Trials Status over Maritime Freight Forwarding Disputes

Preface

The export-oriented economy of Zhejiang and the favorable harbor geographic environment breed the developed maritime freight forwarding industry. The international maritime freight forwarding is a key link in the carriage of goods by sea. Freight forwarding enterprises are common maritime litigation subjects and freight forwarding dispute is a typical case of maritime litigation. In order to properly settle freight forwarding dispute and service marine economy, this maritime trial status report combs those cases[1] over freight forwarding dispute tried by our court between January 2012 and December 2016, via notifying the related problems and putting forward suggestions, it plays guidance, standard and service safeguard function in maritime judicial related industry.

Ⅰ.The Basic Situation and Characteristics of Maritime Freight Forwarding Disputes

(Ⅰ) The Quantity of Filed and Settled Cases Has Been Rising Year by Year with Obvious Fluctuations in 2015

From January 2012 to December 2016, our court accepted 792 cases of disputes over maritime freight forwarding contracts, and concluded 765. The concurrent concluding rate is 96.59%. The total value of the accepted cases exceeds 188 million yuan, and the total value of the concluded cases exceeds 156 million yuan. At the same time, 37 maritime injunctions involving freight forwarding enterprises were accepted and concluded.  

In the past five years, there is a growing trend in the amount of accepted and concluded cases of maritime freight forwarding contract disputes (including the maritime injunction).  However, the case amount soared in 2015. The main reason (see picture 1) is that our court accepted 20 series cases which includes 138 cases in total. Except for the 2 series of cases amount to 9 cases involving in claiming for release of goods without bills of lading, the rest of the cases were claimed for agency fees (1 series of case amount to 8 maritime injunctions was caused by seizing the bill of lading by freight forwarders due to arrears). Judged from the trial results of the above-mentioned series of cases, 13 cases were caused by the insolvency of export companies and 41 were withdrawn directly due to the unclear whereabouts of the defendant or foreseeing impossibility of execution, which indicates that some export enterprises and freight forwarders left the market because of the poor management.

 

（Ⅱ） Foreign Cases are Relatively Few while Regional Types of Disputes are Relatively Concentrated

 

 

Among the maritime freight forwarding contract disputes accepted by our court in the past five years, 99 cases involved foreign parties including individuals or enterprises, which accounts for 12.5%. While in the cases of application for maritime injunction due to disputes over maritime freight forwarding, only one case involved overseas individuals or enterprises, which accounts for 1.1%. In short, foreign-related cases[2] accepted are relatively few and the majority of freight forwarders involved in the lawsuits is domestic legal persons.

Seen from department distribution, the above cases are mainly concentrated in Ningbo, the headquarters of our court. However, the number of cases in Zhoushan, Taizhou and Wenzhou tribunals are 0, 15 and 36, The sum of the three places only accounts for 6.19% of the total number, which indicates that maritime logistics industry in Ningbo is significantly developed than other parts of Zhejiang province. At the same time, the types of disputes over maritime freight forwarding contracts accepted by our court are also relatively concentrated. In the past five years, the freight forwarders companies seeking for the costs associated with the freight forwarders and the port of destination, and the cargo owners claiming that there is a fault in the agency of the freight forwarding companies formed the main maritime freight forwarding contract dispute types accepted by our court.

（Ⅲ）Mainly Applies the Summary Procedure in Trial and Concluded Cases by Judgment are in a Large Proportion.

In disputes of maritime freight forwarder contract accepted by our court in the past five years, the cases applied the ordinary procedure add up to 223 and account for 29.42%. Additionally, 468 cases applied summary procedure and 91 cases applied small claims procedure, which account for 70.58% in total. Meanwhile, there were 698 cases whose value is less than 500,000 yuan, 59 cases ranging from 500,000 to 1 million yuan, and 35 cases involving more than 1 million yuan. It indicates that the majority of disputes in freight forwarding are relatively in small value or relatively simple. Considering the efficiency of the freight forwarding industry, our court would give priority to the application of summary procedures when trying similar cases in order to conclude the case within a relatively short period.

Among cases settled by the court over past five years, there were 152 cases settled by mediation and 219 cases were withdrawn, with exception of maritime injunction cases. The rate of mediation and withdrawal rate reaches to 46.84%, lower than the one of case in first instance of our court and the one of the same type of cases in the previous years’.

By comparing the above data, we can see that although the case is simple, it is unlikely that the mediation will be conducted. Because of big disputes between two parties, defendant’s non-repayment ability, or absence to the cases trial, the cases failed to reach a settlement. In the meantime, totally there were 382 concluded judgments, 118 of which were appealed against by the parties, and only 8 of them were overruled or remanded after second instance. It indicates that the quality of the overall trial in such cases is relatively high.

