counsel for the road ahead interconnect · 2019-03-29 · in a competitive business environment,...
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The Convention on Contracts for theInternational Carriage of Goods Whollyor Partly by Sea, otherwise known as the“Rotterdam Rules,” was adopted by theUnited Nations General Assembly onDecember 11, 2008. The stated purposeof the Rules is to bring internationaluniformity to the law of carriage of goodsby sea, and to make the law of carriageof goods by sea appropriate and relevantto the modern age of international,containerized, intermodal transportationof goods.
The U.S. has signed the RotterdamRules, but the rules must be ratified bythe U.S. Senate before they can beimplemented. Currently, the rules arestill being reviewed by the U.S. StateDepartment before being presented inthe Senate. When implemented, theRotterdam Rules will, in the U.S.,eliminate the Carriage of Goods by SeaAct (COGSA), which is codified at46 U.S.C. § 30701. This articlehighlights some of the major differencesbetween COGSA and the RotterdamRules.
Scope of Application. The RotterdamRules apply to contracts of carriage formovements between countries, if part ofthe carriage is by water. The rules applyto “all maritime performing parties,”including terminals and harbor-areatruckers. The rules do not apply to
charter parties or other contracts for theuse of any space on a ship. COGSAapplies to port-to-port shipments byocean carriers, but may be extended toinland carriers and subcontractors byHimalaya clauses.
Period of Responsibility. UnderCOGSA, the carrier is responsible onlyduring “the period from the time whenthe goods are loaded on to the timewhen they are discharged from the ship,”or “tackle-to-tackle.” Often, carriershave contractually extended the periodduring which they are liable, resulting in carrier liability beyond the “tackle-to-tackle” portion of carriage. TheRotterdam Rules apply door-to-door(Article 12(1)). By law, the carrier willbe responsible for the entire contractualperiod of carriage, which often meansfrom the carrier’s receipt of the goods atan inland location until the goods aredelivered to an inland location inanother country.
Limitation of Liability. The limitationof liability for cargo loss or damage underCOGSA was set in 1936 at $500 perpackage, “or in case of goods not shippedin packages, per customary freight unit.”Determining what constitutes a“package” under COGSA is confusingand can be controversial. For instance,courts have sometimes held that a largepiece of machinery or even an entire
shipment is one package or onecustomary freight unit. The limitation of liability under the Rotterdam Rules(Article 59) is 875 Special DrawingRights (SDRs) per package or 3 SDRsper kilogram of gross weight, whicheveris greater. The value of an SDR variesdaily, but for example, an SDR value of$1.56 would set the limitation of liabilityat $1,363.37 per package or $4.65 perkilogram, whichever is greater.
Basis of Liability. Under the RotterdamRules, the carrier is liable for loss ordamage or delay, if the claimant provesthe loss, damage or delay (or the event or circumstance that caused orcontributed to it) took place duringcarriage of the goods, unless the carrierproves the cause of the loss, damage ordelay was not its fault. The carrier is also relieved of liability if it proves thatthe loss, damage or delay was caused or contributed to by one of severalexceptions to liability, which are similar,for the most part, to the exceptionsunder COGSA.
SPRING 2011
InterConnectA PUBLICATION OF BENESCH FRIEDLANDER COPLAN & ARONOFF LLP’S TRANSPORTATION & LOGISTICS GROUP
COUNSEL FOR THE ROAD AHEAD®
IN THIS ISSUE:Rotterdam Rules—TheConvention on Contracts for the International Carriage ofGoods Wholly or Partly by Sea
Do I Need More Than One Entity?
Bankruptcy Logistics Part 1
Recent Events
On the Horizon
Rotterdam Rules—The Convention onContracts for the International Carriage ofGoods Wholly or Partly by Sea
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In a competitive business environment,transportation and logistics providers can distinguish themselves by offeringadditional value-added services to theircustomers, ranging from transportationbrokerage towarehousing to airfreight forwardingand more. Onequestion thatinevitably ariseswhen these newservice offerings arecontemplated iswhether the servicesshould be offered through whateverexisting legal entity the provider isalready using or whether a new legalentity should be created to house thenew service offering. For example, amotor carrier may decide to beginoperating as a transportation broker. That motor carrier may simply declarethat it now has a brokerage “division”within its current corporation or limitedliability company. Alternatively, thatmotor carrier may decide to create a
wholly separate (but usually affiliated)corporation or limited liability companythrough which to operate.
