A legal and economic analysis of the volume contract concept under the rotterdam rules: Selected issues in perspective

Journal of Maritime Law and Commerce

Volumn 40, Issue 4, 2009, Pages 579-607

  Mukherjee, Proshanto K ^a   Bal, Abhinayan Basu ^a  

^a WORLD MARITIME UNIVERSITY   (Sweden)

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EID: 76949084269     PISSN: 00222410     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (84)

1. See Michael F. Sturley, "Uniformity in the Law Governing the Carriage of Goods by Sea" (1995) 26 J. Mar. L. & Com., at p. 553;
2. Paul Myburgh, "Uniformity or Unilateralism in the Law of Carriage of Goods by Sea?" (2000) 31 VUWLR, at p. 355;
3. William Tetley, "The Proposed New United States Senate COGSA: The Disintegration of Uniform Carriage of Goods by Sea Law" (1999) 30 J. Mar. L. & Com., at p. 595.
4. The International Convention for the Unification of Certain Rules Relating to Bills of Lading, 25 August 1924, 1924, 51 Stat. 233, T. S. No. 931, 120 L. N. T. S. 155, hereinafter referred to as the "Hague Rules."
5. The Protocol to Amend the International Convention for the Unification of Certain Rules Relating to Bills of Lading 1924, 23 February 1968, 1421 U. N. T. S. 121, 1977 Gr. Brit. T. S. No. 83 (Cmnd. 6944) (entered into force 23 June 1977), hereinafter referred to as the "Hague-Visby Rules.
6. United Nations Convention on the Carriage of Goods by Sea, 31 March 1978, 17 I. L. M. 608, hereinafter referred to as the "Hamburg Rules." The Hamburg Rules was a product of the efforts of United Nations Conference on Trade and Development (UNCTAD) and UNCITRAL with little input from the CMI. See David C. Frederick, "Political Participation and Legal Reform in the International Maritime Rulemaking Process: From the Hague Rules to the Hamburg Rules", (1991) 22 J. Mar. L. & Com. 81, at pp. 103-106 (contrasting the U. N. negotiating process that produced the Hamburg Rules with the earlier processes that produced the Hague and Hague-Visby Rules).
7. China, one of the world's largest trading nations, has a national maritime code that incorporates elements of both the Hague-Visby and Hamburg Rules along with domestic elements that are unique to Chinese law. Some countries have incorporated significant elements of the Hamburg rules into their domestic versions of the Hague-Visby Rules. See for example, S. Hetherington, "Australian Hybrid Cargo Liability Regime" (1999) LMCLQ, at p. 12;
8. J. Ramberg, "New Scandinavian Maritime Codes" (1994) Dir. Mar., at p. 1222;
9. Rok Sang Yu & Jongkwan Peck, "The Revised Maritime Section of the Korean Commercial Code" (1999) LMCLQ, at p. 403;
10. Li, "The Maritime Code of the People's Republic of China" (1993) LMCLQ, at p. 204
11. In Hyeon Kim, "Korean Maritime Law Update: 2007 - Focused on the Revised Maritime Law Section in the Korean Commercial Code", (2008) 39 J. Mar. L. & Com., at p. 433.
12. See for example, Francesco Berlingieri, "The Hamburg Rules: A Choice for the EEC"?, International Colloquium held by European Institute of Maritime and Transport Law on 18 and 19 November, 1993.
13. For much of the 1980s and 1990s, while advocates of the Hague-Visby and Hamburg Rules battled over the direction that cargo liability law should take many observers viewed the CMI and UNCITRAL as rivals, at least on this issue. But UNCITRAL's return to the field of transport law has been in active partnership with the CMI. Since 1998, the two organizations have been fully cooperative allies seeking to develop a new international convention that will be widely acceptable to the world maritime community. The two organizations have their unique strengths; CMI has greater access to industry representatives, while UNCITRAL mainly works with government representatives and international organizations. Thus, by joining their efforts they have paved the path for building necessary consensus for the widespread adoption of a new convention. For a comprehensive explanation of the interrelationship between these two bodies, see Michael F. Sturley, "The United Nations Commission on International Trade Law's Transport Law Project: An Interim View of a Work In Progress", (2003) 39 Tex. Int'l L. J. 65, at p. 69.
14. The final text of the Convention (hereinafter Rotterdam Rules) is annexed to General Assembly Resolution 63/122, UN Doc A/RES/63/122. It was also annexed to the "Report of the United Nations Commission on International Trade Law on the work of its forty-first session", UN Doc A/63/17 (2008), Annex I.
15. In present times, more than half of the world's merchant ships (measured by tonnage) are registered under open registries. Panama, Liberia and Bahamas, all developing states, are the leading open registries in the world.
