New Rules For Vessel Carriage: Is the U.S. Ready?

Published Jan 13, 2011 1:07 PM by The Maritime Executive

New Rules for Vessel Carriage, Modernization, Electronic Commerce, and Door-to-Door Liability: Is the U.S. Ready? by Dr. Jim Giermanski, Powers Global Holdings, Inc

In September 2009, the United States became a signatory to the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (Rotterdam Rules). When ratified by the U.S. President with the "Advice and Consent" of the Senate, there could soon be a new day for shippers, consignees, and vessel carriers with respect to carriage of goods by sea. In the United States, the 1936 Carriage of Goods by Sea Act (COGSA) will be replaced by the Rotterdam Rules (Rules). The Rules “…will supersede the Hague, Hague-Visby, and Hamburg Rules.” The COGSA’s “tackle to tackle” mode (where the period of time the goods laden into, and discharged from the vessel are the responsibility of the vessel carrier) disappears under the Rotterdam Rules. According to the U.N. General Assembly, the Rotterdam Rules is a “…uniform and modern global legal regime governing the rights and obligations of stakeholders in the maritime transport industry under a single contract for door-to-door carriage.” The U.N. General Assembly adopted the Rotterdam Rules on December 11, 2008. On September 23, 2009 the Rules were ratified by sixteen original signatories (Congo, Denmark, France, Gabon, Ghana, Greece, Guinea, the Netherlands, Nigeria, Norway, Poland, Senegal, Spain, Switzerland, Togo and the United States) in a formal ceremony in Rotterdam. Today, a total of twenty countries have signed the Rules.

While a new world with respect to liability, it’s also a new world for the requirement of electronic commerce. The heart of communications within the new Rules is electronic data flow and the value of electronically stored information, (ESI).


The Rotterdam Rules go beyond just “updating and modernizing” commerce.

Chapter 3, Electronic Transport Records, contains Articles 8, 9, and 10. Article 8 deals with the “Use" and effect of electronic transport records.
(a) Anything that is to be in or on a transport document under this Convention may be recorded in an electronic transport record, provided the issuance and subsequent use of an electronic transport record is withy the consent of the carrier and shipper; and
(b) The issuance, exclusive control, or transfer of an electronic transport record has the same effect as the issuance, possession, or transfer of a transport document.

Article 9 sets forth procedures for the use of negotiable electronic transport records, and Article 10 treats the replacement of negotiable transport documents or negotiable electronic transport records. Article 10 further covers when the negotiable electronic document should be surrendered or replaced. There is no question that electronic commerce is here, and serves as a modernizing element in the new rules of international vessel carriage.


The Rotterdam Rules are only the latest signal that global commerce is and will continue to be anchored, not in paper, but in electronic data transmission. The genesis for a greater use of electronic commerce is the result of the Revised Kyoto Convention of 1999. It specifically supported the concept of applying new electronic technology to Customs practices. The Revised Kyoto Convention of 1999 had the goals of simplifying Customs procedures with an emphasis on information technology and risk management involving automated systems to target and select high risk shipments for inspection.

In 2004, the Kyoto Convention ICT Guidelines (Information and Communication Technology) were published. The Guidelines were specifically related to the use of information technology and the electronic transmission of Custom-related data through and among government and non-government agencies. One year later, the World Customs Organization (WCO), released its Framework of Standards to Secure and Facilitate Global Trade. The Standards required the electronic transmission of trade data and the use of Edifact and XML as EDI protocols. Also in 2005, the United States adopted the WCO Standards, joining other Customs Administrations around the world who are members of the WCO and who believe that security begins at origin and ends at destination and managed with electronic documentation and communication. Then in 2006, the United Nations Conference on Trade and Development met in Geneva to discuss the application of the Kyoto Convention ICT Guidelines to facilitate cross-border trade, adding more pressure and credibility to the use of electronic documents. For the first time, the focus became one of a chain of “electronic” data, a single global schema linked electronically from beginning to end: an electronic chain of custody. This concept is embodied in the new “origin-to-destination” core of the Rotterdam Rules.


For U.S. firms, the Rules will fit nicely within the recent amendments to the Federal Rules of Civil Procedure that took effect on December 1, 2006. Rule 16, Rule 26, Rule 33, Rule 34, Rule 37, and Rule 45 were modified, resulting in the principle that “electronically stored information,” is a class of evidence and equal to paper or any other type of physical evidence. Each rule is distinct but related. Rule 16 allows pre-trial meetings to discuss discovery issues regarding ESI. Rule 26 clarifies the need to disclose information about holders of ESI and its description before a discovery request, and allows the safeguarding of privileged information to be withheld or returned. Rule 33 makes it clear that ESI includes business records. Rule 34 defines computer-based and other digitally stored data as ESI and its format as a separate category and subject to production and discovery. Rule 37 address the destruction of ESI, and when it can or cannot be destroyed. Probably, the strongest rule alteration is in Rule 45. It recognizes ESI as a distinct category of discoverable information allowing for subpoena of it in the same way as with paper documents. Subpoenas may also be executed on individuals or companies not directly involved in the litigation. ESI clearly includes electronic transport documents and records.
ESI can be found in e-mails, voice-mails, instant messages, text messages, documents, spreadsheets, databases, file fragments, metadata, digital images, and digital diagrams. It can be stored in every type of electronic media including hard drives, thumb drives, computers, handheld devices, backup tapes, and optical disks.


