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Collaboration the key to stopping misdeclared cargo

When industry and regulatory leaders were brought together by Lloyd’s List, Lloyd’s List Containers, Lloyd’s Loading List and the TT Club to try to expedite an end to cargo misdeclarations, a consensus emerged among presenters that shippers must take more responsibility in mitigating the malpractice of cargo misdeclaration

INDUSTRY and regulatory leaders have been brought together by Lloyd’s List, Lloyd’s List Containers, Lloyd’s Loading List and the TT Club to try to expedite an end to cargo misdeclarations.

The executives discussed ways forward in a public forum in London and in an international webinar, both sponsored by TT Club, a recognised advocate of better practices to eliminate cargo misdeclaration.

During the webinar in October, held ahead of the November 14 forum, a consensus emerged among presenters that shippers must take more responsibility in mitigating the malpractice of cargo misdeclaration.

“The shipper already has extensive responsibilities around how they're packing the cargo which provides some protection... clearly this is not enough,” Peregrine Storrs-Fox, TT Club Risk Management Director, said.

The Code of Practice for Packing of Cargo Transport Units, a joint IMO/ILO/UNECE instrument colloquially known as the CTU Code, has been in place since 2014. However, unlike the IMDG (International Maritime Dangerous Goods) Code, it is not mandatory.

“It does though provide a compendium of information that is necessary for the shipper and indeed all the supply chain stakeholders to take corrective action,” said Mr Storrs-Fox, adding that shippers have a general obligation to follow these industry guidelines under health and safety legislation in many jurisdictions.

However, it emerged during the London forum that regulations designed to promote competition and transparency may, unintentionally, be an impediment to shipping’s efforts to clamp down on misdeclarations.

The forum was told fear of strict competition rules and falling foul of antitrust regulations is preventing container lines coming together to prevent the increasing incidence of misdeclared cargoes.

Mediterranean Shipping Company head of insurance and legal Laurent Audaz said there needed to be better sharing of information about bad customers in order to fight the problem of misdeclared cargoes being loaded on to ships.

“If I know a shipper has been misdeclaring cargo, I should be able to ring up my colleagues at Hapag-Lloyd, for example, and tell them,” Mr Audaz said.

But strict anti-trust rules in Europe and the US make this impossible, he said.

“If we breach these regulations, we could face fines of up 10% of the turnover of the company. No carrier is going to risk that.”

He added that the industry needed to be “more reactive”.

“We need to find a way to get alerted quicker. And we need to find a way to get through the anti-competitive regulations that block our ability to exchange information quickly and be reactive and proactive,” Mr Audaz said.

“If I have a rogue shipper on my ship, the same shipper will be on ships of Maersk, CMA CGM and Hapag-Lloyd. We should be able to send a message to a platform identifying the company so that everybody gets an alarm.

“If we move together, we can harm those that are shipping misdeclared cargo.”

The Cargo Incident Notification System, an initiative launched by carriers in 2011 to help reduce the number of incidents on board, played a role, but could only report historical data, Mr Audaz noted.

“We need a real-time solution,” he said.

“We are working on initiatives, but it is difficult to get momentum,” he said.

The Lloyd’s List group understands there have been talks among senior container line executives on finding a mechanism to overcome misdeclarations.

A new agency, comprising shippers, forwarders, ports, terminals, insurers, container lines and other stakeholders, is said to be one idea under consideration.

The idea is understood to have been discussed at a meeting of the influential Box Club last year. It was raised again in Marseilles at a meeting of container line chairmen and chief executives. 

Nothing further, however, has emerged, and it appears the risk of anti-trust rules has so far prevented further action being taken

However, collaboration remained the key to attaining the goal of safer shipping, and in the longer term, a move to an integrated digital platform was the best solution as it documents each step of the supply chain process, Mr Audaz believed.

“We can develop an effective set of rules through collaboration,” he told the forum.

But carriers needed to “get alerted quicker” if there are suspected reports of misdeclared cargoes that could potentially lead to fires on board ships.

Some lines have already started to take steps to penalise “rogue shippers”, but there were limits to how far this could go.

“We can create rules that are very efficient, but we don’t have the teeth to bite,” Mr Audaz said. “In some countries, businesses can be opened and closed again in a snap, and even if we can get to them, it is very hard to go through the judicial processes. Most of the time it is a waste of money.”

The real problem was where shippers willingly hide the nature of their cargo, rather than genuine mistakes being made.

“Errors and incompetence are an acceptable risk that we insure against,” he said.

