Protection racket: The shifting sands of liability

Adam Bernstein
Friday, October 22, 2021

Who is responsible if your shipment gets damaged in transit? More importantly, who picks up the tab for reprinting it? Printers should be careful to ensure their work is properly covered.

It must be extremely galling to invest time and effort in producing finished print to then hand it to a third-party logistics company which, during its operations, manages to all but destroy the items entrusted into its possession.

But this is exactly what happened to Ace Binding recently. Alison Fear, director, describes one situation where a pallet that left her site two days earlier was returned undelivered. “The state the pallet was in when it was returned was shocking.” She tells how it was covered in soot and the boxes were all crushed: “We were absolutely shocked that the logistics company felt it acceptable to return the pallet back to us in that state.” She cites another incident where a customer had emailed over a photo of goods following delivery – “the box had clearly been dropped from a great height and crushed”.

A question of liability

Printers in similar situations to Ace Binding will no doubt have wondered where the liability lies. 

In answer, Patrick McCallum, an Associate in the Outsourcing, Technology & Commercial department of Wright Hassall, says that there are two relationships to consider: that between a printer and a third-party logistics provider (3PL), and that between a printer and its customer.

In his view, the outcome of any dispute will depend on the contract and/or terms and conditions under which the parties are operating: “The default position between a printer and a customer under the Sale of Goods Act 1979 is that, unless otherwise agreed, risk in the goods remains with the printer until ownership in the goods transfers to the customer. 

Of course, most parties deviate away from this position in their terms and conditions, often specifically setting out which party will bear the risk of loss or damage to the goods during transit.”

Recovering losses

As for printers trying to recover losses, McCallum says that this will “depend on the liability provisions in the applicable contract and/or terms and conditions”. He expects, though, most contracts to exclude liability for indirect or consequential losses.

Looking at the buyer and seller relationship, McCallum sees sellers seeking to cap liability to an amount linked to the value of the goods; they then seek to recover any damages paid to its buyer from the 3PL.

For that between a seller and a 3PL, the latter, McCallum says, “often limit their liability for lost or damaged goods to a fixed price per tonne of goods. The problem is that this may not reflect the value of the goods in comparison to their weight.” He sees this approach taken by large 3PLs such as DPD, DHL and UPS who command a considerable market share of the logistics sector.

In more detail, Simon Horton, transportation director at Ascend Broking, explains that if a 3PL trades under Road Haulage Association conditions “this will normally restrict their liability for goods to £1,300 per tonne. There are other terms and conditions which can give higher, or lower amounts of compensation, depending on the type of courier you engage.”

As for freight forwarders, he warns that they arrange shipping but then subcontract to others. “Sometimes their conditions can be presumed due to one line of text on a quote or invoice. It is therefore important to ask a courier what terms they trade under if they are unclear.” If there’s any doubt, navigating to the 3PL’s or freight forwarders website should uncover full terms and conditions.

What the law says

With 3PLs holding much of the negotiating power, printers often have no choice but to accept unfavourable terms to get goods shipped. The law here is clear as McCallum reports: “Parties are free to enter into whatever form of contract they like, within reason.”

However, he says that a printer could challenge the enforceability of a clause under the Unfair Contract Terms Act 1977 which completely excludes liability for any loss or damage, even because of negligence, by claiming that the clause is unreasonable.

And Horton wouldn’t disagree. He thinks that 3PLs “should care about your goods as this is the service they provide... Any restrictions under the terms and conditions they trade under have to be pointed out to you at quote stage or point of sale.”

But seeking a remedy, McCallum highlights, “can only be taken once the contract has been entered into and the 3PL seeks to rely on the clause in question. This would incur time and expense on behalf of the printer and comes with no guarantee that the courts would hold in its favour.”

Insurance can help

So, if a printer cannot negotiate with a 3PL, what other options are open to it?

