State of cargo claims in the liner shipping industry

The rising importance of cargo claims.

Significant changes to operations in the shipping and logistics sectors could be having a knock-on effect on cargo claims. Increasingly stringent measures around lockdowns, quarantines, distancing and purchasing behaviours is pushing enterprises to take steps to protect their people and their businesses. The threat of insolvency could see many businesses tightening purse strings and refocusing on claims procedures.

Small and medium-sized enterprises accounted for 99% of the importing enterprises and 98% of exporting enterprises in the EU in 2019, according to figures from Eurostat. The mounting pressure brought on by the pandemic will see some new entrants to the market. Decide to exit while others who have liquidity constraints or inabilities to operate remotely may struggle.

As a result, the impact of Covid-19 may be affecting changes in the way cargo claims are treated.

When the economy slows, shippers look for ways to recoup losses. Which otherwise would have been forgotten or offset in a fast-paced business environment.

Shippers and consignees have traditionally dismissed claims for decades. Due to the time and effort needed to chase up a claim, or file a suit. As, believe it or not, many do not have qualified or experienced claim handlers to process claims. The same goes for shipping lines. Handling claims, especially at the agency level, often fall short.

A swift response by policymakers across OECD countries has helped businesses in bridging short-term liquidity gaps. These gaps are caused by the economic shock following the Covid-19 outbreak, avoiding immediate and widespread insolvency crises.

However, many countries have now entered a second wave of the health crisis, magnifying the economic shock even more.

Maxime Lemerle, head of Sector and Insolvency Research at Euler Hemes Global, sates: “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.”

Climbing claims

Companies are now turning to simplifying existing processes and adapting quickly to the new business environment, say experts.

Exporters, importers and freight forwarders are looking to inject at least some liquidity to their businesses. By accelerating the cargo claim compensation process and collecting due payments for the incidents that primarily took place before the pandemic.

Since so many parties are involved, the shipper often bears the brunt of cargo losses. With responsibility shifted to the weakest party.

Reports have shown that nearly all claims pursued by cargo owners end up expiring under a statute of limitations. The extent of losses faced by companies as a result of poor follow-up systems is considerable.

The changing business environments will place pressure on companies to view freight claims as essential components of customer service.

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