Understanding the Carriage of Goods by Sea Act (COGSA) and What it Means for Your Business.

Understanding the Carriage of Goods by Sea Act (COGSA) and What it Means for Your Business.

| Dec 16, 2015 | International Business, Practice Areas, U.S. Private and Emerging Business |

COGSA

               The Carriage of Goods by Sea Act (COGSA) is American Legislation passed in 1936, yet is still used today. This act provided a way to enforce contracts under the international Hague Convention Rules. COGSA originally stated that all cargo ship owners are responsible for packages that are shipped; however, liability per package is limited to $500 per package and parties are limited to one year for filing litigation. This act is automatically enforced for all relevant international shipments, yet is not automatic for domestic shipments unless the carrier agrees to be bound. Many foreign countries enforce a similar set of laws that apply to overseas shipping.

               While ship owners are constantly looking for ways to limit their liability on the cargo that they ship, the U.S. government is constantly revising the Act to offer greater protection to shippers. Some of these changes became more apparent with the use of shipping pallets. Pallets are portable platforms used to package items for freight shipping. There are two pallet types: stringer pallets and block pallets. These pallets became more widely used in shipping. Often numerous packages are contained on a single pallet, this led to numerous lawsuits being filed concerning the $500 limit on packages. Ship owners claimed each pallet counted as one package while shippers claimed they may contain many packages.

               As the size of ships increased, so did the size of shipments. Businesses began shipping cars and other heavy equipment which have a much higher value. To offset this problem it was decided that items not shipped in packages will have the amount of liability determined by the weight of the item based on the customary freight charges. However, the shipper may declare the value of the item on their bill of lading and if agreed upon by the carrier then this will become the maximum amount of liability for which the carrier will be responsible. The challenge is that most shippers do not want to list the value as this increases the cost of shipping. Most shippers prefer to insure their freight privately which costs less than the additional cost of shipping.

               Many items are often shipped in containers today. The courts are attempting to avoid classifying the shipping container as a package. The bill of lading is being used to determine the number of “packages” contained in the container. Often this information is not available because it is frequently omitted from the bill of lading. Further, the ability to physically verify this information is limited as the shipping containers are generally sealed or locked. If the court cannot determine the proper number of packages contained in a shipment, then it frequently has no choice other than to apply COGSA rules regarding the customary number of freight units. The term customary does not have a set amount and is open to the interpretation of the court.

               In addition, carriers cannot be held liable for any damage that occurs outside of their control such as acts of God. They can also not be held liable for a higher cost of damage than what the amount of actual damages; nor for an amount greater than was declared by the shipper. These are just some of the several areas covered by COGSA.

               The laws surrounding COGSA are complex. It is always advisable to seek the services of an attorney whose practice focuses on international business and who can guide you through this process and ensure that your goods are protected.

References:

  1. United States Code: Title 46a, 1304. Rights and Immunities of Carrier and Ship | LII / Legal Information Institute. Cornell University Law School, 3 Jan. 2012. Web. 14 Dec. 2015.
  2. “What Is the Carriage of Goods by Sea Act? Definition and Meaning.”BusinessDictionary.com. WebFinance, Inc., 2015. Web. 14 Dec. 2015. <http://www.businessdictionary.com/definition/Carriage-of-Goods-by-Sea-Act.html>.
  3. Montgomery McCracken Walker & Rhoads LLP. “When Neither the Container nor the Autos Shipped in It Qualify as COGSA “packages,” Unit Used to Calculate Freight Will Determine Limitation | Lexology.” www.lexology.com. Globe Business Publishing LTD., 14 Aug. 2014. Web. 14 Dec. 2015.