In tough economic times and turbulent market conditions, cargo owners may be unable or unwilling to pay its service providers, such as ocean carriers. When this happens and a carrier completes its service for transporting goods from one location to another, it leaves them with the cargo and an outstanding transport bill.
A carrier’s lien is a right afforded to carriers that enables them to keep possession of the cargo, in the event that the cargo owner is unable or unwilling to pay the transport charges. It allows them to hold the cargo ‘hostage’ until the transport charges and all other related charges are paid.
There are several scenarios, where a carrier may exercise their rights to a lien. There are also various options a carrier can pursue, in the event that the freight charges remain unaccounted for. We’ll explore all this and more, in this article.
When Does a Carrier’s Exercise a Lien?
A lien is only applicable to carriers who offer cargo transportation services to the general public. Depending on the jurisdiction, a carrier may exercise a lien when the cargo owner is unable or unwilling to pay for the freight charges it was invoiced.
They may also exercise a lien, if the terms and conditions in the contract of carriage contain a lien clause. It’s important to note that a carrier is liable for loss or damage of cargo while a lien is being exercised.
On the other hand, private carriers who choose not to offer its services to the public are typically not afforded the right to a lien by common law, unless explicitly stated in a contract of carriage.
Where is the Lien Clause Found?
A carrier’s lien clause is found in the terms and conditions of the contract of carriage (bill of lading, sea waybill, air waybill, etc.). The terms and conditions are typically found on the last pages of the contract of carriage and state the following.
Excerpt of ONE’s lien clause from their terms of the BL:
“The Carrier shall have a lien on the Goods and any documents relating thereto, which shall survive delivery, for all sums payable to the Carrier under this contract and for general average contributions, to whomsoever due. The Carrier shall also have a lien against the Merchant on the Goods and any documents relating thereto for all sums due from the Merchant to the Carrier under any other contract. For recovering any sums due, the Carrier shall have the right to sell the Goods by public auction or private sale, without notice to the Merchant and the Carrier’s lien shall extend to cover the cost of recovering any sums due.” Source: https://www.one-line.com/en/standard-page/b/l-terms
Most carriers will state the same or a similar lien clause to protect themselves against non-payment of transport charges. Below is a list of the lien clauses from some of the other ocean carriers for further reference.
|ONE||ONE’s Lien Clause||7|
|Hapag Lloyd||Hapag-Lloyd’s Lien Clause||15|
|MSC||MSC’s Lien Clause||17|
|CMA||CMA’s Lien Clause||13|
|COSCO||COSCO’s Lien Clause||17|
|Maersk||Maersk’s Lien Clause||17|
|OOCL||OOCL’s Lien Clause||16|
|Hamburg Sud||Hamburg Sud’s Lien Clause||15|
Why Does a Carrier Exercise a Lien?
As we have already established, a carrier exercises a lien when the cargo owner is not able to pay for the transportation costs. A carrier will exercise this right as a form of protection against non-payment and hold the cargo in their possession, in order to offset the risk of losing leverage.
In this scenario, a carrier may want to hold the cargo ‘hostage’ until the cargo owner is able or willing to pay the freight cost, as well as all other costs associated with it.
While the cargo is in lien, the carrier is expected and required to take care of the goods and is liable for any damage while in its possession. Once the outstanding charges have been accounted for, the carrier must release the cargo back to the beneficiary.
When is a Carrier’s Lien Lost?
There are most commonly two ways in which a carrier would lose the right to hold cargo as a form of security interest. The first scenario occurs when the shipper has paid for the freight charges or fulfilled their debt obligations to the carrier.
This way, the carrier has been compensated according to the terms that are stated in the contract of carriage and must now release the cargo to the respective cargo owner.
The second scenario in which a carrier loses its lien on good is when it voluntarily delivers or releases the cargo to the consignee. Giving up possession of the cargo breaks the lien and the carrier no longer has leverage. It may then have to seek legal action against the cargo owner.
How Carrier’s Handle Uncollected Cargo/Goods
There can be a multitude of reasons why cargo owners are not able to pay the carrier for it’s services. They could be insolvent, have cash flow problems, or be waiting on disputes between other involved parties.
It’s in the carrier’s best interest to ensure thorough communication with the cargo owner on their ability to pay for the outstanding freight charges. In the event where no payment is possible, it may exercise the lien clause in the terms and conditions within their contract of carriage.
This clause typically states that the inability of the cargo owner to pay for the freight charges may result in the carrier initiating the following options:
- Selling the goods
- Disposing the goods
It’s important that the carrier acts according to their lien clause of their terms and conditions, while remaining within the legal framework of the respective jurisdiction. As legislation is dependent on local jurisdiction, carries will need to take both aspects into account.
Selling Goods in Carrier’s Lien
If a carrier has established that the cargo owner is not able or willing to make the outstanding payment for the freight charges, it may opt to sell the cargo. It’s important that the carrier determines the appropriate value of the cargo, in order to list and sell it through a public auction.
It’s also important to note that when the proceeds of the auction exceed the transportation cost, laws in certain countries stipulate that the excess amount has to be remitted to the cargo owner.
On the other hand, If the carrier finds that the amount received is not able to cover the transportation cost and all other fees associated with the freight, it may pursue to recover the difference against the shipper or consignee, depending on the outstanding amount and local legislation.
Disposing Goods in Carrier’s Lien
The disposal of goods is also an option that can be considered by carriers, depending on the value and the type of goods. An example where the disposal of goods is common is when the cargo in lien are perishable goods.
In this scenario, the carrier would have no other choice but to dispose of the cargo, in order to reclaim the empty container. In contrast to sellings goods in lien, the disposal of goods is usually met with costs that a carrier has to first outlay.
It’s in the carrier’s interest to claim this amount from the cargo owner. In the event that the cargo owner is unable to pay for the disposal, the carrier may want to seek legal action against.
Useful Tips For Carriers On How to Avoid Exercising a Lien Clause
Taking legal action against cargo owners is always a carrier’s last resort, as it’s often met with high costs and can take a long time before settlement. While a carrier may have the right to a lien, they should at all costs try to avoid getting into this situation in the first place. Here is some useful information for carriers:
- Due Diligence – Carriers should always do their due diligence when providing services to customers. This is even more important, the higher the value of the cargo or freight is. It’s important to conduct all relevant background checks and ensure that the cargo owner is financially stable and has a good track record.
- Strong Business Relationship – The key to ensuring great service over a long period of time is to build strong relationships with customers. This also extends to the world of logistics. A healthy and communicative business relationship can help prevent disputes and unwanted complications, such as non-payment of transportation.
- Understanding Legal Frameworks – It’s important for carriers to understand the legal framework of the countries they operate in. This is especially true for carriers who have network agents in certain locations. Failing to do so can be detrimental to the longevity of the business.
- Terms of Service – Carriers should have a standard terms of service in their contract of carriage that clearly outlines their policies towards a lien. A carrier’s lien clause should be clearly and concisely defined to avoid misunderstanding and misalignment.
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Co-Founder & Writer
About the Author
Gerrit is a certified international supply chain management professional with 16 years of industry experience, having worked for one of the largest global freight forwarders.
As the co-founder of freightcourse, he’s committed to his passion for serving as a source of education and information on various supply chain topics.