Currently there are very few freight forwarders in the Malaysia who are insured for liability they may incur as a result of practising their trade.

Although perhaps some may think it is not a fair comparison, it would be unthinkable that a Doctor/Lawyer would not carry professional negligence insurance. However, in reality, how unfair is that comparison?  In financial terms, the potential liabilities of a freight forwarder arising from negligence leading to losses suffered by the Owners of cargo could quite easily exceed the financial liabilities of a Malaysian Doctor for medical negligence.

At the moment, there is no compulsory requirement for freight forwarders to have liability insurance, as there is with the medical profession. However, the generally accepted view is that such is coming. It is not a question of “if”; it is a question of “when”.

What is Freight Forwarding?

FIATA, the International Federation of Freight Forwarders Associations and CLECAT, the European Association for Forwarding Transport Logistic & Customs Services, have adopted an official description of “freight forwarding and logistics services” as follows:

“Freight forwarding and logistics services” means services of any kind relating to the carriage (performed by a single mode or multi-modal transport means), consolidation, storage, handling, packing or distribution of goods as well as ancillary and advisory services in connection therewith, including but not limited to Customs and fiscal matters, declaring the goods for official purposes, procuring insurance of the goods and collecting or procuring payment or documents relating to the goods. Freight forwarding services also include logistical services with modern information and communication technology in connection with the carriage, handling or storage of the goods, and the de facto total supply chain management. These services can be tailored to meet the flexible application of the services provided.”

It has been said that freight forwarding is all about the smooth flow of international trade and the freight forwarder is the party who ensures that internationally traded goods move from point of origin to point of destination to arrive:   “at the right place, at the time, in good order and condition, at the most economic cost”.

The Duties of the Freight Forwarder

The general duty of a forwarder is to do all that he reasonably can to ensure the safe arrival of the goods to the consignee at the designated destination and he must take reasonable care in the appointment of all the people that he employs to fulfil these duties. In many cases, the forwarder actually undertakes, as principal, the liability of a carrier for parts, or even the whole, of the carriage of the goods and, for commercial reasons, freight forwarders often hold themselves out to their customers as being responsible for their carriage operations and then arrange the individual legs of the carriage for their own account.

A careful assessment, therefore, needs to be made, on a case by case basis, of the liabilities of a forwarder when an issue arises, in order to determine the extent and nature of that forwarders’ liability. It is not, therefore, possible to generalize in this regard. In some cases, the freight forwarder may simply be acting as an agent for the customer whereas, in others, the freight forwarder may be the contractual carrier. As will be appreciated, different liabilities arise depending upon how the contract between the freight forwarder and his customer is categorized.

The FIATA model rules for forwarding services and the National Association of Freight and Logistics (NAFL) suggested standard trading conditions both distinguish between the forwarder acting as an agent and acting as a carrier and then go on to deal with liabilities arising and defences to claims brought against them in those respective capacities.

Compulsory Liability Insurance

In Malaysia, the NAFL is currently working on imposing liability insurance as a requisite for membership. Although no fixed date has been set for the implementation of this change, do not be surprised if it is implemented before the end of the year.

The NAFL has recently conducted a survey which revealed that only 10% of freight forwarders in the Malaysia routinely take out liability insurance. To quote the Chairman of the Swiss Forwarding Association, Thomas Gutruf, from a comment he made on 10 July 2006:

“Unless the situation is addressed, it could threaten Malaysia’s position as a regional hub.”

Since so few forwarders are insured for their liability in the Malaysia, it is thought that, in addition to the NAFL proposal of imposing liability insurance as a prerequisite for membership, there may be some political will to make professional liability for freight forwarders in the UAE compulsory by law. It is understood that two options are being discussed:

• Having a regulation imposing such professional insurance on all freight forwarders (being a member of NAFL or not) in order to obtain and maintain licenses; or
• Having a regulation imposing membership of NAFL in order to obtain a business operating license for freight forwarding and then NAFL imposing insurance in its bylaws.

In both options, the scope for minimum compulsory insurance is likely to be set with reference to the NAFL Bill of Lading conditions and the UAE commercial laws.

It is unclear whether the drafting of the law has even begun yet and, therefore, it seems likely that the requirement for professional liability insurance will be introduced in two stages, namely the NAFL members first being required under their membership of the NAFL to take out such insurance and then, subsequently, the requirement being imposed on all forwarders, whether or not they currently are members of the NAFL.

It may be expecting too much to hope that sophisticated buyers of freight forwarding services will make decisions based upon whether or not the freight forwarder is a member of the NAFL and, therefore, carries this insurance. One would hope, however, that being a member of NAFL and having such insurance would have a value to the users of the services of freight forwarders.

Whether they are members of NAFL and, therefore, shortly are going to have imposed upon them the requirement for liability insurance; or whether they are non-NAFL members, but are responsible freight forwarders, the prudent approach for all freight forwarders would be to now (not only when it is compulsory imposed upon them), take out insurance cover that includes cover for:

• Liability for loss of or damage to cargo;
• Liability for errors and omissions;
• Liability to authorities;
• Third party liability;
• Costs and expenses;
• Accidental loss of/damage to handling equipment;
• Dishonesty of employees.

Without such insurance, a particular freight forwarder’s very existence could be put in jeopardy. It is not hard to imagine a claim being brought against a freight forwarder of such magnitude that it wipes out the freight forwarder and leaves the owner of the cargo (or the cargo insurer) with only a partial recovery of its losses.

It has to be said that, elsewhere in the world, the imposition, by government, of liability insurance is not the norm in this industry. However, it is, perhaps, a reflection of how developed an industry/country is that, in other countries, such industries are, to a degree, self-regulating. Further, in countries with a more developed freight forwarding industry, there is an appreciation of the need for, and benefit of, liability insurance. Such insurance protects both the freight forwarders and their customers. If the freight forwarders are blind to that and see insurance premiums as an irritating overhead, then it probably is right that they forcibly should be taken to the optometrist!