{"id":404,"date":"2010-11-27T23:32:56","date_gmt":"2010-11-27T21:32:56","guid":{"rendered":"http:\/\/ourblog.greenwoods.org\/?p=404"},"modified":"2010-11-27T23:32:56","modified_gmt":"2010-11-27T21:32:56","slug":"the-concept-of-all-costs-should-forwarders-pay","status":"publish","type":"post","link":"https:\/\/greenwoods.org\/the-concept-of-all-costs-should-forwarders-pay\/","title":{"rendered":"the concept of \u201call costs\u201d Should forwarders pay?"},"content":{"rendered":"

\"\"<\/a>Should forwarders pay when the ship sinks and production stops? <\/strong><\/p>\n

A brief introduction to cargo and liability insurance, and the consequences of the extension of forwarder responsibility towards strict liability and higher limits<\/p>\n

Increasingly, forwarders are becoming integrated partners in the business activities of export companies. The value of goods they handle often exceeds the limits that conventions and regulations stipulate forwarders should pay for claims. <\/strong>
\n<\/strong>
\nThere is also an increasing trend for companies to pass on risks and costs to forwarders, partly because it is the forwarder who actually has control of the goods during transport, but also to protect their own profitability by attempting to transfer their own insurance costs to forwarders.<\/p>\n

Developments are creating a number of possibilities, but also considerable uncertainty for both companies and forwarders. Who pays, for example, if there is a major accident, or a vessel sinking, and a company suffers the effects over a long period?<\/p>\n

The development of forwarders as suppliers of third-party logistics has meant that, to an increasing extent, forwarders have taken over services around the transport of goods. In addition, the cost savings made necessary by the current economic recession meant that during 2008-2010 more and more activities became part of the forwarder\u2019s agenda and often at very depressed prices.<\/p>\n

The changed structure in the transport area has opened up new business possibilities, but also new risks. An extremely important change is the change of forwarder liability for goods being transported.<\/p>\n

To a greater and greater extent, we are seeing that companies want to transfer an increased financial responsibility for goods to the forwarder.<\/p>\n

There is greater interest in letting forwarders take on the so-called total financial value of the goods, and sometimes also with stricter liability than that which applies in the general conventions, and also to include other costs in connection with damage.<\/p>\n

Historically, the forwarder\u2019s responsibility was formulated as strict liability, with the exception of force majeure, but in modern regulations liability varies, depending on means of transport. In fact, only rail transport retains strict liability, which means that the forwarder is responsible for damage even if he has had neither the intention to damage the goods nor been negligent in their handling.<\/p>\n

Some exceptions are allowed even for rail transport, such as when the company has packed the goods incorrectly, if the company itself has caused the damage, or if the damage is due to the inherent vice of the goods.<\/p>\n

For other forms of transport \u2013 air, sea, or road \u2013 a presumptive liability applies. The haulier is responsible for the damage, unless he can show that it was not due to negligence on the part of himself or his employees.<\/p>\n

In the case of road transport, it can be specially noted that for CMR-transport \u2013 that is, cross-border truck traffic \u2013 there are strict rules for both haulier and client. The forwarder may not contract liability that is either greater or less than stated in the CMR convention.<\/p>\n

In the case of delays, a presumptive liability also applies, but when a delay occurs the forwarder is only liable for the costs that occur as a consequence of the goods arriving late, so that, for example, their market value has fallen.<\/p>\n

In the past, the majority of transported goods consisted of wood, paper, iron, and similar materials. International and national laws and conventions have tied forwarders\u2019 financial liability to that type of goods by limiting forwarder liability to the weight of the goods. However, for many years now, shipments consist, to a large extent, of high-value goods, such as mobile telephones, laptops, LCD-TV sets and other electronic equipment. If damage occurs to electronics, for example, compensation linked to weight is a great deal less than the full financial value.<\/p>\n

Because conventions and laws that regulate forwarder liability have not changed in a corresponding way relative to levels of compensation, forwarders are facing increasing pressure from companies to accept a higher degree of responsibility when receiving transport orders.<\/p>\n

