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Sun 1 Apr 2007 12:00 AM

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Logistical liabilities

What precautions can logistics companies take to protect themselves from liability claims?

Question:

What precautions can logistics companies take to protect themselves from liability claims?

Expert:

Dr Khalid Al Mehairi

Managing partner, Emirates Advocates

Taking responsibility

Given the high potential risk of damage and accidents, logistics companies are required to take all reasonable precautions to prevent any loss, damage or accident to cargo, materials or equipments held under their premises.

Cargo risks vary considerably as there are innumerable types of goods imported and exported via several modes of transport to ports and places throughout the world.

The supply chain process normally revolves around three main entities, namely the consignor, carrier and consignee (shipper). The carriers and consignors deliver the containers and container goods to harbour warehouses, transport stations or other places of mutual consent in the manner as specified in the bill of lading. No responsibility or liability whatsoever shall attach to the consignor for any loss or damage to goods unless such loss or damage occurs whilst the goods are in care of the consignor, or is due to the wilful act or default of the consignor.

Further, the consignor shall under no circumstances be liable for loss or damage incurred through goods being tendered with inadequate packing, or any loss or damage whatsoever caused by the perishable, fragile or brittle nature of the goods.

In transit

In the case of cargo damaged in transit, the contract between the carrier and the consignor (the bill of lading) will prove with whom the liability lies. The carrier is any person or entity that, in a contract of carriage, undertakes the performance of carriage by rail, road, sea, air, and inland waterway or by a combination of such modes. Legally speaking, the carrier of goods is a bailee of the goods for the purpose of carriage. Since possession of the bailee is the gist of the bailment, the carrier's responsibility does not begin until the moment when he assumes possession. If the carrier is responsible for loading cargo into the containers, it bears the liability for damage or loss of container goods. This occurs after the carrier has received the goods and before it hands over the goods to the consignee upon arrival at the destination.

Wary warehousing

It is to be noted that cargo is damaged not only in transit, but also when stored in the warehouse. Insuring the warehouse operations may not be a logistical nightmare, but it is far less cut-and-dry than insuring a delivery van. Warehouse insurance comes in different varieties and even policies with the same title may provide very different levels of protection. Just banging the door of insurance companies is not enough. Customers find relief when they have the right to demand relief against the owner of the warehouse itself or the owner of the cargo.

Under law, logistics companies seek refuge in the contract entered into between the parties. Tight lipped contracts protect logistics companies against liabilities arising due to disputes and misunderstandings. Logistics companies rely on tailor made insurance programmes that respond to a broad range of financial demands from clients who require financially structured insurance coverage.

Concluding thoughts

Logistics companies in the Middle East are proactive in covering themselves to meet the new challenges of the industry as a result of globalisation, the digitalisation of information, security concerns, new technologies, rising energy costs and changing trade patterns. With a network of warehouses throughout the Middle East and the vehicles to move products between them, companies provide flexible solutions to logistics problems and are able to succeed in a dynamic environment. The local knowledge and experience provides the peace of mind to focus on emerging business opportunities. Gaining competitive advantage in the Middle East's logistics industry can mean the difference between success and failure. Its hardly surprising, therefore, that logistics companies are constantly striving to improve efficiencies and offer customers a better service. The use of technology, such as warehouse management systems and executive dashboards, has played an important role in improving logistics competencies over the past decade. However, other technological solutions are starting to gain prominence in the industry.

But as it is said, where the good dance, the bad sing a soft tune. Out of the many concerns dealt with by logistics companies, differentiation is a key area. A lot of companies are finding it difficult to differentiate themselves from rivals in terms of product offerings. Therefore, the attention is shifting towards improving the service level to customers, especially compared to the competition. Also, companies are concerned about cost optimisation. The price of goods in the Middle East is falling because of intense competition. Making improvements in deficient supply chains can ensure reduced costs, which is essential nowadays.

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