Historically, many transportation andlogistics operators housed multiple
operatingauthorities within asingle entity. Doingso was simpler and seemed lessexpensive. Perhapsmost importantly,though, doing so didnot appear to createany truly significant
risk for the operator. However, overtime, many operators have realized thathousing multiple operating authoritieswithin a single entity can create certainstrategic disadvantages. An operator whois thinking of offering a new service willwant to consider many factors including,but not limited to, the following three:
• Asset Protection. Separating theoperations into different entities mayhelp protect the operator’s assets and,
ultimately, overall enterprise value. For instance, a successful warehouseoperator who has built substantialvalue in that warehousing businessmay not wish to expose those assets toany liabilities that might be created bya brand-new transportation operation.While various legal theories mightultimately still permit an injured partyto pursue the warehouse operator,doing so will be made more difficultthrough the formal separation of thebusiness units into different legalentities.
• Operational Confusion. Failing tohouse different service offerings indifferent entities frequently results inan operator failing to identify withclarity which service it is providing ina given transaction. In other words, adisgruntled shipper inevitably claimsthat the provider represented itself as a motor carrier when in fact theoperator believes that it was enteringinto a brokerage arrangement.Segregating different service offeringsin different entities forces an operator(and its sales force) to think clearlyabout the services that it is offeringand to document those services
2 COUNSEL FOR THE ROAD AHEAD®
“… over time, many operators haverealized that housing multipleoperating authorities within a singleentity can create certain strategicdisadvantages.”
Do I Need More Than One Entity?
COGSA does not explicitly addressdelays. Under the Rotterdam Rules,delay is defined in Article 21 as asituation when goods are not delivered“within the time agreed.” This impliesthat if the parties do not agree upon aspecific delivery time, there can be noclaim based on delay.
Under COGSA, a carrier was not liablefor cargo loss or damage if such loss or damage was caused by an error ofnavigation. Under the Rotterdam Rules,there is no exception based on an errorin navigation.
Under COGSA, if the carrier performeddue diligence to make the vesselseaworthy prior to voyage, the carrierwas considered free from negligence and exempt from liability. Under theRotterdam Rules, the obligation toexercise due diligence in making thevessel seaworthy continues throughoutthe voyage.
Time for Suits. Under COGSA, thetime period during which litigation canbe commenced is one year from date ofdelivery or the date the goods shouldhave been delivered. The RotterdamRules provide for a two-year time limitfor commencement of proceedings.
The Rotterdam Rules contain manyother items that will be of interest toboth shippers and carriers. However, theforegoing summary provides an initial,meaningful, representative sampling ofthe changes contained in the RotterdamRules as they compare to the currentU.S. laws under COGSA. Only time willtell when and if the U.S. Senate ratifiesthe new rules and they become the newlaw of the land.
For more information, please contactMartha Payne at [email protected] (541) 764-2859 or Teresa Purtiman at [email protected] or (614) 223-9380.
Rotterdam Rules—The Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea
continued from page 1
Chapter 11, together with Chapter 7, arethe most familiar formal methods forrestructuring or liquidating a failingbusiness. Informally, businesses often justshut down operations—leaving theircreditors with no process to collect ontheir debts. If the failing business had a bank or a factor financing theiroperations, there is typically not much left over for any unsecured creditors. This“Part 1” of Bankruptcy Logistics addressessome of the unique issues for carriers,warehousemen and 3PLs (third partylogistics providers) in the formal Chapter7 and Chapter 11 processes—processesakin to chess and backgammon in respecting priority of position, but not dissimilar to horseshoes!
Traditional Carriers
Under the Uniform Commercial Codeand State statutes, carriers in possessionof freight—where the costs of shipmenthave not yet been paid—have rights toretain possession and enforce lien rights.The extent of those lien rights dependson the language in the contract (and billof lading) between you and your shipper.Oftentimes in Chapter 11 cases, theshipper/debtor files a motion with the
bankruptcy court to continue to paycarriers to address this “in route” lienissue. If you have expanded contractuallien rights, you will have better leveragein this process.
