The INTERTRAN Research Group is an interdisciplinary research group for sustainable law and business. The group’s central idea is to contribute to sustainable development while maintaining a strong focus on a sustainable circular economy, international transport and global value chains.
Throughout the academic year the INTERTRAN Research Group organizes a variety of events. On a monthly basis, we hold a research seminar where members of our group present ongoing research and recent publications. At irregular intervals, we organize guest lectures with speakers from a variety of fields on topics related to transport law and logistics. The InterTran group also organizes a lecture series on international and maritime law in collaboration with the Finnish Maritime Law Association (CMI).
The US and the whole Western Alliance withdrew from Afganistan by the end of August this year, markedly to avoid being present there during the 20th anniversary of 9/11 strikes to the World Trade Center twin towers in New York back in 2001. The US together with its allies invaded in Afganistan to defeat the Taliban administration and to squeeze terrorist organisations, most notably Al Qaida, using Afganistan as its base.
The strikes in New York launched something that was politically called ´a war against terrorism´, which led to real warfare in Afganistan and Irak. In the home front, governments and international organisations took extensive efforts to make logistic chains more secure, and largely succeeded in doing so.
Who takes care and who pays what?
Unfortunately, there is always the other side of the coin in that those involved in international trade must comply with new regulations and red tape. Usually, these measures have coincided with export or import clearance and have been ordered by governments.
The Incoterms trade terms, nowadays Incoterms® 2020, establish a division of tasks, costs and risks between the seller and the buyer in an international sale of goods transaction. This also applies to measures to tackle security concerns. Each Incoterm defines, whether it is the seller or the buyer to take care of the security measures, or at least to pay the costs. Although the rules do not mention it, freight forwarders and other middlemen such as customs brokers usually take care of the tasks on behalf of their clients, sellers or buyers, or often both at the same time. Costs and risks are obviously borne by the clients although freight forwarders and other middlemen have their liability.
New measures after 9/11
The events of 9/11 led to the establishment of new protocols for tracking and screening cargo both in the United States and in foreign countries. These protocols have been incorporated into international frameworks such as those under the World Customs Organization (WCO), and in country-specific programs such as the Container Security Intiative (CSI) and the Customs-Trade Partnership Against Terrorism (CTPAT) administered by the United States. In addition, many countries, including Australia, Canada, Sweden and New Zealand introduced new cargo security programs following 9/11 or have strengthened previously existing programs.
The events of 9/11 precipitated a change in cargo security measures at national borders. Prior to 9/11, customs authorities were responsible primarily for clearing imported goods after such goods arrived at the border. They did so through the review of entry documentation accompanying such goods at the time of importation and, if necessary, their physical inspection. In contrast, the cargo security programs developed after 9/11 emphasize preshipment examination of exports. In particular, these programs require that exporters provide customs documentation in advance of their shipment of goods to the importing country. Such advanced documentation assists customs authorities employing sophisticated and multilayered risk assessment techniques to determine whether to admit goods at the border or to hold them for further inspection.
After the events of September 11, 2001, the WCO ratified the revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures and introduced a new set of protocols for cargo security called the Framework of Standards to Secure and Facilitate Trade (SAFE). The revised Kyoto Convention, which was drafted in June 1999 and entered into force in February 2006, is an updated version of the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) of 1974.
Like the Kyoto Convention, the WCO Framework viewed customs administrations as playing a key role in facilitating trade. The framework has two customs-centered supports: the customs-to-customs network and the customs-to-business partnership. Both support the international supply chain. The customs-to-customs network uses automated techniques to screen highrisk cargo; and the customs-to-business partnership sets up procedures to precertify shippers through an authorized economic operator (an AEO program).
The European Union has implemented the AEO program through its customs legislation, most lately in the Union Customs Code that entered into force in 2016. Under the AEO program, reliable and customs-compliant traders will benefit from the streamlining of EU-Member State customs procedures and/or from facilitation with customs controls related to supply chain security or from both. Benefits for operators granted AEO status—dependent on the type of AEO certificate granted—include, among others, the simplification of customs procedures, fewer physical inspections and documentation requirements, and priority treatment for shipments.
