Rotterdam rules set to usher in a sea change

Rotterdam rules set to usher in a sea change

A new international convention, known as the Rotterdam Rules, on the carriage of containerized freight by sea and involving an inland journey, is taking shape.

The convention, which took a decade in the making, will require ratification by at least 20 states. It will take effect one year after signature by the 20th UN member state. The new rules will replace the outdated Hague Rules (1924), the Hague-Visby Rules and the Hamburg Rules (1978).

The existing rules hark back to a time when cargo was shipped in boxes, crates and bags rather than in containers, which have become the worldwide standard in global shipping. The convention is being framed to modernize the maritime sector and take it into the 21st century.

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Some of the prominent features of the new rules include eliminating the traditional defence of error in navigation, require the carrier to keep the vessel seaworthy throughout the voyage, introduce defences against piracy and terrorism, and protection of the environment, introduce potential liability for economic loss caused by delays and regulate matters concerning delivery and rights of parties.

While there is a general consensus that the new rules are necessary, they are considered to be too complex. The new rules have 96 articles as compared with the previous 10. Shippers (exporters and importers) say that the new rules will expose them to considerably higher insurance premiums.

At the annual general meeting of the Asian Shippers’ Council (ASC), held in Colombo in August, chairman John Lu said: “In its present form, the Rotterdam Rules do not provide cargo owners with adequate protection. There are serious implications for Asian shippers and at this stage ASC cannot recommend support for the Rotterdam Rules."

Many analysts say that the complex rules would discourage shippers and freight forwarders from integrating short-sea or coastal shipping into their door-to-door freight logistics business. Others warn that it would lead to escalation of disputes.

According to Nicollette van der Jagt, secretary general of the European Shippers Council, the proposed convention does not fully address multimodal (carriage of goods using different modes of transport such as roads, rail and sea) issues.

The new rules could prevent worldwide multimodal solutions from being developed for many years. “Because of that, the Rotterdam Rules could accelerate rather than restrain regionalization in this area as they appear to contain loopholes as to their mandatory application", she said.

One major criticism of the new rules pertains to shippers who choose or are persuaded to opt out from the minimum liability and obligations placed on the different parties through volume contracts. Volume contracts refer to the number of containers to be shipped in a specific period as agreed in a contract between a shipper and a shipping line.

In other words, the new convention allows container shipping companies to offer cargo owners an opt-out from almost all the rules for what are referred to as “volume contracts".

ASC says many shippers might be lured into such an opt-out by the offer of lower rates or the promise of better service. Small and medium enterprises are at greater risk from the implementation of the new rules. “Before entering into such tempting offers they must first understand and weigh up the potential risks and consequences," the council has warned.

Those backing the new convention, including the National Industrial Transportation League, the largest shippers’ organization in the US, say the development of compatible worldwide standards applicable to the loss and damage of maritime cargo was long overdue. Uniformity and consistency are lacking in the liability rules governing maritime shipping, with different countries having their own set of rules.

The Rotterdam Rules reflect current shipping practices, promote harmonization among trading partners, reduce legal obstacles and allow shippers, carriers and third parties to customize their contracts to meet their commercial needs.

P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.Respond to this column at