Besides legal implications, ESI’s use in the global supply chain has business, and costs-benefits consequences. With respect to costs, why should there be any further requirement for paper documents? Reduction in paper costs, solutions to their filing and storing problems, and removing the chance of falsifications of paper documents while the goods are in-route, are now achievable, providing an electronic, end-to-end supply line. As an example, why should the China-U.S. Memorandum of Understanding (MOU) on certain categories of China textile exports to the United States demand paper documents? Will that requirement change as a result of the new Rules? Current U.S. Customs programs already use and are dependent upon electronic data transmission. For instance the Automated Commercial Environment combines electronic portals such as
a) Automated Manifest System (AMS);
b) Automated Broker Interface (ABI);
c) Automated Export System (AES); and the
d) Automated Commercial System (ACS)

The Rotterdam Rules, containing origin-to-destination, and electronic transmissions, can now be consistent with the core components of the Customs Trade Partnership Against Terrorism (C-TPAT) which mandates security to begin at stuffing and to end at destination, all evidenced by ESI. Satellite tracking and monitoring by their nature are ESI data. Even the 2006 SAFE Port Act defined security to include advance electronic information, origin-to-destination security; and offered specialized treatment for importers using smart container technology which, of course, is based on ESI.

The European Union established its AEO (Authorized Economic Operator) program in 2006 for implementation in 2008. Components of it are mandatory in 2009 requiring “…traders to provide customs authorities with advance information on goods brought into, or out of the customs territory of the European Community.” AEO requires the use of advance electronic data, electronic records, security compliance to the WCO’s Standards, adopts the Single Window concept, allows access to cargo and the control of seals on containers by authorized personnel only, and mandates control of cargo from loading to unloading. Smart-container technologies that provide all the required ESI from origin-to-destination become the natural replacement of paper documents, explain delays, improve control, reduce the need for storage space for trade documents, and streamline staffing. The obvious and irrefutable conclusion is that ESI is essential and serves to not only optimize the supply chain but also to reduce costs.


Finally, because of the changes in the Federal Rules of Civil Procedure, ESI can become very persuasive evidence in CBP actions and cases. For instance, if a foreign shipper used smart container technology and a breach took place at a transshipment port during the movement of the container to the United States and counterfeit products were inserted, the shipper, consignee, and even the carrier could demonstrate to Customs and Border Protection (CBP) through ESI that the container was breached. Additionally, there would be a verification of the breach at a third-party site where the monitoring of the movement, status, and condition of the container revealed, recorded, and stored that it was surreptitiously breached. In this scenario the shipper, consignee, and carrier through a smart container control center, can demonstrate to authorities that the container was accurately and properly stuffed at origin under the supervision of an identified and vetted person who certified the contents as complete and correct. Additionally, since ESI revealed that the container was breached at the transshipment port, the shipper, consignee, and carrier would have ESI evidence that they did no wrong and were not responsible for the counterfeit contents. In fact, in this example, the shipper, consignee, carrier, or the smart-container control center would notify CBP and/or local authorities at the time of the breach, allowing for law enforcement intervention and intelligence mapping.

In addition to electronic transport document knowledge, every link in the supply chain can be made available to the consignee who would then know what was loaded, when it left, where it is, when it should arrive, and more. This information and other ESI data also allow the importer to capture at origin all it needs to file specific data for certain CBP programs, like the 10+2 Program, as well as for banking and insurance decisions connected to electronic bills of lading and letters of credit obligations. Overall, the move to electronic transmission of data when combined with smart container technology can provide a direct supply chain benefit to the import’s bottom line. In fact, electronic documentation, especially if used with smart container technology, is not just good business sense, it is good legal protection.

Thus, given that ESI discovery and use will only increase as part of any federal civil litigation, the worldwide adoption of electronic commerce as exemplified in the new Rotterdam Rules, and its importance as exemplified in the recent changes in the Federal Rules of Civil Procedure will become indispensible allies to U.S. importers and exporters in modernizing the global supply chain – the goal of the Rotterdam Rules.


In October of 2009, the United States Supreme Court agreed to hear an appeal of the Ninth Circuit's ruling in Kawasaki Kisen Kaisha Ltd, et. al, and Union Pacific Railroad Company v. Regal-Beliot Corporation, et. al. in which the Ninth Circuit diminished the role that COGSA plays in a door-to-door movement covering ocean and inland portions of transportation under a single bill of lading, for some putting into doubt the future role of the Rotterdam Rules. However, the Supreme Court ruled on June 21, 2010 in a 6-3 decision to affirm the role of COGSA reversing the Ninth Circuit Court of Appeals decision. The Supreme Court decision confirmed that cargo shippers and ocean carriers have the right to include inland transportation into a single door-to-door bill of lading issued by the ocean carrier. The ruling made it clear that ...the Carmack Amendment to the Interstate Commerce Act of 1887, which governs the liability of domestic rail carriers, does not cover damages to cargo during the inland leg of an international intermodal shipment moving under a through bill of lading issued by an ocean carrier where no domestic bill of lading was issued and the ocean carrier subcontracted for rail transportation. Instead, such shipments are covered by the Carriage of Goods by Sea Act, which regulates bills of lading issued by ocean carriers engaged in foreign trade. Thus, when ratified, the Rotterdam Rules being the replacement of COGSA will allow the routine movement of cargo over both sea and land to be governed by a single door-to-door bill of lading issued by the ocean carrier. ESI and its legal implications are, therefore, inevitable and will provide to both governments and business entities the opportunity to use a "single window" for both trade and security-related data.