Effects of the Implementation of the Rotterdam Rules - Essay Example

Effects of the Implementation of the Rotterdam Rules On September 23, 2009 the maritime industry put into practice a new set of rules and regulation termed as Rotterdam Rules, when 15 countries ratified the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea. These rules are set to replace the Hague rules of 1924 and the Hague-Visby and Hamburg Rules of 1978. In addition these rules will also replace country specific rules like the US Carriage of Goods by Sea Act 1936 and similar other legislations (Darling, 2009). After coming into effect these changes are bound to reflect on different stakeholders in the maritime business. With an increase in business activities, all around the globe, the sea route has become very busy and active, thus generating more demand for regulations and expertise in Maritime law. Container and shipping industry is capital intensive business and requires huge amount of investment to start the business. Safety and environmental concerns obviously result in high levels of regulations for the industry. It took well over seven years for the U.N. Commission on International Trade Law (UNCITRAL) and its Working Group III on Transport Law, to deliberate on the nuances of the new legislation for the shipping industry. Subsequently the Comit Maritime International (CMI) took another four years of preparatory work to pave the way for the United Nations to adopt the 'Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea' in December 2008 meeting (Sturley, 2009). The Rotterdam convention is bound to have an impact on different stakeholders in the maritime business in varying measures, depending upon a number of factors. The Cargo owners are certainly an important part in this business. With projections of the global marine industry to be worth $924.5 billion by the year 2013, registering an increase of 23.4 percent since 2008, the Rotterdam rules are bound to play a crucial role in the marine industry (Datamonitor, 2009). Futuristic projections say that the global marine industry is bound to witness a volume of about 21.7 in the year 2013, which makes the role of cargo owners all the more crucial. In fact Rotterdam rules are seen the first serious attempt to replace the age old maritime rules with a new set of modernistic guidelines to make the maritime business more attractive and less speculative. With trade volumes increasing as we move along in the 21st century, the global marine trade has been growing at a rapid pace. Research reports indicate that the rate of growth between 2004 and 2006 had been quite attractive, but subsequent years saw decline owing to the prevalence of all round recessionary trends. Though the recession is far from over yet, but the industry is witnessing higher volume of trade in the recent months. Rotterdam has got the honours of hosting the UN Convention because of its being one of largest ports around the world. In fact, the traditional competition for the best and largest has been between Rotterdam and Singapore. But, the phenomenal rise of China in global trade has made Shanghai as a tough competitor for being the number one port in terms of cargo handling. More movement of goods and services due to the trend amongst the MNCs to manufacture products in countries like China and then transport it back to the western world or Europe, implies greater opportunity for the shipping industry. As per the United Nation estimates, the shipping industry was able to move 8 billion tons of cargo in 2007. This amounts to about 80 percent of the volume of world trade. Oil comprised of the main cargo shipment followed closely by iron ore and coal (UN, 2009). The cargo owners have therefore a big role in carrying forward the globalisation and liberalisation regime. Rotterdam rules have brought about a series of changes in the existing framework while making provisions for emerging situations in the increased transportation of the goods around the world. Some of the key changes which will impact the cargo owners are; i. The 'navigational fault' clause of the old regime had been criticised for many years which allowed a shipping carrier to get away from the liability of cargo damage caused due to the negligence of crew members during the navigation or management. But in the Rotterdam rules this clause has been eliminated, which effectively means that now the shipping carrier will be held responsible for any fault to the cargo on account of mismanagement of the vessel or some shortcomings during navigation. Such changes appear perfectly in line with the professional management approach, considered a hallmark of the 21st century (Sturley, 2009). While on the one hand this change will mean more reliable shipment, the cargo owners too are bound to be benefitted in terms of more profitability and better customer care. The main line of defence forwarded by the carrier companies in such matters is that once the voyage has started, the company is powerless in controlling the vessel. But, in an era when science and technology has made so much advancement, such claims appear far traditional. Now we know about remote control messages controlling the vessel during emergency periods and the navigation has become far smoother. Under the existing U.S Carriage of Goods by Sea Act (COGSA) and Hague rules the obligation of carrier was to see only that the vessel is in good condition till the commencement of the voyage, but now the carrier will be obliged to