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

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

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

Forum Sponsors:

European Commission U.S. Department of Transportation Directorate-General VII (Transport) Office of Intermodalism and Federal Highway Administration Table of Contents

Participants and Paper Authors ...... iv Preface ...... v Forum Proceedings ...... 1 Introduction ...... 1 Interoperability and Standardization ...... 2 Standardization of Loading Units ...... 2 Standardization of Intermodal Information Systems ...... 3 Intermodal Liability Issues ...... 4 Current Liability Regimes...... 4 Prospects for a New Liability Regime ...... 5 Liability and the Need for Information ...... 6 Legal and Regulatory Issues in Intermodal Transport ...... 7 E.C. Regulation ...... 7 U.S. Regulation ...... 7 Cabotage ...... 9 Third-Party Logistics Providers ...... 9 Open Access to Rail Facilities ...... 9 Reregulation ...... 11 Best Practices in Intermodal Freight Transport ...... 11 Intermodal Rail Developments in Sweden ...... 12 New International Rail Corridors ...... 12 Supply-Chain Management ...... 12 Airship “Cargolifter” Service ...... 13 Port Investment Policies ...... 14 Electronic Commerce and Intermodal Transport...... 14 Toward Improved European and U.S. Intermodal Freight Transport: Next Steps ...... 15 Standardization ...... 15 European and U.S. Best Practices ...... 16 Electronic Commerce and Intermodal Freight Transport...... 16 The Role of Governments in Infrastructure Finance ...... 16 Liability ...... 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

iii Participants and Paper Authors

Forum Chairmen Mr. Rolf Hellberg Mr. Rune Svensson Dow Chemical, Germany Transport Advisor, Volvo Dr. Wim A.G. Blonk Transport Director, Transport Policy Mr. Juhani Korpela Development, Research and Secretary General, Ministry Mr. Karel Vanroye Development, European of Transport and Administrator, Unit for Commission, Directorate Communications, Finland Analysis and Transport General VII Policy Development Mr. Damian J. Kulash Mr. Kenneth Wykle President and CEO, Eno Mr. Riccardo Vitale Administrator, Federal Transportation Foundation Procter and Gamble Highway Administration, European Supply Company U.S. Department of Mr. Anders Lundberg Transportation Senior Vice President, Mr. Paul Wauters Swedish Railways Managing Director, Wauters Tanktransport N.V. Forum Participants Mr. Robert Martinez Assistant Vice President, Mr. David Winstead Mr. Richard Biter Marketing, Norfolk Secretary of Transportation, Deputy Director, Office of Southern Corporation Maryland Department of Intermodalism, U.S. Transportation Department of Ms. Mary Lou McHugh Transportation Assistant Deputy Under Mr. Peter J. Zantal Secretary of Defense, The Port Authority of New Mr. Thomas Brown U.S. Department of Defense York and New Jersey President, The Riss Companies Mr. James Morgan Mr. Edward Burkhardt Managing Director, TNT Chairman, President and Automotive Logistics Chief Executive Officer, Paper Authors Wisconsin Central Transpor- Mr. Thomas Perdue Ms. Regina Asariotis tation Corporation and Vice President, Intermodal, Lecturer, Institute of English Welsh and Scottish C.H. Robinson Co. Maritime Law, University of Railways Southampton Mr. Heinz Sandhager Mr. Franco Castagnetti Director General, Federal Mr. John Betak Director of Purchasing/ Ministry of Transport, Principal, Collaborative Logistics/Production Germany Solutions, Inc. Planning, Enichem/Polimeri Europa Mr. Bert Schacknies Mr. Vincent Power Senior Policy Advisor, Partner, A & L Goodbody Prof. Ralf De Wit Federal Highway Administra- University of Brussels tion, U.S. Department of Transportation Mr. Wolfgang Flick Forum Staff Vice President Transport, Mr. George Schoener Ms. Jennifer Clinger United Parcel Service, Europe Chief, Intermodal and Louis Berger International, Inc. Statewide Programs Mr. Johannes Fritzen Division, Federal Highway Mr. Ed Rosen President, Volkswagen Administration, U.S. Depart- Eno Transportation Transport ment of Transportation Foundation Mr. Robert Gallamore Mr. Otto Sonefeld Ms. Annemarie Schmalz Assistant Vice President, Program Director for Inter- Federal Ministry of Communications Technolo- modal Activities, American Transport, Germany gies, Transportation Association of State Highway Technology Center, Inc. Transportation Officials Ms. Birte Windhorst, Volkswagen Transport Mr. Dirk Goedhart Mr. Ron Stanley, President Consultant, Philips Landstar Express America International iv Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Preface

