risks and Liabilities of a Freight Forwarder
I have received several questions and requests from my readers to cover/explain the risks and liabilities of a Freight Forwarder.. As this is an important topic I felt it would be fitting to be the 500th article on this blog.. ????
It is awesome that with your support and participation I have been able to write 500 articles relating to shipping and freight on this blog.. So to all my readers, thank you for providing me an opportunity to interact so extensively on this subject..
Anyway, to the topic now..
To start, let me jog your memory about Who is a Freight Forwarder, what they do and what goes on in a day in the life of a freight forwarder..
Freight forwarders are an integral part of the supply chain and global maritime trade.. Although they are involved in all modes of transport (sea, road, rail and air), in this article, I am concentrating on the seaborne trade which accounts for over 90% of the world’s trade..
In the most succinct and layman’s terms, a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..
As per the WTO, global trade in 2015 was worth USD.16/- trillion.. Out of this global trade, UNCTAD estimates containerised shipments accounted for about 1687 million tonnes (2015 estimate) carried in 177.6 million containers (2015 estimate), covering 998 billion ton miles (2016 estimate).. Staggering isn’t it..??
While you take a moment to digest these numbers, also consider that in the course of this global trade, cargo loss, cargo damage, cargo abandonment, fraud, etc does happen (more frequently than you may imagine)..
When this happens, the freight forwarder is invariably affected because shipping lines, customers and regulatory bodies (customs, ports, etc) either look to the freight forwarder to sort it out or hold the freight forwarder liable for these incidents..
While it is true that any of the above mentioned incidents could also be caused by the negligent behaviour of a freight forwarder, we also need to be fair to the freight forwarder and understand the risks and liabilities of a Freight Forwarder..
The liability of a freight forwarder is an extremely complex issue to discuss purely on paper as each case could be different.. The liability of a freight forwarder is intrinsically related to the role of the freight forwarder towards their principal and the third party in the obligation..
A freight forwarder serves as a conduit for global trade between importers, exporters, BCOs (Beneficial Cargo Owners) and the transportation and regulatory entities such as shipping lines, customs, port etc..
The moment a freight forwarder signs/accepts a contract (although discouraged, remember that a contract may also be verbal) with the customer, they are exposed to several unique risks and liabilities..
The risks and liabilities of a freight forwarder undertaking a contract for the transportation of cargo from point to point may include but not limited to:
Total loss of cargo – may happen either due to physical cargo damage or theft while in the custody of the freight forwarder
Loss of monies – may happen if the customer does not pay them after the performance of part or all of the activities
Damage of cargo – may happen either due to incorrect or improper packaging of the cargo, incorrect or improper handling of the cargo while in the custody of the freight forwarder
Rerouting of cargo – may happen if the documentation submitted to the carrier by the freight forwarder was incorrect and cargo ended up in another continent
Abandonment of cargo – may happen if the consignee who was supposed to receive the cargo suddenly abandons it due to lack of funds, cancellation of the order etc
Non collection of documents – may happen when there is HBL involved and the freight forwarder releases cargo to the consignee while the shipper is still holding the original HBL because he has not yet been paid by the consignee (refer to this case study)
Incorrect release of cargo – may happen if the cargo was released by the freight forwarder to the incorrect party based on the type of bill of lading issued.. For example if cargo was released to the consignee on a negotiable bill without proper endorsements on the bill of lading
Delays due to improper documentation – receipt of cargo at destination was delayed due to incorrect documentation submitted by the freight forwarder to the carrier or incorrect cargo declarations were filed with customs or any other types of cargo documentation done by the freight forwarder which caused this delay
Risk of carrier’s liability – A freight forwarder maybe liable as a contractual carrier if :
They have negotiated the rates for the entire carriage of the goods with their client (say shipper or consignee)
They have issued their Bill of lading for the carriage
Apart from undertaking the above mentioned risks, in ALL of the above cases, there is a chance that the freight forwarder may be liable, BUT only if it is proven to be due to negligent behaviour on their part..
Depending on the jurisdiction, it maybe possible that the freight forwarder shall be exempted from all liability if it could be proved that the freight forwarder took all possible steps and exercised due diligence/care in respect of :
receiving and storing the goods
selecting the most suitable carrier for the carriage
delivering the goods to the receiver
and all other matters en-route
For example, let’s say a consignee abandoned the cargo because the costs for delivery of the cargo was more than the value of the goods.. If the cargo delivery costs increased due to negligence on the part of the freight forwarder, say for example the freight forwarder did not notify the customer of the arrival of the cargo or they did not do the clearance of the cargo in time and cargo incurred demurrage, detention and storage, then the freight forwarder would be liable..
On the other hand if the delivery costs increased because the freight forwarder did not receive the proper documentation from the consignee or shipper for the timely clearance of the cargo, then there should be no liability for the freight forwarder (although if the freight forwarder booked the cargo with the shipping line, they may still hold the freight forwarder responsible for the cargo abandonment)..
Customers rely on the freight forwarders for their experience and expertise in picking up the cargo from the seller, arranging for proper packaging of the goods, handling all the documentation, clearances en-route and delivering it to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable resources and routing possible..
This is the essence of freight forwarding.. But while the freight forwarder takes care of all above on behalf of the client, considering the risks involved and their vulnerability, a freight forwarder must also ensure that they are properly protected and covered for the risks that they have taken on..
Even if unintentional, a freight forwarder could still be held liable for any of the above items, especially when the customer could claim that the freight forwarder was negligent.. The onus then falls on the freight forwarder to prove that they were not negligent..
Therefore, all freight forwarders need to have or be sufficiently covered for
Marine liability cover for overseas trades
Full liability protection to cover all forwarding operations
Third party liabilities
Errors & Omissions and Legal Liability – all freight forwarders maybe exposed to contractual liability for a loss, irrespective of who is responsible
Survey and mitigation costs
General Average and Salvage Charges including cargo disposal as in some General Average situations freight forwarders also could be roped in
A comprehensive Liability Cover and Risk management
If you are a freight forwarder, there are many insurance cover packages available in the market to cover above mentioned liabilities.. The policy underwriters need to be briefed on the terms and conditions that you are trading under so that they can customise your policy and premiums..
It is normal for your policy underwriters to limit the amounts that they will pay out for one claim or all claims in a year.. As a freight forwarder, you need to ensure that based on your business volume and the probability of damages, your cover is adequate to cater for potential claims..
Therefore, a freight forwarder needs to be diligent about which insurer to choose and what type of cover to take to ensure business continuity..
Well, if you were one of those people that thought, hah, anyone can become a freight forwarder and have an easy life………………………………………. think again..
If you are a freight forwarder, please share how you are covered against all above liabilities..
Images Credit : Luis Prado and Suji