Why Forwarders' or Carriers' Liabilities Are Limited According to International Conventions

The global shipping and logistics industry operates within a complex framework of laws and regulations that govern the responsibilities and liabilities of forwarders and carriers. International conventions, such as the Hague-Visby Rules, the Warsaw Convention, and the CMR Convention, limit the liability of these entities under specific conditions. This article explores the reasons behind these limitations, using practical examples to illustrate how they work in real-world scenarios.

1. Balancing Risks in International Trade

International trade involves multiple risks, including loss, damage, or delay of goods during transit. Carriers and forwarders often handle high volumes of goods, and holding them fully liable for every potential mishap could make their services prohibitively expensive or unsustainable.

A logistics company transporting electronics across the Atlantic faces a cargo loss due to a storm. Without liability limits, the company could be required to pay millions in damages, far exceeding the freight charges collected for the shipment.

By limiting liability to a specific amount per kilogram or package (e.g., under the Hague-Visby Rules), international conventions ensure carriers remain operational while providing reasonable compensation for losses.

2. Encouraging Fair Pricing

Unlimited liability would force carriers to include the risk of catastrophic losses in their pricing. This could significantly increase shipping costs, creating barriers for small and medium-sized businesses that rely on global trade. A small exporter shipping handmade pottery might find freight costs untenable if carriers had to price in unlimited liability for potential damages. With liability limits in place, freight remains affordable, allowing businesses to participate in international markets.

3. The Role of Cargo Insurance

International conventions recognize that cargo owners are better positioned to insure their goods against risks beyond a carrier’s control. This division of responsibility allows carriers to focus on transportation while cargo owners use insurance to mitigate financial losses.

A textile company ships garments worth $100,000 but purchases insurance for the full value. When the goods are damaged during transit, the carrier’s liability is capped at $500 per package under the Hague-Visby Rules. The insurance covers the remaining amount, ensuring the textile company is not left with a significant loss.

4. Shared Responsibility and Due Diligence

Liability limits encourage all parties in the supply chain to take proactive steps to minimize risks. Shippers must properly pack goods, carriers must exercise due diligence, and both parties must adhere to contractual obligations.

Example: A chemical shipment leaks due to improper packaging by the shipper. The carrier's liability is limited under the CMR Convention, and the shipper bears responsibility for failing to meet packaging standards. This shared approach reinforces mutual accountability.

5. Legal Uniformity and Predictability

International conventions create uniform legal standards, offering predictability in disputes. This harmonization benefits shippers, carriers, and forwarders by reducing the complexity of resolving claims across different jurisdictions.

A forwarder based in Germany is sued in India for cargo damage. The CMR Convention applies, capping liability at 8.33 Special Drawing Rights (SDRs) per kilogram. The forwarder avoids exposure to unpredictable local laws, relying on internationally agreed limits.

Conclusion: Protecting the Industry and Promoting Trade

The limitations on forwarders' and carriers' liabilities are essential to maintaining a functional and fair global logistics system. They balance the need to compensate cargo owners with the practical realities of the shipping industry, encouraging affordable freight rates and the use of cargo insurance to manage risks.

While these conventions protect carriers from excessive liability, they also place obligations on them to ensure diligence and accountability. For businesses involved in international trade, understanding these frameworks is critical for managing risks and ensuring compliance.