（Ⅳ）The Trial Cycle is Normal, while Many Cases Need to be Served Through Public Notice.

For the disputes of maritime freight forwarder contract accepted by our court in the past five years, the average trial period is 64.77 days. In summary proceedings, the average period of hearings is 54.48 days. In ordinary proceedings, the average period of hearings is 138.90 days. Of which, there are 40 cases served through public notice on account of that the defendants’ addresses were unknown and the average period of these trials is more than 169 days, while the average trial period of foreign cases is more than 168 days. Although the ratio of these two types of cases (public announcement cases and foreign-related cases) is relatively low, the absolute quantity has been significantly increased over previous years. Moreover, the trial period is relatively long, which indicates that there are difficulties to serve summons, thus affecting the efficiency of litigation. 

Ⅱ.The Main Causes of the Disputes

(I) The Causes of Disputes on Freight Forwarder Relevant Fees by Freight Forwarding Companies

The variety of arrears includes arrears of inland fees, inspection fees, agency booking fees, agency declaration fees, ocean freight charges, overdue container usage fees (demurrage fees), and fees charged by the port of destination, such as charges for containers, transshipment, storage fees, etc. Among those mentioned above, due to the long-term detention of goods in the port without delivery, the disputes of shipping companies claiming port storage fees and container overage fees shows a variety of situations[3]. The general performance is that after the shipping company collects the aforementioned fees from the booking agent, the freight forwarder will recourse to the lower level agent or the shipper. Affected by the international economic situation, some foreign buyers would be collapsed, some might hope to depress the price through delay, some goods would be checked and detained by the customs when they arrived in Hong Kong, and some buyers found that the goods have quality problems in advance, which all would cause long-term stagnation of container goods and then generates a lot of expenses in turn.

The large area of freight agent recourse fees was mainly due to the sluggish foreign trade industry and the transfer of operational risks to the freight forwarding industry. In recent years, major Western developed countries have advocated the return of manufacturing. Trade protectionism has risen and the imports of consumer goods have fallen. Under such circumstances, many domestic small and medium-sized export traders face operational difficulties and are often subject to foreign buyers. So that the success or failure of each time of international trade, or whether it is legally compliant, may affects freight forwarders. At the same time, due to the limited volume of cargo, there is a lot of pressure of competition among freight forwarding companies. As a result, the situations are occasionally happened, like the shipper's information is unknown, the status of the shipper's product name is not strictly examined, and freight forwarding companies even help to hide the truth in reports. This also induced a considerable number of disputes.

(II) The Causes of the Disputes that the Cargo Owners Advocate that the Freight Forwarding Companies in Fault

Because of the fault of the freight forwarder, the lawsuits mainly include the damage caused by improper storage of the goods[4], the delayed delivery of the B/L[5], the improper delivery of the B/L[6], the unauthorized release of the B/L to a foreign buyer[7] (i.e. the contractual shipper), unauthorized deduction, and the refusal of the principal's return order[8]. There into, it’s quite common that the freight forwarder violated the will of the actual shipper (usually the domestic seller) to deliver B/L to the contract shipper (i.e. the foreign buyer), resulting in the fact that the actual shipper lost control of the cargo without receiving the payment.

The reasons for such disputes include the following:

1．Cumbersome agencies operating procedures and too many hierarchies make the disputes easier to happen. The business scope of freight forwarders covers all aspects of the export of goods and basically touches on the whole process of onshore logistics related to the carriage of goods by sea, including the trivial and complex items such as booking, customs declaration, inspection, packaging, storage and towing cards, etc. A slight mistake in any aspect may result in flaws and disputes. Seen from the shipping export industry, the carriage of goods by sea is usually done via freight forwarders and there are always too many hierarchies among them. Therefore, a cargo transport usually involves a number of freight forwarders and NVOCCs（non-vessel operating common carrier）, if problems occur in any link, the dispute will arise.

2．The freight forwarding industry lacks large-scale enterprises and internal supervision of enterprises is insufficient. The freight forwarding industry is essentially a service industry with a low market access threshold and no industrial barriers. Many freight forwarding companies are small in scale while high in operating costs, which results in low service quality and continually occurred errors. Besides, only a small number of employees experienced formal training within the company, large staff turnover and lack of staff monitoring, all of these further increase business risk. In the mean time, some freight forwarders concurrently serve as NVOCC but fail to file a record to the competent department of transport and pay the deposit, posing potential risks to the freight forwarding market.

