Authors: Lucas Leite Marques and Carolina Calanca
Bad news for shipowners and carriers: the number of judicial proceedings for claims on shortage of bulk cargo skyrocket before the Brazilian courts in the past couple of years. Good news for shipowners and carriers: 100% of the claims that we have defended against at court were dismissed.
Initial comments:
Bulk cargo transport is inherently more susceptible to risks than the transport of packaged, bagged, or containerized goods.
With each movement or shift in the logistics chain, which may include rail, road, or sea transport, and port storage, some loss of goods is inevitable.
This loss, typical due to the nature of bulk cargo, is considered a ‘natural shortage’, which may result from cargo handling as well as physical changes caused by factors such as temperature variations between the ports of loading and discharge, humidity, mass, and the chemical and physiological characteristics of the product.
Thus, losses of small portions of bulk cargo transport are natural, and such shortages are recognized by the courts in Brazil, as well as tax and customs authorities, exempting the carrier from liability, provided they fall within a reasonable range.
It is unwise to set an absolute percentage to determine a shortage rate that would fit within the context of natural shortage. Percentages of 0.6%, 1%, 2%, or 5% are often debated in administrative contexts, insurance coverage, or litigation, with varying views among state courts handling larger or smaller volumes of bulk cargo.
However, each type of cargo, mode of transport, and weighing method—whether by ‘draft survey’, weighing on shore, truck-by-truck weighing, or private terminal scales—influences the likelihood of shortage.
Only a technical analysis of the specific cargo, type of transport, and case-by-case weighing method can determine a reasonable rate of loss for a particular transport to assess any potential liability of the carrier for losses exceeding the natural shortage limit.
Recent cases in Brazil:
Brazil is a friendly jurisdiction for cargo owners, applying its own domestic laws and falling out of the main international conventions that regulate international carriage of goods.
Nonetheless, there are always some relevant defence arguments that can be raised by owners and carriers to dispute a judicial claim.
In the last couple of years there has been an unusual increase in the number of court cases related to shortage of bulk cargo in Brazil.
Some few importers of bulk cargo decided to start filing indemnity claims against carriers, seeking compensation for alleged cargo shortage on very low percentages, often less than 0,4% (in some cases even less than 0.01%).
This means that there are cases where the claim amount may vary from a couple thousand dollars up to hundreds of thousands of dollars. And the total number of claims has already surpassed 150 proceedings so far.
In most cases, the foreign shipowner is summoned in Brazil through their local maritime agent, about one year after the completion of the carriage, and not always the summoning notice ends up reaching the owner and the P&I club.
Further to that, in some cases of low amounts claimed, i.e lower than USD 1,000, for instance, carriers sometimes did not appear at court to file a defence, as it would eventually cost them more to handle a defence in such proceeding than the claim itself.
Needless to say, this represents great risk. A lack of defence would lead to a default judgment and could consequently affect the understanding of the court against carriers, understanding of which could then influence negatively several other similar cases against carriers.
Also, a default judgment will be enforced against the carrier in Brazil and, in the absence of bank accounts or attachable assets, the creditor may try to seek the arrest of owner’s vessel I a future call to a Brazilian port.
Carriers’ Successful Defences:
The importance of presenting a defence lies in mitigating risks, as favorable rulings for claimants may encourage more and more claims.
And it is fair to say that the vast majority of these ongoing claims are ungrounded and should be indeed disputed.
In this context, when the carrier and the P&I club move forward with a defence against this recent boom in cargo shortage claims, the results have always been successful for the shipowner’s side.
In fact, several defence arguments have proven effective, beyond the fundamental argument regarding the intrinsic nature of bulk transportation, which inherently results in natural loss.
Notable examples include: the election of a foreign forum or arbitration in the BL/CP, thus preventing jurisdiction from the Brazilian courts; the claimant’s failure to issue a protest letter or notice of cargo loss within 10 days after discharge, as required by Brazilian law, thus extinguishing the right to claim; and the lack of precision in shore scales, among others.
To date, all cases that we defended have achieved a 100% success rate in securing favorable outcomes for the carrier in the first instance, highlighting the fragility of these claims, which attempt to leverage the market practice of normalized bulk cargo shortage as grounds for litigation, despite the inherent nature of such losses.
It is also important to highlight that the unprecedented nature of such lawsuits in Brazilian courts has demanded considerable effort to establish legal precedents that could help preventing future ungrounded suits.
Beyond presenting defences, it is essential to actively engage in disseminating knowledge on the subject and liaising with courts to demonstrate established market customs in this area, as it would not even seem reasonable to argue almost all bulk carriages in the last years have incurred in small portions of cargo shortages. It is more likely that this great number of recent claims serve as evidence that bulk transportation is naturally susceptible to small shortages given the nature of the cargo and the physical movements during the different parts of the logistics chain.
