Shipping insurance: Cautionary note on Rotterdam Rules

The “Rotterdam Rules”—adopted last September by the United Nations General Assembly—will reflect current shipping practices, cover cargo liability on legs of an intermodal shipment, promote harmonization among trading partners, reduce legal obstacles, and allow shippers, carriers and third parties to customize contracts to meet commercial needs.

As reported in LM, 21countries, including the United States, signed the Rotterdam Rules within the UN but they will need formal ratification by at least twenty countries worldwide before becoming law.  In the U.S., the rules would replace the 1936 Carriage of Goods by Sea Act (COGSA). The European Union, the American Bar Association and the National Industrial Transportation League among other groups have endorsed the new rules. 

There is no time table, however, on when the rules would be ratified, and some insurance experts maintain that there’s an underlying risk yet to be fully explained.
“Shippers should be concerned about the Rules because of complications related to two recent Supreme Court cases currently awaiting a decision, says Chris Clott, an adjunct professor at the California Maritime Academy. “The negative impact it could have in the U.S. may be quite substantial.”

The cases, Kawasaki Kisen Kaisha v. Regal-Beloit Corporation, No. 08-1553, and Union Pacific Railroad Company v. Regal-Beloit Corporation, No. 08-1554, were argued together late last spring. The question before the court was whether the inland portion of an intermodal shipment is subject to the Carmack Amendment to the Interstate Commerce Act of 1887, which governs certain rail and motor transportation by common carriers within the United States rather than the Carriage of Goods by Sea Act (COGSA).  The Carmack Amendment, which affects the U.S. surface transportation (rail and truck) is far more encompassing than COGSA regarding carrier liability.  COGSA places severe limits on carrier liability while Carmack has no dollar limits on the amount of liability.  The main issue is whether an international through bill of lading that shows the maritime operator as the “carrier” is liable for damages via the intermodal portion of the move under the tight standards of Carmack or the loose standards of COGSA.
“If the Supreme Court decides the Carmack Amendment applies to all inland transportation, shippers will have to negotiate separate liability agreements with the ocean carrier and the inland railroad or motor carrier,” observes Clott. “The Rotterdam Rules—with one standard of liability throughout a door to door move—would be more limited in their application within the U.S.”