3．A few years ago, with the development of shipping economy, the number of freight forwarders in Ningbo increased rapidly. However, the foreign trade business has gradually cooled down and the freight forwarding industry is facing an excessive competitive situation. To freight forwarders, it is more important to contest for the commercial opportunities conferred by the contractual shipper (i.e. foreign buyer) than to serve the actual shipper (i.e. domestic seller) in accordance with the law. Due to the widespread use of FOB clauses in foreign trade in our country, freight forwarders mistakenly assume that they are only responsible to the contractual shipper; therefore the phenomenon of release of goods without original B/L occurs from time to time.

Ⅲ.Existing Problems and Suggestions

 (I) Raise Awareness of Risk, and Choose Transaction Objects Cautiously

Usually, the following problems exist in industry when choose freight forwarding business object. (1) The shipper did not choose the freight forwarder with care. On the one hand, the shipper blindly chooses the freight forwarder without understanding its scale, operating conditions, and whether it is affiliated etc,. When the freight forwarding company collapses, suspends business or makes sub-entrustment and thus makes the disputes, it can easily cause the shipper to lose control of the goods and make claims difficult. On the other hand, the shipper does not know whether the B/L has been filed in the Ministry of Transportation in our country when receiving the B/L of NVOCCs issued by the freight forwarder. If the freight forwarder does not possess the NVOCC qualification, his credit rating tends be poor. Once the goods are released without the B/L, the loss of the shipper may be difficult to recover.

(2) The shipper did not choose the agency cautiously. On one hand, the domestic shippers that freight forwarders are cooperated with are small in scale, poor in creditworthiness, and it is difficult for the freight forwarders to claim compensation after paying advance. On the other hand, there may be two kinds of potential risks if a freight forwarder accepts   commissioned business from a foreign  consignor: One is that he does not understand the shipper's or consignee’s business status and cargo conditions, resulting in no delivery, demurrage fees, or failure to clear customs. Then the freight forwarder will fall into a passive position[9]. Second, when a freight forwarder signs a B/L on behalf of a foreign NVOCC, if the non-vessel carrier is not registered in the Ministry of Transport of the People's Republic of China, the freight forwarder will bear the corresponding liability for the loss caused by the release of goods without B/L.

(3) With the development of the Internet of Things and the Internet, foreign trade companies have assumed some freight forwarding responsibilities. In addition to booking, the shipper will choose inland tow truck transportation, loading, unloading, warehousing, customs declaration, etc. through O2O[10]. However, it is usually hard to clearly define the responsible party when the dispute arises in this kind of new generation freight forwarding operation.

Therefore it is recommended that, (1) the shipper or foreign trade company should choose the freight forwarder with a certain strength and scale to conduct transactions and carefully review their NVOCC qualifications, to understand whether it is put on record of the Ministry of Transport and pay the security deposit or provide the appropriate security. If some of the freight forwarding business is undertaken through O2O, try to choose a reliable platform and trading instead of entrusting individuals directly. When foreign trade units conclude sales contracts with foreign buyers, they should try their best to choose freight forwarder on their own, avoid foreign buyers to designate freight forwarder instead.

(2) Freight Forwarders should have a multidimensional understanding of the shipper’s credit, in order to avoid transactions with clients who are poor in creditworthiness. In the meantime, pay attention to follow up, understand and supervise the progress of business operation and understand whether the goods can be smoothly cleared and disclosed to the shipper timely. When accepting a B/L issued by a foreign NVOCC, it must be confirmed that the NVOCC has been put on record in the Ministry of Transport of our country.

(3) For the freight forwarding industry, the authorities or associations can establish a set of strict, standardized and extensive coverage of the freight forwarding industry credit rating system, which can provide a reference for the market.

(II) Prevent Freight Forwarding Disputes, Pay Attention to Retain Evidence.

Regarding prevention of disputes and collection of evidences, usually following issues exist: (1) Freight forwarding practitioners lack of risk awareness in prevention and control, thus unable to determine the transaction side of the principal-agent relationship. For shippers, the goods will be placed in an unsafe condition if it is unknown that which freight forwarding company the counterparty belongs to or which freight forwarding company it represents. For freight forwarders, there may be more than one subject, such as the contract shipper, the actual shipper, bill of lading shipper and the payment subject, etc. It is quite likely that the entrusted person’s wrong identification could lead to the object of litigation.

(2) In the domestic freight forwarding operations, it is relatively rare to conclude a written contract. Most freight forwarding operations are completed by telephone, mail, QQ, WeChat and SMS. If the above electronic evidence fails to be kept or saved timely, both parties will not be able to provide clear and definite written evidence to prove their claim once the dispute becomes lawsuit. For example, in doubt case fee dispute, the freight forwarding company did not save and take a screenshot of calculation method published in shipping company website. The shipper requested the electric release, while did not retain the electric release instruction.