16. Article 1 (1) of the Rotterdam Rules defines "contract of carriage" as "a contract in which a carrier, against the payment of freight, undertakes to carry goods from one place to another. The contract shall provide for carriage by sea and may provide for carriage by other modes of transport in addition to the sea carriage."
17. See in particular article 3 (8) of the Hague/Hague-Visby Rules and article 23 of the Hamburg Rules. @12 See "Preliminary draft instrument on the carriage of goods by sea", UN Doc A/CN.9/WG. III/WP.21, article 17.1,".... any contractual stipulation that derogates from this instrument is null and void, if and to the extent that it is intended or has as its effect, directly or indirectly, to exclude, [or] limit [, or increase] the liability for breach of any obligation of the carrier, a performing party, the shipper, the controlling party, or the consignee."
18. See, "Proposal by the United States of America, Ocean liner service agreements", UN Doc A/CN.9AVG. III/WP34, paras. 18-29, at pp. 6-9.
19. The Shipping Act of 1984, 46 U. S. C. App. § 1701-1719, as amended by the Ocean Shipping Reform Act of 1998, Pub. L. 105-258, 112 Stat. 1902 (1998).
20. The U. S. Senate COGSA '99 (September 24, 1999) defines service contract by reference to the Shipping Act of 1984.
21. Ibid..
22. See Marc Levinson, "Two Cheers for Discrimination: Deregulation and Efficiency in the Reform of U. S. Freight Transportation, 1976-1998" published by Oxford University Press on behalf of the Business History Conference (2008), at p. 178.
23. Prior to the deregulation process in the United States, a body of theoretical work grew to support claims from ocean carriers, bolstering the argument that they required antitrust immunity. See Stephen Craig Pirrong, "An Application of Core Theory to the Analysis of Ocean Shipping Markets", 35 J. L. & Econ. 89 (1992); William Sjostrom, "Antitrust Immunity for Shipping Conferences: An Empty Core Approach", Antitrust Bull., Summer 1993, at p. 419.
24. For example, Elizabeth E. Bailey, 'Price and Productivity Change Following Deregulation: The US Experience' The Economic Journal, Vol. 96, No. 381 (1986), at p. 15, asserts that "the 'losers' from deregulation have been far fewer than might have been imagined... the 'gainers' have included business users most of all as cross-subsidy has ended..." A criticism against Bailey is that she ignores the possibility that businesses could lose from deregulation if their relative freight costs rose as compared to other domestic companies or to competing importers, even if their freight costs fell in absolute terms.
25. Paul W. MacAvoy, Industry regulation and the performance of the American economy New York: W. W. Norton, (1992), focuses entirely on the efficiency gains from a macro perspective. From a road transport perspective some authors find that freight transport deregulation brought large economic gains to shippers but add that "the distributional effects that probably exist between small and large shippers make it very unlikely that all shippers have shared in the benefits;" on the distributional point, however, they present no evidence; see Clifford Winston, Thomas M. Corsi, Curtis M. Grimm, Carol A. Evans, The Economic Effects of Surface Freight Deregulation, Brookings Institution Press (1990), at p. 41.
26. Mark H. Rose, Bruce E. Seely, and Paul F. Barrett, The Best Transportation System in the World: Railroads, Trucks, Airlines, and American Public Policy in the Twentieth Century, Columbus: Ohio State University Press, (2006) at pp. 212-239, ignore discrimination in the wake of deregulation altogether.
27. Richard Vietor, Contrived Competition: Regulation and Deregulation in America, Belknap Press (1996) at p. 320
28. emphasizes that deregulation destroyed existing market segmentation and forced companies to devise new strategies for segmenting markets, although he does not discuss freight specifically. Laurence T. Phillips, 'Contractual Relationships in the Deregulated Transportation Marketplace' 34 Journal of Law and Economics, (1992), at pp. 535-564
29. undertakes a many-faceted examination of the role of contracts in freight transportation, albeit with only minimal evidence on contracts between carriers and shippers. Marc Levinson, supra note 17, at p. 179 asserts that studies of the cost impact of maritime deregulation are almost totally lacking, due to unavailability of accurate public information about freight costs.
30. The Shipping Act of 1984 of the United States, 46 U. S. C. app. § 1702 (7) (2001) defines conference as "an association of ocean common carriers permitted, pursuant to an approved or effective agreement, to engage in concerted activity and utilize a common tariff; but the term does not include a joint service, consortium, pooling, sailing, or transhipment arrangement."
31. The Calcutta Conference was the first and was created at the urging of the steamship leader Sir Samuel Cunard. There is evidence of prototypical conferences existing as early as the 1850s, though they were not modern in the sense that they seem never to have agreed on prices or output. See Chris Sagers, "The Demise of Regulation in Ocean Shipping: A Study in the Evolution of Competition Policy and the Predictive Power of Microeconomics' 39 Vand. J. Transnat'l L. 779, footnote 37.