ensure good condition of the vessel even while at high seas and the obligation extends to the full duration of the journey. ii. Customers of the services for the shipping and container industry include big corporate houses and manufacturers. In today's competitive environment what these companies require is timely delivery of goods. This would make these companies quite demanding at times, and the container industry would be on their toes to provide efficient services. But, this is a rule rather than an exception during these times of competition. Therefore, the new sets of rules have tried to address different aspects of the trade. Rotterdam rules are clearer in regard to the responsibility and accountability in case of a stranded ship, stolen containers or damage to shipments. The rules increase the liability of the carrier towards the cargo and also hold other parties like the stevedores jointly liable with the carrier. Rotterdam rules have tried to implement timeliness in shipping and deliverance of the cargo. iii. The claim procedure has been made simpler in the new rule book. This will help the cargo owners in claiming the damages if their shipment gets damaged. This is bound to boost the profitability of cargo owners. With increasing threat of sea-pirates, particularly through the sea route via the Indian Ocean and Gulf of Aden, where Somali pirates are quite active, the safety and security of cargo has become quite an issue of late. The rising insurance costs have become big threat for the profitability of the industry. For the last more than a year, recessionary trends have impacted the trade and commerce worldwide. In the coming days this might become somewhat leaner, implying some more movement of goods and services for the industry. Simpler claim procedures would imply more credibility for carriers. iv. Rotterdam rules also make it simpler for the cargo owners, in terms of the paper work for booking of cargo. Cargo owners have a key role in maintaining high standards of shipping, at time complex legal and practical difficulties lead to undue delay in shipment. The new rules make it simpler for the transportation to take place through sea route or through alternative route. This helps in retaining one contract for multi-model transportation of the goods. v. E-business, e-commerce or m-commerce are the latest additions to the manner which businesses are carried out around the globe. Rules governing the shipping industry till now did not have any specific provision for such types of businesses. But the Rotterdam rules help in inking the rules governing electronic transmission of documents. Now, the cargo owners can also ship certain categories of the consignments without having the mandatory physical documentation papers. Now it is possible for the cargo owner to transmit the papers at a later date in electronic form, which will in any case reach the destination much earlier than the actual consignment. In fact, some carriers have started providing such facilities to their customers, in order to establish their brand identity. Such carriers have made provisions for electronic tracing and tracking of the vessel and the goods. Their customers can track the movement of the vessel and the consignment. Some carriers even allow their customer to draw up transport documents electronically in their systems (Ziel, 2009). With technological advancements it has become easier for the companies to track the movement of their consignments with techniques like GPS, RFIDs etc, which promises to make the industry much more efficient in the coming years. Providing such facilities to the cargo owners would also help in long term relations among the carriers and cargo companies. Long term agreements with clients certainly result in a committed client base. vi. 'The limits of liability' has also been significantly hiked in the Rotterdam rules. This will result in cargo owners getting more claim amount, in case of loss of the consignment. In fact the new convention has retained the earlier provisions of the Hague/Hague-Visby while placing more burdens on the carrier. In general the cargo can be safely delivered if a number of partners work in synchronisation with each other. For example, the during loading/ unloading, the ships are supposed to take active cooperation from the pilots, bunker firms, supply companies, crew, oil companies, marine educational establishments, different kinds of surveyors, etc. Therefore, the safety of cargo is possible if all these elements work in a professional manner. The existing rules made it impossible for the cargo owners to fix the responsibility in case of loss of damage to the consignment. The Rotterdam rules have certainly changed the position and now the shipping company is supposed to manage the coordination in such a manner that the safety is ensured. US COGSA's had the limitation at $500 per package for 'customary freight units, but under Rotterdam the limits would be higher than 875 'units of account'. In Norway the existing rules limit the liability of the carrier to 667 special drawing rights (SDR) for each package or other unit of goods, or 2 SDR for each kilogram of gross weight of goods lost, damaged or delayed. Once the Rotterdam Rules are implemented it will have to be '875 SDR per package or 3 SDR per kilogram, as well as two and a half times the freight payable on the goods in respect of economic loss due to delay' (Gjelsten and Mathisen, 2009). Well, in case the goods being transported is of higher