The growth of the global economy, ad- proved international intermodal transport; vances in information technologies, and often they do not. Each has a distinct and improved communications networks have valid interest in achieving improvements, contributed to major changes in transport and these improvements can only be and logistics. Just-in-time inventory sys- achieved through collective understanding tems, supply-chain management, and action. No one fully understands the outsourcing of logistics, and intermodal intermodal transport system, and no one transport have grown hand-in-hand with is empowered to manage its improvement: these advances in technology and eco- these are complex matters whose success- nomic interaction. Further economic ful resolution hinges on many indepen- growth demands that we continue to ad- dent private and public parties. Forums vance international intermodal transport. like the ones held in Washington and Intermodal transport—door-to-door ser- Munich can help to identify opportunities vices using more than one mode, but con- where individuals and groups can gain the tracted as a single service on a combined information and plan actions that lead to bill of lading—are a key ingredient of the collective improvement of the system. emerging global economy and new logistics We are pleased to have initiated this dis- environment. Intermodal transport not cussion and are gratified to see that it has only is rapid, reliable, customer-oriented, developed into the dynamic, productive dia- and efficient, but also makes effective use logue reported here. The discussion has of the existing infrastructure and can help focused attention on opportunities for im- provide needed transport without undue provement, on topics where more informa- environmental costs. Governments around tion is critically needed, and on emerging the world seek to reap the benefits possible developments where all partners must work through increased intermodal transport, together to meet the needs of the future. both domestically and internationally. Everyone involved in international inter- The European Commission and the U.S. modal transport will gain by learning more Federal Highway Administration recognize about how these issues are viewed by dif- the potential of intermodal transport and ferent participants. We are pleased to have the need to work together to advance it on been catalysts in this process, and we look a global scale. They convened a forum on forward to continued efforts to improve this potential in Washington, DC, in Octo- broad-based understanding and coopera- ber 1997, bringing together top leaders en- tion to advance international intermodal gaged as transport carriers, shippers, and transport capabilities. government officials from both Europe and the United States. Participants found this forum valuable to understanding the issues and the perspectives of other participants. They identified a short list of specific is- Dr. Wim A.G. Blonk sues for continued examination that formed Director for Transport Polic the basis for a second forum, which was Development: Research and Development held in Munich, Germany, in November European Commission, Directorate- 1998. This report summarizes the discus- General VII (Transport) sions at the 1998 event. A variety of views is reported here: shippers and carriers, government and industry, rail and truck, logistics providers and corporate outsourcers, and Europeans and Mr. Kenneth Wykle Americans. Sometimes the participants Federal Highway Administrator shared a vision of what is needed for im- U.S. Department of Transportation

Preface v Forum Proceedings

Introduction Dr. Wim Blonk, European Commission, In November 1998, a group of high-level Directorate industry and government representatives General VII (left) met to discuss ways to improve intermodal and Kenneth freight operations between Europe and the Wykle, Federal United States. The European Commission Highway Administration, and the U.S. Department of Transporta- U.S. Department tion sponsored this second such meeting. of Transportation The participants’ active roles in providing (right) and guiding intermodal transport services make them uniquely qualified to identify strategic opportunities. As individuals, as organizational officials, and as members of established coordination bodies they can seize opportunities to apply the in- The discussions reported here seek to sights they gain through information ex- enhance the efficiency of intermodal trans- changes like this forum. port. This goal is shared by a wide variety Greater reliance on intermodal transport of interests: firms that produce goods and is crucial for economic productivity and en- firms that ship them, government agencies vironmental preservation. More than 70 and private businesses, consumers and pro- percent of all goods transported in the Eu- ducers. Yet this goal cannot be reached by ropean Union are moved by truck, up from any one agency or organization. It requires 50 percent 35 years ago. This increase is an exceptional amount of cooperation—be- creating serious problems in the European tween modes, between countries, between Union, including unacceptably high levels the public and private sectors, and across of environmental degradation and safety- different levels of government and differ- related losses, as well as productivity losses ent parts of the world. This cooperation is due to congestion. There is simply not facilitated through informal exchanges like enough space to put new roads or rails to those discussed in the following report. meet such an increase in freight. Intermodal These discussions took place over two Participants in transport offers to rebalance the system in days. Separate sessions were devoted the second a way that provides needed services but to (1) standardization of loading units, European–U.S. eases the strain on the environment. (2) liability for damage and loss of inter- Forum on In Europe as in the United States, gov- modal cargo, (3) economic regulation of Improved ernments recognize that they cannot build competition in transport, and (4) best prac- Intermodal Freight Transport their way out of congestion. But the two tices in intermodal transport. Background on November 18– regions are different in important ways. The papers on these topics, which follow these 20, 1998. geography of the United States is such that rail and road can be combined more easily. In Europe, combining modes efficiently is more difficult due to shorter geographic distances for shipments within Europe, difficulties in operating seamless rail services across national borders, and the impossi- bility (on many routes) of double-stacking containers. Both regions face the important challenge of finding ways to make more efficient use of existing facilities, but under different circumstances.

Forum Proceedings 1 proceedings, were prepared and distrib- edge that a firm gains from its proprietary uted prior to the discussions. These pa- systems and specialized equipment. Stan- pers were summarized briefly by the dards can create security concerns. authors at the start of each session, fol- Introducing new standards reallocates lowed by an open roundtable discussion benefits and costs, and such a transition among all the participants. raises the difficult issues associated with how the costs and benefits will fall on companies at different points along the supply chain, and how companies may face Interoperability different competitive stakes. The shipper’s and Standardization expectations drive the process. Transport customers want one-stop, single-source Standardization of Loading Units shopping. But they also want flexibility as their markets and needs change. For ex- Standards promise many advantages. They ample, a very large shipper can develop can help businesses achieve greater econo- new systems to maximize its position in mies of scale. Using standardized units, the market, and carriers must adapt. companies can reduce the capital needed The viability of standards in any indus- for investment. Standards can reduce the try is closely linked to the maturity of the cost of transfer facilities. Companies can industry. In more mature industries, make better use of their equipment and moves toward increased uniformity are carrying capacity. They do not need to less likely to conflict with other goals. The maintain large stocks of duplicative equip- intermodal industry, however, is far from ment. They can improve backhaul capac- being mature. Moving too quickly to stan- ity. They also can enhance their ability to dardize this industry could conflict with communicate—to interchange business in the healthy process of innovation that is larger organizational or physical networks the essence of a dynamic industry. For Otto Sonefeld, that may involve other companies. example, intermodal transport could be American However, standardization can stifle in- transformed by the introduction of Association of State Highway and novation and flexibility. Standards can megaships. More than 40 of these ships Transportation make a company less willing to consider are on order and scheduled to be delivered Officials, Anders modifications to accommodate specialized over the next several years. The size of the Lundberg, Swedish needs, and services may become less re- cells in these ships will drive the size of Railways, and sponsive to changing customer needs. containers. In turn, the size of the con- Robert Martinez, Norfolk Southern Standards may require high front-end container will affect the prospects for stan- Corporation (left to version costs, at least for some companies. dardizing loading units in intermodal right) Standards also can erode the competitive transport. European firms currently operate using a wide variety of different container sizes and types that are not interchangeable or easily combined. Greater standardization offers many benefits. Yet, the range of options is limited because the physical infrastructure in Europe limits the extent to which maximum dimensions can be changed. Tunnel heights in many areas prevent increases in vertical size. The width is also fixed. While the overall benefits are evident, and the range of options is narrow, many parties have a competitive interest in one solution or another, and an agreement on standards cannot be reached until a vast majority of affected interests see a common gain in standardization.

