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Editor: Rod Sullivan
Profession: Maritime Attorney

Category: General

The Carriage of Goods by Sea Act (46 U.S.C. Section 1301 and particularly 1304(5)) needs to be amended. Last year the failure to amend the Act cost me $100,000. It cost my American client (located in Pennsylvania, Connecticut and Florida) $200,000. The beneficiary was a foreign ship owner. On January 31, 2001 the failure of Congress to amend the Act cost me $150,000 and my American (New York, Pennsylvania and Florida) client $300,000. The beneficiary was a ship owner. An attorney who works in the same field as I do called me this morning and told me that Congress' failure to amend the Act today cost him $300,000 and his American client $600,000. The beneficiary was a foreign ship owner. The problem in all these cases were the same--Congress' failure to update the Carriage of Goods by Sea Act to deal with the advent of containerized shipping and the shipment of large bulky items.

The courts have been clamoring for Congress to provide them with guidance on the container issue for years. On May 25, 2001 the 11th Circuit complained "Congress neither defined the term [package] in the statute [COGSA] nor left behind any legislative history to help courts do so." The courts are not fulfilling Congress' intentions that shippers and consignees be protected. Instead, they are ruling against cargo owners and insurers, who are predominantly U.S. based, and in favor of ship owners, who are primarily based overseas. The Second Circuit said decades ago "this area is one...in which the search for predictibility and avoidance of litigation will go on regardless of what we may do....until there is a legislative solution....the courts will have to deal with the cases as they arise."

Nevertheless, Congress has not amended the Carriage of Goods by Sea Act since it was enacted in 1936. The problem is getting worse. When Congress adopted COGSA it was the most favorable act to shippers and consignees of cargo in the world. It increased the limitation on a shipowners liability from about $240 per package to $500 per package and it contained other protections that were not present in the international convention which spawned it, the Hague Rules of 1924. It was designed to prevent U.S. cargo owners and insurers from being abused by foreign shipowners.

Just last month the courts ruled that carriers could change the description of cargo provided by the shipper in order to take advantage of the package limitation, and that shippers were powerless to do anything about it. In that case, the ship owner received cargo described as cartons and instead described it as pallets, effectively reducing their liability from $900,000 to $22,000.

Today, the United States, even though it has no substantial merchant marine, has the most pro-shipowner and anti-cargo marine transportation law in the world. We are the laughing stock of the world maritime law community. No American can ever lead the Comite Maritime International because Congress never even considers any changes to the international maritime laws they propose. Every civilized nation in the world has amended the Hague Rules to account for the container revolution except the United States.

I would recommend that the United States simply adopt what every other nation adopted--the Hague-Visby Rules. If we are going to be part of the world community, we should be willing to go along with them, especially when it is in our own best interests.

However, even minor changes to the current law would make a big improvement. Allow me to give you some examples.

Congress could probably solve part of the problem by deleting the words "....customary freight....." in the first paragraph of Section 1304(5) of COGSA and adding the following sentence:

Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as those packages or units are concerned.

This sentence wasn't invented by me. It is contained in the cargo law of every other civilized nation in the world. You can find it in the Hague-Visby Rules which have been adopted by all the developed countries in the world and in the Hamburg Rules which have been approved by the United Nations and adopted by the developing countries of the third world. Everyone in the world agrees on this language except the us.

Further, the "customary freight unit" language, which Congress put in the statute in 1936 to protect shippers, has become American shipper's and consignee's worst nightmare. When Congress adopted the "customary freight unit" language all cargo was freighted on the basis of small freight units like the measurement ton, 60 cubic feet. Today, the customary freight unit is the TEU (Trailer Equivalent Unit) which is 1280 cubic feet. Consequently, while Congress approved a limitation of about $8.33 per cubic foot 65 years ago in 1936, today the predominantly foreign shipowners are getting limitations of 39 cents per cubic foot--and it is American interests which are suffering. Leave in the word "unit" but delete the words "customary freight."

