A Riddle Wrapped in a Mystery Inside an Enigma

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The oft quoted Winston Churchill certainly had much more formidable concerns at hand when these timeless words were said.  So, how in the world does this involve commodity logistics?   

You could ask any traffic manager and they could probably thumb any point of the supply chain as epitomizing this mantra – origin country overland routes, freight charges, import duties, custom exams, chassis leasing…cargo damage!? 

Cargo loss seems pretty clear cut, but a close examination of the overland carriage regime in the U.S. can quickly lead one to the same conclusion. 

Let’s concentrate on a basic scenario – a known accident that happens on a highway in the U.S.  Who is “in play” when this type of transit loss occurs, besides the innocent owners/shippers of the cargo?   

Most people asked would quickly offer that the trucker is responsible; after all, he was the one driving the truck.  While true that people cannot escape some accountability for their actions, the answer is certainly not that easy. 

While we could relate numerous scenarios, let’s highlight a couple of the more basic and regular events in the coffee and cocoa trade.  Let’s start simple:  Goods moving interstate from a U.S. warehouse to a U.S. manufacturer. 

As you might expect there is plenty of common law to outline the answer. 

Some historical reference:  Back in the nineteenth century the U.S. created the Interstate Commerce Commission (ICC) and consequently the Interstate Commerce Act as a means to initially regulate railroads, but later other modes of commerce as well.  From its onset, the ICC imposed a strict liability (meaning liability for goods lost or stolen except from acts of God or public enemy) on common carriers mainly as a mode to prevent negligence and collusion with thieves. 

In 1906, this act was modified by the Carmack Amendment which basically helped curb the damages sought by cargo owners against carriers which often soared well beyond the value of the goods.  This common law practice continues today, even though the ICC has been subsumed into the Federal Motor Carrier Safety Administration (FMCSA) under the Dept of Transportation.   

So, easy answer, the carrier would be responsible, right?  Maybe – if the accident was not an “act of God” or public enemy. 

What if the carrier did not have insurance?  Up until 2011, carriers were required to file proof of insurance to the FMCSA (albeit a minimum of US$5,000), but this requirement too has now subsided – even though their liability under the law has not.  Better know your carrier or truck broker! 

Luckily the Green Coffee Association’s Traffic and Warehouse committee has established some “Domestic Transportation Best Practices” (see www.greencoffeeassociation.org). 

Now let’s add a wrinkle, let’s take a shipment that a U.S. importer buys FAS foreign port from an overseas supplier delivering directly to the end user in the U.S. under a multimodal Bill of Lading. 

In this situation, a different set of rules will apply as recently affirmed by the U.S. Supreme Court in Kawasaki Kisen Kaisha v Regal-Beloit Corp. (130 S.Ct. 2433, 2011).   

In this case, the Supreme Court ruled that the application of liability was governed by the Carriage of Goods by Sea Act (COGSA) and in specific the “Himalaya clause” in lieu of the commonly expected Carmack Amendment.   

The logic being, as presented by Justice Anthony Kennedy writing for the majority, that if the Bill of Lading requires substantial carriage of goods by sea then the purpose is to effectuate marine commerce.  Therefore, if Carmack was to be applied, State law would pre-empt maritime law.  You could see how quickly that scenario could run amuck. 

Now that the proper liability regime has been established, we now turn to the provisions of COGSA.  Again for simplicity, let’s assume that the most basic COGSA remedy will apply limiting the carrier to a monetary provision of US$500 per customary freight unit – which could be construed to be 1 full container! 

Alas, what can an innocent shipper do?   

Luckily it can purchase cargo insurance.  Cargo insurance will step in and protect the innocent shipper for its agreed valuation, usually the higher of either sales or market price.  After cargo insurers settle the loss with cargo owners, insurers then obtain subrogated rights of cargo owners to go back and collect the correct liability owed by the carrier depending on the situation and conditions of carriage. 

While there are any numerous loss scenarios, defenses a carrier can use, or limitations to liability, fly-by-night truckers or their insurers, cargo insurance can be the known and reliable outcome to an otherwise complex set of laws, regulations, and carriage conventions. 

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