Warehousemen
The same goes for warehousemen, aprofession that is very broadly definedunder the Uniform Commercial Codeand state statutes. So long as warehousereceipts with the requisite data are beingprovided to shippers, the costs associatedwith storage are given priority and can be enforced. Critically, section546(i)(1) of the Bankruptcy Codeprovides that “the trustee may not avoid a warehouseman’s lien for storage,transportation, or other costs incidental tothe storage and handling of goods.” Thebenefits of falling in this category cannotbe understated, since this creates animmunity to preference actions andother “avoidance actions” by either thedebtor or its subsequent trustee in aChapter 11 or Chapter 7 proceeding.
Third Party Logistics Providers
Third party logistics providers (3PLs)often lack any special rights directly
(with the exception of granted rights in documents of title for ocean and rail shipments). However, depending on your level of integration with thedebtor’s operation—and your leverage, if you have it, to no longer provideservices—you may have a conversationwith the debtor on being treated as a“critical vendor.” While this may createan opportunity to get paid for oldinvoices, it is by no means a “freelunch.” There are many stringsassociated with critical vendor status:Bad planning can make whateveramounts you get up front not worth the back-end risk. Think before you leap!
Preference Actions
All of you have probably received a“clawback letter”—a letter from a trusteein a bankruptcy case requesting thereturn of funds received in the 90 daysprior to the filing of the bankruptcy. The next InterConnect will highlighthow you use these special rights andleverage points to deal with these trustee preference demands. In themeantime…know your rights.
For more information, please contact DavidNeumann at [email protected] or (216) 363-4584.
InterConnectA PUBLICATION OF BENESCH FRIEDLANDER COPLAN & ARONOFF LLP’S TRANSPORTATION & LOGISTICS GROUP SPRING 2011
COUNSEL FOR THE ROAD AHEAD® 3
Bankruptcy Logistics Part 1
accordingly. Furthermore, as apractical matter, the operator may find that it is much easier to track and evaluate the respective profit and loss for each service offering if the operator houses the serviceofferings in separate entities.
• Insurance. Certain insurancecompanies may be reluctant tounderwrite certain types of risk, or maycharge higher premiums, if an operatorfails to house operating authorities inseparate entities. Such insurers mayconclude that failing to establishseparate entities is an indication thatthe operator is not clearly delineating
what services it is providing in anygiven circumstance. Such practicescan create unnecessary risk. Forinstance, a motor carrier insurer mayfind itself paying for defense costsassociated with a brokerage claim.Moreover, in light of the recent claimsthat have been successfully broughtagainst transportation brokers fornegligent selection, the cost ofcontingent cargo and contingentautomobile insurance will likelycontinue to rise. Therefore, the growthof an insured’s brokerage businesscould increase the size of premiumsgoing forward if the service offeringsremain housed in the same entity.
In short, many good reasons exist for anoperator to give serious consideration toseparating its various service offerings intoseparate legal entities (i.e., ABC Companyfor motor carrier services, XYZ Companyfor transportation brokerage services, etc.).The steps involved in implementing thisstructure are not necessarily complex ordifficult, but can certainly provide anoperator with a range of strategicadvantages. It is never too late!
For more information, please contact MarcBlubaugh at [email protected] or (614) 223-9382.
For more information about theTransportation & Logistics Group,please contact one of the following:
Eric Zalud, Chair | (216) [email protected]
Marc Blubaugh | (614) [email protected]
James Hill | (216) [email protected]
Thomas Kern | (614) [email protected]
Peter Kirsanow | (216) [email protected]
Andi Metzel | (317) [email protected]
David Neumann | (216) [email protected]
Lianzhong Pan | (011-8621) 3222-0388 [email protected]
Martha Payne | (541) [email protected]
Rich Plewacki | (216) [email protected]
Teresa Purtiman | (614) [email protected]
Nicole Schaefer | (216) [email protected]
Clare Taft | (216) [email protected]
Yanping Wang | (216) [email protected]
Thomas Washbush | (614) [email protected]
E. Mark Young | (216) [email protected]
The content of the Benesch, Friedlander, Coplan & Aronoff LLP InterConnect Newsletter is for general informationpurposes only. It does not constitute legal advice or create an attorney-client relationship. Any use of this newsletteris for personal use only. All other uses are prohibited. ©2011 Benesch, Friedlander, Coplan & Aronoff LLP. All rightsreserved. To obtain permission to reprint articles contained within this newsletter, contact Ellen Mellott at (216) 363-4197.
