TT Talk - Mitigating risks of uncollected cargo
- Date: 02/06/2020
Uncollected cargo has long been a challenge for stakeholders in the supply chain. Notwithstanding the attention, debate and advice around the topic, it remains at the forefront of logistics operators’ minds. Every year the delay or failure of the consignee to collect cargo results in substantial storage, demurrage and detention costs. Such issues are invariably complex and require expensive management time to resolve.
Inevitably, there are many potential causes of cargo being abandoned at some point in the supply chain, but often the resultant cost and headache lands in the lap of a freight forwarder or logistics operator. It could be a problem in the sale contract process, such that title to the goods is uncertain. It could be that the consignment is no longer wanted. However arising, appropriate risk management procedures can be put in place aimed at proactive resolution and minimising liability.
How to identify and prevent the risk
TT Club’s experience has shown that the freight forwarder’s first notice of an issue is typically an approach by the shipping line to claim their losses, either because the forwarder is mentioned as shipper or consignee on the ocean bills of lading or because it arranged the booking. The freight forwarder may be the only entity that is traceable – and likely to have liability insurance, increasing the prospects of recovering the costs. While the forwarder should always check the definition of “Merchant” on the ocean bill of lading, typically this is broad and consequently entitles the shipping line legally to demand payment from the forwarder.
“The freight forwarder may be the only entity that is traceable – and likely to have liability insurance”
It is prudent to implement sufficient management controls so that proactive steps can be taken to prevent the problem. It is worth collating data in relation to:
- ‘risky’ uncollected cargo hotspots;
- non-reliable customers; and
- commodities most likely to be abandoned.
Once the problematic trade routes or areas with frequent uncollected cargo incidents are identified, the relevant departments (commercial and operations) need to be made aware, such that informed decisions may be taken regarding any bookings that present heightened risk. Certain socio-political circumstances (such as sanctions) might also influence the level of risk in certain jurisdictions.
In the event that the business is accepted, it is advisable to establish early contact with local agents and correspondents at the port of discharge, seeking their support and advice as to how to minimise the risk. It is also prudent to keep up-to-date with trends and developments at the destination. Consignees that have failed to collect their shipments in a timely fashion in the past are more likely to be repeat offenders; future bookings for the same client should be scrutinised and potentially declined.
The most frequent problematic shipment types include personal effects, scrap and/or waste (metals/paper), used tyres, used computer equipment and, inevitably, illegal trades, such as wildlife trafficking and counterfeit products. General counter-party risks are considered in this due diligence advice document.
Quick reaction is of the essence
As soon as there are indications that collection may be delayed, it is important to react swiftly to minimise the potential exposure. Often concerning low value commodities, the associated costs can quickly exceed the commercial value, merely increasing the likelihood the shipment remains uncollected.
“associated costs can quickly exceed the commercial value, merely increasing the likelihood the shipment remains uncollected”
The shipper and the consignee need to be contacted immediately, put on notice about the situation, and given a short deadline to collect the goods and settle any costs that have already accrued. Reassurances may be given, but the logistics operator should remain on full alert until the problem has actually been resolved. Formal notification must be sent immediately after the expiry of the ‘free time’ and any provided deadline, explaining the parties’ rights and obligations under the contract of carriage and/or other incorporated trading conditions, specifically warning that any further delay or failure to take delivery will result in legal proceedings.
If, notwithstanding these steps, the cargo interests fail to take action, clear instructions must be sought from the customer (often the shipper), such as changing the name of the consignee, modifying the destination of the shipment or arranging the re-export of the goods to the port of loading.
It may be that the cargo interests reach a decision to abandon the cargo. Where this occurs, it is prudent to seek to secure letters of abandonment from both the shipper and the consignee, including a clear undertaking that they are jointly and severely responsible for all accrued costs.
It will be necessary to arrange an inspection of the cargo to ascertain its condition and decide whether to proceed with disposal or salvage sale. The shipper and the consignee should ideally grant clear approval to deal with the shipment; otherwise a court order may be necessary. Once a letter of abandonment on behalf of the cargo interests has been obtained, it should be passed to the relevant authorities prior to proceeding with the destruction or the auction the goods.
During the course of any negotiations with cargo interests, take steps to explore options to minimise storage and other costs. It is also prudent to ensure that the shipper and the consignee receive regular updates on the breakdown of accrued/accruing costs.
When such situations arise, forwarders should consider that cover may be provided under their liability insurance and take steps to notify the insurer at the earliest opportunity. TT Club provides global claims assistance through its own offices, its network partners and correspondents; such local expertise often facilitates alternative solutions and minimises costs.
Implementing well-considered procedures, resulting in taking action without delay, can prove critical when handling cases of uncollected or abandoned cargo. While these recommendations provide useful general guidance, each case has to be considered on its own merits. Simple message: be proactive and seek assistance from local experts for specific advice and practical recommendations.
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club