Under the program, EU-Member States grant AEO status to an economic operator involved in the international supply chain that is able to demonstrate a history of compliance with customs requirements, appropriate record-keeping standards, proven financial solvency, and adequate security and safety standards. Economic operators eligible for AEO status include manufacturers, exporters, freight forwarders, warehousing firms, customs agents, transportation firms, and importers. The program is voluntary; economic operators may apply for AEO status through an application process to determine program eligibility based on the criteria outlined above. The application process involves a security self-assessment followed by a formal assessment by the customs authority of an economic operators’ risk.
On top of the WCO, the World Trade Organisation (WTO) has adopted an Agreement on Trade Facilitation, which entered into force in February 2017 and applies only to the WTO members that have accepted it. The Agreement calls for member states to adopt or maintain a risk management system for customs control and design and apply risk management in a manner as to avoid arbitrary or unjustifiable discrimination, or a disguised restriction on international trade.
Acknowledging the importance of the maritime sector to international trade, the International Maritime Organization (IMO) established new security measures following the events of 9/11 to ensure the safety of maritime ports and cargo. These measures are outlined in the International Ship and Port Facility (ISPS) Code, which entered into force on July 1, 2004. The code is divided into two parts: the first part contains mandatory guidelines on security plans to be established by ships, shipping firms, and ports. National governments are responsible for overseeing the implementation. The second part of the framework provides recommendations on how to execute port security plans.
On a practical level, the ISPS system effectively closed port areas from outsiders. Shipowners contribute financially to the system but swarm it over to their transport clients through an ISPS fee levied together with the freight. Moreover, as from 2011, all shipments to the European Union ports must be accompanied by an Entry Summary Declaration, ENS.
Post-9/11 security measures on air cargo have been discussed both at the national and international level, but unlike measures for maritime cargo, such measures have not been codified under a single agreement. Prior to 9/11, the International Civil Aviation Organization (ICAO) established standards for shippers, freight forwarders, and transportation firms to maintain the security of cargo while in transit.
Security checks and declarations as part of import clearance under Incoterms® 2010
The first set of Incoterms published after 9/11 was Incoterms® 2010. Security measures were dealt with under the heading ´Licences, authorisations, security clearances and other formalities´ (A2-B2) The starting point was that security requirements are as a rule established by the country of import requiring documentation. As it is the buyer, who normally is responsible for import clearance (save the DDP), the buyer is responsible for the security checks and declarations. The problem is that these measures either precede the shipment, or the carrier, often contracted by the seller gives the ENS. Incoterms® 2010 prescribed cooperation requirements in Articles A10-B10 for the parties to meet the obligations as well as an obligation to cover the the trading partner´s costs (Articles A6-B6) in doing so.
Incoterms® 2020 has continued the policy adopted in Incoterms® 2010. The system makes sense on a theorical level but may cause too many difficulties on a practical level and thus becomes ignored.
Incoterms 2000 adopted a system for the C-terms (CPT, CIP, CFR and CIF) whereby the tasks and costs for transit formalities (meaning the goods going through a third country undeclared) would be for the seller if included in the freight. In multimodal transport door-to-door, one carrier normally is in charge contractually for the whole tranport chain. In such situations, it is a practice that the carrier usually is in charge of the transit formalities, too. Should transit not be included in the freight, transit formalities belong to the buyer.
It is submitted the same system could work well with security checks and declarations.
New frontiers of security and safety
The words security and safety have a less sinister meaning connected to transport technology. Traders act as shippers in maritime transport and must contribute to transport safety in various ways. The shipments of dangerous cargo are subject to a special legal regime. Container weight has an impact on the stability of a container vessel. The IMO SOLAS Convention was amended by CHAPTER VI – Carriage of Cargoes provisions (the so called SOLAS VGM), which came into force on 1 July 2016. The shipper is obliged to notify the verified gross mass of the container to the master of the ship. Also in road transport, security concerns are relevant, and the party loading the goods on truck is normally contractually obligated to take care of lashing and securing the goods although the carrier normally bears the ultimate responsibility for transport security.
Early this year, there were far-reaching plans in China make the sanitization of containers mandatory to tackle Covid-19. To my knowledge, such measures have not been put in practice. Nevertheless, the issue may still become reality in this context or in a future one.
