Every year, hundreds of thousands of containers loaded with cargo are abandoned at ports worldwide. The phenomenon of abandoned goods is not new. But it has become a bigger headache for the logistics industry in the current Covid-19 environment, contributing to port congestion and rising logistics costs.
In this piece, we take a look at the problem abandoned goods pose to shipping lines, freight forwarders and ports as well as to you – the exporter/importer. Read on to find out:
What are abandoned goods?
Why is cargo abandoned?
What happens with abandoned goods?
Who is liable for abandoned goods?
Covid-19 and abandoned goods
How to avoid being stuck with abandoned goods
How to effectively deal with abandoned goods
What are Abandoned Goods?
The International Federation of Freight Forwarders Associations (FIATA) defines abandoned goods as those “the consignee [importer] has manifested no intention to take delivery of after a reasonable period”. This includes situations where the importer cannot be identified or contacted or has refused collection.
But what FIATA calls a “reasonable period” differs from country to country. In India, goods “not cleared, warehoused or transhipped within 30 days after unloading” are considered abandoned under Section 48 of the Customs Act, 1962. In China, this period extends to 60 days. In the European Union and Australia, it is 90 days. And in the US, it is six months from the date of importation – though special merchandise (perishables, spirits, hazardous material, etc) invites a shorter, unspecified period of time.
Why is Cargo Abandoned?
Common reasons why an importer might not collect the goods they ordered:
They aren’t satisfied with the quality of the goods
They don’t have an import permit or license required to claim the goods
They have gone bankrupt
They cannot pay import duty, demurrage or other charges
The shipment was delayed and they don’t need the goods anymore
They are in dispute with the exporter
The goods are damaged
The goods are held up by customs for violations (misdeclaration of goods, wrong documentation, etc)
There has been a sudden regulation change prohibiting the import of certain goods
What Happens with Abandoned Goods?
Abandoned goods are dealt with in one of the following ways:
They are confiscated and sold via auction
They are destroyed (especially if they are perishable, of low value, hazardous, etc)
They are scrapped for parts
They are reclaimed by the shipper and returned to origin
They are re-routed to an alternative buyer
How are Abandoned Goods Sold?
More often than not, abandoned goods take the auction route. The shipping line – or the freight forwarder, if they are named as the “principal” in the Master Bill of Lading (MBL) and, hence, liable for any expenses – can request customs to have the goods sold. The auction is organised by customs. The proceeds go towards settling the freight, storage, import duty, transportation and auction bill along with any other related charges. If the proceeds aren’t enough, the shipping line can claim the balance from the shipper and/or take legal action against them. If any money is left over from the auction, it is refunded to the shipper, failing which it might go to the state treasury.
A step-by-step guide to how abandoned goods are auctioned in India:
The container freight station (CFS) custodian prepares a list of abandoned goods and sends it to the customs commissioner.
Within 10 days of receiving the list, customs informs the custodian of shipments that can be auctioned and those that must be excluded. Cargo retained for investigation/adjudication/court proceedings or those requiring licences/permits/certificates from government departments are usually excluded.
The custodian sends a notice to the importer asking them to clear the goods within 10 days of the date of issuance of the notice.
In the next 20 days, the custodian prepares a detailed inventory of goods to be auctioned. From this lot, customs performs a sample check of 10% of shipments.
Within seven days of completing the inventory, the custodian seeks a no objection certificate (NOC) from customs.
Within 15 days of this request, customs issues NOCs for shipments that don’t require regulatory clearances from government agencies (Drugs Controller General of India, Food Safety and Standards Authority of India, etc) or chemical analysis to test if the goods are fit to consume/use. For the rest, customs waits for the required clearances and tests reports before issuing its own NOCs.
If the goods are deemed unfit for use, they are destroyed.
If the goods are cleared for auction, the custodian has their value assessed within seven days of receiving the NOC. They then fix the auction date.
Bids equal to, more than or up to 5% less than the reserve price are considered successful. For unsold goods, a second, third or even a fourth auction might be held. At the fourth auction, the goods are sold to the highest bidder regardless of reserve price.