2 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps The issue of standardization is also tied to long-run infrastructure planning: Each needs a vision of the other. As the merits of increased standardization are weighed, the infrastructure implications must be taken into account. The United States, like Europe, faces serious highway congestion, and expansion is very difficult. It takes years to go through the planning process to add new lanes, and in the end, expansion may not even be possible. Even with good planning and cooperation, it takes the public sector a long time to address addi- tions to capacity. A mix of opposing forces is endemic to any consideration of standardization: Pro- ponents work toward areas where stan- that covers all modes, countries, and users. Thomas Brown, dardization is a desirable end, while Tracking and tracing information is not The Riss Companies, independent new developments and op- currently uniformly available. Integrated in- Franco portunities unfold in ways that create fur- formation systems are essential for im- Castagnetti ther segmentation and fragmentation. proved efficiency. The difficulty in getting (second from left), Thus companies, trade groups, and govern- better tracking and tracing information is Enichem/Polimeri ments working together to achieve the so- not fundamentally a technological problem. Europa, and Vincent Power, cially desirable benefits of standardization Some of the greatest difficulties are tied to A & L Goodbody sometimes find, after years of effort, that security concerns, and techniques to ad- the end-product is nonetheless more frag- dress these concerns are being developed. mentation. In spite of this result, many in Some road carriers have responded to the field recognize that greater standard- customer needs by establishing telemetric ization can be, in concept, an important systems, which include mobile phones and boost to efficiency. Further, most believe a fax machine network, to notify shippers that private-sector interests are best able immediately if any problems arise. Euro- to make judgements about where and when pean shippers can also get tracking infor- Rune Svensson, to increase standardization. Nevertheless, mation from railroads in a member state. Volvo Transport, there is a need for public involvement. The But they often lose sight of their shipments and Juhani Korpela, Ministry large public-sector role in providing infra- at the borders. Efficiency demands hav- of Transport and structure must be considered. ing this sort of information available Communications, throughout the entire trip, and integrated Finland

Standardization of Intermodal Information Systems

A global tracking and tracing system could be extremely helpful to intermodal operators. Such a system could bring together the key elements of each transport contract and unite them on a common plat- form. This system, perhaps an Internet database of intermodal shipments, would integrate the tracking and tracing information for all parts of the movement. Individual companies, modes, and countries have successfully developed or extended tracking and tracing systems. However, no standardized system is in place

Forum Proceedings 3 intermodal information systems are all movement has different liability re- needed to provide this. gimes. The intermodal customer—the The systems that have been developed shipper or the beneficial owner—does not by industry on a commercial basis need to care about how the load gets there. The be interconnected. The European Com- customer cares that it gets there on time, mission has taken steps in this direction. in good condition, and at an attractive price. For example, the European Commission The customer is not directly interested in supports the interconnectivity and inter- liability. For intermodal transport as for operability of Port Community Systems other modes of transport, these issues must and is examining how seamless intermodal be negotiated as a service feature. applications could be developed. U.S. companies, through the Intelligent Transpor- tation Society of America, have established Current Liability Regimes a program to increase domestic and international in-transit visibility, for both trans- A complex maze of regulations currently portation assets and cargo. governs liability for international intermodal transport. No uniform regime governs liability for loss, damage, or delay during transport in intermodal transac- Intermodal Liability Issues tions. No uniformity exists at the international level. Nor is there uniformity in the Ever since the beginning of for-hire haul- sense of providing one standard of liabil- age, in which an independent contractor ity for all stages of the intermodal trans- transports goods for others, liability issues action. The current framework consists of have been important. How much am I li- a complex set of international conventions able for? How does this amount change created primarily to regulate unimodal depending upon whether the cargo is lost, transport by rail, road, air, or sea. These missing, or damaged? Who must pay? widely accepted international conventions What is my exposure? What is the expo- have introduced mandatory minimum li- sure of everyone else in the process? ability standards. For areas where the These issues became more complex mandatory conventions do not provide a Regina with the development of intermodal trans- clear determination, an array of diverse na- Asariotis port, which, by its very nature, involves tional laws may apply. If damage or loss is (right), carriage on two or more modes and en- not covered by any international or na- University of tails transferring cargo between modes. tional mandatory law, then standard term Southampton, Much of this traffic is prepackaged in con- contract conditions (such as those con- and Ralf De Wit, tainers that are loaded before they begin tained in the International Federation of University of their sequence of modal movements and Freight Forwarders Association (FIATA) Brussels transfers. Each mode involved in the over- bill of lading (FBL) or the Multidoc 95) apply. Unfortunately, the applicable regimes sometimes overlap, and more than one regime may apply to the same haul. Histori- cally, land, air, and sea liability regimes have been drafted to address one or another particular mode of transport at a time. Liability regimes are not designed for intermodal transport. As a result, ambigu- ous intermodal situations arise. Under unimodal regimes, every time a loss occurs, what actually happened usually must be investigated. In the context of containerization, investigation is extremely difficult: How can one be sure when and

