ExplainingThe Proposed U.S. Carriage of Goods By Sea Act - "U.S. COGSA"

A Presentation By Michael S. McDaniel At Sydney Australia
Will Not Pass Both Houses of Congress Until At Least 2001

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 The Presentation of Michael S. McDaniel, Esq.

Darling Harbour - Sydney, Australia

21 September, 1998

to 190 nations assembled for the

FIATA* World Congress 1998

*International Federation of Freight Forwarding Associations


Excepts From A

Presentation of The Proposed

U.S. Carriage of Goods By Sea Act of 1998


 A Proposal To Replace

The U.S. Carriage of Goods By Sea Act of 1936

Title 46 United States Code §§ 1300-1315



Photo Gallery For This Event

Impact of Proposed Changes on Freight Forwarders

What Does The Prosposed New COGSA Do?

First Category of Change: Confirming The Present Operational Reality
Concept of The "Performing Carrier"

U.S. COGSA & Forum Selection Clauses

Second Category of Change: Modernizing COGSA From 1936

1. Service Contracts

2. Electronic Commerce

3. Damage Limitations

4. Apportionment of Liability

5. Arbitration

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Emerging U.S. Liability Trends for Freight Forwarders


- Excerpts From 45 Min Presentaion -

Darling Harbour - Sydney, Australia

21 September, 1998

by Michael S. McDaniel, Esq., Countryman & McDaniel, logistics attorneys at LAX

Mr. McDaniel is a Co-Opted Expert of The Advisory Body on Legal Matters of FIATA, Representing The United States

Good Morning! It is an honor to address you at the Port of Syndey on this important topic.

Legal liability for forwarders in the United States is a very timely topic, especially given the many questions which have arisen in connection with the proposed U.S. "Carriage of Goods by Sea Act of 1998".

We have heard all manner of rumors that the new U.S. COGSA will seek to regulate everyone from customs brokers to international airlines and that it will alter the legal rules of freight forwarding as we have come to know them. We have even heard that the proposed law could end the freight forwarding business.

For these reasons, I am very pleased to let you know that none of this is true. Generally speaking, COGSA 1998 actually changes nothing where the operation of a forwarder's business is concerned. Where matters of legal definition and procedure are concerned, the changes we do see are for the better.

As most of you know, the U.S. Carriage of Goods by Sea Act was adopted in 1936 from the Hague Rules and pertains to the movement of ocean freight to and from U.S. ports. While the 1936 Act has worked well, the Maritime Law Association believed changes were in order to meet the goals of:

1. Modernizing U.S. laws to keep pace with technology and reflect operational realities as currently covered by case law;

2. Promoting uniformity in cargo liability and claims handling;

3. Following the international trends of globalization and deregulation.

Back To Top of COGSA Index

Impact of Proposed Changes on Freight Forwarders

It should be carefully understood that, generally speaking, the core principles which govern your day to day operations and liability will not change under the proposed Act if you are:

A. A shipper's-agent forwarder (Type 1 forwarder not issuing the bill of lading); or

B. An NVOCC (Type 2 forwarder, consolidator, issuing a house bill of lading); or

C. A U.S. customs broker.

These companies, forwarders & brokers, will now have the same basic liabilities under the proposed Act that are in force today. The principal drafters of COGSA 1998 concur with our findings that the new Act should not impact upon the manner in which your forwarding business operates.

I have also reviewed this concept with the National Customs Brokers & Forwarders Association of America whose general counsel has authorized me to announce identical findings that the basic legal realities will continue unchanged for forwarders & brokers under the proposed Act.

What Does The Prosposed New COGSA Do?

So what are these changes that have resulted in so much discussion? We see two basic categories of change where forwarders & brokers are concerned. First are new rules which merely confirm current operational reality as reflected in the decisions of U.S. courts. The second category of change are rules which modernize COGSA.

First Category: Confirming The Present Operational Reality

As an example of the first category, much has been said about a feature of the proposed Act which will now cover cargo during the entire transportation from origin to destination instead of "tackle to tackle" as under the current law. While the legal rule in this regard will certainly change, the practical effect will not. This is because your house bills are written in a way that already applies COGSA from the point of origin to the point of destination by force of contract.

From now on, there will be less for lawyers to argue about because all legs of the transportation under your House Bill of Lading would be covered by COGSA regardless of the legal theory used to bring the claim. The operational realities will not change because your responsibility under a house bill of lading will begin and end at the points of origin and destination as it does today.

Another example of a new COGSA rule that merely adopts current practice concerns use of "Himalaya clauses". As you know, "Himalaya clauses" are commonly contained in a bill of lading and designed to extend COGSA protection to intermediaries providing service for either the NVOCC or the master carrier. In many liability claim situations, intermediaries such as stevedores and truckers attempt to argue that they should be protected under the bill of lading "Himalaya clause" and therefore allowed to enjoy the same damage limitations available to an NVOCC or master carrier. In California, for example, a local trucker is liable for 100% of any loss unless he is working under an ocean bill of lading with a properly worded "Himalaya clause". Thousands of dollars are spent in our legal cases for attorneys to argue over the wording of bills of lading to determine if a service intermediary can gain protection in particular circumstances. The result is that sometimes intermediaries are covered and sometimes they are not.

