Putting a Cap on Cross-Border Liability

Q: Not long ago you wrote about whether a shipper is entitled to sales price or only manufacturing cost on a claim (“Profiting From a Loss?” June 10, 2013). You said that if the goods were moving under a completed contract of sale, the shipper should get the sales price that it would have had if the goods had been delivered.

I think your article focused on the domestic trucking sector. I’d like to know whether the same thing would apply for an international shipment. As information, we import specialty goods that are sometimes pre-sold to customers, so this would have application to us.


A: Well, there are two answers to this.

The first, from a strict perspective of the law, is that yes, the same basic principle carries over. That is, under the basic standard of liability, an injured party (the shipper here) is entitled to what he “would have had if the contract had been performed” — in short, if the goods had been delivered intact. Hicks v. Guinness, 269 U.S. 71 (1925).

OK, if the goods were pre-sold, the shipper would clearly have had its sale price had the shipment arrived in good order. Therefore, that’s what its claim is worth, irrespective of mode of transportation or the overall market environment.

Oh, and there’s one other condition: The carrier must have been liable for full actual value of the loss, without contractual or other limitation.

That last is where the whole thing breaks down, and is what gives rise to my second, real-world answer. In international trade, regardless of mode, I know of no situation in which carriers are liable for full actual value of the goods they haul.

They’re moving by sea? Under the Hague Rules and U.S. Carriage of Goods by Sea Act, there’s a liability ceiling of $1,000 per “package” or other shipping unit, which in virtually all cases will be way under the actual value.

No, they came in by air? Well, the Warsaw Convention historically limited carrier liability to what amounted to $9.07 a pound when liability was fixed by an artificial currency called the “gold franc.” Lately, that measure has shifted to “special drawing rights” on the International Monetary Fund — 17 SDRs per kilogram. That works out currently to $11.59 a pound, a slight increase but still well short of the actual value of most air cargoes.

Even if the goods came in by truck or rail, there are only two countries that geographically abut the U.S. — Canada and Mexico — and on goods originating in either country (you did say you were an importer) they’ll be moving under bills of lading cut there, and both countries have sharp limits on carrier liability.

Well, suppose the goods arrived by water or air and the loss or damage occurred only after they’d been transferred to a motor or rail carrier for final inland delivery? Even there you’re probably out of luck; international goods mostly are shipped on through bills all the way to destination, and under so-called Himalaya clauses and the like, the liability regime of the international carrier is extended to the inland U.S. connection as well.

Now, many (if not most) shippers, recognizing the liability limits I’ve described, supplement or replace carrier liability by purchasing separate insurance coverage. An insurance policy, however, is a private contract and isn’t subject to the standards of the common law, but rather to its own agreed provisions. So the policy, not the law, will dictate whether the shipper is entitled to be reimbursed for its sale price or merely manufacturing or procurement cost.

I’m trying to tell you that the law is the same for carriers of all modes in all theaters of operation, including international trade. The application for international shipments, however, is all but moot because of the treaty-based restrictions on carrier liability.

I acknowledge there’s one circumstance under which the legal aspect of things might come into play: if the goods you’re importing are of unusually low value, so that even the sale price keeps you under the limits. In that case, you’re entitled to collect, as was my original correspondent, provided the sale has been finalized except for the physical delivery.

But I think you’ll agree that’s not the normal circumstance. The law mostly will be trumped by the limitations of the Hague Rules, Warsaw Convention, etc., and your maximum claim against the carrier will be so restricted that the question won’t make a difference as to the value of your claim. 

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.


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