Recent decision threatens shipowners' COGSA limitation for goods carried by rail

In a recent decision ( see attached file) in the Southern District of New York the court held that the rail carrier (BNSF) could not apply the ocean carriers’ COGSA package limit of USD 500, with regard to an export shipment of goods that were damaged during inland rail transit before the goods arrived at the ship. The court reasoned that since this was an outbound shipment, the rail carrier was the originating carrier and it was therefore required under Carmack to give notice to the shipper that it could opt out of Carmack. Not having done so, the Court held that Carmack must apply—not COGSA.

The Carmack Amendment was added to the Interstate Commerce Act by Congress in 1906 and governs the terms of bills of lading issued by domestic rail carriers. Carmack does not apply to international shipments originating overseas. Under Carmack, the rail carrier is responsible for the actual loss of the property. Carmack does not prohibit rail carriers from offering alternative terms.  The shipper and carrier may bargain for alternative terms but only if the shipper is first presented with the option of receiving Carmack coverage.

Failure to offer the shipper a Carmack opt out at the time of booking the shipment of goods on a railway may result in the railway and ocean carrier losing the benefit of the COGSA USD 500 package limitation. The Carmack opt out clause would only be required for exporting cargo moving to the ship by rail. Imported goods moving inland by rail in the U.S. are not subject to the Carmack and therefore the USD 500 package limitation would apply.

Members may wish to consider a Carmack opt out clause being included in booking confirmation notification, service contract language, tariff language and/or bills of lading.

Source of information:

Cichanowicz Callan Keane & Textor

Paul Keane

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