The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
Cargo claims have been heavily neglected by shippers and consignees for decades — mainly due to the time involved to chase a claim, lack of specific legal knowledge to be able to wrestle with the carriers and a common misbelief that cargo insurance can protect from losses.
According to Eurostat, small and medium-size enterprises accounted for 99% of the importing enterprises and 98% of exporting enterprises in the EU last year. This number is similar globally. These shippers usually do not have a dedicated, proficient employee to simply handle their claims, and the day-to-day running of the business took precedence over chasing claims for the majority of shippers and freight forwarders.
Another reason that claims have been neglected in the past is that larger shipping lines, which employ large claims-handling teams, seem very daunting to the ordinary employee, using legal jargon your everyday employee doesn’t understand. The usual instant rejection by a shipping line has, in the past, been enough to scare away the claimant, even though the claimant may have a solid case.
COVID-19: A bankruptcy time bomb
In today’s challenging environment, many businesses are faced with financial difficulties and are having to be creative to make their pre-COVID-19 budgets work within the reality of doing business in what has become a very difficult year.
According to a publication by the American Bankruptcy Institute, commercial filings for bankruptcy have increased by 22% in 2020 compared to the same period in 2019 (January to August).
This figure will only increase over the rest of the year and into 2021, according to Maxime Lemerle, head of Sector and Insolvency Research at Euler Hemes Global, in his publication “Calm Before the Storm: Covid-19 and the Business Insolvency Time Bomb.”
“Covid-19 is creating an insolvency time bomb. Even as economies emerge from lockdowns, we expect the bulk of insolvencies is still to come, largely between the end of 2020 and H1 2021, as a result of uneven initial conditions, as well as differing re-opening strategies and emergency policy measures, particularly regarding when insolvencies are filed. Our global insolvency index is likely to hit a record high of +35% by 2021, cumulated over a two-year period, with half of the countries recording a new high since the 2009 financial crisis.” — Maxime Lemerle
As such, we have witnessed an increase in claims being put forward during COVID-19 by freight forwarders, importers and exporters. This is mostly due to a lack of operational income. Business owners are trying, in every way they can, to keep their businesses afloat and keep their personnel employed. To make up for the lack of income, many SME shippers are looking to claim compensation for damaged and mishandled cargo from liable parties. They take time to pursue older cargo damage and loss cases, when the incident took place before COVID-19 and when cargo volumes were at spike.
The new nature of claims: Every penny counts!
We are seeing a surge of claims of a different nature from what we saw in the past, which was mostly cargo loss or damage. To name just a few: demurrage claims, abandoned cargo claims (in the case of freight forwarders), repairs and maintenance claims, claims against additional and unexpected fees charged by shipping lines, etc. In the past, where a shipper may have simply paid for repackaging of their products due to water ingress, they are now claiming these additional costs from shipping lines.
Claimants are no longer being bullied by large shipping lines, they are educating themselves and their employees to deal with the “claim game” in a much more productive and determined manner. They are investing in self-education and third-party claim handlers more now than ever. “Every penny counts” seems to be the post-COVID-19 trend!
Claim winning — a joint venture
With many companies struggling to stay afloat, we are seeing a lot more cooperation and support given to importers and exporters by freight forwarders. This supportive relationship has given many importers and exporters the confidence to not let a claim drop at the first rejection by a shipping line. Instead, they are collecting additional evidence, learning more about claims and claim handling, and pursuing compensation with more confidence and determination. We witnessed that marine insurance companies have also grown in confidence and actively look for ways to recoup even small losses from cargo insurance lines.
Along with the relationships SME shippers are building with their freight forwarders, they are building relationships with third-party claim handlers. Shippers and freight forwarders alike are realizing the benefits and added value that third-party claim handlers can bring to a company at low cost and low risk to the SME. With legal expertise and the ability to work globally, third-party claim handlers bring an added dimension to a business on a claim-by-claim basis, avoiding the necessity to employ additional personnel.