Cargo claims are an inevitable aspect of maritime trade, and charterers must be aware of their potential exposure. While shipowners are generally considered the primary carriers under Bills of Lading, charterers can also find themselves entangled in cargo claims. Understanding how liability is distributed and how claims are handled is essential for charterers operating under time and voyage charters.
Types of charterers and their responsibilities
Charterers exist in various capacities, each with different levels of control and responsibility over the vessel and its cargo:
- Time-charterers hire a vessel for a fixed, longer period. They may operate in the spot market, manage cargo contracts, or be commodity traders shipping their own goods.
- T/C trip-charterers use the vessel for a single laden voyage and redeliver the vessel after discharge.
- T/C round voyage-charterers charter the ship for a round trip, focusing on either the outward or return leg as their core business and use the spot market to fill the remaining leg.
- Voyage-charterers contract for a single cargo movement from one port to another, paying freight to the shipowner, who assumes primary responsibility for performing the voyage.
Each type of charter involves different contractual conditions, typically governed by standard charter parties such as Baltime and NYPE for time-charters and Gencon for voyage charters. While these contracts follow a general template, as designed by BIMCO, they are often modified with additional clauses to reflect commercial agreements between parties.
Cargo claims: the role of Bills of Lading
In cargo claims, Bills of Lading (B/Ls), rather than charter parties, define the contractual obligations between the cargo stakeholders and the carrier. Bs/L serve as:
1. A receipt of cargo, confirming the quantity and condition of goods loaded.
2. A contract of carriage, outlining the shipowner’s obligations.
3. A document of title, enabling the transfer of ownership.
Cargo claims typically arise when the consignee receives damaged or short-delivered goods. Under the Hague-Visby or Hamburg Rules, which form the basis of international mandatory law, the carrier (usually the shipowner) is responsible for delivering the cargo in the condition and quantity described in the Bill of Lading.
Shipowners’ responsibility and the issuance of Bills of Lading
The master, on behalf of the shipowner, takes delivery of the cargo on board and is required to issue a Bill of Lading upon the shipper’s request. The Bill of Lading contains critical information:
• Cargo description and quantity: The details stated on the B/L are binding and serve as the benchmark for claims.
• Apparent good order and condition: The master is only responsible for determining the visible condition of the cargo before loading starts. He is not a cargo expert, but he is obliged to check the apparent good order and condition of the cargo before he accepts the cargo to be loaded on board.
• Commencement of the B/L voyage: Under the B/L, the voyage begins from the first operation to load cargo, not just when it crosses the ship’s rail or when the goods are stowed in the vessel’s holds.
If consignees find discrepancies in the cargo upon delivery at the discharging port, they will file a claim, and proceed notifying their cargo insurers and probably also notify their claim to the master and/or the shipowner. This often leads to a claim between the cargo insurer (who has compensated the consignee) and the shipowner’s P&I Club (which provides liability coverage). In some cases, large claims result in immediate action, such as the arrest of the vessel until security is provided.
The charterer’s position in cargo claims
Initially, charterers are not the direct target of cargo claims. They are not the carrier under the Bill of Lading. However, P&I Clubs, who manage claims on behalf of shipowners, will examine whether the shipowner has recourse against the charterer under the Charter Party agreement.
A common clause in time charters is the Inter Club Agreement (ICA), designed by the International Group of P&I Clubs to simplify the allocation of cargo liability between shipowners and charterers. While the ICA aims to streamline disputes, it assumes that all charterers are covered by IG P&I Clubs, which is often not the case. Many charterers use specialist marine liability insurers, creating friction when shipowners’ P&I Clubs attempt to enforce ICA provisions that may not apply to non-IG insurers.
The latest ICA version further complicates matters by assuming that if an ICA clause is present in the charter party, a reciprocal exchange of guarantee letters must take place between the shipowner’s and charterer’s P&I Clubs. However, this assumption disregards the fact that many charterers are insured outside the IG P&I system, leading to unnecessary procedural delays.
Practical challenges in cargo claims
In practice, cargo claims primarily impact shipowners, whose P&I Clubs handle the claim. However, a recurring issue is the lack of cooperation between shipowners’ P&I Clubs and charterers. Instead of working together to defend the claim, P&I Clubs often treat charterers as adversaries, focusing on securing financial guarantees rather than sharing information that could lead to a successful defence of cargo claims.
At IMU, we believe in a collaborative approach to cargo claims. By pooling information and expertise, shipowners, charterers, P&I Clubs, and liability insurers can improve defence strategies and reduce overall claim costs. A more transparent and cooperative process benefits all parties involved.
Conclusion
Cargo claims are an integral part of maritime risk management, and charterers cannot afford to ignore their potential exposure. While shipowners are the primary carriers under Bills of Lading, charterers must be prepared for recourse claims under their Charter Party agreements.
Understanding the division of liabilities, the role of the ICA clause, and the importance of cooperation between insurers can help mitigate disputes and improve claim outcomes. Rather than focusing solely on the exchange of guarantees, all stakeholders, including shipowners, charterers, and insurers, should prioritise defending claims effectively. A collective knowledge approach not only strengthens individual cases but also enhances efficiency and reduces financial risks for all parties involved.
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