THE LEGAL RELATIONSHIP BETWEEN A FREIGHT FORWARDER AND SHIPPER

The legal relationship between a freight forwarder and shipper, like every contractual legal relationship, comprises rights and obligations and in any contractual relationship where rights and obligations accrue to both parties, risks are involved which must be protected via contract—Freight Forwarding Agreement (FFA)—in case a dispute arises. Many shippers disregard the importance of a FFA and do not engage legal professionals to help negotiate one thereby opening themselves to a myriad of risks. The bulk of the disputes that arise between freight forwarders and shippers centre around liability, liability for cargo damage, liability for loss of cargo, liability for delay in transportation etc. As such, it is essential that the parties to the FFA properly delineate the circumstances under which liability arises, the party who bears liability in certain circumstances, whether and when actions of third parties would excuse liability.

SUB-ENTRUSTMENT

One crucial arrangement which the shipper must decide in a FFA is whether the freight forwarder is permitted to sub-entrust freight forwarding matters to a third party as well as who is liable for any mishap that takes place during the sub-entrustment to the third party.

Freight forwarders typically arrange to sub-entrust forwarding matters to their fellow freight forwarders for logistical efficiency reasons and it is essential for shippers to cater to the risks involved in such arrangement. Some freight forwarders negotiate a sub-entrustment clause that permits the shipper to give direct instructions to the sub-entrusted third party with the freight forwarder only liable for the appointment of the third party and any instructions to the third party; in other words, the forwarder will not be liable for direct instructions from the shipper to the third party.

In the absence of an express clause permitting or prohibiting sub-entrustment, the freight forwarder is at liberty to sub-entrust the cargo to a third party and the shipper is unable to properly define the possible liabilities arising out of such sub-entrustment arrangement which places the shipper at a disadvantage.

In a dispute before between Taicang Company and Shanghai agency Co., ltd relating to sub-entrustment, the sub-entrusted third-party forwarder (defendant) was meant to make tax payments on behalf of the shipper but failed to do so. The original forwarder was absolved of liability because during trial, the plaintiff shipper admitted that he knew that the original forwarder would sub-entrust to a third-party forwarder.[cc-DH1] 

SCOPE OF FREIGHT FORWARDING SERVICES

Defining the scope of the freight forwarding services in the FFA is essential to avoid assumptions and misconceptions leading to disputes. Without a proper delineation of the scope, for instance, the shipper might assume unloading is included whilst the forwarder assumes otherwise and charges extra fees leading to a dispute. Also, the scope of delivery needs to be stipulated in the FFA but if it’s a long-standing freight forwarding relationship, parties might defer the scope of delivery concerning each consignment to be decided at the point of entrustment, via the letter of entrustment.

DAMAGE/LOSS OF CARGO

Once the freight forwarder receives the goods from the seller at the shipping port or specific location (depending on the delivery incoterms agreed by the buyer and seller), it issues a Forwarder Cargo Receipt or Forwarder Certificate of Receipt (FCR) to the shipper confirming that the goods have been received for shipment. It should be noted that the FCR is different from a Bill of Lading which is a legally binding contract of carriage between the shipper and the carrier. Once an FCR is issued by the freight forwarder, the shipper simply deals with the freight forwarder who has the responsibility of liaising with the carrier (or carriers if there are multiple carriers along the delivery route) on behalf of the shipper for the safe delivery of goods at the destination port and until the buyer takes possession of the goods.

When cargo turns up at the destination port or location to have suffered damage, a dispute ensues and it is essential for both parties to contract beforehand the circumstances upon which each party might be liable/excused for the damage. For instance, if the shipper is responsible for the proper packaging and lashing of the cargo before entrustment to the forwarder, the FFA might stipulate that any damage arising out improper packaging and lashing shall the responsibility of the shipper. If the proper packaging and lashing is the responsibility of the freight forwarder, then liability for damage from improper packaging and lashing accrues accordingly.

The parties might also contract that the shipper has an obligation to disclose/declare the peculiar nature/quality of the goods entrusted to the freight forwarder to enable the freight forwarder to make special arrangements for the shipment, particularly if the goods are dangerous goods likely to cause danger—a disclosure liability clause. In the Cosco Pacific case, the Cosco Pacific ship suddenly caught fire while in transit, causing damage both to the cargo of the shipper and the carrier due to the shipper’s failure to properly declare dangerous goods (lithium battery cargo, according to the International Maritime Dangerous Goods Code [IMDG code]). The shipper had declared the contents of the containers containing the cargo as ‘spare parts and accessories’ under the bill of lading. If it was a freight forwarder that contracted with the carrier and had made a representation to the carrier that the container had no dangerous goods because the shipper failed to declare such, the carrier could pursue a claim against a freight forwarder. With a disclosure liability clause present in the FFA, the freight forwarder would not be liable for the damage of cargo or any damage to the ship or other cargo resulting from the shipper’s failure to disclose.

DELAY IN TRANSPORTATION

According to Article 50(1) of Maritime Code of the People’s Republic of China, delay in delivery occurs only when the goods have not been delivered at the designated port of discharge within the time expressly agreed upon. Delay in transportation can arise due to various reasons. The freight forwarder might require certain pieces of information from the shipper for customs clearance which the shipper has delayed in supplying. Parties might contract in the FFA that if a delay in transportation results from the delay in the shipper’s supply of needed information, the freight forwarder shall not be liable for delay.

Delay in transportation might arise because of unauthorised sub-entrustment by the freight forwarder. It might also arise because the freight forwarder delayed in undertaking the necessary export documentation, delayed in contracting with the carrier to export the goods, supplied incorrect information on the destination port to the carrier which led to rerouting of the cargo to another destination, supplied/filed incorrect documentation to the carrier or customs which led to delay in customs clearance. Delays could arise because forwarder smuggled authorised goods with the consignment of the shipper which led customs to impound the entire consignment. Delays resulting from the faults of the freight forwarder can give rise to liability and it is essential for the shipper to include these obligations giving rise to liability in the FFA.

CONCLUSION

Disputes arising from freight forwarding relationships are quite common; for instance, according to official records released by the Ningbo Maritime Court of the People’s Republic of China, between January 2012-December 2016, the Ningbo Maritime Court accepted 792 cases of disputes over maritime freight forwarding contracts and concluded 765 with the total value of the accepted cases exceeding 188 million yuan, and the total value of the concluded cases exceeding 156 million yuan. As such, shipper and freight forwarders must be alert to the risks involved in the freight forwarding relationship and contract carefully to mitigate the risks.

 [cc-DH1]这是一个案例，可以配个“争议”主题的图。