Opinion: Goodbye Hague, Hello Rotterdam

By Jim Mahoney

Transportation Attorney

This Opinion piece appears in the Nov. 22 print edition of Transport Topics. Click here to subscribe today.

Here’s a forecast from those of us who write and review numerous transportation contracts: A new international law looms ahead that will be very beneficial to truckers if we strategize to take advantage of it.

Globalization continues to change the motor carrier industry, and with the Rotterdam Rules sailing into our legal waters, we will soon replace the Hague Rules of 1924, under which the United States enacted the Carriage of Goods by Sea Act, also known as COGSA.

As those involved in surface transport know quite well, the Carmack Amendment to the Interstate Commerce Act, first enacted in 1906, addresses our liability for cargo lost or damaged in interstate and adjacent foreign commerce, generally preempting state laws on contracts and negligence.

Sometimes, however, COGSA and Carmack intersect and clash.

COGSA governs rights and responsibilities among owners or insurers of cargo on the high seas, and its terms are incorporated by reference in most bills of lading for the foreign transport of goods to or from the United States.

Most such foreign BOL contain a “Himalaya clause,” i.e., a clause purporting to extend liability limitations that benefit the carrier to others acting as agents for the carrier, for example, stevedores or longshoremen. These clauses have been used successfully to limit motor carriers’ exposure beyond the traditional “tackle to tackle” liability under COGSA.

Last summer, the U.S. Supreme Court confirmed the 9th Circuit and reversed the 2nd Circuit with its ruling in Kawasaki Kisen Kaisha v. Regal-Beloit Corp. As a result, it is now the law of the land that Himalaya clauses extend COGSA limitations to surface carriers — or at least to inbound shipments.

In contrast with Carmack, COGSA contains some juicy strategic limitations such as a one-year statute of limitations and the ability to contract for shorter claim reporting requirements than Carmack’s nine-month minimum.

The COGSA limitation most attractive to motor carriers is the $500 limit generally applied on a customary freight unit (CFU) or package. Never, under COGSA, will we be liable for an amount greater than the actual value, as we might be under Carmack. That’s reassuring for planning purchases of cargo insurance.

If this article ever becomes a TV documentary, this is the point where the music would swell dramatically, announcing the arrival of the Rotterdam Rules.

The Convention of Contracts for the International Carriage of Goods Wholly or Partly by Sea, as the Rotterdam Rules are formally known, was adopted by the United Nations General Assembly on Dec. 11, 2008.

The signing ceremony for the new rules was held in September 2009 in Rotterdam, Netherlands, hence the Rotterdam Rules’ informal name.

The Rotterdam Rules were created to extend and modernize existing international rules relating to the contract of maritime carriage of goods — specifically the Hague Rules, Hague-Visby Rules and Hamburg Rules, as these international conventions are known, and which are now as outdated as the fountain pens used to sign them nearly a century ago.

Container movements and electronic communications weren’t even glimmers in our eyes back then. Today, some estimates put the percentage of international freight moving by ship at more than 90%, with containers and electronic data replacing loose cargo and formal shipping documents.

As a result, gaps have occurred in satisfying loss claims, with courts in many countries rewriting the law on a case-by-case basis, leaving a patchwork of conflicting outcomes.

When they are fully signed and confirmed as international law — and it will happen soon — the Rotterdam Rules will change our approach to insurance, transport contracts and our overall exposure to the risk of cargo loss.

The new rules establish more clearly who is responsible and accountable for what.

Other parties in the chain — stevedores, for example — will be jointly liable with the carrier.

The carrier’s top monetary liability for cargo damage has been marginally increased above COGSA to about $1,335 per CFU, but the shipper’s obligations also are defined more clearly. Cargo must be ready for transport in a timely manner. Containers and trailer loads must be stowed to withstand the trip.

The Rotterdam Rules will apply to contracts for the surface transportation of goods prior and/or subsequent to ocean voyages. We can expect multimodal movements to be undertaken with a single contract and just one set of laws applying.

The United States has signed on in support of the new rules, which will be the law of the land once ratified by a number of signatory countries.

As with all changes, the rules of the game will be in flux. Cargo owners and their insurers already are concerned about the Rotterdam Rules’ effect in the United States and are preparing for it.

Jim Mahoney is a Phoenix-based transportation lawyer specializing in compliance, contracts, insurance, cargo and risk management.