TT Talk- Forwarder's Cargo Receipts - What role are Forwarders taking?
It is usual practice for forwarders in China to be asked to issue Forwarder’s Cargo Receipts (FCR) to the seller/shipper on receipt of goods, billing for local charges in China. An FCR looks similar to, and is normally used in conjunction with, a bill of lading, although its function is purely as a receipt for cargo. It cannot replace a bill of lading and does not evidence a contract of carriage.
The most common use for an FCR is multiple shipments where the buyer, normally on FOB terms wishes to have control over the shipment process. This allows, for example, for deliberate delay of shipments to load in an alternative manner, which in turn causes payment delay to the shipper, whether actual or contractual (see separate article on two kinds of shippers allowed under the Maritime Code of PRC). In these cases companies are known to use an FCR to evidence receipt, and trigger the transactional time clock. It is normal to stipulate in the purchasing contract or letter of credit that an FCR is acceptable in lieu of bill of lading. However, this may be insufficient and further security or loss prevention measures may be necessary to accommodate the outcomes that are likely under the China Maritime Code.
As an example a Seller brought proceedings, under an agency contract evidenced by the forwarder’s service invoices, against the forwarder in China alleging that the Seller had lost control over the goods due to forwarder’s failure to hand over a bill of lading. The case covered more than 10 shipments, valued at US$500,000. The Consignee had settled all the cargo payments with a ‘middle man’ in US based on their purchase contract. It transpired that the middle man was in financial distress and had failed to pay the Seller.
As is usual for such regular FOB shipments, the forwarder received instructions from the Buyer to contact the Seller in China and arrange shipment with nominated ocean carriers. The forwarder issued FCRs to the Seller on receipt of the goods. This became customary and there had been no previous objection from the Seller with respect to the process. The Seller was supposed to collect payments from the middle man in US.
The Seller can assert an agency arrangement, and therefore a loss, reasoning that a bill of lading is the intended ‘fruit’ of such an agency. The forwarder can argue against the establishment of an agency contract, but, with the charge invoices, the court may more likely accept the Seller’s argument. Following the China Maritime Code, a Shipper has the right to demand a bill of lading, including the actual shipper who physically handed over the goods for export. As a result, forwarders can be exposed to claims of loss of cargo payments under FOB terms.
Judicial experience in China indicates that the maritime courts have a tendency to protect the local exporters’ interests under such situations and may, as a result, recognise the establishment of a contract of carriage or an agency contract between the Seller and forwarder. The burden of proof will then be put on the forwarders to escape liability, for example by adducing solid evidence that the shipper has accepted the issuance of FCR only and did not demand a bill of lading within a reasonable period.
In conclusion, with a view that the Chinese law does not give any guidance for FCR’s usage, or provide for the forwarder’s rights and obligations under issuance of a document like an FCR, forwarders are recommended to be cautious; here are some measures to take when processing FCR shipments:
- Most importantly, obtain a Confirmation Letter from the Seller that they request an FCR to comply with letter of credit requirements and irrevocably waive the right to demand bill of lading. The letter should mention (i) the forwarder’s role as collecting agent in the port of loading for and on behalf of the Buyer (Consignee), rather than for the Seller, and that the FCR is purely a cargo receipt, not evidence of a contract of carriage or a document of title; (ii) the Seller accepts the terms and conditions of the FCR and agrees to indemnify and hold harmless the forwarder for any loss/liability/costs arising from the act or omission of the Buyer (Consignee), including without limitation its failure to pay any amount due to the Seller. This letter should be signed by the Seller before they deliver goods to the forwarder.
- Keep all written records on exchanges with the Seller regarding issuance/sending of the FCR. If the Seller collects the document from forwarder’s office, a signed receipt should be given; if the FCR is sent to the Seller by courier, the courier return receipt should be kept for record.
- Confirm with the Seller by email when the FCR is issued that the shipment will be collected direct by the buyer at destination.
Please speak to your lawyer or contact TT Club Shanghai/HongKong office if you need advice on wording a Confirmation Letter.