Freight Forwarder

Understanding General Average

Posted on June 27, 2016 by nmooney

Import and export traffic in our globalized world generally runs quite smoothly, but occasionally, the very real risks associated with the natural elements at sea or simple human error impact transportation adversely. Severe weather including wind, rain, swells and lightning storms can create a recipe for disaster for traveling ships. Less violent, but still serious issues can arise when technology fails or a mistake is made by a crewman which puts the ship and cargo in peril. General Average (GA) is the legal principle in maritime law that permits the ship-owner to voluntarily sacrifice part of the ship or cargo to save the rest or majority of the vessel and cargo. The term “average” in this case should be understood to mean “loss”. When an event is declared as a General Average, the ocean carrier is fully relieved of the liability of loss; that burden is instead, distributed collectively to each cargo owner who’s goods were on that ship.

The most common instance of GA is when crews jettison cargo to lighten a threatened ship; other bases for GA claims include stranding, fires and collisions that may occur either in international waters or on the high seas. These partial losses may be small or reflect millions of dollars in damage. An insurance policy with a General Average protection can, in these instances, protect cargo owners from thousands in out of pocket costs for these claims. It is important to note that there is a difference between General Average protection and Particular Average protection which is covered under a marine insurance policy.

To have a valid General Average claim, the sacrifice must be a voluntary, rather than inevitable decision, necessary for common interests, not merely a part of the property involved, and successful. When a GA claim is made, landed cargo will be detained until a cash bond or security deposit is provided prior to release. Until such bond or security is made, ship-owners hold a lien on the cargo (see our recent post about liens by clicking here). If the General Average claim is small, and the cargo is insured, ship-owners may release the cargo under a General Average Guarantee. This guarantee is a simple form that states the insurers agree to pay the ship owner the owed contribution for the General Average, salvage and any other incurred charges. This guarantee form should include the:

Ship/ vessel name
Date
Brief description of goods insured

Note that you may be required to also place an Average Bond along with the Guarantee if the insured amount of the cargo is less than its contributory value. Please click here for more detail

The General Average claim will be assessed by a general average surveyor who is responsible for determining and reporting the official loss amount. This process can take years and the fee for the adjuster is also billed across the cargo owners. Once all the fees have been applied and totaled with the damages, billing is typically split by percentage according to the amount and value you had on the vessel. The ultimate goal of the General Average Principle is to place the carrier who incurred the loss in as close to a financial position as the carriers for whom the sacrifice was made.

For a full breakdown of General Average as well as a look at the York-Antwerp Rules which govern this principle please click here.

If you are facing legal action with regard to a General Average claim or have any further questions, please contact us.

SOLAS New Container Weighing Requirements

Posted on May 17, 2016 by nmooney

Change is on the horizon in the shipping industry, and it is important to make sure you are staying informed. Effective July 1st, 2016, changes adopted by the International Maritime Organization (IMO) regarding verified container weights will become effective. These changes were first introduced at the 2014 Safety of Life at Sea (SOLAS) Convention, but it is now time for implementation. The full text of the applicable SOLAS regulations can be found here

These regulations initially came about as a result of safety issues within the shipping industry. There were problems regarding overweight/underweight containers, misreported freight, poor weight distribution within containers, and more: see “Safety and Shipping Review 2014“. Ideally these changes will help accomplish a reduction in loss of containers from vessels, increased assurance to all parties within the supply chain, and overall improved safety. These new requirements will apply to all 171 IMO member countries, as well as the three associate members of this organization.

The responsibilities of the shipper (as designated by the bill of lading) under these new regulations are particularly important. The shipper will now be required to verify the gross mass of each container via a signed document; this document must be physically signed (stamps will be unacceptable), and the form must be submitted in time to be used by the master and terminal representatives in the ship’s stowage plan. The shipper has the option of submitting the container weight via the shipping instructions to the line, or in a specific communication such as a weight certificate. Regardless of submission method, the weight included must be designated as the “verified gross mass” and authorized by the accompanying signature. The shipper is able to determine whether they would prefer to weigh the contents of the container prior to or after loading, but the critical designation is that estimated weights are not permitted. The equipment used to weigh contents must meet national certification requirements, and the party verifying container weight is not permitted to use weight provided by a previous party. Click here for the Implementing Guidelines issued by MSC

The execution of enforcement for this new requirement will be put on the shoulders of the carriers. Essentially, carriers are highly encouraged to refuse to load containers for which a signed weight verification is missing. Refusing to carry these containers will encourage shippers to abide by the new requirements set forth by SOLAS. As July is only a few months away, it is important for shippers to begin proactively planning how they will adjust their processes to abide by these new requirements.

