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Hanjin Bankruptcy Challenges

Cargo owners, carriers, and intermediaries of shipments of export cargo and import cargo in international trade are experiencing problems because of Hanjin bankruptcy.

Hanjin Bankruptcy Challenges

Hanjin Shipping’s bankruptcy has resulted in countless containers being stranded on vessels and piers, as port terminals refuse to handle the docking and offloading of the containers for fear of not being compensated.

Some of those containers were loaded on 13 vessels destined for U.S. ports. The cargo interests, NVOCCs and ocean freight forwarders are facing the challenge of securing delivery of the containers before the full economic impact on the marketplace is realized.

In some locations exorbitant handling charges were imposed, in addition to normal freight or related charges. Such “ransom” imposts are improper. If the charges were imposed by marine terminal operators (MTOs), those forced to pay such charges can seek redress in court or by filing a complaint with the Federal Maritime Commission (FMC), since they are subject to the FMC’s jurisdiction.

Hanjin advised that it would not on forward or provide inland delivery for containers. Instead, it would be up to the cargo interests to arrange such handling. If the container was shipped freight collect, higher delivery charges could result than those that would have been paid to Hanjin. If the container was shipped prepaid to Hanjin, the cost could more than double since Hanjin advised it would not refund the prepaid charge. In either instance, the only recourse available would be to file a claim as a general creditor in the bankruptcy in Korea where the case was initially filed. (Although Hanjin has filed a bankruptcy petition in the District of New Jersey, that court is not currently entertaining any claims against the carrier.)

The thousands of empty containers that are clogging up multiple facilities and need to be returned further complicates the aftermath of the bankruptcy. Although Hanjin just announced it will not charge any detention fees for containers that are returned late, it has yet to provide any instructions for return of the containers. An effort is under way to negotiate a protocol between major cargo interests and others in possession of sizable numbers of empty containers, Hanjin and the owners of containers leased by Hanjin, for the orderly return of the containers. No final agreement has been reached as of this writing.

Short term, the inability to return containers is causing collateral problems. Many surface carriers are unwilling to pick up containers that are available on the piers because they do not want to house the empties. Some carriers that are willing to handle the pickup are charging premiums to compensate for having to hold the containers.

Hanjin was able to obtain sufficient funds to arrange for the docking and discharge of four vessels of the 13 that were destined for U.S. ports. Additional funds are being sought for the remaining vessels, including a recent pledge by the Korean government and by Korean Air, which owns a one-third stake in Hanjin.

Other containers are the victims of the bankruptcy. Some carriers have chartered Hanjin’s vessels, or portions of them, to transport their goods but are unable to complete their shipping services until the vessels and their containers can be unloaded.

NVOCCs are in a very similar position to the other carriers, with some added difficulties. Both issue bills of lading (BOLs) in their own name, which is considered a contract of carriage. As a consequence the NVOs are directly responsible for performing the shipping services covered by their BOLs. As neither the carriers nor the NVOs have filed for bankruptcy they have no protection from claims that they breached their bill of lading contract in not delivering their shippers goods detained on the Hanjin vessels.

One defense is force majeure, claiming Hanjin’s bankruptcy was an event beyond the NVOs control. However, their bill of lading terms or rules tariff need to have a force majeure term and it has to be properly written. However, it could be argued that the defense is ineffective, since there was ample information in the marketplace that Hanjin was in trouble and therefore NVOs knew or should have known there was a possibility that Hanjin would file.

Also many BOLs have a Liberties Clause which may offer some additional defenses.

NVOs are customarily the shipper or consignee on the actual carrier’s BOL. Therefore, in addition to being possibly liable to their shippers for not being able to perform their BOL contract, NVOs will be directly responsible to Hanjin for any collect freight or other charges due, as well as any container handling and delivery costs, since the NVOs are parties to Hanjin’s BOL contract To the extent any of those charges are in excess of what the NVO’s customers would ordinarily be responsible for, the NVO will face the difficult decision of either insisting the customer pay, and risk losing the customer, or eating the added charges.

As the ripple effect of the bankruptcy continues, interested parties seeking quick resolution may realize these myriad issues, and others, are unprecedented or there are no easy solutions.

Richard Furman is a member of the law firm of Carroll, McNulty & Kull LLC, in New York. He has over forty years experience providing legal advice and representation in connection with cargo transportation and import and export trade regulation. Mr. Furman has also worked for an all-cargo airline and in freight forwarding and customs brokerage.

New US regulations cover food shipments of export cargo and import cargo in international trade.

New FDA Rules on the Sanitary Transportation of Food

The long awaited regulations for implementation of the Food Safety Modernization Act of 2011 were published on April 6, 2016.

The regulations require shippers, and others involved with the transportation of food, to use sanitary transportation practices when shipping food that is placed into a container partially open to the surrounding environment. The regulations define “shipper” as a person who arranges transportation of food in the U.S. by a carrier.

In addition the regulations cover international shippers that export food to the U.S. by air and ocean transportation, if the food is shipped in an intact container, that will be transshipped on a motor or rail carrier, will be transported in interstate commerce, and will be eaten or distributed in the U.S.

The regulations cover food subject to the federal Food, Drug and Cosmetic Act. However, there are exemptions: shippers, with less than $500,000 in average annual revenue; farm transportation; food transshipped through the U.S. to a foreign country; imported goods which will not be consumed or distributed in the U.S.; compressed gases and food contact material; human food by-products for use as animal food; food that is completely enclosed by a container, unless it requires temperature control handling; and live food animals, except shellfish.

Although not expressly excluded, the FDA has advised that frozen food is not subject to the regulations.

What must shippers do to comply with the regulations? There are both general requirements and ones specific to shippers.

Among many specific responsibilities, a shipper is responsible for ensuring that food transportation is in compliance with all the requirements of the act and regulations. That means that a shipper must ensure a shipment of food is handled under controls and conditions suitable to prevent the food from becoming unsafe during transport.

What is “suitable” will depend on the nature of the commodity and is something that the shipper is in the best position to know as a manufacturer, distributor, or dealer in the food. So, even if the shipper’s responsibility is assigned to a third party by agreement, at the very least the shipper will continue to be responsible to make sure that all information and documents needed to ensure safe handling of the food is complete and accurate so as to inform the third party about what must be done to prevent contamination or adulteration of the food in transit.

This broad responsibility can be assigned by written agreement between the shipper and a third party involved in arranging for or actually carrying the food, such as a property broker, freight forwarder, or actual carrier. However, if the shipper is acting as its own carrier it will remain liable for full compliance, including the requirement that all vehicles and equipment used to transport food are in sanitary condition so as to prevent the food from becoming unsafe.

There are also training and recordkeeping and retention requirements that must be fulfilled, whether or not the shipper is acting as the actual carrier.

These specifics, and more, are set forth in the new regulations, 21 C.F.R. Part 1, §1.900-1.934. Shippers, carriers, and others subject to the act are well advised to become familiar with them.

Richard Furman is a member of the law firm of Carroll, McNulty & Kull LLC, in New York. He has over forty years experience providing legal advice and representation in connection with cargo transportation and import and export trade regulation. Mr. Furman has also worked for an all-cargo airline and in freight forwarding and customs brokerage.