Legal Briefs: Shipper Beware

Legal Briefs:
Shipper Beware

In reviewing recent court decisions related to lost or damaged cargo a general theme in many of the cases seems to be that the shipper was unaware of its options. In most instances the shipper did not know that it could have selected different options for loss and damage coverage. Additionally, in some cases, the shipper was uncertain of what type of entity it was dealing with.

This seems to be particularly true in international ocean transportation.

Most likely, movements on behalf of shippers who have paid careful attention to coverage options and know who they are dealing with do not have problems that end up in a judicial setting.

From the cases it appears that a good many shippers follow a practice of quickly looking for the cheapest deal, sign any piece of paper presented to them and hope the cargo arrives in one piece.

This process is exemplified by a decision in April by a federal appellate court. A shipper contracted with an intermediary — a non-vessel operating common carrier (NVOCC) — to transport a drilling rig from Baltimore to Chile. At an intermediate stop in Charleston, S.C., the rig was offloaded. In the process of restowage it was damaged beyond repair. An insurance company paid the shipper a claim and then sued various entities trying to collect over $175,000. The insurance company lost.

The decision reads like a study in what was overlooked in arranging for transportation:

  • COGSA — The bill of lading said the NVOCC's liability was limited to $500 under the Carriage of Goods by Sea Act (COGSA).
  • Declared Value — Under COGSA and the bill of lading the shipper could have declared a value more than $500. It had not made such a declaration.
  • “Clause Paramount” — A clause in the bill of lading made the COGSA $500 limitation applicable beyond COGSA's normal scope to cover periods prior to loading and subsequent to discharge.

All of these restrictions on the shipper's ability to recover more than $500 were upheld by the court. Could the shipper have bargained them away and obtained higher coverage before signing the bill of lading? The answer is “yes.”

The COGSA $500 limit is a default amount. The parties can agree to higher coverage by the carrier — that would be the declared value. Of course, the shipper can expect to pay more in transportation charges for such higher coverage, but often the increased coverage is worth the price.

As to the Clause Paramount, the shipper and the NVOCC could have agreed that the $500 limitation applied only while goods were actually at sea and not at any other time.

Another problem some shippers encounter is understanding exactly who they are dealing with when they make transportation arrangements. A review of the court decisions shows that some shippers are unaware of the type of entity through which they arrange transportation services. A shipper needs to establish whether it is dealing with an ocean freight forwarder, an NVOCC or an ocean carrier (the vessel operator).

The distinctions are crucial when trying to recover for loss and damage claims. Under the Shipping Act, and as the courts have held, an ocean freight forwarder is not responsible for loss and damage to goods. So, if a shipper dealt with such a forwarder and the cargo is severely damaged, the shipper cannot collect from the forwarder. The shipper may have separate insurance coverage. In addition, the forwarder can assist the shipper in collecting from others, such as a vessel operator (but the shipping documents with the vessel operator may limit its liability).

An NVOCC, as in the drilling rig case, is liable to the shipper for lost or damaged goods. The NVOCC may, however, limit its liability under COGSA to $500 and even extend that limit to activity before and after the goods go onto a ship.

A vessel operator, like an NVOCC, is also liable if the goods moved under the vessel operator's tariff required by the Shipping Act. Again, however, the vessel operator may also limit its liability to $500. A vessel operator can also move goods outside the tariff system under a contract. In any such arrangement liability may be limited.

Shippers often leap for the lowest price in obtaining transportation services, but beware that if claims arise the ability to collect may be limited. LT

James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.

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June, 2004

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