If you are in need of additional resources or more information, please visit the following link: http://www.worldshipping.org/industry-issues/safety/faqs.

A Proper Receipt Creates A Warehouse Lien

Posted on May 7, 2012 by nmooney

We are constantly being asked by NVOCCs, forwarders and warehousemen whether they have a legitimate lien on the cargo in their possession, such that that they can hold the freight until being paid. The answers are not simple: you only have a lien on freight if it was a)given to you by the cargo owner; or b) given to you by statute.

Warehousemen have a statutory lien, which is generally the same throughout the country under the Uniform Commercial Code. We will discuss Florida’s implementation of the UCC provision. This is a simple outline of how to make certain that your warehouse receipt is compliant with Florida Statutes, and thus obtains for a warehouseman the full privileges the law can provide. Following the guidelines below should ensure that you obtain the full statutory warehouseman’s lien.

The general form that a warehouse receipt takes is in accordance with the following (Florida Statutes 677.202):

(1) A warehouse receipt need not be in any particular form.

(2) Unless a warehouse receipt embodies within its written or printed terms each of the following, the warehouseman is liable for damages caused by the omission to a person injured thereby (i.e., if you fail to include the following, you can be subject to loss of lien rights):

(a) The location of the warehouse where the goods are stored;

(b) The date of issue of the receipt;

(d) A statement whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his or her order;

(e) The rate of storage and handling charges, except that where goods are stored under a field warehousing arrangement a statement of that fact is sufficient on a nonnegotiable receipt;

(f) A description of the goods or of the packages containing them;

(g) The signature of the warehouseman, which may be made by his or her authorized agent;

(h) If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such ownership; and

(i) A statement of the amount of advances made and of liabilities incurred for which the warehouseman claims a lien or security interest (Florida Statutes 677.209). If the precise amount of such advances made or of such liabilities incurred is, at the time of the issue of the receipt, unknown to the warehouseman or to his or her agent who issues it, a statement of the fact that advances have been made or liabilities incurred and the purpose thereof is sufficient.

-For the purposes of this section, you will want to include a statement saying that you retain a lien on all goods stored by you for the bailor (customer), regardless of whether or not they are those goods listed on this particular warehouse receipt.

In addition to the above listed provisions, it is advisable that you include a provision that advises your customers that they have the option to purchase additional insurance or to obtain insurance through a provider of their own choice. Note that nothing in the above addresses limitation of liability, an entirely different topic.

For more information on this topic please contact our offices at 800-583-0250.

Inside FMC Licensing: References

Posted on April 10, 2012 by nmooney

Becoming an ocean transportation intermediary (“OTI”), a freight forwarder (“OFF”) or a non-vessel operating common carrier (NVOCC), is a great way to get involved in the international trade industry. OFFs and NVOCCs facilitate the movement of goods overseas (via ocean carrier) from the original shipper, individuals or corporations, to their final point of distribution. While the U.S. has regulations for each category of OTI, both OFFs and NVOCCs require a license granted by the Federal Maritime Commission (“FMC”) in order to begin operating as an OTI. One of the many requirements for obtaining an FMC license is that OTI’s qualifying individual (“QI”) must have at least three (3) years’ experience in conducting OTI activities in the United States. Foreign NVOCCs may also obtain an FMC license (not foreign OFFs) by demonstrating its QI has at least three (3) years’ experience as well, though not necessarily in the U.S.

