oward improved intermodal freight transport in - fhwa operations

Toward Improved IntermodalFreight Transport in

Europe and the United States:Next Steps

Report of an Eno Transportation Foundation Policy Forum heldNovember 18–20, 1998

Forum Sponsors:

European CommissionDirectorate-General VII (Transport)

U.S. Department of TransportationOffice of Intermodalism and Federal Highway Administration

http://www.fhwa.dot.gov/

http://europa.eu.int/en/comm/dg07/index.htm

http://www.dot.gov/intermodal/index.html

http://www.dot.gov/intermodal/index.html

http://www.enotrans.com/

http://www.enotrans.com/

iii

Table of Contents

Participants and Paper Authors ................................................................................... iv

Preface ............................................................................................................................ v

Forum Proceedings ........................................................................................................ 1

Introduction ....................................................................................................... 1Interoperability and Standardization ............................................................... 2

Standardization of Loading Units ............................................................................... 2Standardization of Intermodal Information Systems ................................................ 3

Intermodal Liability Issues ................................................................................ 4Current Liability Regimes............................................................................................ 4Prospects for a New Liability Regime ......................................................................... 5Liability and the Need for Information ...................................................................... 6

Legal and Regulatory Issues in Intermodal Transport .................................... 7E.C. Regulation ............................................................................................................ 7U.S. Regulation ............................................................................................................ 7Cabotage ....................................................................................................................... 9Third-Party Logistics Providers .................................................................................. 9Open Access to Rail Facilities ..................................................................................... 9Reregulation ............................................................................................................... 11

Best Practices in Intermodal Freight Transport ............................................ 11Intermodal Rail Developments in Sweden ............................................................... 12New International Rail Corridors ............................................................................. 12Supply-Chain Management ....................................................................................... 12Airship “Cargolifter” Service .................................................................................... 13Port Investment Policies ............................................................................................ 14Electronic Commerce and Intermodal Transport .................................................... 14

Toward Improved European andU.S. Intermodal Freight Transport: Next Steps ............................................. 15

Standardization .......................................................................................................... 15European and U.S. Best Practices ............................................................................. 16Electronic Commerce and Intermodal Freight Transport ....................................... 16The Role of Governments in Infrastructure Finance .............................................. 16Liability ...................................................................................................................... 16

Article A:Interoperability in Intermodal Freight Transport ..................................................... 17

Article B:Intermodal Transportation and Carrier Liability ...................................................... 33

Article C:U.S. Intermodalism: Cargo Liability Issues ................................................................ 41

Article D:Legal and Regulatory Issues Affecting Intermodalism in the European Union.................... 59

Article E:Legal and Regulatory Barriers to Better International Intermodal Transport ........ 69

Acronyms and Abbreviations ..................................................................................... 85

iv Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps

Participants and Paper Authors

Forum ChairmenDr. Wim A.G. BlonkDirector, Transport PolicyDevelopment, Research andDevelopment, EuropeanCommission, DirectorateGeneral VII

Mr. Kenneth WykleAdministrator, FederalHighway Administration,U.S. Department ofTransportation

Forum ParticipantsMr. Richard BiterDeputy Director, Office ofIntermodalism, U.S.Department ofTransportation

Mr. Thomas BrownPresident, The Riss Companies

Mr. Edward BurkhardtChairman, President andChief Executive Officer,Wisconsin Central Transpor-tation Corporation andEnglish Welsh and ScottishRailways

Mr. Franco CastagnettiDirector of Purchasing/Logistics/ProductionPlanning, Enichem/PolimeriEuropa

Prof. Ralf De WitUniversity of Brussels

Mr. Wolfgang FlickVice President Transport,United Parcel Service, Europe

Mr. Johannes FritzenPresident, VolkswagenTransport

Mr. Robert GallamoreAssistant Vice President,Communications Technolo-gies, TransportationTechnology Center, Inc.

Mr. Dirk GoedhartConsultant, PhilipsInternational

Mr. Rolf HellbergDow Chemical, Germany

Mr. Juhani KorpelaSecretary General, Ministryof Transport andCommunications, Finland

Mr. Damian J. KulashPresident and CEO, EnoTransportation Foundation

Mr. Anders LundbergSenior Vice President,Swedish Railways

Mr. Robert MartinezAssistant Vice President,Marketing, NorfolkSouthern Corporation

Ms. Mary Lou McHughAssistant Deputy UnderSecretary of Defense,U.S. Department of Defense

Mr. James MorganManaging Director, TNTAutomotive Logistics

Mr. Thomas PerdueVice President, Intermodal,C.H. Robinson Co.

Mr. Heinz SandhagerDirector General, FederalMinistry of Transport,Germany

Mr. Bert SchackniesSenior Policy Advisor,Federal Highway Administra-tion, U.S. Department ofTransportation

Mr. George SchoenerChief, Intermodal andStatewide ProgramsDivision, Federal HighwayAdministration, U.S. Depart-ment of Transportation

Mr. Otto SonefeldProgram Director for Inter-modal Activities, AmericanAssociation of State HighwayTransportation Officials

Mr. Ron Stanley, PresidentLandstar Express America

Mr. Rune SvenssonTransport Advisor, VolvoTransport

Mr. Karel VanroyeAdministrator, Unit forAnalysis and TransportPolicy Development

Mr. Riccardo VitaleProcter and GambleEuropean Supply Company

Mr. Paul WautersManaging Director, WautersTanktransport N.V.

Mr. David WinsteadSecretary of Transportation,Maryland Department ofTransportation

Mr. Peter J. ZantalThe Port Authority of NewYork and New Jersey

Paper AuthorsMs. Regina AsariotisLecturer, Institute ofMaritime Law, University ofSouthampton

Mr. John BetakPrincipal, CollaborativeSolutions, Inc.

Mr. Vincent PowerPartner, A & L Goodbody

Forum StaffMs. Jennifer ClingerLouis Berger International, Inc.

Mr. Ed RosenEno TransportationFoundation

Ms. Annemarie SchmalzFederal Ministry ofTransport, Germany

Ms. Birte Windhorst,Volkswagen Transport

Preface v

Preface

The growth of the global economy, ad-vances in information technologies, andimproved communications networks havecontributed to major changes in transportand logistics. Just-in-time inventory sys-tems, supply-chain management,outsourcing of logistics, and intermodaltransport have grown hand-in-hand withthese advances in technology and eco-nomic interaction. Further economicgrowth demands that we continue to ad-vance international intermodal transport.

Intermodal transport—door-to-door ser-vices using more than one mode, but con-tracted as a single service on a combinedbill of lading—are a key ingredient of theemerging global economy and new logisticsenvironment. Intermodal transport notonly is rapid, reliable, customer-oriented,and efficient, but also makes effective useof the existing infrastructure and can helpprovide needed transport without undueenvironmental costs. Governments aroundthe world seek to reap the benefits possiblethrough increased intermodal transport,both domestically and internationally.

The European Commission and the U.S.Federal Highway Administration recognizethe potential of intermodal transport andthe need to work together to advance it ona global scale. They convened a forum onthis potential in Washington, DC, in Octo-ber 1997, bringing together top leaders en-gaged as transport carriers, shippers, andgovernment officials from both Europe andthe United States. Participants found thisforum valuable to understanding the issuesand the perspectives of other participants.They identified a short list of specific is-sues for continued examination that formedthe basis for a second forum, which washeld in Munich, Germany, in November1998. This report summarizes the discus-sions at the 1998 event.

A variety of views is reported here: ship-pers and carriers, government and indus-try, rail and truck, logistics providers andcorporate outsourcers, and Europeans andAmericans. Sometimes the participantsshared a vision of what is needed for im-

proved international intermodal transport;often they do not. Each has a distinct andvalid interest in achieving improvements,and these improvements can only beachieved through collective understandingand action. No one fully understands theintermodal transport system, and no oneis empowered to manage its improvement:these are complex matters whose success-ful resolution hinges on many indepen-dent private and public parties. Forumslike the ones held in Washington andMunich can help to identify opportunitieswhere individuals and groups can gain theinformation and plan actions that lead tocollective improvement of the system.

We are pleased to have initiated this dis-cussion and are gratified to see that it hasdeveloped into the dynamic, productive dia-logue reported here. The discussion hasfocused attention on opportunities for im-provement, on topics where more informa-tion is critically needed, and on emergingdevelopments where all partners must worktogether to meet the needs of the future.Everyone involved in international inter-modal transport will gain by learning moreabout how these issues are viewed by dif-ferent participants. We are pleased to havebeen catalysts in this process, and we lookforward to continued efforts to improvebroad-based understanding and coopera-tion to advance international intermodaltransport capabilities.

Dr. Wim A.G. BlonkDirector for Transport PolicDevelopment: Research and DevelopmentEuropean Commission, Directorate-General VII (Transport)

Mr. Kenneth WykleFederal Highway AdministratorU.S. Department of Transportation

Forum Proceedings 1

Forum Proceedings

Introduction

In November 1998, a group of high-levelindustry and government representativesmet to discuss ways to improve intermodalfreight operations between Europe and theUnited States. The European Commissionand the U.S. Department of Transporta-tion sponsored this second such meeting.The participants’ active roles in providingand guiding intermodal transport servicesmake them uniquely qualified to identifystrategic opportunities. As individuals, asorganizational officials, and as membersof established coordination bodies theycan seize opportunities to apply the in-sights they gain through information ex-changes like this forum.

Greater reliance on intermodal transportis crucial for economic productivity and en-vironmental preservation. More than 70percent of all goods transported in the Eu-ropean Union are moved by truck, up from50 percent 35 years ago. This increase iscreating serious problems in the EuropeanUnion, including unacceptably high levelsof environmental degradation and safety-related losses, as well as productivity lossesdue to congestion. There is simply notenough space to put new roads or rails tomeet such an increase in freight. Intermodaltransport offers to rebalance the system ina way that provides needed services buteases the strain on the environment.

In Europe as in the United States, gov-ernments recognize that they cannot buildtheir way out of congestion. But the tworegions are different in important ways. Thegeography of the United States is such thatrail and road can be combined more easily.In Europe, combining modes efficiently ismore difficult due to shorter geographicdistances for shipments within Europe, dif-ficulties in operating seamless rail servicesacross national borders, and the impossi-bility (on many routes) of double-stackingcontainers. Both regions face the importantchallenge of finding ways to make more ef-ficient use of existing facilities, but underdifferent circumstances.

The discussions reported here seek toenhance the efficiency of intermodal trans-port. This goal is shared by a wide varietyof interests: firms that produce goods andfirms that ship them, government agenciesand private businesses, consumers and pro-ducers. Yet this goal cannot be reached byany one agency or organization. It requiresan exceptional amount of cooperation—be-tween modes, between countries, betweenthe public and private sectors, and acrossdifferent levels of government and differ-ent parts of the world. This cooperation isfacilitated through informal exchanges likethose discussed in the following report.

These discussions took place over twodays. Separate sessions were devotedto (1) standardization of loading units,(2) liability for damage and loss of inter-modal cargo, (3) economic regulation ofcompetition in transport, and (4) best prac-tices in intermodal transport. Backgroundpapers on these topics, which follow these

Dr. Wim Blonk,EuropeanCommission,DirectorateGeneral VII (left)and KennethWykle, FederalHighwayAdministration,U.S. Departmentof Transportation(right)

Participants inthe secondEuropean–U.S.Forum onImprovedIntermodalFreight Transporton November 18–20, 1998.

2 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps

proceedings, were prepared and distrib-uted prior to the discussions. These pa-pers were summarized briefly by theauthors at the start of each session, fol-lowed by an open roundtable discussionamong all the participants.

Interoperabilityand Standardization

Standardization of Loading Units

Standards promise many advantages. Theycan help businesses achieve greater econo-mies of scale. Using standardized units,companies can reduce the capital neededfor investment. Standards can reduce thecost of transfer facilities. Companies canmake better use of their equipment andcarrying capacity. They do not need tomaintain large stocks of duplicative equip-ment. They can improve backhaul capac-ity. They also can enhance their ability tocommunicate—to interchange business inlarger organizational or physical networksthat may involve other companies.

However, standardization can stifle in-novation and flexibility. Standards canmake a company less willing to considermodifications to accommodate specializedneeds, and services may become less re-sponsive to changing customer needs.Standards may require high front-end con-version costs, at least for some companies.Standards also can erode the competitive

edge that a firm gains from its proprietarysystems and specialized equipment. Stan-dards can create security concerns.

Introducing new standards reallocatesbenefits and costs, and such a transitionraises the difficult issues associated withhow the costs and benefits will fall on com-panies at different points along the sup-ply chain, and how companies may facedifferent competitive stakes. The shipper’sexpectations drive the process. Transportcustomers want one-stop, single-sourceshopping. But they also want flexibility astheir markets and needs change. For ex-ample, a very large shipper can developnew systems to maximize its position inthe market, and carriers must adapt.

The viability of standards in any indus-try is closely linked to the maturity of theindustry. In more mature industries,moves toward increased uniformity areless likely to conflict with other goals. Theintermodal industry, however, is far frombeing mature. Moving too quickly to stan-dardize this industry could conflict withthe healthy process of innovation that isthe essence of a dynamic industry. Forexample, intermodal transport could betransformed by the introduction ofmegaships. More than 40 of these shipsare on order and scheduled to be deliveredover the next several years. The size of thecells in these ships will drive the size ofcontainers. In turn, the size of the con-tainer will affect the prospects for stan-dardizing loading units in intermodaltransport.

European firms currently operate usinga wide variety of different container sizesand types that are not interchangeable oreasily combined. Greater standardizationoffers many benefits. Yet, the range of op-tions is limited because the physical infra-structure in Europe limits the extent towhich maximum dimensions can bechanged. Tunnel heights in many areasprevent increases in vertical size. The widthis also fixed. While the overall benefits areevident, and the range of options is nar-row, many parties have a competitive in-terest in one solution or another, and anagreement on standards cannot be reacheduntil a vast majority of affected interestssee a common gain in standardization.

Otto Sonefeld,American

Association ofState Highway and

TransportationOfficials, Anders

Lundberg, SwedishRailways, and

Robert Martinez,Norfolk Southern

Corporation (left toright)

Forum Proceedings 3

The issue of standardization is also tiedto long-run infrastructure planning: Eachneeds a vision of the other. As the meritsof increased standardization are weighed,the infrastructure implications must betaken into account. The United States, likeEurope, faces serious highway congestion,and expansion is very difficult. It takesyears to go through the planning processto add new lanes, and in the end, expan-sion may not even be possible. Even withgood planning and cooperation, it takes thepublic sector a long time to address addi-tions to capacity.

A mix of opposing forces is endemic toany consideration of standardization: Pro-ponents work toward areas where stan-dardization is a desirable end, whileindependent new developments and op-portunities unfold in ways that create fur-ther segmentation and fragmentation.Thus companies, trade groups, and govern-ments working together to achieve the so-cially desirable benefits of standardizationsometimes find, after years of effort, thatthe end-product is nonetheless more frag-mentation. In spite of this result, many inthe field recognize that greater standard-ization can be, in concept, an importantboost to efficiency. Further, most believethat private-sector interests are best ableto make judgements about where and whento increase standardization. Nevertheless,there is a need for public involvement. Thelarge public-sector role in providing infra-structure must be considered.

Standardization ofIntermodal Information Systems

A global tracking and tracing system couldbe extremely helpful to intermodal opera-tors. Such a system could bring togetherthe key elements of each transport con-tract and unite them on a common plat-form. This system, perhaps an Internetdatabase of intermodal shipments, wouldintegrate the tracking and tracing informa-tion for all parts of the movement.

Individual companies, modes, and coun-tries have successfully developed or ex-tended tracking and tracing systems.However, no standardized system is in place

that covers all modes, countries, and users.Tracking and tracing information is notcurrently uniformly available. Integrated in-formation systems are essential for im-proved efficiency. The difficulty in gettingbetter tracking and tracing information isnot fundamentally a technological problem.Some of the greatest difficulties are tied tosecurity concerns, and techniques to ad-dress these concerns are being developed.

Some road carriers have responded tocustomer needs by establishing telemetricsystems, which include mobile phones anda fax machine network, to notify shippersimmediately if any problems arise. Euro-pean shippers can also get tracking infor-mation from railroads in a member state.But they often lose sight of their shipmentsat the borders. Efficiency demands hav-ing this sort of information availablethroughout the entire trip, and integrated

Thomas Brown,The RissCompanies,FrancoCastagnetti(second from left),Enichem/PolimeriEuropa, andVincent Power,A & L Goodbody

Rune Svensson,Volvo Transport,and JuhaniKorpela, Ministryof Transport andCommunications,Finland


intermodal information systems areneeded to provide this.

The systems that have been developedby industry on a commercial basis need tobe interconnected. The European Com-mission has taken steps in this direction.For example, the European Commissionsupports the interconnectivity and inter-operability of Port Community Systemsand is examining how seamless intermodalapplications could be developed. U.S. com-panies, through the Intelligent Transpor-tation Society of America, have establisheda program to increase domestic and inter-national in-transit visibility, for both trans-portation assets and cargo.

Intermodal Liability Issues

Ever since the beginning of for-hire haul-age, in which an independent contractortransports goods for others, liability issueshave been important. How much am I li-able for? How does this amount changedepending upon whether the cargo is lost,missing, or damaged? Who must pay?What is my exposure? What is the expo-sure of everyone else in the process?

These issues became more complexwith the development of intermodal trans-port, which, by its very nature, involvescarriage on two or more modes and en-tails transferring cargo between modes.Much of this traffic is prepackaged in con-tainers that are loaded before they begintheir sequence of modal movements andtransfers. Each mode involved in the over-

all movement has different liability re-gimes. The intermodal customer—theshipper or the beneficial owner—does notcare about how the load gets there. Thecustomer cares that it gets there on time,in good condition, and at an attractive price.The customer is not directly interested inliability. For intermodal transport as forother modes of transport, these issues mustbe negotiated as a service feature.

Current Liability Regimes

A complex maze of regulations currentlygoverns liability for international inter-modal transport. No uniform regime gov-erns liability for loss, damage, or delayduring transport in intermodal transac-tions. No uniformity exists at the interna-tional level. Nor is there uniformity in thesense of providing one standard of liabil-ity for all stages of the intermodal trans-action. The current framework consists ofa complex set of international conventionscreated primarily to regulate unimodaltransport by rail, road, air, or sea. Thesewidely accepted international conventionshave introduced mandatory minimum li-ability standards. For areas where themandatory conventions do not provide aclear determination, an array of diverse na-tional laws may apply. If damage or loss isnot covered by any international or na-tional mandatory law, then standard termcontract conditions (such as those con-tained in the International Federation ofFreight Forwarders Association (FIATA)bill of lading (FBL) or the Multidoc 95)apply.

Unfortunately, the applicable regimessometimes overlap, and more than one re-gime may apply to the same haul. Histori-cally, land, air, and sea liability regimeshave been drafted to address one or an-other particular mode of transport at atime. Liability regimes are not designed forintermodal transport. As a result, ambigu-ous intermodal situations arise.

Under unimodal regimes, every time aloss occurs, what actually happened usu-ally must be investigated. In the context ofcontainerization, investigation is extremelydifficult: How can one be sure when and

ReginaAsariotis

(right),University of

Southampton,and RalfDe Wit,

University ofBrussels

Forum Proceedings 5

where a loss occurred, that is, on whichmode the container was situated when theloss occurred? Liability varies in terms ofincidence and extent depending on the ap-plicable regime. Which regime applies, inturn, depends on whether it is possible toidentify the modal stage where the loss ordamage occurred. It also depends on thecauses of the loss, because under all theunimodal regimes, the carrier’s liabilitydepends on fault. If a carrier can establishthat other reasons were responsible for aloss, the carrier is not liable. That is, liabil-ity hinges not only on where a loss occurs,but also on how and why.

Although a shipper knows what levelof coverage is provided from the maritimebill of lading, the actual settlement ofclaims often depends on which court thematter is brought to and the court’s viewson which regime is mandatory. While gen-eral coverages may be unambiguouslyspelled out in bills of lading, if damage orloss is localized, then the liability may besubject to other limits, no matter what thegeneral contract terms say.

Shippers typically make separate ar-rangements for individual shipping con-tracts, carrying some of the liability andinsuring part of it. Third-party logisticscompanies operate like a carrier, assum-ing liability up to set standard limits. Ifshippers want higher coverage, additionalcoverage can be worked into the contract.Liability issues can thus be resolved be-tween the logistics firm and the client. Thethird-party logistics firm resolves claimson the front end with the customer andthen subrogates the matter with truck, rail,ocean, or air carriers involved. The suc-cess or failure of the final resolution istransparent to the customer. In effect,third-party logistics providers in Europehave positioned themselves as part of thesolution to complicated liability regula-tions, while in the United States they havenot generally done this yet.

Prospects for aNew Liability Regime

A key consideration at the base of any li-ability regime is the issue of whether it

would be a mandatory or a voluntary regu-latory system. A mandatory regime wouldcertainly be the most effective, but it in-creases the difficulties of reaching consen-sus. Therefore, it may be more productiveto focus efforts on a voluntary regime. Thiscould be a regime that parties must opt intoby actively incorporating it into a contract.Alternatively, a voluntary regime could beestablished that applies unless the partiesexplicitly opt out or replace it.

For any regime to be cost-effective, itshould be simple, clear, and transparent.It should cover delay as well as loss anddamage. It should operate irrespective ofthe modal stage where the loss occurs andindependent of the causes of a loss. Sucha regime would alleviate the administra-tive and legal burden of establishing therelevant regime. It would reduce the needto determine factual matters to clarify whois liable and for how much. It would in-crease efficiency, speed claims settlement,and reduce loss-recovery costs.

Concerted international actions, inconcept, appear necessary and logical.Are they possible? In principle, an in-ternational convention would be ideal.Yet, an international convention in-volves an unmanageably large numberof parties, each of which is rightly wor-ried about its own interests. As a result,such an approach may attempt to address

Rolf Hellberg,Dow Chemical,Germany


all of the “ifs” and “buts,” leading to avery complex framework. Even if agree-ment could be reached, a conventionmay never be ratified, as experience withthe Multimodal Convention illustrates.

Similarly, an interregional conventionbetween the large European and U.S. trad-ing blocks would have obvious advantages.But the likelihood of an interregional con-vention would depend on political will.

The draft amendments to U.S. Carriageof Goods by Sea Act (COGSA), now en-tering the U.S. legislative process, havebeen written with an eye to U.S. needs.But the scope of application of this act isbroader. Any shipment of goods to or fromthe United States involving a sea leg wouldbe subject to this mandatory regime. Thesea leg does not necessarily have to betrans-Atlantic. U.S. COGSA would applyto an airfreight shipment to the UnitedStates if it included a sea leg across theMediterranean. Under this proposal, allclaims could be litigated in the same U.S.process, even if a European shipper is su-ing a European carrier. Any carrier in-volved in any leg of the shipment wouldbe governed by this mandatory regime.

The proposed changes to U.S. COGSAappear to have come about because theoriginal act, dating from 1936, is badly out-dated. It set liability at $500 per package.This number is clearly inadequate, but car-riers and shippers have been unable to agreeon an updated approach. The U.S. Mari-time Law Association formed a study groupto bring the various parties together and go

though the difficult process of develop-ing a mutually acceptable solution. In theprocess, the drafters saw the advantagesof extending the concept from more thanjust unimodal carriage by sea to the en-tire intermodal movement. What beganas a national proposal for reform to themaritime regime has grown into an inter-national, intermodal proposal that uni-laterally extends U.S. law outside itsterritory.

Liability and theNeed for Information

The lack of data on actual loss and claimexperience is universal, at least on a broad,aggregate level. Individual companies mayhave information that applies to them.Some firms, for example, regularly analyzethe premiums they pay and the claims theyexperience. From this data, they may con-clude that it is better not to take out aninsurance policy and instead self-insurethe goods. But in aggregate, data on lossesare lacking.

Arrangements that shift liability to theprimary carrier may appear to leave ship-pers satisfied, simply because they can dis-tance themselves from the underlyingvariations in conventions and nationallaws. Such practices may allow shippersto cope with or mask current liability am-biguities. Nevertheless, to manage liabil-ity efficiently, we need to know the damagehistory of actual loss experience in inter-modal transport. A common liability re-gime holds the potential for cost savings.No one can be sure of this potential, be-cause we do not know the actual exposureand claims data. But it appears plausiblethat we could manage risks more effi-ciently with better information.

These data do not exist now. In theUnited States alone, the Federal Bureau ofInvestigation estimates that more than $12billion a year is claimed for cargo theft,loss, and damage. This rough estimate sug-gests that the costs are enormous and thatmajor savings might be realized by man-aging the data better.

Faced with the lack of data, no one cansay how much these inconsistencies in the

Kenneth Wykle,Federal HighwayAdministration,

U.S. Departmentof Transportation,

and RichardBiter, U.S.

Department ofTransportation

Forum Proceedings 7

handling of liability are costing. But itappears plausible that in any system thiscomplicated, streamlining could producesavings. Particularly within the EuropeanUnion, reducing variations between modesand countries appears worthwhile. Anintermodal data standard that could beapplied to contracts for door-to-door trans-port by unspecified modes appears to bedesirable. This intermodal standard couldcoexist with other existing standards.

Legal and Regulatory Issues inIntermodal Transport

Forum participants selected the topic oflegal and regulatory impediments as a toppriority for the 1998 forum to focus oneconomic barriers, not regulations thatpromote safety, improve the environment,or preserve the infrastructure. Numerousregulations involving vehicle size andweight, labor rules, environmental protec-tion, and other aspects of transportationmay have important economic conse-quences. But these regulations are prima-rily enacted for purposes other thanregulating competition, and they are notthe focus here. This discussion is con-cerned with regulations whose explicitintent is to govern the economic competi-tiveness of new entrants in the business.

E.C. Regulation

Intermodalism in Europe is a complicatedbusiness, governed in part by the rules ofthe 15 member states, the EuropeanUnion, and international conventions. Ifthese rules are found to be in conflict, E.U.law is superior to the member states’ na-tional laws, and international law is supe-rior to E.U. law.

European law has focused on regulat-ing rather than facilitating intermodal ser-vice. Its competition and antitrust rulesseek to scrutinize and control. They im-pose high compliance costs and regulatorydelays. Further, competition law in trans-port has been formulated and is appliedseparately for air, maritime, rail, and in-

land waterways, rather than intermodally.Intermodal arrangements must win sepa-rate approvals from each of the affectedmodal regulators.

The core of E.C. regulatory policy is setout in Articles 85–94 of the E.C. Treaty,administered by Directorate-General IV.Each of these provisions applies to allmodes of transport equally. However, thedetailed regulations applied in practice areunimodal. Article 85(3) of the E.C. Treatygrants the European Commission the ex-clusive authority to permit exemptions foranticompetitive arrangements that are, onbalance, beneficial to the economy. Theseexemptions might include, for example,pricing or exclusivity arrangements tofacilitate intermodalism. Article 86 of theE.C. Treaty prohibits a dominant under-taking from abusing its dominant positionin the common market. This prohibitioncould be applied, for example, to a port, acarrier, or an intermodal operator. Articles92–94 of the E.C. Treaty stipulate thatmember states may not provide financialaid in a discriminatory manner withoutapproval from the European Commission.

The degree of E.C. intervention in themarketplace is a central issue. The com-mission’s 1994 Report on Maritime Trans-port declined to grant a block exemptionfor shipping lines to fix land rates, insteadrequiring separate review of each agree-ment. The commission also refused toadopt the so-called “rule of reason” ap-proach, which is central to U.S. antitrustlaw, again opening the door for the com-mission to intervene in such arrangements.

Robert Martinez,Norfolk SouthernCorporation, andHeinz Sandhager,Federal Ministryof Transport,Germany


State subsidies to railroads severelylimit the prospects for intermodalism. AnyEuropean intermodal operator faces thepossibility that competitors could be re-ceiving unlawful aid. To foster sound in-termodal competition, the EuropeanCommission and multimodal operatorsmust monitor unlawful state aid. Such aidmight exist if facilities are made availableat less than commercial rates or if loansare financed beneath market rates.

U.S. Regulation

Over the decades, the United States hasdeveloped a set of mode-specific economicregulations, each with its own character.By the 1970s, this situation had resulted ina set of modal companies and modal regu-

latory agencies that had formed, in effect,alliances within each mode. Regulationscontinued to suspend antitrust laws to ac-commodate the unique features of trans-portation companies. These provisionsallowed transportation companies to oper-ate on a scale where they can achieveproduction-scale economies while stillaffording a reasonable level of consumerprotection. But regulators and carriers in-creasingly worked together to compete formodal share of the overall market and toobtain special treatment from the govern-ment. These aims were very different fromthe shipper protections that had been theimpetus for creating the regulatory struc-tures in the first place. Economic forceswithin the transport sector led to a seriesof deregulation moves during the late 1970sand early 1980s, when rail and truck trans-port were substantially deregulated.

An integrated, multimodal system hasbeen a rallying cry of every secretary whohas ever led the U.S. Department of Trans-portation. But government-led efforts toplan or coordinate a national transporta-tion system never got very far because theyhave been, and are, heavily influenced byprivate-sector decisions. In 1991, legisla-tion was passed that applied a new strat-egy. The legislation that authorized federalspending for surface transportation facili-ties included a category that could be usedfor intermodal connectors to the nationalhighway network. This authorization pro-vided a constructive vehicle around whichpublic and private interests could worktogether—a focus on strategic nodes thatpromised improved coordination withminimum shifts in public and privateroles. The Transportation Equity Actpassed in 1998 continues the focus on in-termodal connections and generally en-courages intermodalism.

The foundations that intermodal com-panies are built on are the original modesout of which the intermodal enterprisesprang. This situation has led to manybarriers that are not necessarily regulatoryin nature. The synergies promised bymultimodal companies have often provedelusive because of discrepant labor con-tracts, cultural differences, unmanageablescale, and other reasons. Still, regulatory

Heinz Sandhager,Federal Ministry

of Transport,Germany, and

Mary LouMcHugh (right),U.S. Department

of Defense

George Schoener,U.S. Federal

HighwayAdministration,

and ThomasPerdue, C.H.

Robinson Co.

Forum Proceedings 9

adjustments could compensate for someof the noneconomic barriers and make iteasier for intermodal services to thrive.

