Contract of Carriage

A contract of carriage is the legal agreement between a shipper (or consignee) and a carrier that governs the transportation of goods from origin to destination. This contract defines the rights, obligations, and liabilities of both parties during transit. In ocean freight, the contract of carriage is primarily evidenced by the bill of lading. In trucking, it is represented by the bill of lading combined with the carrier’s published tariff or the negotiated transportation agreement. In air freight, the air waybill serves as the contract of carriage.

Key Elements of a Contract of Carriage

Every contract of carriage, regardless of mode, addresses several fundamental terms:

Parties. The shipper (who tenders the goods), the carrier (who transports them), and the consignee (who receives them at destination). In some arrangements, the shipper and consignee are the same entity.

Goods description. The type, quantity, weight, and dimensions of the cargo being transported. Accurate descriptions matter because carriers price and handle freight differently based on commodity type and characteristics.

Origin and destination. The pickup location and delivery location. For ocean freight, this is typically port to port. For trucking, it is door to door or door to terminal.

Freight charges. The rate and payment terms. Freight can be prepaid (paid by the shipper before or at the time of shipment) or collect (paid by the consignee upon delivery).

Liability limitations. The maximum amount the carrier will pay in case of loss, damage, or delay. This is one of the most consequential provisions in any contract of carriage.

Ocean Freight: The Bill of Lading as Contract

In ocean shipping, the bill of lading (B/L) serves three functions: a receipt for the goods, a document of title, and evidence of the contract of carriage. The terms and conditions printed on the back of the B/L (or incorporated by reference) constitute the contract terms. These typically include liability limitations under the Carriage of Goods by Sea Act (COGSA), which caps the carrier’s liability at $500 per package unless the shipper declares a higher value and pays an additional charge.

The Hague-Visby Rules (used in most international ocean shipping) set similar liability limits at 666.67 SDR per package or 2 SDR per kilogram of gross weight, whichever is higher. These limits mean that a carrier who loses a container of electronics worth $500,000 may only owe $10,000 to $20,000 under the contract of carriage unless the shipper arranged for higher declared value.

Domestic Trucking: Carmack Amendment

For domestic truck transportation within the United States, the Carmack Amendment to the Interstate Commerce Act establishes the carrier’s liability framework. Under Carmack, the carrier is liable for the actual value of goods lost or damaged while in its possession. However, carriers can limit this liability through released value rates, where the shipper agrees to a lower liability limit in exchange for a reduced freight rate. Many LTL carriers offer released value liability of $0.50 to $2.00 per pound unless the shipper requests full value coverage.

Air Freight: The Air Waybill

In air transportation, the air waybill (AWB) serves as the contract of carriage. Liability for international air shipments is governed by the Montreal Convention, which limits carrier liability to approximately 22 SDR per kilogram (roughly $30 per kilogram). Domestic air shipments follow the carrier’s published tariff terms. Like ocean carriers, air carriers allow shippers to declare a higher value for an additional charge.

Practical Implications for Importers

The liability limitations embedded in contracts of carriage are the primary reason shippers purchase separate cargo insurance. Relying on the carrier’s liability alone leaves the shipper severely undercompensated in the event of a total loss. A container of FBA inventory worth $150,000 protected only by COGSA’s $500-per-package limit represents an enormous gap between actual value and recoverable amount.

Sellers should review the terms on their bills of lading and transportation agreements, confirm their cargo insurance covers the full commercial value of each shipment, and document the condition and value of goods before tendering them to any carrier.