4 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps where a loss occurred, that is, on which would be a mandatory or a voluntary regu- mode the container was situated when the latory system. A mandatory regime would loss occurred? Liability varies in terms of certainly be the most effective, but it in- incidence and extent depending on the ap- creases the difficulties of reaching consen- plicable regime. Which regime applies, in sus. Therefore, it may be more productive turn, depends on whether it is possible to to focus efforts on a voluntary regime. This identify the modal stage where the loss or could be a regime that parties must opt into damage occurred. It also depends on the by actively incorporating it into a contract. causes of the loss, because under all the Alternatively, a voluntary regime could be unimodal regimes, the carrier’s liability established that applies unless the parties depends on fault. If a carrier can establish explicitly opt out or replace it. that other reasons were responsible for a For any regime to be cost-effective, it loss, the carrier is not liable. That is, liabil- should be simple, clear, and transparent. ity hinges not only on where a loss occurs, It should cover delay as well as loss and but also on how and why. damage. It should operate irrespective of Although a shipper knows what level the modal stage where the loss occurs and of coverage is provided from the maritime independent of the causes of a loss. Such bill of lading, the actual settlement of a regime would alleviate the administra- claims often depends on which court the tive and legal burden of establishing the matter is brought to and the court’s views relevant regime. It would reduce the need on which regime is mandatory. While gen- to determine factual matters to clarify who eral coverages may be unambiguously is liable and for how much. It would in- spelled out in bills of lading, if damage or crease efficiency, speed claims settlement, loss is localized, then the liability may be and reduce loss-recovery costs. subject to other limits, no matter what the Concerted international actions, in general contract terms say. concept, appear necessary and logical. Shippers typically make separate ar- Are they possible? In principle, an in- rangements for individual shipping con- ternational convention would be ideal. tracts, carrying some of the liability and Yet, an international convention in- insuring part of it. Third-party logistics volves an unmanageably large number companies operate like a carrier, assum- of parties, each of which is rightly wor- ing liability up to set standard limits. If ried about its own interests. As a result, shippers want higher coverage, additional such an approach may attempt to address coverage can be worked into the contract. Liability issues can thus be resolved be- Rolf Hellberg, tween the logistics firm and the client. The Dow Chemical, third-party logistics firm resolves claims Germany on the front end with the customer and then subrogates the matter with truck, rail, ocean, or air carriers involved. The success or failure of the final resolution is transparent to the customer. In effect, third-party logistics providers in Europe have positioned themselves as part of the solution to complicated liability regulations, while in the United States they have not generally done this yet.

Prospects for a New Liability Regime

A key consideration at the base of any liability regime is the issue of whether it

Forum Proceedings 5 all of the “ifs” and “buts,” leading to a though the difficult process of develop- very complex framework. Even if agreeing a mutually acceptable solution. In the ment could be reached, a convention process, the drafters saw the advantages may never be ratified, as experience with of extending the concept from more than the Multimodal Convention illustrates. just unimodal carriage by sea to the en- Similarly, an interregional convention tire intermodal movement. What began between the large European and U.S. trad- as a national proposal for reform to the ing blocks would have obvious advantages. maritime regime has grown into an inter- But the likelihood of an interregional con- national, intermodal proposal that uni- vention would depend on political will. laterally extends U.S. law outside its The draft amendments to U.S. Carriage territory. of Goods by Sea Act (COGSA), now entering the U.S. legislative process, have been written with an eye to U.S. needs. Liability and the But the scope of application of this act is Need for Information broader. Any shipment of goods to or from the United States involving a sea leg would The lack of data on actual loss and claim be subject to this mandatory regime. The experience is universal, at least on a broad, sea leg does not necessarily have to be aggregate level. Individual companies may trans-Atlantic. U.S. COGSA would apply have information that applies to them. to an airfreight shipment to the United Some firms, for example, regularly analyze States if it included a sea leg across the the premiums they pay and the claims they Mediterranean. Under this proposal, all experience. From this data, they may con- claims could be litigated in the same U.S. clude that it is better not to take out an process, even if a European shipper is su- insurance policy and instead self-insure ing a European carrier. Any carrier in- the goods. But in aggregate, data on losses volved in any leg of the shipment would are lacking. be governed by this mandatory regime. Arrangements that shift liability to the The proposed changes to U.S. COGSA primary carrier may appear to leave ship- appear to have come about because the pers satisfied, simply because they can dis- Kenneth Wykle, Federal Highway original act, dating from 1936, is badly out- tance themselves from the underlying Administration, dated. It set liability at $500 per package. variations in conventions and national U.S. Department This number is clearly inadequate, but car- laws. Such practices may allow shippers of Transportation, riers and shippers have been unable to agree to cope with or mask current liability am- and Richard on an updated approach. The U.S. Mari- biguities. Nevertheless, to manage liabil- Biter, U.S. Department of time Law Association formed a study group ity efficiently, we need to know the damage Transportation to bring the various parties together and go history of actual loss experience in intermodal transport. A common liability regime holds the potential for cost savings. No one can be sure of this potential, because we do not know the actual exposure and claims data. But it appears plausible that we could manage risks more efficiently with better information. These data do not exist now. In the United States alone, the Federal Bureau of Investigation estimates that more than $12 billion a year is claimed for cargo theft, loss, and damage. This rough estimate suggests that the costs are enormous and that major savings might be realized by managing the data better. Faced with the lack of data, no one can say how much these inconsistencies in the

6 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps handling of liability are costing. But it appears plausible that in any system this complicated, streamlining could produce savings. Particularly within the European Union, reducing variations between modes and countries appears worthwhile. An intermodal data standard that could be applied to contracts for door-to-door transport by unspecified modes appears to be desirable. This intermodal standard could coexist with other existing standards.

