The current situation in the Red Sea is complex and fluid, impacting trade from the Far East, India to Europe, and vice versa. The situation is having a wider impact than vessels being diverted from the Red Sea/Suez Canal route to around the Cape of Good Hope.
Both ships and shipping containers are out of position; furthermore, we are seeing carriers imposing surcharges and increasing rates. Also, insurers are either increasing rates or withdrawing their cover.
Members are obviously very concerned about the issues facing them, and have been contacting the BIFA Secretariat regularly on the following issues:
- Delivery times and sailing schedules
- Increased costs and surcharges
- Cargo claims should any vessels are hit by missiles/drones and cargo lost or damaged
It is essential that Members understand that there is no ‘one size fits all’ answer to the problems facing Members – all BIFA can do is provide you with some options. Every situation is slightly different and has to be assessed on its individual merits, and legal opinion varies of the validity of the different arguments.
Before looking at the specifics of this situation, it is essential that Members have engaged the STCs with their customer.
The first point to double check is what terms have been agreed between the Member and client i.e. what the Member has contractually committed themselves to provide, and have these agreements been made incorporating BIFA’s STCs? It is important to look at what “escapes” are provided and whether there is specific reference to being able to pass on surcharges and additional costs due to vessels being diverted.
The second point to determine is whether or not the Member was acting as an Agent or Principal. In the vast majority of cases, it will be the latter, particularly if they have issued a House Bill of Lading. The relevant Clauses in the BIFA STCS to consider are numbered 4 to 6, for instance Clause 5 and Clause 6 include phrases such as in:
- Clause 5 – “it (the Member) shall have full liberty to perform such services itself, or, to sub-contract on any terms whatsoever” and in
- Clause 6(A) – “The Customer hereby expressly authorises the Company to enter into all and any contracts on behalf of the Customer.”
Sub-contracting services, particularly the international transport element, is the predominant practice. BIFA Members who sub-contract with shipping lines may do so under either international convention or the carriers’ terms. These contracts include conditions that are different from BIFA’s STCs including increased liabilities for carriers having to divert vessels and the additional associated costs.
One other clause which Members may be able to use to protect their position is the indemnity clause, Clause 20, which is a complex clause, particular attention is drawn to sections A and B, the last mentioned states “any liability assumed, or incurred by the Company (BIFA Member) when, by reason of carrying out the Customer’s instructions, the Company has become liable to any other party.”
The last clause to consider as defence would be Clause 24, which comprises two clauses, the opening text states “The Company shall be relieved of liability for any loss or damage if, and to the extent that, such loss or damage is caused by:-
Clause 24(B)
Any cause or event which the Company is unable to avoid, and the consequences of which the Company is unable to prevent, by the exercise of reasonable diligence.”
Regarding complaints about delays and extended sailing schedules, this matter is outside the BIFA Member’s control and Clause 25 is clear on this matter – “Except under special arrangements …the Company accepts no responsibility with regard to any failure to adhere to agreed departure or arrival dates of Goods.”
Referring back to Clause 21, the customer is obliged to make “full and punctual payment” to the BIFA Member. Also, this Clause clearly states that no “set-off” of the BIFA Members invoice charges is permitted and that “consequential losses” are excluded. When aligned to the indemnity clause (Clause 24) these two clauses can be used as a useful lever to facilitate the client’s acceptance of the additional charges from the shipping lines.
For the BIFA Member it is probably easier to use the STCs to defend against client claims and complaints around disrupted sailing schedules (use Clause 25) than it will be to pass on additional costs (use Clauses 21 and 24).
In the latter case, much will be dependent on how the business has been contracted/quoted. As we have noted, the most important consideration is does the contract between BIFA Member and customer allow for the higher charges to be recovered from the customer by the BIFA Member? The BIFA terms include various clauses, which if not overridden by individual Member v. Customer agreements does allow a multiple stemmed approach to passing on charges imposed by the carriers. Where the contractual agreement between Members and customers is an unamended version of the 2021 STCs, Members will be in a strongest position to collect the additional carrier levied charges.
Moving forward, Members must take great care and be circumspect when quoting their customers. Quotes should not be issued unless a binding and back-to-back quote is in place with the shipping line. Quotes should include wording that gives flexibility to pass on any surcharge imposed by a shipping line after the booking has been made. Any longer-term deals must include flexibility around surcharges and ability to pass-on new (or increased) surcharges. Caveats around sailing schedules should be included in quotes, or longer-term deals. Though the carriers will impose new Red Sea Disruption surcharges, most will also simply increase the base freight rates (for spot cargoes).
As part of their booking process with carriers/NVOCCs and consolidators, Members should be diligent when checking the sailing schedules, port calls etc of vessels.
The other point to keep an eye on is insurance – and the situation is confused, there are reports that some insurers have rescinded cover whilst others have not. Legal advice is that it would be unwise to ship without cargo insurance, given the increased probability of a vessel encountering difficulties, that could give rise to General Average or salvage situations. Members should clarify with their insurers the exact position relative to policies that could be impacted.
We would also suggest that Members familiarise themselves with the STCs and in particular the Guidance Know Your Trading Conditions – A Guide to the BIFA 2021 Standard Trading Conditions.
As previously advised, this is a very complex situation and BIFA can only give generic information. Members must seek the guidance of a suitably qualified solicitor for individual situations.
