Risks and Liabilities of a Freight Forwarder

shipping and freight resource 500th blog post - liabilities of a freight forwarderI have received several questions and requests from my readers to cover/explain the risks and liabilities of a Freight Forwarder.. As this is an important topic I felt it would be fitting to be the 500th article on this blog.. 🙂

It is awesome that with your support and participation I have been able to write 500 articles relating to shipping and freight on this blog.. So to all my readers, thank you for providing me an opportunity to interact so extensively on this subject..

Anyway, to the topic now..

To start, let me jog your memory about Who is a Freight Forwarder, what they do and what goes on in a day in the life of a freight forwarder..

Freight forwarders are an integral part of the supply chain and global maritime trade.. Although they are involved in all modes of transport (sea, road, rail and air), in this article, I am concentrating on the seaborne trade which accounts for over 90% of the world’s trade..

In the most succinct and layman’s terms, a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..

As per the WTO, global trade in 2015 was worth USD.16/- trillion.. Out of this global trade, UNCTAD estimates containerised shipments accounted for about 1687 million tonnes (2015 estimate) carried in 177.6 million containers (2015 estimate), covering 998 billion ton miles (2016 estimate).. Staggering isn’t it..??

While you take a moment to digest these numbers, also consider that in the course of this global trade, cargo loss, cargo damage, cargo abandonment, fraud, etc does happen (more frequently than you may imagine)..

When this happens, the freight forwarder is invariably affected because shipping lines, customers and regulatory bodies (customs, ports, etc) either look to the freight forwarder to sort it out or hold the freight forwarder liable for these incidents..

While it is true that any of the above mentioned incidents could also be caused by the negligent behaviour of a freight forwarder, we also need to be fair to the freight forwarder and understand the risks and liabilities of a Freight Forwarder..

The liability of a freight forwarder is an extremely complex issue to discuss purely on paper as each case could be different.. The liability of a freight forwarder is intrinsically related to the role of the freight forwarder towards their principal and the third party in the obligation..

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A freight forwarder serves as a conduit for global trade between importers, exporters, BCOs (Beneficial Cargo Owners) and the transportation and regulatory entities such as shipping lines, customs, port etc..

The moment a freight forwarder signs/accepts a contract (although discouraged, remember that a contract may also be verbal) with the customer, they are exposed to several unique risks and liabilities..

The risks and liabilities of a freight forwarder undertaking a contract for the transportation of cargo from point to point may include but not limited to:

  • Total loss of cargo – may happen either due to physical cargo damage or theft while in the custody of the freight forwarder
  • Loss of monies – may happen if the customer does not pay them after the performance of part or all of the activities
  • Damage of cargo – may happen either due to incorrect or improper packaging of the cargo, incorrect or improper handling of the cargo while in the custody of the freight forwarder
  • Rerouting of cargo – may happen if the documentation submitted to the carrier by the freight forwarder was incorrect and cargo ended up in another continent
  • Abandonment of cargo – may happen if the consignee who was supposed to receive the cargo suddenly abandons it due to lack of funds, cancellation of the order etc
  • risks and liabilities of a freight forwarder - 500th article of shipping and freight resourceNon collection of documents – may happen when there is HBL involved and the freight forwarder releases cargo to the consignee while the shipper is still holding the original HBL because he has not yet been paid by the consignee (refer to this case study)
  • Incorrect release of cargo – may happen if the cargo was released by the freight forwarder to the incorrect party based on the type of bill of lading issued.. For example if cargo was released to the consignee on a negotiable bill without proper endorsements on the bill of lading
  • Delays due to improper documentation – receipt of cargo at destination was delayed due to incorrect documentation submitted by the freight forwarder to the carrier or incorrect cargo declarations were filed with customs or any other types of cargo documentation done by the freight forwarder which caused this delay
  • Risk of carrier’s liability – A freight forwarder maybe liable as a contractual carrier if  :
    • They have negotiated the rates for the entire carriage of the goods with their client (say shipper or consignee)
    • They have issued their Bill of lading for the carriage

Apart from undertaking the above mentioned risks, in ALL of the above cases, there is a chance that the freight forwarder may be liable, BUT only if it is proven to be due to negligent behaviour on their part..

