In a legal context, a liability is a responsibility to compensate for a failure to perform an obligation under a contract. In logistics, liability of logistics services providers is limited by international conventions and local legislation of individual countries. To protect the rights and interests of the various players involved in the supply chain and to avoid excessive material burden on any single party, certain restrictions are in place in the event of liability.
Limitations of the Carrier's Liability
The liability of the carrier, and accordingly the forwarder, for loss and damage to cargo is limited by international conventions, agreements and protocols including, without limitation:
For Air Freight
The Warsaw Convention and The Hague Protocol which limit the forwarder’s liability to an amount no greater than 250 (two hundred fifty) francs or 19 SDR per gross kilogram of the cargo lost or damaged.
For Road Haulage
The CMR Convention which limits the liability of the forwarder to an amount no greater than 8.33 SDR per gross kilogram of the cargo lost or damaged.
For Sea Freight
The UN Convention on the Carriage of Goods by Sea, which limits the carrier's liability for damage caused to 835 SDR per package or 2.5 SDR per kilogram of gross weight of the cargo lost or damaged.
For Carriage by Rail
The Convention concerning International Carriage by Rail (COTIF), which sets the limit for the liability of European railways at 17 SDR per kilogram gross weight of cargo lost or damaged.
Limitations of Third Party Liabilities
The freight forwarder may involve third parties to organize shipment of a particular cargo. The third parties may be cargo agents, customs authorities, brokers, warehouse employees, port authorities, ground handling agents, and others. The liability of third parties for loss or damage of cargo is almost always limited by local laws of the countries in which the third parties provide services and where the loss or damage of cargo occurred.
Forwarder's Role in the Supply Chain
Forwarder plays a central role in the supply chain, organizing and controlling all processes related to cargo transport, handling, storage, packing / labeling, loading / unloading, etc. Forwarder is also responsible for choosing the best routes and shipping mode, searching a suitable carrier, preparing shipping documents, taking care of customs clearance, cargo insurance, etc.
Depending on the responsibilities it takes on, the forwarder may act as Agent or Principal, which defines the limitations of its liability. The Freight Forwarder acts as Agent when it provides services through third parties to perform its duties. The Forwarder may as well provide services using its own resources, i.e. as Principal if it:
● issues its own transport document such as an air waybill with its own prefix
● uses its own equipment - vehicle fleet, hardware, etc - directly assuming the liability of the carrier
● mobilizes its own employees for the provision of logistics services
Freight Forwarder's Liability Limitations
When dealing with a freight forwarder, customers should understand that in the event of any incident (theft, loss, damage, delay, seizure of cargo), the freight forwarder cannot not be held fully liable for all damages since it acts more as an aggregator of a range of logistics services than a direct supplier. Normally the forwarder's liability is limited by the same international conventions that apply to carriers. The freight forwarder is also liable for loss or damage to cargo and related costs if the direct fault of the freight forwarder is established in the provision of services as principal (e.g. negligence). It should also be noted that the forwarder is not responsible for the actions (or inaction) of third parties that it hires, if it exercised proper due diligence in choosing, instructing or controlling them.
The forwarding agreement and / or Standard Terms and Conditions, as a rule, contain a clause on the limitations of the freight forwarder's liability. The Forwarder will not assume direct or indirect liability for any damages where:
● Customer or its representatives’ fault is established;
● Customer or its representatives provides incorrect information;
● Packing or labeling is incorrect or missing;
● Force majeure situations come into force.
How to Protect Your Cargo From Supply Chain Risks
Due to liability limitations of the players in the supply chain, it is important that you understand the risks involved and adequately protect your cargo.
● A qualified freight forwarder proactively takes necessary steps to minimize all possible supply chain risks. A forwarder is in need is a forwarder indeed - no matter what happens, it will not throw you or your cargo under the bus and will go the extra mile to solve any problems.
● Cargo insurance undoubtedly is the surefire way to protect your assets throughout the entire journey. Insurance coverage helps to minimize potential material losses both for the owner and the other players in the logistics chain.
● Safety of your cargo also depends on the quality of its packing and labeling, which helps protect the cargo against all sorts of damage and/or loss during shipment and handling. Packing must comply with international standards and ensure safe and reliable shipping.
Xscale is a logistics and supply chain management company headquartered in Singapore. We operate out of our hubs in Singapore, Tashkent, Frankfurt and London, providing a complete range of logistics and procurement services to businesses around the world. We combine our global network, industry expertise and highly competent professionals to work alongside our customers and solve their supply chain challenges. Contact Us if you require any assistance.