The bankruptcy estate of former retail giant Bed Bath & Beyond (BBBY) continues its relentless pursuit of shipping lines for alleged damages suffered during the supply chain crisis. It has already filed $31.7 million in claims against Hong Kong shipping line OOCL and $7.7 million in claims against Taiwan’s Yang Ming.
But those were just the appetizers.
The main course, filed Tuesday, is a mammoth claim against the world’s largest ocean carrier, Switzerland’s Mediterranean Shipping Co. (MSC). The various damages (link to complaint here) add up to over $50 million, plus there’s a request that all reparations be doubled due to “MSC’s willful retaliatory conduct.”
That brings the tally to over $100 million, the largest shipper damage claim against an ocean carrier since the supply chain crisis. And when the case goes to trial, the total claim will be higher still.
As in the earlier cases filed with the Federal Maritime Commission (FMC) against OOCL and Yang Ming, BBBY’s estate is seeking reparations for the added cost of shipping cargo due to volume shortfalls under service contracts, alleged excess amounts paid through peak season surcharges (PSSs) and other charges, and alleged unfair detention and demurrage charges.
The new twist in the MSC case is that BBBY’s estate is seeking compensation for lost profits and is asking for double reparations.
The lost profits the estate will claim at trial — which have yet to be confirmed and would be doubled — will significantly increase the final amount of the claim, potentially to far in excess of $100 million.
Shipping costs due to contract shortfall
BBBY’s estate said that MSC carried 1,686.5 forty-foot equivalent units fewer than its Minimum Quantity Commitment (MQC) in the 2021-2022 service contract.
“The additional incremental cost of replacing [the] shortfall … was at least $7,290,314 more than what [BBBY] would have paid had MSC honored its service contract.”
Lost profits
“The lost profits sustained by [BBBY] on a per-container basis substantially exceed the excess costs incurred by … purchase of alternative carriage,” said the BBBY estate.
BBBY cited the case of OJ Commerce vs. Hamburg Sud, decided by the FMC in June, in which lost profits were equated with the average profits per container carried in the period, multiplied by the shortfall the carrier failed to carry.
It said the goods it sold in the 2020-2021 and 2021-2022 contract periods equated to an average profit of $66,924 per FEU for BBBY.
“As will be proven at trial, in many instances, [BBBY] was unable to mitigate MSC’s failure to honor its service commitments by securing higher-priced freight on the open market and sustained lost profits as a result of the reduction of imported cargo.”
BBBY did not provide an estimate of how much profit it actually lost, and only stated that it was substantially higher than the $7.29 million it paid incremental cargo costs. If, for example, it claimed at trial that its imports were unfairly reduced by 16 FEUs per week over the two annual contract periods, the size of its claim would balloon to over $300 million.
(Correction: A previous version of this story erroneously equated BBBY’s example of how much it would have lost in profits had it not paid more for replacement cargo — listed as $112.8 million — with BBBY’s estimation of how much it claimed it lost in profits from reduced imports due to MSC’s alleged failure to honor its service commitments.)
Peak season surcharges
“MSC also engaged in a practice of coercing [BBBY], and, upon information and belief, other shippers, to pay extracontractual prices and surcharges, including PSSs, as a precondition to MSC meeting even a portion of its service commitments under the … service contracts,” alleged the BBBY estate.
It claimed BBBY paid $5,523,788 above the rates it agreed to in its 2020-2021 service contract and $9,005,149 above the rates it agreed to in its 2021-2022 service contract.
Detention and demurrage charges
The BBBY estate said detention and demurrage charges were assessed “for a period of time in which [BBBY’s] ability to pick up containers at ports or return empty containers promptly was constrained due to circumstances outside [its] control, such as congestion at the ports and shortage of equipment.”
It said it paid a total of $23,220,491 in detention and demurrage charges to MSC in the 2020-2021 and 2021-2022 contract periods and argued that “a substantial majority of the charges … were unjustly and unreasonably assessed.”