Depending on the jurisdiction, it maybe possible that the freight forwarder shall be exempted from all liability if it could be proved that the freight forwarder took all possible steps and exercised due diligence/care in respect of :

  • receiving and storing the goods
  • selecting the most suitable carrier for the carriage
  • delivering the goods to the receiver
  • and all other matters en-route

For example, let’s say a consignee abandoned the cargo because the costs for delivery of the cargo was more than the value of the goods.. If the cargo delivery costs increased due to negligence on the part of the freight forwarder, say for example the freight forwarder did not notify the customer of the arrival of the cargo or they did not do the clearance of the cargo in time and cargo incurred demurrage, detention and storage, then the freight forwarder would be liable..

On the other hand if the delivery costs increased because the freight forwarder did not receive the proper documentation from the consignee or shipper for the timely clearance of the cargo, then there should be no liability for the freight forwarder (although if the freight forwarder booked the cargo with the shipping line, they may still hold the freight forwarder responsible for the cargo abandonment)..

Customers rely on the freight forwarders for their experience and expertise in picking up the cargo from the seller, arranging for proper packaging of the goods, handling all the documentation, clearances en-route and delivering it to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable resources and routing possible..

This is the essence of freight forwarding.. But while the freight forwarder takes care of all above on behalf of the client, considering the risks involved and their vulnerability, a freight forwarder must also ensure that they are properly protected and covered for the risks that they have taken on..

Even if unintentional, a freight forwarder could still be held liable for any of the above items, especially when the customer could claim that the freight forwarder was negligent.. The onus then falls on the freight forwarder to prove that they were not negligent..

Therefore, all freight forwarders need to have or be sufficiently covered for

  • Marine liability cover for overseas trades
  • Full liability protection to cover all forwarding operations
  • Third party liabilities
  • Regulatory breaches
  • Errors & Omissions and Legal Liability – all freight forwarders maybe exposed to contractual liability for a loss, irrespective of who is responsible
  • Survey and mitigation costs
  • General Average and Salvage Charges including cargo disposal as in some General Average situations freight forwarders also could be roped in
  • A comprehensive Liability Cover and Risk management

If you are a freight forwarder, there are many insurance cover packages available in the market to cover above mentioned liabilities.. The policy underwriters need to be briefed on the terms and conditions that you are trading under so that they can customise your policy and premiums..

It is normal for your policy underwriters to limit the amounts that they will pay out for one claim or all claims in a year.. As a freight forwarder, you need to ensure that based on your business volume and the probability of damages, your cover is adequate to cater for potential claims..

Therefore, a freight forwarder needs to be diligent about which insurer to choose and what type of cover to take to ensure business continuity..

Well, if you were one of those people that thought, hah, anyone can become a freight forwarder and have an easy life………………………………………. think again..

If you are a freight forwarder, please share how you are covered against all above liabilities..

Images Credit : Luis Prado and Suji

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18 comments on “Risks and Liabilities of a Freight Forwarder”

  1. By Mohit Reply

    Hello, I have booked the nomination shipment from our forwarding agent. But the Consignee had direct nomination from APL shipping line.

    My agent was fraud person. I would like to know Is it possible that he can hold our shipment? However Original BL with us and it consigned “To order”

  2. By tony sutherland Reply

    i have a freight forwarder in the uk who packed my stock on a pallet and he now says in screening the pallets from him in Hk customs have some how muddled up the goods and put some items onto wrong pallets and other people have had my stock, i personally think he has packed my stock wrong in his warehouse and mixed some of mine up with 1 of the other pallets and now another one of his customers have had and sold my stock and im now left with some of theirs. i think he is passing the blame to the security so i cant chase him fro the missing value of the goods £10,000. he was meant to deliver my goods direct once landed in Hk so i assume he accepts full responsibility until signed for by my receiveing customer. where do i stand on the above matter.

  3. By Nimesh Sanghrajka Reply

    Dear Hariesh,

    A very strange query. We had given a FF a consignment DDP for a USA customer. The containers reached USA port on time but they could not arrange truckers to offload the containers and send it to my customer. They kept the containers at the port and after 9 days they could manage to get trucks. The detention and demurrage on these, were billed to us and made us pay for the same. We had paid the DDP charges to them even before the containers reached the destination port. And the extra charges he made us pay saying otherwise he will not clear the next consignments which were due to arrive the same port in 15 days. We had to bow down to their threats and pay them off. Were they justified in such acts and were we liable to pay for such mistakes by FF for not arranging trucks. Aren’t they covered under their insurance for such liabilities and why were we made to pay the charges.