Deregulation of domestic freight transportin the United States is now virtually com-plete, inasmuch as free market entry is con-cerned. In recent years, domestic airfreightand intrastate trucking have been deregu-lated, so that few domestic barriers remain.

Cabotage

U.S. cabotage restrictions are one of theremaining barriers to intermodal trans-port. Europe previously had similar restric-tions on maritime cabotage, but theserestrictions were phased out in 1992.Greece and Spain were the most affected,and passenger operations were more af-fected than freight operations. The largestshipping line engaged in European cabo-tage is now an American shipping line.The Jones Act in the United States pre-cludes European participation in the U.S.market. While some transportation enter-prises may gain some market protectionthrough cabatoge, U.S. cabotage restric-tions are part of a strategy to maintain thenation’s ability to use U.S. commercialcapabilities to meet contingency and war-time requirements. The aim of these re-strictions is to provide incentive to U.S.carriers to provide wartime capacity byfacilitating peacetime business for them.The penalty cost to shippers has been es-timated at 14 billion U.S. dollars.

Third-Party Logistics Providers

The use of third-party logistics providersis an index of how free market competi-tion really is. Third-party logistics pro-viders have very few constraints in theUnited States, and growth in this sectorhas come hand-in-hand with expansionof intermodalism. This growth has en-hanced competition in areas where itwould otherwise be lacking. U.S. inter-ests see the rise of third-party logisticsproviders as good for competition andgood for productivity. This is also the casein Europe.

Even with the rapid rise in the use ofthird-party logistics providers in theUnited States, the market is not univer-sally open in this respect. For example,under the recently passed Ocean ShippingReform Act, nonvessel-owning commoncarriers are not granted the same abilityto enter into confidential contracts as arevessel-owning firms. This is one instancewhere third-party logistics is constrainedby regulatory barriers.

Open Access to Rail Facilities

U.S. rail operations are essentially deregu-lated, except when they are seeking ap-proval of a merger. In the case of a merger,the Surface Transportation Board reviewsthe competitive balance and may set regu-

Johannes Fritzen,VolkswagenTransport, PaulWauters, WautersTanktransportN.V., and RuneSvennson, VolvoTransport

Thomas Perdue,C.H. Robinson Co.


latory conditions. Europe tends to bemuch more regulated, often in the nameof liberalization. The European Commis-sion has been frustrated in its attempts torealize the potential of the poorly perform-ing state railways. These railroads havebeen losing money and have often beenunable to offer the service demanded bycustomers. Solutions are necessary notonly for economic reasons, but also for en-vironmental and social reasons.

The nature of regulation in Europe isvery different from the United States. Therail problems are different, and the tworegions have very different historical pub-lic and private roles. Deregulation in theform of open access is intended to over-come the inherent limitations of the na-tional railroads. In the United States, openaccess would be difficult to impose on pri-vate companies that own their own infra-

structure and would resist such a policyas an unconstitutional taking of privateproperty. In Europe, this is not an issuebecause governments own the rail infra-structure, and governments have the au-thority to determine how their propertywill be used.

In Europe, where the rail systems havebeen monopolies within their own na-tional borders, the policy has been toseparate the operation of railroad servicesfrom the construction and maintenanceof railway infrastructure. This policy iswhat U.S. participants refer to as “openaccess” or “competitive access.” Given thegeographical boundaries and history ofpublic rail investment in Europe, theopen-access form of deregulation hasbeen Europe’s way to increase competi-tion among railroad operators, althoughnot necessarily among the railroad own-ers. The U.S. history of private rail in-vestment and the existence of realrail-to-rail competition create a funda-mentally different context.

The use of the terms “deregulation,”“privatization,” and “open access” havevery different connotations in the two re-gions. Europeans use privatization to high-light the separation of above-the-railoperations (which they hope to be openedto greater competition) from below-the-railownership (which continues to requirepublic subsidy). U.S. interests see deregu-lation as a policy for more productivealignment of market demands with pri-vately owned rail resources and new in-vestments.

As deregulation, in the form of openaccess to the European rail network, goesforward, liability will get more compli-cated. National railroads and new actorscould provide through rail service throughmultinational corridors. Traffic control,slot allocations, and multiple independentoperators using the same routes may cre-ate new factors in loss or damage claims.

The situation is fundamentally differ-ent in the United States. The railroads areprivate property, and businesses continueto invest and reinvest in these assets be-cause they own and control them. Mostmarkets are served by more than one rail-road. Average rail rates have been halved

Robert Gallamore,Trasnportation

TechnologyCenter, Inc.,

Richard Biter,U.S. Department

of Transportation,and DamianKulash, Eno

TransportationFoundation (left

to right)

Wim Blonk,European

Commission,DirectorateGeneral VII

Forum Proceedings 11

in real dollars since deregulation. Becauseof private ownership and investment inthe United States, proposals for competi-tive access raise a much larger set of issues.In Europe, where governments own the na-tional railroads, the priority given to achiev-ing market competitiveness may not be ashigh as if private-sector interests controlledthe assets. European transport interests areprepared to pay the full costs of the rail in-frastructure, but they also want to controlthe infrastructure. It would help to have thefull set of rail and road costs, payments, andsubsidies set out factually, so that policiesand decisions could be developed in a waythat maximizes competition.

The separation of infrastructure man-agement from operations is an issue forall rail operators, whether existing staterailways or other operators who may seekto enter the market. Many believe that thepolicy of seeking additional open accessfor operators who would run on the na-tional networks is a failure, because so fewoperators have emerged to purchase theaccess rights. Those that have purchasedaccess rights have tended to be tinyspecial cases. The infrastructure ownerfaces high costs and is not responsive tooperator concerns. Some operators whohave attempted to contract for the use ofrail facility report that their largest prob-lem is dealing with the infrastructureowner, who has a completely differentagenda and objectives from the operators.

Reregulation

The much-publicized service difficultiesfollowing the Union Pacific and SouthernPacific merger have stimulated some ship-pers to call for reregulation of the railroads.Carriers see this approach as unresponsiveto the real situation. Since the passage ofthe Staggers Act in 1980, the U.S. railroadindustry has 35 percent less track, 32 per-cent fewer locomotives, and 60 percentfewer employees, yet railroads in theUnited States are carrying 48 percent morefreight. Productivity has increased three-fold. The industry has reduced costs by$25 billion in constant dollars. Some 80percent of that cost reduction has been

passed on to shippers, resulting in railfreight rate declines of 1.2 percent per year.

Carriers believe it would be very dam-aging if railroads lost their ability to pricedifferentially where the market allows.Similarly, if the United States adopted anopen access system as envisioned for Eu-rope, it could have severe effects. Atpresent, system expenses and corporateoverhead benefit from the differential-pric-ing regime that supports traffic with littleor no profit margin. Railroads allocatetheir very large fixed expenses to classesof traffic based on market considerations.Intermodal rates are predicated on thesemarket considerations and could be im-paired by restricting this market freedom.

Best Practices inIntermodal Freight Transport

The intermodal share of the Europeanfreight market is currently only eightpercent. While a few intermodal operatorshave been expanding, there may be a rolefor additional providers of intermodaltransport. For economic and environmen-tal reasons, many have an interest in in-creasing the intermodal market share. Tothis end, the Freight and Logistics Lead-ers Club has been collecting actual dataon intermodal, rail, and truck services togain a better understanding of markets andopportunities. They have identified a num-ber of innovative developments, which areoutlined in the following paragraphs.

Rune Svensson,Volvo Transport


Intermodal RailDevelopments in Sweden

The Scandinavian and Nordic railroadshave split infrastructure administrationfrom operations. Operators pay the rail fa-cilities managers a fee to use the rail plantand then run trains across these facilities.Operators can compete along the sameroute. Operators have shifted from beingclassical railroad operators, as they were10 years ago, and are offering door-to-doorsolutions to their customers. This shift hasresulted in enlarged intermodal marketshares in some cases. There have beenstrong service improvements. A directtrain and truck service to Italy that tookfive days when it began 10 years ago nowtakes only two days. In addition, reliabil-ity has improved.

Productivity has also improved signifi-cantly. For example, a very good rail networkand an ability to operate large, 60-tontrucks in Sweden has created an ideal set-ting for intermodal service. Railway costswere too high, however, and for short dis-tances, rail could not compete with directtruck. The Swedish railroad copied an ideafrom Japan and adopted a system that al-lows rail pick-ups between the hubs or railports. This approach makes intermodalrail service competitive for much shorterhauls because intermediate stops can bemade very short. No personnel are re-

quired at the intermediate terminals. Thelocomotive operator does the loading at theinterim stops using an on-board forkliftto load containers on or off. All-in-all, thismultiterminal, short-stop system is flex-ible, network-oriented, and very cost-ef-fective. Capital utilization is excellent.Unions were initially concerned aboutsafety, but the railroad has formed work-ing partnerships with the unions to resolvethis matter and to work with them to makethe railroad competitive for more classesof traffic. This type of service could be ex-panded to many other parts of Europe.

New International Rail Corridors

Rail-freight freeways must overcome manyproblems, particularly fragmentation. Eu-rope now has 43 infrastructure providers.Most of these providers are integrated withoperations, and they set timetables to op-timize their own operations. But for thefirst time this past year, the volume ofcross-border freight exceeded that of na-tional freight. To expedite this growingvolume, the European Commission intro-duced “One-Stop Shop.” It coordinates thetime tabling of all operators within a cor-ridor into a single organization.

Visionary investigations are underwayto explore Europe-India and Europe-fareast rail corridors, as well as a Berlin-War-saw-Minsk-Moscow corridor called the“Pan-European Rail-Corridor II.” WithinRussia, this concept breaks up the exist-ing system and separates different lines ofbusiness, each with its own business plan.The Trans-Siberian Railroad Council hasparticipated in these plans, and it hasadopted One-Stop Shop coordination. TheFinnish Railway now operates two directtrains per week through Russia. Using theTrans-Siberian route, shipping times canbe reduced from about 25 days via oceanshipping to about 12 days by rail. Globalrail has potential and is expanding. Thepolitical stability of the countries involvedhas been improving, and the problems ofdisparate gauges can be overcome.

However, missing links in the networkstill must be filled before it can reach far-eastern destinations. Construction is now

FrancoCastagnetti,

Enichem/PolimeriEuropa


underway to fill the rail gaps in the SouthAsian corridor through India, and thiscorridor may be completely connectedwithin a year. Once this corridor is con-nected, it will allow rail freight to move toIndia from Europe. Differences in rail gaugeswill continue to exist, but these differencesmight be managed using technology that hasbeen tested for rail equipment moving be-tween Sweden and Finland, which has agauge similar to that used in Russia.

Supply-Chain Management

Up to now, mobility of cargo has beencharacterized by the management of logis-tics. But logistics within a company is nolonger enough to meet customer demands.Supply-chain management has emerged asan approach that brings all of the variablesinto perspective. Based on the rapidly ex-panding capabilities afforded by new in-formation technologies, enhanced byoutsourcing and partnering, supply-chainmanagement shows great potential for re-ducing costs and improving services.

Supply-chain management allows ex-ecutives to see and control all facets. Inresponse, firms are changing emphasisfrom distribution management to networkmanagement, from road and rail manage-ment to system management, from serviceprocurement to contract management, andfrom transport technique to technologymanagement. The emphasis is on systems.There are totally outsourced systems, andthere are new actors inside the corpora-tion. The culture needs to change from ashort-term focus to a longer-term reality.

Airship “Cargolifter” Service

Many innovations have evolved in inter-modal unit lifting technology, and an an-cient technology—the airship—may haverenewed promise today. Airship transportwould allow freight to go from everywhereto everywhere. It could reach parts of theglobe that are difficult to access becausethey have been destroyed by earthquakesor other natural disasters. It could carrycargo whose size or weight is unsuitable

for other modes of transport. It could avoidrehandling of cargo along a route.

An airship service—or “cargolifter”—might fill a niche (in time and cost) betweenocean shipping and airfreight service. Nospecial airfields are needed. Airships areable to land in an area about the size oftwo soccer fields with special tie-downequipment. The ports also need to providewater as ballast to offset the unloadedcargo. Using helium-filled balloons to liftpayloads, the cargolifters can carry 160tons (up to 3,200 cubic meters) for dis-tances of up to 10,000 kilometers. Marketstudies have estimated that 120 to 200ships of this sort could be viable.

JohannesFritzen,VolkswagenTransport

Kenneth Wykle,U.S. Departmentof Transportation,(left) with PeterZantal, The PortAuthority of NewYork and NewJersey


Port Investment Policies

Private operators and firms make massiveinvestments to serve customer needs, butgovernment has a role as well. Govern-ments at all levels are concerned about thehealth and economic well-being of theircitizens. As major economic forces in theregion, port-related investments and poli-cies are driven by all levels of governmentas well as by private decisions.

Megaship service could further shiftthe concentration of power. These shipswill force new policy attention onintermodality and the types of intermodalsystems that are really beneficial. Becausemegaships will only be able to serve se-lected ports, they could create a vastly dif-ferent ocean-distribution system. Theirimpacts will reach far beyond the port it-self. The emergence of megaships willforce other transportation services andfacilities to respond. Megaships will alsogenerate changes in operating procedures,requiring investment in terminal and han-dling equipment.

The rise of carrier alliances in the ship-ping industry has forced ports to deal withthree or four large alliances instead of 20smaller customers. These large allianceshave approached competing U.S. portswith an open tender to establish east coasthubs. This consolidation of carriers, aswell as the introduction of megaships, willcreate a different balance of pricing power.Ports will lose pricing power, and oceancarriers will gain it. Competing in this newenvironment will require capital invest-ments—for post-panamax cranes anddock facilities to handle megaships, for

container handling and storage facilities,for expanded truck access, and for on-dockrail, because trucks alone simply cannothandle the volumes involved.

If market forces are to determine whichports move the cargoes, then the policymust be to eliminate state, regional, andlocal subsidies to ports. As a first step, weneed to know who is financing what. The1997 green paper by the European Union(Sea Ports and Maritime Infrastructure,COM (97) 678) recognizes the vital eco-nomic role of ports and the reality of com-petition between the member statesassociated with ports. The paper providesa financial overview of how ports are ac-tually financed.

European policy states that portfinance should be transparent. Any pub-lic subsidies that are made to ports aremade public. This policy would be diffi-cult to implement in the United States.Ports do not necessarily pay for ground-access and dredging costs. They benefitfrom cross-subsidies stemming from costallocation and multiple lines of busi-ness. Virtually every port in the UnitedStates receives some state or local sup-port, and some applications of federalprograms are effectively subsidies toports. U.S. ports would probably resistthe transparency in port finance beingsought by the European Commission.In matters of port finance, Europe ap-pears to be moving in a capitalistic, free-enterprise direction while the UnitedStates appears to be more socialistic.

Electronic Commerceand Intermodal Transport

Electronic commerce is the use of com-puter network technology to facilitate thebuying or selling of goods between trad-ing partners. Carriers serving this marketuse a physical network with air, ground,and ferry links in Europe. Systems are tiedtogether by electronic tracking and trac-ing capabilities, allowing customers to lo-cate their shipments at any time.

Some forecasts anticipate that elec-tronic-commerce in the United States willreach $500 billion in 2002. Companies are

Woflgang Flick,United Parcel

Service, Europe,and Dirk

Goedhart (right),Consultant to

PhilipsInternational


positioning themselves to be leaders in thisfield. United Parcel Service (UPS), for ex-ample, has taken two steps into the worldof electronic commerce. The first step wasto enter into arrangements with merchan-disers to advertise jointly on the Internet.This strategy integrates UPS’s tracking ca-pability with the merchandisers’ orderingsystems, so customers know where theirorders are in the overall distribution anddelivery system. The second step was todevelop UPS Document Exchange. Thisproduct is a secure, online courier, usingthe ultimate security of 128-bit encryption,which was recently cleared for distribu-tion outside the United States.

Electronic-commerce is finding appli-cations in the rail sector. A new systemhas recently been made commerciallyavailable for electronic bills of lading, andthis system seems to be working quite well.However, nations differ in terms of whatcourts will accept as proof that a documenthas been sent, and these differences couldcomplicate international applications.

Toward ImprovedEuropean and U.S. IntermodalFreight Transport: Next Steps

Improved intermodal freight transport isimportant for transport productivity,economic growth, and environmentalprogress. Many public and private con-cerns share an interest in achieving thesegains, but they cannot make progress bythemselves. Shared understanding and co-ordinated action are essential. The ex-change of perspectives between sectors,regions, modes, and operating perspectivesoffers a fruitful way to develop shared in-sights that allow independent interests toact toward a common vision.

This useful dialogue that has been de-veloped through forums held on Europeanand United States intermodal Transportin 1997 and 1998 should be continued byholding a third session in the United Statesin the fall of 1999. The small size of theseforums, their informal style, and the par-ticipation of top-level transport leadersfrom all sectors have contributed to the

effectiveness of these forums. The 1999forum should carry forward and build onthe discussions that have been held onstandardization and best practices. Inaddition, it should begin a similar dialogueon the effects of electronic-commerce andinfrastructure investment policies. The1999 forum should also address cargo li-ability, regulations governing competition,third-party logistics providers, and othertopics of interest to participants, as out-lined in the following paragraphs.

Standardization

Greater interoperability can bring impor-tant gains to the efficiency of transport.Policies should support achieving theseproductivity improvements where appro-priate. The potential for increased stan-dardization depends on the degree ofmaturity in the industry, carrier operat-ing efficiencies, requirements for invest-ment by carriers and shippers, disparities

Karel Vanroye,Unit for Analysisand TransportPolicyDevelopment,Wim Blonk,Kenneth Wykle,and Richard Biter,(left to right)

Ron Stanley ,Landstar ExpressAmerica, BertSchacknies,Federal HighwayAdministration,U.S. Departmentof Transportation,Thomas Perdue,C.H. Robinson Co.James Morgan,TNT AutomotiveLogisitcs, andDavid Winstead,MarylandDepartment ofTransporation(left to right)


in physical features of the surface trans-portation infrastructure, and the effects oncompetitive positions. The nuances ofthese factors are subtle, and they arebetter understood through candid discus-sions. The prospects for enhanced stan-dardization should remain on the agendain the 1999 forum.

European and U.S. Best Practices

The European working group to discussbest practices in intermodal freight hasbeen a source of many good ideas. It hasstirred great enthusiasm to work togetherfor improvement. Through this informalclub of captains of industry, public au-thorities are able to tap the private-sectorexperience, getting useful informationquickly. This working group may be an at-tractive model that may have value in theUnited States as well. U.S. participantswere impressed by the energy and enthu-siasm of the European best practices groupand will seek to establish a similar indus-try-driven, best practices group in theUnited States.

Electronic Commerce andIntermodal Freight Transport

Important, new, unfamiliar opportunitiesin intermodal transport will arise as elec-tronic commerce takes hold in the nextdecade. Further discussion should focuson how these developments might affectintermodal transport.

The Role of Governmentsin Infrastructure Finance

Public policy on both sides of the Atlanticseeks to build an economically sound in-frastructure investment framework, freefrom the distortions caused by modal orregional subsidies. In practice, this ideal isconfounded by disparities in user fees fordifferent modes, by inconsistent treatmentof external costs, by joint investments, byinconsistencies in the allocation of com-mon costs, by companion investments inaccess facilities, and by state and local sub-sidies. Major transport terminals drive theeconomies around them, making it diffi-cult to identify net public investment, letalone rationalize it across diverse local cir-cumstances. The 1999 forum should usecase materials from Europe and the UnitedStates to continue the discussion of infra-structure issues.

Liability

A proposal to reform the 1936 U.S.COGSA legislation would unilaterally ap-ply U.S. law outside its territory. This leg-islation could have a damaging effect oninternational commerce. It may also be dis-criminatory, because it could give a com-petitive advantage to U.S. carriers whenthey are in head-to-head competition withEuropean carriers to provide transport ser-vices. Such concerns need to be resolvedwith full awareness of their internationalimplications, and discussions like thesehelp to surface these concerns.

Interoperability in Intermodal Freight Transport 17

Article A:Interoperability in Intermodal Freight Transport

John BetakCollaborativeSolutions, Inc.

Ian BlackCranfieldUniversity

Edward MorlokUniversity ofPennsylvania

October 1998

Executive Summary

In October 1997, the Eno TransportationFoundation held a policy forum cospon-sored by the U.S. Department of Trans-portation and the European Commission,Directorate-General VII (Transport). Thisforum addressed issues in intermodalfreight transport in Europe and the UnitedStates. One area identified for further con-sideration was standardization, harmoni-zation, or interoperability of equipment,information, and communication tech-nologies. This paper provides a frameworkand background information reflectingobservations and data contained in the lit-erature, as well as conversations with se-nior industry representatives.

Changes in the patterns of trade andcommodity flows are leading to a rapidincrease in the amount of intermodaltransportation. This situation requires anincreased focus on system effects and theneed to modify facilities, equipment, andoperating practices to provide seamlesstransport among modes and nations. Thisnaturally raises the issue of standardiza-tion and the specific aspects of standard-ization addressed in this report—containerstandardization and interoperability in in-formation technology.

Containers and information technologyrepresent major choices that affect theform and operation of the system. Thesechoices cannot be taken lightly. They aremajor investments with relatively longlives associated with the equipment. Thus,one of the most important contributionsthat can be made by a document like thisreport is to suggest a framework withinwhich these questions and the issues asso-ciated with interoperability in containersand information flow can be considered.

Interoperability andHarmonization: A Change Process

European and North American supply-chain management and freight transpor-

tation represent a many-layered industrywith (a) interdependent and interlinkedmarkets and (b) independent and dis-jointed markets. These characteristics arewhat make harmonization of equipmentand technologies so challenging. Develop-ing a shared vision of what is to be har-monized and the resulting benefits iscrucial to success.

The harmonization task is a change pro-cess, and every change process has obstacles.Three types of barriers must be addressedto successfully achieve interoperable sys-tems, equipment, and procedures: technicalbarriers, business process barriers, and cul-tural barriers.

Technical barriers are specific to theindustry or organizations. These sorts ofbarriers can sometimes be eliminatedthrough team-based efforts to design newtechnologies or to design around the tech-nical barriers. Many of the issues associ-ated with harmonization of containers aretechnical barriers.

Business process barriers are often or-ganization or industry specific. These bar-riers are frequently the result of how anorganization or industry works.

Cultural barriers consist of existing hab-its, behaviors, and attitudes of everyonein an organization, industry, region, ornation, that is, the existing paradigms ofhow the world is “supposed” to operate.

Broadly speaking, improvements intransportation take two forms: a reductionin the cost of transport and improvementsin services that add value to the user.Clearly, many of the gains from increasedinteroperability are of the cost-reductionvariety, for example, improved containeruse resulting from investments in informa-tion technology that lead to better track-ing and control or reduced costs of terminalhandling resulting from standardization ofsizes and locking apparatus. The conse-quences of these gains can be far reaching,including improving the contribution mar-gin of intermodal services for the carriersinvolved and expanding the markets inwhich intermodal transport is competitive.


Equally important are changes that en-hance the range of transport serviceoptions, but that may increase the directcost of transport services. Nevertheless,these changes benefit the system’s custom-ers. Actions that increase speed and reli-ability of transport often fall into thiscategory, with the increased cost of trans-port being more than offset by reducedshipper cost of inventory, reduced spoil-age, or increased shipper competitivenessresulting from more rapid and precise cus-tomer response.

An increasingly important driver inaddressing interoperability will be ensur-ing that customer expectations are an in-tegral part of the equation. In the finalanalysis, if customers receive no benefitsfrom harmonization, customers will notpay for the costs associated with achiev-ing interoperability. At the same time,customers are demanding increasing flex-ibility and visibility in managing theirsupply chains. If the intermodal freighttransport industry does not provide flex-ibility and visibility, customers will findsome other service provider who will givethem what they expect and demand.

Developing Interoperability: ASummary of ContainerStandardization

The recent history of container standardsleaves a number of unresolved issues:• Is there a need to develop a length stan-

dard longer than 40 feet (12.13meters)? Europe is moving toward 13.6meters (44.06 feet), which is not inharmony with any lengths developed inthe United States.

• Is the existence of two width stan-dards—2.438 meters (8 feet) and awider 2.55 meters (approximately 8 feet5 inches) so popular in Europe—acause for concern?

• Is there a need to reconsider the com-patibility of pallet sizes, the possibleemergence of small containers (logisticboxes), and the standard container?To answer these questions, issues of

cost and ease (or speed) of moving goodsthrough the supply chain need to be

considered. Studies that quantify the ef-fect of adopting standards on these per-formance measures of the supply areneeded.

Different stakeholders most likely canachieve consensus about the objectives ofstandardization. Where disagreement be-gins is in predicting the effect of standardson costs and use by stakeholders in differ-ent parts of the supply chain around theworld. The European standards organiza-tion developed standards that certainly re-spond to European needs but at the sametime may conflict with the wider require-ments of international trade with theUnited States and other countries.

Developing Interoperability: ASummary of Information Technology

Information systems in transportationhave become as important as the physicalmovement itself. To facilitate the smoothflow of information from one partner inthe intermodal transport chain to another,information systems must work inter-changeably and facilitate a diverse arrayof partnerships in a dynamic environment.The recent history of standards concernedwith information systems is captured inthe following quotation:

Products based on official standardshave not been widely implemented.On the contrary, they have oftenbeen displaced by so-called de factostandardized products, that is, prod-ucts successful in the market whosetechnology is based on either publicor private specifications (Bucciarelli1995, p. 423).This quotation leaves a number of un-

resolved issues regarding harmonization ofinformation systems in intermodal trans-portation:• How do we ensure that meeting shippers’

needs is an integral part of the justifica-tion of harmonization of intermodalfreight information systems?

• How do we address concerns within theintermodal transportation communityregarding data confidentiality, use ofinformation, business relationships,power, and competitive conditions?


• What role can government have in fa-cilitating the harmonization that isoccurring naturally within freight com-munities?

• How do we develop a shared vision ofwhat is to be harmonized in informa-tion systems, and what will be the ben-efits for the various members of theintermodal community?The following factors point to the need

for interoperability of hardware and soft-ware in the intermodal transport process:• Economies of scale can be generated in

producing standardized units.• Higher capital and operating costs can

be avoided by developing vehicles orvessels that can carry different loadunits or combinations of load units.

• Costs for providing specialized handlingequipment at intermodal transfer facili-ties can be reduced.

• A limited customer base for specializedunits often leads to inefficient use ofequipment or unused carrying capac-ity on vehicles.

• The ability to communicate with awider array of partners in the supplychain with reduced costs for interme-diary or translation software can beenhanced, particularly as the industrystructure changes and new intermodalalliances are developed.The main arguments against standard-

ized equipment and software are asfollows:• The flexibility to respond to unique

market challenges may be stifled.• The systems will be less responsive to

specialized product requirements, meth-ods of handling, or customer preferences.

• Standardized equipment may notnecessarily translate into lower overallsystems costs, particularly if the con-solidator function is not removed.

• The high initial capital costs of invest-ing in new equipment, facilities, or soft-ware may not be offset by future costsavings to the user.

• The “competitive edge” or stabilizationof partnerships that is provided by spe-cialized equipment and proprietary sys-tems will be lost.

• Sharing data among nonproprietarysystems raises security concerns.

• Developing standards that are compat-ible with operations and informationflows in all part of the supply chain andin different transport modes is difficult.

• The benefits and distribution of costsamong different parts of the supply chainand throughout the world are uncertain.Natural trends in production and dis-

tribution are adding complexity to supplychains and to transportation. Thus, theincentives for harmonization of informa-tion systems simply on the basis of self-interest are likely to increase. Thecomplexity of the many issues involved re-quires a more thorough understanding ofthe costs and benefits to different segmentsof industry, as well as the timing of theseeffects. The challenge for the intermodaltransport industry is to develop forumswithin which these questions can be re-solved in a voluntary manner.

The Forces Driving andConstraining Interoperability

Rationale

The need for interoperability in transpor-tation services is clear: Elements of thesystem such as vehicles, guideways, andcontrols must be able to operate togetherto provide service. Also, the geographicscope of transportation flows often leadsto individual shipments being carried bytwo or more transportation companies,often over facilities provided by yet an-other organization (frequently a govern-ment infrastructure agency).

The issue of standardization is alwayspresent in a dynamic technological envi-ronment, and the current situation ofcontinuous change in applications of newtechnologies certainly raises the issue. Ofequal importance are changes in demandfor transportation. In particular, increas-ing globalization and regionalization ofsupply chains necessitates transportationservices that transcend traditional na-tional and modal boundaries. Trends to-ward just-in-time inventory policies, masscustomization, and rapid customer re-sponse all demand more rapid and


reliable transportation services over in-creasingly intermodal and multicarriernetworks.

The trend toward longer supply chainsleads to longer hauls and increased like-lihood of intermodal movements. Modesthat did not exchange much traffic, andthus developed in isolation in ways thatare not readily compatible, can suddenlybe logical parts of integrated supplychains. Thus, issues of compatibilityacross different modal transportation ser-vices arise. The trend toward new pat-terns (spatial and otherwise) of industriallinkages also means that national or re-gional transportation providers who hadoverlapping or contiguous service areasbut did not exchange traffic may findthemselves called upon to provide ser-vices in an integrated way.

Elements of Interoperability

Which elements of the transportation sys-tem are reasonable targets of efforts at har-monization to enhance interoperability?Most elements of each modal system donot operate directly with one another. Inintermodal transportation, the primaryelements related to seamless functioningof the system are the containers that carrythe goods and the information flow on themovement of containers and shipments.Our focus is on these two areas.

Modal Ownership Patternsand Intermodal Transport

While the transport system is increasinglythought of as intermodal, the reality is thatmost transport is considered either(a) unimodal or (b) intermodal with onlyvery limited interconnections. This situa-tion reflects both the physical reality andthe result of institutional arrangementsthat often diminish the apparent magni-tude of intermodal connections.

The prominent role of various third par-ties or integrators in providing intermodaltransport also diminishes the apparent sig-nificance of intermodal transport to par-ticipating modal carriers. Other firms are

more heavily asset based but use comple-mentary modes and organize use so thatit is transparent to the shipper. Examplesinclude United Parcel Service (UPS), vari-ous truck lines, and national postal ser-vices. These firms also relieve modalcarriers of direct responsibility for theintermodal aspects of transportation. Be-cause so much work unique to intermodalservice is provided by these various firmsand agencies, the immediacy of intermodalthinking among modal carriers is furtherreduced.