One obvious answer is insurance. In relation to this, McCallum says that a printer ought to have sufficient cover in place to protect against any losses it may incur in relation to lost or damaged goods – even if it has successfully shifted the contractual liability onto a 3PL.

In fact, Horton considers, from his perspective, that it is a seller’s responsibility to arrange insurance and would recommend it having its own insurance policy; this would offer protection and would shift the responsibility “to the insurer to recover the costs against any courier at fault… the seller would receive payment for the goods sooner and with less fuss. It would also give them the ability to replace those goods.” The key point to remember is that, as Horton comments, “transit claims can involve a number of contractors and different insurers”. Having one policy should make a situation easier to resolve.

Allied to this, Horton says that for UK-only deliveries it would be expected that whoever arranges the shipment would carry the insurance burden. He restates the need for a seller to have its own insurance – not only will a 3PL limit liability for loss or damage, but worse, formal claims generally must be made within a certain timescale, or the claim would be ‘time barred’. This could mean making a claim within 24 or 48 hours with a further six to 12 months to formalise it.

And as for international shipments, Horton says that the transfer of risk depends on the terms and conditions used in selling the goods: “Known as International Commercial Terms, or INCO terms for short, these show the responsibilities for the buyer and seller during the shipping journey.” They fix the point at which liability passes from seller to buyer at a different stage of the delivery journey.

But to make INCO terms apply, McCallum recommends their incorporation into contracts with customers to reduce the time and expense of negotiating liability for the goods during transit between the parties.

Insurance, Horton suggests “could be an extension of an existing cover a firm may have, which could be adequate for UK shipments”. But for anything going overseas, he recommends a marine cargo policy which will cover goods and associated insured expenses.

For the record, ‘marine’, in this context, conjures up sea-related cover, but marine insurers also insure items carried by aircraft, road and rail too. Many journeys, particularly those that are international, require two or more modes of transport and legislation makes provision for them all.

To summarise, relying on a 3PL’s insurance will be less costly for the printer, but it can present its own problems including the limited scope of the 3PL’s insurance which may not adequately protect goods; policy terms might prevent a printer from being a named beneficiary, leaving it with no control over the conduct of the claim; and a printer being reliant on the 3PL maintaining insurance cover.

This is why he says, “sometimes it is best for printers to incur the additional cost of taking out their own insurance in respect of loss or damage to the goods”.

As to where to buy insurance, Horton recommends firms look for a broker that has knowledge of the marine and transport market or maybe a recommendation from a similar business or association such as the BPIF or IPIA. He says: “When buying insurance you could purchase one-off cover for individual shipments, if your shipments are few and far between. However, this is normally more expensive than an annual policy. 

“Not only would an annual policy normally secure a cheaper rate, but also provides the comfort that all shipments would be covered.”

Also, when seeking a marine policy, Horton says to buy Insurance Clause A as this provides the widest cover, Clauses B and C only cover catastrophe.

Documenting efforts to protect goods

Apart from negotiating terms and buying adequate insurance, printers could document their efforts to protect goods and mark them as fragile, but ultimately McCallum says that this “will not alter the contractual position as to who bears liability for loss of or damage to goods, although it may help deflect a customer’s frustrations away from the printer and towards the 3PL”.

Similarly, if goods are particularly fragile and/or need to be packaged or handled in a certain way, a printer could – as noted earlier – try to impose certain contractual obligations on the 3PL. McCallum advises: “If the 3PL subsequently failed to comply with these obligations then the printer could bring a claim for breach of contract against the 3PL and seek to recover damages.”

Fundamentally, any steps a printer takes to make a 3PL aware of how the goods ought to be handled would be useful in supporting the claim.

In summary

Unfortunately, the shipping of goods is often fraught with issues and mantraps set through contract terms that are ready to spring. While attempts to negotiate will only get you so far, it seems clear that sanctuary lies in self-shipping goods, good packaging which is solidly documented, decent insurance or, most importantly, finding a 3PL that can be trusted. 

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