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:

 

 

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

 



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