Maritime Law and Motor Carriers

John Anderson Cargo Liability, Contracts, Regulations, Transportation

Motor carriers transporting intermodal shipping containers and other shipments originating in foreign countries (except Canada or Mexico) need to  be aware that their liability likely is governed by the Carriage of Goods by the Sea Act (“COGSA”) and not the Carmack Amendment. The consequences are both good and bad.

COGSA is the federal act that regulates bills of lading (“BOL”) issued by ocean carriers engaged in foreign trade. COGSA provides for and allows BOL to contain some  provisions of which many motor carriers may be unaware.

1)  As is frequently the case with motor carriers, an ocean carrier BOL does not necessarily apply only when the ocean carrier possesses the cargo (generally referred to “port-to-port” or “tackle-to-tackle”) but can be, and often is, extended to cover the shipment from the point of origin to the point of destination.  A BOL of this type is referred to as a “through BOL” in both ocean and motor carriage.

2) The critical BOL provisions allowed by COGSA include, but are not limited to, the following:  first, allowing for a “Himalaya Clause” that extends the BOL defenses and limitations on liability to subcontractors hired to perform services contemplated by the BOL; second, allow the ocean carrier to subcontract on any terms whatsoever for the completion of the journey; third, allowing for a “clause paramount,” that provides for COGSA’s terms to govern the entire journey, including the limitation of liability provision written into COGSA; and fourth, allow for other terms negotiated by and between the parties.

3)  Thus, a Himalaya Clause in a “through” ocean carrier BOL means that the ocean carrier is responsible for the entire journey of the shipment from the origin to the destination. In this situation the ocean carrier is responsible not only for the ocean carriage, but also for moving the shipment from an inland point of origin to the port of departure and also for moving the shipment from the port of arrival to an inland point of destination. The ocean carrier generally is free to, and does, enter into subcontracts with service providers, including motor and rail carriers, to perform the necessary services.  The subcontracts control the relationship between the ocean carrier and the service providers, but COGSA also governs.

4)   One of COGSA’s key benefits to motor carriers and other service providers subcontracted by ocean carriers to provide service is its limitation of liability provision. That provision provides that a carrier providing service under COGSA is liable only for $500 “per package.” The issue of what is a “package” is the subject of numerous lawsuits, but suffice it to say that this limitation can be very valuable. (And no, the container generally is not considered to be the “package.”)  For example, if the shipment consists of 100 cartons with the contents of each carton having a value of $1000, the limitation means that the carrier’s maximum liability under COGSA is $50,000 (100 X $500 = $50,000) rather than $100,000 (100 X $1000 = $100,000), which would be the liability under Carmack absent a valid limitation of liability provision.

5) There are other benefits to motor carriers under COGSA. For example, there is a one (1) year statute of limitation that runs from the date of delivery. This is substantially shorter than the statutory minimum limitation of two (2) years from the date of declination required by Carmack.

6)  There is a downside, however. As indicated in paragraph 2 above, COGSA allows for the parties to negotiate and be bound by general contract terms, including venue provisions.  This issue was the focus of the U.S. Supreme Court’s 2010 decision inKawasaki Kisen Kaisha LTD v Regal-Beloit Corp., 130 S.Ct. 2433 (“Regal-Beloit”).

7)  Regal-Beloit involved four shipments (four containers moving on four BOL) moving from China to an inland point in the U.S. “K” Line was the ocean carrier that issued four through BOL. “K” line arranged for Union Pacific to transport the containers from the Port of Long Beach, CA to their final inland destination.  Unfortunately, the train derailed in Oklahoma. The cargo owners filed lawsuits in California State Court, which were removed to federal court and were ultimately decided the U.S. Supreme Court.

8) The Ninth Circuit held that a Tokyo venue provision in the ocean BOL was prohibited by the Carmack Amendment, which governed rather than COGSA. The U.S. Supreme Court disagreed, reversed the Ninth Circuit, and held that COGSA governed these “maritime” shipments. The U.S. Supreme Court held that Union Pacific and “K” Line were bound by the contract provision that required the lawsuit to proceed in Tokyo.

9)  You may think that making Union Pacific and “K” Line go to court in Tokyo is not too bad, that both of those companies are large enough to bear that cost and burden; and that you and your operation would never be faced with that situation. You would think wrong.

10)  It did not take long for courts to begin issuing decisions holding that the Regal-Beloitdecision applied to motor carriers as well a rail carriers. There really should not have been any debate over this since the Carmack Amendment is virtually identical for both motor and rail carriers even though separately stated and in different statutes (49 USC 14706 for motor carriers and 49 USC 11706 for rail carriers).

11)  In Royal & Sun Alliance Insurance, PLC v Ocean World Lines, Inc., 612 F.3d 138(2nd Cir. 2010), the Second Circuit Court of Appeals specifically held that COGSA applied to a motor carrier transporting a shipment on a through bill of lading. In that case, the shipment originated in Germany and was destined to Indiana. The ocean carrier issued a through BOL and arranged for Djuric, a motor carrier, to transport the shipment to the inland destination. The truck crashed into an overpass, destroying the shipment. The Court held that COGSA applied and that the $500 per package limitation of liability applied. Thankfully for the motor carrier, the BOL presumably did not contain a venue provision requiring any lawsuit to be filed in Germany since the case was filed in the U.S.