Coffee Exporters Feel Effects of Hurricane Katrina

Shortly after the port of New Orleans was forced to close due to Hurricane Katrina, exporters of coffee destined for the United States posted questions on ITC's web site for the coffee industry (http://www.thecoffeeguide.org). They wanted to know the implications for their business of the closure of a port to which they ship coffee.

The Coffee Guide web site opened in March 2005. It provides extensive information about trade in green coffee, based on ITC's entirely updated publication, Coffee: An exporter's guide. The site also offers a unique, free "Question & Answer" service from a panel of experts. Full answers to the exporters' questions are in the online "Q&A" archive (see QA 050), and are summarized below:

Force majeure works for buyers and sellers

Many coffee exporters are accustomed to the "force majeure" clause, which allows them to delay or cancel contracts when unavoidable events make delivery impossible. But the New Orleans port closure showed that shipping companies and buyers can do the same.

Once New Orleans was officially declared closed, coffee shipments already embarked were diverted to other ports. The carriers invoked force majeure. They can do this, but they are expected to take care to minimize costs to the receiver. Diverted cargo is then usually discharged at the nearest suitable port (in this case, it was mostly Houston) and additional costs are at the receiver's expense.

For coffee not yet shipped but ready at the port of shipment, the closure meant that both the exporter and the buyer became entitled to declare force majeure. The exporter could do so because he could not ship in time; the buyer, because the declared port was closed. Provided they are made correctly and in time, US and European coffee trade rules permit declarations of force majeure to delay shipment for a certain time until the situation blocking delivery is resolved. In the normal course of trade, the parties should be able to agree to ship to an alternative port. However, in an extreme case either party might argue that if the delay exceeds the stipulated time limit, the contract is automatically cancelled.

Exporters with shipments not yet booked or delivered into port would, of course, ask the buyer to nominate a different destination because New Orleans was no longer a main or basis port. (In coffee trade terms, this is a port where established shipping lines schedule regular calls.) But the buyer might refuse, claiming force majeure and thereby delaying shipment, or demanding instead that the exporter pay any additional cost at the receiving end.

In both cases, unless parties can reach a friendly agreement, a final verdict as to who is entitled to do what requires arbitration. There are two reasons for this: first, port closures in coffee importing countries are very rare and little, if any, jurisprudence (earlier rulings) exists. Second, US and European coffee contracts stipulate that disputes must be settled through arbitration, not court action.

Hein Jan van Hilten is the chief moderator of the Coffee Guide web site's Question & Answer service.