Once again on freight forwarding in Ukraine
1 April, 2016
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Freight forwarding is commonly defined as a business activity on rendering freight forwarding services in respect of supply and carriage of export, import, transit and other cargoes.
Since 1995, shipping has been Interlegal principal activity. Our traditional clients are shipowners, managers, charterers, cargo owners, P&I clubs, insurance companies, ship chandlers, ship agents, fuel suppliers, ship repair yards, and other parties to carriages.
In this article we will deal with regulation of forwarder’s activity in Ukraine. In the spotlight are legal definition of freight forwarder, his role and functions, interrelationship between the forwarder, his client and other participants of transportation process, issues of liability and insurance under Ukrainian law.
Regulation of forwarding activity, legal definition of freight forwarder, his role and functions under Ukrainian law
Under provisions of Ukrainian law, a freight forwarder is a business entity which, on behalf and for account of its client performs or organizes performance of freight forwarding services specified in the agreement on freight forwarding services. The freight forwarder is a vital link between the cargo owner and the carriers.
Freight forwarders’ activity is guided both by the Ukrainian Laws and by some official regulations which are applied in the transport sphere. The major laws which regulate the freight forwarding activity in Ukraine are:
- Civil Code of Ukraine;
- Commercial Code of Ukraine;
- Law of Ukraine “On freight-forwarding activity”.
The Law of Ukraine “On freight-forwarding activity” provides for the principles of freight forwarding activity, the state regulation and support of freight forwarding, types of freight forwarding services, conditions of the contract on freight forwarding services, rights and duties of the freight forwarder and his client, issues of liability and insurance.
Moreover, Ukraine, being a state with developed transport system, is a party to a number of international conventions regulating transport issues. In particular, the activity of freight forwarders is regulated by the Convention on the contract for the carriage of goods by road (CMR), which is applied to contracts of international carriage by road, when the place of shipment and the place of delivery of cargo are located in different countries, at least one of which is a member of convention.
Referring to the specific regulations applied in the transport sphere, it can be mentioned, e.g. the Statute of the Railroads of Ukraine, which is a specialized document regulating the railway carriage of goods and its provisions differ from the general rules of railroad carriage.
Freight forwarding is well developed activity in Ukraine, as Ukraine is a transport hub between Europe and Asia. After the breakup of USSR, freight forwarding in Ukraine started developing impetuously. A distinctive feature of freight forwarding in Ukraine is that the forwarders usually contract different carriers to carry the goods using several modes of transport, thus making their services multimodal and international.
Recently the role of the freight forwarder has been changing a lot and the freight forwarder performs not only services in respect of organization of transportation of goods, but performs a complex of services related to door to door delivery of cargo. The client is not anymore concerned about the route of cargo movement, control over the loading process and issue of documents. Entering contract with the contractual carrier, he pays for the freight forwarder’s services in whole, specifies the term of delivery and provides the freight forwarder with instructions in respect of the cargo movement.
For the performance of their all-inclusive services, freight forwarders may possess warehouses, different types of transport facilities, containers, etc. They also are entitled to conclude agreements with ports, shipping companies, carriers (both Ukrainian residents or not). Therefore, the freight forwarder is not only assisting the client in carriage of goods and making arrangements with carriers, but he also can perform the carriage by his own transport or control the performance of carriage by the third parties.
The functions of freight forwarders may include:
- development of transportation scheme , advising customer on the available options of carriage and the most efficient route;
- organization of inland carriage of cargoes from the plant/ elevator to the port by several means of transport, booking the vehicles and organizing transshipment from one mode of transport to another;
- organization of international carriage of goods by sea;
- handling/storage of the cargo at the terminal and its loading on board of a vessel;
- accumulation, sorting, packing and marking of the cargo;
- storage of the cargo whilst awaiting further transportation;
- custom clearance of the cargo;
- insurance of the cargo (for the benefit of the client) and the freight forwarders’ liability;
- providing necessary documentation for import and export of goods in compliance with customs regulations and requirements of the sales contracts;
- being the party which performs booking , the freight forwarder effects the payments to performing carriers, ports, terminals, warehouses;
- on behalf of his clients the freight forwarder pays government taxes and dues where necessary.
Interrelationship between the freight forwarder and the client and other participants of transportation process
The terms of performance of freight forwarder’s services, rights and obligations of the freight forwarder and the client, liability of the parties are provided in the agreement on the freight forwarding services. This agreement is the basic document regulating the interrelationship between the freight forwarder and his client.
