MSC faces at least $315 million in claims?

Former retail giant Bed Bath & Beyond, now renamed DK Butterfly, is continuing to battle against the shipping industry, which the company cites as a key factor in the demise of its business.

Bed Bath & Beyond is understood to have closed down earlier this year. As it struggles to settle its creditors’ claims, the company has once again turned to the Federal Maritime Commission (FMC) and has filed a claim for at least up to $300 million against shipping giant Mediterranean Shipping Company (MSC) for increased transportation costs, demurrage and demurrage in 2020 and 2021, and now also for lost profits.

On Nov. 28, DK-Butterfly filed a 36-page complaint with the U.S. FMC detailing its allegations against MSC and asking for a trial. DK-Butterfly says it is seeking damages for injuries caused by MSC’s violations of the Shipping Act of 1984.

This is the third such complaint filed by the company, which had previously asked the U.S. FMC to order Orient Overseas Container Line and Yang Ming Marine to pay damages for failing to fulfill service contracts and charging demurrage (D&D) losses.

In response to this complaint, MSC has repeatedly defended itself and denied similar allegations. Citing the extreme pressures placed on the shipping industry during the epidemic, the company has stated that it is working with its customers to address the challenges.

The latest allegation says MSC “took advantage of price increases in the container shipping industry to unfairly exploit its customers. “DK-Butterfly accuses MSC of failing to meet its service commitments in two contracts for the period July 1, 2020 to April 30, 2022.DK-Butterfly’s allegation is that MSC has failed to meet its service commitments for the period July 1, 2020 to April 30, 2022.DK-Butterfly’s allegation is that MSC’s service commitments have not been met.

The latest allegation states that MSC “has taken advantage of price increases in the container shipping industry to unfairly exploit its customers. “DK-Butterfly accuses MSC of systematically failing to meet its service commitments under two contracts, which run from July 1, 2020, to April 30, 2022.DK-Butterfly’s allegation is based on the fact that MSC has not been able to meet its service commitments under these contracts.

The 2021 contract calls for the carriage of 4,240 Forty-foot Equivalent Units (FEUs) or an average monthly allocation of 353 FEUs.The lawsuit documents state that MSC provided 40% less service, or only about 2,553 FEUs, and that MSC’s performance during the 2021 service contract was “abysmal”. As a result, the former retail giant had to make up for the shortfall in the spot market, costing it nearly $7.3 million.

The lawsuit documents also allege that MSC repeatedly coerced Bed Bath & Beyond into paying the surcharge, despite promising to honor the contract price and only charge a premium for additional cargo. The lawsuit documents detail numerous negotiations between the two companies.

In its lawsuit filing, DK-Butterfly alleges that the company lost more than $5.5 million over the life of the 2021 contract for additional costs beyond those specified in the contract, and another $9 million over the life of the 2022 contract. Moreover, MSC retaliated by charging D&D fees when conditions were beyond Bed Bath & Beyond’s control, citing unavailability of bookings, a backlog of returned containers, and equipment shortages, causing Bed Bath & Beyond to wrongfully pay more than $13 million in demurrage and nearly $10 million in demurrage charges.

The key to the lawsuit is that the transportation delays created scarcity and uncertainty in the business, disrupting Bed Bath & Beyond’s ability to operate. They suggest that the company’s profit per container is at least $66,924 and would multiply that by a shortage of 1,686 containers, and they suggest that Bed Bath & Beyond’s lost profits are close to $133 million. The final amount of their proposed lost profits should be determined during the trial.

The lawsuit documents set out in detail the nearly $158 million in damages that DK-Butterfly believes Mediterranean Shipping is liable to pay. They contend that MSC’s conduct was deliberate and designed to inflate profits, citing media reports of MSC’s huge profits and MSC’s tonnage-buying spree as evidence of profiteering at the expense of shippers. They also cited other cases against MSC as conclusive evidence of the prevalence of these acts.

According to the United States FMC, DK-Butterfly may seek double damages if it can prove that MSC’s conduct was retaliatory in nature. Accordingly, DK-Butterfly deduces that it may be entitled to at least US$ 315 million in damages from MSC.

The claim is staggering compared to an earlier claim of nearly US$32 million against Orient Overseas. DK Butterfly also filed a $7.7 million claim against Yang Ming Marine. Orient Overseas responded to Bed Bath & Beyond’s initial claim in May 2023, claiming that the shipper misrepresented facts and exacerbated bottlenecks due to Bed Bath & Beyond’s repeated failures to manage its supply chain.

This application is the beginning of a lengthy review process by the FMC.

Yangzijiang Shipbuilding

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