value, the cargo owner may declare it of higher value and if the carrier agrees to this higher value at the time of booking of the consignment, then the limitation would be higher. It is worth emphasising here that the unit of account is a Special Drawing Right defined by the IMF. As per the prevailing rates the in January 2010 the exchange rate is $1,400 per package (Thomas and Belknap, 2010). The liability amount is certainly on the higher side, but under the new dispensation it has very difficult to break the rules as well. Article 25 of the Rotterdam Rules explains the situations where might be carried on the deck while adopting the US rule that, "Where the shipper and carrier expressly agree that cargo will be stowed below deck, the carrier's failure to comply with that requirement will deprive it of the right to limit liability" (Thomas and Belknap, 2010). vii. The cargo owners have also been given a free hand in opting for the best suitable jurisdiction from a number of alternative jurisdictions. In fact during the drafting process, the chapter 14 and 15 of the framework were in for much discussion and debates. Chapter 14 details a list of option for a for the cargo owner where it can file a suit against the carrier. This will help the cargo owners in taking up legal matters to the courts of their choice. After some damage to the ship or the cargo, it is not very uncommon that disputes arise amongst different stakeholders and the matter finally goes to courts. But the matter will go to what type of courts and which region/ country will be decided by the place where the damage took place, which country the carrier belonged to, where the cargo was destined for, the first port of loading, the final port of discharge on the sea leg, where the cargo was booked for shipment or any other place mentioned in the contract. Earlier, it used to be carrier and incident dominated. But, now the cargo owners also have some choice in handling such situations. This will help them saving lot of resources which were otherwise spent in managing affairs from a distance. viii. Countries whose economies are dependent mainly on the movement of import and export goods are the ones where cargo owners have main interests. Such countries will obviously make better and facilitating laws for the sake of smooth transition of cargo shipments, which in turn would help the cargo owners. For example US is a major such country, where cargo owners would be able to enjoy such benefits. ix. The Rotterdam rules have tried to abandon the earlier reliance on bills of lading. Now the goods will be covered under the rules even if there are no bills of lading or electronic bills are issued. It intends to extend the existing propositions like COGSA. 'Volume contracts' like service agreements, have also come under the purview of Rotterdam rules, but the concerned parties under the agreement have been allowed to derogate from some of its terms depending upon the context. In fact Rotterdam rules take a cue from the amendments to the Hague rules, put into place for US Marine industry. The existing Hague rules apply effectively only to shipments from contracting state, but the Rotterdam rules facilitation of such rules to shipment either from or to the contracting country. x. Like the changes that we have experienced in the globalised economy, where a company is held responsible for safe delivery and installation/ placement of goods or machinery to the door of the customer, the Rotterdam rules have also incorporated changes in delivery rules. Existing Hague rules applied only from 'rail to rail' i.e. from the place of loading till the place of unloading. But now the changed rules have made it a responsibility of the transporter to make sure that the shipment is delivered in good condition from the source to the final destination. This is bound to help the cargo owners in their endeavour to serve the customer in the best possible manner as the period of responsibility has been increased for the carrier as well. Since the existing rules favoured the carriers to the extent that they'd dump the shipment to any corner, if the shipment is not picked up by the intended person or company, within some stipulated period. This, resulted in soiling of the articles, defacement, or even loss of the articles. But, now the transport companies will have to take good care of the shipment till it reaches at the final destination. xi. Changes in destination calls have also been included in the new rules. This implies that, provided certain conditions are met, the cargo owner can also change the final destination of the shipment before its delivery. At the time of booking the cargo owner might have intended the shipment for a different place or person, but during transportation some new developments take place and the consignment is now required to be sent to another place or person. Under the existing rules, incorporating such last minute changes was very difficult, but Rotterdam rules have simplified this procedure as well. Earlier, incorporating such changes would be left at the mercy of the carrier. But, now the cargo owners would have a definite say as well. xii. Well, Rotterdam rules are not all anti-carrier or pro-cargo. The convention has tried to frame rules in totality, which safeguards the interests of all concerned. It has adopted a lenient view in cases where quite often the liability falls erroneously on the carrier for everything happening wrong with the consignment. Rotterdam rules make it