All about shortages & weighments

Losses due to shortage, pilferage or thefts constitute a significant portion of cargo losses during transit. This can take different forms like theft from the truck, theft from the container, theft during the period when the cargo is awaiting stuffing at ports/yards and in many cases there could be unexplained shortages. If there is an identifiable recorded event during the transit or clear evidence establishing a theft, settlement of the claim becomes easier. However, if the shortage is discovered at the final destination, with no evidence of tampering or theft, then the claim usually runs into rough weather, with the insurer being apprehensive that it could be a case of short supply and the assured/intermediary pointing to all documentary evidence to show that the quantity loaded was ‘X’ and the quantity received was ‘ X minus..’.  Assureds/brokers, in case of containerized cargo insist on the Seal Intact clause or Sealed Container clause  in their policies, which insurers do offer. A sample wording of this clause will read as under:

“In respect of shipments in FCL (Full Container Load) containers, provided that documentary evidence is produced to substantiate the quantity loaded into the FCL container the fact that the container’s seal is intact at unloading point shall not invalidate claim for theft, pilferage, shortage and non-delivery. “

It must not be noted that this clause will not usually apply in case of LCL and further, even after settlement of shortage claims in case of FCL where the container seals are intact, insurers usually carry out detailed investigation ( depending on the quantum of loss) to see if recovery can be effected from any offending/negligent party involved in the transit.

Shortage, pilferage and theft being rampant, one would presume that weighment/count/measurement of containerized and non-containerized cargo happens at different points during the transit. Unfortunately this does not happen. Let me briefly touch upon 3 claims, two of which where I was directly involved as an insurer and the third a case decided before the National Consumer Disputes Redressal Commission.

Case 1:

The assured was a regular importer of steel coils at JNPT and the factory was in Taloja, some 35 kilometers away. When one steel coil reached the factory, it was noticed by a staff member that the coil though still in rolled condition appeared to have been sawn off at the end in an uneven manner. Suspecting something amiss, the coil was weighed at the factory and it was found that it weighed around half ton ( 500 kilograms) less than its stated weight as per the import documents. The assured informed the supplier and also lodged a potential claim under his marine cargo policy. The suppliers straightaway denied that there was anything wrong in the coil’s weight from their end. Now the assured decided to weigh all the other imported coils( around 25-30) in stock. Surprisingly, when closely observed, all coils showed signs of having been sawn off and when weighed, each showed a reduction in weight ranging between 400-600 kilograms. Point here is that, no weighment of the coils was done either at the discharge port( JNPT) or at the assured’s factory on arrival.

Now assured lodged claims for shortage in each of the coils. The insurer initially refused to even register the claims subsequently reported after considerable time lag. On the first claim, an investigation was arranged and the findings were shocking. It came to light that a well-organised crime network was in place. The trailer carrying the coils would leave the port at night, move over to the criminals’ place nearby, where there were all the machinery/equipment necessary to saw off  portions of the steel sheet forming the coil. All this happened in the dead of night and early in the morning the trailer would be at the assured’s factory.  Police cases were filed and some of the criminals were apprehended too. As for the claims, considering the delay in reporting but since the losses were genuine, a compromised settlement was effected.

Case 2:

This involved import of copper scrap from Dar-es-Salam, to JNPT and the assured was based in Hyderabad.  A sharp clearing agent and possibly the crane -operator figured out when the container was being lifted that it appeared lighter than normal. The insurer & the port authorities were informed and the appointed surveyors were present when the container seals were opened in the presence of the port officials. Half the container was empty, though all the original container seals were intact.. Weighment was done and a huge shortage was found when compared to the weight as per the import documents. Skilful pilferage was ruled out as the commodity was not light-weight and had considerable mass. It was felt that something must have gone wrong before being loaded on to the vessel itself. Point to be noted is that weighment was done, not as a part of routine but because a sharp clearing agent spotted the apparently lighter container.

Insurer sent an investigator to Dar-es-Salam and it came to light that the shipping line had handed over their container seals to certain clearing & handling agents for ease in operations. These agents had misused their authority and had stolen portions of the cargo even before the container reached the load-port by removing the container hinges. Again they had made sure that the documents showed the full original weight of the cargo only. Since no weighment was done at Dar-es-Salam port , the shortage was never figured out there. As the shipping line was negligent, they sought to settle the matter amicably.

Case 3:

This is a classic case which was decided by the National Consumer Disputes Redressal Forum ( Hindalco Industries Ltd vs New India Assurance Co. Ltd) in favour of the assured.

The assured had despatched a container containing 22 drums of anode slime ( weighing around 9 MT) in a container from their factory in Dahej to JNPT and thence to Montreal by sea. When the trailer reached the final destination and the container was opened , it was found that 12 of the 22 drums were missing. All the container seals were found intact at the time of opening. Again, no weighment was carried out either at Montreal port or at the consignee’s premises before opening the container.The consignee informed their insurer (as consignment was on FOB terms) and also kept Hindalco informed. Hindalco too lodged a claim on New India as it was not clear where the incident leading to the shortage had occurred. 

New India declined the claim citing the following reasons:

1. The policy was on FOB terms only and there was no documentary evidence to substantiate that the loss occurred before loading on to the vessel at JNPT.
2. The weight of the container as shown in the Bill Of Lading & Mate’s Receipt was identical. Further the BL and Mate’s Receipt are clean indicating that nothing untoward had happened before loading.
3. The container moved from the buffer container yard to the CFS and then to the port and at every stage there was documentary evidence at every stage confirming that all the container seals were intact.

Critical point was that the container was neither weighed before entering the port or inside the port before loading on to the vessel.

Meanwhile, the overseas surveyors/investigators and forensic experts established beyond doubt that the seals used were fake . The bottle seal’s geometry, hardness of the steel used and the fonts used for engraving the numbers were different.Could not the seals have been changed at Montreal? No, said the forensic experts, considering the extent of corrosion noticed in the seal. Could the fake seal have been put in at Antwerp, the transshipment port? No again, because the interchange reports of surveyors mentioned that container seals were intact. Further in a busy port area, it would be next to impossible to break open the container seals, take out the heavy drums using fork-lifts and then put in the fake seals. They had engaged an investigator in India too who had opined that on the highway from the factory to the buffer yard, this theft could not have occurred, considering the busy traffic and police patrols. Even inside the buffer container yard and JNPT port, security is immense and such an operation cannot have taken place. The only possibility was to take the trailer to an isolated spot between the buffer container yard and the port and carry out the illegal operation in under an hour.

As the claim was declined by New India, the assured moved the National Forum with all the above evidence which was accepted by the Authority who ordered New India to pay the insured amount.

Had weighment been done at critical points, the possibility of discovering such cases of shortage could have been easier and localized.