In other situations, an NVOCC may be left to face a sizable liability claim alone when damage is caused by a container freight station or other service provider which has a valid contractual damage limit which is well below the responsibility level for the NVOCC.

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Concept of The "Performing Carrier"

COGSA 1998 addresses this situation by creating the new definition of "performing carrier" which is fully reviewed in your written materials for this presentation. Included in the definition of a "performing carrier" are terminal operators, local truckers, packers and other intermediaries who provide service to facilitate movement under an ocean bill of lading. Specifically, a Type 1 shipper's-agent forwarder (non-NVOCC) is not a performing carrier and not subject to proposed new COGSA. Here again, the law will change but with no practical effect upon your business except to reduce legal bills by (1) enabling more accurate forecasting of the result for disputes involving cargo loss and damage, and (2) making sure that your service providers will be held accountable for the damage they do.

Service providers to the Type 2 forwarder (NVOCC operating under it's house bill of lading) will be subject to proposed COGSA -- including delivering truckers, CFS stations, etc. The NVOCC will not be caught, for example in a situation where the truckers loss of cargo is limited to US$00.50 per pound -- while the NVOCC faces liability at the higher damage limiatio level. All parties proving service under the HB/L will have equal & foreseeable damage limits.

Where these "performing carriers" are concerned, to the extent that non-U.S. companies are unaffected by current U.S. law, there will be no effect under COGSA 1998. This result is because U.S. courts generally do not have jurisdiction over foreign intermediaries such as a local trucker in Spain, a packer in India or a stevedore at the Port of Vancouver.

U.S. COGSA & Forum Selection Clauses

Under proposed COGSA 1998, bills of lading clauses which require lawsuits or arbitrations to be filed outside of the United States will now be void. While some see the provision as controversial, it's actually in keeping with the longstanding policy that guarantees the right of all U.S. citizens, and others, to have their claims heard in the United States when the cargo has either originated or been delivered in our country. This policy was changed in 1995 when the U.S. Supreme Court created the "Sky Reefer Rule" which ordered U.S. courts to dismiss cases if the bill of lading contained a clause requiring the lawsuit to be brought in a foreign country. While this "Sky Reefer" rule has only lasted for about three years, I welcome return to the old policy because it greatly limits the risk and extreme expense of a particular dispute having to be resolved by multiple lawsuits conducted in separate countries. Please understand, however, that nothing in the proposed Act prevents a claimant from bringing his lawsuit in any country that will entertain the claim.

Back To Top of COGSA Index

Second Category: Modernizing COGSA From 1936

The second category of change in COGSA 1998 are rules which either modernize or attempt to provide greater uniformity in the global environment. These changes are all outlined in your written materials, but I would like to mention a few of the more noteworthy items:

1. Service Contracts: Parties to a service contract may now negotiate liability provisions and damage limitations and decide where legal proceedings can be brought. While some have suggested this provision will allow ocean carriers to negotiate away their liabilities in exchange for lower rates, I agree with others who see an opposite effect given the current marketplace factors of overcapacity and increased competition. I think it likely that NVOCCs will be able to negotiate with ocean carriers for improved claims handling practices and liability understandings applicable to particular situations. If so, the effect will be to streamline dispute resolution and lower insurance costs for NVOCCs.

2. Electronic Commerce: COGSA 1998 specifically authorizes electronic bills of lading. Wisely, the proposed Act does not attempt any rule-making for use of the electronic bills. This will allow for continued development of evolving international EDI and Internet rules such as "Bolero".

3. Damage Limitations: The proposed Act abolishes the current U.S.$500.00 per package damage limitation. COGSA 1998 promotes uniformity by adopting the Hague-Visby limitation of about $900.00 and incorporates the Visby and Hamburg definition of what a package actually is. More, the damage limitation will now automatically apply to all incidents of cargo loss and damage. Just this one provision will save considerable claims expense since the cargo interests will no longer be able to defeat your damage limitation with technical arguments such as a claim that there was "no fair opportunity to declare full value" on your bill of lading.

Indeed, the only exceptions to the damage limitations under COGSA 1998 will be fraud, reckless conduct, or unreasonable deviation. Even so, any "unreasonable deviation" itself must be shown to be the cause of the loss.

4. Apportionment of Liability: COGSA 1998 recognizes that cargo loss and damage situations are often the result of multiple factors for which NVOCCs or ocean carriers are not entirely to blame. The proposed Act reduces responsibility for cargo damage in proportion to your fault.

5. Arbitration: COGSA 1998 follows the international trend toward eliminating costly lawsuits and specifically authorizes bill of lading clauses which require the parties to submit to arbitration.

Conclusion: In sum, I hope you will agree that the proposed COGSA 1998 is actually "forwarder friendly".

Thank you for your attention to my remarks this afternoon.
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Note: This is a condensed vesion of a 45 minute presentation.

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