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On the HorizonMarc Blubaugh will be presenting Freight Loss and Damage Workshop and Martha Payne willserve as a panelist for the International Shipping – Air and Ocean Panel at the Transportationand Logistics Council/Transportation Loss Prevention & Security AssociationAnnual Conference in St. Louis, MO, on April 3–6, 2011. Eric Zalud will also be attendingand speaking on freight brokerage issues. Additionally, Martha will be attending the meeting ofthe Board of Directors of the Transportation Loss Prevention & Security Association. Martha Payne and Eric Zalud will be attending the Transportation IntermediariesAssociation 33rd Annual Trade Show & Convention in Orlando, FL, on April 6–9, 2011.Eric Zalud will be speaking on the Legal Panel on vicarious liability issues.Teresa Purtiman will be attending the National Private Truck Council 2011 EducationManagement Conference & Exhibition in Cincinnati, OH, on April 17–19, 2011.Marc Blubaugh will be presenting Playing Your Aces: F4A Preemption – New Developments toHelp You Use It As a Shield and a Sword at the Transportation Lawyers Association Annual Conference in Las Vegas, NV, on May 10–14, 2011. David Neumann, Martha Payne and Eric Zalud will also be attending. Marc and Eric will also be attending the TLAExecutive Committee Meeting, and Eric is the Co-Chair of the educational program. Teresa Purtiman will be attending the Messenger Courier Association of America’sConference in Las Vegas, NV, on May 11–14, 2011. Rich Plewacki will be attending the American Trucking Association LeadershipMeeting in White Sulphur Springs, WV, on May 15–17, 2011.Martha Payne will be attending the Cargo Business News Northwest IntermodalConference in Portland, OR, on May 17–18, 2011.
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Recent EventsMartha Payne and Eric Zalud attended the Conference of Freight Counsel Meeting inOrlando, FL, on January 9–10, 2011.Marc Blubaugh, Clare Taft, Teresa Purtiman and Eric Zalud attended the TransportationLawyers Association Regional Meeting in Chicago, IL, on January 21, 2011. Marc Blubaugh moderated a panel discussion, Out of the Frying Pan and Into the Fire:Transportation Challenges in 2011, for the Columbus Roundtable of the Council of Supply Chain Management Professionals in Columbus, OH, on January 28, 2011.Rich Plewacki presented Upon Further Review: Winning with an IC Model and Eric Zaludpresented Dealing With Brokers, Acting As a Broker and Doing it Right! at the National TankTruck Carriers Winter Membership and Board of Directors Meeting in Indian Wells,CA, on February 9–11, 2011. Marc Blubaugh and Eric Zalud attended the BB&T Capital Markets 26th AnnualTransportation Services Conference in Coral Gables, FL, on February 16–17, 2011.Martha Payne attended the Oregon State Bar Annual Mid-Year CLE: Update onGovernment, the Public Sector and Immigration Law in Gleneden Beach, OR, onFebruary 25, 2011.Marc Blubaugh spoke on a panel entitled Innovation Strategies and Solutions at the InternationalWarehouse Logistics Association Annual Convention in St. Petersburg, FL, on March6–8, 2011. Eric Zalud was also in attendance.David Neumann, Martha Payne and Eric Zalud attended the 2011 AirCargo Conferenceand Tradeshow in San Diego, CA, on March 10–12, 2011.Jim Hill, Rich Plewacki and Eric Zalud attended the Truckload Carriers AssociationAnnual Convention in San Diego, CA, on March 13–16, 2011.Eric Zalud attended the Council of Litigation Management Annual Conference in New Orleans, LA, on March 23–25, and participated in the Transportation Committee there.