October 10, 2023

Miscalculation adds up to thousands in excess ocean freight charges


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FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

In this week’s edition, from the May 1978 issue, FreightWaves looks at an interesting dispute over responsibility for the extra charges one company incurred simply because of a paperwork error that lasted for a decade. Would this same problem have occurred today? 

Small error in measurement repeated in 10 years of paperwork at SCM unit was costly in ocean freight payments

A small error “handed down” in repetitive paperwork at the Organic Chemicals (Clidden-Durkee) Division of SCM Corporation for more than a decade may have cost the company hundreds of thousands of dollars in excess ocean freight charges.

It apparently began when Organic Chemicals accepted measurements used in advertisements of metal drum manufacturers and used these numbers in computing cubic measure for bills of lading. Steamship lines, in turn, accepted the bill of lading measurements to compute ocean freight charges.

When the error was discovered recently, Organic Chemicals realized the statute of limitations would prevent recovery of any overcharges except about $30,000 paid within the past two years. More than half of this sum was settled with various steamship lines. The remainder is the subject of a complaint filed by Organic Chemicals Division against Farrell Lines and Atlantraffik Express before the Federal Maritime Commission.

The measurements contested by Organic Chemicals are as small as 1/32nd of an inch, but, according to Organic’s figures, the Jacksonville exporter has paid $6,904 in excess freight to Farrell and $5,693 to Atlantraffik as a result.

The two lines “advert frequently to the fact that the measurement differentials involved are only 1/32nd or 1/16th of an inch, and attempts to convey the impression that a measurement differential of 1/32nd of an inch is … of a magnitude which carriers do not in practice take into account. The issue cannot be glossed over or ridiculed out of existence in this manner,” said Organic Chemicals’ attorney Merlin Staring. “The filed tariff governing the shipments here involved makes careful provision for the disposition of ‘fractions under ½ inch, fractions of ½ inch or over, and fractions of exactly ½ inch.’ Fractions of 15/32nds of an inch or 7/16ths of an inch are fractions of under ½ inch.’ They are susceptible of measurement. A measurement differential of l/32nd of an inch may in some circumstances be important.”

Indirect evidence

SCM “seeks (to revise the cubic capacity it had warranted) not by direct evidence but by the most indirect of evidence, the dimensions of the particular drums as stated in manufacturers’ advertisements, subject as those are to size tolerances in the manufacturing process,” said Farrell Lines.

Aside from the fact that no carrier measures drums with such fineness … we note that at least one of the drum manufacturers admits that its manufacturing tolerance for the diameters of drums is plus or minus 1/16th of an inch,” said Atlantraffik.

Organic Chemicals replies that the measurements it is basing its complaint on were in fact specified by the drum manufacturers, and that it will be able to prove this in an evidentiary [evidenciary] hearing.

Carrier liability

“It is easy to visualize the torrent of litigation that would be brought by shippers against carriers if this complaint is not dismissed,” said Farrell.

Organic replied that “under the respondent’s interpretation, reparations would be unavailable to a shipper who committed error in his declared description … this would be an unconscionable result. … The fact that the carrier may have believed it was carrying a greater measure of goods than it was in fact does not negate the right of the shipper to avail itself to reparations when the accurate, lesser cubic measurement in fact carried is later established.”

The key point  

The meat of the dispute is, however, not so much the question of the degree of mis-measurement, but the question of the shipper’s responsibility to inform the carrier of the measurements of a cargo, and the shipper’s ability to win reparations for admitted mis-measurement.

In fact, Organic Chemicals has been subjected to a counter-charge by the carriers that it deliberately mis-stated the measurements of the steel drums.

“It is true that the complainant has candidly conceded in its complaint that an unintentional error on its part resulted in an incorrect declaration to the carrier of the total cubic measurement of each shipment here involved, thus setting the stage for the carrier’s ultimate overcharge. It was both erroneous and unlawful on the carriers’ part, however, to seize upon and take advantage of the shipper’s erroneous declaration as a basis for charging excessive freight,” said Staring. “The gravamen [gravemen] of the action is the ultimate error of the respondent in assessing ocean freights on the basis of an incorrectly high computation of the cubic measurement of each shipment here involved — not on the earlier error of the shipper.”

A warranty

Both Farrell and Atlanttrafik contend that a clause in their bills of lading, which states that the shipper warrants the correctness of the description and measurements specified in the bill, exempts them from the Organic Chemicals action.

Organic replied: “The principal theory on which respondent relies as a basis for (the Motion to Dismiss) is that the complainant’s action is barred by its alleged warranty, as set forth in certain language of the bill of lading form … of the correctness of the particulars supplied by the shipper to the carrier in connection with each shipment.” The language of this clause “does not bar the complainant’s claim for reparations or relieve the respondent of its liability. … (This clause) is clearly an indemnification provision,” as opposed to a general guarantee for all purposes.

Legislative history

A Senate report on Section 18(b)3 of the Shipping Act dug up by Atlanttrafik would seem to indicate that unless (1) the carrier fails to charge the rate specified in its tariff, (2) there is a clerical or administrative error in the tariff, or (3) there is an error due to the carrier’s failure to file a new tariff, there are no grounds for a demand for reparations from the carrier.

Organic Chemicals said that this issue is irrelevant, as the Senate Report refers only to carriers’ demands for refunds.

Staring told American Shipper that, as he reads the legislative history, these provisos refer to carriers’ decisions to grant a refund or a waiver of freight charges to protect the carrier from complications resulting from the anti-rebating and anti-discriminatory treatment clauses of the Shipping Act, and not to a shipper complaint.

A carrier’s responsibility

“I’m not sure if there is a legal obligation, but I feel carriers have a duty to know what they’re carrying,” said one FMC staffer.

Staring notes that the cubic measurements Organic Chemicals originally quoted were higher than the cubic measurements used by carriers handling these types of drums for other shippers. “The tariffs specify that measurements of drums should be taken by the carrier,” Staring noted.

“I know of no situation quite like this one,” Staring commented. “While the Commission has, on occasion, dealt with requests for reparations where a shipper had provided erroneous information, to my knowledge there has been no case involving an erroneous measure over such a long period of time, involving such substantial sums.”

“Mis-measurement and mis-application of rates are the bases of almost all the informally docketed complaints we receive,” said an FMC settlement officer, “although misapplication of a rate is more common than mis-measurement.”

“This is an age-old battle,” said the Commission’s Assistant Secretary, Joseph Polking, “and almost all these informal proceedings start from a shipper’s erroneous declaration. According to Commission precedent, Section 18(b)3 of the Shipping Act requires assessment of a charge according to tariff descriptions and according to the amount of cargo actually shipped. The Commission has said that it will look beyond the declaration made at the time of shipment to what was actually shipped.”

In the last half-year, 51 informally docketed complaints demanding reparation starting from a shipper’s reassessment of the measure of a cargo have been filed at the Commission.

FreightWaves Classics articles look at various aspects of the transportation industry’s history. Click here to subscribe to our newsletter!

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