In this environment, intermodal con-siderations are not of paramount impor-tance to all transportation carriers. Theirconcerns for efficiency, responsiveness tomarkets, and profitability are likely to bedriven largely by other portions of theirbusiness and activities. Thus, efforts atharmonization of intermodal systemsmust retain compatibility with the rest ofthe relevant modal systems.

Standardization and harmonization willnot be undertaken because they are intrin-sically worthwhile, but rather because theyimprove the system. There is a burden ofjustification of any harmonization: It mustbe shown to improve the system, that is,the production and distribution system.This point argues for inclusion of ship-pers—users of the transport system—inany discussions of major changes, for stan-dardization and harmonization will suc-ceed only to the extent shippers find receiveany benefit from them.

The Institutional Framework

Setting standards involves a variety of pro-cesses and players. The United States andall European countries have National Stan-dards Organizations. In the United States,it is American National Standards Institute(ANSI), and the most influential ones inEurope are BSI (United Kingdom),AFNOR (France) and DIN (Germany).However, in Europe the European Stan-dards Organization—CEN—was created tofacilitate trade within Europe and to har-monize European standards. CENELEC(for electrotechnical standardization) andETSI (for telecommunications) are sister


organizations. CEN now includes 19 mem-bers. By common agreement, all nationalstandards bodies adopt the Euro standardsas their own national standards and with-draw any existing incompatible nationalstandards. The International StandardsOrganization (ISO) is an independent in-ternational agency established to providea framework for developing internationalstandards. Each national member carriesone vote per nation in all ISO proceedings,which on many issues requires a 75 per-cent majority. European votes are signifi-cant and when cast as a block, candetermine the outcome. All of the organi-zations use a set of technical committeesto examine specific subject areas.

The procedures adopted by ANSI aredifferent from its European counterparts.ANSI is a federation of more than 175standards-developing organizations(SDOs) and companies with interests andexpertise in standards development. ANSIitself does not develop standards, but fa-cilitates the process. It sets the proceduresthat committees must follow, monitors thedevelopment process, officially approvesthe results as national standards, and pub-lishes them. The procedures laid down byANSI require participation of all interestedparties, including manufacturers, suppli-ers, and users. All meetings must havewidely distributed meeting notices, de-tailed minutes, and a clear process for dis-pute resolution. Much of this proceduralemphasis stems from concern about notviolating U.S. antitrust laws. The finalstandards are seen as a validation of pri-vate sector voluntary, open, and transpar-ent standards development process.

The European national standards orga-nizations function as quasigovernmentalentities receiving a significant proportionof their funding from national govern-ments. Usually the development processuses a combination of internal staff, paidcontractors, and technical representativesfrom industry who write the standards.Meetings are often closed. Trade associa-tions do not always have a formal role inthe developmental process and participa-tion in committees is often narrower thanin the U.S. system. The secretariats inEuropean organizations, including CEN

and ISO, take a more significant role thantheir U.S. counterparts. Direct govern-ment input into the examination of stan-dards often takes place, and the EuropeanCommission plays a more active role infacilitating industry action.

One factor that necessitates such astrong governmental role in the develop-ment of standards in Europe is the diver-sity of national outlooks and priorities. Inthe United States, transport interests canbe more focused on serving the large, rela-tively homogenous domestic market. Incontrast, the European transport industryis inherently more outwardly focused,with an obvious need to improve linksbetween different countries and industrialprotocols. The sea change generated byEuropean Unification carries over into thedevelopment of international (within andexternal to the European Union) stan-dards in the transport industry.

The importance of Europe in settingstandards can be seen in the special fast-track process that can be used by ISO forpreviously developed European standards.While this process has the undoubtedmerit of avoiding duplication of activitiesalready undertaken, it does restrict theright of non-European inputs at limitedand specific points. The recognition thatEuropean development process can be cru-cial to U.S. trade interests (and vice-versa)has led to joint liaison procedures betweenANSI and CEN, in which the UnitedStates can comment on proposed Euro-pean standards. This cooperation has con-centrated, in practice, on the subject ofnontariff barriers to trade, leaving thequestion of container size unresolved.

A private sector initiative launched in1995—TABD (Transatlantic BusinessDialogue)—is “designed to respond to thenew reality of trade, namely that compa-nies are functioning globally ….” Follow-ing its business-driven agenda, it hasfocused on standards, certification, andregulatory policy by setting up the trans-atlantic advisory committee on standards,certification, and regulatory policy(TACS). Concerned with a wide range ofsectors—automotive, energy, chemical,medical devices, pharmaceutical, telecom-munications, and information technology


sectors—TACS provides an important fo-rum and framework for translating globalbusiness requirements into recommenda-tions to government and standards agencies.

Developing Interoperability:Container Standardization

Containers (load units) play a pivotal rolein intermodal transport. The design andvariety of these basic building blocks ofan intermodal transport system criticallyaffect the system’s responsiveness to cus-tomer needs and its performance in termsof cost and speed of movement throughthe supply chain. The design of load unitsaffects the capital costs of the vehicles andvessels designed to carry them, the oper-ating costs of these carriers, the costs ofhandling between modes, and the costs ofinitial loading and final unloading. Cus-tomers have different requirements, andthe ideal container for a consignment de-pends on the type of product (e.g., volume-density), its method of handling, itspackaging, and the size of consignment.

Load Unit Standardsand Intermodal Transport

A large number of container types haveemerged to meet these separate needs.However, variety and the proliferation ofdifferent types of units bring extra costs.If diversity is limited in some way, econo-mies of scale in producing load units canbe gained. Variety in load units also meansdifferent designs of carrying units with

consequent losses in economies of scale.Alternatively the carrying vehicles or ves-sels may incur extra capital and operatingcosts to have the flexibility to carry differ-ent load units or, in the case of ships, com-binations of different load units. A similarpoint applies to handling load units;greater variety means either more equip-ment is necessary at intermodal transfersites or more complex, and hence costly,equipment is necessary to accommodatethe variety. A proliferation of load unitsalso has implications for the use of thoseload units and carrying units. When vari-ety is low, an empty container can find anew customer in the same vicinity rela-tively quickly. For specialized containers,customers are rare and, in the extreme caseof containers that are specific to one cus-tomer, the empty container has to returnto that customer empty. In the case oftrains and ships, the need to carry differ-ent combinations of load units can meanpoor use of trailers or space on vessels. Allelements of the cargo-handling system,from pallets to rail infrastructure, are in-terconnected, as illustrated in figure 1.

Standards concerning intermodal loadunits (ILUs) relate to different factors.While dimensions and engineering stan-dards (regarding the integrity of the unit)are key definitions, standards also exist forthe design of corner fittings (for handling),bay plan systems in vessels, methods toensure safe handling, labeling, and remotecondition monitoring of containers. Someof these standards pertain to good prac-tice, whereas others focus on ensuringcompatibility and interoperability as unitspass along the supply chain from mode tomode and through handling stations. Themost critical in the latter case are load-unitdimensions, associated weight limits, abil-ity for stacking, and corner fittings.

The Emergence ofISO Series 1 Containers

The use of containers for internationalcommerce developed rapidly in the late1960s and 1970s. Now containers domi-nate international movements by sea, withmore than 6 million in use throughout the

Figure 1. Factorsto be considered in

load unit sizedecisions


world. The most common sizes are en-shrined in international standard ISO 668and are referred to as ISO Series 1 con-tainers. The two most common dimen-sions are 8 feet wide by 8 feet 6 inch highand either 20 feet or 40 feet long. Withinthis basic dimensions are various designswith end doors, side doors, and open tops.Standards also refer to dry bulk, flat, andrefrigerated containers.

In international trade by sea, more than95 percent of containers are the 20- or 40-foot standard. Turning to internationaltrade generally, a number of other signifi-cant types of load units have emerged assubstitutes for maritime containers.

European Developments

While Europe adopted the ISO standardmaritime container for inward and out-ward movements by sea, this container’srole for national and international move-ments within Europe is much more lim-ited. A much larger role is played byswapbodies (caisse mobile, Wechselbhalter,cassa mobile) (Institute for Logistics andDistribution Management (ILDM) 1996).These load units, which are not normallystrong enough to be stacked, come in a va-riety of types and sizes:• Full length (12.2 to 13.6 meters) with

tilt (tarpaulin sided), van (solid sided) orrefrigerated units, referred to as Type A

• Short length (7.15 meters, 7.45 meters,7.82 meters), referred to as Type C

• Bulk (9.125 meters and more)• Swaptank (6.096 meters, 9.144 meters)

While the short length is by far the mostnumerous with more than 150,000throughout Europe, the vast majority (per-haps 80 percent) is only used for road op-erations (and these might be referred to asdemountables). There is also a differencewithin Europe in the extent swapbodiesare used, with Germany followed byFrance and Scandinavia as the most fre-quent users.

In addition to swapbodies, semitrailerswith reinforced lateral beams can be liftedby gantry or mobile cranes onto speciallydesigned rail wagons (pocket wagons).Again, these containers can be tilts, vans,

refrigerated, or tank units. About 30,000 of600,000 semitrailers are used in this format.

A number of advantages of swapbodiesand semitrailers have enabled them to gainan important niche in the ILU market inEurope. The first advantage derives fromnot meeting engineering requirements forstacking. The body can be less costly andallow greater flexibility on loading (cur-tain sides).

With regard to pallets, an internationalstandard (ISO 6780) defines standard di-mensions for pallets. One of the three stan-dards (1200 x 1000 millimeters) has beenwidely adopted throughout Europe. Asso-ciated with this standard is a packagingmodule 400 x 600 millimeters that is inti-mately related to this first standard. How-ever, research among German shippers hasalso indicated that 80 percent are using1200 x 800 millimeters pool pallets.

Elsewhere in the world (including theUnited States and Japan), this Europalletstandard has not been widely adopted. Thethird standard of 1140 x 1140 millimetersis also widely used. The argument fromEuropeans is that the internal width of anISO container does not allow efficientloading due to the inability to load two1200 millimeters wide pallets side by side.This situation can lead to a loss of capac-ity of just under 20 percent for a 40-footcontainer and nearly 30 percent for a 20-foot container. The importance of this ar-gument in favor of a slightly wider ILUthan 8 feet depends critically on the per-centage of goods using Europallet sizes thatare, or could use, containers. In addition,the proportion of these containers that areconstrained by weight from being loadedwith the maximum number of pallets isan important factor. Estimates in Europevary, but in some countries, as many as36 percent of goods may use Europallets,and of these, up to a third may be con-strained by weight. In addition, approxi-mately 70 percent of all containers andswapbodies are loaded with pallets. Theconclusion, therefore, is that swapbodieswith a slightly wider body are more effi-cient in loading pallets. This incompatibil-ity between pallet and container sizes waspartly responsible for the emergence ofanother European standard for load units.


In the early 1990s, a new standardemerged under the auspices of the Germanstandards organization (DIN), referred toas a land container. The land container hasan external width of 2.5 meters. This width,with an internal dimension of 2.44 meters(as opposed to the ISO 2.336 meters), al-lows two 1200 millimeters pallets to bestacked side by side (or 3 x 800 millime-ters) as in a swapbody. Currently there areabout 50,000 of these containers in Europe,of which 75 percent (referred to as cellularpallet-wide containers—CPC) are designedto fit into an 8-foot (2.438-meters) ship cellslot. Recently CEN finished defining astackable container with dimensions 7450x 2550 x 2900 millimeters (compared withthe ISO 20-foot container 6058 x 2438 x2590 millimeters).

From the European perspective, thenew container offers considerable advan-tages in its ability to store (and load) pal-lets. Yet the emergence of a different widthstandard for the so-called land containerdoes mean more complications or con-straints concerned with equipmentthroughout the intermodal supply chain.Some argue that cargoes may be trans-ferred between different size containers atports or other interchange points. How-ever, this type of transfer activity runscounter to leading supply chain manage-ment practice wherein companies such asLi & Fung (Magretta 1998) move partiallyfilled containers multiple times so as toeliminate the consolidator function en-tirely. While shipping costs are greaterunder this scenario, total systems costs arelower. Thus, to introduce a requirementfor a consolidator function to be able toload pallets more readily may be counter-productive in terms of the total supplychain.

Large Containers

In the United States during the 1980s,manufacturers started to build containerslonger than 40 feet in response to the re-quirements of shippers, manufacturers,and truck lines. The different lengths in-clude 44-, 45-, 46-, 49-, 53- and 56-footcontainers. The height is sometimes 9 feet

6 inches (2.90 meters) and the width isalso increased to 8 foot 6 inches (2.59meters). In response to this trend towarda larger family of containers, a draft docu-ment of ISO (referring to Series 2 contain-ers) was prepared. This document wasfollowed by a study funded under the pro-gram for European Cooperation in the fieldof Scientific and Technical research(COST) with a remit to examine the issueof these large containers. COST is a frame-work involving 25 European countries,which covers precompetitive research ina number of areas, including transport.While the program receives EuropeanCommission support, it is not a programof the commission.

The COST 315 study report (EuropeanCommission 1994), focused on a lengthof 49 feet and demonstrates the wide rangeof topics that need to be addressed indeveloping and possibly adopting a newstandard for containers. The obvious ad-vantage of larger containers is that theyoffer the prospect of moving more goodsat lower cost. However, the increased vol-ume of the proposed larger container ex-amined in the study offers more volumewith the same gross weight and thus alower payload (of one ton). This balancebetween volume and weight offered amaximum density of only 276 kilogram/meter3 (kg/m3) compared with 670 kg/m3

for 20-foot and 411 kg/m3 for 40-foot con-tainers. This configuration raises the im-mediate question of what proportion oftrade involves such low-density cargoesthat might take advantage of the new con-tainer. The report suggests (based on fig-ures from one country) that such aconfiguration is only relevant to 2 percentof goods moved by containers. In addition,road weight limits in Europe constrain thetotal payload of containers and furtherlimit potential use of such large contain-ers. With this rather dismal picture of thepotential use and benefits of large contain-ers is a long list of increased costs.

It is argued that although 8 foot 6 inches(2.59 meters) is wide enough for twoEuropallets, it is wider than necessary.Indeed, anything wider than 2.48 metersprobably requires stuffing to avoid unde-sirable movement in the container.


An examination of the implications forvessel costs is pessimistic. Adaptation ofbelow decks on existing ships is prohibi-tively costly. On deck is feasible and shouldlead to no loss of capacity, but requires anew lashing system. In the case of newships, designing for the new length in ad-dition to existing standard lengths is nogreat difficulty (hindsight has proved thisto be the case). Roll-on/Roll-on ships areidentified as a special case where adapta-tion is impossible due to the restrictionsimposed by elevators. The conclusion isthat large containers lead to extra costs andare constrained to certain routes.

In the case of maritime terminals, anymove toward larger containers requiresnew cranes. Rail terminals would also re-quire new cranes due to the restrictedwidth between the legs of gantry cranes.

In the case of using large containers onEuropean railways, severe constraints areidentified (or alternatively heavy costs ofadaptation are identified). Due to a lackof harmonization, maximum dimensionsmasses, and axle loads of railway vehiclesvary throughout Europe, depending uponlocal topography, date, and constructionquality of the network. The increase inwidth from 2.50 to 2.59 meters createsproblems on most routes or requires highlyspecialized wagons. Electrification andbridge clearances also make an increase inheight (to 2.59 meters) prohibitively costly.

The move toward a longer container,with existing wagon fleets designed for 20-foot modules or 7.15-meter swap modules,would mean a poorer payload per wagon.Alternatively, introducing a fleet of spe-cially designed wagons would mean a mixof wagons and consequent poorer overalluse of the total fleet.

While U.S. legislation permits road ve-hicle dimensions of up to 53 feet, the casein Europe is rather different. A containerof 49 feet requires a chassis that is longerthan legally permitted in all Europeancountries except Sweden. The width at2.59 meters is (just) outside permitted di-mensions for nonrefrigerated vehicles.

Turning to inland waterways (particu-larly significant in the Rhine valley), largercontainers could be adopted without ma-jor modifications, but there would be a

severe loss of capacity. The dimensions ofinland waterway vessels are closely linkedto the dimensions of locks and canals.Without a change in vessel sizes, widercontainers would mean only three rowsrather than four, and, in certain parts ofthe network, double stacking of 2.90meters containers is impossible due tobridge clearances.

Overall, the COST 315 study demon-strates the wide variety of issues impliedby adopting a new standard. Some of thecosts of such a move are identified (thepurchase of new cranes, for example), butno attempt was made to provide a fullbreakdown of savings and costs derivingfrom the new standard. The array of costsand constraints identified in the reportclearly outweighs the small benefits thatmight accrue to a small proportion of trade.

Any move toward standardization oncontainer length probably needs to focuson the more popular 45-foot and 53-footlengths. Many arguments presented inCOST 315 apply just as strongly. The mostrecent move on a European standard formaximum truck lengths, for instance, of-fers no relaxation of that constraint, evenfor the shorter 45-foot version. The issueof a standard (or standards) for large con-tainers is now frozen in the internationalarena of ISO activity. As far as Europe isconcerned, CEN is developing a stackablecontainer fully compatible with ISOstrength requirements and with dimen-sions of 13600 x 2550 x 2900 millimeters.The width of the proposed unit is consis-tent with Europallet sizes, and the lengthis some 1408 millimeters longer than the40-foot standard but shorter than 45 feet,so as not to violate truck length limits.

Small Containers

A recent initiative, COST 339, is to exam-ine the issue of small containers (less thanthe 20-foot container length and 7.15-meter swapbody), sometimes referred toas the logistic box. The specific objectiveis to produce guidelines for governments,standardization organizations, transporta-tion associations, and container manufac-turers to assist in developing rules for


implementing European-wide use of smallcontainers (European Commission 1998).The project will deliver recommendationsto the competent standards authority (inthis case, Technical Committee 119 ofCEN). COST 339 aims to accelerate andsimplify the development of new specifi-cations and standards needed to enableintermodal transport.

The structure of the study pays particu-lar attention to the demand side and ben-efits to users. It specifically addresses therapid growth (associated in many caseswith just-in-time philosophy) in small con-signments of less than 10 pallets and theneed to understand weight and volumerelationships, commodity group composi-tion, and desired transit time. The effectson internal organization transport(forklifting, automatic operation), loadingcharacteristics, tracking and identification,and transshipment technology are also im-portant elements to be addressed. Thetimeframe of the study (over three yearsstarting in 1998) means that any influenceon standards is some years away.

Conclusions

The recent history of container standardsleaves a number of unresolved issues. Forexample, is there a need to develop a stan-dard longer than 40 feet (12.13 meters)?Europe is moving toward a length of 13.6meters (44.06 feet) that is not in harmonywith any lengths developed in the UnitedStates. Is the existence of two standards—8feet (2.438 meters) and a wider 8 feet 5inches (approximately 2.55 meters) so popu-lar in Europe—a cause for concern? Is therea need to reconsider the compatibility ofpallet sizes, the possible emergence of smallcontainers (logistic boxes), and the standardcontainer? The factors that need to be con-sidered to answer these questions are wellknown. They revolve mainly around issuesof cost and ease (or speed) of moving goodsthrough the supply chain. What is missingis a framework that quantifies the effect ofstandards adoption on performance mea-sures of the supply chain (COST 315 doesprovide a partly quantified framework forthe specific issue examined). Different

stakeholders can most likely achieve con-sensus about the objectives of standard-ization. Where disagreement begins is inpredicting the effect of standards on thecosts and the use of stakeholders in differ-ent parts of the supply chain in variouscountries of the world. In Europe, CENhas pursued standards that certainly re-spond to European needs but, at the sametime, may conflict with the wider require-ments of international trade with theUnited States and other countries.

Developing Interoperability:Information Technology

Information Technology

As with almost all sectors of society, thetransportation sector has been significantlytransformed by information technologyuse. This trend is expected to continue forthe foreseeable future. Information technol-ogy in transportation has become as im-portant as the physical movement itself.Information systems make the processmore efficient by facilitating the numerousinteractions necessary between the users(shipper and consignee) and the providersof the service. The providers include notonly transport carriers—typically two ormore in the case of intermodal transport—but also other parties such as public-sectorterminal operators, customs brokers, andso forth. Information technology is alsoessential in ensuring that the service pro-vided is compatible with the requirementsof the supply chain of which it is a part.

Three areas of information technologyare unique to transport:• Identification of vehicles or other equip-

ment, in particular containers (usuallyreferred to as AEI for automatic equip-ment identification)

• Identification of individual shipmentsand their tracking in space and time (usu-ally termed ITV for in-transit visibility)

• Exchange of information, includingwaybills and other documents betweenthe parties involved in movement (fre-quently referred to as EDI for electronicdata interchange)


While the use of information technologyis highly developed in intermodal transpor-tation, this development is also highly frag-mented. This fragmentation reflects theexistence of many distinct cargo communi-ties within the industry. A community con-sists of firms that actually interact directlyin providing and using transportation ser-vices, including shippers, carriers, agents,and so forth. These clusters of firms, relatedby their businesses, create interoperable sys-tems, but give little or no attention tointeroperability outside that cluster, as illus-trated in figure 2. Indeed, incentives exist toensure the lack of interoperability with firmsoutside the group, which create barriers tocompetition and new entrants.

Current Systems

Ocean Carriers

Ocean transport is inherently intermodal,although much of the burden of integrat-ing water with land service rests with ship-pers’ agents and others. EDI is widely usedin ocean shipping, and many early effortswere made to develop standards so thatfirms and government agencies couldreadily exchange data. These effortstended to occur within cargo communi-ties with little regard for interoperabilitywith the standards of other communities.Therefore, for example, in 1983 ANSI es-tablished the ANSI X12 standards for datasets and protocols. U.S. water and railtransportation carriers quickly adoptedthese standards. In 1987, when the UnitedNations Commission of Western Europeadopted a different set of standards—theEDIFACT (EDI for administration, com-merce and transport) standards—theywere rapidly adopted in international tradeby ocean carriers, including U.S. carriers.Meanwhile, the ANSI standards continueto be used by domestic American carriers(Aylward 1995, pp. 20–22).

Software that enables translation be-tween the two sets of standards (ANSI andEDIFACT) was developed, and documentscan be readily converted, overcoming theissue of incompatibility, although at a cost

of having to translate documents and data.Since then, various groups have attemptedto develop standardized data formats toenable exchange of data among shippers,customs agents, brokers, ship lines, andterminals, all essentially compatible withthe two widely used general standards.

AEI tags are not widely used within themaritime industry. A few carriers thatoperate closed systems, such as Matson toHawaii, have installed them. Only onemajor international firm had planned todeploy them, American President Lines(APL). This firm was planning to use ISO-compatible tags, which are also compat-ible with U.S. rail industry tags. However,midway in its adoption of the tags, APLentered into a global alliance with othercarriers who did not agree on the invest-ment in AEI, and the program was termi-nated (Wolfe 1998, p. 18). This is clearlya case of changes in the composition of acargo community leading to a majorchange in the efficacy of information tech-nology. Interestingly, in this case it led toa decision to withdraw from more ad-vanced technology, although in the futurethe question may be revisited.

Railroads

Railroads have been heavily involved in theuse of information technology because thecomplexity and interdependencies of railoperations make timely flow of informa-tion essential to efficient operations. In Eu-rope, the emphasis has been on developing

Figure 2. Islandsof interoperability


systems for train control, reflecting thehigh density of train traffic and the com-plex mix of local and express and freightand passenger trains. Automatic TrainSupervision (ATS) and Automated TrainControl Systems (ATCS) are widely used.However, European railroads haveadopted the HERMES standards, whichwere developed through the UnionInternationale de Chemins de fers (UIC,the European railway association), for car-load and trainload traffic and to commu-nicate with their customers. Separatestandards have been developed for inter-modal transport through various groupsincluding the DISK system (Disposition-ing and Information System for Inter-modal Transport) in Germany and theINFOTAINER system in France (van Zijst1993, pp. 97–98). However, these Euro-pean systems are considered inadequateto support national and international in-termodal movements (van Zijst 1993).Prompted by the deficiencies in the inter-modal arena, the European Commissions’Fourth Framework research program in-cludes projects specifically framed aroundintermodal requirements. These projectsinclude CESAR (which will establish thebasis for a common standard interface forinformation and data exchange and dis-tribution between combined transportoperators and their clients, mainly roadhaulers and freight forwarders), COREM(concerned with improving the manage-ment of container transport and handlingequipment), and MULTITRACK (con-cerned with tracking, tracing and moni-toring goods). All these projects haveimplications for standards that will de-velop in Europe.

In the United States, car and cargomovement have had greater emphasis. Al-most all cars in interchange service areequipped with standard AEI tags, andreaders are located on all main lines andnear major terminals and yards. This en-ables tracking cars throughout the system,and most railroads provide reasonablyrapid response to shippers’ queries regard-ing shipment progress. U.S. railroads alsowidely use EDI for information exchangewith shippers and consignees, althoughspecific data formats and software differ

between railroads. However, progress inharmonization is being made, an examplebeing the joint effort of the Association ofAmerican Railroads, the Railway Associa-tion of Canada, and the customs offices ofboth countries to develop an automatedcustoms manifest system, which is nowbeing deployed. Special data exchange pro-grams also exist for various specific typesof business, including some for containerpools such as EMP and others for particu-lar major customers such as truck lines.Again, the prominence of specific effortsat developing interoperable systems forspecific business communities is evident.

Trucking

The trucking industry is characterized byfar less concentration than other segmentsof transportation, in both Europe and theUnited States. Information technology isused far less uniformly in the truckingindustry than in water and rail transport.Long distance truckload carriers on bothsides of the Atlantic have been adoptingthe technology to track truck movementsand provide two-way communication withdrivers for some time, primarily at the in-sistence of major shippers whose businesswould be lost if the capabilities were notinstalled.

The most common systems use satel-lites for both tracking and communication,although other technologies are also used.These technologies enable substantial ef-ficiencies in the use of the fleet and driv-ers and also provide the in-transit visibilitythat so many shippers now demand. Less-than-truckload carriers serve a very dif-ferent market and operate between majorterminals at which shipments are aggre-gated and disaggregated into truck-sizedlots for long distance interterminal move-ment. The use of advanced informationtechnology is moving much more slowlyin this market segment, but in the last yearor so, some carriers have been offeringtime-definite delivery and ITV.

Another important information technol-ogy element in trucking has been a jointgovernment-industry effort to enhancetrucking efficiency through intelligent


transportation system (ITS) programs. InEurope this is through the PROMETHEUSand DRIVE) programs, while in the UnitedStates it is through the ITS commercial ve-hicle operations (CVO) program. Commonelements include providing (a) real-timetraffic condition data, (b) optimal routeguidance applicable to all traffic and ini-tiatives directed specifically toward thetrucking industry, (c) facilitation of bor-der crossings, and (d) collection of roaduse charges.

In contrast to information technologyefforts in tracking and mobile communi-cation, which connect transport operatorsand in many cases their customers, theprivate–public ITS activities are directedalmost exclusively toward the relationshipbetween truckers and governmental roadauthorities. While the use of specific newtechnologies is in most cases voluntary, theuse of the roads is not, and thus the con-ditions under which the technology is con-sidered are very different from thoseapplying to partners in the supply chain.However, the development of systems forCVO applications involves governmentand the private sector in the form of boththe users (truckers) and technology ven-dors, all of whom are involved in develop-ing open architecture and standards forinteroperability.

The standard for truck trailer AEI tagswas developed through the AmericanTrucking Associations. However, almostno truckers are using tags. Instead, theyemphasize tractor tracking and use data-bases to associate trailer movements withtractor movements.

Air

Air cargo is inherently intermodal. Lowdoor-to-door transit time and high reliabil-ity are the primary justifications for usingair service, and hence integration of air withits feeder service (usually truck, though railis beginning to be used for postal connec-tions) is essential. The International AirTransport Association has created a pro-gram titled Cargo Media to develop andpromote the use of electronic communica-tion for shipment tracking between airlines,

freight forwarders, and feeder truck ser-vices. Almost 20 proprietary systems havebeen developed to exchange air cargo way-bill data, customs data, and payments, eachserving particular regions, shippers, andcarriers. Efforts to create a single elec-tronic air waybill have failed, in part be-cause they failed to recognize uniquefeatures of different segments of the aircargo market and the interest of the vari-ous players—from integrators to carriersto users—in preserving current relation-ships and business practices (Forster andKing 1995). The view that standards mustbe compatible with the interests of theplayers is widely echoed in the literatureon standardization.

Express

Small-package transport is singled out be-cause (a) it is such a large and growingbusiness, (b) it is truly intermodal, and(c) it illustrates the benefits of informationintegration. Federal Express and UPS arearchetypal examples of this type of carrier.Both have developed their own proprietarysystems for identifying packages (using barcodes) and for entering shipment andother information electronically, includ-ing data entry and retrieval at mobile units(delivery trucks). This information is keyto real-time tracking of packages and to en-suring that the service guarantees are met.It is also essential in the integration of air,long-distance truck, rail, feeder truck, andterminal activities necessary to deliver theservice.

Regions and Ports

A somewhat unique and noteworthy in-formation infrastructure has been createdin Singapore to link all modes of transport,terminals, and agents involved in land, air,and sea trade in that area. It is calledTradeNet. It essentially replaces about 20different paper documents with 1 elec-tronic form. TradeNet has been reportedto have reduced processing times for tradeapprovals from between two and four daysto a few minutes or hours and reduced


documentation costs by about 20 percent.However, as successful as it is, TradeNethas not been adopted elsewhere. The costof imposing such a system on various play-ers is high and requires a degree of gov-ernmental authority that is not duplicatedin many other places.

An example of the difficulty is providedby the recent project WISDOM (Water-borne Information System, Distributed toOther Modes). This project developed aprototype architecture for data sharingamong participants in container flowsthrough ports, including ship lines, truck-ing firms, freight forwarders, and port ter-minal operators (Cap Gemini et al. 1998,p. 19). This project was funded in part bythe European Commission and reached thestage of pilot applications in Rotterdamand Bremen. While the various partici-pants were quite enthusiastic about poten-tial gains, continuation of the WISDOMproject is uncertain. Three reasons standout: (a) concern about sharing of dataamong competitors or others with compet-ing interests, (b) high initial costs, and(c) uncertainty of achieving cost savingsor other benefits.