Transport-related safety measures
On the initiative of ICC Finland, Incoterms® 2020 now recognizes a new concept, namely ´transport-related safety measures´, which is now detached from the articles covering licences, authorisations, security clearances and other formalities (now A6-B6) and added to Articles A4-B4 covering transport. Either the seller or the buyer is thereby responsible for transport-related safety measures, including costs arising therefrom. Incoterms® 2020 is unfortunately silent on what these measures and costs are. Moreover, it is stated in the Introduction of the publication that the Rules do not address the SOLAS VGM obligations or costs.
ICC Finland has taken positions on both SOLAS VGM and the sanitization of containers. It is thought that Articles A4-B4 of Incoterms® 2020 by and large could be applied to the SOLAS VGM and the sanitization of containers. It is also thought that the ISPS fees could be categorized under this heading.
It is possible that sellers and buyers will be subjected to new obligations, for instance relating to CO2 emissions or other environmental charges, connected to the transportation or importation, due to which careful classifications must be made when drafting the next version of the Incoterms. The division of tasks and costs must be both logical and practical. It does not make sense for companies to invoice small sums from each other to meet their obligations under Incoterms. As this is invaraibly not done, such provisions become dead letters.
Personally, I would like to reserve the word ´security´ to the combat against terrorism and address in parallel transport ´safety´ meaning technical safety such as ship stability after the measurement of container weights. But this is a matter of language, which should not dominate the discussion. In the Finnish language, both words namely translate into ´turvallisuus´.
Helsinki, 7 September 2021
 The Post-9/11 Global Framework for Cargo Security, United States International Trade Commission, Journal of International Commerce and Economics, Web Version, March 2008, authors Joann Peterson and Alan Trait, at https://www.usitc.gov/publications/332/journals/cargo_security.pdf, p. 1
 Ibid., p. 2.
 Ibid. p. 3.
 See the Agreement at https://www.wto.org/english/docs_e/legal_e/tfa-nov14_e.htm.
On 23–29 March 2021 MS Ever Given was stuck abeam between the banks of the Suez Canal thereby blocking almost 400 other vessels´ navigation northbound or southbound. After a salvage operation including 11 tug boats and two dredgers and some 800 Egyptian workers, the vessel could resume her voyage but not far. The vessel found herself in the Great Bitter Lake in the middle of the Suez Canal and was arrested by the Egyptian authorities, as the Suez Canal Authority (SCA) placed a claim of allegedly USD 916 million against the shipowners, Shoe Kishen Kaisha.
The amount of the claim is gigantic as it is estimated to exceed the aggregate value of the ship and cargo. The breakdown of the claimed amount includes salvage charges that consist of direct costs as well as a substantial salvage bonus and liability for loss of reputation. Egyptian courts were seized for arrest actions. The shipowner and the charterer Evergreen Shipping Ltd. have filed for jurisdiction in English courts. The shipowner has filed a limitation of liability claim before the English Admiralty Court on the basis of the 1996 Protocol of the 1976 Convention on Limitation of Liability for Maritime Claims. It has been estimated that the amount of the limitation fund would be USD 114 million.
The shipowner has declared general average. Salvage may be included in general average but may be a system in its own right. In both general average and salvage the cargo interests (=those bearing the risk for the loss of or damage to the goods according to Incoterms® 2020) must contribute to costs involved. Therefore the claim may be partly paid by the cargo insurers and partly by the hull and machinery (H & M) insurers of the vessel to the extent salvage is concerned. To the extent shipowner´s liability is concerned, the P & I insurer that is the UK P & I Club shall pay on behalf of the shipowners. There is a problem, however, as P & I clubs are like other liability insurers that they would not pay in excess of the legal liability of the policyholder. Negotiations are still underway and innovative suggestions such as invoking piracy to allow the cargo interests to contribute to the claims, as ransom to pirates is allowed under general average according to English law, which is applicable.
The latest information is that on 23 June the shipowners had in principle reached agreement with the SCA on the release of the ship. The parties were ”working to finalize a signed settlement agreement as soon as possible”, which would lead the release of the vessel. No timeline has so far been established for the release of the ship. The SCA claimed USD 916 million before the economic appellate court of Ismailia, the amount including costs of freeing the ship and a salvage bonus stipulated in maritime law, material and reputational damage, and the diversion of some shipping away from the Canal. It was reported by press that in settlement negotiations running in parallel between the SCA and the Owners and their insurers, the SCA would have accepted a lower sum of around USD 550 million out of which USD 200 million should be paid upfront, whereas the owners and the UK P & I Club have offered USD 150 million.
