November 18, 2023

Bankrupt Retailer Bed Bath & Beyond Says MSC Owes it $315M in Compensation

Bankrupt former retailing giant Bed Bath & Beyond is continuing its battle against the shipping industry which it blames as a key contributor to the demise of its business. The company closed down earlier this year and as it works to resolve the creditor claims it is once again turning to the Federal Maritime Commission. This time it filed a whopping $300 million claim against MSC Mediterranean Shipping Company seeking compensation for the increased shipping costs and detention and demurrage charges the company incurred in 2020 and 2021 and now also for lost profits.

The bankruptcy estate known as DK-Butterfly filed the 36-page complaint with the FMC today, November 28, detailing its allegations and calling for a trial. The company says it is seeking reparations for injuries caused by MSC’s violations of the Shipping Act of 1984. It is the third such complaint filed by the former retailer which has also asked the FMC to order reparations from Orient Overseas Container Line and Yang Ming for their failures to honor service contracts and the charging of D&D fees.

MSC has repeatedly defended itself against these types of complaints denying similar allegations. The company cites the extreme pressures placed on the industry during the pandemic saying it was working with customers to meet the challenges.

The latest filing alleges that MSC “took advantage of price inflation in the container shipping sector and unfairly exploited its customers.” They allege MSC engaged in a practice of systematically failing to meet its service commitments in two contracts covering a period from July 1, 2020 through April 30, 2022. The 2021 contract called for the carriage of 4,240 forty-foot-equivalent container units or an average month allocation of 353 FEUs. The filing reports MSC provided 40 percent less or only approximately 2,553 FEUs. 

The filing calls MSC’s performance under the 2021 Service contract “abysmal.” They contend Bed Bath & Beyond had to make up for the shortfall on the spot market costing it nearly $7.3 million. 

The complaint goes on to allege that MSC repeatedly coerced the retailer into paying premiums despite promises that it would honor the contract prices and only charge premium fees on extra shipments. The filing details repeated exchanges between the two companies showing they contend that they were forced into paying premium rates and surcharges for its containers to be at “the front of the line” as volumes surged and capacity and equipment became scarce. 

They argue the added costs above the contracts cost Bed Bath & Beyond over $5.5 million in the 2021 contract period and a further $9 million in the 2022 contract. 

Repeating an argument made by many shippers and trucking companies. they also allege that MSC penalized the company by charging D&D fees when the conditions were outside Bed Bath & Beyond’s control. They cite the inability to make reservations, backlogs to return containers, and equipment shortages. They allege Bed Bath & Beyond wrongfully paid over $13 million in demurrage charges and nearly $10 million in detention charges.

The kicker to the complaint comes in the allegations that the delays in shipping, caused a scarcity and uncertainty in the business, and disrupted Bed Bath & Beyond’s ability to operate. They propose that the company made profits of at least $66,924 per container and multiplying that by the 1,686 box shortfall, they propose that Bed Bath & Beyond’s lost profits were nearly $133 million. The final amount of lost profits they suggest should be determined during the trial.

The complaint details nearly $158 million in compensation the bankruptcy estate believes is due from MSC. They justify the compensation by suggesting that MSC’s actions were willful and purposely designed to inflate profits citing media reports of MSC’s massive profits and MSC’s tonnage buying spree as proof of the windfall profits produced at shippers’ expense. They also cite the other cases filed against MSC as corroborating evidence of the pervasiveness of the practices. 

Under FMC rules, Bed Bath & Beyond if it can establish that MSC’s actions included retaliatory conduct the shipping can seek a doubling of any award of reparations. As such, the bankruptcy estate is inferring it could be due at least $315 million in compensation from MSC.

The claims are staggering by comparison to the earlier nearly $32 million claim against OOCL. They also filed a $7.7 million claim against Yang Ming. OOCL fired backin May 2023 responding to the first filing by Bed Bath & Beyond saying the shipper was distorting the facts. They responded by saying that Bed Bath & Beyond repeatedly failed to manage its own supply chain exacerbating the bottlenecks. 

The filing is the beginning of a long process of review at the FMC. The bankruptcy estate is also seeking relief in the bankruptcy court detailing in its plan to the court the role it believes the container shipping industry played in the demise of its business.
 

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