Common Themesand Conclusions

A number of lessons and common themesemerge that appear to be very importantin thinking about the harmonization of in-formation systems in intermodal transpor-tation.

First, perhaps most significant is thatoften the user of the system, the shipperor owner of the goods being transported,provides the impetus for such advancedtechnology. This point is particularly evi-dent in technology’s history and use intrucking. Thus, understanding the needsof shippers is crucial if such benefits areto be part of the justification for harmoni-zation of information systems.

Second, harmonization benefits clus-ters of firms who work together, firms thatform particular communities within theoverall freight transportation arena.Intermodal transportation encompasses

many such communities. These commu-nities are largely distinct from one another,and they are continually evolving. Care-ful consideration must be given to howvarious members of the community willuse the information, and how it will rein-force or change current business relation-ships, power, and competitive conditions.If information is perceived as a threat tosome players, then efforts at harmoniza-tion will be resisted, as they were in theair cargo industry.

Third, harmonization is occurringnaturally within freight communities,compelled by a combination of marketforces (on firms) and geopolitical self-in-terest on the part of governments. Effortsappear to have been primarily private sec-tor, with government entering as a facili-tator, and in some cases, a convener.

Fourth, many of the largest players inintermodal transportation operate in botha single modal community as well as anintermodal community. Railroads andtrucking companies are obvious examples.In this context, whatever is done in con-nection with intermodal transport mustbe compatible with operations and infor-mation flows within the remainder of thecommunity with its single mode outlook.

Fifth, there are noteworthy public sec-tor-private sector partnerships such as theITS, European Commission FourthFramework programs, and Singapore’sTradeNet System. To take advantage ofsome opportunities in the intermodalfreight arena, governments may have totake the lead, for example, in cases wherethere is great fragmentation in the indus-try. However, developing a shared visionof what is to be harmonized, and what thebenefits will be, is crucial to success.

Finally, natural trends in productionand distribution are adding complexity tosupply chains and transportation. Thesenaturally lead to opportunities to use in-formation technology to advantage. In-deed, it is often essential for transportationcompanies to provide the required infor-mation technology service to their custom-ers. Furthermore, the more complex thenetwork, the greater the potential gains tothe carriers themselves in the form of bet-ter equipment use, reduced investment re-


quirements, more rational pricing, andbetter service. Thus, incentives for harmo-nization are likely to increase simply onthe basis of self-interest.

Questions

In closing, three basic questions get at coreissues in information technology harmo-nization:• Can areas be identified where in-

creased use of information technologywill improve the efficiency of the sys-tem? If so, is the impediment a lack ofinteroperability among informationsystems of the various players withinthe community, or is the impedimentof a different nature, for example, ben-efits are not seen by all of the players?

• How will the needs of shippers (custom-ers of the transportation system)change, and what are the implicationsof these changes for providers of trans-portation services? Direct mandatesfrom customers are arguably the mostpowerful incentives for change. Thesemandates will provide both specific re-quirements for harmonization and ma-jor opportunities to look forward andprovide for interoperability in ways thatgo beyond immediate needs.

• What specific steps will move the pro-cess forward? This work involves iden-tifying firms and public agencies whoare critical members of the communityand who are expected to benefit fromthe effort. Benefits must be identifiedand quantified to evaluate the effort, en-ergize the process, and lead senior man-agement to make a commitment tochange.

References

Aylward, Anne D. 1996. IntelligentTransportation Systems and Inter-modal Freight Transportation, VOLPENational Transportation SystemsCenter Report, (December). Cam-bridge, MA, VOLPE National Trans-portation Systems Center.

Bucciarelli, Paola. 1995. The CurrentDebate on Information Technology:Standardization Policy in the Euro-pean Union. In Standards Policy forInformation Infrastructure, edited byBrian Kahin and Janet Abbate.Cambridge, MA: MIT Press, pp. 421–429.

Cap Gemini, et al. 1998. WISDOM,Final Report, D1.2–VO.3 (NR 2527).

European Commission. 1994. LargeContainers, EUR 15775. EN:Bruxelles.

European Commission. 1998. Memoran-dum of Understanding COST Action339. EN: Bruxelles.

Forster, Paul W. and John L. King. 1995.Information Infrastructure Standardsin Heterogeneous Sectors: Lessonsfrom the Worldwide Air CargoCommunity. In Standards Policy forInformation Infrastructure, edited byBrian Kahin and Janet Abbate.Cambridge, MA: MIT Press, pp. 148–177.

Institute for Logistics and DistributionManagement (ILDM). 1996. Under-standing European Intermodal Trans-port. Corby, England: Institute forLogistics and Distribution Manage-ment.

Kahin, Brian, and Janet Abbate, eds.1995. Standards Policy for InformationInfrastructure. Cambridge, MA: MITPress.

Magretta, Joan. 1998. Fast, global, andentrepreneurial: Supply-chain man-agement, Hong Kong style, HarvardBusiness Review (September–Octo-ber):103–114.

van Zijst, W.A. 1993, Report from theNetherlands, in European Ministers ofTransport ):61–110.

Wolfe, Michael. 1998. Trends in the Useof Intermodal Freight IdentificationTechnology: Fostering Dialog AcrossFreight Communities. Paper preparedfor the Intermodal Freight Identifica-tion Technology Workshop, spon-sored by the IntelligentTransportation Society of Americaand the U.S. Department of Trans-portation (June).

Intermodal Transportation and Carrier Liability 33

Article B:Intermodal Transportation and Carrier Liability

This paper presents the need for developingan integrated liability system is establishedand potential regulatory options, as well aspossible key elements of such a system.

Summary and Main Conclusions

The present legal framework determiningan intermodal carrier’s liability for delay,loss of, or damage to goods consists of (a) aconfused jigsaw of international conven-tions designed to regulate unimodal car-riage, (b) diverse national laws, and(c) standard term contracts. Liability isfragmented and unpredictable, thus gen-erating unnecessary costs. Past attemptsat developing a uniform liability systemhave been unsuccessful. Increasing prolif-eration of national solutions further com-plicates the situation and illustrates theurgent need for uniform regulation at theinternational level.

Any potential solution must take intoaccount the key features of current prac-tice and provide satisfactory means ofavoiding or reducing current problem fac-tors. Liability rules should be simple andpredictable and operate in a straightfor-ward and cost-effective way. At the sametime, any new liability system must becompatible with existing international law,that is, address the issue of overlap andconflict. Uniform rules could be success-fully adopted by way of international con-vention. However, any such solutionwould take considerable time to developand may eventually fail to be accepted bynational parliaments.

The successful development of an in-terregional convention (European Union–United States) would establish an effectiveuniform liability regime and provide a sig-nificant political impetus for an interna-tional agreement. This convention,however, would require reconsideration ofrecent U.S. proposals for national legisla-tion (draft U.S. Carriage of Goods by Sea(U.S. COGSA 1998)), which are of con-

cern to Europeans. At the EuropeanUnion level, the adoption of an intermodalliability system by way of EuropeanCommission (E.C.) legislation would pro-vide a viable regulatory option.

Special consideration needs to be givento the issue of substantive conflict withexisting conventions. All conventions es-tablish minimum levels of liability. At thesame time, carriers are entitled to limit orexclude their liability under certain cir-cumstances. Under most of the conven-tions, contractual increase of the carrier’sliability is admissible.

To be both acceptable to industry andcompatible with states’ international ob-ligations under existing transport conven-tions, any new liability regime should bevoluntary. A voluntary regime that oper-ates as a default-system, allowing contract-ing parties to “opt out,” but otherwiseoverriding any conflicting contractual pro-visions, would ensure more widespreadavailability of this regime than traditional“opting in” systems.

The liability system should be applicable(by default) to all intermodal transport andshould also enable contracting parties toany unimodal transport contract to adoptits provisions (in which case it would re-place all otherwise applicable law).

Any new intermodal liability regimeshould provide for carrier liability in ex-cess of established minimum levels. At thesame time, the liability rules should besimple and transparent, minimizing uncer-tainties and avoiding the need for costlylitigation. The rules should cover liabilityfor all types of losses (damage, loss, or de-lay) and operate irrespective of (a) themodal stage where a loss occurs and(b) the causes of a loss.

The most cost-effective solution ap-pears to be a system that concentrates thetransport risk on the contracting carrier(the intermodal operator procuring or un-dertaking to procure carriage). This sys-tem would provide for strict and full (e.g.,invoice value plus 10 percent or marketvalue) liability throughout the intermodal

Regina AsariotisSouthampton University

September 1998


transaction. The liability would be allo-cated to the contracting carrier as a mat-ter of agreed commercial risk, thus makingthe need for separate cargo insurancelargely redundant and avoiding costs as-sociated with legal uncertainties and evi-dentiary inquiries.

As the regime would not be mandatory,operators who do not wish to assume ex-tensive liability would be able to opt outof the regime. However, the system shouldprovide an attractive option for both thecustomer, who would enjoy a higher stan-dard of service and better protection, andthe intermodal operator, who would beable to offer a competitive service.Through voluntary incorporation intounimodal contracts, this type of regimemay attract, in time, widespread use andcould eventually play a role in developingan international regime.

Any new regime should take develop-ments regarding the use of electronic com-munication and documentation intoaccount.

The Need for anIntegrated Liability System

Intermodal Transport atthe Turn of the Century

Globally and at the European level, tradeis increasingly conducted by way of inter-modal transportation. According to thelatest annual United Nations Conferenceon Trade and Development (UNCTAD)Review of Maritime Transport, the volumeof world seaborne trade in containerizedcargo is forecast to more than double overthe next few years and to rise to 1 billiontons by the year 2006. Most of this con-tainerized cargo will involve transporta-tion by more than one mode beforereaching its final destination. Construct-ing road networks and land-bridges, de-veloping block train services, andundertaking international joint venturesbetween operators continuously increasethe potential for the expansion of inter-modal transport. At the same time, inter-modal and port operators are heavily

investing in technological developments,improving the systems for transferringcargo between different modes and mak-ing this a sophisticated industry.

Over the past decade, the market fortransport services has undergone a dra-matic change due to deregulation, time-based competition, and the resulting focusby many transport users on just-in-timemanufacturing strategies. These develop-ments, along with globalized productionand supply-chain management, haveturned the traditional transaction-basedrelationship between cargo owner andoperator into what is now being reportedby many manufacturers as a choice of part-ners. As many more firms pursuedownsizing and outsourcing in the inter-est of improved competitiveness, innova-tive contractual arrangements continue todevelop. The move by transport users tocontracted logistics supply is often accom-panied by a carrier-reduction strategy,which focuses on selecting a few trustedcarriers for longer-term use.

The current intermodal liability frame-work does not reflect developments thathave taken place in terms of cargo volume,transportation patterns, technology, andmarkets. Operators providing modern andcost-effective transport logistics should havethe opportunity to make their liability com-patible with their otherwise sophisticatedservices; currently, this is not the case.

Current Legal Liability Framework

No uniform regime governing liability forcargo loss or damage is in force. Thepresent legal framework determining acarrier’s liability consists of (a) a confusedjigsaw of international conventions de-signed to regulate unimodal carriage,(b) diverse national laws, and (c) standardterm contracts.

As every intermodal transaction ismade up of unimodal stages, a number ofmandatory international liability regimespotentially apply, depending on the scopeof application and the stage of transportwhere a damage or loss occurs. Accord-ingly, two different regimes may apply tothe same claim or the regime that applies


can only be identified when it is clear dur-ing which stage of the transport a loss ordamage occurred. Where the stage of trans-port during which a loss or damage oc-curred cannot be identified, where loss ordamage occur gradually, or in the courseof (value-added) services ancillary totransportation (e.g., warehousing), acarrier’s liability will often depend on na-tional laws or the contractual agreement.As a result, both the applicable liabilityrules and the degree and extent of acarrier’s liability vary greatly from case tocase and are unpredictable. Liability fordelayed delivery is not always covered bythe same rules as liability for loss of ordamage to the goods.

The current state of affairs is of particu-lar concern in view of current intermodaltransport practice, which increasinglyshows the following features:1. One operator: One party, the inter-

modal transport operator (ITO), pro-cures or undertakes to procure thecarriage of goods (often including an-cillary services) by unspecified modesof transport. This party may or maynot carry out all or a part of the trans-port.

2. Anonymity: The consignor is neitheraware of nor, in many instances, inter-ested in the choice of modes or the iden-tity of modal subcarriers. Cargo ownersmay not control transport arrangementsthemselves (e.g., when contracting on anumber of international commercialterms (INCOTERMS)). Transport is in-creasingly becoming a commodity.

3. Sealed units: The use of containerizedtransportation leads to difficulties in at-tributing a loss to a particular mode orcarrier and in establishing the regimeunder which liability is to be determined.

4. Changing demands: Certain transportusers are increasingly concerned aboutdelays in delivery in connection witheffective supply-chain management.

Uncertainty and Diversity

Uncertainty raises costs and discouragestrade. Uncertainty about the time of lossor damage makes it difficult to allocate

responsibility and impossible to accuratelypreassess liability.

Uncertainty concerning the contractand the identity of the carrier, in particu-lar the role and liability of the entity ITOwith which the consignor deals (agent,forwarder, carrier, third-party logisticsprovider) gives rise to a number of prob-lems. For example, if the ITO is not a car-rier, the consignor has difficultyidentifying and pursuing the actual car-rier responsible for loss or damage. By thetime the consignor does so, evidence maybe hard to obtain or a suit may be timebarred. In particular, the consignor mayfind that the liability of the actual carrieris governed not by an international regime,but by local law with a short limitationperiod, the content of which is unknownto the consignor. If the time and placewhen damage occurred cannot be estab-lished, what then? Currently, there is nouniform answer to this question in the caseof an ITO. A variety of contractual stan-dard term documents, such as the Inter-national Federation of Freight ForwardersAssociation (FIATA) bill of lading (FBL)1992, provide varying liability rules, butthese documents are always subject tomandatory laws.

Substantive uncertainty as to the appli-cable legal regime and its effects (e.g., fi-nancial limits of liability, time limits formaking a claim) affects the speed and costof claims handling and may lead to litiga-tion. Provisions in standard term docu-ments are often difficult to understand andgive precedence to mandatory national andinternational law without providing fur-ther guidance as to which regime is man-datorily applicable. Which mandatory lawswill be applied depends not only onwhether the stage of transport where a lossoccurs can be established, but also on thecourts in the country in which proceedingsare brought—a matter that can only bepartly foreseen at the time of contracting.

Existing regulation is fragmented andincomplete because potentially relevantregimes were often drafted for commercialpractices that are less widespread today.Whether a particular regime covers a lossin any given instance is often subject tonationally different rules and views.


The diversity of contractual liabilityrules, as well as mandatory national andinternational liability rules, make compre-hending central issues difficult, particu-larly the differing liability systems, thediffering burdens of proof, and the differ-ing requirements for the successful insti-tution of legal proceedings. Theproliferation of potentially relevant re-gimes encourages “forum shopping” andcostly multiple proceedings.

At present, applicable legal regimes,their content, and interpretation are of-ten uncertain, and potential liability can-not be assessed in advance. Standardcontract terms are based on systems thatare far too complex for operational effi-ciency. This situation is undesirable andcostly. Too many factors require clarifi-cation before a simple question can be an-swered: Who is liable (and to whatextent) for delay, loss of, or damage tothe goods?

Although it is not possible to accuratelyassess the degree to which unnecessarycosts are generated, clearly substantialcosts associated with claims handling andlitigation could be avoided by both cargointerests and operators (or their liabilityinsurers) if the legal liability frameworkwas simpler and less fragmented. Currentregulation of liability is not cost-effective,nor does it provide adequate protectionfor the customer. In view of the uncer-tainties about incidence and extent of acarrier’s liability, separate cargo insur-ance is a necessity. This insurance, how-ever, does not cover all risks, such asdelay. It also invites recourse actionsagainst carriers caught by mandatory li-ability and results in a peculiar and costlyreshuffling of the costs of incurred lossesto the benefit of no one.

Conclusion

The present liability system is inefficientand requires change. Because carriers andshippers have found ways to cope with theinadequacies of the system, change willappear attractive only if it translates intotangible benefits. For transport users, a

predictable and cost-effective liability sys-tem that eliminates much of the presentuncertainty and cuts costs associated withloss-recovery would have clear advantages.At the same time, such a regime may havemarked benefits for operators, particularlythose cooperating with large commercialcustomers; in this relationship, an im-proved claims-handling service, ensuringspeed and certainty and reducing the po-tential for contention and litigation, maybe a significant benefit. For both users andoperators, an improved legal frameworkmay be considered an investment in thefuture, facilitating the sustainable devel-opment of intermodal transportation.

Past Attempts at Unification

Over the years, there have been severalattempts to solve the problem by a uniformlaw text of some kind, but none of theseattempts has provided a satisfactory result.

The 1980 United NationsConvention on MultimodalTransportation of GoodsThe United Nations Convention, whichin principle operates a uniform system ofliability for claims arising out ofmultimodal transport contracts, has failedto attract sufficient signatures and ratifi-cations to enter into force. One of the rea-sons appears to be that the convention islargely based on the 1978 United NationsConvention on the Carriage of Goods bySea (Hamburg Rules). Although in force,the Hamburg Rules have not been ratifiedby any of the major shipping nations. Thissituation is unlikely to change. TheMultimodal Convention does not providea truly uniform (i.e., mode-independent)system for liability arising out ofintermodal transport. If the particularstage of the transport where a loss occursis known, the convention gives precedenceto applicable international conventions ornational law providing for a higher limitof liability (Article 19). Accordingly, theneed (or incentive) to establish the stagewhere a loss occurs and to determinewhether diverse mandatory national or


international law applies remains. More-over, the convention provides for a differ-ent financial limit if a contract does notinclude carriage of goods by sea or inlandwaterway (Article 18 (3)).

The UNCTAD/Interstate CommerceCommission Model Rules forMultimodal Transport Documents

The UNCTAD/Interstate CommerceCommission (ICC) Model Rules, whichcame into effect on January 1, 1992, donot have the status of mandatory law, butwill override any conflicting contractualprovisions if they are incorporated into acontract. Like the Multimodal Conven-tion (Article 4), the rules give precedenceto mandatory law (Rule 13). The rulesare based on the “network principle.”That is, the rules provide that when theunimodal stage of the transport where aloss occurs can be established, the liabil-ity is limited according to the national orinternational law that would have appliedmandatorily if a separate (uni-modal)contract had been made for that stage(Rule 6.4). Again, the need (or incentive)to examine whether a unimodal regimewould have applied remains.

Because of the failure of internationalattempts to provide a uniform solution, acertain “drafting fatigue” has occurred. Atthe same time, individual states are optingfor national measures to resolve the prob-lems created by the lack of a coherent li-ability system. Some European states haveadopted the 1956 Convention for Carriageof Goods by Road (CMR) (i.e., interna-tional road-carriage) regime for domesticcarriage or have closely modeled their leg-islation on it. In the United States, a draftbill (draft U.S. COGSA 1998) proposes toextend the mandatory application of amodified Hague–Visby liability regime tointermodal contracts (which include par-tial carriage of goods by sea) to or from theUnited States. The proliferation of suchunilateral, national solutions further com-plicates the current liability situation andillustrates the urgency of achieving unifor-mity at the international level. At the sametime, national developments need to be

considered when drafting a uniform inter-national regulation, both in terms of thesubstantive solutions offered and in termsof the legal (possibly mandatory) effect.

Possible Future Regulation

The Aims of Any Future Regulation

Any potential solution must take into ac-count the key features of current practiceand provide satisfactory means of avoid-ing or reducing current problem factors.Liability rules should be simple and pre-dictable and operate in a straightforwardand cost-effective way. At the same time,any new liability system must be compat-ible with existing international law, thatis, address the issue of overlap and con-flict. To be successful, a new regime shouldtherefore be—• Compatible with existing unimodal

regimes• Uniform• Cost-effective• Acceptable to the transport industry

Compatibility with ExistingUnimodal Regimes

A central and problematic issue indeveloping an intermodal liability systemis the existence of mandatory conventionsthat govern the carriage of goods by sea,air, road, and rail. All of these transportconventions establish minimum levels ofliability. At the same time, carriers are en-titled to limit or exclude their liability un-der certain circumstances. Under most ofthe conventions, a contractual increase ofthe carrier’s liability is admissible.

As every intermodal transaction is madeup of different modal stages, it is unclearwhether existing conventions have a man-datory effect in connection with intermodaltransport. This has been a contentious is-sue for many years. The answer dependspartly on the convention at issue (i.e., itsindividual scope of application) and partlyon the type of undertaking contained in acontract for intermodal transportation (i.e.,


whether or not the contract specifies therespective modes of transport).

In considering options for an inter-modal liability system, the issue of con-flict needs to be addressed. This is relevantregarding both the type of regulatoryframework and substantive issues, such asexisting minimum levels of liability on theone hand and existing limitations or ex-clusions of liability on the other hand.

Regulatory Options fora Uniform Liability Regime

A potentially effective means of achievinguniformity is by way of international orinterregional convention or, at the Euro-pean level, by way of E.C. Convention orE.C. legislation. In principle, an interna-tional convention would be the best meansof ensuring the application of a unifiedsystem at an international level. However,as the example of the 1980 United NationsMultimodal Convention shows, the suc-cess of any attempt at agreeing on a uni-versally accepted regime is uncertain.

A regional convention, such as an E.C.Convention would be subject to the samecaveat, albeit to a lesser extent: there arepotentially fewer state parties with poten-tially more common interests. National le-gal systems are less diverse and, in someareas (such as conflict of laws, jurisdic-tion, and enforcement of judgments), uni-form. A regional solution would establish,in the short to medium term, a predict-able liability regime at the European level,but could provide, in the longer term, anincentive and key elements for an inter-national consensus. Any regional solutionwould need to ensure the global competi-tiveness of European operators.

An interregional convention agreed toby two important trading blocks (Euro-pean Union–United States) would estab-lish an effective uniform liability regimeand, very likely, lead the way toward abroad international consensus by provid-ing a significant political impetus. In viewof the increasingly chaotic legal frameworkand the urgent need for action, this stepwould clearly be the most promising andeffective way forward. The development

of an interregional regime would entail,however, reconsideration of recent propos-als for national legislation in the UnitedStates (draft U.S. COGSA 1998). The pro-posed legislation consists of a modifiedversion of the Hague–Visby (i.e., maritime)liability regime and would be mandatorilyapplicable to all intermodal transports in-volving sea-carriage to or from the UnitedStates. Europeans are concerned about theunilateral nature of the proposed legisla-tion and its compatibility with existingtransport conventions.

E.C. Legislation

At the E.U. level, a regional uniform re-gime could be created by way of second-ary E.C. legislation. Directives andregulations are possible instruments.While a directive is binding on memberstates and requires implementation by wayof national legislation, a regulation is di-rectly applicable and effective.

Special care would need to be taken indrafting such legislation to ensure the com-petitiveness of operators and to adequatelytake into account the transportation ofgoods within the European Union, as wellas into or out of the European Union. Con-sideration would also need to be given tothe compatibility of this regime with thoseapplicable in neighboring and other ma-jor trading partner states.

Mandatory orNonmandatory Regime?

A mandatory international or regional re-gime that applies by force of law createsuniformity. At the same time, such a regimemay be rejected by some sectors of power-ful national industries lobbying their gov-ernments during the negotiation, drafting,and ratification processes and thus fail toattract sufficient support. Fear of change,suspicion of mandatory law, or uncertaintyas to possible implications may lead to draft-ing more complex provisions that in turncreate new insecurities and eventually per-petuate a cycle of rejection and ineffectiveattempts at achieving a satisfactory result.


Clearly, any viable solution must beacceptable to the affected industries.Model rules, which are by definition onlyapplicable if the parties to a contract soagree, would not encounter any significantresistance. However, past experienceshows that such voluntary solutions mayfail to lead to widespread application of aregime because contracting parties fail toopt for this solution. Reasons for this fail-ure may be inertia, lack of awareness, oruncertainty as to the legal implications.Moreover, model rules (other than thosecontained in legislative instruments) lackthe legal status of mandatory national orinternational legislation, which take pre-cedence in the event of overlap or conflict.

One possibility of achieving widespreadapplication of a nonmandatory new re-gime would be to adopt a default system,which applies unless the parties agree oth-erwise. Such a system would be voluntary,as parties would be able to “contract out,”but would be more likely to achieve wide-spread application, as parties need not“contract in” (e.g., the 1980 UnitedNations Convention on the InternationalSale of Goods). To ensure transparency ofregulation and predictability of liability,such a regime, although not mandatory,would need to be overriding, that is, takeprecedence over any conflicting contrac-tual provisions and not be subject to modi-fication (i.e., partial application).

Substantive Key Features of aPossible New Liability Regime

Compatibility withExisting Regimes

To avoid substantive conflict with exist-ing mandatory liability regimes, a newnonmandatory regime should provide forliability in excess of established minimumlevels. This provision would allow the re-gime to be incorporated into unimodalsubcontracts, ensuring effective use of theliability rules in back-to-back contracts.

Cost-Effectiveness

The liability system needs to be simple andtransparent, thus avoiding uncertainty andcostly litigation regarding the applicablerules, terminology, and evidentiary mat-ters, such as the place and cause of dam-age or loss. The rules should cover liabilityfor all types of losses (damage, loss, or de-lay) and operate irrespective of the modalstage where a loss occurs and the causesof a loss.

The most cost-effective solution, dis-pensing in many instances with the needfor separate cargo insurance, would be toconcentrate the transit risk on one partyand provide for strict and full liability ofthe contracting carrier (the intermodal op-erator procuring or undertaking to procurecarriage). Unlimited liability of the con-tracting carrier would not be realistic andprobably would be uninsurable. However,liability should be higher or at least as highas the insurable value under cargo insur-ance, that is, the invoice value plus 10 per-cent, or the market value of the goods, inthe claimant’s option. The contractingcarrier would be liable for delay, loss of,or damage to the goods, regardless of faultand the stage of transport where the lossoccurred. This scheme would make costlyinquiries into the applicable legal regimeand the causes and place of a loss largelyredundant. These matters may remain rel-evant in connection with feeder contractsand in the context of recourse actions bythe contracting ITO against subcontract-ing unimodal carriers. However, with re-gard to subcontracts entered into by acontracting ITO, the regime could beadopted voluntarily by contractual incor-poration. From the transport user’s pointof view, a clear set of mode-independentliability rules concentrating the risk ofdelay, loss, or damage to the goods through-out the intermodal transaction on oneparty would provide better protection thanexisting standard term contracts and thusmean enhanced quality of service.


Acceptability to Industry

If a nonmandatory (but overriding) “de-fault” system were adopted, a carrier whodid not wish to assume extensive liabilitywould be able to opt out of the regime. Ad-herence to the regime would be a matter ofcommercial decision making. However, acost-effective regime that offers a high de-gree of protection would be particularly at-tractive to cargo interests and thus becompetitive. Unimodal carriers could optinto the regime (by contractual incorpora-tion), thus making their services more com-petitive. Such voluntary adoption wouldextend, in effect, the application of the li-ability system to a wider spread of contracts,that is, to transport contracts generally.

Insurance Implications

Any substantial increase of carrier liabil-ity has implications for the structure ofinsurance coverage and may affect the ex-isting market. In particular, the positionand market share of present insurance pro-viders may be changed.

Under any of the unimodal conven-tions, carrier liability is based on fault andsubject to a financial ceiling. Although inmost instances, contracting parties canagree on an increase of the carrier’s liabil-ity (e.g., by including in the transport docu-ment an express declaration of value), thisdoes not usually happen for fear of a dis-proportionate rise in the freight rate. More-over, even where full liability is agreedupon, the need for separate cargo insur-ance remains, as a carrier is only liable fordamage or loss arising from its own fault.

Simplifying the liability rules by shift-ing the risk of cargo loss, damage, or delayto the carrier would make the need forseparate cargo insurance largely redundantand thus reduce costs. However, this shiftpresupposes that the regime covers thewhole period from start to end and thatthe savings made in dispensing of double

cargo insurance will not lead to a dispropor-tionate increase in the carriers’ liability in-surance premiums and thus in freight rates.

Electronic Documentation

Any new legal regime for carriage of goodsshould allow for electronic documentationon a voluntary basis (cf., 1996 UnitedNations Commission on InternationalTarde Law Model Law on Electronic Com-merce; INCOTERMS 1990, A8).

For a more detailed account of the mat-ters raised in this paper, see—

Asariotis, Bull, Clarke, Herber, Kiantou-Pampouki, Moran-Bovio, Ramberg, deWit, Zunarelli. 1998. Intermodal Trans-portation and Carrier Liability, DraftReport submitted to the European Com-mission, July 1998.

United Nations. 1997. UNCTAD Reviewof Maritime Transport. (UNCTAD/RMT(97)/1). New York/Geneva, Swit-zerland: United Nations. Paragraph 5at p. 13, 74–76.

Kindred, Hugh M, and Mary, R. Brooks.1997. Multimodal Transport Rules. TheHague/London/Boston: Kluwer LawInternational.

No studies have been carried out to givea reliable indication of how much moneyis being lost as a result of the inadequaciesof the fragmented liability framework.This is illustrated by the fact that the re-cent U.S. Department of TransportationCargo Liability Study (August 1998) usesfigures from 1975. Obviously, these datado not take into account the dramaticchanges that have taken place in terms ofcargo volume and transport patterns andpractices over the past two decades.

Any potential conflict with Article 41CMR could be resolved by amending thatprovision so that contractual increase ofliability is admissible.

U.S. Intermodalism: Cargo Liability Issues 41

Article C:U.S. Intermodalism: Cargo Liability Issues

Richard BiterDeputy DirectorOffice of IntermodalismU.S. Department ofTransportationWashington, DC

November 1998

Introduction

In seeking to understand the U.S. laws andregulations governing cargoes moving to,from, or within the United States, the mostbasic statements that can be made are asfollows:• No single regime of rules or uniform

liability system for addressing loss anddamage issues exists.

