• QA 050
    What are the consequences of a port being declared closed, i.e. New Orleans late August 2005?
    Thank you for the answer (QA 043) regarding NYBOT's declaration of force majeure in respect of the port of New Orleans following the Katrina hurricane disaster. We understand the arrangements made to facilitate orderly trading in the September futures contract. What is not clear is how this affects export business, if it does at all?
    Asked by:
    Exporter - Vietnam

    When a port is declared closed because of unforeseen circumstances, this in effect means a situation of force majeure comes into existence for all those shipping to or through that port. 

    For coffee exporters we believe the following comments are of interest:

    Coffee already afloat, destined to the affected port 

    Under the circumstances in question the carrier is authorised to declare Force Majeure and to discharge the cargo at a port of its choosing. In so doing it discharges its obligations under the Contract of Carriage or Bill of Lading but, also the carrier is obliged to mitigate damages and therefore should select the nearest available port. This is in fact the usual practice. In the case of the New Orleans port closure we understand most carriers sent their vessels to the port of Houston instead and discharged New Orleans goods there. The cost of onwards transportation is for account of the receiver/consignee, also under Cost and Freight (C&F) and Cost, Insurance and Freight (CIF) contracts.

    Coffee ready at the port of embarkation for shipment to the affected port 

    If the goods are ready at the port of embarkation at the time a notice of closure of the declared port of destination comes into existence, then shippers as well as buyers may declare force majeure. This has the effect of delaying shipment until an opportunity to ship arises, i.e. that port is formally reopened. Provided it was properly notified then such a delay is covered by force majeure under both Green Coffee Association (GCA) and European Coffee Federation (ECF) rules. This because it is beyond the shipper's or buyer's control. In the normal course of trade shippers and buyers will of course agree for shipment to be made to a different port. In an extreme case it could possibly be argued that when the delay exceeds the stipulated time limits then the contract is automatically cancelled. However, the validity of this argument might have to be decided through a technical arbitration.

    Coffee not yet delivered to the port of embarkation for shipment to the affected port but for which the destination has already been declared 

    Depending on local regulations the shipper may or may not be able to deliver to the port for shipment but, clearly, it will be impossible to make shipment unless the buyer agrees to change the destination. Because under trade custom the affected port is no longer a main port (regular port of call) we would consider that the buyer is in fact obliged to declare an alternative destination. But, again the validity of this argument might have to be decided through a technical arbitration. GCA Rules state that buyer and seller must make their own arrangements - under ECF Rules a successful plea of force majeure by either party can extend the contractual shipping period by up to a maximum of 45 calendar days after which the contract lapses. Exporters finding themselves facing this kind of situation would be well advised to take advice as to how and under which contract clause(s) they formulate any notices or requests in this respect.

    Coffee for which no destination has yet been declared 

    We believe that the buyer cannot declare the affected port because under trade custom the affected port is no longer a main port (regular port of call). We believe such a declaration would not be valid as presumably the carrier would not accept the freight booking.

    Finally, occurrences as the New Orleans port closure are, fortunately, extremely rare but this also means there is little jurisprudence (previous judgement) to go by. Our comments are based on opinion gathered from knowledgeable trade sources and do not represent any statement of fact on our part since their validity can only be tested through arbitration. As we all know, in the coffee trade all differences must be resolved through arbitration, both under GCA and ECF Rules, but it is always best to strive for an amicable settlement…

    Posted 04 October 2005

    Related chapter(s):
    Related Q & A:
    QA 043 QA 006