Hurricane Sandy provides valuable risk management lessons for global logistics providers
The devastation left in the wake of Hurricane Sandy disrupted life and crippled businesses throughout the Northeastern United States. There was little protection from such an awesome power and no way to adequately prepare the region for such destruction, which left millions of people without power and displaced thousands of residents from their homes. Yet, for the global center of trade and finance, business must resume.
Many global logistics providers face a daunting task of responding to the myriad problems Hurricane Sandy created, such as cargo lost or destroyed by wind and water. Ports, airports and roads closed, causing massive delays for outbound and inbound traffic. Warehouses throughout the area have sustained damage, been closed down or remain without power. Personnel issues abound, as employees were cut off from work, and offices and facilities remained closed or understaffed.
A global logistics provider must do all it can to ensure that the trade lanes remain open. At the same time, however, it must be ever mindful of the potential avalanche of cargo liability litigation. The following guide will help to minimize that liability.
Triage and initial response. Analyze and outline the potential for delay or damage for all shipments and inventory, including shipments en route or scheduled to depart the affected area. Prioritize any time-sensitive shipments, like food and pharmaceuticals. Check warehoused inventory for damage from flooding or power outages, and assess security challenges, such as lack of power or personnel shortages.
Take all steps possible to prevent additional damage or delay, including rerouting cargo, backing up computer systems, establishing a remote headquarters, relocating inventory and hiring additional security.
As part of the response phase, contact customers as soon as pos- sible to advise them of any delay, rerouting, or any potential effect on shipment or delivery. Assure customers that the company is taking all reasonable precautions and measures to protect the cargo, but don’t admit to responsibility for any loss or delay. Keep communications open by providing customers with regular updates.
Insurance and the power of overwhelming force. Examine relevant service agreements, warehouse receipts, and transport documents for “force majeure” and similar clauses. Force majeure, a French term referring to overwhelming forces, may apply to hurricanes and other events for which the shipping company may be incapable of preventing damage or losses.
In legal documents, force majeure clauses can provide valuable protection. Look for notice provisions, which often mandate that the shipper file legal notice within a certain time frame. If a hurricane is identified as a force majeure event, it may excuse the inability to perform.
If invoking force majeure protection, be sure to notify customers, shippers and consignees as required, identifying the source of the force majeure event that resulted in the service failure. Notify insurers immediately of damages and delays, as well as shippers or consignees. Stoppage in transit may require notification to insurers, and remedial measures for mitigation may need to be approved by insurers in some situations.
In any related notices, reference the event and the cause of the damage. Adhere to existing terms and conditions and notice provisions.
Getting back to business. Determine whether the cargo is still deliverable to the consignee. Once the cargo arrives, the consignee may refuse to accept the goods based on one of several potential defenses, including damage to the warehouse or port, or a lack of electricity or personnel. Similarly, the consignee may have a force majeure clause in its contract, or be protected under state law.
Pay close attention to accounts receivable following a hurricane or similar event. Companies may attempt to avoid payment of charges that are due and owing to the forwarder and/or the carrier.
Other protections. Be aware of potential defenses available under state, federal, or international law that may excuse performance, including the Montreal Convention, the Carriage of Goods by Sea Act, The Convention on Contracts for the International Sale of Goods, and the Uniform Commercial Code.
The logistics provider’s actions, or inactions, in the weeks following an event like Hurricane Sandy may be the determinative factors in any subsequent cargo loss litigation. An unfortunate event such as Sandy highlights the need for transportation service providers to have appropriate contracts, terms and conditions, and risk management protocols in place to anticipate potential business interruptions and to assist clients’ efforts to keep cargo moving at all times.