Wednesday, November 18, 2015

Stormy Weather

Container ship lost in hurricane points out limits of ocean carrier liability.

Container ships are big – but hurricanes are bigger. When the two come together, shippers have very limited recourse against the ocean carriers for the value of their goods.

Hurricane Patricia, which just slammed into Mexico’s Pacific coast, was the most powerful on record, with sustained winds over 200 mph, and blew up virtually overnight. Hurricane Joaquin, less than a month earlier, claimed a 790-ft. Freighter ship, El Faro, as a victim, sinking with the loss of all 33 crew members aboard. While it is rare for container ships to be lost, virtually without a trace in the case of El Faro, they also collide, run aground, are pirated or submerge without disappearing. In 2014, 49 ships “foundered,” which includes sinking or submerging, the largest category of ship losses.

And many ocean containers are lost overboard when cargos shift, most often in heavy weather. Exact numbers are difficult to pin down – carriers are understandably reluctant to work very hard to spread the news when they drop a consignee’s freight over the side. Between 2011 and 2013, the World Shipping Council estimates the average annual loss at approximately 733 containers, more than two a day, not counting “catastrophic events” where an entire ship load was lost, and approximately 2,683 per year including catastrophic events. Some estimates are considerably higher.

Under the Carriage of Goods by Sea Act, or COGSA, which governs most maritime shipping to or from U.S. ports, the carrier’s liability is limited to $500 “per package.” What constitutes a package has been the subject of continued litigation, with some courts agreeing with carriers that the container itself is the package. “If the bill of lading does not reveal the number of packages in the container, then the container itself could be the package for limitation purposes,” found one court.

So if your container loads are worth more than $500, don’t count on the carrier for insurance coverage, and do take a look at your bills of lading the way a judge might. Shippers do have the option of purchasing their own cargo insurance, and TOTALogistix can assist with this process.

Be careful; there’s some stormy weather out there.

Kirk Shearer
TOTALogistix <>
800-989-0054 x103

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