clear that the carrier would be responsible for its share of responsibility if any damage is caused to the cargo during transit. Other related details have also been inserted in the legal framework, which would help in saving the carrier from undue claims. Mangan et al (2008) contend that the increasing emphasis on the role of different stakeholders and the efficiency of ports requires to be viewed in the context of global increase in the trade volumes in general and the maritime volumes in particular. While on the one hand better, faster and larger vessels have helped in transport of more goods in shorter times, the handling at ports too has taken advantage of the advancement of technology. At the same time, maritime industry is facing stiff competition from land and air modes of transport. Substitutes for the container and shipping industry are mainly the road, rail and air routes. Though these routes are quite fast and efficient as well, but they have their limitations too, in terms of reach and the quantity of goods that can be loaded on to an aircraft, train or truck. In general the threat from substitutes can be termed as not substantial enough, but the shipping industry must not be seen as complacent on this count. With increasing emphasis towards inter-modality i.e. a combination of different modes of transport being used by the cargo owners, the improvement in maritime industry becomes all the more necessary. It is under such realisation that the Rotterdam rules have tried to look into different aspects in totality. Quality services at the ports, during transportation, during handling by the cargo company will help in bringing back the confidence of the end user of maritime services. Cuadrado et al (2004) project quality services at the ports as shown in Fig-2. xiii. Under the existing rules the time bar on taking up disputed matters to courts is one year. Now the time limit has been increased to two years. While on the one hand this would help in lessening the burden of court cases, on the other hand it will also help in facilitating mutual agreements amongst the two sides. Shipping through the sea route certainly takes a longer time and earlier, due the time limitation, both the parties did not have enough time to talk about the matter over a negotiating table. But, now the chances of negotiated settlement would be higher. xiv. The Rotterdam rules have tried to bring maritime trade at par with the concepts like e-business or online banking. As a retail customer can see his bank balance online and pass on instructions in electronic format to the banks, the shipping industry too is now required to provide cargo owners the details about their consignments electronically, so that they can observe the movement of their containers and goods electronically. If the cargo owners find any variations or they need to pass on some urgent message to the shipping company, they will be able to do it all electronically through the internet route. Clients entrust their savings with the banks and expect that their money is properly recorded by the custodian i.e. the bank. Similarly, the cargo owner expects the shipping company to handle their goods carefully and adhere to the promises. Chapter 10 of the UNCITRAL convention deals with the control of goods during transit (Ziel, 2009). xv. As of now, the Rotterdam rules are in the process of being discussed and debated in different countries. The process will continue for a year i.e. till September 2010, when the signing countries will bring it into force. The rules are open for signatures since September 2009. As the rules have made maritime trade more cargo friendly, the multinational companies who have stakes in different countries will be vociferously asking for the implementation of these rules from respective countries. This will be another position of advantage for the cargo companies and owners. References: 1. Cuadrado, Manuel, Marta Frasquet and Amparo Cervera (2004). 'Benchmarking the port services: a customer oriented proposal'. Benchmarking: An International. Journal Vol. 11 No. 3, 2004. Emerald Group Publishing Limited. 2. Darling, Lafcadio (2009). 'U.S. Ratifies Rotterdam Cargo Liability Rules'. Available online at http://www.mikkelborg.com/news.phpid=3562 (Jan 9, 2010) 3. Datamonitor (2009). 'Global Marine - Industry Profile'. Datamonitor Europe, London. 4. Gjelsten, Gaute and Morten Lund Mathisen (2009). Norway Considers Signing Rotterdam Rules. International Law Office (ILO). Available online at http://www.internationallawoffice.com/newsletters/detail.aspxg=ccf79011-7102-4016-952e-72464950ae61 (Jan 9, 2010) 5. Mangan, John; Chandra Lalwani and Brian Fynes (2008). 'Port-centric logistics'. The International Journal of Logistics Management. Vol. 19, No. 1, 2008. Emerald Group Publishing Limited. 6. Sturley, Michael (2009). 'Modernizing and Reforming U.S. Maritime Law: The Impact of the Rotterdam Rules in the United States'. Texas International Law Journal. Vol. 44:427. Available online at http://tilj.org/docs/09_Sturley_PUB_FINAL.pdf (Jan 9, 2010) 7. Thomas H and Belknap, Jr (2010). 'The Rotterdam Rules'. Mainbrace. January 2010 (No. 1 ). Available online at http://www.blankrome.com/index.cfmcontentID=37&itemID=2117 (Jan 9, 2010) 8. Ziel, Gertjan van der (2009). 'Chapter 10 of the Rotterdam Rules: Control of Goods in Transit'. Texas International Law Journal. Volume 44, Number 3. Available online at http://tilj.org/journal/entry/chapter_10_of_the_rotterdam_rules/ (Jan 9, 2010) Read More