Legal and Regulatory Issues in Intermodal Transport land waterways, rather than intermodally. Robert Martinez, Forum participants selected the topic of Intermodal arrangements must win sepa- Norfolk Southern Corporation, and legal and regulatory impediments as a top rate approvals from each of the affected Heinz Sandhager, priority for the 1998 forum to focus on modal regulators. Federal Ministry economic barriers, not regulations that The core of E.C. regulatory policy is set of Transport, promote safety, improve the environment, out in Articles 85–94 of the E.C. Treaty, Germany or preserve the infrastructure. Numerous administered by Directorate-General IV. regulations involving vehicle size and Each of these provisions applies to all weight, labor rules, environmental protec- modes of transport equally. However, the tion, and other aspects of transportation detailed regulations applied in practice are may have important economic conse- unimodal. Article 85(3) of the E.C. Treaty quences. But these regulations are prima- grants the European Commission the ex- rily enacted for purposes other than clusive authority to permit exemptions for regulating competition, and they are not anticompetitive arrangements that are, on the focus here. This discussion is con- balance, beneficial to the economy. These cerned with regulations whose explicit exemptions might include, for example, intent is to govern the economic competi- pricing or exclusivity arrangements to tiveness of new entrants in the business. facilitate intermodalism. Article 86 of the E.C. Treaty prohibits a dominant undertaking from abusing its dominant position in the common market. This prohibition E.C. Regulation could be applied, for example, to a port, a Intermodalism in Europe is a complicated carrier, or an intermodal operator. Articles business, governed in part by the rules of 92–94 of the E.C. Treaty stipulate that the 15 member states, the European member states may not provide financial Union, and international conventions. If aid in a discriminatory manner without these rules are found to be in conflict, E.U. approval from the European Commission. law is superior to the member states’ na- The degree of E.C. intervention in the tional laws, and international law is supe- marketplace is a central issue. The com- rior to E.U. law. mission’s 1994 Report on Maritime Trans- European law has focused on regulat- port declined to grant a block exemption ing rather than facilitating intermodal ser- for shipping lines to fix land rates, instead vice. Its competition and antitrust rules requiring separate review of each agree- seek to scrutinize and control. They im- ment. The commission also refused to pose high compliance costs and regulatory adopt the so-called “rule of reason” ap- delays. Further, competition law in trans- proach, which is central to U.S. antitrust port has been formulated and is applied law, again opening the door for the com- separately for air, maritime, rail, and in- mission to intervene in such arrangements.

Forum Proceedings 7 latory agencies that had formed, in effect, alliances within each mode. Regulations continued to suspend antitrust laws to accommodate the unique features of transportation companies. These provisions allowed transportation companies to operate on a scale where they can achieve production-scale economies while still affording a reasonable level of consumer protection. But regulators and carriers increasingly worked together to compete for modal share of the overall market and to obtain special treatment from the government. These aims were very different from the shipper protections that had been the impetus for creating the regulatory structures in the first place. Economic forces George Schoener, State subsidies to railroads severely within the transport sector led to a series U.S. Federal limit the prospects for intermodalism. Any of deregulation moves during the late 1970s Highway Administration, European intermodal operator faces the and early 1980s, when rail and truck trans- and Thomas possibility that competitors could be report were substantially deregulated. Perdue, C.H. ceiving unlawful aid. To foster sound in- An integrated, multimodal system has Robinson Co. termodal competition, the European been a rallying cry of every secretary who Commission and multimodal operators has ever led the U.S. Department of Trans- must monitor unlawful state aid. Such aid portation. But government-led efforts to might exist if facilities are made available plan or coordinate a national transporta- at less than commercial rates or if loans tion system never got very far because they are financed beneath market rates. have been, and are, heavily influenced by private-sector decisions. In 1991, legislation was passed that applied a new strat- Heinz Sandhager, U.S. Regulation egy. The legislation that authorized federal Federal Ministry spending for surface transportation facili- of Transport, Over the decades, the United States has ties included a category that could be used Germany, and developed a set of mode-specific economic for intermodal connectors to the national Mary Lou regulations, each with its own character. highway network. This authorization pro- McHugh (right), U.S. Department By the 1970s, this situation had resulted in vided a constructive vehicle around which of Defense a set of modal companies and modal regu- public and private interests could work together—a focus on strategic nodes that promised improved coordination with minimum shifts in public and private roles. The Transportation Equity Act passed in 1998 continues the focus on intermodal connections and generally encourages intermodalism. The foundations that intermodal companies are built on are the original modes out of which the intermodal enterprise sprang. This situation has led to many barriers that are not necessarily regulatory in nature. The synergies promised by multimodal companies have often proved elusive because of discrepant labor contracts, cultural differences, unmanageable scale, and other reasons. Still, regulatory

8 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps adjustments could compensate for some of the noneconomic barriers and make it easier for intermodal services to thrive. Deregulation of domestic freight transport in the United States is now virtually complete, inasmuch as free market entry is concerned. In recent years, domestic airfreight and intrastate trucking have been deregulated, so that few domestic barriers remain.

Cabotage

U.S. cabotage restrictions are one of the remaining barriers to intermodal transport. Europe previously had similar restric- Even with the rapid rise in the use of Johannes Fritzen, tions on maritime cabotage, but these third-party logistics providers in the Volkswagen Transport, Paul restrictions were phased out in 1992. United States, the market is not univer- Wauters, Wauters Greece and Spain were the most affected, sally open in this respect. For example, Tanktransport and passenger operations were more af- under the recently passed Ocean Shipping N.V., and Rune fected than freight operations. The largest Reform Act, nonvessel-owning common Svennson, Volvo shipping line engaged in European cabo- carriers are not granted the same ability Transport tage is now an American shipping line. to enter into confidential contracts as are The Jones Act in the United States pre- vessel-owning firms. This is one instance cludes European participation in the U.S. where third-party logistics is constrained market. While some transportation enter- by regulatory barriers. prises may gain some market protection through cabatoge, U.S. cabotage restrictions are part of a strategy to maintain the Open Access to Rail Facilities nation’s ability to use U.S. commercial capabilities to meet contingency and war- U.S. rail operations are essentially deregu- time requirements. The aim of these related, except when they are seeking ap- strictions is to provide incentive to U.S. proval of a merger. In the case of a merger, carriers to provide wartime capacity by the Surface Transportation Board reviews facilitating peacetime business for them. the competitive balance and may set regu- The penalty cost to shippers has been estimated at 14 billion U.S. dollars. Thomas Perdue, C.H. Robinson Co.

