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Editor: Rod Sullivan
Profession: Maritime Attorney

Category: Supreme Court Rulings

In Norfolk Southern Ry. v. James N. Kirby, Pty Ltd., 543 U.S. 14 (U.S. 2004) Justice O'Connor, speaking for a unanimous Supreme Court, extended maritime contract jurisdiction to train wrecks. To those of us who practice maritime law, the result is not so strange. What is strange is the Court's reference to the mythical "choice of freight rates" which motivated the Court's decision to limit Norfolk Southern's liability to $500 per container after it did over $1.5 million in damage to a shipment of machinery which originated in Australia and was destined for Huntsville, Alabama.

You can forgive the Aussies for being a bit pissed. They are part of the civilized world when it comes to ocean shipping laws and limitations on liability. The laws of the United States are both antiquated and uncivilized and hence carriers operating in the United States could care less about cargo damage. In the vernacular, they don't give a crap. They don't have to.

If you think I'm being overly critical consider this---throughout Europe, heavy lift cargoes, like the machinery Norfolk Southern was carrying, are carried on low-boy or Mafi trailers. In the United States, carriers place the same cargoes, which the Europeans have so carefully handled from the factory to the port, on ordinary truck chassis. When these chassis turn over in transit, as they so frequently do in the U.S., the carriers simply say "Oops!...there goes another $500."

Some power plant manufacturers makes a cottage industry out of cargo damage. Every time CSX or Norfolk Southern loses a power plant component, usually worth over $1.5 million, the manufacturer gets to make another one, and the insurance carrier picks up the bill. Why should they care if the cargo gets damaged in route?

What the Supreme Court said in Kirby was this:

In negotiating the ICC bill, Kirby had the opportunity to declare the full value of the machinery and to have ICC assume liability for that value. Cf. New York, N. H. & H. R. Co. v. Nothnagle, 346 U.S. 128, 135 (1953) (a carrier must provide a shipper with a fair opportunity to declare value). Instead, and as is common in the industry, see Sturley, Carriage of Goods by Sea, 31 J. Mar. L. & Com. 241, 244 (2000), Kirby accepted a contractual liability limitation for ICC below the machinery's true value, resulting, presumably, in lower shipping rates.

In reality, Kirby had no such "opportunity." These freight rates are called "ad valorum" rates and the fact of the matter is that the rates are set so high, over 100 times the comparable insurance rate, that they are nothing more than a way to shift the cost of cargo damage from the carrier's insurer to the cargo owner's insurer.

A couple of years ago I took the deposition of the Risk Manager of a major U.S. to Caribbean ocean carrier. He said that in his 20 years of working as a Risk Manager, he had never, never seen anyone elect to ship cargo under the ad valorum rate. Only a uninformed shipper would do it.

Congress, of course, sought to prevent this result. In the Carriage of Goods by Sea Act it specifically invalidated benefit of insurance clauses or any clauses which attempts to shift the burden of cargo damage away from the ocean carriers, but as you learn the longer you practice law, Courts don't care what Congress wants, or what Congress says. Courts want what they want, and if Congressmen want the law to be a particular way, well, they better just become federal judges.