To prove the minimum experience requirement, a QI must provide the FMC with information on the jobs she has held or currently holds in which she obtained the experience as well as three (3) non-related references who have firsthand knowledge of the QI’s OTI experience. After having worked with the FMC on licensing for clients for many years, our firm has found that the FMC is very specific about the references it will accept. The following are a few tips for those of you who are hoping to obtain your license:

The FMC will not accept more than one reference from a single company.
Each reference should ideally be from a different source type; i.e. Vessel Operating Common Carrier (“VOCC”), NVOCC, Shipper, Client, Customs House Broker, Ex-Supervisor, Ex-Coworker, etc.
Each reference is not required to have known the QI for three years. The cumulative time period for all references’ knowledge of the QI’s experience is three years. For example:
- Reference 1 can attest to six months of the QI’s experience, and Reference 2 can attest to one year of the QI’s experience; therefore, Reference 3 must be able to attest to one and a half years of the QI’s experience.
If references do not respond, the FMC will close the OTI application and another application will have to be started with duplicate fees. Make sure you contact your references and let them know the FMC will be contacting them, most likely via email, with a questionnaire about your, or your company’s QI’s, experience as an OTI. If you think one of your references might be out of the country for a while or unable to answer the questions choose another reference as back up. This can save you a lot of time, money, and hassle. You should also confirm the emails addresses of your references by exchanging messages before submitting the application, as changed or erroneous email accounts are a primary reason for lack of responses.

For more information on FMC licensing, visit www.fmc.gov or contact our offices for more information. We are able to provide both FMC licensing consulting services as well as prepare, file, and conduct all follow up on your application for you.

CAN A FORWARDER INSURE A SHIPMENT AFTER A KNOWN LOSS?

Posted on February 20, 2012 by nmooney

CAN A FORWARDER INSURE A SHIPMENT AFTER A KNOWN LOSS?

This question was addressed last week in the case of I.T.N. CONSOLIDATORS, INC. versus NORTHERN MARINE UNDERWRITERS LTD. [i]

A cargo loss was made known to the forwarder ITN which promptly notified the insurance company writing its open policy. ITN subsequently issued a certificate of insurance to the cargo owner binding the insurer to cover the goods. ITN paid the insurance company the premium called for by its open policy, but the insurance company later refused to honor the claim and attempted to refund the premium. A lawsuit ensued, and the United States District Court for the Southern District of Florida granted the insurance company relief, stating that it could not be forced to insure a known loss. ITN appealed, however, and the lower court’s ruling was overturned.

The 11th circuit Court of Appeals said, “The question raised by the case of insurance coverage in this case rests on whether Northern in fact agreed to insure the lost shipment. That question in turn depends on whether Northern accepted ITN’s premium payment, thereby consummating the contract to insure it. The district court should determine whether Northern in fact accepted ITN’s premium payment such that a contract to insure the lost shipment was formed.”

The higher court suggested that the insurance premium may have been accepted initially by the insurance company to keep ITN’s business. Although the appellate court agreed that the insurance company could not normally be forced to insure a loss after all parties knew one had occurred, it stated that under this policy it had the option to do so if it chose. The language allowing binding of coverage after the fact of knowledge of the loss (common in insurance contracts) was discretionary on the insurance company’s part, and having taken the premium was an indication of its intent to cover the known loss according to the appellate court. It ordered the lower court to reevaluate the claim in the above light and issue its new decision accordingly. The lower court still can rule for the insurance company, but it must follow the higher court’s reasoning in its new opinion.

Generally, forwarders can cover shipments after a loss occurs if they have no knowledge of it. Insurance companies, however, like everyone else deposit received funds immediately and apply them later. They even allow payment by credit card, which is obviously automated. In fairness, they don’t always know what shipments the payments cover, so how can they be held to have “consummated the contract” by receipt of an automated payment? We wait to see how the lower court resolves the matter. More on this to come.

[i] No. 10-15152 UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT I.T.N. CONSOLIDATORS, INC., I.T.N. OF MIAMI, INC., Plaintiffs – Appellants, versus NORTHERN MARINE UNDERWRITERS LTD, individually and as agents for Lloyds of London, Watkins Syndicate (WTK/457), Defendant – Appellee.

