Cargo Damage is a common occurrence in all forms of transport logistics. So, to understand what to do when the cargo damage happens is important for you to limit your loss of time, money and reduce the inherited frustration that comes along with dealing with the damage claims.
In simple terms, when cargo damage happens, the key undergo the cargo damage claims is to report to the parties in the contract of carriage, to file for a claim within the set time frame, to ensure all shipping, freight document, and proof of damages are indisputable, and lastly, to do your level best to mitigate the damage from exacerbating.
Let’s dig in further to how to deal with container damage claims and how to mitigate them thoroughly.
The Common Parties Involved In a Cargo Damage
Since the majority of cargo transportation is by sea, we will focus on that for the extent of this post. In sea transportation, the common parties involved are:-
- The Carrier
- The Shipper
- The Consignee
- The Port Operator
- The marine insurance provider
- The truck drivers
The parties involved in the cargo carriage are essentially part of the Bill of Lading. It is the contract of carriage two or more involved parties. This contract maps out the carrier’s responsibility to the shipper and consignee to undergo the carriage of goods.
Knowing the parties involved in cargo transport helps us know who to file the claim against. It gets more complicated when freight forwarders and other third-party providers are involved.
Who Should I File the Cargo Damage claims against?
We shouldn’t be presumptuous of who inflicted the cargo damage because there is no way of knowing with certainty where and when the cargo damage occurred. Therefore, we should notify all parties of the transportation deed.
Legal claims can only be carried between the parties of a binding contract, so you can only file a damage claim to the parties that are contracted with you to undergo the transport service.
If your cargo damage conclusively occurred when cargo is in possession of the carrier, then you should notify the carrier with a claim notice.
If your cargo damage happened anywhere else, then you should notify the service provided accordingly.
A Freight forwarder’s appointed duty is to utilize an array of outsourced third-party agents to provide transportation services for its customers. But the contract of carriage may not be with the freight forwarder directly.
For example, a Bill of Lading, while arranged by freight forwarders, they are a contract between the actual shipper and consignee. So, you should not file your claim towards the freight forwarder, but the carrier instead.
The bill of lading may be, however, a House Bill of Lading, maybe due to multi-modal transportation or due to cargo consolidation. In this case, you should file your claim towards the freight forwarder as they are the main party of the contract of carriage.
An INCOTERM draws the line in the sand as to who is responsible to which leg of the transportation between the shipper and the consignee.
For instance, if the agreement is DDP (Delivery Duty Paid), the shipper arranges the transportation up to the consignee doorstep. Hence the cargo damage should be notified to the shipper directly.
Executing the Cargo Damage Claim
We mentioned that we cannot know for certain where and when the cargo is damaged during transit and we should notify all parties involved first.
The next step is to gather sufficient evidence to back up the claim report. Here are a few documents and its functions
- Photo of the damaged cargo – It goes without saying that photo evidence of the damaged cargo is important, what is pressing is actually the timing of the photo evidence too. Whenever apparent, photo evidence should be taken, whether it be before, during or after cargo unloading. Having photo evidence of the storage area of the damaged cargo is also a good practice to proof that you have taken care of the damaged cargo.
- Cargo Damage Claim Report – this report is prepared by the consignee to notify that there is damage and also itemize the monetary amount of damage claims they seek to claim.
- Shipping Documents – Bills of Lading, Invoice, Packing List, Freight Bill are essential documents that provide a trail for everyone involved to trace the movements of the cargo.
- Joint Survey Report – This report is prepared by an independent expert that has been appointed by the consignee and the accused party to survey the cargo and container damage.
A surveyor takes many factors into consideration, should there be water damage on the cargo, the surveyor will factor in the inherent nature of the cargo, the container seaworthiness of the cargo, weather conditions during transit, cargo packing adequacy and more to reach a conclusive report.
Involving Marine Cargo Insurance
The cargo damage claim can be a lot simpler if you have a marine cargo insurance cover. The insurance company, depending on the policy clause cover, will reimburse you with the invoice value of the damaged portion of the cargo.
Proper documentation and evidence backing the claim are important to smooth the process of the claim. The documents provided must not have any misleading information that may skew the claim to one party’s favor.
We mentioned that the damaged cargo, although has lost its commercial application, has to be kept safe to prevent the damage from deteriorating. A damaged cargo has a salvage value that the marine insurance provider has an interest in to liquidate and minimize the total loss they insured. As a beneficiary of the marine insurance, we have the responsibility to keep the cargo at a safe area for marine insurance provider.
After the Insurance company has reimbursed you, they will subrogate the loss to the logistics service provider involved. Subrogation is an act of transferring the risk of a claim from one party to another party.
Freight Forwarders, Truckers, and other agents are therefore exposed to the risk of subrogation. Logistics service providers really need to weigh the risk of cargo damage claims and the reward of the revenue generated from the service provided. Mitigating this risk cannot be stressed enough.
Cargo Physical Damages
The biggest bulk of the claims comes from cargo physical damage, this category can be dissected further to many reasons resulting in cargo physical damage.
If we were to reduce the many variables contributing to cargo damage, by assuming that lashing and choking are done properly, cargo loading and stowage are done properly, the vessel is seaworthy and the container is properly maintained, and port operators take reasonable care to the cargo.
There can only be 2 cargo attributes that are constantly debated. These 2 factors fog up the claim as one party will claim one factor while the other party will claim another.
Prima Facie vs Inherent Vice
Prima Facie – “denotes evidence that, unless rebutted, would be sufficient to prove a particular proposition or fact.”
A claim against carrier or liner, with prima facie evidence that is not rebutted will be deemed as sufficient to prove a proportion of fact.
The burden of proof now lies in the carrier to proof the prima facie evidence is wrong.
Inherent Vice – “the tendency in physical objects to deteriorate because of the fundamental instability of the components of which they are made, as opposed to deterioration caused by external forces”.
The natural defense of carriers, assuming all other factors mentioned before are discounted, is that the cargo has the inherent nature to be damaged given the circumstance of normal transportation. The Inherent vice of the cargo, if proven to be the contributing factor, excludes the carrier from all damage claims during cargo carriage.
The Bulletproof way to Ward off Denied Claims
We think that there are too many permutations of causes that may arise to cause cargo damage, so much that we do not think it is feasible to list down each and every preventive step.
What we like to encourage however is a mentality, one borrowed from the ISO standard certification philosophy.
Accountability is key to preventing denied claims. Mind you, that cargo damage will inevitably occur sometime in the future.
This phrase promotes accountability, every step of the supply chain has to be properly recorded and any strict standards followed.
For example, one of the ways of mitigating cargo damage is to ensure container seaworthiness. Write down the key criteria of a seaworthy container and insist on the criteria for every shipment. Even if it comes down to rejecting an unseaworthy cargo may cause unforeseen delay, it is a necessary step to take.
Another way of mitigating cargo damage is to note all visible damages on the container on an Equipment Interchange Receipt before pulling the cargo from the port operation. The responsible party has to mark any visible damages diligently on the report for the benefit of mitigating its risk.
What we mean is that, if you are the cargo owner, you should know best how to take care of your cargo during transportation. Proper lashing, notification to all parties of the inherent vice of cargo, proper loading and storage procedures are some of the best ways to reduce cargo damage risk.
If you are a logistics service provider, despite not knowing fully the characteristics of the cargo, proper standards of loading storing, transportation and documentation are ways that we can reduce the risk of cargo damage.
Even having marine cargo insurance purchased, both cargo owners and service providers have to practice due diligence because if you are negligent of handling the cargo, insurance adjusters have every right to deny those damage claims.