Forwarders are no longer merely transporters of goods, but are seen as an integrated part of a company\u2019s operations. This, coupled with strong pressure to reduce costs, has led to companies not only requiring forwarders to accept increased liability for the value of goods, but also requiring a transfer of risk that can include \u2018all costs\u2019, unlimited liability for consequential damage, and pure economic loss.<\/p>\n

But the concept of \u201call costs\u201d often requires that the full value of lost or damaged goods, and all subsequent costs related to the damage, should be paid. Consequential damage often means the cost resulting directly from transport damage.<\/p>\n

The liability of forwarders is constantly increasing, and within the EU we are seeing a development towards regulations with more extensive liabilities for forwarders. There is also an intention to harmonize liability regulations for the various transport sectors to a common regulatory base that, in general, will be based on the CMR.<\/p>\n

However, it is probable that the new regulations will not reach the extent demanded by today\u2019s larger companies and transport buyers.<\/p>\n

So what will the consequences be for forwarders in the short-term?<\/p>\n

When forwarders choose to accept greater liability, it is quite often done with an inadequate understanding of what it can imply in the event of a major accident or damage. Forwarders must ensure \u2013 with their insurance companies \u2013 that they have a corresponding increase in liability cover in their insurance.<\/p>\n

But because it is an increased commitment \u2013 an increased risk \u2013 for insurance companies, there will also be a demand for higher premiums. Forwarders have to consider whether they can absorb this cost themselves, or pass it on to transport buyers. If additional premiums for various reasons cannot be passed on to transport buyers they become a basic cost for the forwarder which will affect the already hard-pressed freight market and, thus, the forwarder\u2019s margins.<\/p>\n

So what happens if there is a major accident and the forwarder has not arranged adequate insurance cover?<\/p>\n

The short answer is, of course, that the forwarder will be responsible for compensation which is not covered by his forwarder liability insurance \u2013 and that this will give rise to a situation that can lead to long-term financial consequences for the forwarder, or even bankruptcy if the commitments were large.<\/p>\n

The other parties in the freight agreement are the company and the transport buyer, so what happens to them if the forwarder becomes bankrupt or is affected by serious financial problems?<\/p>\n

The most obvious consequences are that the transport buyer will have to assume the costs of the increased liability. The company must evaluate the uncertainty that can arise when a forwarder may not be able to meet the obligations of the freight agreement, with the risk that the goods will not arrive in time or will be stuck somewhere in transit between seller and buyer.<\/p>\n

In the longer term, current developments can mean nothing other than that forwarder liability will increase further. This, of course, also means that premiums for forwarder liability insurance will increase, and the question then arises whether transport buyers will accept this additional cost. The costs to the company and transport buyer will then lessen because the losses arising are paid by the forwarder instead of the company.<\/p>\n

The most important advice to forwarders is to be very careful in drawing up freight agreements. It is especially important to scrutinize the terms or sections that deal with forwarder liability and requirements on insurance cover. These insurances must of course be in place before the agreement is signed, and an assessment and distribution of increased cost must also be in place. It is also of the utmost importance for forwarders to be scrupulous in examining the insurance policy with the insurer, to make certain that insurance limits and scope are sufficient for the liability expressed in the freight agreement.<\/p>\n

The company and transport buyer, in their turn, should always ensure that forwarders can meet their liabilities under the freight agreement, and that there is proper insurance cover. An insurance company \u2013 in other words, a participant that can cover the risk and set aside reserves if there is an accident \u2013 is needed to protect the company\u2019s operations. Also, the company should procure its own cargo insurance and thus avoid the possibility of having to pay direct and indirect costs in connection with a claim.<\/p>\n","protected":false},"excerpt":{"rendered":"

Should forwarders pay when the ship sinks and production stops? A brief introduction to cargo and liability insurance, and the consequences of the extension of forwarder responsibility towards strict liability and higher limits Increasingly, forwarders are becoming integrated partners in the business activities of export companies. The value of goods they handle often exceeds the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[41],"tags":[],"_links":{"self":[{"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/posts\/404"}],"collection":[{"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/comments?post=404"}],"version-history":[{"count":0,"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/posts\/404\/revisions"}],"wp:attachment":[{"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/media?parent=404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/categories?post=404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/greenwoods.org\/wp-json\/wp\/v2\/tags?post=404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}