INCOTERMS Blow Through Confused Liabilities
BY GREG BOROSSAY, PORT OF SAN DIEGO, KNOWLEDGE THEATRE SPONSOR AT BREAKBULK ASIA 2019
• Gantry crane manufacturer/ vessel operator: Shanghai Zhen Hua Shipping Co. Ltd. (ZPMC)
• Landlord port authority: Port of Felixstowe, UK (POF)
• Terminal operator/stevedore: Hutchinson Ports and Terminals Intl. Hong Kong (HIT)
On March 1, 2008, with high winds and a late winter storm forecast on the North Sea, the Zhen Hua 23 approached a berth at the Port of Felixstowe’s Southside Landguard Terminal in Harwich Harbour, UK.
Notwithstanding the forecast of a windstorm on the North Sea as early as the afternoon of Feb. 28, 2008, the decision was made to berth the Zhen Hua 23 with five brand new super-post- Panamax gantry cranes, each worth about US$7.9 million. During heavy winds in the early morning hours of March 2, 2008 the lines holding the Zhen Hua 23 at berth broke loose and the vessel was driven ashore on a nearby beach.
While the vessel was adrift, it struck an older smaller gantry crane that was utilized for short-sea operations at the Port of Felixstowe. That crane in turn struck an adjacent crane and the two collapsed like dominos. Additionally, one of the five new super-post-Panamax cranes destined for Sweden was declared a total loss. The three new cranes for the Port of Felixstowe and the fourth crane destined for the Port of Thamesport UK were undamaged. The two smaller cranes were 12 and 28 years old, respectively, so the depreciated value of these existing assets to the Port of Felixstowe could be estimated to be about US$1 million.
Fortunately, there was no loss of life or injury, but in the end the parties were left with losses approaching US$10 million. Who was negligent and who should pay?
The dispute arose as to which party’s negligence was the proximate cause of the accident given the foreseeability of and the actual forecast of high winds in the English Channel on the North Sea in early March.
One argument put forward was that the master of the Zhen Hua 23 was negligent given the valuable and fragile nature of the cargo and the comparative instability of ships carrying such loads.
Another argument puts the terminal staff at HIT and POF staff at fault, as they should have been aware that the windstorm was imminent and, given their local knowledge of the severity of late winter storms in the North Sea, should have known that berthing the Zhen Hua 23 at that particular location may have proved imprudent.
Such was the complexity of this case that 10 years later the actual outcome is still difficult to ascertain. Public record requests for release of the Marine Accident Investigation Report have been denied.
Case history suggests that in situations where joint and several liability is found among the parties that the INCOTERMS are the determining factor in settlement and claims negotiations. In a much older case from the early 1990s, Maersk, a tug operator and a crane manufacturer, were found to be jointly liable for the total loss of a gantry crane that fell into the water alongside the intended dock at the Port of Long Beach, California. Here, although all parties were liable when the tug pulled away from the dock with lines still attached to the crane, Maersk bore the entire risk of loss since the INCOTERMS were Free Alongside Ship (FAS) destination port.
More recent cases have held that the gantry crane manufacturer can still be held liable for damage that takes place after delivery because a Delivered At Terminal (DAT) destination terminal INCOTERM has been used and the crane was damaged before it had cleared U.S. Customs & Border Protection.
When multiple parties are negligent, liability is generally assigned based upon the passing of risk as per the INCOTERMS utilized. Therefore, the party carrying the risk at the time of the accident pays.
A recent report from specialist insurer TT Club noted that nearly 35 percent of all claims at marine terminals involve gantry cranes. Some of these involve the breakbulk delivery of a new gantry crane or the relocation of a used gantry crane from one port to another. Port authorities and terminal operators need to be prepared to protect their interests given the high dollar value associated with these precarious breakbulk moves.
A few takeaways from the above examples are:
• Be mindful of INCOTERMS and make sure that such terms are carefully selected with the help of competent maritime counsel. Legal help in advance of an accident is much cheaper than help after the fact.
• Use of DAT and Delivered at Place (DAP) delivery INCOTERMS favor the port and terminal operator, while use of FAS and Free on Board (FOB) terms favor the ship operator. If you don’t know your INCOTERMS, you should learn them.
• Plan ahead: Involve the manufacturer in the delivery process early on, and send your engineers and staff with navigational expertise to the place of manufacture well in advance.
• Hire competent surveyors and breakbulk experts to monitor the delivery from start to finish.
• Spend the money to buy quality cargo insurance – losses can be huge. BB
Greg Borossay is principal of the maritime business line at the Port of San Diego. He joined the port in October 2017 and is responsible for the development of its automotive, bulk, breakbulk, container, project and carrier cargo accounts.