32. See supra note 17, at p. 201.
33. U. S. Federal Maritime Commission, "Section 18 Report on the Shipping Act of 1984", September 1989 at p. 130.
34. U. S. Federal Maritime Commission, "The Impact of the Ocean Shipping Reform Act of 1998", September 2001, at p. 84.
35. Ibid., at pp. 21-22.
36. See Hayden G. Stewart, and Fred S. Inaba, "Ocean Liner Shipping: Organizational and Contractual Response by Agribusiness Shippers to Regulatory Change." Agribusiness 19 (2003) at p. 462.
37. Data on contracts signed by shipper associations are from American Shipper, Feb. 1992, at p. 42.
38. See supra, note 25.
39. Information gleaned through personal communications with Mr. Nicholas DiMichael.
40. Article 1 (14) of the Rotterdam Rules defines "transport document" as a document issued under a contract of carriage by the carrier that: (a) Evidences the carrier's or a performing party's receipt of goods under a contract of carriage; and (b) Evidences or contains a contract of carriage.
41. Article 1 (18) of the Rotterdam Rules defines "electronic transport record" as information in one or more messages issued by electronic communication under a contract of carriage by a carrier, including information logically associated with the electronic transport record by attachments or otherwise linked to the electronic transport record contemporaneously with or subsequent to its issue by the carrier, so as to become part of the electronic transport record, that: (a) Evidences the carrier's or a performing party's receipt of goods under a contract of carriage; and (b) Evidences or contains a contract of carriage.
42. "Liner shipping" is an industry term of art which means regularly scheduled common carriage of cargo by sea, which is now by far the predominant means of ocean transport but which has only existed since about the time of the Civil War; see Amos Herman, Shipping Conferences, Deventer, Netherlands; Boston: Kluwer Law and Taxation Publishers, (1983). Article 1 (3) of the Rotterdam Rules defines "liner transportation" as a transportation service that is offered to the public through publication or similar means and includes transportation by ships operating on a regular schedule between specified ports in accordance with publicly available timetables of sailing dates.
43. Article 1 (4) of the Rotterdam Rules defines "non-liner transportation" as any transportation that is not liner transportation.
44. See D Rhidian Thomas, "The Emergence and Application of the Rotterdam Rules", Proceedings from the International Colloquium on Cargo Claims under the International Conventions from the Hague to the proposed Rotterdam Rules, 10-11 September 2009, at p. 7.
45. Gleaned from personal communications with Professor G. J. van der Ziel.
46. Ibid..
47. In terms of the Rotterdam Rules, such FOB seller is a 'documentary shipper.'
48. The CoA is viewed as a contract for the use of a ship, which in this example is actually six ships.
49. In Pyrene Co Ltd v. Scindia Navigation Co Ltd [1954] 2 Q. B.402 Devlin J. identifies three varieties of FOB contract of sale.
50. See also Charles Debattista, Bills of lading in Export Trade, Tottel Publishing (2008), at p. 9-11.
51. The preface to the resolution adopted by the General Assembly during the adoption of the Rotterdam Rules considers this by pointing out"... Believing that the adoption of uniform rules to govern international contracts of carriage wholly or partly by sea will promote legal certainty, improve the efficiency of international carriage of goods and facilitate new access opportunities for previously remote parties and markets, thus playing a fundamental role in promoting trade and economic development, both domestically and internationally,...;" see Resolution adopted by the General Assembly on the report of the Sixth Committee (A/63/438), United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, UN Doc. A/RES/63/122.
52. See Peter Marlow, Rawindaran Naira, "Service contracts - An instrument of international logistics supply chain: Under United States and European Union regulatory frameworks", Marine Policy 32 (2008) at p. 493.
53. See for example, Proposal by the Netherlands on the application door-to-door of the instrument, UN Doc A/CN.9/WG. III/WP.33, para. 1 (c).
54. Article 1 (5) of the Rotterdam Rules defines "carrier" as a person that enters into a contract of carriage with a shipper.
55. Article 1 (7) of the Rotterdam Rules defines "maritime performing party" as "a performing party to the extent that it performs or undertakes to perform any of the carrier's obligations during the period between the arrival of the goods at the port of loading of a ship and their departure from the port of discharge of a ship. An inland carrier is a maritime performing party only if it performs or undertakes to perform its services exclusively within a port area."
56. Article 1 (8) of the Rotterdam Rules defines "shipper" as "a person that enters into a contract of carriage with a carrier."
57. Article 1 (11) of the Rotterdam Rules defines "consignee" as "a person entitled to delivery of the goods under a contract of carriage or a transport document or electronic transport record."
