Daily Archives: February 25, 2010

Think Halifax Can’t Handle Your Ocean Freight? Think Again!

As per this recent news release from Materials Management & Distribution, Halifax has broken ground on its $35 million berth project that will see the port’s berth become the deepest on the eastern seaboard of North America. Once complete, the South End Container Terminal will be able to simultaneously service two full-sized post-Panamax vessels (and Panamax II type vessels can carry up to 12,000 TEUs). 24,000 Twenty-foot Equivalent Units is an awful lot of freight.  (It should be enough to make Halifax a top 10 North American port at the very least!)

And this is just the beginning. Over the next five years, the Halifax Port Authority — which has invested more than 100 Million in cargo-related infrastructure improvements in the past five years (in addition to 250 Million in investments from the private sector), will invest more than 225 Million dollars in port and infrastructure improvements.

If you’re wondering how you can take advantage of these improvements and leapfrog your competition (as Halifax is the closest port to many overseas locations in Southeast Asia), you could always contact the World Trade Center Atlantic Canada or Nova Scotia Business Inc. They’d be happy to help. And as I pointed out, Halifax is The Best Place to Do International Business in Canada.

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Are You Being Hit with the “Double Payment” Problem in Your Shipping?

Logistics Management just ran an excellent article on Logistics and the Law: Don’t Pay Twice, by Brent Wm. Primus, J.D. of Primus Law Office that I think is a must read for anyone responsible for global shipping.

When a shipper engages a broker or when a shipper or a broker books a load with a carrier, they expect to be billed and to pay for the charges for moving the freight. What they don’t expect is to have to pay the charges twice. Unfortunately this does happen and, in the last few years, has happened with increasing frequency. This emerging issue is called the double payment problem.

As the article points out, there are three variations of this problem:

  1. The going-out-of-business broker.
    In the last weeks or month of its business life, a broker continues to book loads and collect payment for carrier charges, but fails to pay the carrier.
  2. The double-brokering carrier.
    A load is tendered to a carrier with the understanding that the carrier will be providing the actual transportation, but, instead of providing the transportation itself, the carrier uses its broker authority and tends the load to another carrier, which it fails to pay.
  3. The fraudulent broker.
    A fraudulent broker solicits loads that it then tenders to carriers with every intention of collecting from the shipper but with no intention whatsoever of paying the carrier

With respect to the first two variations of the problem, two competing legal theories have developed. The first theory is the well-established principle that under the traditional bill of lading contract, the consignor has primary liability for payment of the charges on “prepaid” shipments, and if the consignor fails to pay, then the consignee must pay. For “collect” shipments the consignee has primary liability and if the consignee fails to pay, then the consignor has to pay (unless the no-recourse provision of the bill of lading, known as “Section 7”, has been signed).

But what happens when the consignor or consignee has fully paid an entity under a good faith assumption that the entity is the carrier or paying the carrier? In this situation, a legal principle known as “equitable estoppel” has developed and applies in situations where Courts have held that it would not be fair or equitable to ask a party to pay twice. However, there are situations, such as Freight Lines, Inc. v. Sears Roebuck & Co. where the principle, though it had merit, was not applied by the courts.

With respect to the third variation, which has become a more significant problem as of late, typically no money ever reaches the carriers and you, as a shipper, will likely end up with full responsibility for the payment unless you can demonstrate that you had a reasonable expectation that the company was legitimate (and thus use the equitable estoppel argument). This of course means that you have to do your homework, and unless the company in question has hacked US Government Systems to make it look like they are affiliated with reputable companies (like Viacheslav Berkovich and Nicholas Lakes did), it might be hard to demonstrate a reasonable expectation of a reputable enterprise, especially if the broker is relatively new.

So what should you do? Especially when there is no sure fire way to eliminate the risk?

According to Steve Fernlund, the Executive Director of the Freight Transportation Consultants Association (FTCA), always know who you’re doing business with. Check payment practices and credit rating agencies to make sure there is minimal risk that the carrier and/or broker will default on its obligations. Have a standard procedure to qualify carriers and brokers and follow that procedure in every transaction. The latter will help you in the construction of equitable estoppel arguments should you ever find yourself in one of the first two situations, especially if the standard procedures cover everything you can be reasonably expected to do.

Furthermore, as the article points out, you have to monitor the carrier to ensure they are complying with the terms of the contract as some carriers will sign a contract and then ignore the prohibition against tendering to another carrier through their brokering authority. (This includes a spot check of delivery receipts to see if the carrier named as the delivering carrier is the one with whom you have a contract.)

When you’re using a broker, have a written contract that requires the broker have written contracts with its carriers. The broker’s contracts must require that the carrier specifically designates the broker as its agent for collection and that the carrier waives any right to collect from the consignor or consignee if the broker has been paid. Also require that copies of all contracts with all carriers the broker intends to use be forwarded to you for review and confirmation.

And, finally, if you truly want absolute protection, you could require that any broker you do business with post a surety bond greater than the amount of business you expect to do over a six-month time period. However, this will eliminate many brokers from consideration as most sureties require 150% collateral, which many smaller brokers will not have. It may also increase your brokerage fees, as they might insist that you pay the bond premium.

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