The Article 9 of the Law of Ukraine “On the freight-forwarding activity” defines the agreement of freight forwarding services as a contract, under which the freight forwarder undertakes on behalf and for account of the client to perform or organize the performance of the works stipulated in the contract related to carriage of cargo. The essential terms of this agreement are as follows:
- Information on the parties of the agreement;
- Types of services to be rendered;
- Type, quantity of cargo to be carried;
- Liability of the parties;
- The cost of freight forwarder’s services and terms of payment;
- Place of shipment and place of delivery of cargo;
- The terms in respect of the route, mode of transport and other client’s instructions.
Taking into account that the cooperation of the freight forwarder with the client can be a long term one, and the terms and volume of the freight forwarding services may vary with regards to the client’s needs, the agreement on freight forwarding services can be concluded as a model contract, which is supplemented with the client’s instructions (assignments) regarding particular cargo shipments. The client’s instructions (assignments) usually contain all essential terms in respect of one particular shipment. In practice, most of the freight forwarding agreements are the model ones.
The relationships with other participants of the carriage and the flow of documents between the parties of carriage depend on the volume of functions, which are performed by the freight forwarder. The terms on which the sales contract between the shipper and the consignee is concluded matters a lot as well (whether the consignee is the final consumer of goods or intends to resell the cargo on different terms).
In the event the freight forwarder provides full service from the point of shipment to the point of destination, the amount of documents transferred between the parties is broadened considerably.
The freight forwarder’s liability under the Ukrainian Law
General provisions of the Ukrainian Law regulating the grounds for the freight forwarder’s liability are stipulated by the Law of Ukraine “On Freight Forwarding Activity”, the Civil Code of Ukraine, and the Commercial Code of Ukraine.
Regarding the freight forwarder’s liability the Law of Ukraine “On Freight Forwarding Activity” provides only the general norms under which the freight forwarder is liable before the client for the number of places, weight (in case there was control weighing in the presence of the carrier’s representative and such was confirmed by his signature), conformity of the package to the transport documents certified by the signature of the carrier’s representative unless otherwise is stated by the freight forwarding agreement. Basing on this clause, the parties when concluding the freight forwarding agreement in practice can either increase the freight forwarder’s liability under the contract or set limitations for it.
The freight forwarder’s liability issues are also regulated by the general norms of the Civil Code of Ukraine which envisage liability for breach of the obligations under the contract. In particular, Article 623 of the Civil Code of Ukraine states that the Debtor who breached the contract is obliged to reimburse to the Creditor his damages caused by such breach. According to the Law of Ukraine the damages include cost of lost, damaged or destroyed property; additional expenses born by the party who suffered damages; lost profit.
Under the Law of Ukraine “On Freight Forwarding Activity” in case of engaging the third parties for fulfillment of obligations under the freight forwarding agreement the freight forwarder bears liability for actions and negligence of such persons as for its own actions.
The Ukrainian legislation has no special provisions which limit the freight forwarder’s liability before the client. This issue is left by the law at the parties’ discretion. Usually, the detailed provisions regulating the freight forwarder’s liability before the client, its grounds, terms and limits are agreed by the parties in the freight forwarding agreement.
The crucial point for acknowledgement/ rejection of the freight forwarder’s liability for caused damages is the scope of the freight forwarder’s obligations before the client and the basis of the carrier’s engagement (how the relationships between the parties were built).
In case the freight forwarder acted on their own behalf when concluding the carriage contract, so it is the freight forwarder who is liable before the client (cargo owner) for cargo shortage during transportation.
When the freight forwarder makes the carriage contract on behalf and in the interests of the client, usually it is the carrier who can be sued for cargo shortage.
The procedure of issuing FCR and the liability of freight forwarder who issued FCR for non-fulfillment of the terms thereof are not provided or duly regulated by the laws of Ukraine. The Rules and Recommendations upon the Use of FIATA Documents and Forms (Protocol No.5 dd. 16.07.2003) issued by International Freight Forwarders Association of Ukraine (AIFFU) are in fact the only document which more or less defines relationship between the parties under FIATA FCR (or FCR in whole) in Ukraine. FIATA FCR forms can be used only by the forwarders of AIFFU being FIATA members.
Insurance issues on the freight forwarding activity in Ukraine
Under the provisions of Ukrainian law the freight forwarder can perform insurance of the cargo and his liability in compliance with the Laws and freight forwarding agreements. The services which the freight forwarder provides to the client are connected with the cargo and thus connected with material harm, such as damage and loss of cargo as a result of different circumstances, so the cargo insurance and insurance of the freight forwarder’s liability are the normal and well-known practice in Ukraine.
The freight forwarder can arrange the insurance of the cargo by the request and for the benefit of the client. Also the forwarder can insure his freight forwarder’s liability under the respective contract. The cargo insurance or insurance of freight forwarder’s liability are not obligatory under the Ukrainian law thus the issue of insurance is to be determined by the parties voluntarily. As a general rule, requirements as for insurance are fixed by the parties in the freight forwarding agreement.
Published in Forwarderlaw.
