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Container shipping heads to court: Who’s suing whom?

Contract disputes, patent fights, containers overboard and containers full of cocaine

U.S. courts were deluged with maritime cases after the financial crisis — there were a lot of debts to collect. A decade later, the docket is far less active, but even so, 2021 had its share of legal confrontations. 

Here’s a sample of this year’s court action:

Container line gets phished

Cybercrime is an ongoing threat, as highlighted by a case filed Monday involving an alleged quarter-million-dollar heist.

Admiral Container Lines, which serves the Mediterranean and Black seas, purchased marine fuel in October from Island Petroleum for its vessel Admiral Galaxy. The total amount due was $253,120.

According to Admiral, a fraudster posing as Island Petroleum sent new instructions on payment, directing the container line to transfer the money to a JPMorgan Chase bank account in the U.S. The phishing scam used a fake email address with the “o” in “oil” replaced by a zero. Admiral paid the $250,120 on Nov. 10.

After learning of the ruse, Admiral received a response from someone named Angel on Dec. 21, stating, “It has come to my attention that you are now aware of what is going on.” The container line is suing to attach funds held at JPMorgan Chase.

Are container contracts enforceable?

Pre-COVID, when spot container freight rates sank, ocean carriers complained that shippers did not fulfill the volume commitments of their contracts. In the COVID era, amid spiking spot rates and severe congestion, it’s the reverse: Shippers complain carriers don’t carry the volume they commit to.

A case was filed in August with the Federal Maritime Administration against Mediterranean Shipping Company (MSC) — now the largest ocean carrier in the world — by a small U.S. importer, MCS Industries, alleging that MSC deprived the importer “of its contractually agreed space allotments.” MSC denied the allegation and has not settled.

That case has garnered a lot of attention. A more recent suit — in which the same carrier argues contract liability in the opposite direction — has not. On Nov. 26, MSC sued one of America’s top importers, Deere & Co (NYSE: DE), alleging that Deere did not fulfill its volume commitments under a pre-COVID contract.

MSC said that Deere signed a service agreement effective Nov. 1, 2016, to Nov. 1, 2019, under which Deere would tender a minimum of 27,000 twenty-foot equivalent units of cargo to the carrier. MSC said Deere tendered only 19,576 TEUs, equating to damages of $1.48 million under the contract. Deere has yet to file its response.

Hanjin back from the dead

It’s not just MSC that’s looking to collect on old, pre-COVID bills.

Hanjin Shipping filed for bankruptcy protection in August 2016 and was forced into liquidation in February 2017. It was the largest collapse in the history of container shipping, causing disruptions across the global supply chain.

Hanjin may be long gone, but its trustee is not. According to court documents filed in September, the trustee claims Hanjin is owed $485,908 in outstanding freight and detention charges for services through 2016 from shippers Barthco and OHL, entities that have since been absorbed by freight forwarder Geodis.

Geodis said its predecessor incurred significant expenses retrieving containers abandoned by Hanjin and that it no longer even has the records or witnesses necessary to investigate, arguing that the claim should be time-barred. 

The dispute — over a half-decade-old bill charged by a long-deceased carrier — appears headed to arbitration.

Patent infringement?

When supply chains are in chaos, transparency is key. Wouldn’t it be valuable to have containers with global positioning devices and the ability for information on a container’s location and status to be transmitted?

It would — and Transcend Shipping Systems says it owns the patent to that. Transcend is associated with Raymond Joao, a plaintiff well known in intellectual property circles.

Transcend filed a patent-infringement suit against Maersk on Dec. 9, 2020, and against Hapag-Lloyd on Dec. 29, 2020. This year it filed patent-infringement suits against CMA CGM on Jan. 8, MSC on Jan. 15, OOCL on Jan. 28, Zim (NYSE: ZIM) on March 30, J.B. Hunt (NYSE: JBHT) on May 13 and Carrier Global Corp. (NYSE: CARR) on June 2.

The cases against Maersk, J.B. Hunt and Carrier Global were voluntarily dismissed in January, June and December, respectively. The case against OOCL was settled in September and those against MSC, CMA CGM and Hapag-Lloyd were settled this month.

Zim is fighting back. It filed a motion to dismiss in August and court hearings are scheduled for February.

When all those containers fall overboard …

On Nov. 30, 2020, the ONE Apus hit heavy seas in the Pacific and lost 1,816 containers overboard. It was the worse of numerous container-overboard casualties that winter, and the pattern continues this year: The Zim Kingston lost over 100 containers in bad weather in October; an incident involving the Cosco Nagoya was reported last month.

About a year after the ONE Apus accident, the court cases began piling up.

Just one example of the legal complexity: All-Ways Forwarding filed suit against ONE, HMM and Patson Logistics and other entities on Nov. 30 in relation to four containers lost from the ONE Apus holding cargo with aggregate value of $383,221.

All-Ways contracted to move the cargo through ONE, HMM (which had a slot charter agreement with ONE) and Patson, a non-vessel operating common carrier (NVOCC) that booked the cargo on the ONE Apus. All-Ways is suing to pass along damages should it — as an NVOCC — be held liable by its own customers.

In a separate case, insurers XL Insurance Co. and Nexus Underwriting, along with communications equipment manufacturer Humax Co, filed suit on Dec. 1 against All-Ways, Kuehne+Nagle and carrier Yang Ming (which, like HMM, had slots on the ONE Apus) related to five containers of cargo that were damaged or lost, with a total value of $3 million.

In November, Starr Indemnity & Liability, Liberty Mutual and Travelers sued plaintiffs including Kuehne+Nagle and All-Ways related to over a dozen lost boxes aboard the ONE Apus with a total value of $1.7 million. A separate case was filed by Bob’s Furniture involving six other containers on the ship with a total cargo value of $454,046; defendants included All-Ways and Yang-Ming.

These cases involve a few dozen containers combined. Over 3,000 containers went overboard last year in the Pacific.

Billion-dollar drug bust: Case closed

There was also a major drug-smuggling case that wrapped up this year.

On July 17, 2019, 20 tons of cocaine worth $1 billion were found in seven shipping containers aboard the MSC Gayane upon its arrival in Philadelphia. It was the largest drug bust in the history of U.S. Customs and Border Protection.

The investigation found that at least eight of the ship’s 22 crew were involved, including the chief mate and second mate. In a plot that sounds like something out of a movie, the seafaring smugglers used the ship’s own crane to bring the cocaine aboard from speedboats as the vessel sailed at night off the coast of South America.

The case was closed this year. Eight crewmembers pleaded guilty and are now serving a combined sentence of 48 years in prison. 

Click for more articles by Greg Miller 

Greg Miller

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.