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Shipping lines should take proactive approach to abandoned cargo

22 May 2018
– 6 Minute Read


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Containerized cargo imported into South Africa is regularly abandoned as soon as it is offloaded from a vessel.  Cargo is abandoned at the port of entry for several of reasons ranging from the importer or owner being unable to pay import duties, thereby remaining uncleared for importation, to not having the correct permit.

The Customs and Excise Act dictates that cargo that is not duly entered within 28 days from the cargo arriving at our ports that the cargo be removed to the state warehouse.  In reality, the cargo is not usually moved to the state warehouse but is moved to a private container depot.  This depot is then deemed to be a state warehouse or “virtual” state warehouse for storage purposes.  If the cargo remains un-entered for 60 days from date of removal to the state warehouse or deemed state warehouse, the South Africa Revenue Service may sell the cargo by public auction. The proceeds from such a sale by public auction may be used to defray costs in the following order: any duty, expenses incurred by and charges due to SARS, Transnet, the Department of Transport, the container operator or shipping line and lastly the owner.   Currently, the SARS website list 298 pages of un-entered goods at our various ports of entry, with each page containing approximately eight entries.

Ideally, when the cargo is sold by public auction the price achieved should be sufficient to defray all interested parties expenses even if the cargo is sold at a discounted price.  The reality is that cargo frequently fetch such a low price at state warehouse auction, sometimes even less than 10% of the commercial value, that it is usually the shipping line that transported the cargo that is out of pocket since they are one of the last entities that is paid from the proceeds of the sale.  The shipping line is the entity responsible for the “landside costs” in respect of the landing of the cargo that is reimbursed to the shipping line by the importer or owner in normal circumstances.  Landside costs are for example the terminal handling charge, any unpacking of the container and transportation costs of the cargo from the harbour to any depot. When the cargo is moved to state warehouse or deemed state warehouse the cargo is not unpacked form the shipping line’s container but the container is used as interim storage holder for the cargo at the deemed state warehouse until SARS manages to sell the cargo at auction.  In practice, the auction date is only long after the minimum 60 days since the cargo is placed in the state warehouse.  As long as the shipping line’s container is used to store the cargo, the shipping line now also incurs demurrage in respect of the container that it cannot use in addition to the landside costs.

Demurrage is a charge levied by shipping lines where the importer or owner of the cargo that have not taken delivery of the container within the time determined after the landing of the container at port of entry.  Since the shipping line cannot use the container while still packed, the container is not yielding any income for the shipping line.  The charging of demurrage by the shipping line is way of recovering some compensation for period that the container was idle.  Demurrage is usually charged at a set rate per day to the importer or owner. In the case of abandoned cargo, demurrage will be incurred.

However, since the owner has abandoned the cargo it is highly unlikely that the owner will pay the demurrage charge to the shipping line voluntarily for the period until the cargo is sold at auction.  Furthermore, like the landside costs, the demurrage charge will most likely not be satisfied out of the proceeds of the auction sale.

Fortunately for the shipping lines our Admiralty Act provides relief should they be willing to take proactive steps and ask for our Courts’ assistance.  The shipping line’s claim for demurrage and landside charges constitutes a maritime claim in terms Admiralty Act and as such entitles the shipping line to bring an action against the cargo, instead of an action in person against the owner of the cargo.  Should the owner of the cargo not defend the action default judgment may be entered against the cargo.  A soon as judgment is entered against the cargo, the shipping line may apply to a court to have the cargo judicially sold either by way of private treaty, tender or by way of auction.

If the abandoned cargo has a possible high value, it will make sense for the shipping line to privately secure a potential buyer for sale by private treaty as opposed to a public auction.  Sale by private treaty secures a price closer to the cargo’s commercial value since the potential buyer knows the real value of the subject cargo due to it being active in the subject cargo industry but it also avoids speculators and syndicates keeping the bid price purposefully low so prevalent at auctions.

By applying to the court to have the cargo sold as soon as possible by private treaty, the shipping line takes a more proactive approach to recovering its costs.  By applying to the court to have the abandoned cargo sold by private treaty the shipping line takes charge of the situation by having an input in the process of disposing the abandoned cargo. In addition, the shipping line can also request that their claim be paid from the proceeds of the sale after SARS have been paid duties and taxes due to them in respect of the cargo that remain unsatisfied at the time of the sale.  However, this payment to SARS excludes the import duty that may be levied should the buyer decide to import the cargo into South Africa.  The buyer would then become liable for the import duty.  This ensures that there are sufficient proceeds available to hopefully satisfy the shipping line’s claim.

This article first appeared in the Sunday Tribune.