A question of freight – who pays?

Due to various amendments required by the shipper, liner agents at a load port in South America found themselves reissuing an original bill of lading for a consignment of bananas destined for the United Kingdom no less than six times.

The initial three versions of the original bill of lading provided that freight was to be prepaid; the subsequent three versions showed ‘freight collect’, meaning the freight would be payable by the consignee.

The agent had mistakenly understood a comment from the shipper that the “consignee will pay” as confirmation that the consignee in the UK had accepted the cargo on a freight collect basis and accordingly issued a “freight collect” bill of lading. Unfortunately, whilst the final bill of lading was issued showing freight collect, the agent failed to update the line’s computer system, which still showed “prepaid”. Upon arrival in the UK the discharge port agent checked the line’s computer system, saw the prepaid status and released the cargo.

It soon became apparent that neither the shipper nor the consignee had paid the freight (which amounted to approximately USD 40,000). The shipper argued that they had sold the cargo FOB (free on board) and provided a commercial invoice and evidence of payment to support this. Accordingly, the shipper stated that the consignee should pay the outstanding freight.

The consignee in turn argued that he had bought the cargo CIF (meaning the total price they paid had included costs, insurance and freight). The consignee produced emails to show CIF terms were discussed/ negotiated, but failed to provide evidence that confirmed the final movement of the cargo was carried out on such terms, saying that any such evidence was “commercially sensitive”.

With the assistance of ITIC, the agent was able to persuade the consignee that, even though the cargo had been released prior to freight being paid, under the terms of the bill of lading he was still liable for the outstanding freight. It was also highlighted that if legal action needed to be taken in order to recover the freight, ITIC would also seek to recover the legal costs incurred. The agent offered to accept 95% of the freight, and the consignee ultimately paid this.

This case illustrates how important it is for agents to keep the line’s computer records up to date.