Combine the increase in freight unit size with the effects of inflation, and you can see how bad things have become. Inflation has ravaged the limitation. Considering inflation alone, to have the same effect today as $500 had in 1936, the limitation would have to be $6063.83. Since the size of freight units has increased 21 times since 1935, combine inflation with the increase in the size of the freight unit, it would take a limitation of $129,000 to have the same effect today as the $500 limitation had in 1936.

This failure to act has more practical consequences than simply money. Take for example cargo safety. In the United States virtually no shipowners station what are called "Lo-Boy" or "MAFI" trailers in their U.S. operations. "Lo-Boys" and "MAFIs" are used to transport heavy and bulky items like tractors, cranes, harvesters, combines, yachts, construction equipment, and heavy machinery around ports and to consignees. Americans make a lot of these big machines and sell them overseas. However, these same ship operators have "Lo-Boys" and "MAFIs" in their European operations. Why there and not here? Because of the limitations on liability. In the United States, if a ship owner drops a million dollar piece of equipment off a trailer chassis, which is not equipped to handle heavy lifts, onto the ground their total exposure to liability is $500. That's right $500.

In Europe, if they drop the same million dollar piece of equipment on the ground they have to pay $1.14 per pound or approximately $50,000 to $100,000, depending on the weight of the shipment. Consequently, they don't drop as many in Europe because they have Lo-Boys and MAFIs.

You could solve this large, bulky cargo problem by adopting the same limitation which most other countries have. To do so you would change in 1304(5) the words "$500 per package lawful money of the United States, or in the case of goods not shipped in packages, per customary freight unit" to "...666.67 SDR's [Special Drawing Rights of the International Monetary Fund] per package or unit or 2 SDR's per kilogram of gross weight of the goods lost or damaged, whichever is the higher..." which is the same limitation that every other civilized country uses. If the SDR is too foreign a concept for Congress to use, make it $9.07 per pound so that the ships will have the same limitation as aircraft do.

For another example of how COGSA has a practical effect, take ships. If you have a ship with rusted and inadequate container lashing equipment, that has a tendency to lose containers over the side in heavy weather, do you use that ship in Europe or do you send it to the United States? In Europe, if the cargo is lost the shipowner will have to pay $1.14 per pound. In the United States, $500 per container. Consequently the defective equipment gets used here. For example, a container vessel named the M/V Hybur Trader was used by two different companies from U.S. ports over a period of over 10 years even though, according to surveyors, over 90% of its deck fittings were rusted away. There are at least two 11th Circuit court of appeal cases where that vessel lost containers over the side. Who knows how many unpublished district court cases there are, or cases which never made it to litigation because the shippers and consignees just felt they had to take $500 for the loss of their container of goods.

These limitations are unconscionably low. In air transportation, carriers have to pay $9.07 per pound for lost or damaged cargo. Most rail carriers limit their liability to full value up to $100,000 per container (see CSX). Even truck companies, which are notoriously bad about limiting liability, seldom have limits below $5 per pound. The largest U.S. flag carrier (Sea-Land Service, formerly a division of CSX)) voluntarily changed their bills of lading to avoid U.S. law and adopt the Hague-Visby Rules with its higher limitation on liability over ten years ago. Now they have been taken over by a foreign ship operator. However, there is basically no U.S. interest which seeks to maintain the $500 limitation on cargo damage per container. Only foreigners want that benefit.

Maritime Law Association of the United States has been considering proposing changes to this statute for over 30 years. You cannot wait for the MLA to present you with a new cargo law. I am a member of that organization but am reluctant to report to you that it is dominated by attorneys who represent defense interests. Since most ship owners, who are the defendants in these cases, are insured by protection and indemnity associations located in London, little action has taken place even though changes have been under consideration since the Hague-Visby Rules were adopted in 1968. If you wait for an agreement, it will be another 30 years before this problem is solved.

Congress can adopt Hague-Visby and bring itself into line with the rest of the world or Congress can make changes to COGSA to address these problems. However, Congress needs to do something. The situation could not be worse. Virtually anything would be an improvement.

Today's limitation on liability is an exoneration from liability. American interests are being hurt.