Responsibility of buyer and seller in the case of cargo damage

Case Study : Responsibility of buyer and seller in the case of cargo damage

I would like to use below question from a reader as a case study to debate the responsibility of buyer and seller in the case of cargo damage..

Question :  My client is a seller of steel. He sent  cargo to the buyer in two shipments: 1 in CFR conditions and 2 in CIF.

image for case studyBefore the shipments, he did an inspection and everything Was ok. The captain signed a clean Bill of lading. The problem Was that when the cargo arrived at port of destination the buyer  concluded that the cargo were wet.

He contacted with the seller to do an inspection but finally he did It without the presence of the seller. Finally, the inspection concluded that the cargo have different dimension that the seller said.

The buyer is trying to not to pay the cargo because of damages.

However, i understand that my client, seller, is not responsible because in CFR and CIF the risk is transfer to the buyer when the cargo is on board.

Who is responsible in this case? The shipping line? Or the person Who place the goods inside the container? Should the seller check the container before place the goods?

I sought the views of Mr.Sumit Banerjee and he opines as below..

1. Presuming that this was a CY/CY shipment, shipping line cannot be held responsible for the quality of cargo inside a container. ‘Shipper’s Load Stow and Count‘ clause shall apply.

2. The exporter (presuming the seller is also the exporter) needs to check the container and be satisfied with cargoworthiness of the same, before stuffing cargo inside. In case the container being offered to the exporter by shipping line is not in correct shape and cargoworthy, the exporter has

  • the right to refuse accepting the same from the shipping line and
  • an obligation to the buyer not to utilize the same to avoid exposing the cargo to be loaded to the risk of damage.

3. A seller and a buyer decide on pre-shipment inspection and the seller is obliged to follow the same. In the case under study, the seller is expected to have done her/his duty in case s/he has followed the agreed procedure of pre-shipment inspection and provided the buyer with required inspection certificate etc.

image for packed container

4. At the port of discharge, a joint inspection was necessary when the buyer decided to declare goods having been received in damaged condition. The inspection carried out without seller’s participation has prejudiced the case against the seller and the seller has the right to challenge the inspection result.

5. The exporter may request the shipping line to advise if the subject container underwent any severe condition during its voyage by way of rough sea, abnormal handling etc that might be attributable to be any cause of a damage to the cargo inside the container.

6. In case the container reached the destination in the same shape and condition as it was at the time of loading, then it is difficult to explain why should the seller be responsible for damage and/or deterioration of the quality of the cargo inside the container unless the cargo being carried was prone to damage/deterioration intrinsically during its passage of sea voyage due to change in weather condition, its own chemical composition or any other reason, and that the seller has not taken additional precaution accordingly.

7. With a long term business plan in mind, such claims are often handled on the basis of commercial considerations, but should the claim amount be high and/or one or both the parties decide to go the legal route, then the legal framework contained in the purchase order shall become applicable.

The seller is responsible to check and ensure that the container used is in cargoworthy condition and there are no holes in the container and that the container door seals close properly.. Whatever the Incoterms used, in the event of the container being neither cargo worthy nor sea worthy, the shipper will be held liable liable for the damages.. As the terms used were CIF, the buyer should make a claim against the seller’s insurance..

I must however point out that as per Incoterms® 2010 Rules, CIF may not be the appropriate term to use where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal.. In such circumstances, the CIP rule should be used..

containertruck

I must also point out that the Captain should not have issued/signed a Clean Bill of Lading as this is an FCL container packed and shipped under SLAC conditions and as such he was not aware of the condition of the cargo that was loaded in the container.. This could open him/his employer to claims..

Pleased to hear your views/comments on the question and the answer(s).. 

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Sumit Banerjee – is the MD of a prestigious multinational organization in the field of shipping and logistics services.. He is a Member of The Institute of Chartered Shipbrokers, London, holds an MBA degree, Masters in Commerce and also has a degree in Law.. After having served the shipping industry in Middle East, Red Sea, India, East and West Africa, he is currently based in South Africa..

What did you think of the above article..?? Comment below..

3 comments on “Responsibility of buyer and seller in the case of cargo damage

  1. darshak says:

    In case of damage to Cargo, in my opinion Ownership to the Title of the Cargo is very Important. In case of at sight /advance payment,Buyer will be the responsible to Accept the cargo and lodge the claim if it is CIF transaction.IN case of USANCE BILL the seller will be responsible for any damage.

  2. Rajendra Dive says:

    Incoterms is CFR and CIF, then seller is responsible till the destination port

  3. I notice that the inspection at destination revealed that the cargo specs were different at destination to that specified. How was this not noted when the export inspection was carried out? If the specs are different, it is not the cargo ordered and thus the buyer will not have to pay for the cargo.

    However, it is noted that the commodity is steel. Steel rusts if not properly prepared for shipment. Furthermore condensation will occur particularly if the steel is not properly prepared and efforts made to prevent rust/wet damage. Cargo moving from one hemisphere to another will be susceptible to condensation. All this should have been noted when the export inspection was carried out but no comment is made of this.

    Thus I conclude that if the cargo was not to the specs ordered, the buyer does not have to pay the seller. Imagine buying a BMW motor vehicle and having a Mini delivered! If the cargo was to spec, then the buyer must pay for the cargo and there will be a claim against the seller for inadequate preparation of the cargo for export. No insurer will accept liability in this instance plus the damages as noted will also be excluded from liability of the carrier under Hague/Hague-Visby/COGSA/Hamburg Rules or any other terms under which the cargo was carried.

    The clean bill of lading should have no effect on any claim as it is the duty of the claimant to prove the claim. I know of one shipping line who has given an instruction that no bill of lading will be endorsed Shipper’s Load and Count. This endorsement also will not necessary assist in any claim against the carrier.

    Out of interest, both CFR and CIF are wrong for containerised cargo. Should be CPT or CIP.

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