Too Hot to Handle - The Hottest Summer Ever for Freight
This could be the hottest summer ever, for freight. While that may be true, the wave may be too large to ride without a few wipeouts. For all the uncertainty the world faced in 2020, the early part of 2021 has logistics professionals drinking from a firehose to keep pace as the U.S. economy wakes from long lockdowns. The explosive way in which international trade volumes have rebounded is exciting for the industry but has brought with it a fresh set of logistical challenges as companies ramp up production to meet consumer demand.
Increased bookings, lack of space, and soaring freight rates are making words like ‘on-time delivery’ a thing of the past. The cost of shipping a container from China has more than doubled what it was just a year ago. In fact, the average spot price for shipping a forty-foot equivalent unit from China to North America’s East and West coasts continues to hit all-time highs. There’s simply not enough capacity to meet the needs of shippers and delays are inevitable. When importers don’t have the materials they need to deliver products, unfortunately, disputes are inevitable as well.
The Suez shutdown has only added to delivery delays and rising costs for cargo owners.
Across the globe, all eyes were glued to the Suez Canal and the lingering effects the Ever Given has had on the flow of global trade—and It’s not quite over yet. The recent General Average declaration only complicates matters. It will now take months to sort out responsible parties while companies like La-Z-Boy and Aldi await their shipments. Even though the canal has been cleared for weeks, the residual effects are still being felt. As the Wall Street Journal reports:
“Evergreen Marine Corp. is considering removing thousands of containers from its Ever Given ship to get the goods moving to their final destinations after an Egyptian court seized the giant cargo ship over a compensation feud. Shifting the cargo to another ship would be a physical challenge and may require moving the vessel from its anchorage in the canal’s Great Bitter Lake to Egypt’s nearby Port Said. Any effort to remove the shipments would be complicated by the legal claims and fees surrounding the vessel and its cargo customers.”
Another contributing factor to across-the-board delays are the log jam of ocean vessels waiting to off-load in Long Beach and the extensive truck delays in the port of New York. Volumes are at all-time highs and there’s no sign of a slowdown any time soon. According to Zero Hedge:
“The Houston and Savannah, Georgia, markets have both seen trucking volumes surge over the past month and capacity tighten to record levels — tender rejection rates hit all-time highs in both markets
The East Coast rate broke $6,000 for the first time this week as shippers are booking more loads to the eastern half of the U.S., attempting to bypass the port congestion in Southern California. This is another sign that freight volumes will continue to flood the U.S. in the coming weeks.”
So what does this all mean? We know the pressure to fill orders is mounting and delays/disputes are inevitable so that begs the question: Who is responsible for what?
Let’s start by looking at the way NCBFAA Terms and Conditions and the Carriage of Goods by Sea Act (COGSA) deals with delay and non-delivery. Under COGSA, carriers are generally not liable for unavoidable delays unless otherwise agreed to via contract. The NCBFAA Force Majeure clause states:
Company shall not be liable for losses, damages, delays, wrongful or missed deliveries or nonperformance, in whole or in part, of its responsibilities under the Agreement, resulting from circumstances beyond the control of either Company or its sub-contractors
Logistics companies that have a Legal liability/Errors & Omissions Insurance policy in place may find defense coverage in the case of lawsuits or legal pressure. It is important to note that these policies typically provide coverage for your liability under the standard Terms & Conditions of Service.
Most All-Risk Cargo Policies contain the Deviation Clause. This clause specifically states that coverage will apply even if the vessel or voyage or
interested parties unintentionally stated incorrectly or if actual
transportation deviated from the intended routing, or was interrupted through
no fault of the Assured.
Therefore, all-risk cargo insurance will provide coverage for loss or damage to cargo (subject to terms and conditions of the policy) as a result of the delay but does not afford coverage for breach of contract for missed deadlines. We suggest reviewing your terms and conditions to ensure the proper clauses are present in the event of a delay or loss.
When General Average is declared, not only are ocean carriers not liable for loss or damage to cargo, but each cargo owner actually shares responsibility for the cargo of others as well as the vessel itself. The problem for cargo owners that do not carry all-risk marine insurance is the length of time these average claims take to be sorted out can be months, even years. Cargo owners are required to post a bond and potentially pay a share of the claim to ultimately secure their shipment, both of which are covered by Marine Insurance.
In conclusion, we always recommend Logistics Professionals take time to review terms and conditions, carry E&O/Freight Legal Liability Insurance, and promote all-risk marine insurance to avoid an uncomfortable conversation in the event of a loss. When everything is flowing smoothly, problems tend to go away, but when pressure builds such as the strain on shipping capacity we are seeing today, things have a tendency to become confrontational. Make sure your company has a good defense strategy in place.