A federal judge has ruled a $1.7 million shipping dispute between Kuehne + Nagel, the world’s largest air freight logistics provider, and oil field services giant Baker Hughes must be arbitrated, saying that the contract’s arbitration clause is enforceable under New York law.
Houston-based Baker Hughes sued for compensation after one of its shipments was seized by Brazilian customs authorities because the airline providing the physical transportation failed to provide proof of a pre departure security check.
The case highlights the complicated nature of international goods movement, which involves multiple parties that must closely coordinate cargo handoffs and information sharing. Having many parties — truckers, freight forwarders and customs brokers at origin and destination — adds an element of risk compared to having a single entity control the entire journey within its own network, as FedEx and UPS do.
In September 2020, Baker Hughes (NASDAQ: BKR) enlisted Kuehne + Nagel to ship equipment to Brazil under a contract the Switzerland-based logistics services provider had with the Global Shippers Association to provide air freight transport. The GSA consolidates the freight volumes of its members to obtain more favorable rates and contract terms.
Kuehne + Nagel booked the air shipment with LATAM Airlines, the largest cargo carrier and airline group in South America, but LATAM didn’t ensure the security manifest traveled with the cargo, which was seized upon arrival by Brazil customs, according to court documents.
Kuehne + Nagel sought to dismiss the suit, arguing that it did its job and the contract doesn’t apply. The freight forwarder said it was not liable because the document snafu was not its fault and the contract doesn’t even contemplate the type of loss involved in the case — a government seizure in which there had been no actual loss or damage to the cargo. It said Baker Hughes was improperly trying to use the alternative dispute resolution process and that its maximum financial liability should be limited to $64,593 under a formula in the Montreal Convention, an international treaty that governs the rights and liabilities of parties arising during international carriage of people, baggage and cargo.
Baker Hughes also lost its opportunity at arbitration because it failed to request a quote for a spot rate, as required by the agreement, Kuehne + Nagel claimed in court filings.
But Judge Katherine Failla of the U.S. District Court for the Southern District of New York sided with Baker Hughes, saying the dispute falls within the scope of the agreement’s arbitration clause. Kuehne + Nagel assertions about its limited liability must also be decided by the arbitrator, the judge added.
The cargo division of Chile-based LATAM Airlines Group has a fleet of 13 Boeing 767 freighters supplemented by the belly space of more than 200 active passenger aircraft. It plans to send four more 767s from its passenger fleet to Boeing for conversion into freighters, with options for four additional conversions and is scheduled to receive a production freighter from Boeing in September. If all options are exercised, LATAM Cargo could have a fleet of 22 medium widebody freighters by the end of 2023.