Chinese Carrier Sues Amazon For $96.4 Million Over Breach Of Contract

China United Lines (CULines), a Chinese shipping company, has filed a complaint against Amazon, seeking $96.4 million in damages.

The lawsuit, submitted to the Federal Maritime Commission (FMC) on January 9, alleges that Amazon wrongfully terminated a two-year contract and failed to pay $31.5 million owed at the time of termination.

CULines and Amazon entered into a contract in early 2022. The two-year deal, which started on May 1, 2022, included a clause that allowed for renegotiation after the first year, with a second year beginning on May 1, 2023.

The contract included a minimum quantity commitment (MQC) that Amazon was expected to meet. However, when Amazon decided to terminate the contract in April 2023, they initially agreed to pay the balance owed for cargo carried and for failing to meet their MQC, which was announced to be $31.5 million.

CULines claims that after initially agreeing to pay the $31.5 million, Amazon later changed the terms of termination, calling it a “for cause” termination instead of the “convenience” clause they originally agreed on.

This reclassification allowed Amazon to avoid paying the $31.5 million and other penalties, according to CULines.

CULines further alleges that Amazon’s reclassification of the termination as “for cause” was an attempt to avoid paying the liquidated damages as outlined in the contract.

In its filing, CULines accuses Amazon of unfair practices, arguing that Amazon attempted to revise the reason for terminating the contract to avoid paying what was owed.

Along with the unpaid $31.5 million, CULines is also seeking damages for the difference between the freight rates agreed upon under the contract and the market rates that would have applied.

According to CULines, the difference in the rates for Amazon’s cargo transportation resulted in additional financial losses, adding to the total claim to $96.4 million.

Another part of the complaint revolves around a breach of confidentiality. CULines claims that Amazon violated a non-disclosure agreement by sharing confidential details of their partnership, like pricing information and shipment schedules, on WeChat.

CULines states that this breach occurred after Amazon published posts on WeChat on July 4, 2022, identifying CULines as a “business partner” and discussing the details of their contract.

The lawsuit asserts that this was in direct violation of the non-disclosure agreement between the two parties. Amazon also allegedly provided information about the partnership to the shipping trade press, leading to articles being published on July 2 that further detailed the relationship.

CULines insists that none of its posts revealed any confidential information. The company argues that Amazon’s claims about the confidentiality breach are not valid, as CULines had not disclosed any information that would have violated the agreement.

The original contract was intended to run through April 2024, but Amazon terminated the agreement on May 30, 2023.

CULines also claims that the termination was influenced by a drastic drop in shipping rates. In the first year of the contract, the average spot rate for a 40-foot container from Shanghai to Los Angeles was $8,564.

However, by the time Amazon decided to terminate the contract in April 2023, spot rates had fallen by 79.2%, dropping to $1,775 per container. This decline in rates is cited as one of the reasons Amazon wanted to exit the contract early.

The FMC is expected to rule on the case within a year, and Amazon has 25 days to respond to the complaint. This lawsuit is one of the few cases where a carrier has filed a complaint against a shipper for breach of contract. Typically, it is shippers who file complaints against carriers in the shipping industry.

The company had already filed a separate lawsuit against Amazon in New York federal court in November 2023, on two counts of breach of contract related to the early termination of the same agreement.

References: Sourcing Journal, Sea Trade Maritime

Source: Maritime Shipping News