Double reparations sought
On top of the base amount of its claims, BBBY argued that “in light of MSC’s willful retaliatory conduct alleged herein, complainant also requests that any award of reparations … be doubled pursuant to 46 U.S.C. Section 41305(c.)” of the Shipping Act.
The BBBY estate argued that “MSC took advantage of price inflation in the container shipping sector and unfairly exploited its customers.”
It said the ocean carrier’s “enormous windfall profits” allowed it to go on “a multi-billion-dollar ship-buying spree that has led to it becoming the world’s largest ocean carrier.”
It cited an unconfirmed report published in the Italian newspaper “Il Messaggero” that MSC had net profit of $38.4 billion in 2022 and cash reserves of $68.7 billion at the end of that year.
MSC disputes allegations ‘in their entirety’
While the scale of the alleged damages was not revealed until Tuesday, the filing of the BBBY claim against MSC was expected.
As previously reported by FreightWaves, MSC said in an Aug. 31 filing in the BBBY bankruptcy case that it received an initial demand letter from law firm Huth Reynolds on April 28, five days after the retailer’s Chapter 11 filing.
BBBY, through Huth Reynolds, “accused MSC of certain violations of the Shipping Act … arising from MSC’s purported failure to fulfill its service commitments and its assessment of demurrage and detention charges — allegations that MSC disputes in their entirety,” said the ocean carrier.
BBBY’s bankruptcy plan specifically calls out container shipping cases and sets a formula for distribution of any future court winnings. The company hired Huth Reynolds on March 23 to handle claims against shipping lines — a month prior to its Chapter 11 filing.
In a section entitled “Shipping and Price Gouging Claims,” the bankruptcy plan refers to money obtained by litigating ocean carriers’ alleged failure to comply with shipping regulations and laws, “including pricing practices.”
Under the bankruptcy plan, 80% of any shipping and “price-gouging” judgments would go to first-lien and debtor-in-possession lenders, both administered by Sixth Street Specialty Lending, and 20% would go to the debtor or the successor entity.
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Ron Dowdy
Oh were My Pillows shipped through MSC
Jacob Robinson
This is why we need to manufacture in America and buy American made products. Business won’t need to worry about items ordered and being stuck on a ship for months on end
Ted Doherty
MSC, with such Windfall profits, should be sharing their Good Fortune, across the board, from their own workers to the Dock workers(Longshoremen), who give Air too their Inflated Profits!!!
Mr. X
BBBY is actually admitting in court documents that they were moving high value cargo on MSC containers.
I wonder what the contract was stipulating about that or whether those goods were paying the high value premiums that carriers charge in these cases.
They are also asserting that they paid D&D charges assessed “unjustly”. They must be the only one in US to have done such payments. They didn’t know about the existence of FMC then?
Jeff
I’m still unclear why BBBY is filing with the FMC instead of with an actual court that could rule a breach of contract. What is the thought behind adjudicating with FMC?
It would be ideal if the FMC began putting teeth into the contracts and their MQC’s – on both sides. Shippers historically fall short of the MQC while carriers don’t follow their own allocations. So failure to live up to the contracts didn’t start during Covid but had been BAU.
Rae S
What about those poor Bed Bath and Beyond employees who received no severance for all their years of hard work while their top executives got multi million dollar deals? The little persons get the shaft as usual. If they had a plan to recompense those people, I might care more.
Michelle Linck
So what are they gonna do with the money if they win? Pay their employees the severance they deserved? Give the employees that “ forfeited money from their flex spending accounts since they never sent out the letters of the changes? Or let me guess pay Sue Gove and Mark Triton for ruining the business. Wonder why we had a jumper? They really screwed a lot of people and really didn’t care. If they are rewarded the money it should go to the employees not the corporation.
Daniel
MSC was constantly the worst carrier at always asking and administering extra fees during that time. And we all had no choice but to give in. I hope BBBY wins the suit though I’m sure they will settle