The Owners have in turn blamed the Canal authorities for allowing the vessel to enter the Canal in adverse weather conditions and have placed claims or have indicated their intention to do so. These allegations have been rejected by the SCA. It is not rare that shipowners place claims against authorities maintaining the shipping infrastructure, but this also looks like an attempt to obtain a bargaining chip to offset part of the SCA claims. In any case, the SCA is said to consider widening the Canal in the place of the casualty.
Although the ship could eventually resume her voyage to the scheduled ports of call Rotterdam, Antwerp and Hamburg, the cargo interests may not receive their goods before they, or most usually, their cargo insurers, will put up a security with a view to contributing, for the part of the cargo insured by them, to the general average expenditures and sacrifices allowed and salvage. As the ship´s insurers will so far have paid (or guaranteed) the sums to the SCA, there may arise disputes as to the legitimacy of the expenditures, but this should normally not be a concern for the cargo interests, who are usually the consignees or shippers of the cargo, depending on the the trade term referred to in the sales contract, based mostly on Incoterms® 2020.
In the end, it is the cargo interests and especially those not strong and powerful to suffer from the situation. Also consignees and shippers of goods on board the vessels, which MS Ever Given blocked from passing the Suez Canal, have suffered from delays. The liability of the carriers is limited and it may be difficult to establish liability for delay as no time commitments are usually made by carriers. Cargo insurance does not usually cover damage attributable to delay. Moreover, cargo interests may be affected by claims for demurrage or detention for occupying containers for too long. Neither this is as a rule not covered by any insurance. Business interruption policies, where applicable may however protect the cargo interests.
The incident inevitably calls for traders to recognize that on top of loss of or damage to the goods, which are addressed both in the United Nations Convention on Contracts for the International Sale of goods (CISG) and in Incoterms® 2020, there exists the risk of delay. This risk has already been recognized in case law on the CISG. Risk should be distinguished from liability. Risk means bearing the adverse (usually) economic consequences of an incident. Liability means compensating the loss someone else suffers.
Updated 28 June 2021
From the start of the COVID-19 pandemic until now, there has been a remarkable change in global supply chains – from a double-digit percentage fall in demand for ocean-bound shipping to skyrocketing spot freight rates and tensions on container availability for exports in recent months. There is uncertainty as how persistent those effects will be.
- There are currently unprecedented tensions in global maritime supply chains especially with container shipping.
- Shift in consumer demand in major markets from services towards goods created a surge in imports from East Asia to Europe or North America, which continues to stretch the capacity of shipping lines.
- The capacity constraints were compounded in early 2021 by operational disruption in the main West coast trade gateways (LA and Long Beach), due to labor shortages in the port workforce due to the pandemic, with container ships waiting off shore to berth and unload.
- As a result, the container shipping fleet has no more reserve capacity (idle ships), and spot rates to ship a container have tripled (or more) from the pre-COVID level on some routes. These rates represent the willingness to pay of the marginal last-minute trader. They reflect capacity tensions, not the average paid by regular shippers which typically have entered in long term agreement with carriers.
- Availability of containers for exporters, also known as repositioning, is also a global problem. The sequence of the downswing and the upswing of capacity in 2020 meant that temporarily empty containers are not where they were needed. Furthermore, pandemic related operating constraints on inland logistics mean that containers are moving slower, so the time from loading an export at the point of production moving it to the destination as an import and unloading it, and returning the empty container has lengthened markedly.
- Ramping up capacity, skipping seasonal sailing reduction in February 2021 (Chinese New Year), and feeding in new containers will improve availability. However, tensions are likely to remain until summer 2021, as global maritime chains remain very vulnerable, to disruptions at any point in the chain.
- The unexpected MS Ever Given incident in the Suez Canal in early April 2021 compounded the tense capacity situation in container markets, and further deteriorated their schedule reliability, which is at an all time low in April/May 2021
- In spite of the spotlight on the oligopolistic three alliances system in global shipping, there is little indication it contributes to the current capacity tension on the major routes.
- However, container carriers showed record profits in end-2020 and early 2021 due to extremely high (spot) freight rates.