  4. By Sruthi Reply

    What is the risk of a forwarder consigned in MBL in the case of cargo abandoning if the MBL consignee has exchanged the BL ?

  5. By SSB Star Reply

    “anyone can become a freight forwarder and have an easy life………………………………………. think again..”
    Thanks for sharing all the if and buts of a Freight forwarder company, They have to think about many factor before and after Shipping any product.

  6. By Kwaku Duah-Anane Reply

    All the risk and liabilities talked about goes for the freight forwarder at the port of receipt but there are others that the freight forwarder at the destination port also faces. For instance I cleared a consignment which was covered with HBL and when the container was opened there were some bags containing 125 kgs of cocaine in that container said to contain 147 packages of fuel additives. The container seal was broken at Panama where the bags were put into the container and re-sealed. I was arrested and detained for one week but for diligence the facts I presented exonerated me and my workers who were arrested with me including the consignee. The consignee knew nothing about it but had to suffer too. The MBL was consigned to a different agency though my client owed no freight.

    • By Kingsley Korankye

      Interesting.. would like to know how this case goes. NOT necessarily knowing who the alleged cocaine was for but rather the establishment of the laible party.. i think the carrier would have questions to answer.

    • By Hariesh Manaadiar

      Hi Siddharth, it is a method of loading cargo onto a ship.. Roll-on Roll-off relates to vehicles or any cargo on wheels which can be driven into a ship instead of being lifted by crane onto a ship and can be drive off a ship at discharge port.. There are special ships for this purpose and they are called Ro-Ro carriers or Ro-Ro ships.. These type of ships are mainly used for transporting cars, trucks etc from port to port.. Its like a giant floating parking lot.. 🙂

    • By Sam PRETAT

      Hi Hariesh,
      Very Informative indeed! To complete this article, France is a special case in regard to the status of Freight Forwarder. French law does not recognize the FF as it covers two separate types of companies:
      – Commissionnaire de Transport (in essence an NVOCC responsible for organizing shipment and select proper parties on behalf of the shipper),
      – Transitaire (who’s only in charge of carrying out shipper’s instructions).
      As the Commissionnaire selects the carriers and various parties for the shipment, within the negotiated Incoterm by the shipper, they are liable for anything that may arise during the transport.
      On the contrary, the Transitaire cannot be held liable as they only carry out the operations they are tasked with by the shipper, who negotiates the freight and manages the shipment.
      The trick is they can be the same people working for the same company, it really depends on the way instructions are provided by the shipper who has negotiated the freight directly with the carriers.
      And of course, this special status makes it hard to understand from abroad, especially for EXW operations when shipping lines cannot act as Commissionnaire as it takes a special certification provided by the State. Carriers need either to have a forwarding department or the importer needs to nominate one in France, for FOB operations and to represent the cargo from a tax and revenue point of view.
      Thank you for providing such quality info on our business, really helpful indeed.
      Best Regards

    • By Hariesh Manaadiar

      Wow, very interesting to read Sam, thank you for sharing the same.. So what kind of cover do the freight forwarders in France take and against which type of risks..??

    • By Sam PRETAT

      Well, I work for a carrier so I have to assume my customers know how to best protect the cargo interest. It is their duties as per the shipper’s tasking they receive.
      Being certified as a Commissionnaire’s means you are duly protected and have taken all the measures to act as such, meaning being registered as a sound business qualifying as a transport organizer and being registered with the chamber of commerce. The rest falls within insurance policies and bank guaranties as a business.
      This also means they have to be able to assess the risks during the part of the transport they are organizing and advise they customer accordingly. Failing to do so will surely expose them to shipper’s ligation.
      Actually, they are much like a FF in that respect. It is just that French law makes a difference between the company that chooses how to organize a shipment (deciding on how to proceed, with what international means of transport from point A to B, thus fully liable in regard of their actions) and the one who only follows instructions from a shipper who has already negotiated everything (being only responsible for doing this right).