Third-Party Logistics Providers

The use of third-party logistics providers is an index of how free market competition really is. Third-party logistics providers have very few constraints in the United States, and growth in this sector has come hand-in-hand with expansion of intermodalism. This growth has enhanced competition in areas where it would otherwise be lacking. U.S. interests see the rise of third-party logistics providers as good for competition and good for productivity. This is also the case in Europe.

Forum Proceedings 9 structure and would resist such a policy as an unconstitutional taking of private property. In Europe, this is not an issue because governments own the rail infrastructure, and governments have the authority to determine how their property will be used. In Europe, where the rail systems have been monopolies within their own national borders, the policy has been to separate the operation of railroad services from the construction and maintenance of railway infrastructure. This policy is what U.S. participants refer to as “open Robert Gallamore, latory conditions. Europe tends to be access” or “competitive access.” Given the Trasnportation much more regulated, often in the name geographical boundaries and history of Technology of liberalization. The European Commis- Center, Inc., public rail investment in Europe, the Richard Biter, sion has been frustrated in its attempts to open-access form of deregulation has U.S. Department realize the potential of the poorly perform- been Europe’s way to increase competi- of Transportation, ing state railways. These railroads have tion among railroad operators, although and Damian been losing money and have often been not necessarily among the railroad own- Kulash, Eno unable to offer the service demanded by Transportation ers. The U.S. history of private rail in- Foundation (left customers. Solutions are necessary not vestment and the existence of real to right) only for economic reasons, but also for en- rail-to-rail competition create a funda- vironmental and social reasons. mentally different context. The nature of regulation in Europe is The use of the terms “deregulation,” very different from the United States. The “privatization,” and “open access” have rail problems are different, and the two very different connotations in the two re- regions have very different historical pub- gions. Europeans use privatization to high- lic and private roles. Deregulation in the light the separation of above-the-rail form of open access is intended to over- operations (which they hope to be opened come the inherent limitations of the na- to greater competition) from below-the-rail tional railroads. In the United States, open ownership (which continues to require access would be difficult to impose on pri- public subsidy). U.S. interests see deregu- vate companies that own their own infra- lation as a policy for more productive alignment of market demands with pri- Wim Blonk, vately owned rail resources and new in- European vestments. Commission, As deregulation, in the form of open Directorate General VII access to the European rail network, goes forward, liability will get more complicated. National railroads and new actors could provide through rail service through multinational corridors. Traffic control, slot allocations, and multiple independent operators using the same routes may create new factors in loss or damage claims. The situation is fundamentally different in the United States. The railroads are private property, and businesses continue to invest and reinvest in these assets because they own and control them. Most markets are served by more than one railroad. Average rail rates have been halved

10 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps in real dollars since deregulation. Because passed on to shippers, resulting in rail of private ownership and investment in freight rate declines of 1.2 percent per year. the United States, proposals for competi- Carriers believe it would be very dam- tive access raise a much larger set of issues. aging if railroads lost their ability to price In Europe, where governments own the na- differentially where the market allows. tional railroads, the priority given to achiev- Similarly, if the United States adopted an ing market competitiveness may not be as open access system as envisioned for Eu- high as if private-sector interests controlled rope, it could have severe effects. At the assets. European transport interests are present, system expenses and corporate prepared to pay the full costs of the rail in- overhead benefit from the differential-pric- frastructure, but they also want to control ing regime that supports traffic with little the infrastructure. It would help to have the or no profit margin. Railroads allocate full set of rail and road costs, payments, and their very large fixed expenses to classes subsidies set out factually, so that policies of traffic based on market considerations. and decisions could be developed in a way Intermodal rates are predicated on these that maximizes competition. market considerations and could be im- The separation of infrastructure man- paired by restricting this market freedom. agement from operations is an issue for all rail operators, whether existing state railways or other operators who may seek to enter the market. Many believe that the Best Practices in policy of seeking additional open access Intermodal Freight Transport for operators who would run on the national networks is a failure, because so few The intermodal share of the European operators have emerged to purchase the freight market is currently only eight access rights. Those that have purchased percent. While a few intermodal operators access rights have tended to be tiny have been expanding, there may be a role special cases. The infrastructure owner for additional providers of intermodal faces high costs and is not responsive to transport. For economic and environmen- operator concerns. Some operators who tal reasons, many have an interest in in- have attempted to contract for the use of creasing the intermodal market share. To rail facility report that their largest prob- this end, the Freight and Logistics Lead- lem is dealing with the infrastructure ers Club has been collecting actual data owner, who has a completely different on intermodal, rail, and truck services to agenda and objectives from the operators. gain a better understanding of markets and opportunities. They have identified a number of innovative developments, which are Reregulation outlined in the following paragraphs. Rune Svensson, The much-publicized service difficulties Volvo Transport following the Union Pacific and Southern Pacific merger have stimulated some shippers to call for reregulation of the railroads. Carriers see this approach as unresponsive to the real situation. Since the passage of the Staggers Act in 1980, the U.S. railroad industry has 35 percent less track, 32 percent fewer locomotives, and 60 percent fewer employees, yet railroads in the United States are carrying 48 percent more freight. Productivity has increased three- fold. The industry has reduced costs by $25 billion in constant dollars. Some 80 percent of that cost reduction has been