CBP Posts Updated Bond Policies and Procedures

Posted on December 17, 2010 by nmooney

CBP, at the URL below, has posted new guidance concerning customs bond policies and procedures. It notes that the Continuous Transaction Bond program has been centralized at CBP’s Revenue Division in Indianapolis, Indiana.

All continuous and term bond submissions, including continuous ISF bonds, along with requests for terminations and bond riders, must be submitted via email to cbp.bondquestions@dhs.gov. Details concerning the items that must be included in a complete bond application package are set forth at page four of the policies and procedures document. Questions about bond processing can be submitted to the same email address. All email communications with CBP concerning bonds must be drafted according to the mandatory format prescribed in the policies and procedures document.

Currently, less than 10 percent of bond submissions are rejected by CBP. Notification of an approved bonds is provided by email to the applicant.

The new policies and procedures can be found at:

http://www.cbp.gov/linkhandler/cgov/trade/trade_programs/bonds/pilot_program/news_develop/bond_pol_proc.ctt/bond_pol_proc.pdf

Federal Maritime Commission Begins Rulemaking Process to Amend Regulations to Eliminate Filing of Rate Tariffs By Licensed NVOCCs

Posted on May 5, 2010 by nmooney

On April 29, 2010, the Federal Maritime Commission published a proposed rulemaking to implement its February 18, 2010, decision to relieve licensed NVOCCs from the costs and burdens of tariff rate publication. The April 29 rulemaking promulgated new and amended regulations that, when given effect, will establish the criteria that must be adhered to by NVOCCs that seek to be exempt from the tariff rate publishing requirement. Publication of rules tariffs would still be required under the regulations.

The proposed FMC regulations would recognize “negotiated rate agreements,” or NRAs, as a new type of instrument that, in function, would serve to set individualized rates as between a shipper and NVOCC. An NRA is defined in the regulations as a “written and binding arrangement between a shipper and an eligible NVOCC to provide specific transportation service for a stated cargo quantity, from origin to destination, on or after the receipt of the cargo by the carrier or its agent (or the originating carrier in the case of through transportation).”

For an NVOCC to avail itself the FMC’s newly-relaxed tariff rate publication requirement, it must follow certain rules outlined in the new regulations, namely:

The NVOCC must give notice to the public that it is opting out of rate publication by publishing that fact in a prominent place in its filed rules tariff. An NVOCC can also elect to invoke the exemption by filing with the FMC a Form FMC-1, which would then be reflected on the FMC website along with the NVOCC’s tariff location.

The rules tariff must be available to the public free of charge, or it must be provided with each of the NVOCC’s proposed NRAs or rate quotes.

NRAs must be (1) be agreed to by both parties; (2) be memorialized in writing; (3) include the applicable rate for each shipment; (4) be agreed and memorialized on or before the date on which the cargo is received by the common carrier or its agent (including originating carrier in the case of through transportation rates); and (5) include prominent notice of the existence and location of the NVOCC’s rules tariff.

NRAs and associated records must be retained for five years and are subject to the records availability requirements of the Commission’s regulations at 46 CFR § 515.31(g).

When these criteria are met, a NVOCC will be exempted from the requirement that rates tariffs be published in an automated tariff system. Associated tariff rate regulations, such as those governing the timing of rate increases and decreases, which would then be inapplicable insofar as there would be no published rate to adjust.

An NVOCC who fails to maintain its bond or license or has had its tariff suspended or cancelled by the FMC is ineligible to avail itself of the new exemption.

Interestingly, the new proposed regulations would only exempt licensed NVOCCs from the tariff rate publication requirement. Registered but unlicensed NVOCCs, which are those that have no physical U.S. location and are incorporated abroad, would not be exempt from rate publication even if the proposed regulations go into effect. The FMC has stated that it will consider whether to expand the exemption to cover registered, unlicensed entities. Already there have been some cries of discrimination from foreign NVOCCs due to this disparate treatment.

The deadline for interested parties to file comments concerning the new proposed regulations with the FMC is June 4, 2010.

The proposed regulations can be found on the FMC’s website at http://www.fmc.gov/userfiles/pages/file/NVOCC%20Tariff%20Exemption%20NPRM.pdf