Fraud in the logistics chain is no longer an exceptional phenomenon. Increasingly, goods are intercepted by so-called ‘fake carriers’: criminals who present themselves as legitimate carriers and subsequently disappear with the cargo. In addition, cargo theft by drivers or subcontractors remains a persistent problem. It was recently reported that the industry is working on a system through which involved drivers can be registered in an effort to combat cargo theft more effectively.
When goods disappear, the question quickly arises as to who is responsible for the loss. Is it the carrier, the freight forwarder, or the principal itself?
A growing risk for the logistics sector
Fraudsters are becoming increasingly sophisticated in their methods. They may, for example, use stolen company data, forged documents or compromised email accounts to obtain transport assignments. To principals, everything may initially appear to be in order, until it becomes clear that the goods never arrive at their destination. In addition to the direct loss suffered, such situations may give rise to complex disputes regarding liability. The outcome often depends on the role performed by the logistics service provider involved.
The carrier’s liability
Where a party undertakes to transport goods from A to B, a contract of carriage will generally exist. The carrier takes the goods into its custody and is responsible for delivering them to the agreed destination. If goods are lost or stolen during carriage, the carrier may be held liable for the resulting loss. In international road transport, the provisions of the CMR Convention will often apply. These rules provide protection to principals while at the same time containing various limitations of liability for carriers. However, additional questions may arise in cases involving so-called fake carriers. For example, disputes may arise as to whether a carrier that engaged a fraudulent subcontractor can rely on the usual limitations of liability. The answer to that question depends on the specific circumstances of the case. Whether liability actually exists will always depend on the facts, the cause of the loss and the applicable contractual and statutory rules.
The position of the freight forwarder
The position of a freight forwarder differs fundamentally from that of a carrier. A freight forwarder does not generally perform the transportation itself but arranges the transportation on behalf of its principal (i.e. it procures carriage). In doing so, the freight forwarder will often engage carriers or other logistics service providers. This does not mean that a freight forwarder can never be held liable. A professional freight forwarder is expected to exercise due care when selecting carriers and to remain alert to indicators of potential fraud. Particularly now that fake carriers are becoming increasingly active, the importance of carefully verifying contracting parties continues to grow. A question that regularly arises in practice is whether the freight forwarder took sufficient measures to prevent fraud and whether it was entitled to rely on the information made available to it.
Freight forwarding or carriage?
In cases involving loss or damage, it often appears that the distinction between a freight forwarder and a carrier is less clear than the parties initially assumed. In legal proceedings, it is frequently debated whether a logistics service provider actually acted as a freight forwarder or should in fact be regarded as a carrier. In making that assessment, courts consider not only the title of the agreement, but also the actual activities performed and the expectations created vis-à-vis the principal. This distinction is of considerable importance. If a party is characterised as a carrier, this may result in a significantly broader liability regime than would apply under a pure freight forwarding agreement.
How can companies mitigate their risks?
As fraudsters continue to become more sophisticated, prevention is more important than ever. Companies are well advised to conduct careful checks on carriers and logistics partners before awarding a transport assignment. In addition, it is advisable to:
- Clearly define responsibilities and liability in contractual documentation;
- Ensure that appropriate terms and conditions apply (for example, regarding security measures that must be observed);
- Implement internal control procedures for the allocation of transport assignments; and
- Periodically assess whether existing insurance coverage remains adequate in light of current risks.
Conclusion
Cargo theft and fake carriers present a growing risk within the transport and logistics sector. When goods disappear, it is not always immediately clear who should bear the resulting loss. The answer will often depend on whether the relationship qualifies as carriage or freight forwarding and on the responsibilities that the parties have assumed both contractually and in practice. For that reason, it is important for carriers, freight forwarders and principals alike to regularly review their contracts, procedures and risk-management measures. While proper preparation cannot prevent fraudsters from operating, it can help minimise the consequences of an incident as much as possible.
The specialists of Kneppelhout’s Trade, Industry & Logistics team regularly advise and litigate on contracts of carriage, freight forwarding agreements, CMR-related matters, cargo theft, liability of logistics service providers and disputes throughout the logistics chain. If you have any questions regarding the liability of a carrier or freight forwarder, or if you are confronted with fraud or cargo theft, please feel free to contact one of our specialists:
