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Is It Time to Take Ocean Carriers to Court?

March 10, 2015
Port congestion is not likely to disappear any time soon, nor will those who try to take undue advantage of the situation.

Port congestion is not likely to disappear any time soon, nor will those who try to take undue advantage of the situation, warns attorney Carlos Rodriguez of the law firm of Husch Blackwell LLP.

“In the midst of the financial crunch, some ocean carriers have blatantly breached their service contracts with shippers by unilaterally imposing additional charges for trucking services, unilaterally raising base rates for shippers, and other one-sided acts contrary to terms in service contracts,” Rodriguez notes.

In some cases, he says ocean carriers force the changes on shippers by refusing to take bookings until they are agreed to. Although the Federal Maritime Commission has jurisdiction over these contracts, it has yet to serve as much of a stabilizing force, according to Rodriguez. “However, as the dust settles, judicial remedies are on the horizon to right such unilateral practices, which arbitrarily shift risk allocations in service contracts from carrier to shipper.”

Rodriguez says the types of damages that have been suffered by shippers and importers by ocean carriers disregarding service contract and tariff terms include:

• Refusal to deliver cargo by truck unless they are paid additional sums over those contracted, when bills of lading are clearly in place with door delivery terms that obligate the carrier to make such a delivery.

• When the above occurs and delays follow due to the carrier’s difficulty in obtaining chassis or trucks, the cargo then is subjected to demurrage charges, although they were caused by the ocean carrier delaying delivery and failing to meet its obligation under the terms of the service contract.

• Outright unilateral increases in base freight rates by ocean carriers without any negotiations. In one example, the ocean carrier increased rates by $1,500 per container.

• Refusal to book cargo at service contract rates or charges.

• Additional charges incurred for delivery of cargo at inland points moving by rail.

Rodriguez points out that some ocean carriers refuse to perform door delivery service (where the ocean carrier is responsible for transport to the importer’s door) at contracted levels because trucking costs have risen, resulting in demurrage being passed on to the shipper.

He observes that some ocean carriers have disingenuously included a tariff provision in its Rule Tariff, instead of in the service contract that passes on demurrage charges to the importer when there is “a shortage or unavailability of motor carriers or trucks.” Although there are trucks available, the cost of using them has increased, he says, and such a tariff provision should be found to be an unreasonable practice.

“While not exhaustive, these constitute the most blatant acts. More egregiously, carriers have refused to book cargo unless changes are accepted,” Rodriguez stresses. “This in itself is a violation of the Shipping Act of 1998, which provides for relief that can be obtained in a complaint proceeding at the FMC or in federal court, based on the violation.”

While many shippers will reach amicable commercial resolutions to problems caused by recent events, he says the West Coast ports situation created real damages stemming from rate gouging, unilateral increases and retaliatory refusals at port that make them ripe for legal remedies.

Rodriguez also is of the opinion that supply chain stakeholders should get more involved politically to encourage additional government scrutiny over the current chaotic shipping environment.

He warns shippers, “Lastly, but perhaps most importantly, with the new contract negotiation season in full swing, renewed and more intense focus should be placed on the contracting process to avoid the pitfalls that painfully arose last season due to port congestion.”

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