Risks and Liabilities of a Freight Forwarder

A Freight forwarder is 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..

The value of world merchandise trade is close to USD 20,000,000,000,000/- (20 trillion).. Containerised shipments accounts for more than 152 million containers per year with container ports around the world handling close to 800 million TEUs in 2018..

Currently there are more than 23 million TEUs being shipped around the world in more than 5300 fully cellular container ships.. 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 the 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 the 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 may be 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 may be 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
• Regulatory breaches
• Errors & Omissions and Legal Liability – all freight forwarders may be 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 the 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..

Also read what goes on in a day in the life of a freight forwarder..

If you are a freight forwarder, please share how you are covered against all above liabilities..

 

Article republished after some updates

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