Risks and Liabilities 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..

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:
 1. Total loss of cargo – may happen either due to physical cargo damage
or theft while in the custody of the freight forwarder
2. Loss of monies – may happen if the customer does not pay them after
the performance of part or all of the activities
3. 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
4. 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
5. 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
6. Non-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)
7. 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 the cargo was released to the consignee
on a negotiable bill without proper endorsements on the bill of lading
8. Delays due to improper documentation – receipt of cargo at the
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
9. Risk of carrier’s liability – A freight forwarder may be 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 may be 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 may be
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 the 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..