Forum Proceedings 11 quired at the intermediate terminals. The locomotive operator does the loading at the Intermodal Rail interim stops using an on-board forklift Developments in Sweden to load containers on or off. All-in-all, this multiterminal, short-stop system is flex- The Scandinavian and Nordic railroads ible, network-oriented, and very cost-ef- have split infrastructure administration fective. Capital utilization is excellent. from operations. Operators pay the rail fa- Unions were initially concerned about cilities managers a fee to use the rail plant safety, but the railroad has formed work- and then run trains across these facilities. ing partnerships with the unions to resolve Operators can compete along the same this matter and to work with them to make route. Operators have shifted from being the railroad competitive for more classes classical railroad operators, as they were of traffic. This type of service could be ex- 10 years ago, and are offering door-to-door panded to many other parts of Europe. solutions to their customers. This shift has resulted in enlarged intermodal market shares in some cases. There have been New International Rail Corridors strong service improvements. A direct train and truck service to Italy that took Rail-freight freeways must overcome many five days when it began 10 years ago now problems, particularly fragmentation. Eu- takes only two days. In addition, reliabil- rope now has 43 infrastructure providers. ity has improved. Most of these providers are integrated with Productivity has also improved signifi- operations, and they set timetables to op- cantly. For example, a very good rail network timize their own operations. But for the and an ability to operate large, 60-ton first time this past year, the volume of trucks in Sweden has created an ideal set- cross-border freight exceeded that of nating for intermodal service. Railway costs tional freight. To expedite this growing were too high, however, and for short dis- volume, the European Commission intro- tances, rail could not compete with direct duced “One-Stop Shop.” It coordinates the truck. The Swedish railroad copied an idea time tabling of all operators within a cor- from Japan and adopted a system that al- ridor into a single organization. lows rail pick-ups between the hubs or rail Visionary investigations are underway ports. This approach makes intermodal to explore Europe-India and Europe-far rail service competitive for much shorter east rail corridors, as well as a Berlin-War- hauls because intermediate stops can be saw-Minsk-Moscow corridor called the made very short. No personnel are re- “Pan-European Rail-Corridor II.” Within Russia, this concept breaks up the exist- Franco ing system and separates different lines of Castagnetti, business, each with its own business plan. Enichem/Polimeri The Trans-Siberian Railroad Council has Europa participated in these plans, and it has adopted One-Stop Shop coordination. The Finnish Railway now operates two direct trains per week through Russia. Using the Trans-Siberian route, shipping times can be reduced from about 25 days via ocean shipping to about 12 days by rail. Global rail has potential and is expanding. The political stability of the countries involved has been improving, and the problems of disparate gauges can be overcome. However, missing links in the network still must be filled before it can reach far- eastern destinations. Construction is now

12 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps underway to fill the rail gaps in the South Johannes Asian corridor through India, and this Fritzen, Volkswagen corridor may be completely connected Transport within a year. Once this corridor is connected, it will allow rail freight to move to India from Europe. Differences in rail gauges will continue to exist, but these differences might be managed using technology that has been tested for rail equipment moving between Sweden and Finland, which has a gauge similar to that used in Russia.

Supply-Chain Management

Up to now, mobility of cargo has been characterized by the management of logistics. But logistics within a company is no longer enough to meet customer demands. Supply-chain management has emerged as for other modes of transport. It could avoid an approach that brings all of the variables rehandling of cargo along a route. into perspective. Based on the rapidly ex- An airship service—or “cargolifter”— panding capabilities afforded by new in- might fill a niche (in time and cost) between formation technologies, enhanced by ocean shipping and airfreight service. No outsourcing and partnering, supply-chain special airfields are needed. Airships are management shows great potential for re- able to land in an area about the size of ducing costs and improving services. two soccer fields with special tie-down Supply-chain management allows ex- equipment. The ports also need to provide ecutives to see and control all facets. In water as ballast to offset the unloaded response, firms are changing emphasis cargo. Using helium-filled balloons to lift from distribution management to network payloads, the cargolifters can carry 160 management, from road and rail manage- tons (up to 3,200 cubic meters) for dis- ment to system management, from service tances of up to 10,000 kilometers. Market Kenneth Wykle, procurement to contract management, and studies have estimated that 120 to 200 U.S. Department from transport technique to technology ships of this sort could be viable. of Transportation, management. The emphasis is on systems. (left) with Peter There are totally outsourced systems, and Zantal, The Port Authority of New there are new actors inside the corpora- York and New tion. The culture needs to change from a Jersey short-term focus to a longer-term reality.

Airship “Cargolifter” Service

Many innovations have evolved in intermodal unit lifting technology, and an an- cient technology—the airship—may have renewed promise today. Airship transport would allow freight to go from everywhere to everywhere. It could reach parts of the globe that are difficult to access because they have been destroyed by earthquakes or other natural disasters. It could carry cargo whose size or weight is unsuitable

Forum Proceedings 13 Woflgang Flick, container handling and storage facilities, United Parcel for expanded truck access, and for on-dock Service, Europe, and Dirk rail, because trucks alone simply cannot Goedhart (right), handle the volumes involved. Consultant to If market forces are to determine which Philips ports move the cargoes, then the policy International must be to eliminate state, regional, and local subsidies to ports. As a first step, we need to know who is financing what. The 1997 green paper by the European Union (Sea Ports and Maritime Infrastructure, COM (97) 678) recognizes the vital economic role of ports and the reality of competition between the member states Port Investment Policies associated with ports. The paper provides a financial overview of how ports are ac- Private operators and firms make massive tually financed. investments to serve customer needs, but European policy states that port government has a role as well. Govern- finance should be transparent. Any pub- ments at all levels are concerned about the lic subsidies that are made to ports are health and economic well-being of their made public. This policy would be diffi- citizens. As major economic forces in the cult to implement in the United States. region, port-related investments and poli- Ports do not necessarily pay for ground- cies are driven by all levels of government access and dredging costs. They benefit as well as by private decisions. from cross-subsidies stemming from cost Megaship service could further shift allocation and multiple lines of busi- the concentration of power. These ships ness. Virtually every port in the United will force new policy attention on States receives some state or local sup- intermodality and the types of intermodal port, and some applications of federal systems that are really beneficial. Because programs are effectively subsidies to megaships will only be able to serve se- ports. U.S. ports would probably resist lected ports, they could create a vastly dif- the transparency in port finance being ferent ocean-distribution system. Their sought by the European Commission. impacts will reach far beyond the port it- In matters of port finance, Europe ap- self. The emergence of megaships will pears to be moving in a capitalistic, free- force other transportation services and enterprise direction while the United facilities to respond. Megaships will also States appears to be more socialistic. generate changes in operating procedures, requiring investment in terminal and handling equipment. Electronic Commerce The rise of carrier alliances in the ship- and Intermodal Transport ping industry has forced ports to deal with three or four large alliances instead of 20 Electronic commerce is the use of com- smaller customers. These large alliances puter network technology to facilitate the have approached competing U.S. ports buying or selling of goods between trad- with an open tender to establish east coast ing partners. Carriers serving this market hubs. This consolidation of carriers, as use a physical network with air, ground, well as the introduction of megaships, will and ferry links in Europe. Systems are tied create a different balance of pricing power. together by electronic tracking and trac- Ports will lose pricing power, and ocean ing capabilities, allowing customers to lo- carriers will gain it. Competing in this new cate their shipments at any time. environment will require capital invest- Some forecasts anticipate that elec- ments—for post-panamax cranes and tronic-commerce in the United States will dock facilities to handle megaships, for reach $500 billion in 2002. Companies are