(3) The freight forwarder did not retain the evidentiary documents or payment evidence is insufficient, thus they lost the right to claim against the shipper. For long-term customers, some freight forwarding companies have repeatedly agreed to extend the payment deadline while did not require them to leave a written confirmation as evidence, which resulted in two years’ legal limitation expired when they discover the lawsuit in the future[11].

Therefore it is recommended that, (1) Freight agents should regulate the management of practitioners, strengthen the recruitment of staff, and emphasis on business training, in order to prevent employees to engage in illegal activities in the name of the enterprise. In the meantime, freight agents should also avoid authorizing subordinate freight forwarding in the form of linking, in order to prevent conducting business by borrowing or fraudulent use of freight forwarders’ name. And avoid direct business relations with individuals in the process of freight forwarding. Moreover, both sides should immediately indicate the identity of the agent, so that all parties can correctly identify the transaction service objects.

(2) Freight agents should keep payment vouchers and advance payment evidence timely, pay attention to the collection and preservation of electronic evidence, also do not delete the data in computer or make sure to sync data to cloud. As a NVOCC, freight forwarders should pay attention to collect the evidence such as confiscation at the port of destination when invoking the carrier's defense. As for business communication, it’s better to be in written form, so that can avoid vague expressions, especially when release electric instructions.

 (3) In disputes over agency fees, freight forwarders should promptly dun and keep evidence of the other party's confirmation of costs. And they still can request the court to apply the summary procedure for speedy trial, even if the dispute becomes a lawsuit already.

(Ⅲ) Clarify the Responsibility of Freight Forwarding and Reduce Losses in Time

In the aspect of burden sharing of freight disputes, there are usually the following problems: (1) the freight forwarder has not fulfilled the obligation of delivery. The freight forwarder bears the obligation to submit the bills to the actual shipper[12], but the freight forwarder often detains the B/L on the premise of unengaged stipulating the payment, and then generates the storage fee, demurrage fee, etc, or in some long term cooperation, some freight forwarders will detain the B/L because the previous business of the shipper has not been settled. In these foregoing circumstances, the freight forwarders both need to bear the corresponding responsibilities.

 (2) If the goods were not picked up at the destination port, the goods did not meet the requirements of the import and export customs, or the goods were not picked up in time, the relevant charge such as demurrage charges, storage fees would immediately incurred, and the losses would kept growing due to the non-action of the relevant parties.

(3) Freight forwarders often neglect the accompanying obligations under the entrusted contract such as urging, notifying and reminding. For example, the shipper’s consultation and request could not be timely replied, transmitted and processed; when the goods were long-term stranded in the destination port, they could not timely inform the relevant interests of the status quo, urging them to handle, and neglecting the preservation of the evidence of relevant negotiations during the agent process.

Therefore, it is recommended that: (1) When the freight forwarder accepts the entrustment, he shall express the deduction rights to the shipper; if he does not indicate the right, he may detain other documents other than the sea waybill or the B/L, but he must not detain the other goods entrusted by the shipper by the reason of unsettled previous expense. Whosever commission the freight forwarder receives, he should deliver the transport documents such as the B/L to the actual shipper or obtain the consent of the actual shipper.

 (2) When the goods have a certain cost, all parties need to stop the loss in time. On the one hand, freight forwarders should always pay attention to cargo information, inform the shipper of the latest information, the fees that need to be advanced, and provide reasonable and feasible solutions to prevent the loss from increasing. On the other hand, the shipper should guarantee the quality of the goods to avoid additional costs for buyers refusing to receive goods due to quality problems. However, if it has already been generated, it should promptly contact other buyers and go through the transshipment procedures to reduce unnecessary expenses.

(3) The freight forwarder must perform due diligence during the agency process. Even if the client is a foreign buyer, he should also inform the actual shipper of the corresponding carrier and commission information, and should collect and reserve the evidences of negotiation and communication between the freight forwarder and related parties as much as possible to prevent unnecessary disputes or be passive in litigation.

Concluding Remarks

As one of the "three carriages" to drive China's economic growth, the stability and development of export trade order plays an important role in the present economy. To straighten out the relationship between the shipping agent enterprises and the export enterprises is not only related to the domestic economic development, but also to the international trade order. As an important part of marine economy service industry, the healthy development of marine freight forwarders is related to the construction of foreign trade and port logistics in our province. Based on the current social and economic situation, we should give full play to the maritime trial function, and train a number of professional judges who understand the law, foreign languages and business through strengthening the team building and further promoting exchanges with the freight forwarding industry associations. At the same time, we should apply the procedures of property preservation and maritime injunction according to law, actively promote the construction of the three mechanisms[13], and mediate the whole process of trial, so as to efficiently and properly solve the disputes of maritime freight agency, and promote the healthy development of the maritime freight forwarding industry.