The peril of not declaring the value of cargo in a bill of lading was illustrated in a recent court decision (Outokumpu Stainless USA v. M/V Vegaland. et al. U.S. District Court, S.D. Texas. No. 13-66. May 13.) that grew out of damage to a piece of equipment for a steel mill during an ocean voyage.
Outokumpu Stainless USA, a subsidiary of a Finnish stainless steel maker, purchased a 63-ton tilt drive industrial machine from Siemens-VAI Metal Technologies for installation in its facility in Alabama.
The machine, which the judge in his decision referred to as a “melt shop,” was carried from Genoa, Italy, to Houston by Nordana on the Vegaland, a ship it had time-chartered.
Siemens prepared the machine for shipment. It was wrapped in plastic sheeting, enclosed in a crate made from wooden slats with several inches separating each wooden slat, and mounted to a skid. It was shipped along with two other wooden crates containing components.
Consistent with the summary packaging slip prepared by Siemens, Nordana issued a bill of lading describing the packages to be shipped as three “crates.”
The plaintiff did not declare the value of the cargo on the face of the bill of lading.
While in transit, Vegaland encountered heavy weather, and when the ship arrived in Houston, the cargo was found tipped over on its side and the machinery had experienced significant damage.
Outokumpu filed suit in admiralty on Jan. 9, 2013, claiming $566,740.80 in actual damages to the machinery, and both it and Nordana filed cross-motions for partial summary judgment seeking a determination regarding whether the Carriage of Goods by Sea Act limits Nordana’s liability to $500 per package.
Nordana submitted that the physical packaging of the cargo and the bill of lading establish, as a matter of law, the “melt shop” was a single package under COGSA, while Outokumpu said the melt shop did not constitute a package, and further, Nordana was not entitled to limit its liability because it did not give the plaintiff a fair opportunity to declare a higher value for the cargo.
Nordana maintained the melt shop was packaged for shipping and the plaintiff failed to declare a higher value for the cargo on the bill of lading to avoid additional ad valorem freight charges, despite being given a fair opportunity to do so.
Outokumpu responded the melt shop does not constitute a package, because the nature and value of the equipment were apparent to Nordana such that it should not be entitled to limit its liability to $500. The steelmaker also contended it was not given a fair opportunity to declare a higher value, which should render void the limitation clause in the bill of lading. Additionally, the plaintiff sought to avoid the limitation of liability by making claims of geographic deviation, improper stowage, and spoliation of evidence.
Both parties agreed that COGSA applies, which reads, in part: “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.”
The parties disputed whether the melt shop was a package for purposes of COGSA’s $500-per-package limitation. Specifically, Outokumpu argued the contents of the crate were visible to Nordana, and the carrier was provided with photographs and drawings of the melt shop, and the content of the crate was sufficiently described in the bill of lading to put Nordana on notice that the value of the melt shop exceeded $500.
Nordana argued the cargo was prepackaged for shipment—wrapped in plastic, surrounded by wood slats, and mounted to H-beams to facilitate lashing.
The court said “limitation of a carrier’s liability to $500 per package turns on whether or not the melt shop was a ‘package.’ The statute does not provide any guidance as to what constitutes a package; however, the Fifth Circuit and lower courts have construed the term on a case-by-case basis. In determining whether certain cargo constitutes a package under COGSA, courts have focused on whether the cargo was only partially packaged or fully exposed, whether the cargo was prepared to facilitate handling or shipping, and whether the shipping documents evinced an intent by the parties that the cargo be treated as a package.”
The decision discussed a number of prior decisions, including a 1989 5th Circuit decision where the court upheld a ruling that a rotary drilling rig damaged during the loading of a vessel was not a single package under COGSA (Tamini v. Salen Dry Cargo AB, 866 F.2d 741, 742-43). In that case, the shipper placed wooden crating around vulnerable portions of the drilling rig, covering only a minimal amount of the exterior of the drilling rig, but most of the rig was fully exposed. The rig was free-standing, unattached to a skid or other device meant to facilitate shipping.
The court said this case “presents a close call,” but added in Tamini facts tipped in favor of a finding that the drilling rig was not a package because the cargo was not enclosed in a container, the rig was mostly exposed, there were no appurtenances attached to the cargo to facilitate handling, and transportation charges were calculated on a weight, not per package basis.
Here the court said the melt shop was fully wrapped in plastic and enclosed in a vented wooden slat crate. It was not fully exposed, and it was secured to H-beams designed to facilitate handling during transportation. Further, the freight charges were billed on either a lump sum or weight and measure basis.
Outokumpu’s other arguments also did not prevail and the court granted Nordana’s motion for partial summary judgment, finding the melt shop was a single package under COGSA, thereby limiting Nordana’s liability to $500.
This column was published in the July 2014 issue of American Shipper.