SHIPMENTS ON COD TERM

When a shipper engages the services of a freight forwarder or NVOCC to carry out a shipment and collect the sales proceed from the buyer, it obviously means the shipper has decided against the use of bank services (Letter of Credit etc) and thereby would save some bank charges. The freight forwarder or NVOCC operator on the other hand has increased its onus of due performance with the additional role of fund collection and therein the additional risks of being responsible to its customer for inadequate performance. This is an Error and Omission exposure for which the forwarder or NVOCC has to ensure its liability policy provide the cover.

It is therefore necessary for the NVOCC or freight forwarder to determine whether its operation would include handling of COD shipments and if so, is there a proper system of control in place. Such control is essential not just in its own office but also in the offices of its overseas agents. A failure of an overseas releasing agent is similar to the failure of the freight forwarder or NVOCC in its agreement with the customer. A claim would arise through the fault of another company ie the overseas agent.

When a COD shipment is accepted it is prudent to understand clearly what is to be collected i.e. what is the full amount to be collected covering invoice sum, duty, freight etc. All these must be properly noted and conveyed to the releasing agent. What kind of payment is expected, bearing in mind there are risks associated with cheque payment. Cash or bank draft would be most suitable. Check whether there is any specific payment instruction from the shipper such as a particular payee's name, currency, any document to be returned and obviously whether there is any exchange control that may hinder the transfer of remittance.

Overseas releasing agent should be given specific advice in advance instead of leaving the COD shipment to be processed in the usual manner with other conventional shipments. Where necessary files or documents be specially marked or contain different reference headings. Early advice with sufficient details should be given to the overseas agent to allow the agent to advise the buyer well in advance to prepare payment while the goods are on the way. Any delegation of function should be kept to the bear minimum and it is recommended that only duly authorized officers be responsible for handling COD shipments. Authorized staff should have the necessary experience as any lapse in proper performance can have serious consequence. Claim may not be protected by any limitation terms in bill of lading or standard trading conditions.

Some other considerations in handling COD shipments would include the following:

•  Type of goods – naturally all perishable goods, goods in seasonable demands should not be handled on COD term.

•  Delay in payment equals delay in taking delivery. This can give rise to demurrage, storage charges, increased custom duty and who will be responsible for these.

•  What if there is long term delay?

•  Ensure straight bill of lading is not issued or seaway bill or consignment note is not used. There must be some control on the release of goods in addition to collection of payment.

•  Preferably not to delegate collection to another party e.g the inland transport contractor.

•  If in doubt always refer back to the load port and the shipper.

COD shipments are unlike freight collect shipments. However some of the suggested procedures may be considered with regard to the freight collection under a freight-collect shipment. The cover for failure to collect freight is however treated differently under a liability policy.

Disclaimer: No professional advice or recommendation is intended in this article. Operators should consult respective professional practitioners to put in place appropriate operating procedures .