H2H -July 2012 -Who Pays When Cargo is Lost?
The question of who is responsible for reimbursing the owner of cargo when it is lost or damaged during international transit has long been the source of confusion among shippers, freight forwarders and logistics operators. Specialist transport insurer TT Club brings clarity to the situation.
As a mutual insurer with over forty years experience in providing liability cover to freight forwarders, carriers, cargo handlers and others in the supply chain, TT Club is constantly collating feedback from its clients in order to improve the risk management advice it offers.
This feedback has recently revealed that there continues to be a significant lack of universal understanding of the impact on clauses in bills of lading, other contracts of carriage and Standard Trading Conditions (STC) that limit liability. A number of transport operators are unclear how much risk they are taking on when accepting cargo from shippers and this lack of clarity can result in damage to commercial relationships, or the loss of the opportunity to further those relationships by ensuring shippers interests are fully protected for any loss that occurs that is not recoverable from third parties.
Likewise, transport operators report that some of their customers, mainly those that have irregular shipments or are new to the import/ export trade, are not aware of the level of protection their cargo has when placed under the responsibility of a third party, be it a forwarder or a carrier, for international transport. We have on many occasions come across situations where the shippers of cargo have found that the value of their recovery claim for goods damaged in transit has been significantly lower than expected, and lower than the cargo’s value.
We believe this lack of understanding should be addressed in order that freight forwarders and carriers, which make up a large proportion of our membership, can better serve their cargo customers, reduce their own exposure to liability and costly litigation, and avoid damaging their commercial relationships.
Traditional carrier and forwarder liability is limited by international carriage conventions, depending on the mode of transport, in most countries around the world (although there are certain situations in which the established international regimes may not apply).
The standard terms of liability (and hence recoverability) are often limited by the relevant convention to a certain amount per kilo. Depending on the convention or applicable conditions this amount will range from less than $1 per kilo to around $20 per kilo. The nature of the cargo will determine whether this amounts to anything approaching the full value. For example the same per kilo rate will apply to flatscreen televisions as to a load of waste paper. Alternatively a Picasso masterpiece may weigh 3 kilos but be worth £80m.
A TT Club case example cites a Lamborghini which was damaged in the distribution warehouse by a forklift truck during storage pending international carriage. The car was valued at $123,000 and the repair costs were $101,534.
Based on a weight of 1,626kg for this Lamborghini the monetary value that could have applied would have been as low as $254. A selection of regimes and resultant monetary values are shown in the table below.
Our experience bears out the evidence that cargo owners are often unaware of the extent of protection that exists for the cargo being moved. There have been countless cases in which the full value of the cargo is not recoverable under the contracts due to a limitation clause. There are also a number of other circumstances where the contractual terms may lawfully protect the carrier and deny the cargo owners the value of the cargo, including timebar provisions and specific defences.
Such limitations to liability are generally made clear within the appropriate clause of the contract of carriage or STC of the carrier or forwarder.
We advise that transport operators should make sure such clauses are adequately worded in their own documentation and also clearly incorporated into trading relationships. The typical international provisions should generally be supplemented by adopting standard conditions made available by national trade associations to their members. We also have conditions available for our members that are widely used.
We also advises that a forwarder or carrier should emphasise that the contract of carriage limits their liability to a shipper. As a result, the shipper needs to consider purchasing cargo insurance to ensure that the full value of the cargo is recoverable in the event of damage or total loss, regardless of whether it can be attributable to fault or negligence of a third party.
In order to clarify the way that these conditions operate in international trade, we have put together our ‘Handbook on the Conventions for the International Carriage of Goods’, available free to members and at a cost of £36 to others. This provides good, reliable advice on the way such conditions operate. This is an aid to carriers, logistics operators and freight forwarders in articulating to their clients how the terms operate. This clear explanation will support the sale of appropriate cargo insurance that will ensure that the customer is reimbursed in the event of something happening, without having to argue through contractual clauses. Without this understanding and due guidance many commonly occurring risks of cargo loss or damage will continue to be inadequately managed, exposing a shipper’s business unnecessarily and leading to customer dissatisfaction.
Limitation of liability
Case example 1
A claim was filed against a Transport Operator member for the full value of two containers of Pirelli tyres valued at USD61,000 which were stolen from the trucker’s yard.
Liability was limited to USD2 per kilo as stipulated on the reverse side of the bill of lading (which stipulated the terms of the TT Club’s series 100 model conditions with Clause 6 (3) (B) (IV) being applicable). The weight of each container was 7,600 kilos. This meant that the final payment was limited to USD30,400.
7,600 x USD2 = USD15,200
USD15,200 x 2 containers = USD30,400
(The Member was reimbursed less the applicable deductible)
Case example 2
A claim was filed against a Member following the theft of an air freight shipment valued at USD169,400
Based on the AWB limitation of 19 SDR per kilo, a payment of USD12,000 was finally made to the claimant.
The weight of the shipment was 399kg
399kg at 19 SDR = 7,581
SDR x 1.5911 = USD12,062.13
Case example 3
A consignment of live exhibition budgies, carried by air, landed with many dead and others extremely sick. The average weight of these birds was less than 40 grams and the total weight of the birds was 7.5kg.
The claim against the air forwarder was USD23,000, but the limitation under the applicable Warsaw Convention, as amended by the 4th Montreal Protocol, in the jurisdiction in question was 17 SDR and the claim settlement was therefore USD168.34.
Weight 7.5 kg
7.5 kg x 17 SDR = 127.5 SDR
127.5 SDR x 1.3203 = USD168.34