 

“From what I am hearing, there are ship fires every week and most are put out by crew without any further external assistance. Each such near miss could have become another major casualty” — Peregrine Storrs-Fox

 

Mr Storrs-Fox said of misdeclared cargo casualties: “Sadly this is the issue that we face all too regularly, and the historic average is once every 60 days, which is bad enough, but in the first nine months of this year we saw almost one every 30 days in terms of a major ship fire.

“That statistic conceals an awful lot of near misses. From what I am hearing, there are ship fires every week and most are put out by crew without any further external assistance.

“Each such near miss could have become another major casualty. That is just not acceptable.”

Mr Storrs-Fox later added that findings from a recent industry pilot programme of container inspections submitted to the International Maritime Organization revealed that some 60% of containers inspected were deficient “in one way or another” and while that did not mean the contents were about to explode, the statistics “were not comfortable reading”.

While container ship sizes are increasing and global trade is on a “growth trajectory”, Mr Storrs-Fox observed that it was too early to say that there is an absolute upward trend in such ship fires, adding: “We’ve certainly had a bad run of things. An increasing volume of global trade is good news overall, but it does potentially expose the industry to increased risks.”

However, he said there is an awareness among regulators “that there are all other sorts of issues. One of the issues is around the maritime dangerous goods IMDG code itself, which is highly complex.”

Mr Storrs-Fox indicated there is likely to be a review process for ‘special provisions’ within the IMDG Code that enable a shipper to avoid the full application of the code.

“This inevitably is something that can present a greater risk to the carrier and exemplifies, not just the complexity but also the deviance we can have where, frankly, we have some element of criminals in organising illicit trades. There is a dark side to this which we cannot avoid,” he said.

Counter-measures imposed by lines include the strengthening of inspection procedures and the introduction of penalty charges in relation to shipments found to be improperly packed or declared.

Hapag-Lloyd, for example, has instituted a penalty of $15,000 per box for misdeclared cargoes emanating from China, effective from September 15. South Korea’s HMM has also brought in penalties at the same rate, while Hong Kong’s COSCO-owned OOCL is introducing penalties of unspecified amounts, according to media reports.

However, moves by carriers to penalise shippers for failing to correctly declare hazardous cargo are unlikely to change the behaviour of the criminally minded, with other measures needed in response to rising numbers of containership fires.

For those shippers not involved in what are effectively criminal activities, there was scope for more education to raise standards, the forum heard.

“When something starts going really poorly, it usually comes down to how the implementation of the regulation itself, which means the CTU Code and the IMDG code, isn’t being done as expected,” said the IMO’s senior deputy director of maritime safety, Jack Westwood-Booth.

“At IMO we can put money towards technical cooperation with states. There’s a lot of action being taken but we rely on the industry to support such initiatives.”

Mr Westwood-Booth said a lack of adequate container inspection staff at major ports was a known issue, observing: “The problem is not geopolitical but simply not enough staff.”

Mr Westwood-Booth said the IMO was a “good regulator”, but not so good at capturing ship casualty data which relies on reports coming from the member states.

He added: “Maybe with the special provisions some things are being exempted which should not be and [the code] is not being applied correctly. That requires feedback from the member states and the industry, and once we get that, then we can start to take action.”

An initiative from the Liberian authorities means that a fresh look will now be taken into the special provisions for hazardous cargo. A similar review of the 2014 Code of Practice for Packing of Cargo Transport Units (CTU Code) by an expert group from the United Nations Economic Commission for Europe (UNECE) and the IMO Maritime Safety Committee is being planned.

The forum agreed that the “granularity” of complex supply chains with different players and different cultures made it difficult to pinpoint the issues around misdeclared cargo.

The process is not helped by lack of ability to read data across from one agency to another agency or supplier, but the emergence of new data-gathering IT platforms in the maritime sector may make this happen. Mr Storrs-Fox commented: “This in itself could demonstrate the commonality of interest between differing enforcement agencies, empowering improved inter-agency interventions.”


  Peregrine Storrs-Fox

Peregrine Storrs-FoxTT Club Risk Management Director Peregrine Storrs-Fox read Law at Southampton University, specialising in the law of carriage and international trade. He has been with the TT Club since 1984, firstly handling claims and providing advice to all types of transport and logistics operators, including ports and terminals, until the late 1990s when he was directing claims operations worldwide for the Club.

Since 2002, Mr Storrs-Fox has led the TT Club’s risk management and loss prevention services to members. In this role he has particularly developed links with like-minded trade organisation and NGOs with a view to promote good practice in health and safety matters as well as general operations.

 

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