For every shipment sold, the custodian files a Bill of Entry with customs.
Within 15 days, customs assesses the duty due on it.
The successful bidder collects the goods on payment of duty.
Exporter/Importer: As the shipper/consignee/cargo owner, they are liable. Generally, the freight forwarder holds the contracting party accountable while the port of import holds the importer responsible.
Freight forwarder: If identified as “principal” and not “agent” on the MBL, the freight forwarder is directly liable to the shipping line and must pay for storage, transport and disposal of the goods.
Shipping line: If the freight forwarder is not the principal, the shipping line is in a direct contractual relationship with the shipper. This puts the shipping line in a tight spot because any delay in paying port officials could affect its operations, resulting in losses. If the cargo is packed in a container that is not its own, the shipping line might even be liable to pay the leasing company.
Right of lien: Along with liability, shipping lines and freight forwarders have a right of lien over abandoned cargo. Lien is “the right to keep someone’s property until a debt is paid”. They can enforce this right “in a reasonable manner” – such as a customs-approved auction – to recover the amount owed to them and the cost of recovering that due.
Covid-19 and abandoned cargo
The coronavirus pandemic and lockdowns imposed by countries dealt a body blow to the shipping industry. As businesses and economies tanked, shipping lines faced record booking cancellations and cancelled record sailings. Abandoned cargo also piled up at ports. A significant section of containers stranded at ports and terminals due to mobility restrictions, border closures and labour shortages ended up being abandoned. Why did this happen?
With markets frozen, demand down and cargo stuck in transit, buyers no longer needed the goods. For many of them, their businesses had suffered irreparable losses.
A good portion of abandoned goods were likely perishable commodities (food, pharmaceuticals), which require special conditions for transport and storage.
Delays in delivery also rendered a lot of cargo with short shelf lives useless.
How to prevent being stuck with abandoned goods
Shipping lines and freight forwarders can save themselves a lot of trouble with these preventive steps:
Work with reputable shippers. Confirm if the contracting party is genuine and financially viable. FIATA recommends insisting on original documents, using the company land line to communicate and verifying email addresses
Be wary of scrap, waste, low-value goods, used goods, counterfeit goods and personal effects as these have a high probability of being abandoned
Be cautious while accepting goods that are difficult or expensive to dispose of (computers, phones, used tires)
Watch out for sanctions and embargoes, especially at the port of destination
Verify the importer’s credentials beforehand
Keep a record to identify common patterns such as unreliable shippers, risky cargo, risky trade routes, abandoned cargo hotspots
Shipping lines can choose to load cargo on ships only after the shipper submits an export declaration, which is proof that the cargo has a buyer
If the goods are shipped as “Freight Collect”, it’s a good idea for shipping lines to get a written confirmation from the buyer
During contract drafting, freight forwarders should include a provision on responsibilities in the event the goods are abandoned
They can also protect themselves with Freight Forwarders Liability Insurance, which covers abandoned cargo
What to do when stuck with abandoned goods
Even with these precautions, it is sometimes impossible to avoid being saddled with abandoned goods. Here’s how to effectively deal with such a troublesome situation:
Notify the importer/exporter as soon as the free time is over. If they aren’t inclined to collect the cargo, demand immediate written instructions to change the buyer/destination or to abandon it. Clearly communicate their financial liability
Speed is key. The longer you take to act, the higher the costs. If the associated costs exceed the value of the goods, selling them won’t solve your problem
Consider cheaper storage options (off-dock facilities) to save on demurrage and detention charges
Know the customs laws you are working with. As mentioned earlier, different jurisdictions have different rules. Exercising your right of lien might depend on both local laws and contract provisions. Your local agent can help you stay informed
FIATA believes digitisation is a solution to the abandoned goods crisis. It recommends, among others, easy-to-track smart containers and a digital contracting and communication system so that all parties can secure themselves right at the contract drafting stage
With the pandemic still raging, lockdowns still a reality and economies still in the red, the abandoned cargo crisis isn’t going away any time soon. For now, preventive action seems to be the only safeguard against it.