• Few reliable sources for data allow de-tailed analysis of the problem.At present, the terms and conditions of

shipment are key to determining how li-ability is apportioned among the variousparties to the intermodal transportation atissue. In the almost two decades of sub-stantial economic deregulation of thetransport modes, the marketplace forcesof competition have proliferated the waysshippers and carriers resolve these issues.These variations fall generally into threeapproaches:• Contract law, where the terms of the

agreement govern loss and damage• Released value rates, where the shipper

assumes all or a portion of the liabilityin return for a more favorable transpor-tation rate

• Common carrier liability, where the car-rier has full responsibility for loss anddamageIn the United States, most commercial

transportation occurs under contract.This is especially true for intermodalshipments. Shippers generally include li-ability provisions in their contracts. A1997 survey of about 100 shippers indi-cated approximately one-half had long-term contracts with their carriers.1 Otherestimates indicate 80 percent or more oftotal domestic rail tonnage moves by con-tract.2

Where large volumes of goods are in-volved, such as major retail stores andFortune 1,000 companies, the terms andconditions of liability are a matter of ne-gotiation between the parties. Under thesearrangements, liability can range from thetraditional common carrier arrangement

where the carrier has full responsibility forthe goods in its care to the shipper or con-signee assuming all or some portion of theliability for the goods in return for a morefavorable transportation rate. Where trans-portation involves small shippers, such asa local gift shop or an individual needingto send goods or priority business lettersoccasionally, carrier liability terms arestipulated in the bill of lading and offeredon a take-it-or-leave-it basis.

Released value rates are used in bothcontract and common carrier arrange-ments. Under these arrangements, theshipper or consignee agrees to assume allor a portion of the liability in return for amore favorable transportation rate. Whenassuming cargo liability, the shipper orconsignee can self-insure or secure third-party insurance to protect against loss ordamage.

Common carrier liability has two dis-tinct portions: domestic liability, where thecarrier has full responsibility for the goodswhile in its care and international liabil-ity, where there are a variety of defenses,especially for the maritime carrier. In ad-dition, several international liability trea-ties governing goods moving by sea andair are active or pending. Exhibit 1 showsthe complexity of the common carrier li-ability system of the United Sates andmonetary implications for each regime.Appendix A shows the complexity world-wide, breaking out the requirements formost of the world.

In domestic transportation, carrierssometime “interline” shipments withother carriers or with owner-operators,that is, act so that multiple carriers areinvolved in a move. If loss or damage oc-curs, the shipper or consignee files a claimwith the original carrier who, in turn,seeks to reclaim those amounts from theother carrier(s) once the point or sourceof damage is identified or allocated.

In terms of statistics, within the UnitedStates, cargo theft (reported and unreported)is estimated at $10 billion a year withdamage totaling about 25 percent of that


Per Unit of Weight

Treaty Per Package Per KiloDollars per

PoundU.S. Carriage of Goods bySea Act

$500 per packageor customary uniton which thefreight chargesare based

None None

Visby Amendment 667 SDRs$667 A$760 B$853 C$912 D$933 E

2 SDRs $0.91 A$1.04 B

$1.15 C$1.23 D$1.27 E

Hamburg Rules 835 SDRs$835 A$952 B$1,068 C $1,143 D $1,169 E

2.5 SDRs $1.14 A$1.30 B$1.44 C$1.54 D$1.59 E

International MultimodalTransport Convention

• If a sea leg is involved

• If no sea leg is involved

920 SDRs

$920 A$1,049 B$1,177 C$1,284 D$1,288 E

920 SDRs

NA

2.75 SDRs

$1.25 A$1.43 B

8.33 SDRs

$1.58 C $1.69 D$1.75 E

$3.79 A $4.32 B $4.80 C $5.13 D $5.30 E

Exhibit 1Limits On International Multimodal Cargo

A (When 1 SDR = $1.00) Summer 1985B (When 1 SDR = $1.14) February 1986C (When 1 SDR = $1.27) June 1987

D (When 1 SDR = $1.37) April 1988E (When I SDR = $1.40) February 1992SDR = Special drawing right

Source: Transportation Consumer Protection Council


total or $2.5 billion. The Federal Bureauof Investigation sets the theft loss at $3.5billion but supports estimates that 60 per-cent of cargo theft is unreported.3 Thevalue of goods shipped in the United Statesis roughly $6 trillion domestic and $1 tril-lion international for a total of about $7trillion.4 On a value basis, theft and dam-age affects less five percent, and possiblyless than two percent, of all goods movingto, from, or within the United States. How-ever, actual numbers vary by commodity,with the higher-valued goods being tar-geted much more often (see appendix B).

This paper outlines the laws creatingtoday’s liability regimes and explores theissues influencing any international liabil-ity regime for intermodal cargoes.

History

The concept of common carriage devel-oped in Europe during the middle ages.Basic to common carriage is the notion oftreating all customers in the same way.5

Besides the duty to avoid discriminatingamong customers, the other two elementsof common carriage are the duties to pro-vide service and to be subject to strict li-ability.6

In 1887, Congress adopted the Inter-state Commerce Act. The act originallyapplied only to railroads. It established theInterstate Commerce Commission (ICC)and gave the ICC the function of rulingon the reasonableness of rates. Public ac-cess rates at the commission were an es-sential element of ICC rate regulation.

Carrier liability became the subject offederal legislation in 1906 in the CarmackAmendment to the Interstate CommerceAct.7 The Carmack Amendment estab-lished a codified strict liability regime withestablished common carrier defenses toliability. The regime provided for full-valuecompensation, except to the extent thatcarriers were able to limit liability by fil-ing released rates.

The 1915 Cummins Amendment abol-ished the practice of limitations on liabil-ity;8 the second Cummins Amendment in1916 allowed limitations on liability

through filing of released rates,9 if thoserates were just and reasonable. For vari-ous reasons, several types of carriage re-mained outside of this liability regime. Inaddition, the Pomerene Bills of Lading Actof 1916 gave further statutory status to thebill of lading and also defined the extentof carriers’ liability in relation to the con-ditions stated in the bill of lading.

Motor carriage was brought under theICC’s jurisdiction in the 1935 Motor Car-rier Act and thus became subject to theCarmack Amendment’s liability regime.10

Subsequently, freight forwarders were alsobrought under ICC jurisdiction and theCarmack liability regime.11

In addition to its jurisdiction over re-leased rates, the ICC regulated the process-ing of claims for loss, damage, injury, ordelay to property transported in interstatecommerce by railroads, express compa-nies, motor carriers, water carriers, andfreight forwarders. The ICC establishedrequirements for the filing, acknowledg-ment, and disposition of claims and re-quired that a claim be investigated andpaid, declined, or compromised. However,the ICC did not itself adjudicate claims.

Market Forces and Contracts

The Motor Carrier Act of 1980 partiallyderegulated motor carriage. Released rateswere only required to be reasonable andbecame easier to obtain.12 The StaggersRail Act of 1980 provided substantial de-regulation of the railroad industry.13 In ad-dition, it allowed carriers and shippers toenter freely into contractual agreementson limitation of liability without regard toreasonableness.

Most domestic U.S. intermodal ship-ments, perhaps in excess of 90 percent,14

are moved under contract, and the termsof that contract determine responsibilityfor loss and damage. In other words, theseshipments fall outside the traditional com-mon carriage system. They are transportedin a marketplace environment where acarrier may enter into a contract “to pro-vide specified services under specifiedrates and conditions.”15


Under U.S. law, the carrier and shippernegotiating for contract carriage may makeany reasonable contractual stipulations,except that they may not waive provisionsgoverning the carrier’s registration, insur-ance (other than cargo), or safety fitness.Contracts of carriage determine liability ac-cording to the desires of the parties to thecontract. Depending on contract terms andconditions, disputes normally are resolvedeither in the courts or by arbitration.

Widespread commercial use of releasedvalue rates has its genesis in the economicderegulation acts of 1980.16 These acts al-lowed shippers and carriers to mutuallyagree to limit or remove a carrier’s tradi-tional common carrier responsibility to befully liable for goods it was transporting.Although released value rates were legal fordecades, they required prior approval fromthe ICC, which rarely granted such requests.

These arrangements, in which shipperscan self-insure or secure insurance at ratesor coverage levels that are more favorablethan could be obtained by their carriers,became commercially popular amonglarger shippers. They became popularamong carriers serving medium andsmaller business because transportationservices could be offered at rates thatserved market needs. Released value ratescan be offered in either contract or com-mon service.

Common Carrier Liability

Finally, there is the traditional frameworkof full common carrier liability. In theUnited States between 1906 and the1970s, Congress created an economic regu-latory framework that made the commoncarrier—railroad, freight forwarder, ortrucking company—fully responsible forthe goods in its care. This liability regimehas only five general defenses available tothe carrier or forwarder: act of God, act ofpublic enemy, act of shipper himself, actof public authority, and inherent vice ornature of the goods.

Given the high use of contracts and re-leased value rates in today’s operating envi-ronment, a reasonable rough estimate is that

less than 25 percent of all truck shippersuse the arrangement known as the“Carmack Amendment.”17 This means themajority of U.S. freight is handled withoutloss and damage requirements being man-dated by law. Even where common carrierservice is provided, there are categories orclasses of freight that are exempt from li-ability provisions or are treated specially byother sections and subsections of transportlaw. These include the following:18

• Agricultural Carriage—Exempt19

• Household Goods—Special Treatment20

• Express and Package Carriage—SpecialTreatment21

• Incidental to Air—Exempt22

• Other Exemptions—Intrastate carriageeven when performed by interstate car-riers;23 wood chips; broken, crushed,and powdered glass; transportation ina municipal zone; occasional carriage;and emergency towing24

Where common carrier obligations forloss and damage still exist, they consist ofa complex mosaic of regulatory structures,each with their own requirements and li-ability. Exhibit 2 compares the differentmodal liability regimes.

United States Domestic

Truck

The Trucking Industry Regulatory Re-form Act of 1994 (TIRRA) eliminated theICC tariff filing requirement for motor car-riers acting independently in setting theirrates.25 When the Interstate CommerceCommission Termination Act of 1995(ICCTA) was adopted, much of the Inter-state Commerce Act was eliminated.26

Without ICC oversight of the reasonable-ness of released rates, the Carmack Amend-ment has been significantly changed.Under the ICCTA, neither the Departmentof Transportation (DOT) nor the SurfaceTransportation Board (STB) has author-ity to compel a carrier to pay or settle aclaim. The function of compensating forloss and damage now rests with the courts.

United States motor carriers are liableto the person entitled to recover under the


bill of lading or receipt for the goods.27 Thecarriers’ liability is for the actual loss orinjury to the property caused by (a) thereceiving carrier, (b) the delivering carrier,or (c) another carrier over whose line orroute the property is transported withinthe United States (or from a place in theUnited States to a place in an adjacent for-eign country) when transported under athrough bill of lading.

A carrier also may limit liability if thatlimit is reasonable under the circum-stances surrounding the transportation.The statute is not specific as to whoshould determine reasonableness of a li-ability limitation. The statute does notassign to either DOT or STB the func-tion of determining reasonableness, andit appears that this issue may be left tothe courts to determine in a claim fordamages.

The motor carrier (other than a house-hold goods carrier) need not file tariffswith the STB. However, the ICCTA pro-vides that the carrier, upon request of theshipper, supply the shipper with a writ-ten or electronic copy of the rate, classifi-cation, rules, and practices (includinglimits on liability) upon which any rateapplicable to a shipment is based. The copyprovided by the carrier must clearly statethe dates of applicability of the rate, clas-sification, rules, or practices.

In addition, a carrier and a shipper mayenter into a service contract governed byspecified rates and conditions.28 This kindof contract is not governed by the stan-dard liability regime.29 In a service con-tract, the shipper and carrier may waiveany rights and privileges relating to mo-tor carriage.

Civil actions may be brought in eitherfederal or state courts against the deliver-ing carrier in a court in a state where thedefendant carrier operates. Action mayalso be brought against the carrier thatcaused the loss or damage in the judicialdistrict where the loss or damage is allegedto have happened. Claims must be filedwithin nine months, and lawsuits must bebrought within two years.

Household goods carriers may petitionthe STB to modify, eliminate, or establishtransportation rates. Consequently, the

board may limit liability to a valueestablished by written declaration of theshipper or by written agreement betweenthe parties.

Internationally, there seems to be littlecall for a motor carrier liability conven-tion between the United States and Eu-rope since virtually no direct link truckingoccurs between our nations aside fromsome limited RO/RO (roll-on/roll-off)maritime trade.30 However, U.S. and Eu-ropean motor carrier liability regimes dobecome an issue when a shipper or con-tracting carrier directly arranges and con-tracts for connecting modal movements aspart of an overall through movement be-tween the United States and Europe.

Rail

Rail carriage liability is not governed bythe ICCTA. Like a motor common carrier,a rail carrier is liable to the person entitledto recover for the actual loss or injury toproperty caused by it.31 However, a railcarrier may establish rates for transporta-tion of cargo under which (a) the liabilityfor carriage is limited to a value establishedby written declaration of the shipper orby written agreement between the shipperand the carrier; or (b) specified amountsare deducted, pursuant to written agree-ment between the shipper and the carrier,from any claim against the carrier withrespect to cargo carried.

The Staggers Rail Act gave rail carriersthe freedom to limit liability contractually,without governmental oversight of the rea-sonableness of established rates. Actionsmay be brought only (a) against the origi-nating rail carrier at the point of origin,(b) against the delivering rail carrier in thejudicial district where the claimant has itsprincipal place of business if the deliver-ing carrier also operates in that district,or (c) against the delivering rail carrier atthe point of destination.

Claims also may be brought in the dis-trict where the loss or damage is allegedto have occurred. Claimants have at leastnine months to bring claim and up to twoyears to file suit. Rail carriers’ liability forloss and damage of goods transported


between points within a given country isgoverned by the law of that nation. Thereis no international liability regime for railshipments.

Air

When using air bills of lading, shippersmay consign the goods to a bank at desti-nation, directing the bank to retain con-trol of the goods until the consignee paysthe required amount. The liability of U.S.air carriers, with respect to loss, damage,and delay of air cargo moving in U.S. do-mestic carriage, has been deregulated. Thefederal government no longer regulatescarrier tariffs for carriage of domestic aircargo. The air carriers are subject to liabil-ity regimes based on the air common car-rier liability regime.32 Thus in U.S.domestic air carriage, air carriers are liablefor loss and damage if caused by the negli-gence of the carrier or its agents. The termsof liability, including limitation, are pre-sented by the carrier to the shipper in theair waybill and are contractually acceptedwhen shipment is made on that air way-bill.

International

Air

Internationally, the Warsaw Conventionof 1929, applicable to international aircommerce, became effective for the UnitedStates in 1934. The Hague Protocol wasadopted in 1955 as an amendment to theWarsaw Convention, but it has not beenratified by the United States. Most othernations have adopted this revision of theWarsaw Convention.

Under the Warsaw Convention, the aircarrier is liable when loss or damage iscaused by negligence. Here, the burden ison the carrier to prove that it was not neg-ligent, tending to create a de facto strictliability regime. Liability is limited to $20per kilogram (approximately $9.07 perU.S. pound). When the limitation is lessthan full value, for an additional charge,

air carriers will provide the opportunityfor the shipper to declare higher value.Furthermore, the liability limit does notapply if the damage is caused by the will-ful misconduct of the carrier, in which casethe claimant may seek full damage resti-tution, or if the air waybill fails to containessential information.

The air waybill requires 17 documen-tation details. Absence of some of thesedetails from the air waybill may cause for-feiture of the limitation on liability pro-vided to cargo carriers under the WarsawConvention. A lower limitation may notbe negotiated, but the shipper and the car-rier may negotiate a higher limit. A car-rier is presumed liable for loss, damage, ordelay unless it proves that it has taken allnecessary measures.

Like maritime carriers, air carriers alsouse contractual extensions of the air re-gime to related surface transportation.Such contractual extension is allowed tothe extent allowed by applicable surfacetransportation law. Most countries haveadopted an updated version of the War-saw air waybill.33 The United States hasnot done so.

The U.S. Departments of State andTransportation have urged Congress toratify the 1975 Montreal Protocol No. 4,which addresses air cargo transport liabil-ity. The protocol does not affect the cur-rent limit of liability, but would make amajor contribution in air cargo facilitationby allowing for electronic data transmis-sion. It would eliminate several archaicrequirements under the Warsaw Conven-tion, particularly the requirement that acopy of the air waybill accompanies thegoods and that the air waybill be completedbefore the carrier accepts the goods.

Maritime

The Harter Act and 1936 Carriage ofGoods by Sea Act (U.S. COGSA) are thetwo primary U.S. statutes governing wa-ter carrier liability. U.S. COGSA is the U.S.enactment of the provisions of the 1924Brussels Convention (Hague Rules) on themaritime bill of lading. The Harter Act,enacted in 1893, has been superseded by


U.S. COGSA for shipments between U.S.ports and foreign ports. To limit liability,maritime carriers almost universally stipu-late in their bills of lading that the U.S.COGSA liability regime applies in domes-tic carriage.34 Absent such a stipulation,the unlimited liability of the Harter Actapplies.

The Harter Act governs the time beforethe goods are loaded or the time after theyare discharged from the ship. Many mari-time contracts stipulate that road transportto and from the ship is governed by theU.S. COGSA regime.35

U.S. COGSA holds the carrier respon-sible for liability from loss or damage aris-ing from the carrier’s failure to exercisedue diligence to provide a seaworthy ves-sel at the inception of the voyage and toproperly load, stow, carry, care for, dis-charge, and deliver the goods entrusted tobe transported. It also provides 17 defensesagainst loss and damage claims, includingnegligence.36

U.S. COGSA specifies the essential con-tents of the bill of lading, including the iden-tification and weight of the cargo. Thestatutory liability limitation is $500 perpackage. A lower limitation is not permit-ted, but the parties may negotiate a higherlimit. In some disputes over loss and dam-age, it has been argued that a container is apackage and thus subject to the $500 limit.This is a point of contention between ship-pers and carriers. A number of countrieshave adopted updated versions of the HagueRules, also known as the Visby or the Ham-burg Rules. The United States has not.

Third-Party Intermediaries

Under the ICCTA, domestic surface freightforwarders assume the same liability forloss and damage to cargo as do U.S. railand motor common carriers. A freight for-warder is considered both the receivingand the delivering carrier. Domestic airfreight forwarders, also called indirect aircarriers, are subject to Federal AviationAct, but exempted from DOT regulations.They tend to publish the same liability asthe underlying air carriers. International

airfreight forwarders subject to DOT ju-risdiction almost universally adopt therules of liability of the Warsaw conven-tion in their tariffs.

The Nonvessel Operating CommonCarrier (NVOCC) by water is treated asan indirect common carrier by water inthe foreign commerce of the United States.The NVOCC is generally subject to thesame liability applicable to ocean carriersbut assumes greater liability for move-ments between foreign ocean ports andforeign inland points.

Intermodal Transportation

Although it may appear that the transpor-tation of cargo constitutes a continuousprocess, much U.S. domestic and most in-ternational cargo shipments use two ormore transport modes. Legally, however,each of these modes constitutes a distinctsegment where the contractual relation-ship with the cargo interest is concerned.

Intermodal transport is characterized as“through carriage.” One of the participat-ing modal carriers or freight forwardersusually arranges for all transportation andrelated services from origin to destination.The parties to a contract of carriage maystipulate that the originating carrier’s li-ability regime applies to the entire jour-ney. Otherwise, the liability for suchtransport is usually governed by the liabil-ity regime that applies to the mode of car-riage at the time of loss or damage. Thus,the shipper, unless adequately protected,often is exposed to differences in liabilityregimes, although the goods may be inthrough transport under a through bill oflading.

As a rule, the originating modal liabil-ity regime is often extended by contract tosuccessive modes of transportation usedto deliver the goods. The parties to the firstcontract of carriage stipulate that the origi-nating carrier’s liability regime applies tothe entire journey. In the absence of sucha stipulation, the different modal liabilityregimes apply.

While the United States is not a party,the Multimodal Liability Convention of


1980 is an international treaty whosepremise is that compensation for loss,damage, and delay should be in harmonyamong other modes of carriage. It is basedon the belief that harmonization benefitsall parties. Further, it contends that ship-pers are not surprised by significant dis-parities in compensation systems;insurance companies and carriers can bet-ter assess the risk of carriage and are notsurprised by extraordinary claims; andcourts are aided in applying establishedcase law to other modes of carriage.

The Multimodal Liability Conventionseeks to establish a harmonious liabilityregime among all the modes. It also care-fully preserves the individual shipper’soption of shipping exclusively under amodal liability regime. However, with re-gard to liability limitation, this conventiondistinguishes between maritime and sur-face transportation. For example, when amaritime leg exists in multimodal trans-portation, it is usually the dominant leg,and therefore only harmony with the mari-time liability limitation is necessary. Ifthere is no maritime leg, then the limita-tion prevalent in other (surface) transpor-tation is the guide to harmony. Theconvention adopted the limitation of theContract for International Carriage ofGoods by Roads Convention (8.33 specialdrawing right (SDR) per kilogram, ap-proximately $5.00 per U.S. pound for sur-face carriage when there is no maritimeleg or 2.75 SDRs per kilogram, approxi-mately $1.80 per U.S. pound when thereis a maritime leg).

It is within this legal framework thatany policy discussions about uniform in-ternational loss and damage regimes wouldoccur. Further shaping this debate areother forces such as a recent DOT studyon loss and damage issues and changes inoperating environments.

The Department ofTransportation Study

When it closed the ICC, Congress man-dated an analysis of the current loss anddamage liability regimes and the need for

legislative changes. This August 1998study concluded that the current liabilitysystem “functions reasonably well andthat it requires only modest adjustment toassure fairness to all parties.” The studymade eight recommendations37 and iden-tified only one issue requiring a legislativeremedy: Senate ratification of the 1975treaty amending the Warsaw Conventionon aviation liability (Montreal ProtocolNo. 4).

DOT urged carriers to improve the in-formation provided to common carrier ship-pers about the applicable liability regime.The department saw two ways to accom-plish this goal: shippers and carriers volun-tarily agreeing to a better notice process ora technical amendment to existing law.38

The study also identified one area forpossible regulatory action: a uniform billof lading containing minimum identifyinginformation. “Shippers and carriers,” DOTsaid, “should establish a uniform bill of lad-ing containing minimum identifying infor-mation. In the event that the parties cannotagree, then DOT’s Federal Highway Admin-istration should designate minimum re-quirements along the lines of proposedrulemaking of October 21, 1996.”39

The department saw no need for legis-lative action on the following:• Requiring a shipper to purchase addi-

tional insurance to cover cargo loss anddamage

• Reestablishing regulatory proceduresfor dispute settlement (However, it didcall for increased use of methods suchas mediation and arbitration to accel-erate settlements and relieve pressureon the courts.)

• Imposing a more uniform liability sys-tem for U.S. domestic transportation.“The current system of full value re-covery with flexibility to vary liabilityby released rates or contract [should]be continued until the parties comecloser to agreement on an alternativeliability regime.”However, DOT did find areas that could

benefit from federal involvement: interna-tional harmony, intermodal harmony, andbetter shipper and carrier understanding.To promote international harmony, thedepartment said, “Nations should consider


proceeding on an Inter-American Conven-tion on international carriage of goods byroad.” DOT noted that while carriers andshippers tend to view domestic U.S. mo-tor carriage in isolation from other modesof transportation, carriers and insurerstend to favor a uniform Inter-Americanliability regime for international motorcarriage.

Another step to promote harmony, thedepartment said, would be to encourageshippers and carriers to work towardmultimodal harmony, including possiblyreexamining the Multimodal Liability Con-vention with the goal of making theproposed multimodal regime more flexibleand adaptable to each mode and to bothdomestic and international transportation.“However,” DOT cautioned, “if air is in-volved in intermodal transport, a uniformliability limit should not be less than the$20 per kilogram ($9.07 per pound) ap-plicable for international air cargo trans-port under the Warsaw Convention.”

The study also proposed greater ship-per–carrier dialogue on liability issues andnoted that any resulting consensus wouldbe a prerequisite for government action.The department found that the shipper–carrier dialogues that occurred as a resultof this study’s calls for comments and pub-lic hearing helped the parties clarify theirpositions. Thus, the process in itselftended to promote better understanding.“Understanding would be enhanced in thefuture if the study stimulated shippers andcarriers to continue their own dialog andactivities in the field of cargo liability.”

Operating Environment

Today, the United States operates in a worldof ever-increasing change, where the linesof traditional transportation roles blur;technology strives to yield total in-transitvisibility; and the interests of shippers, car-riers, and third parties are not synonymous.

U.S. loss and damage rules are pat-terned on the precept that the two partiesto the transaction—shipper and carrier—have a common economic self-interest.Shippers own the freight and carriers pro-

vide equipment. However, in the past twodecades, another entity has evolved thatowns neither the freight nor the equipmentbut makes its profits from its transporta-tion expertise beyond that of the tradi-tional freight forwarder. Known by manynames, this third-party intermediary cur-rently accounts for 20 percent of thefreight industry and is expected to accountfor 50 percent within the next decade orso as a result of increased corporateoutsourcing of transportation services.40

Some firms act as independent brokers.Others created by carriers compete more ef-fectively by offering a full range of transpor-tation services. Those created by shipperskeep the corporate focus on the primarymission. Seen as a carrier by the shipper andas a shipper by the carrier, the participationof third parties in the process complicatesquestions concerning responsibility for lossand damage, including who is in control ofthe goods or the equipment, who is the dam-aged party; and what level of damage is in-curred by the various participants to today’smore complicated logistics processes.

Technology is now providing virtuallyreal-time information not only about ashipment’s location but also about the con-dition of the cargo, such as temperature.Computers and robots are assemblinggoods, processing them through ware-houses, and loading them into vehicles fortransportation. These higher levels of con-trols by shippers and carriers call intoquestion older assumptions about assign-ing fault for loss and damage. As technol-ogy improves, it raises questions abouttraditional defenses and responsibilitiesfor safe handling and transportation of in-ternational cargoes.

The diverse interests of shippers, carri-ers, third parties, insurers, and others in-volved in loss and damage disputes createan environment where it is easier for gov-ernment not to act than to risk the contro-versy that would result from any action. Ithas been almost 30 years since the UnitedStates has endorsed an international treatyon this issue. This inaction is primarily dueto the inability of the domestic stakeholdersto come to consensus on a course action.

Certain U.S. motor carriers are cur-rently advocating adoption of a uniform


liability limit of $2 per pound. There islimited support among their customers.Certain shipper advocates are calling fornew legislation that modifies COGSA byadopting a “compromise position” devel-oped by the Maritime Lawyers Associa-tion.41 This compromise is meant to endalmost two decades of conflicts among U.S.shippers, carriers, and others over the cur-rent international treaties: Hague, Ham-burg, and Multimodal. Congress has heldhearings on the plan, and legislation isexpected to be introduced next year. How-ever, it is not clear whether there issufficient multiinterest support to enactit into law. Certain European interestshave opposed the plan.42

According to newspaper reports, Euro-pean opposition is based on three issues: (a)the proposal covers door-to-door rather thanport-to-port moves and defines intermedi-aries and other support such as stevedoresas carriers, (b) the proposal could affect non-U.S. trucking companies and railroads whileexempting U.S. rail and motor carriers, and(c) the proposal limits court and arbitrationprocedures to U.S. entities.

Another issue is the need for better in-formation on loss and damage, both interms of actual incidents and in terms ofthe benefits that could result from a morecoordinated approach to the problem. Inseeking reliable figures for this paper, aswell as for its Cargo Liability Study, DOTlearned that there were few sources of de-tailed information that would help to buildthe business case for standardization.

In fact, the figures for the Cargo Liabil-ity Study were essentially extrapolationsof the numbers developed and used inDOT’s original 1975 review of the issue.The National Cargo Security Council, aprivate sector trade association, is seekinglegislation to compel the parties to beginkeeping more detailed data that would al-low better analysis of the issue.

Developing an Action Plan

Despite the differences in our loss anddamage claim regimes, U.S. and Europeangovernments share a common understand-

ing on two important issues: the increas-ing globalization of commerce and the ben-efits that result from harmonization. Agood example of this understanding is theU.S. Congress’s instructions to DOT toconsider international harmony in under-taking the Cargo Liability Study.43 If thereis a unifying premise in the claims and li-ability debate, it is the need for governmentsto consider and promote international in-termodal harmony in our laws, regulations,and business practices. However, as notedin the DOT liability study, this harmonypresently exists only when the contract orbill of lading stipulates that the liabilityscheme of the originating carrier is ex-tended to the other carriers in the logisticschain or when transportation occurs be-tween nations that are signatories to theMultimodal Convention.44

The challenge for U.S. and Europeangovernments is to develop the tools andtechniques to make internationalintermodal harmony a reality in a way thatrecognizes the increasing sophistication oftechnology and logistics in a global mar-ketplace. Any U.S.–E.U. cooperative ef-forts must recognize the differencesbetween and among national liability sys-tems. These efforts must focus on gener-ating the information essential to makingthe business case for harmonization. Theymust also facilitate dialogue between thepublic and private sector entities whosecooperation is essential to spanning thesedifferences and creating a single interna-tional liability regime.

In the United States, there is no singleuniform liability system, only a collectionof uniform liability regimes for some ofthe transport modes (air and maritime)that often are extended by agreementamong the parties to the other modes.Domestic surface common carriage tradi-tionally has made the railroads or truck-ing companies fully liable for the goodsthey transport. Contracts also have playeda role by relegating loss and damage to thelist of service issues subject to negotiationbetween business parties.

One essential factor that is key toprompting all the stakeholders to seek acommon international intermodal liabil-ity regime is a broad-based and commonly


accepted database of freight liability expe-rience. However, whether in the UnitedStates or Europe, easily assessable, reliabledata on international loss and damage islacking.

If a database of shared liability experi-ence is desirable and important to any ef-fort making the business case for uniformliability limits, then the next step is to re-solve questions such as who will collectthe information, how the data elementswill be defined and analyzed, how the sys-tem will be administered, who will dis-seminate the information and how often,and so forth. Once these matters aresettled, there is the issue of developing aframework in which to assess the benefitsof a uniform liability regime’s effect oninternational transportation costs.

Making a strong business case on thebenefits of international harmonizationwould be an important tool in any facili-tation effort to create a meaningful liabil-ity regime capable of meeting the needs ofa 21st century logistics system. Cargo se-curity interests in the United States arelobbying for legislation that would requiremandatory reporting of loss and damagedate. This legislation would provide moreaccurate information on our national lossand damage experience.

