July 2005 | Commentary | Fine Print

Not-So-Friendly Foreign Liability Laws

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William J. Augello, Esq. is an adjunct professor at the University of Arizona's College of Law and author of Transportation, Logistics and the Law.

The United States may be the largest trading nation in the world, but U.S. importers do not always dictate the rules by which imports are governed.

This is especially the case when it comes to establishing carriers' liability for lost, damaged, or delayed shipments originating in foreign countries.

Some foreign nations have adopted novel rules governing freight forwarders and other transportation entities. The transportation organizations in the Nordic nations of Denmark, Finland, Norway, and Sweden, for example, have adopted General Conditions of the Nordic Association of Freight Forwarders—NSAB 2000 to give customers the degree of protection stipulated in 1996 by the International Federation of Freight Forwarders Associations (FIATA) in Model Rules for Freight Forwarding Services.

These FIATA conditions outline customers' rights and obligations as well as freight forwarders' liability under various transport law conventions, such as CIM, CMR, the Hague-Visby Rules, and the Warsaw Convention. These rules apply to all members of national associations affiliated with the Nordic Association of Freight Forwarders, as well as other parties that have agreed to apply these rules.

One of the most important conditions used by the Nordic nations holds freight forwarders liable as carriers when they either perform the carriage of goods, or accept liability as a carrier by performing an act such as issuing a bill of lading in their name.

For these special conditions, freight forwarders act as intermediaries without assuming liability. Under U.S. law, for example, ocean freight forwarders are not considered carriers because they do not issue their own bills of lading.

When Nordic freight forwarders act as the performing or contracting carrier for a shipment, they are liable for all agents and independent contractors they engage. Their liability is limited per kilo to 8.33 SDRs (the standardized monetary unit used by the International Monetary Fund)—approximately $5.67 per pound with one SDR valued at $1.50 per pound.

But if a certain mode has been agreed upon, or if proven loss, depreciation, damage, or delay occurs while goods are carried by a particular mode of transport, freight forwarders are instead liable "in accordance with the law applicable to such mode of transport and the commonly used and generally accepted conditions of carriage."

If the carrier at fault for the loss operates in a deregulated environment—such as the United States—determining precisely the "commonly used and generally accepted conditions of carriage" at the time of the loss can be extremely difficult and costly. Establishing the mode of transport involved, and what the conditions of carriage are at any given time, entails a law suit or arbitration proceeding with testimony from expert witnesses.

Who's Liable?

Shippers arranging shipments from Nordic nations should not blindly agree to these conditions. Instead, shippers should include in their contracts definite liability terms that apply to a shipment from start to finish, regardless of the transport mode.

In the event of cargo loss or damage, cargo owners usually seek to hold carriers liable for the full value of the goods. Buying cargo insurance is not a satisfactory substitute for full carrier liability because insurers that pay a claim to a cargo owner will likely attempt to subrogate against the carrier. If they are unable to recover the claim in full due to a carrier's limited liability, insurers will often increase the premiums or cancel the policy.

Eventually, it will become less expensive to contract for full value with carriers. This is where liability should rest, as carriers are the only party that can control the degree of protection given to goods in transit.

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