By this time, everyone involved in logistics should know that the rate and scope of inspections of imported cargo has risen and will be increasing even more.  My column in the February edition of Logistics Today reviewed many of the new requirements of the Bureau of Customs and Border Protection (Customs) for the advance electronic presentation of cargo shipments.  This requirement will result in thousands of reports being transmitted everyday.  The U.S. Food and Drug Administration (FDA) has announced its own requirements for prior notification of food items being shipped into the U.S. FDA also expects thousands of notices each day.  If the notices are non-existence, incomplete or raise suspicions then the cargo may well be singled out for inspection.

          The concern over possible terrorist activity and the new reporting requirements for imported goods are resulting in an increase in the level inspections.  These inspections can be a nuisance and slow down the delivery of goods.  But, even worse, suppose the goods are lost or stolen while being held for a government inspection?  Who is liable: the ocean carrier, the land carrier, the port agent, the government?  Is the shipper or consignee just out of luck?

          The law on this subject is still evolving and everyone in the supply chain needs to take steps to protect themselves.

          Some answers have recently been provided by a federal appeals court in Chicago.  The decision involved the disappearance of a container load of tools that was ordered held for inspection by Customs.  As with so many lost, stolen or damaged cargo situations, responsibility often depends on the wording of the shipping documents.

It all started when a container full of Black & Decker power tools produced in China was purchased by a subsidiary of Lowe’s, a large retailer.  Lowe’s contracted with Hanjin Shipping to transport the container from China to a Lowe’s warehouse in Indiana.  A waybill was issued to cover the entire movement, water and land.  The court described the waybill as an “intermodal contract”. 

          The container arrived in Long Beach, California and was sent by rail to Chicago.  Now the problem began.  About this time Customs notified Lowe’s agent (a customs broker) that the container had been selected for “an extensive customs examination”.  Often Customs does not actually perform all the tasks associated with these inspections.  Instead, it contracts with private companies called Centralized Examination Stations (CES) to perform some of the inspection services.

          Lowe’s agent, the customs broker, arranged for the container to be trucked to a CES in Indiana for the inspection.  The inspection showed everything was okay and Customs released the container with its cargo inside.

          According to the court, the container sat unprotected in the CES’s subcontractor’s yard for over a week waiting to be picked up.  The container was then stolen out of the yard.  The police eventually recovered the container, but all the tools were gone.

          In the subsequent suit for the missing goods Lowe’s insurance company (which had paid Lowe’s and was now suing in Lowe’s name) sued Hanjin and practically everyone else in the logistics chain.

          The appellate court held that Hanjin was not liable relying on the fine print on the back of the waybill.  (Always remember the legal axiom: “The bold print giveth, the fine print taketh away!)  The court said that the contract of carriage had adopted what are known as the “Hague Rules” which are codified in the U.S. as the Carriage of Goods by Sea Act (COGSA).  Interestedly, the court said COGSA applied to the land portion of the move as well as the water portion.  The waybill was held to cover a through movement, including the government ordered detour that put the container at the CES’s facility.

          The court held that it was Lowe’s agent who instructed Hanjin to deliver the container to a trucking company for transport to the CES and it was Lowe’s agent who chose the CES.  The court said the container was stolen while it was in the possession of the CES and no one had properly instructed Hanjin to pick it up.

          Does this mean Lowe’s could not look to anyone for recovery?  No, said the court, the CES may well be liable.  The court noted that the record indicated that the CES had not provided proper security.  The appellate court sent the issue of liability back to the lower court to consider the responsibility of the CES and its subcontractor.

          With more inspections on the horizon all in the supply chain should expect an increase in claims for missing cargo during the course of inspections.  Shippers need to know in advance of the movement who they can claim against should things disappear in the course of an inspection.  All shipping documents do not always contain identical terms.  Understanding the fine print and being certain that all documentation is proper and in hand will be increasingly important, as the rate of inspections increases and the inevitable problems arise with missing cargo.