TFPD_07: The freight forwarder is an intermediary
Trade Finance Paradigm #7: The freight forwarder is an
intermediary
The next of the eight Trade Finance Paradigms is: The
freight forwarder is an intermediary.
Story line #1
The origin of the “freight forwarding companies” is the
activities in the early days of the 20th century to support the rapidly growing
mercantile shipping industry. Their main responsibilities were to organize the
transport, generally by rail, of goods to and from the docks, the booking of
cargo space with the shipping lines and customs documentation. The freight
forwarding company acted generally for one or more of the involved parties as
“agent” or “intermediary”. For example negotiating the contract of carriage
with the shipping line on behalf of the shipper.
Story line #2
Beginning of the nineties I finished school – and needed to
find my path in life. By pure chance I landed at a small freight forwarding
company in a suburb to Copenhagen. What I noted was that there was a huge
diversity in its tasks and capacities. One of the main activities was import of
goods from the Far East. The company – my employer – would issue their own
bills of lading, signing them “as carrier.”
However – as noted – the diversity was huge and the tasks
(capacity) included:
- Storage of Goods
- Acting as Carrier
- Acting as Intermediary
- Packing goods
- Acting as NVOCC (Non Vessel Operating Common carrier)
- Doing transport and goods Insurance
- Acting as Travel agent
- Acting as Container Consolidator
- Being a Customs clearing agent
The picture described in “Story Line #2” is in fact the
picture that still hold true: Freight forwarders perform a huge variety of
tasks – and their capacity/responsibility changes according to the actual task
/ agreement.
What is interesting is that when the LC bankers (documented
within LC practice) discuss freight forwarder – the picture they have in their
head (their paradigm) is rather close to “Story line #1”
Let’s take a look at how the freight forwarder is perceived
by the LC practice.
ISBP 681 includes the following paragraph:
If a credit states "Freight Forwarder's Bill of Lading
is acceptable" or uses a similar phrase, then the bill of lading may be
signed by a freight forwarder in the capacity of a freight forwarder, without
the need to identify itself as carrier or agent for the named carrier. In this
event, it is not necessary to show the name of the carrier.
(Paragraph 95)
If you measure this paragraph against “Story Line #2” I am
sure you will find the words “in the capacity of a freight forwarder” to make
only little sense: “Freight forwarder” is NOT a capacity. It is a type of
company that may assume a variety of “capacities.”
Luckily this seems to have been acknowledged – as these
words are taken out in the revised 5th draft of the new (and coming) ISBP.
However – the principle still exist: When the LC states “Freight Forwarder's
Bill of Lading is acceptable” then the document need not identify the issuer as
carrier or agent for the carrier.
So even in the new ISBP (it seems) that “freight forwarder”
will still be different from a “carrier.” I.e. the freight forwarder is
perceived as an “agent.”
What is interesting is that the scenario from ICC Opinion
TA572 also seems to be included into the new ISBP. Analysis & Conclusion,
which reads:
“The terminology “Transport document issued by Freight
Forwarder not acceptable” is an ambiguous term that does not clearly define the
type of document that would be acceptable. For example, it is not clear whether
the credit is seeking to remove the ability for a freight forwarder to issue a
bill of lading that would be acceptable under UCP 500 Article 30 or whether it
extends to the manner in which the bill of lading would be signed. In regard to
this enquiry, the bank would be obliged to accept a bill of lading that was
signed “as carrier” irrespective of any knowledge they may have as to the
capacity of the issuer.”
In other words the phrase “Transport document issued by
Freight Forwarder not acceptable” will be disregarded. Such term is even deemed
“ambiguous.” The fact is that it is NOT ambiguous. Freight forwarder is freight
forwarder. Such LC requirement does however present a huge challenge: How is
the LC document examiner to determine whether or not the issuing party is
freight forwarder? This may be extremely easy. For example where a “FIATA bill
of lading is presented” or in the case of TA572 where the transport document
presented was titled “FBL BIFA Negotiable FIATA Multimodal Transport Bill of
Lading.” It may also be extremely difficult. In the freight forwarding company
where I worked we had a “liner bill of lading” that showed no indication at all
that the issuing party was in fact a freight forwarder. It was however signed
“as carrier” and subject to solid insurance (made through the TT Club).
So I guess the prevailing practice has the clear advantage
that it is easy to handle when examining the documents. I do accept that – but
must state also that it is wrong! This becomes evident when receiving LC’s that
include a requirement that is a clear response to TA572. For example the
following:
“Transport documents issued by a freight forwarder are not
acceptable, even if signed in the capacity as carrier or an agent for the
carrier”
The intention clearly is to avoid a scenario like the one in
ICC Opinion TA752, wherein the bill of lading presented under the LC
prohibiting a transport document issued by a freight forwarder is on a standard
form of a freight forwarders organization, but is still acceptable for the
banks because it is signed “as carrier.”
It must be expected that the result would be different than
merely stating, “Transport documents issued by a freight forwarder are not
acceptable.” But different how? I can provide my best evaluation (and have done
so) – but clearly this turns around completely how LC practice perceives the
freight forwarder.
There is no official view from the ICC covering this precise
term. Therefore, one should take extra care with an LC that includes such a
clause – because surely the issuing bank does not perceive freight forwarders
as merely being “agent” or “intermediary.” In fact it seems that they perceive
freight forwarder the “correct” way; as a type of company that may assume
various capacities depending on task and agreement.
Interesting enough this collide totally with the prevailing
LC practice regarding freight forwarders.
I am not sure how to end this blog post in a positive note.
I will do so only hoping that over time this paradigm will change to be
“aligned” with reality!
More information about this topic:
My book “UCP 600 Transport Documents” – Chapter 4.3.1 Freight
Forwarders
My book “From beginning to beginning”:
Page 34: “The Freight Forwarder and The UCP Revision”
Page 77: “The “Bootleg” Decision Paper on documents issued
by freight forwarders for presentation under documentary credits”
Page 89 “End the fuss about transport documents issued by
forwarders”
Take care of each other and the LC!
Kim