The liability limit for ocean carriers under the Carriage of Goods by Sea Act (COGSA) is $500 "per package." Unfortunately, some shippers have only been able to recover $500 per pallet or per container because of the way they described the cargo on their bills of lading. One recent court decision, though, indicates that even shippers that do things correctly may run into problems.

In that case, a 40-foot container filled with cosmetics that had been shipped from France via P&O Containers mysteriously disappeared from a container yard in Port Everglades, Fla., in 1992. The container was packed with 2,270 shoebox-sized corrugated cardboard cartons. These were plastic-wrapped on 42 pallets, with two cartons left over.

The shipper's bill of lading properly stated "42 pallets STC (said to contain) 2268 cartons + 2 cartons cosmetics." But the carrier altered the shipper's pro forma bill of lading to read "42 packages STC 2268 cartons + 2 cartons."

A lower court ruled that each of the 2,270 missing cartons was a "package" and awarded $505,190.40 plus pre- and post-judgment interest to the shipper. But the 11th Circuit Court of Appeals overturned that decision and ruled that, based on the information presented on the final shipping documents, each pallet constituted a "package" within the meaning of COGSA; thus, recovery was limited to $22,000 (42 pallets plus two cartons x $500). This penalized the shipper for alterations the carrier had made to the bill of lading.

The court also said that because the shipper's agent had voiced no objections when it received the amended bill of lading, it had "conceded to the changed language through its silence and inaction coupled with the parties' expectation that P&O would be issuing a final bill of lading." The court noted, too, that "the fact that [the shipper] chose to package the cartons in these manageable units instead of shipping them loose supports our conclusion that they represent the COGSA package." (Imagine the amount of theft and damage that would result if shippers stopped unitizing shipments!)

The Circuit Court further chastised both carrier and shipper for failing to agree on a method of describing cargo that would avoid this problem. "It is remarkable that after so many decades and dollars spent litigating the package-liability limitation clause under Section 1304(5), the shipping industry has not yet settled upon a sound strategy for protecting both parties' interests," the court said. "... Carriers seem unable to protect their interests and, the law clearly being in their favor, shippers seem to have grown too complacent to make their interests explicit." This statement was astonishing given that the shipper in this case had made its interests explicit by describing its shipment properly on the pro forma bill of lading but the carrier had overridden that by changing the description!

The lessons to be learned from this questionable decision are: 1) shippers must clearly state the number of pieces on pallets or in a container in a way that will allow them to obtain coverage of up to $500 per piece, and 2) freight forwarders and shippers must carefully examine the final bill of lading issued by the carrier and voice an objection if the carrier changes the description in any way.