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New Rotterdam Rules For Maritime Shipping

Oct.06.2009

On September 23, 2009, officials from sixteen nations, including major maritime and trading powers the United States, Norway, Greece, and The Netherlands, signed what is officially known as the "United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea," or the "Rotterdam Rules" for short. Three more states had signed by October 1. The treaty was negotiated over seven years and adopted by the United Nations General Assembly in December 2008. Representatives from the U.S. State Department have indicated that the treaty will be submitted to the U.S. Senate for ratification in early 2010.

The Rotterdam Rules, which will come into effect one year after 20 UN member states ratify the agreement, have the potential to make a powerful impact on world trade. The UN estimates that the shipping industry carried 8 billion tons of cargo in 2007, or 80 per cent of the volume of world trade, at least partly by sea. The movement of oil constituted 33 per cent; dry bulks - iron ore, grain, coal, bauxite/alumina and phosphate - made up 25 per cent; and other dry cargos, including consumer goods, represented 42 per cent of the total goods shipped.

Once effective, the Rotterdam Rules will replace all previous transport by sea pacts, including the U.S. Carriage of Goods by Sea Act (1936), the Hague Rules (1924), the Hague-Visby Rules (1968), and the Hamburg Rules (1978). The new rules set forth the rights and obligations of shippers, vessel owners, and consignees contracting for carriage of goods that includes an international sea leg. A few of the more prominent features of the new rules include the abolition of the long-established defense of error in navigation, an increase of carriers' liability for damage to cargo and the requirement that carriers keep their vessels seaworthy throughout their voyage and take defensive measures against terrorism and piracy. The rules also simplify procedures for the recoupment of losses and standardize the use of electronic transport documents to shorten handling time and reduce costs and errors.

As is to be expected, not everyone is satisfied with the new potential regime. While there is general consensus within the shipping industry that the new rules are necessary, many consider them too complex. As a result, shippers fear that they will now be exposed to considerably higher insurance premiums. Other criticisms include the belief that the complexity of the rules would discourage the integration of short-sea and coastal shipping into the freight logistics business, and possibly increase related disputes. Another concern is that the new rules do not fully address "multimodal" issues, i.e., carriage of goods by road, rail, and sea, and will thereby lead to increased regionalization of the law in that area, in stark contrast to the effect intended by the rules[ drafters.

Despite these misgivings, industry insiders expect the requisite number of nations to assent to the new rules in order for them to enter into effect and make the Rotterdam Rules the new standard for international carriage of goods by sea.

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