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CHAPTER 7- WHEN THINGS GO WRONG

In the world of project cargo, even the best-laid plans can come undone when details are not carefully reviewed and checked. The following story illustrates the importance of checking and confirming your information.

An international engineering company secured a construction contract in a remote mine operation in Chile. The mine was located on the coast 100 km from a small port where the mine proprietor owned and operated his own jetty for exporting the mine product. The port was serviced by a weekly container service, but there was no break-bulk service. All break bulk and overdimensional equipment destined for the port had to be induced or chartered.

The engineer required three extremely large and heavy tanks for the plant. The engineer issued requests for quotation to several manufacturers, including vendors in Chile, the USA, China, and Taiwan. The Chinese and Taiwanese bids were the lowest, and since the costs for the supply of equipment were very close, the cost of transportation would determine the winner. The project freight forwarder was asked to estimate the transportation cost from both points of origin to the site.

The engineer's project buyer gave the project freight forwarder the basic weights and dimensions of the fiberglass vessels; these figures were provided by the Chinese vendor, who had used the engineer's equipment outline drawings (not transport drawings) to estimate the shipping costs. The vendor estimated the cargo at approximately 2,300 m .

The forwarder priced the transportation on the basis of this volume and passed his cost estimates to the buyer. The freight forwarder assumed that the vendor's cargo dimensions were correct and did not think to recheck the figures. The Taiwanese supplier had declined to quote on freight and did not provide weights and dimensions with his bid.

The buyer used the forwarder's freight estimate to determine the landed cost (the cost of equipment plus transportation, import duties, and taxes) for both vendors. With freight and taxes added, the Chinese quote was still the lower of the two, and the order was issued to him on an FOB port of export basis.

When the forwarder came to book the shipment several months later, he discovered that the vendor's weights and dimensions had been seriously underestimated; to make matters worse, the fiberglass tanks had grown in size during the design phase. The shipping volume of the three tanks was now more than double the original estimate. The forwarder advised the engineer, who was understandably very upset that this had not been discovered at the time of the bid evaluation. the engineer, who was understandably very upset that this had not been discovered at the time of the bid evaluation.

After negotiations with several break-bulk project carriers, the forwarder presented the engineer with a lump sum price of USD 590,000.00, almost double the original quote. The engineer unhappily signed the booking note, and the sail date was set.

Ten days before the scheduled sail date, the ocean carrier sent a representative to the vendor's shop in China to see the equipment and plan the loading. On viewing the shipping saddles, the ocean carrier's representative determined that the saddles were not seaworthy and issued a notice to the forwarder stating that the cargo could not be loaded without significant strengthening of the saddles.

While the engineer's purchase order had been issued with a shipping specification that required the vendor to provide transportation saddles, the specification did not detail how the saddles were to be constructed. It stated only that they be fit for purpose. Unfortunately, the vendor had no experience transporting equipment of this size, and the resulting wood saddles were clearly not suitable for a lengthy ocean voyage and road transportation at destination.

Since the sail date was rapidly approaching, the forwarder scrambled to find a company that could provide replacement shipping saddles. The ocean carrier recommended a company in Singapore, and an order was placed for new saddles.

A week later, the Singaporean manufacturer advised the forwarder that the saddles would not be ready by the required date. Since it was clear to al parties that the equipment was not going to be ready on time, the forwarder began negotiations with the ocean carrier to see if he would provide an alternate vessel at a later time with no penalty. The carrier indicated that he had another potentially suitable vessel in the area, but it was clear from his attitude that he was taking a wait-and-see approach.

As a contingency plan, the forwarder began negotiations with another steamship line. The second carrier was willing to accept the cargo with the original saddles and, if given the cargo, agreed to secure and lash it to the deck using their own equipment and materials.

As the days passed, it was becoming more obvious that the first carrier was losing motivation to provide an alternate vessel. When it finally became clear that the cargo would not be ready to load at the agreed upon date, the first carrier gave notice of dead freight and made a claim for the full freight value. Subsequent negotiations reduced this to USD

In the meantime, the negotiations with the second carrier were finalized with a cost roughly equivalent to the offer of the first carrier. This was accepted by the engineer, and a second booking note was signed. The cargo was loaded several weeks after the original scheduled load date, and the equipment was lashed to the deck using the saddles originally rejected by the first carrier but this time reinforced with heavy timbers to withstand the journey across the Pacific.

Unfortunately, this was not the end of the complications. The original shipment had been scheduled to arrive in May; however, the delay in shipping pushed the delivery into late June, which is wintertime in Chile and a time of year when ocean swells are generally at their highest. On arriving at the destination port, the ship's captain determined that the ocean swell was too high to safely off-load the equipment using the ship's gear. The alternative was to use a shore crane; however, the only suitable shore crane would have to come from the construction site and would take up to87three weeks to demobilize, transport, and erect at the port. This option was deemed too expensive and would take too long.

The forwarder and engineer had no choice but to wait and see whether the ocean swell would subside. The cost of having the vessel wait at anchor was USD 17,000.00 per day; additionally, the vessel captain advised that he was anxious to deliver other cargo. There was a limit to how long he would wait.

After seven days, the swell had still not subsided. The captain forced the issue, and the forwarder and the engineer had no choice but to divert the vessel several hundred kilometers to the south to a more protected port. The cost of this additional leg was added to the existing wait charges, the dead freight from the previous carrier, and the basic voyage cost. The cost of the move was increasing at every turn.

The new port required new trucking arrangements to transport the cargo several hundred kilometres instead of 26 kilometres as originally planned. This new trucking cost was extremely expensive, with a route survey, police escorts, pilot cars, and line lifting. To complicate matters further, a recent earthquake had damaged the structural integrity of several bridges on the route and bypass routes through dried riverbeds had to be found; in addition, new shipping saddles had to be manufactured and shipped to Chile at considerable cost.

When the equipment was finally delivered six weeks after the original scheduled delivery date, the engineering company had spent over USD 1.5 million on a single move.

While a number of things went wrong, two fundamental mistakes started the whole disastrous series of events. First, the forwarder was working with the wrong weights and dimensions from day one. If the forwarder had initiated a transportability review, the vendor's mistaken volume estimates would have been discovered, the true transportation cost would have been disclosed, and a more accurate landed cost might have changed the selection of vendors. The forwarder assumed that the project buyer had checked the figures; the project buyer, in turn, assumed that the vendor understood the equipment sizes. No one thought to challenge his own assumptions.

Second, neither the forwarder nor the engineer did a review of the vendor's packing and shipping plan. The forwarder, as the transportation specialist, should have checked with the vendor and asked for shipping drawings showing details of the shipping saddles. This would have led to the discovery that the vendor's shipping saddles were not properly designed, and a remedial action could have been taken much earlier. The cargo would have met the shipping date, and the dead freight cost would never have occurred. Additionally, there was a much better chance that the original scheduled sailing six weeks earlier would have missed the heavy winter ocean swell and allowed the cargo to be offloaded at the mine site jetty as originally planned.

It goes without saying that a forwarder specializing in project cargo is expected to plan every detail of a complicated over dimensional move. If the move turns into a costly fiasco, the client will not be in the mood to listen to excuses.

The lesson learned: check the facts and assumptions. Not every problem can be prevented. There is much that is beyond the forwarder's control, but those problems that can be prevented by careful and thoughtful planning should be prevented. That is the forwarder's duty and responsibility. It is on this that he stakes his reputation.