New Bill of Lading Law a Potential Thorn for Logistics Operators
STORY INLINE POST
The Complemento Carta Porte, a supplementary bill of lading required by Mexican tax authorities, has existed since 1992, but its mandatory entry into force took place 30 years later, on Jan. 1, 2022. One of the most relevant aspects of this recast is the need to conduct a thorough and accurate declaration of the goods being transported.
Mexico’s Tax Administration (SAT) granted a grace period up to March 31, 2022, to all those responsible for issuing the Complemento Carta Porte, before they begin to impose fines and penalties resulting from noncompliance. This provides brief relief to all those who still have questions about the impact and effects of this provision.
Many of these questions are around the issuance of a tax purposed Complemento Carta Porte XML document, which is no more than a supplement to the digital tax receipt (CFDI) used for transporting goods and is available in most, if not all, registered electronic tax management apps and systems in Mexico. There are many articles in the media around this matter, as well as numerous webinars. For that reason, let's focus on answering other types of questions that have also been raised to help you better understand the impact of this new regulation on the level of exposure of goods and logistics companies when it comes to risk, and the potential impact on the limitations of liability of freight forwarders or carriers, given the great deal of speculation that has arisen over this issue in recent months.
But firstly, it is important to provide some context on the rules and regulations surrounding logistics operations in Mexico.
Limitations of Liability for Logistics Service Providers in Mexico
Mexican regulations governing the obligations of ground and multimodal cargo operators establish that from the moment the cargo is received until the moment it is delivered to its final consignee, they are, to a great extent, responsible for it, as provided in Chapter II, Article 66 of the Federal Roads, Bridges and Motor Transport Law, as well as in Article 14 of the United Nations Convention on International Multimodal Transportation.
In that sense, it is essential for freight forwarders and carriers to thoroughly plan and direct their operations to properly identify and manage any associated risks.
In accordance with Article 66, Chapter II of the Mexican Law of Roads, Bridges and Federal Motor Transportation, if because of the inherent nature of the goods, these get damaged or deteriorate, or because of inadequate packaging, or if there are discrepancies and false statements and/or instructions found on behalf of the consignee or shipper, the carrier may be exempted from such liability.
One other way in which logistics service providers can reduce the risk of financial loss from theft or damage to the goods or cargo is to obtain door-to-door cargo insurance. Without cargo insurance, providers would have to assume the loss, not only from a legal perspective, but to safeguard the business relationship with the customer.
And, in the absence of this type of insurance, freight forwarders could also protect themselves by claiming from the carrier a ceiling amount of indemnity, based on applicable regulations and the type of transportation in which the accident occurred, as follows:
- Ground transportation: 15 Mexican minimum wages per ton, according to Article 66 of the Mexican Law of Roads, Bridges and Federal Motor Transportation.
- Maritime transportation: US$2.63 per ton, in accordance with Article 134 of the Mexican Navigation and Maritime Trade Law.
- Air transportation: US$24.99 per kilogram, in accordance with Article 63 of the Civil Aviation Law.
Nonetheless, these amounts do not always prove favorable and may only cover a small amount when compared to the loss or damage value and could, in turn, lead to a negative impact on the owners of the goods, and also on insurance companies. They may find their right of subrogation limited to an amount for which taking legal proceedings may not even be financially sound.
Risks Associated With the Freight Forwarder's Civil Liability
It is important to understand that cargo insurance does not cover negligent behavior of a freight forwarder or any of their subcontractors.
For civil liability to exist, there must be an act or omission that triggers the damage or loss, and at the same time, fault or negligence must also exist.
According to Article 15 of the United Nations Convention on International Multimodal Transport, "the multimodal transport operator shall be liable for the acts and omissions of his servants or agents, when any such servant or agent is acting within the scope of his employment, or of any other person of whose services he makes use for the performance of the multimodal transport contract.”
Therefore, the carrier or transport company shall be liable for these acts or behaviors incurred by any of their employees, and so there is a wide margin of error in each operation.
How, then, can we reduce and transfer the risks of errors and omissions as a freight forwarder?
As humans, we should admit that no one is exempt from making mistakes: false freight, demurrage and detention, errors in certificates, commercial and shipping documents, failure to follow-up on incidents, failure to comply with contracts or agreements — these are just some examples of missteps that can occur daily when it comes to freight forwarding, and for which the customer must be compensated accordingly.
For these types of risks, freight forwarders must always have a risk transfer instrument, such as the Liability Insurance for Freight Forwarders.
Due to the constant recasting of international trade rules and regulations, as well as of the domestic regulatory framework, logistics service providers need to remain aware of any changes and amendments in the regulatory frameworks to prevent mistakes or omissions that could harm their operations or their customers. For that reason, having the right adviser to guide you through these matters is of critical importance.
With the recent update concerning the Complemento Carta Porte, freight forwarders, carriers and owners of the goods share joint responsibility to comply with this new legal provision.
This not only represents an underlying risk for errors or omissions but also when it comes to exposing or providing information that was previously considered or treated as sensitive data.
Given the obligation to declare information, such as the value and type of goods being transported, all parties involved in the coordination and execution of the service will have access to this information, dangerously expanding the circle of security recommended for handling sensitive information. If we add to this the extra ingredients that come with Mexico's high rates of insecurity and robbery of transport vehicles, it is then a worrisome combination in terms of risk exposure, and overall, a higher expectation of loss ratio in the market.
A new question was also raised about the limit of liability of forwarders and carriers, since as mentioned above, among the exceptions set in Article 66 of the Law of Roads, Bridges and Federal Motor Transportation, in the event of a failure to declare the value of the merchandise followed by a loss or damage, the carrier would only be liable to pay the equivalent of 15 Mexican minimum wages as indemnification of damages or loss. However, the Complemento Carta Porte requires the value of the goods to be declared by the shipper or user, which could in principle imply that the responsibility for the payment of damages or loss of the goods should be transferred entirely to the carrier, causing great concern throughout the logistics sector.
Nevertheless, the document that updates the federal freight bill of lading or Carta Porte, known in its original name as Acuerdo por el que se actualiza la carta de porte en autotransporte federal y sus servicios auxiliaries, which was published in the Mexican Official Gazette on Dec. 16, 2021, states that, in the event that the party contracting the transportation services would opt for the carrier to assume the responsibility for the value of the goods and to cover all types of risks, including those as a consequence of unforeseen circumstances or force majeure, shall then contract cargo insurance, which will be recorded and would appear in the Complemento Carta Porte, and could cover both involved parties by underwriting the risk in the insurance policy.
In the event that the forwarder or user refuses to take out cargo insurance, the carrier will continue to be liable for a maximum amount equivalent to 15 Units of Measurement (Spanish: Unidades de Medida y Actualización) per ton for damage or loss of goods, a condition that is referred to in the above-mentioned document that updates the federal freight bill of lading or Carta Porte, published in the Mexican Official Gazette.
Thus, for the time being, this new regulation in question does not increase the limitations of contractual liability for transport operators in Mexico but it does provide them with an opportunity to offer cargo insurance to their clients, since there is also a perceived increase in the exposure to the risk of theft derived from the leak of sensitive information that could arise from the actual supplementary bill of lading of a carriage, referred to as Complemento Carta Porte.