Facilitating dialogue among and be-tween the public and private sectors isanother important process for realizinginternational intermodal harmony. Thegoal of any facilitation would be anemerging agreement among shippers, car-riers, third parties, insurers, and otherson important elements that might be cov-ered in future legislation, regulation, con-ventions, or voluntary agreements.Exploring the U.S. and European per-spectives on the compromise with all ofthe affected parties could be one way tohelp resolve differences and move closerto our long-term goal.

Another starting point for dialoguecould be the Multimodal Convention,which provides an intermodal frameworkfor addressing these issues. Can and

should this convention establish a harmo-nious liability regime across all the modesand between the United States and theEuropean Union, while carefully preserv-ing the individual shipper’s option of ship-ping exclusively under a modal liabilityregime?

The product of international coopera-tion, the convention could serve as a wayof framing the debate between shipper,carriers, third parties, and insurers aboutthe difficult and contentious limitationissues, such as whether to limit liabilityper package or per shipment, whether acontainer is a package or a shipment, orwhether limitation should be broken incase of intentional torts. The conventioncould provide a template or model for de-termining liability limits that are fair toall shippers and carriers, regardless of typeor size of operation or frequency of use.Essential components of a fair liabilityregime include mutually understood termsof liability, appropriate sharing of respon-sibility among parties, and ease of admin-istration of the system. Such a dialoguealso has the advantage of extending theregime to air carriage.

Having government serve as the stimu-lus for further discussions among the par-ties can be beneficial. The DOT studynoted dialogues that occurred as a resultof its calls for comments and public hear-ing helped the parties clarify their posi-tions. Thus, the process in itself tended topromote better understanding. “Under-standing would be enhanced in the futureif the study stimulated shippers and carri-ers to continue their own dialog and ac-tivities in the field of cargo liability.”45

Today we can begin a process to reachthe goal of international harmonization.It will take a variety of skills and processes,all of which rest on government’s willing-ness to help provide (a) the necessary in-formation to make the business case forharmonization and (b) the leadershipthrough facilitation to bring the partiestogether for a consensus solution to thislong-standing public policy issue.


Appendix AA Survey of the Cargo by Sea Conventions

as They Apply to Certain States

Country Hague Visby Hamburg LimitAlgeria Yes

Angola Yes

Antigua/Barbados Yes

Argentina Yes Partial C100 gold

Aruba Comm Code

Australia Revoked Yes Conditional 667/2 SDR

Austria Yes Landlocked 835/2.5 SDR

Bahamas Yes

Barbados Yes Yes 835/2.5 SDR

Belgium Yes Yes 667/2 SDR

Belize Yes

Bermuda Denounced Yes 667/2 SDR

Bolivia Yes Landlocked

Bonaire Comm Code

Botswana Yes Landlocked 835/2.5 SDR

Brazil Comm Code Signature only per B/L

Burkina Faso Yes Landlocked 835/2.5 SDR

Cameroon Yes Signature only Yes 835/2.5 SDR

Canada Revoked Comm Code Conditional 667/2 SDR

Cape Verde Yes

Cayman Islands Denounced Yes 667/2 SDR

Chile Signature only Yes 835/2.5 SDR

China 667/2 SDR

Colombia Partial None

Croatia Yes Yes 667/2 SDR

Cuba Yes $100 Cuban

Cyprus Yes Signature only

Czech Republic Signature only

Denmark Denounced Yes Signature only 667/2 SDR

Dominica Yes

Dominican Republic none

Ecuador Yes Yes Signature only 10,000/30pgf

Egypt Yes Yes-1998 Yes 667/2 SDR

Fiji Yes $236-Fiji

Finland Denounced Yes Signature only 667/2 SDR

France Yes Yes Signature only 667/2 SDR

Gambia Yes

Germany Yes Domestic Signature only

Ghana Yes Signature only

Source: Transportation Consumer Protection Council


Country Hague Visby Hamburg LimitGibraltar Denounced Yes 667/2 SDR

Goa Yes

Greece Yes Yes 667/2 SDR

Grenada Yes

Guinea Yes Yes 835/2.5 SDR

Guyana Yes

Holy See Signature onlySignature only(Vatican)

Hong Kong Denounced Yes 667/2 SDR

Hungary Yes Yes Landlocked 835/2.5 SDR

Iceland Comm Code 667/2 SDR

India Revised Comm Code 667/2 SDR

Indonesia Comm Code Dfl/Idr 600

Iran Yes

Ireland Yes L100

Israel Yes

Italy Denounced Yes 667/2 SDR

Italy Denounced Yes 667/2 SDR

Ivory Coast Yes

Jamaica Yes

Japan Denounced Yes 667/2 SDR

Kenya Yes Yes 835/2.5 SDR

Kiribati Yes

Korea (S) Revoked Comm Code 500 SDR/pkg

Kuwait Yes

Lebanon Yes Yes Yes 835/2.5 SDR

Lesotho Yes Landlocked 835/2.5 SDR

Liberia Revoked Comm Code 667/2 SDR

Macao Yes

MadagascarYes (as MalagasyRepublic)

Signature only

Malaysia Yes P-100 gold

Malawi Yes Landlocked 835/2.5 SDR

Mauritania Signature only

Mauritius Yes

Mexico Revoked Yes Signature only 667/2 SDR

Monaco Yes

Montserrat Denounced Yes 667/2 SDR

Morocco Yes 835/2.5 SDR

Mozambique Yes

Nauru Yes

Netherlands Denounced Yes 667/2 SDR

New Zealand Revoked Yes 667/2 SDR

Nigeria Yes Yes 835/2.5 SDR

Norway Denounced Yes Signature only 667/2 SDR

Oman Comm Code 667/2 SDR

Pakistan Signature only

Panama Comm Code Signature only per B/L

Papua New Guinea Yes


Country Hague Visby Hamburg LimitParaguay Yes Signature only Landlocked

Peru Yes P-100 gold

Philippines Yes Signature only Signature only $500

Poland Yes Yes 667/2 SDR

Portugal Yes Signature only

Romania Yes Yes 835/2.5 SDR

Sabah Comm Code MSR 850

Sao Tome Yes

Sarawak Comm Code MSR 850

Senegal Revoked Yes 835/2.5 SDR

Seychelles Yes

Sierra Leone yes Yes 835/2.5 SDR

Singapore Yes Yes Signature only SDG 1563.65/4.69

Slovakia Signature only

Slovenia Yes $4.00

Solomon Islands Yes

Somalia Yes

South Africa Revoked Comm Code 10,000/30pgf

Spain Yes Yes 667/2 SDR

Sri Lanka Yes Yes 10,000/30pgf

St. Kitts-Nevis Yes

St. Lucia Yes

St. Martin-NetherlandsAntilles

Comm Code

St. Vincent and theGrenadines

Yes

Sweden Denounced Yes Signature only 667/2 SDR

Switzerland Yes Yes Landlocked 667/2 SDR

Syria Yes Yes Landlocked 10,000/30pgf

Taiwan US COGSA 9000/pkg TWD

Tanzania Yes Yes 835/2.5 SDR

Thailand Comm Code 10,000/30 THB

Timor Yes

Tonga Yes Yes 10,000/30pgf

Trinidad/Tobago Yes

Tunisia Yes 835/2.5 SDR

Turks/Caicos Denounced Yes 667/2 SDR

Turkey Yes

Tuvalu Yes

Uganda Yes Landlocked 835/2.5 SDR

United Kingdom Denounced Yes 667/2 SDR

United Kingdom VirginIslands

Denounced Yes 667/2 SDR

United States Yes Signature only $500/pkg

Uruguay Signature only None

USSR Comm Code

Venezuela Signature only per B/L

Vietnam Comm Code 10,000/30gf

Yugoslavia Yes Comm Code 667/2 SDR

Zaire Yes Signature only

Zambia Yes Landlocked 835/2.5 SDR


Mode

Valuein millionsof dollars

Tonsin

thousands

Ton milesin

millions

Valuein

percent

Tonsin

percent

Ton milesin

percent

Value perton

in dollars

Value perpound

in dollars

Tonmiles

per tonCFS plus ORNL estimates $6,123,832 12,157,105 3,627,919 100.0 100.0 100.0 $503.7 $0.25 298

Parcel, postal, courierservice

$563,277 18,892 13,151 9.2 0.2 0.4 $29,815.6 $14.91 696

Truck (for-hire, private,both)

$4,403,495 6,385,915 869,536 71.9 52.5 24.0 $689.6 $0.34 136

Air (including truck andair)

$139,087 3,139 4,009 2.3 0.0 0.1 $44,309.3 $22.15 1,277

Rail $247,394 1,544,148 942,561 4.0 12.7 26.0 $160.2 $0.08 610Water $64,077 518,912 271,981 1.0 4.3 7.5 $123.5 $0.06 524Pipeline $89,849 483,645 — 1.5 4.0 — $185.8 $0.09 —Truck and rail $83,082 40,624 37,675 1.4 0.3 1.0 $2,045.1 $1.02 927Other intermodalcombinations1

$13,382 148,883 185,030 0.2 1.2 5.1 $89.9 $0.04 1,243

Other and unknown $242,691 544,335 96,972 4.0 4.5 2.7 $445.8 $0.22 178ORNL estimates

Water (not in CFS) $187,085 1,609,309 614,104 3.1 13.2 16.9 $116.3 $0.06 382Pipeline (not in CFS) $90,413 859,303 592,900 1.5 7.1 16.3 $105.2 $0.05 690Intermodal2 total $659,741 208,399 235,856 10.8 1.7 6.5 $3,165.8 $1.58 1,132

Appendix B

1993 Commodity Flow Survey: Shipment Characteristics by Mode ofTransportation for the United States

— Data do not meet publication standards.1This includes truck and water, rail and water, and other combinations.2Intermodal is a combination of parcel, postal or courier; truck and rail; truck and water; rail andwater; and other intermodal. It excludes truck and air, which are added to air transportation.

U.S. Department of Commerce, Bureau of the Census, 1993 Commodity Flow Survey: United States,TC92-CF-52, and Oak Ridge National Laboratory estimates (Washington, DC: 1996).


Appendix CSummary of U.S. National Freight Policy

The U.S. National Freight Policy definesthe United States’s national interest as en-suring “a safe, reliable, and efficient freighttransportation system that supports eco-nomic growth and international competi-tiveness both now and in the future, whileprotecting and contributing to a healthyand secure environment. The goal of thisstatement is to provide guidance for mak-ing the nation’s transportation systemserve its citizens better. To achieve thisgoal, new partnerships must be formedamong public agencies, the freight trans-portation industries and shippers.” Thispolicy was adopted in 1996, and it con-tains eight tenets:

1. Provide funding and a planning frame-work that establishes priorities for allo-cating federal resources to cost-effectiveinfrastructure investments that supportbroad national goals

2. Promoting economic growth by remov-ing unwise or unnecessary regulationand promoting the efficient pricing ofa publicly financed transportation in-frastructure

3. Ensuring a safe transportation system4. Protecting the environment and con-

serving energy5. Using advances in transportation tech-

nology to promote transportation effi-ciency, safety, and speed

6. Effectively meeting our defense andemergency transportation requirements

7. Facilitating international trade andcommerce

8. Promoting effective and equitable jointuse of transportation infrastructure forfreight and passenger service


Endnotes

1U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S. Department ofTransportation, 1998), 7.

2U.S. Freight Economy In Motion, (FHWA-PL-98-034), Federal Highway Administration, U.S. De-partment of Transportation, May 1998, p. 16.

3Information provided by the National Cargo Security Council.4Bureau of Transportation Statistics, 1993 Commodity Flow Survey (Washington, DC: U.S. Depart-

ment of Transportation, 1993).5Niagara v Cordes, 62 US 41, 46 (1858).6Basedow, Common Carrier Continuity and Disintegration in U.S. Transportation Law, 18 at 280).749 U.S.C. §10707, now 49 U.S.C. §14706.838 Stat. 1196.941 Stat. 475.1049 Stat. 543.1156 Stat. 285 (1942) and 64 Stat. 1113 (1950).1294 Stat. 798.1394 Stat. 1995.14Estimate provided by the Intermodal Association of North America.1549 U.S.C. §14101(b).16Motor Carrier Act of 1980, Public Law 96–296 and Staggers Rail Act of 1980, P.L. 96–448.1749 U.S.C. §14706.18U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S. Department of

Transportation, 1998), 6–7.1949 U.S.C. §13506.2049 U.S.C. §14706(f).2149 CFR 14706(c)(A).2249 U.S.C. §13506(a)(8).23Federal Aviation Administration Authorization Act of 1994, P.L. 103–305.2449 U.S.C. §13506.25P.L. 103–311.26P.L. 104–88.27ICCTA, §14706.2849 U.S.C. §14101(b).29ICCTA, §14706.30U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S. Department of

Transportation, 1998), 45.3149 U.S.C. §11706.32American Airlines v. Wolens, 115 S.Ct. 817, 824 (1995).331955 Hague Protocol.34Gilmore and Black, Law of Admiralty, 2d ed., at 148.35Gilmore and Black, Law of Admiralty, 2d ed., at 148.


36Neither the carrier nor the ship shall be responsible for loss or damage arising orresulting from the following:

• Act, neglect, or default of the master, mariner, pilot, or the servants of thecarrier in the navigation or in the management of the ship

• Fire, unless caused by the actual fault or privity of the carrier• Perils, dangers, and accidents of the sea or other navigable waters• Act of God• Act of war• Act of public enemies• Arrest or restraint of princes, rulers, or people or seizure under legal process• Quarantine restrictions• Act or omission of the shipper or owner of the goods, his agent, or representa-

tive• Strikes or lockouts or stoppage or restraint of labor from whatever cause,

whether partial or general, provided that nothing herein contained shall beconstrued to relieve a carrier from responsibility for the carrier’s own acts

• Riots and civil commotions• Saving or attempting to save life or property at sea• Wastage in bulk or weight or any other loss or damage arising from inherent

defect, quality, or vice of the goods• Insufficiency of packing• Insufficiency of inadequacy of marks• Latent defects not discoverable by due diligence• Any other cause arising without the actual fault and privity of the carrier and

without the fault or neglect of the agents of servants of the carrier, but the bur-den of proof shall be on the person claiming the benefit of this exception to showthat neither the actual fault or privity of the carrier nor the fault or neglect of theagents or servants of the carrier contributed to the loss or damage

37U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S.Department of Transportation, 1998), 57–61.

3849 U.S.C. §14706(c)(1)(B).3961 Federal Register 54707.40Federal Highway Administration, U.S. Freight: Economy In Motion (Washington,

DC: U.S. Department of Transportation 1998).41This compromise, which is not similar to any other regime now in force, would

institute the Hamburg Rules liability limits (see page 42) and eliminate the traditionalmaritime “negligence” defense against loss and damage claims.

42Journal of Commerce (1998):1.4349 U.S.C. §14706(g)(2)(B).44U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S.

Department of Transportation, 1998), 46–48.45U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S.

Department of Transportation, 1998), 61.

Endnotes

Legal and Regulatory Issues Affecting Intermodalism in the European Union 59

Vincent PowerA&L Goodbody

Article D: Legal and Regulatory IssuesAffecting Intermodalism in the European Union

Executive Summary

The purposes of this paper are as follows:• to describe the laws and regulations that

make up the “playing field” for inter-modal transport

• to identify the European Union (E.U.)legal and regulatory issues impeding in-termodal freight transport

• to describe the effect of these issues onstakeholders

• to identify potential opportunities forresolving these issues

• to propose potential mechanisms forregulatory changeThe thrust of E.U. law is toward regu-

lation rather than facilitation of intermo-dalism. This approach is typified by theE.U.’s competition and antitrust rules,which seek to scrutinize and control ratherthan facilitate intermodalism. Operatorsinvolved in intermodalism have high com-pliance costs, reduced legal certainty, andincreased regulatory delays in terms oftheir arrangements.

Intermodalism is regulated within theEuropean Union at different levels and indifferent ways. In the context of the Euro-pean Union, it is important to rememberthat anyone who is engaged in intermo-dalism in the European Union must com-ply with a set of three different rules thatmay conflict with one another:• the rules operating on the international

level,• the rules adopted by the European

Union, and• the rules adopted by the member states.

Unfortunately, not only is there thisthree-leveled impediment, but also the E.U.regime operates on three further levels:competition in intermodalism is regulatedby three different regimes (one for road,rail, and inland waterway; one for mari-time transport; and one for air transport).

A key problem associated with the ap-plication of E.U. competition law to in-termodalism is that E.U. competition lawin the transport sector has been formu-lated, and continues to be operated, on a

unimodal basis rather than on an inter-modal basis. This is a regulatory impedi-ment to the facilitation of intermodalism.

The current E.U. antitrust regime isbuilt around the unimodal transportmodel, and therefore, it is not possibleto have arrangements across differentmodes without specifically notifying theregulators.

The European Union could stimulateand facilitate intermodal transport by lib-eralizing or restructuring its own regimeand by coordinating the way in whichmember states regulate intermodalism atthe national level.

E.U. antitrust law could assist in facili-tating and operating intermodalism by wid-ening the type and form of relationshipsand arrangements automatically that areexempted as a matter of E.U. law and thatdo not need to be notified to, and clearedby, the European Commission (E.C.).

Clearly the differing rules, conflictingtime limits, and absence of a comprehen-sive regime to cover all of the modes meanthat anyone concerned with intermodal-ism has a much more difficult task. Itwould be easier to have a single regime thatdeals with intermodalism in a structuredand ordered manner. Stakeholders in thecurrent system must cope with conflict-ing rules and rules that do not sit easilywith one another.

Intermodalism must not be impeded bysome member states artificially assistingor supporting state companies (such asstate railways) or state champions in a waythat distorts competition. A state-sup-ported railway could automatically be-come a dominant player in the intermodalmarket. This impediment can be removedor reduced only by regulation and vigi-lance. Many of the regulations are in place,but they will be useless if there is no vigi-lance. It is up to the commission and par-ticularly industry to monitor and brief thecommission on such impediments.

There is strong support for the viewthat E.U. law is not well suited to deal withmultimodalism because the rules are


structured on a unimodal basis. The E.U.regulatory procedures involve compliancecost for businesses. The regulatory struc-ture needs to be able to allow intermodalarrangements to be made and imple-mented with the minimum of delay orcomplication. Any system that causes un-necessary delay and complication is, bydefinition, an unattractive and inefficientone. The unimodal approach is inefficientbecause only unimodal arrangements maybenefit from the current block exemptions.The current competition regime is thus animpediment to intermodalism in terms ofincreased compliance and regulatory costs.The Council of Ministers and the Euro-pean Commission could assist in remov-ing this regulatory impediment byrepealing the specific unimodal regulationsand adopting more generous and widerregulations, which transcend modes.Moreover, the E.U. regime, which is cur-rently focused on regulation rather thanstimulation, should become more of a fa-cilitator than a regulator.

Introduction

This paper examines selected aspects ofthe law of the European Union as it re-lates to intermodal freight transport in theEuropean Union.

Purpose

The purposes of this paper are as follows:• to describe the laws and regulations that

make up the “playing field” for inter-modal transport

• to identify the E.U. legal and regulatoryissues impeding intermodal freighttransport

• to describe the effect of these issues onstakeholders

• to identify potential opportunities forresolving these issues

• to propose potential mechanisms forregulatory change

Intermodalism

The term intermodalism is defined, for thepurposes of this paper, as the carriage ortransport of goods between two points bytwo or more modes or means of transport(such as air, sea, rail, and road or inlandwaterway).

European Union

The term European Union is defined, forthe purposes of this paper, as the interna-tional organization consisting of 15 mem-ber states in western and central Europe.This union of states is the largest tradingbloc in the world. The European Unionhas sought to internalize its market toeliminate barriers to the free movementof goods, persons, capital or the establish-ment of businesses.

Scope of the Paper

This paper concentrates on the legal andregulatory issues adopted by the EuropeanUnion itself. It is not possible, in this pa-per, to examine the law of each of the 15member states. It should be noted, how-ever, that (a) if there is any conflict be-tween the law of the European Union andthe law of a member state, then the law ofthe European Union will prevail in accor-dance with the principle of supremacy ofE.U. law, and (b) if there is an impedimentplaced by a member state in the way ofintermodalism, then such an impedimentmay well be capable of removal by virtueof being incompatible with E.U. law.

Regulation of Intermodalismin the European Union

The E.U.’s competition and antitrust re-gime is aimed more at regulating and con-trolling than stimulating and facilitatingintermodalism because its rules are aimedat scrutinizing and regulating rather thanexempting en bloc a wide range of agree-ments involving different modes.


The European Union could stimulateand facilitate intermodal transport by lib-eralizing or restructuring its own regimeand by coordinating the way in whichmember states regulate intermodalism atthe national level.

Intermodalism is regulated within theEuropean Union at different levels and indifferent ways. In the context of the Euro-pean Union, it is important to rememberthat anyone who is engaged in intermo-dalism in the European Union mustcomply with a set of three different rulesthat may conflict with one another:• the rules operating on the international

level,• the rules adopted by the European

Union, and• the rules adopted by the member states.

Unfortunately, not only is there a three-leveled impediment but also the E.U. re-gime operates on three further levels:competition in intermodalism is regulatedby three different regimes (one for road,rail, and inland waterway; one for mari-time transport; and one for air transport).

This means, for example, that in thecontext of an arrangement between busi-nesses for the transport operator planningto move goods from New York to Londonby air and onwards to Edinburgh by roadand rail must comply with the following:• the international rules relating to the

international transportation of goodsby air

• the Council of Ministers Regulation1017/68 on competition in the road,rail, and inland

• waterway sectors, as well as the Coun-cil of Ministers Regulation 3975/87 oncompetition in the air transport sector;and

• the United Kingdom’s own laws on thetransport of goods.This situation is further complicated by

the fact that intermodal transport passingthrough two or more E.U. member stateswill have four or more sets of laws withwhich to comply. The situation can also becomplicated by virtue of conflicts betweenthese member state laws and the fact thatthe member state laws are at different stagesof development and in different forms. Theproblem facing those operating in the E.U.

intermodal market is this matrix of lawsand each of these sets of laws having dif-ferent rules relating to different modes. Thissituation naturally creates a regulatory im-pediment for intermodalism, and the onlysolutions are harmony at the E.U. level andeither harmonization or mutual recognitionat the national level.

E.U. Antitrustor Competition Law

It is useful to dwell, for a moment, on E.U.antitrust or competition laws to more fullyunderstand the relationship between com-petition law and intermodalism.

The competition rules are primarilyembodied in Articles 85–94 of the Euro-pean Commission (E.C.) Treaty. Theserules are largely administered by the Eu-ropean Commission (in particular, Direc-torate-General IV). Directorate-GeneralVII (Transport) does not administer thecompetition rules even in the transportsector. However, aggrieved persons maydecide to institute proceedings in the mem-ber state courts or complain to the com-mission about the behavior of others.

Each of the fundamental rules of E.U.competition law (i.e., Articles 85, 86, 90,and 92–94 of the E.C. Treaty) apply to allmodes of transport equally. However, thedetailed rules relating to the way in whichcompetition applies in practice are de-signed largely on a unimodal basis.

Anticompetitive Arrangements:Article 85 of the E.C. Treaty

Article 85(1) of the E.C. Treaty prohibitsall arrangements that prevent, restrict, ordistort competition in the common mar-ket or any part of the common market. Inthis context, “arrangements” means—• all agreements between undertakings,• decisions by associations of undertak-

ings, or• concerted practices involving under-

takings.Article 85(2) provides that such ar-

rangements are void. Article 85(3) permits


the European Commission (but no otherinstitution) to grant an exemption in re-spect of arrangements which are, on bal-ance, beneficial to the economy. The typeof arrangements covered by Article 85would include pricing arrangements orexclusivity arrangements in the context ofintermodalism. Many intermodal arrange-ments fall within the scope of Article 85.This means that Article 85 represents animpediment to intermodal arrangementsthat breach Article 85(1) being imple-mented and operated quickly and cheaplyunless the arrangement has been exemptedby the Commission.

Abuse of Dominance: Article 86of the European Commission Treaty

Article 86 of the E.C. Treaty prohibits adominant undertaking abusing its domi-nant position in the common market orin a substantial part of the common mar-ket. (A port may be a substantial part ofthe common market.) For example, an in-termodal operator or a group of operatorscould be dominant (either on an indi-vidual or collective basis) and be deemedto be acting unlawfully because it wasabusing the dominant position. This isnot so much an impediment to intermo-dalism as it is a measure of control onintermodalism.

Public Authorities:Article 90 of the E.C. Treaty

Article 90 of the E.C. Treaty provides thatstate authorities in the European Unionare subject to the competition rules exceptin the most limited circumstances. Article90 is of limited relevance to many inter-modal operators but is relevant to portoperators. Article 90 means that evenstate-owned and state-controlled port op-erators are normally subject to competi-tion law and may not engage inanticompetitive arrangements or abusedominance.

State Aid: Articles 92–94 ofthe European Commission Treaty

As a general principle, Articles 92–94 ofthe E.C. Treaty provide that member statesmay not provide financial aid (whetherdirect or indirect) in a discriminatorymanner without prior approval by theEuropean Commission.

Consequences ofBreaching E.C. Competition Law

A breach of E.U. competition law has se-rious consequences. First, the agreementmay be void (i.e., unenforceable) in wholeor in part where it breaches competitionlaw. This would cause serious conse-quences for anyone who is party to ananticompetitive agreement because the ar-rangement would be unenforceable. Sec-ond, the parties to an anticompetitiveagreement may be liable to fines of up to10 percent of worldwide turnover. Third,parties may be liable to actions for dam-ages before the courts of the memberstates. It might be argued that the exist-ence of such draconian sanctions meansthat some businesses may be deterred fromeven concluding intermodal arrangementswhere there might be some doubt abouttheir compatibility with E.U. competitionlaw. It is important that intermodal ar-rangements can be concluded with legalcertainty because stakeholders should notbe exposed to risk of nonconformity be-cause the rules are not clear or are cum-bersome.

The Interventionist Natureof the European Commission

Many have criticized the European Com-mission for being somewhat intervention-ist in the marketplace. An example of thisapproach is the statement by the EuropeanCommission in its 1994 Report on Mari-time Transport that it would not grant ablock exemption for shipping lines to fixland rate, but it would consider each agree-ment individually. (A block exemptionwould not have given the European


Commission the opportunity to scrutinizethe arrangements because they would nothave been notified.) In particular, somebelieve that the European Commission hasrefused to adopt the so-called “rule of rea-son” approach, which is so much a part ofU.S. antitrust law, so that arrangementswould have to be notified to the EuropeanCommission to allow the commission tointervene in such arrangements. In this re-spect and others, it is important to recallthat U.S. and E.U. antitrust and competi-tion laws are not identical. They evolvedin response to different economic and geo-graphic conditions. Therefore, it is oftendangerous to apply the rules laid down byone side of the Atlantic to the other sideof the Atlantic.

Subsidiarity

The European Commission is eager to del-egate the enforcement of competitionpolicy and some of the rules to memberstates in some circumstances. This act mayhave advantages in some circumstances,but it may well lead to different approachesbetween member states, which is an im-pediment in its own right. This situationis far from ideal in an international inter-modal environment.

Deregulation, Liberalization,and Privatization

The European Commission has made sig-nificant progress in deregulating and lib-eralizing large tracts of the Europeaneconomy. Examples include the telecom-munications and the air transport sectors.Despite considerable progress, however,there has not been sufficient liberalizationor deregulation in the transport sector asa whole. Individual modes have been lib-eralized to a greater or lesser extent, butthere is a need to facilitate a more inte-grated approach.

E.U. Competition Lawand Intermodalism

One of the key problems associated withthe application of E.U. competition law tointermodalism is that E.U. competitionlaw in the transport sector has been for-mulated, and continues to be operated, ona unimodal basis rather than on an inter-modal basis. This is a regulatory impedi-ment to the facilitation of intermodalism.

Application of Articles 85and 86 to the Transport Sector

Articles 85 and 86 of the E.C. Treaty ap-ply to transport and have always appliedto the transport sector since the entry intoforce of the E.C. Treaty. However, it wasnot always easy to apply Articles 85 and86 to the E.C. Treaty because of the ab-sence of implementing regulations. Thisabsence of rules to facilitate the applica-tion of the competition rules to transportmeant that transport generally (and inter-modalism in this context) was effectivelyleft unregulated for many years.

The absence of implementing regula-tions in the transport sector was resolvedon only a phased and a modal basis. First,in 1968, the Council of Ministers adoptedRegulation 1017/68 to deal with competi-tion in the road, rail, and inland water-way sectors. Second, in 1986, the Councilof Ministers adopted Regulation 4056/86to address competition in the internationalmaritime sector. Third, in 1987, theCouncil of Ministers adopted Regulation3975/87 to address competition in the airtransport sector.

It is very welcome that the EuropeanUnion has been implementing regulationsto facilitate the application of E.U. compe-tition law to the transport sector. However,from the specific perspective of intermodal-ism, as opposed to one particular mode, thisunimodal approach is inefficient and inef-fective because intermodal agreements can-not benefit from the individual regulations.


Regulation 1017/68

Council of Ministers Regulation 1017/68enables the European Commission to ap-ply the competition rules in Articles 85and 86 in the road, rail, and inland water-way transport modes. It also containssome block exemptions under Article85(3) of the E.C. Treaty.

Regulation 3975/87

Council of Ministers Regulation 3975/87enables the European Commission to ap-ply the competition rules in Articles 85and 86 in the air transport mode. It alsocontains some block exemptions underArticle 85(3) of the E.C. Treaty.

Regulation 4056/86

Council of Ministers Regulation 4056/86enables the European Commission to ap-ply the competition rules in Articles 85and 86 in the international maritime trans-port mode. It also contains some block ex-emptions under Article 85(3) of the E.C.Treaty.

Regulation 4056/86 was a Council ofMinisters regulation and block exemption.This is unusual. Some commentators be-lieve that the European Commission hasalways been suspicious of this regulationbecause of its origin, but this has beenstrenuously denied by the CompetitionCommissioner, Karel Van Miert.

Regulation 4056/86 is narrow. It onlyapplies to international maritime transport.The block exemption is limited to the mari-time leg and not the inland leg. This situa-tion causes problems for intermodalagreements because they cannot be auto-matically exempted under the regulation.Instead they have to be notified to andcleared by the European Commission, whichinvolves compliance costs, commercialuncertainty, and regulatory delays for theintermodal operators involved.