58. Article 1 (13) of the Rotterdam Rules defines "controlling party" as "the person that pursuant to article 51 is entitled to exercise the right of control."
59. Article 1 (10) of the Rotterdam Rules defines "holder" as:" (a) A person that is in possession of a negotiable transport document; and (i) if the document is an order document, is identified in it as the shipper or the consignee, or is the person to which the document is duly endorsed; or (ii) if the document is a blank endorsed order document or bearer document, is the bearer thereof; or (b) The person to which a negotiable electronic transport record has been issued or transferred in accordance with the procedures referred to in article 9, paragraph 1."
60. Article 1 (9) of the Rotterdam Rules defines "documentary shipper" as "a person, other than the shipper, that accepts to be named as "shipper" in the transport document or electronic transport record."
61. The status of a third party is regulated in article 80 (5). See infra, p. 17.
62. See, "Report of Working Group III (Transport Law) on the work of its twenty-first session", UN Doc A/CN.9/645, paras. 243-245.
63. See definition of contract of carriage in article 1 (b) of the Hague/Hague-Visby Rules.
64. But, as said previously, often there is no genuine third party involved.
65. See for example, "View of the European Shippers' Council on the Convention on Contracts for the International Carrying of Goods Wholly or Partly by Sea also known as the 'Rotterdam Rules, '" March 2009 (hereinafter view of the ESC on Rotterdam Rules) and the CLECAT Position Paper "The European Voice of Freight Logistics and Customs Representatives", 11 May 2009, both available online at http://www.uncitral.org/uncitral/en/uncitral-texts/ transport-goods/2008rotterdam-rules.html.
66. See, article 80 (5) of the Rotterdam Rules.
67. See "Comments received from Governments and intergovernmental organizations - States - Australia - 14 April 2008", UNICTRAL 41st session, New York, 16 June - 3 July 2008, UN Doc A/CN.9/658, para.9.
68. See "Comments from the UNCTAD Secretariat on Freedom of Contract", UN Doc A/CN.9/WG. III/WP.46, paras 5 and 12. Also see "Report of Working Group III (Transport Law) on the work of its eleventh session", UN Doc. A/CN.9/526, para 209.
69. See for example, view of the ESC on Rotterdam Rules, supra note 59.
70. See also, Hannu Honka, "Scope of Application, Freedom of Contract", CMI Year Book 2009, p. 266.
71. See supra note 56, para. 245. In the interest of obtaining a consensus on volume contracts, the delegations of France, the United States of America, Denmark, Finland, Japan, the Netherlands, Norway, Spain and Sweden circulated a revised text of article 80 during the final reading of the draft convention at the 21st session of Working Group III in Vienna. It was circulated as a conference room paper contained in A/CN.9/WGIII/XXI/CRP.4. The definition of volume contract in article 1 (2) was made acceptable to the Working Group as a part of the compromise package regarding the limitation on the carrier's liability. This compromise was based on a proposal submitted by 33 delegations and it was agreed among them that no aspect of the compromise package would be reopened at the 41st session of the UNCITRAL Commission; see A/CN.9/WGIII/XXI/CRP.5.
72. The United States delegation persistently attempted to persuade the Working Group to adopt this view. See Mary Helen Carlson, "U. S. Participation in the International Unification of Private Law: The Making of The UNCITRAL Draft Carriage of Goods by Sea Convention", 31 Tul. Mar. L. J. 615, (2007) at p. 636.
73. The authors acknowledge the contribution of Mr. Nicholas DiMichael to the information and opinions expressed in this paragraph.
74. Long-term, larger quantities may lead to economics of scale because larger ships may result in lower costs per TEU. Short-term, larger quantities will increase the level of occupancy of a vessel. Each vessel, however, has in a certain trade an optimal occupancy level in the order of 85-90 per cent of its theoretical total capacity. When the occupancy increases beyond such optimum, the costs connected with shifting containers in ports during loading/unloading operations may become higher than the gross profit margin of the containers that are carried beyond the optimal number.
75. It may be as low as 0.1 per cent of the cost price of carriage. Supra, note 34.
76. Supra, note 34.
77. As explained earlier in section 3 above, "rate agreements" here refers to cargo carried either under the agreed rates or under lower spot rates.
78. Supra, note 34.
79. Ibid..
80. During the UNCITRAL Working Group III deliberations some delegations favoured complete exclusion of volume contracts from the reach of the Rules. Incidentally, the United States delegation was opposed to this view. See supra, note 56, paras. 235-242.
81. Supra, note 66.
82. This expression simply means that the welfare of the people is the supreme law.
83. The Hague Rules, the Hague-Visby Rules and the Hamburg Rules.
84. United Nations Convention on International Multimodal Transport of Goods, May 24, 1980, U. N. Doc. TD/MT/CONF/16 (1980).