Compensation for cargo claims in reverse supply chains

Abstract

The circular economy is essential to combat climate change. As part of the circular economy, supply chains are converted into closed-loop supply chains as this prevents non-recoverable waste and is thus more sustainable than traditional linear supply chains. The reverse supply chain is the part of the closed-loop supply chain that represents the phase whereby goods, at the end of their life span, are sent to a recycling or recovery facility. It is essential that goods in reverse supply chains reach their destination instead of being discarded along the way. In this article the authors presume that the current compensation systems in the international transport conventions discourage carriers or participants to close the material loop. The reason for this is that the compensation systems in international transport conventions are primarily based on the value of the transported goods. Because an inherent characteristic of goods in a reverse supply chain is that they have a negligible or low value, a financial incentive is lacking for the carrier to take care of the goods and make sure they reach their destination. The authors found several solutions to overcome these flaws. One is including a financial incentive in the transport conventions by making use of the principles for determining the customs value of imported goods. Taking a bottom-up or top-down approach are two other solutions explored in this article. In the case of the bottom-up approach, private parties include different contract models to facilitate the successful closed material loop, whereas the top-down approach introduces legal instruments to governments to intervene if the value for the compensation between the parties is too low.