Ehlermann’s Views

Claus-Dieter Ehlermann is a former Di-rector-General of DGIV. In a leading ar-ticle in 1992, Dr. Ehlermann recognizedthat it was inconvenient and undesirableto have separate transport regulations. Herecommended that Regulations 1017/68,4056/86, and 3975/87 be combined intoone transport regulation. This proposal isboth practical and desirable. Anyone whobelieves that there should be reform shouldcanvass hard for such a change! Withineach regulation, some measures will needto be specific to a mode, but this it is notentirely unusual or difficult to achieve.

Carsberg Group

The Carsberg Group was established in1995. It recommended in 1997 that therebe no impediment to a block exemptionfor collective inland price-fixing by linershipping conferences.

Essential Facilities Doctrine

It is useful to recall the so-called “Essen-tial Facilities” doctrine in competition law.This doctrine may be useful to some op-erators in the intermodal sector because itcould remove impediments in terms of ac-cess to essential facilities. The doctrine al-lows one to use competition law to openup markets and facilities. The doctrineposits that a dominant undertaking thathas a facility (e.g., a port) must provideaccess to the facility where it is vital oressential for someone to obtain access tocompete in the market. The consumer willhave to take access subject to anygrandfathered rights that others may haveaccumulated over time. The EuropeanCommission has been willing to assist theclaims of various supposed competitors(normally, shipping companies and air-lines) who wished to obtain access by in-voking Article 86 of the E.C. Treaty. Inthis regard, E.U. law can be used to assistrather than hinder those engaged in inter-modalism.


Merger Control Regulation

The European Council’s Merger ControlRegulation regime provides that anymerger of a particular type of a largeenough financial size must be notified andcleared by the European Commission.Various arrangements in the transport sec-tor (such as the Acquisition by Stinnes ofBTL from Finnlines) have been notifiedand cleared by the European Commission.

Vertical Arrangements

Vertical arrangements that could prevent,restrict, or distort competition must beapproved by the European Commissionunder Article 85 of the E.C. Treaty in ap-propriate circumstances. Notwithstandingthat the agreement may have an anticom-petitive element, the agreement may none-theless be exempted by the EuropeanCommission where the arrangement is, onbalance, beneficial to the economy.

E.U. Transport Lawand Intermodalism

Institutional Perspective

The European Commission’s DirectorateGeneral for Transport, DGVII, is based ondifferent directorates dealing with specificmodes. Attempts have been made withinDGVII to look at transport in a multimodalmanner. This is very welcome. Nonethe-less, many of the laws and rules have beenadopted in regard to specific modes ratherthan on a multimodal manner (but this isnot the fault of DGVII).

The Modal Natureof E.U. Transport Law

E.U. transport law generally has evolvedon a modal basis with rules being devel-oped on specific modes. In part, such anapproach is inevitable and even desirablebecause it allows measures to contain onlywhat is necessary and relevant.

Maritime Cabotage

The restrictions on maritime cabotage thatoperated in some E.U. member states havebeen phased out by virtue of Council Regu-lation 3577/92. These restrictions im-peded integration and competition in thesame way as the Jones Act in the UnitedStates. The elimination of cabotage restric-tions in the European Union has been aphased process (apart from those coastalstates that never had or simply abolishedthe restrictions). However, the issue hasbeen of great significance in only twomember states (Greece and Spain), and theissue has been greatest for passenger traf-fic rather than freight traffic. It is likelythat cabotage restrictions that were im-pediments to intermodalism in the Euro-pean Union will be phased out oreliminated over time. Short sea shippingshould be assisted in no small way byCouncil Regulation 3577/92. Where im-pediments remain, those involved in theindustry can eliminate them by bringingtheses impediments to the attention of theEuropean Commission (in particular,DGVII) as a matter of urgency.

Facility Access and Construction

It should be recalled that the EuropeanUnion has assisted enormously in con-structing and improving infrastructurethroughout Europe particularly by meansof so-called structural funds, cohesionfunds, and regional funds. The improve-ment in facilities is particularly notable inthe peripheral or less developed states. TheE.U.’s contribution should be borne in mindwhen one is criticizing the fact that E.U.laws are not well-suited to intermodalismand that all future funding arrangementsshould be vetted for their contribution tointermodalism.


State Aid and Intermodalism

The E.C.’s Treaty controls the ability ofE.U. member states to grant state aid orassistance that distorts competition in themarket place and would not be the type offinancial assistance that would not begiven by rational investors or rational op-erators in the marketplace. Articles 92–94 of the E.C. Treaty provide that memberstates must notify the European Commis-sion of any proposal to provide aid andthat they must not provide the aid untilthe commission has approved the aid pack-age. Unlawful aid could include unfairadvantages to railway companies. Reducedor waived taxes may well be consideredstate aid where the measures are not sim-ply measures of general application.

Anyone operating in the intermodal en-vironment in the European Union mustbe aware of the possibility that competi-tors could be granted unlawful aid. Thismeans that the European Commission andmultimodal operators must vigilantlymonitor unlawful state aid. Operators whobelieve that competitors are being providedwith unlawful state aid must considercomplaining about it to the EuropeanCommission. The unlawful state aid couldinclude providing facilities at less thancommercial rates, providing finance at lessthan commercial rates, or providing othersubsidies.

Intermodalism must not be impeded bysome member states artificially assistingor supporting state companies (such asstate railways) or state champions in a waythat distorts competition. A state-sup-ported railway could automatically be-come a dominant player in the intermodalmarket. This impediment can be removedor reduced only by regulation and vigi-lance. Many of the regulations are in place,but they will be useless if there is no vigi-lance: It is up to the commission and par-ticularly industry to monitor and brief thecommission on such impediments.

Do the E.U. RulesImpede Intermodalism?

Intermodalism is commonplace in theEuropean Union. It is therefore clearthat the European Union has not curbedthe existence of intermodalism. How-ever, have E.U. laws and regulationsmade it more difficult to operate, or arethe rules too difficult to apply in prac-tice? Have the rules caused difficultiesfor those operating within the system—whether as E.U.-based operators or op-erators based outside the EuropeanUnion?

Clearly, the differing rules, conflictingtime limits, and absence of a comprehen-sive regime to cover all of the modes meanthat anyone concerned with intermodal-ism has a much more difficult task. Itwould be easier to have a single regime thatdeals with intermodalism in a structuredand ordered manner. Stakeholders in thecurrent system must cope with conflict-ing rules and rules that do not sit easilywith one another.

Eliminating Impediments:Ways to Facilitate Trans-AtlanticFreight and Intermodal Transport

One of the concerns of the intermodalismdebate is how to increase or improve thelevel of transatlantic freight transport.Whether it is desirable to eliminate ormore practically, minimize, the barriersthat exist is indisputable. Minimizing suchbarriers will generally increase the levelof intermodal transport. It is thereforeappropriate to ensure that the barriers arereduced as much as possible.

Moving Away from the UnimodalApproach to TransportMultimodalism Regulation

The E.U. regime is structured on the basisof individual modes. It would be very help-ful for the European Union to enact asingle comprehensive measure to embraceall of the transport modes. This action


would help to reduce the E.U.’s “internal”problem within the European Union.

Embracing the Global Dimension

Adopting a competition measure thatwould address transport and the market-place generally rather than address specificmodes would help to ease the burden formultimodal operators in the EuropeanUnion. However, this solution would notaddress the broader issue of facilitatingtrade and multimodal transportation be-tween (a) the European Union and theUnited States and Canada and (b) the Eu-ropean Union and the rest in the world.So, what would be the lever to help openfurther this trade pattern? Clearly, greaterinternational dialogue and legislation willassist.

Unifying National LawsMay Be Difficult: Would It BeWorth the Effort?

The ideal future may not necessarily beabolishing rules and regulations (whichis not entirely desirable anyway).Rather, adopting common or near-com-mon rules across the European Unionwould probably be more useful for theintermodal sector. Indeed, abolishingrules or regulations might actually cre-ate a vacuum that could lead to compli-cations that would cause more problemsto the industry.

Recognizing DifferencesThat Cannot Be Eliminated

It would be ideal for a single antitrust andcompetition law system to operate on bothsides of the Atlantic. However, it wouldbe impractical and unrealistic to imaginethat a single system will be created evenin the medium to long term. There are his-torical and political reasons for the differ-ences and the ways in which the systemsoperate mean that unification would benext to impossible. Instead, the aim is sim-ply for meaningful cooperation and

dialogue. It would be wrong to imagine thatthere would ever be an identical approach.

Shortening the Approvaland Cooperation Processes

Like all industries, the intermodal indus-try needs to trust that it can establish jointventures or other alliances quickly andeasily within a specific and relatively shorttime scale. The European Commission hasmade enormous strides at shortening theclearance process for joint ventures, butperhaps the intermodal industry is still notaware of these improvements.

In essence, we are discussing how theEuropean Union and the rest of the worldcan sort out the differences that arise be-tween them due to differing rules and rulesthat are not ideal for meeting the chal-lenges of evolving situations. This is notan entirely new problem. It is a regularissue in the field of antitrust (particularlyin regard to merger notifications that aremade in Europe and the United States).The solution has been for the UnitedStates and the European Union to adopt acooperation agreement to address mattersof potential conflict so that there can beearly warning signals leading to early dia-logue, agreed timetables so that there areno regulatory problems, and commonstandards so that there are no divergentresults. Consideration should be given toa formal agreement between the UnitedStates and the European Union on howbest to deal with transport and, in particu-lar, intermodal transport.

There is strong support for the view thatE.U. law is not well suited to address inter-modalism because the rules are structuredon a unimodal basis. The E.U. regulatoryprocedures involve compliance costs forbusinesses. The regulatory structure needsto be able to allow intermodal arrangementsto be made and implemented with mini-mum delay or complication. Any systemthat causes unnecessary delay and compli-cation is, by definition, unattractive and in-efficient. The unimodal approach isinefficient because only unimodal arrange-ments benefit from the current blockexemptions. The current competition


regime is thus an impediment to intermo-dalism in terms of increased complianceand regulatory costs. The Council of Min-isters and the European Commission couldassist in removing this regulatory impedi-ment by repealing the specific unimodal

regulations and adopting more generousand wider regulations that transcendmodes. Moreover, the E.U. regime, whichis currently focused on regulation ratherthan stimulation, should become more ofa facilitator than a regulator.

Legal and Regulatory Barriers to Better International Intermodal Transport 69

Damian J. Kulash†Eno TransportationFoundation

October 28, 1998

Article E: Legal and Regulatory Barriersto Better International Intermodal Transport

Abstract

This paper examines how the U.S. regula-tory system for transport evolved, particu-larly features of that system that affectintermodal transport. It concludes bysketching a few areas of pending changethat may pose opportunities for improvedintermodal freight transport between Eu-rope and the United States. It representsthe second step of a dialogue between Eu-ropean and U.S. leaders, which began witha forum in Washington, DC, in October1997, seeking improved intermodal freightservice between these two regions.

U.S. transport regulations evolved sepa-rately as each mode developed. This pro-cess began with the regulation of railroadsin the mid- to late 1800s; then steamshiplines in the early 1900s; followed by pipe-lines, motor carriers, and airlines in themid-1930s. Legislation was generally pat-terned after that previously applied to othermodes, but was enacted through separatestatutes applying to each mode withoutconsideration of intermodal coordination.

By the 1970s, it was generally acceptedthat these modal regulatory structures hadoutlived their initial purposes, were noteffective in protecting the public interest,were creating price and service inefficien-cies, and were impeding the advancementof improved transport services, includingintermodal transport. Regulatory ineffi-ciency and the lack of system coordina-tion gave rise to a deregulation movementin the regulatory commissions, as well asin the Congress. Airfreight services werederegulated in 1977, interstate motor car-riers in July 1980, railroads in October1980, and ocean shipping in October 1998.

The effects on intermodal transportwere significant: The deregulatory stepsof the last two decades have—

• Allowed companies operating in onemode to buy carriers in other modes

• Greatly extended the circumstances un-der which carriers in all modes are freeto negotiate rates

• Made it easier to license railroad motorcarrier start-ups

• Gave carriers broad latitude to set ratesfor rail piggyback service

• Made it easy for railroads to spin offshort lines and branch lines

• Deregulated interstate trucking (andlater intrastate trucking)

• Allowed the Ocean Rate Shipping Con-ference to set joint rates that coveredboth the inland and water transportlinksThese steps have revolutionized trans-

port in the United States. They have gen-erally kept rates down and have notproduced widespread service abandon-ments. The result has been a rapid rise inthird-party logistics providers and in-creased vertical integration. Deregulationhas spurred the growth of intermodaltransport.

Economic growth can be helped by fur-ther advances in both domestic and inter-national intermodal freight transport.These advances may occur by continuingto remove regulatory barriers, promotingfuller competition, and facilitating newentrants. Several pending issues and re-cently concluded actions may offer spe-cial opportunities for such advances. First,the U.S. Congress passed legislation thisyear to reform ocean shipping and allowcarriers to negotiate confidential contractswith shippers. As the provisions of thislaw are translated into regulations, theywill affect many aspects of internationalintermodal freight transport. Second, long-standing restrictions on cabotage by wa-ter will be difficult to change, but some

†Section II of this paper draws from Gerhardt Muller’s excellent book, Intermodal Freight Transportation, pub-lished jointly by the Intermodal Association of North America and the Eno Transportation Foundation. Thefourth edition of this book was published in May 1999. Although I have borrowed heavily from Muller’s work,I am responsible for any errors that may have been introduced in recasting it in the current context.


progress in this direction might arise asreciprocal rights provisions are consideredin connection with the Passenger VesselAct. Third, the rapid growth in third-partylogistics providers is closely linked to afertile market for intermodal service, andthe treatment of nonvessel owning com-mon carriers (NVOCCs) may remain onthe policy agenda following other oceanshipping reforms. Finally, continuedgrowth of multimodal and intermodalcompanies appears to promise synergy,although a host of cultural, technological,labor, and management complications hasmade this potential somewhat elusive thusfar. Pending changes to rules and regula-tions should be reviewed from an inter-modal vantagepoint to see if they arecontributing to this difficulty.

Leaders from Europe and the UnitedStates met at a second forum in Munichin November 1998 to consider, amongother things, opportunities to improve thelegal and regulatory structures of both re-gions as they affect intermodal transport.The past experiences and future opportu-nities sketched here are presented as astarting point for that discussion.

Introduction

The purpose of this paper is two-fold:(1) to examine how the U.S. legal and regu-latory system for transport evolved, par-ticularly features of the system that affectintermodal transport, and (2) to set out afew areas of pending change where forumparticipants might find opportunities ofcommon interest—areas where they couldwork within their respective systems forrelated improvements in intermodalfreight transport between Europe and theUnited States.

In October 1997, European and U.S.leaders convened a forum on IntermodalFreight Transport in Europe and theUnited States. This forum explored waysto improve intermodal freight transportbetween the regions. In these discussions,legal and regulatory issues were singled outas top-priority areas for future attention.Disparate regulations and subsidies create

distortions of competition that give anadvantage to specific modes within theintermodal chain. For example, ownershiprestrictions, antitrust laws, mode-specifictaxes and user fees, and hours-of-serviceregulations can be administered in waysthat favor specific modes or carriers to thedetriment of intermodal service.

While a broad range of laws and regu-lations are enacted for many purposesunrelated to economic competitiveness,virtually every regulation has economicimplications that affect modal competi-tiveness to a greater or lesser extent. Forexample, regulations governing the sizeand weight of trucks, which are drivenprimarily by concerns about safety andpavement wear, profoundly affect the eco-nomics of motor carriage. Broadly con-strued, the term “legal and regulatory”could be interpreted to cover almost anyof thousands of laws affecting safety, theenvironment, infrastructure manage-ment, competitiveness, antitrust protec-tion, labor, and every other aspect oftransport.

The 1997 forum recognized this un-wieldy range when it noted “… the scopeof such an effort could easily grow beyonda manageable effort. Such a search mustbe focused if it is to be productive.” Tofocus future dialogue between Europeanand U.S. leaders in the most productivedirection, the 1997 discussions narrowedthe term “legal and regulatory” to mean afocus on economic competitiveness,namely—• General statutes that govern the open-

ness of competition, the ability of newentrants to compete in markets, and thecapacity for vertical integration acrossmodes

• Mode-specific regulations that limit amodal firm’s involvement in intermodalor international supply chainsA key concern is the extent to which

current regulatory structure blocks newentrants from competing in intermodaltransport markets—start-up companiesseeking to provide transport or logisticsservices, equipment, or infrastructure.These companies are developing innova-tive supply-chain management strategiesto reduce costs, improve service, and gain


competitive advantage. Transport is animportant aspect of the supply-chain man-agement process as manufacturing anddistribution firms create new partnershipsto meet these objectives. As a result, ship-pers are making transport choices that areneutral in their reliance on specific modes,but that concentrate instead on cost andreliability.

The transport industry has respondedto these challenges by developing new ca-pabilities across modes, whether throughstrategic alliances or through the acquisi-tion of other transport firms. For example,integrated operators such as AmericanPresident Lines (APL), Federal Express(FedEx), and United Parcel Service (UPS)have emerged as highly integrated, full-ser-vice operators, providing a harbinger of theindustry’s future.

In Europe, new entrants must contendwith various rules governing competitionand must seek to build integrated servicesaround a set of state-owned railroads. Somehighly integrated firms—such as APL andUPS—are acquiring multimodal assets andproviding new customer-oriented, door-to-door services. This market could growfaster if competition rules and regulatorystructures were revised to be more ame-nable to efficient vertical integration.

While major deregulation of all modeshas occurred in recent decades in theUnited States, an uneven set of modalregulations remains in force, and otherstatutes prevent the ability of non-U.S.carriers serving international routes tocompete in domestic distribution.

Complete international harmonizationof legal and regulatory regimes is an unre-alistic goal, but piecemeal actions leadingin this direction can play a valuable rolein building up improved intermodal trans-port markets. Specifically, as regulatorychanges and other actions are being con-sidered on either side of the Atlantic, theycan be used as opportunities for the par-ticipants in this forum to discuss commoninterests and then use the results to pro-vide background to decision makers inBrussels and Washington. Two lines ofinquiry show promise as productive nextsteps to promoting international inter-modal freight transport:

• Examine the regulatory context and ac-tions that have been taken to deregulatetransport on both sides of the Atlantic.

• Identify and study existing barriers tofree entry and vertical integration, as theyaffect international intermodal transport.During discussions at the 1997 forum,

European firms indicated that they havenot yet realized the same benefits broughtabout by deregulation as their U.S. coun-terparts. Reducing the legal and regulatoryimpediments to efficient intermodal trans-port—particularly through further deregu-lation—was deemed a high priority.

Regulation and Deregulationin the United States

In the United States, regulations have his-torically evolved separately, mode bymode, with little explicit consideration oftheir intermodal effects. As each modecame on the scene and developed markets,regulations were attached to it, usually tolimit economic power that appearedthreatening to specific shipper groups, geo-graphic regions, or established services.This process began with the regulation ofrailroads in the mid- and late 1800s; thensteamship lines in the early 1900s; fol-lowed by pipelines, motor carriers, andairlines in the mid-1930s. Legislation waspatterned along the lines of earlier mod-els applicable to other modes, but estab-lished as separate statutes applying to eachmode without consideration of intermodalcoordination.

One feature of these rules was to pro-hibit carriers of one mode from owningor controlling carriers of another. For ex-ample, railroads could not own water car-riers, and freight forwarders could notdirectly own carriers. Such ownership re-strictions impeded coordination, verticalintegration, and the provision of inter-modal services.

Separate commissions—the InterstateCommerce Commission (ICC), the FederalMaritime Commission (FMC) and theCivil Aeronautics Board (CAB)—were setup under different acts to regulate specificmodes. Each commission was charged


with promotion and welfare of its particu-lar mode or modes. This charge sometimesput even the commissions in competitionagainst each other, rather than workingtogether toward an integrated intermodalsystem. This modal fragmentation was lesspronounced in the ICC, which regulatedeconomic issues of domestic inland water-ways, trucklines, pipelines, and railroads,but which nonetheless had separate legis-lative authority and separate regulatoryresponsibility for each.

During the period of regulation, modalcompanies, reinforced by separate modalregulatory rules, sought policy provisionsand rights that furthered modal divisions.They competed against other modes forgovernment grants, tax easements, laborrules, subsidies, and grants in their owndirect interest and had little incentive topromote intermodal service.

Throughout most of the period of regu-lation, especially prior to 1940, antitrustlaws were intended to ensure free andopen competition within and amongmodes to give the consumer an opportu-nity to get the lowest price. Commissionshad the authority to suspend antitrust lawsif they found cooperative agreementsamong carriers to be in the public inter-est. Thus, for example, limited antitrustimmunity has been a feature of ocean ship-ping regulation since 1916. While the com-missions could have encouragedintermodal agreements, their decisionsmostly favored through routes. Rates andinterchange points were almost, withoutexception, intramodal, not intermodal.Each commission believed, with justifica-tion, that intermodal facilitation was be-yond its scope. Each believed its powerswere limited to regulating its designatedmode or modes.

The inefficiencies and inequities of thissystem became increasingly apparent. Oneof the early calls for reform came in 1940when a congressional statement of na-tional transport policy called for economi-cal and efficient service that fostered“sound economic conditions in transpor-tation and among the several carriers.” Itcalled for “fair and impartial regulation ofall modes of transportation,” recognizingthat the modes were all parts of a system

whose coordination was in the nationalinterest. The statement was limited tothose modes regulated by the ICC, how-ever, and it was a general policy statement,not a detailed regulatory code.

Another major step toward deregula-tion came with the creation of the U.S.Department of Transportation (DOT) in1967, which placed certain authority—mostly related to noneconomic matters—for all modes under a single department.This action reflected growing recognitionthat intramodal regulation and adminis-tration were inadequate. The new depart-ment made a series of statements toarticulate and advance a more unifiedmultimodal vision of transport policy.These statements provided a frameworkto support and coordinate a series of modalderegulation laws.

In 1976, a National TransportationPolicy Study Commission was created bythe Congress to formulate broad themesfor future transport policy. In 1979, thisCommission issued its final report, Na-tional Transportation Policies through theYear 2000, which recommended—• Multimodal systems planning rather

than an intramodal approach• Reduced government economic regu-

lation• Equal government treatment among

modes• More competition and improved effi-

ciency by placing maximum reliance onmarket factors

• Economic analysis of all policy• More streamlined government organi-

zation• Greater coordination of government

efforts• Maximum use of the private sector

All these developments reflected agrowing consensus that modal regulatorystructures had outlived their initial pur-poses, were not effective in protecting thepublic interest, were creating inefficien-cies, and were impeding the advancementof improved transport services, includingintermodal transport. Concerns aboutregulatory inefficiency and the lack of sys-tem coordination created a mood in theregulatory commissions and in Congressthat strongly favored deregulation in the


late 1970s. Some commissions took stepsto deregulate without waiting for statutorydirection from Congress.

A wave of deregulatory activity sweptthrough the various modes, their regula-tors, and their congressional overseers.Airfreight services were deregulated in1977, interstate motor carriers in July1980, railroads in October 1980, andocean shipping in October 1998. The re-mainder of this section sets out a few ofthe highlights of this history:• Air cargo deregulation• Railroads deregulation• Vertical integration and multimodal

companies• The potential for increased piggyback

carriage• Inland waterway transport following

rail deregulation• Maritime regulations and intermodal

transport• Motor carrier deregulation• The North American Free Trade Agree-

ment (NAFTA) and possible transportramifications

• Priority for intermodal transport inrecent U.S. legislation

Air Cargo Deregulation

Airfreight was the first mode to be deregu-lated by formal legislation in the wake ofthe National Transportation Policy State-ment of 1975. Amendments to the FederalAviation Act implementing deregulation ofairfreight were made effective in the AirCargo Act of 1977. This act deregulated air-freight almost entirely in terms of rate mak-ing and freedom to enter or withdraw fromservice. Air deregulation was a precursor toderegulation in other modes, in that the CABmade spontaneous moves toward deregula-tion in parallel with action by the Congress.

Airfreight deregulation, effective No-vember 1977, was implemented in twophases. The first phase was immediatelyapplicable to so-called “grandfather” car-riers already engaged in airfreight opera-tions. The second phase was implementeda year later, opening the field to all appli-cants and completely liberalizing airfreightrate making.

The number of airfreight forwardersgrew from 300 in 1976 to more than 1,200in 1979. By the late 1980s, their numbersdecreased to about 700 because of merg-ers, consolidations, and bankruptcies.However, by 1997, the International AirTransport Association’s cargo arm, CargoNetwork Services, estimated that the airfreight forwarder industry experienced aresurgence—growing to 1,400 companies.The busiest 45 of those 1,400 firms con-trolled 60 percent of the business, and thelargest 85 firms controlled 95 percent ofthe industry’s business.

Single-document intermodal air way-bills have been common for many years.The effect of deregulation on airfreight hasbeen the same as in other modes: to giveshippers a wider choice of modes and car-riers, combinations of modes and carriers,and combination and joint rates.

Air carriers, airfreight forwarders, cou-rier services, small commuter airlines, andnonscheduled airlines have taken advan-tage of deregulation by expanding intoeach other’s areas. Some larger airfreightforwarders have purchased or leasedplanes and have, in effect, become airlinesto a large portion of their business. Thisoccurred at the same time that the num-ber of U.S. air forwarders was expandingexplosively. Today, a small number of largeforwarders operate their own aircraft. Inresponse to airline-type activities of air-freight forwarders, many scheduled air-lines have taken on consolidation anddoor-to-door transport activities formerlyconsidered the preserve of airfreight for-warders.

Overall, the industry has grown dra-matically. In the past 20 years, total in-dustry revenue has grown 16-fold. Withinthis market, forwarders and third partiesaccount for much of the growth: Theyhave marketed intermodal capabilities toshippers, while most airlines have contin-ued to concentrate on port-to-port move-ments.

Airfreight deregulation led to a rapidrise in express package delivery operations.Small package, integrated carrier traffic hasincreased 250-fold since deregulation. Bymaking it easier to acquire larger, moreefficient aircraft, deregulation has helped


express delivery operators such as UPS,FedEx, DHL Worldwide Express, TNT,and others develop more rapidly.

Hand-in-hand with air cargo deregula-tion, carriers quickly expanded into otherservices, and the number of express deliv-ery operators rose rapidly. More recently,a variety of partnerships, mergers, alli-ances, and other marketing and opera-tional agreements have formed. They haveblurred the conventional distinctions be-tween scheduled carriers, forwarders, andexpress-package operators.

The Motor Carrier Act of 1980 furtherspurred the growth of intermodal air cargoby exempting from regulation “… trans-portation of property (including baggage)by motor vehicle as part of a continuousmovement, which, prior or subsequent tosuch part of the continuous movement,has been or will be transported by an aircarrier ….” This act allowed more air–truck transport. The CAB had previouslyspecified a 35-mile radius limit around air-ports for surface transport pickup anddelivery services in connection with airtransport, and required carriers to fileseparate tariffs describing their pickup anddelivery services beyond this 35-mile zone.These restrictions were eliminated follow-ing the 1980 Act.

Deregulation of international air cargohas not advanced as rapidly as it has in theU.S. domestic market, although the UnitedStates has taken several deregulatory stepson its own. These steps include (1) elimi-nating requirements for filing air cargorates, dropping enforcement of cargo rateagreements set by the International AirTransport Association (IATA), (2) freeingcargo agency commissions from regulation,(3) releasing airfreight forwarders fromregulation, and (4) allowing motor carri-ers operating as part of international airmovements to be substantially free of regu-lation, subject to international reciprocalprovisions and other limitations.

Since a foreign airline must have priorapproval of its route authority to operatescheduled services to and from the UnitedStates, exemptions from the Motor Car-rier Act and the approval to provide air–motor intermodal service are based onsuch route authority.

Railroad Deregulation

The ICC had regulated railroads in theUnited States since 1887. The ICC was thefirst independent regulatory agency estab-lished by Congress, and it became a modelfor many others. At the time it was estab-lished, the public—“business men andfarmers”—demanded protection fromwhat were perceived to be excessive rail-road rate-setting powers. The act that cre-ated the ICC outlawed pools and ratediscrimination and required that rates bepublished and “reasonable and just.” Anindependent commission was establishedto oversee these requirements.

Over the years, the ICC’s power andscope was modified repeatedly. By the1970s, few would argue that it had been afailure, although the reasons for failurewere—and continue to be—a source ofdebate. Some argue that the railroads them-selves captured control of the ICC and ma-nipulated it to their advantage. Some arguethat railroad-hating progressive politiciansset up barriers that led to the railroadindustry’s economic starvation. Some ar-gue that the type of cartel structure behindthe ICC was doomed to failure from thestart. Others claim that weak commission-ers and a bureaucratic staff led to a stag-nated and ineffective ICC. Whatever thereason, there was little disagreement in the1970s that the regulatory structure createdby the ICC had run its course, and a newapproach was needed.

In 1979, the ICC deregulated rail rateson fresh fruit and vegetable shipments, re-sulting in a 26 percent increase in rail pro-duce traffic the first year. With theirnew-found freedom, railroads sometimeschanged rates on produce traffic daily. TheICC also gave railroads the freedom to es-tablish special contracts with large shippersbased on volume and service. Much pro-duce and contract rate traffic was divertedfrom through truck haul to an intermodaltruck–rail–truck haul. Before deregulatingrail shipments of produce, railroads carriedone percent of this traffic; today the railmarket share is more than five percent, dueto increased use of intermodal rail services.

Across-the-board rail deregulation camein 1980 with the passage of the Staggers Rail


Act. This act made it easier for railroads tosell abandoned, nonrevenue-producing linesand operations and to eliminate or pricecompetitively nonremunerative services. Itallowed railroads to sign confidential con-tracts with shippers. It allowed the ICC toexempt certain classes of traffic (an author-ity that rapidly led to the exemption ofpiggyback traffic, discussed in a separate sec-tion below) as well as motor vehicle partsand other goods. It set a threshold (namely,a 180 percent ratio of revenues to variablecost) beneath which rates were not subjectto challenge by shippers.

The Staggers Act has had far-reachingeffects. The ICC reported that only about10 percent of all rail traffic is now subjectto rates that it regulates; the other 90 per-cent moves under exemptions, contracts,and rates below the 180 percent threshold.

In the face of continued opposition toICC surface transport regulations, whichare perceived as no longer necessary, andin concert with a general move toward re-duced regulation, Congress passed the ICCTermination Act of 1995. This act elimi-nated many ICC functions, primarily mo-tor-carrier-related functions, and turnedothers over to the newly created SurfaceTransportation Board (STB). Most of therole assigned to the STB focused on rail-road-related functions, although the boardalso retained all regulation of domesticwater carriage, except for noncontiguousdomestic trade jurisdiction and tariff fil-ing for pipelines. DOT took over the re-maining motor carrier functions, exceptfor common carrier obligations, exemp-tions, registration of carriers, reasonable-ness of rates (especially those that involvedresidential household goods movers), jointmotor–water rates in noncontiguous do-mestic trades, pooling, and shipper under-charges.

The abolishment of the ICC does notmean a complete end to the regulation ofsurface transport in the United States. Aslong as the ICC existed, the modes re-mained regulated to one extent or another.As the regulator, the ICC had the powerto exempt certain activities or operatorsfrom regulation. In effect, what the ICCgave in the name of deregulation, it stillhad authority to take back or modify later.

To some extent, this power remains withthe STB. The railroad industry, for ex-ample, continues to have a common-car-rier obligation to serve and is subject tomaximum rate regulation for traffic fall-ing under the STB’s jurisdiction. Never-theless, the policy trend over the past twodecades has been to substantially loosenthe regulation of freight transport and toopen the door for growth in intermodaltransport services.

Vertical Integration andMultimodal Companies

The ability of firms to integrate verticallywas spurred largely by the massive deregu-lation of the transport industry that oc-curred in the 1970s and 1980s. In theprocess, many ownership restrictions andregulatory requirements have been lifted,particularly in the trucking and railroadindustries, paving the way for the emer-gence of multimodal transport companies.

Deregulation helped to liberalize per-mission for carriers of one mode to ownand operate carriers of another. In 1983,the ICC eliminated most regulatory restric-tions enacted in 1935 to protect the then-infant trucking industry from railroads.Additionally, railroads and trucklines weregranted more freedom to merge with eachother.

In establishing motor carrier operationsin the past, railroads had to adhere to a“special circumstances” test, requiringproof that there was overwhelming reasonto grant motor carrier operating authorityto a railroad. When granted, this author-ity frequently restricted railroads to radialpatterns of truck service from importantintermodal terminal “gateways.” Takentogether, these restrictions placed an al-most insurmountable burden of proof onrailroads to demonstrate that trucking ser-vice was required and severely constrictedthe economics of such operations. As aresult, the only railroads that had sizablemotor carrier operations were those thathad been previously granted “grandfather”authority by the 1935 Motor Carrier Act.

In 1984 (Ex Parte No. 156) the ICCeliminated the “special circumstances”


doctrine for licensing new railroad motorcarrier startups. New rail-affiliated truckingservices were merely required to meet stan-dards of fitness that applied to any other newmotor carrier. The special circumstances doc-trine still applied to rail acquisition of exist-ing trucking firms. Ex Parte No. 438,however, gave three conditions that must bemet by a railroad purchasing an ongoingtrucking business:1. The proposed transaction must be in the

public interest.2. The motor carrier must be integrated into

the railway’s operation.3. There must be no adverse competitive ef-

fects on the motor carrier industry.A number of rail carriers showed their

eagerness to become totally integrated trans-port providers. Some acquired new motorcarriers, such as Norfolk Southern and NorthAmerican Van Lines and the Union Pacificand Overnite Transportation. NorfolkSouthern’s subsidiary, Triple Crown Service,operating the RoadRailer fleet, became ajointly owned subsidiary of Norfolk South-ern and Conrail. There have been some movesby railroads in recent years, however, to di-vest themselves of these motor carriers.

Other railroads formed alliances with mo-tor carriers in which railroads handled thelong-distance hauls (often recognized in theUnited States as being more than 500 miles)and truckers concentrated on shorter dis-tances, including drayage. J.B. Hunt andSchneider National are two of the manylong-haul truckload motor carriers whojoined forces, through contracts or partner-ships, with U.S. railroads to move theirmotor carrier trailers and containers longdistances. Contracts to move fixed volumesof cargo over a specified time period helpedto solidify these alliances. Motor carriers arenow ordering equipment in 45-, 48-, and 53-foot lengths and 102- and 110-inch widths.Most of these units are capable of being car-ried by railroad and ocean carrierdoublestack equipment.

Transport deregulation, its effect onimproved efficiency, and its spurring of in-termodal transport have had positive envi-ronmental effects. Motor carrier trailers andcontainers carried by rail remove traffic fromthe highways with substantial reductions infuel consumption and emissions.

The Potential forIncreased Piggyback Carriage

An important deregulatory boost to inter-modal transport came with the freeing ofthe rail portion of piggyback or trailer-on-flatcar (TOFC) carriage from all ICC regu-lations. This was accomplished bylegislation and an exemption promulgatedin an ICC rule-making procedure underthe umbrella of the Staggers Rail Act. TheICC proceeding (Ex Parte No. 230) re-sulted in a rule late in 1980, after both theMotor Carrier Act and Staggers Rail Acthad become law. It gave railroads greaterability to price piggyback or TOFC com-petitively with truck hauls and increasedflexibility for routing traffic on joint railTOFC or container-on-flatcar (COFC)hauls involving rail-owned trucklines.

Deregulation of rail piggyback, com-bined with new intermodal technologyand operating economies, is changing long-haul shipping practices. Prior to rail pig-gyback deregulation, long-haul truckerswere able to price services below rail pig-gyback. Now, however, with the combina-tion of rail rate-making freedom and newtypes of tractor and container/tractorequipment, the trend is moving toward in-creased intermodal service, with trucksproviding primarily the initial and finalportion of the haul.

In this newly deregulated intermodalmarket, freight forwarders are returning.Helped in part by the Surface Freight For-warders Deregulation Act of 1986, whicheliminated the ICC’s jurisdiction over mostof the industry, freight forwarders facenew competitive threats. With their newlyfound door-to-door intermodal capability,railroads have the ability to supplanttrucklines and forwarders in consolidat-ing and moving freight. Intermodal facili-tators who have invested heavily inelectronic data interchange are competingvigorously against forwarders for business.

Several important mergers have oc-curred since 1980 that have consolidatedthe rail sector to only four or five Class Icarriers. There has also been a notableincrease in nonunionized regional carri-ers and short lines since the Staggers Act.More than 500 of these lines are now


operating, at least 350 of which were cre-ated following the Staggers Act. Rail carri-ers are not compelled to provide laborprotection when they spin off parts of thesystem such as branch and light densitylines. Rail carriers would prefer to reorga-nize unprofitable railroads as a short line,than abandoned service so that they canretain at least a portion of the traffic. In-deed, as railroads have transferred branchlines, sometimes to former employees, theyhave often erected “paper barriers” in theform of agreements by which the short linecompany agrees to an exclusive traffic ar-rangement with the former parent railroad.New regional rails and short line opera-tors often can turn a profit on lines thatClass I and II carriers did not believe to beviable because of the lower cost structure.In September 1998, Class I railroads andthe American Short Line and RegionalRailroad Association reached an agree-ment to address “paper barriers” and otherissues of concern to smaller railroads. Thisagreement should enhance the partner-ships between the large and small railroads.

Inland Waterway TransportFollowing Rail Deregulation

Transport by inland waterway tradition-ally has been a low-cost option for ship-pers of bulk commodities. Fiercecompetitive battles for traffic have oc-curred over the years between water car-riers and railroads.

The Staggers Act gave railroads the abil-ity to cancel joint rates and through routes,coupled with greater freedom to merge.Bargelines fear this act gives railroads ev-ery incentive to close off the intermodalrail–barge interchange. This fear wasbrought to a head in 1984. Coincidentalto the purchase of El Paso Natural Gas,the CSX Corp. acquired American Com-mercial Barge Lines, one of the largestwaterway operators in the United States.The Coal Exporter Association expressedalarm, fearing a lack of competition if CSXwas able to control both rail and bargerates and services.

To date much of this concern seemsunnecessary, as there do not appear to have

been any competitive problems following theCSX–American Commercial Barge Linesacquisition. No other rail carrier has ac-quired a bargeline since then. CSX subse-quently sold off its majority interest inAmerican Barge Lines. Perhaps even moresignificant, with nearly a decade of experi-ence under the Staggers Act, barge carrierswere not active in filing complaints underSection 707 of the act, which prohibits anypractice that is “unfair, destructive, preda-tory, or otherwise undermines competition.”

Maritime Regulationand Intermodal Transport

The roots of maritime regulations reachfar back. The Shipping Act of 1916 pro-vided limited antitrust immunity, allowedcarriers to form open conferences, andcreated a U.S. Shipping Board to regulateand promote ocean commerce. The nameof the U.S. Shipping Board was changedseveral times, finally becoming the FMC,which in 1961 was established as an inde-pendent regulatory agency.

The FMC regulates ocean carrier ratemaking on foreign routes; investigates dis-criminatory rates and practices among ship-pers, carriers, terminal operators, andfreight forwarders; licenses ocean freightforwarders; and ensures that carriers servethe public interest. It regulates liner tradeto and from the United States and provideslimited antitrust immunity to shipping con-ferences to the extent it finds conferenceactivities to be in the public interest. In thisconnection, the FMC requires all liner tar-iffs to be filed. The FMC prohibits rebat-ing, pooling, or “rationalization” of services,unless approved by the commission.

The most important reforms in mari-time regulation came with the ShippingAct of 1984, which established the basisfor streamlining FMC procedures, espe-cially in the area of rate regulation andagreement processing. Antitrust immunityfor carriers, conferences, and ports wasredefined to allow for greater rationaliza-tion of resources and services. The act alsoallowed shippers and carriers to negotiateservice contracts or volume pricing out-side the tariff system.


The Shipping Act of 1984 gave smallershippers the right to form associations toincrease their influence on carriers simi-lar to those larger shippers had been ableto form previously. This right allowedthem to consolidate members’ freight andobtain volume rates or service contracts.Such associations have existed for manyyears in Europe and Canada for maritimeshipments that did not involve U.S. car-goes or ports.

The Shipping Act of 1984 promotedrail–ocean cooperation to its fullest poten-tial. More importantly, the act gave a boostto single-bill intermodal rates by allowingocean conference members to agree on in-land rates without violating the provisionsof antitrust laws. A movement in this di-rection had already begun when carrierswere required to publish such rates on anindividual basis. The service consider-ations and economics of doublestack move-ment made point-to-point rates inevitable.

Deregulation legislation and rule mak-ing did away with the need to file inter-modal rates and the divisions of those rateswith the government. The Shipping Actof 1984 allowed the Ocean Rate Confer-ence to file joint rates covering both theinland portion and the water movementof an intermodal movement, which couldapply to many carriers on several routes.This freedom allowed carriers to establishthrough routes on an ad hoc basis, adjust-ing them daily if desired. All participantsare allowed to contract for rates and ser-vices, particularly rail and steamship op-erators. These rates and contracts, if filedby an ocean-borne carrier, must still befiled with the FMC. Rail and motor carri-ers are not required to file contract rateswith the government. The amount of railtraffic actually moving under contractrates is between 40 percent and 60 per-cent, with the proportion increasing eachyear. This 1984 act has increased theamount of competition between ports andmade it more difficult for competitors toobtain data. Overall, however, the Ship-ping Act of 1984 has increased shipperchoices and made intermodal shipment amore viable option.

A key responsibility of the FMC is keep-ing track of ocean carrier conferences.

Conferences were established to bring ameasure of order and stability to oceanrates and competition. They allow carri-ers to join together without the threat ofantitrust actions by a governing agency, toestablish joint rates, and to provide com-mon levels of service and schedules on aparticular trade route.

The Shipping Act of 1984 allows con-ferences to establish different levels of ratemaking, including noncontract rates thatare the basic rates charged to shippers whodo not have sufficient volume or frequencyof shipments to justify special rates (so-called “tier I” rates). Larger shippers cannegotiate special rates with the conference(“tier II rates”). These shippers sign “ex-clusive patronage agreements” with the con-ference, in return for which they arecharged rates that sometimes are 10 percentto 15 percent lower than noncontract rates.In exchange, conference shippers must useonly member carriers of the conference.

The conference system, however, is notwithout problems. Carriers frequentlywithdraw from a particular conference.Thus a carrier may belong to a conferencein one direction and not be a member forhauls in the opposite direction. Confer-ences are also being threatened by rate-cut-ting nonconference carriers serving thesame trade route.

New carrier alliances have made con-ference membership confusing. Alliancesact in some ways as a conference, but theterms and conditions of their agreementsare more extensive, including vessel andcontainer slot sharing using alliance mem-ber terminals and operations. If this trendcontinues, the conference system as it ex-ists today will no longer be an effectiveforce for either shippers or carriers.

In October 1998, the Ocean ShippingReform Act was signed into law, and itsprovisions took effect on May 1, 1999.This act has been compared to previousbills that ushered in aviation and truck-ing deregulation. It allows individual car-riers to negotiate confidential servicecontracts with shippers that keep theirrates secret from other shippers. Rate-set-ting conferences will continue to exist andbe given antitrust immunity. Conferenceswill be allowed to establish voluntary


guidelines that apply to the confidentialcontracts entered into by their members,thus opening the possibility that carrierscould discuss the confidential contractsamong themselves. Opinions vary widelyon the effect that the new law will haveon rates, different shipper groups, and spe-cific segments of the ocean shipping in-dustry. Intermodal operations could beparticularly affected, as ocean shippersface new competitive challenges and op-portunities within the ocean shippingmarket. As their focus turns to port-to-portoperations, ocean shippers may draw backfrom earlier forays into double stack andother railroad businesses, both in theUnited States and internationally.

Motor Carrier Deregulation

During the late 1970s, as railroad regula-tion at the ICC was under fire, deregula-tion was also transforming the truckingindustry. This effort resulted in the Mo-tor Carrier Act of 1980, which relaxed re-quirements for entry into the truckingbusiness. The number of new trucking ap-plicants in the first year of deregulationmore than quadrupled. Many restrictionson truck routes, types of traffic carried,and areas served by existing carriers wereeliminated.

These deregulatory activities provideda substantial measure of rate freedom toboth the trucking and rail modes. Thechanges gave shippers a wider range ofprice and service options and intermodalcombinations of carriers.

These steps were bold, and many madedire predictions of how deregulationwould affect different regions of the coun-try, modal transport patterns, and the prof-itability of individual companies. Now,almost two decades later, motor carrier de-regulation is widely acknowledged to havebeen one of the most effective policies everapplied to improve transport efficiency. Noarea in the United States is without ser-vice, although remote areas often payhigher rates. Nor have any reports of wide-spread rate gouging surfaced. Concernscenter on the increasing concentration bythe largest carriers in the less-than-truck-

load segment and possible safety problemsin some marginal operations. Intermodalrail and truck competition has kept in-creases in rail rates below the general in-flation level. Rail intermodal services haveexpanded the scope of competition by ex-tending service well beyond a rail carrier’sown lines.

Despite deregulation of interstate truck-ing since 1980, 41 states continued to regu-late trucking within their borders during the1980s. Six bills to deregulate this sector failedto win congressional approval between 1985and 1993. Shippers together with large car-riers, notably UPS and FedEx, pressed toderegulate this part of the industry.

Progress in this area came by attachingintrastate trucking deregulation provisionsto airport legislation. A section of the Air-port Improvement Program (AIP) Reau-thorization Act of 1994 states that localgovernments or bistate agencies are pro-hibited from regulating “prices, routes, orservices” of any motor carrier—common,contract, or private.

When the proposal was initially intro-duced, it covered only “intermodal all-cargo air carriers” or airfreight forwardersor carriers that used air cargo carriers15,000 times a year. However, as it wentthrough the legislative process, the actcame to embrace almost all intrastatetrucking. Section 601 does not coverhousehold goods carriers, nor does it pre-vent states from regulating safety or insur-ance issues. In addition, it continues toallow states to set guidelines for uniformbills of lading, cargo liability, or credit rulesand preserves antitrust immunity for jointrates or routes, classifications, and mile-age guides.

The North AmericanFree Trade Agreement andPossible Transport Ramifications

With the exception of a large volume ofgoods flowing between the United Statesand Canada, geography, regional economicadvantages, and trade patterns have re-sulted in a transport system in Canada, theUnited States, and Mexico that primarilyruns east-west. This pattern is expected


to change in the next few decades as trad-ing patterns acquire a greater north–southcomponent.

In 1994, NAFTA opened trade andtransport possibilities between Canada,the United States, and Mexico. In doingso, it created one of the world’s largest freetrade areas—an area that includes morethan 360 million people and has a com-bined annual output of more than $8.0trillion. NAFTA established a timetablefor removal of the barriers for interna-tional cargo and passengers. Free tradebetween the countries has the potential tochange distribution strategies by allowinga company to relocate its distribution cen-ters, which could shift the demand fortrucking, rail, water, and intermodal trans-port. Many companies have started to lookat North America as a single distributionregion. This new perspective will alter howbusiness is conducted as well as the trans-port systems necessary to serve it.

Under NAFTA, U.S. railroads and in-termodal companies will continue to takeadvantage of gains they made through in-formal agreements with Mexico. These in-formal agreements affect the ability tomarket services; operate unit trains; con-struct, own, and operate terminals; andfinance rail infrastructure. NAFTA alsoopens up full investment and operatingrights to U.S. and Canadian companies inMexico’s port facilities.

Mexican trucks are now allowed to op-erate in commercial zones in the borderstates, but the administration still has notallowed their operation throughout theentire United States. By the year 2000, allrestrictions on cross-border access arescheduled to be lifted. Trucks from eachof the three countries will be able to travelwithin each other’s borders to deliver orpick up international cargo. Meeting thistimetable may prove difficult because ofsharp differences in safety regulations andrules governing truck length and weight.

NAFTA promises to bring majorchanges to ocean transport as well.Tangled restrictions imposed to protectlabor and other interests have reducedmarine transport between Mexico and theUnited States and Canada. The develop-ment of ports in Mexico could create

shorter sea routes to the United States andCanada. To realize this potential, however,ports in Mexico will need to invest heavilyin port infrastructure. The move towardprivatization of these ports may attract theprivate investment needed to do this. Inaddition, Mexico could potentially developland bridge services that compete withU.S. land bridge services and with vesselsusing the Panama Canal.

Priority for IntermodalTransport in Recent U.S. Legislation

The deregulation of transport that oc-curred in the United States in the last twodecades is credited with reducing logisticscosts, providing environmental benefits,and encouraging the growth of intermodaltransport services. As the prospects ofsystem coordination have become moreevident throughout this period, intermo-dalism has increasingly become an end initself. It has become a key strategy for ra-tionalizing transport policy generally.Many earlier administrations and con-gresses have spoken of the need for an in-tegrated, coordinated, national transportpolicy, but this goal has proven to be ex-traordinarily difficult to achieve. The im-mense U.S. transport system is owned andoperated by a vast array of public and pri-vate organizations, and no one has theability to coordinate them all to conformto some master plan. The creation of theU.S. DOT in 1967 was intended to helpbring about better modal coordination, butit has had only limited success in achiev-ing this. Centralized “command and con-trol” multimodal planning might, in theabstract, appear to embrace the many ele-ments of the system, but it does not fit atall with the rights, needs, or objectives ofprivate carriers and shippers.

Intermodal transport offers a usefulfocal point for advancing total system co-ordination. It provides a market-based setof signals around which multimodal co-ordination can be realistically improved.It offers a strategic device for focusingpublic and private attention on key bottle-necks and gaps in the overall system. Thisstrategy gained new priority in 1991 with


the passage of the Intermodal SurfaceTransportation Efficiency Act (ISTEA).This bill aimed to “… develop a NationalIntermodal Transportation System that iseconomically efficient, environmentallysound, provides the foundation for thenation to compete in the global economy,and will move people and goods in an en-ergy efficient manner.”

These goals are encouraged throughimproved intermodal connectivity, reliabil-ity, and flexibility. This legislation pro-vided $155 billion over six years forhighway, highway safety, public transpor-tation, and other surface transportationprograms.

The 1991 act also established the Of-fice of Intermodalism to assist the U.S.DOT in developing policies and programsdesigned to encourage and support inter-modal programs and projects. The fund-ing and organizational attention given tointermodal transport signal a new recog-nition that the long-sought goal of a coor-dinated, multimodal, national transportsystem is most effectively addressed byfocusing on key intermodal points in thesystem.

This intermodal strategy was furtheradvanced in 1998 when Congress passedthe Transportation Equity Act for the 21stCentury. This law establishes eligibility forimprovements to highway connectionsfrom the National Highway System tomajor intermodal terminals over the nextsix years. It authorizes some $217 billionfor surface transport projects, and part ofthis funding is available for intermodalprojects.

Possible Steps TowardBetter European–U.S.Intermodal Transport

To further enhance the health of inter-modal freight transport between Europeand North America, we need to reduceregulatory barriers, promote fuller compe-tition, and allow new competitors to en-ter the market. Each carrier, shipper,terminal, and region can identify differ-ent opportunities to enhance competition,

but there is little consensus on the specif-ics. The underlying issues are complex andoften controversial. One of the aims of theNovember 1998 forum on IntermodalFreight Transport in Europe and theUnites States is to move the discussioncloser to resolution by identifying possibleopportunities for increased competition ininternational intermodal freight transport.Four issues on the U.S. side that might beconsidered at that forum are listed below:• Ocean shipping reform• Non-U.S. companies providing trans-

port service in domestic markets (in-cluding aviation, the Jones Act, andother cabotage laws)

• New entrants in third-party logistics• Crossmodal ownership barriers

This list, or any such list, is not likelyto find unanimous acceptance. Rather, theintent is to offer a few examples, stimu-late discussion, and begin a process thatfocuses on issues of common concern.

Ocean Shipping Reform

Some believe that the regulations govern-ing ocean shipping are cumbersome, re-strictive, and confusing. Advocates forchange have sought the right to negotiateprivate, confidential service contracts be-tween carriers and shippers that would notneed to be filed under present regulations.They also wanted increased availability ofglobal contracts covering multilink move-ments, which would help preserve the con-fidentiality of rates on certain importantroutes within the overall contract. Beforethe passage of the Ocean Shipping ReformAct of 1998, tariffs had to be filed withthe FMC, and carriers could monitor eachother’s deals.

Under the new provisions, confidentialcontracts are possible, and carriers will notalways know what their competitors wereoffering. This situation could create com-petitive pressures to bid lower. The advan-tages of being a carrier cartel are largelyeroded. Carrier conferences are likely tolose members and rate-making power.

Those who pressed for this change be-lieve that if cargoes such as bulk cargo,forest products, recycled metal scrap,


waste paper, and paper are exempt fromFMC’s filing requirements, other cargoesshould be exempt as well. They wantedocean carriers and shippers to be able tonegotiate with each other the same waytruckers and railroads negotiate with theircustomers.

The provisions of the new law are nowbeing translated into administrative regu-lations by the FMC. These regulations willopen a new chapter in ocean shipping ininternational intermodal freight transport.By some accounts, these regulations maygive ocean carriers more leverage in rateand service negotiations by allowing thecarriers to join together in negotiationswith railroads. Such leverage could leadto improved rail service. The new law mayalso alter the balance in negotiations be-tween truckers and ocean carriers. Theregulations that are drafted and phased into implement the new law will govern thecompetitive structure of ocean shipping fora number of years. International inter-modal freight interests have a stake in howthese new regulations are drafted.

Non-U.S. Companies ProvidingTransport in Domestic Markets

International air and water carriers serv-ing U.S. airports and ports are restrictedin their ability to carry goods betweenpoints in the U.S. The Jones Act of 1920is one such restriction. To protect U.S.-flag shipping, the Jones Act requires thatall domestic waterborne freight move onU.S.-built ships crewed with Americancitizens. This form of cabotage has beenin existence for centuries, especially bynations that were particularly vulnerableto foreign-flag competition in their ownwaters.

There are approximately 35 “JonesAct” containerships operating in domes-tic trade lanes between the continentalUnited States and Puerto Rico, Hawaii,Guam, and Alaska. In recent years, how-ever, the act has been under attack by ship-pers, such as the Jones Act ReformCoalition, who argue that they are forcedto pay higher rates for their cargoes be-cause of the lack of competition. Others

contend that the act, like some of the re-strictions connected with FMC-affectedvessel operations, affects the spirit andintent of deregulation, causing the mari-time industry to lag far behind the othermodes.

Meanwhile, American carriers andshipyards are waiting to see what the fu-ture holds before they invest in buildingand operating U.S.-flag vessels. In addi-tion, the strict requirements of the OilPollution Act of 1990 are forcing manyolder vessels to be removed from domes-tic services.

Similar cabotage restrictions apply to air-freight carriers. Critics of such restrictionsargue that this is more than a “zero-sum”game in which profits are redistributed be-tween companies or countries. Instead, theycontend, these barriers introduce inefficien-cies in international intermodal transportthat impede economic trade and economicgrowth.

The arguments surrounding the JonesAct and similar protections have gone onfor decades, and few anticipate that Con-gress will make any major changes heresoon. Growing global commerce, and therise of international intermodal services,could potentially increase the chances ofchange. The issue might receive some at-tention as reciprocal cabotage arrange-ments are considered in connection withthe Passenger Vessel Act.

New Entrants inThird-Party Logistics

Third-party logistics has grown rapidly inthe United States in the 1990s. This sec-tor has shown that the specialization andflexibility inherent in placing the logisticsfunction outside both carrier and shippercan improve service and reduce costs.More than 1,000 firms now provide third-party logistics services in the UnitedStates, accounting for gross revenues ofsome $34 billion. About $9 billion of thistotal goes to companies with internationaloperations.

Facilitating entry into this sector is keyto the growth of intermodal services,since third-party logistics firms operate


free of any need to protect fixed invest-ment in facilities or equipment. Suchfirms function best in a flexible regula-tory environment where the full rangeof modal and intermodal options is avail-able. Free entry into this segment willreward companies that effectively ex-ploit communications, transport tech-nology, market knowledge, and systemsmanagement. The ability of new en-trants to thrive in this sector reflects thepace of intermodal transport overall.Steps that enhance the ability of third-party logistics to function in interna-tional movement are key to progress inthe area.

The opportunities to enhance third-party logistics are different in Europe andthe United States. The issue may get fur-ther attention as provisions of the OceanShipping Reform Act of 1998 are imple-mented. Under the new law, freight for-warders and NVOCCs can continue toprovide third-party ocean transportthrough contracts with carriers. Unlikeocean carriers, NVOCCs currently cannotdeal directly with individual shippers, butcan negotiate only within shipping asso-ciations. Some have argued that this re-striction on third parties places them atan unnecessary disadvantage and thatfuller competition would be achieved byallowing them to negotiate separately withshippers. While NVOCCs did not get thepowers they sought from the recent bill,this issue promises to remain in the pub-lic spotlight as ocean shipping reformmoves forward.

Crossmodal Ownership Barriers

While economic deregulation has greatlyexpanded the ability of carriers in onemode, such as railroads, to own carriers inanother mode, like trucking, the potential

synergy of such arrangements has been dif-ficult to realize. With their fixed routes,railroads have a different sense of customerrelations than do truckers. With their mas-sive capital investment, the culture of com-petition in railroads also differs from thatof motor carriers. The advantages that at-tach to vertical integration cannot be real-ized without favorable geographicconditions. The scale of multimodal com-panies may be too large to achieve in-housesynergy. Labor agreements involving acompany may be transferred to its acquisi-tions. For all these reasons, it has provendifficult for carriers to be successful incrossmodal acquisitions.

Regulatory barriers per se are probablynot responsible for the apparent difficultyin crossmodal and multimodal ownership.However, the apparent synergy promisedby such arrangements continues to be elu-sive, and the economic consequences ofthe full set of rules and regulations at-tached to each of the modes may be partof the difficulty.

Conclusion

The opportunities sketched here are in-tended to stimulate discussion. This list isnot complete, nor do these issues repre-sent priorities that are shared by all par-ties. Rather, these opportunities arepresented as a point of departure for dis-cussions among participants at the Novem-ber 1998 Forum in Munich. The carriers,shippers, government officials, and ana-lysts present will each be aware of manyother specific opportunities for advancingintermodal service. The objective is to con-sider all such possibilities and to identifyareas of common interest where partici-pants from both regions may be able toreturn and work for compatible progress.

Acronyms and Abbreviations 85

Acronyms and Abbreviations

ANSI American National Standards Institute

APL American President Lines

ATCS automated train control systems

ATS automatic train supervision

AVI automatic vehicle identification

CAB Civil Aeronautics Board

CMR 1956 Convention for Carriage of Goods by Road

COFC container-on-flatcar

COST Cooperation in the field of Scientific and Technical research

CPC cellular pallet-wide containers

CVO commercial vehicle operations

DISK Dispositioning and Information System for Intermodal Transport

DOT U.S. Department of Transportation

EDI electronic data interchange

EDIFACT electronic data interchange for administration, commerce, and transport

FBL FIATA bill of lading

FedEx Federal Express

FIATA International Federation of Freight Forwarders Association

FMC Federal Maritime Commission

GNP gross national product

IATA International Air Transport Association

ICC Interstate Commerce Commission

ICCTA Interstate Commerce Commission Termination Act of 1995

ILDM Institute for Logistics and Distribution Management

ILUs intermodal load units

ISO International Standards Organization

ISTEA Intermodal Surface Transportation Efficiency Act

ITO intermodal transport operator

ITS intelligent transportation system

ITV in-transit visibility

NAFTA North American Free Trade Agreement

NVOCCs nonvehicle owning common carriers

PL Public law

RO/RO roll-on/roll-off

SDO standards-developing organization

SDR special drawing right

STB Surface Transportation Board

TABD transatlantic business dialogue

TACS Transatlantic Advisory Committee on Standards, Certification, and Regulatory


TEA-21 Transportation Equity Act for the 21st Century

TEU twenty-foot equivalent unit

TIRRA Trucking Industry Regulatory Reform Act of 1994

TOFC trailer-on-flatcar

U.S. COGSA U.S. Carriage of Goods by Sea Act

U.S.C. U.S. Code

UIC Union Internationale de Chemins de fers

UNCTAD United Nations Conference on Trade and Development

UPS United Parcel Service

WISDOM Waterborne Information System, Distributed to Other Modes