14 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps positioning themselves to be leaders in this field. United Parcel Service (UPS), for example, has taken two steps into the world of electronic commerce. The first step was to enter into arrangements with merchandisers to advertise jointly on the Internet. This strategy integrates UPS’s tracking capability with the merchandisers’ ordering systems, so customers know where their orders are in the overall distribution and delivery system. The second step was to develop UPS Document Exchange. This product is a secure, online courier, using the ultimate security of 128-bit encryption, Karel Vanroye, which was recently cleared for distribu- effectiveness of these forums. The 1999 Unit for Analysis tion outside the United States. forum should carry forward and build on and Transport Electronic-commerce is finding appli- the discussions that have been held on Policy cations in the rail sector. A new system standardization and best practices. In Development, has recently been made commercially addition, it should begin a similar dialogue Wim Blonk, Kenneth Wykle, available for electronic bills of lading, and on the effects of electronic-commerce and and Richard Biter, this system seems to be working quite well. infrastructure investment policies. The (left to right) However, nations differ in terms of what 1999 forum should also address cargo li- courts will accept as proof that a document ability, regulations governing competition, has been sent, and these differences could third-party logistics providers, and other complicate international applications. topics of interest to participants, as out- Ron Stanley , lined in the following paragraphs. Landstar Express America, Bert Schacknies, Federal Highway Toward Improved Standardization Administration, European and U.S. Intermodal U.S. Department Freight Transport: Next Steps Greater interoperability can bring impor- of Transportation, Thomas Perdue, tant gains to the efficiency of transport. C.H. Robinson Co. Improved intermodal freight transport is Policies should support achieving these James Morgan, important for transport productivity, productivity improvements where appro- TNT Automotive economic growth, and environmental priate. The potential for increased stan- Logisitcs, and progress. Many public and private con- dardization depends on the degree of David Winstead, Maryland cerns share an interest in achieving these maturity in the industry, carrier operat- Department of gains, but they cannot make progress by ing efficiencies, requirements for invest- Transporation themselves. Shared understanding and co- ment by carriers and shippers, disparities (left to right) ordinated action are essential. The exchange of perspectives between sectors, regions, modes, and operating perspectives offers a fruitful way to develop shared in- sights that allow independent interests to act toward a common vision. This useful dialogue that has been developed through forums held on European and United States intermodal Transport in 1997 and 1998 should be continued by holding a third session in the United States in the fall of 1999. The small size of these forums, their informal style, and the participation of top-level transport leaders from all sectors have contributed to the

Forum Proceedings 15 in physical features of the surface trans- The Role of Governments portation infrastructure, and the effects on in Infrastructure Finance competitive positions. The nuances of these factors are subtle, and they are Public policy on both sides of the Atlantic better understood through candid discus- seeks to build an economically sound in- sions. The prospects for enhanced stan- frastructure investment framework, free dardization should remain on the agenda from the distortions caused by modal or in the 1999 forum. regional subsidies. In practice, this ideal is confounded by disparities in user fees for different modes, by inconsistent treatment European and U.S. Best Practices of external costs, by joint investments, by inconsistencies in the allocation of com- The European working group to discuss mon costs, by companion investments in best practices in intermodal freight has access facilities, and by state and local sub- been a source of many good ideas. It has sidies. Major transport terminals drive the stirred great enthusiasm to work together economies around them, making it diffi- for improvement. Through this informal cult to identify net public investment, let club of captains of industry, public au- alone rationalize it across diverse local cir- thorities are able to tap the private-sector cumstances. The 1999 forum should use experience, getting useful information case materials from Europe and the United quickly. This working group may be an at- States to continue the discussion of infra- tractive model that may have value in the structure issues. United States as well. U.S. participants were impressed by the energy and enthusiasm of the European best practices group Liability and will seek to establish a similar industry-driven, best practices group in the A proposal to reform the 1936 U.S. United States. COGSA legislation would unilaterally apply U.S. law outside its territory. This legislation could have a damaging effect on Electronic Commerce and international commerce. It may also be dis- Intermodal Freight Transport criminatory, because it could give a competitive advantage to U.S. carriers when Important, new, unfamiliar opportunities they are in head-to-head competition with in intermodal transport will arise as elec- European carriers to provide transport ser- tronic commerce takes hold in the next vices. Such concerns need to be resolved decade. Further discussion should focus with full awareness of their international on how these developments might affect implications, and discussions like these intermodal transport. help to surface these concerns.

16 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Article A: Interoperability in Intermodal Freight Transport

Executive Summary tation represent a many-layered industry John Betak with (a) interdependent and interlinked Collaborative In October 1997, the Eno Transportation markets and (b) independent and dis- Solutions, Inc. Foundation held a policy forum cospon- jointed markets. These characteristics are sored by the U.S. Department of Trans- what make harmonization of equipment Ian Black portation and the European Commission, and technologies so challenging. Develop- Cranfield Directorate-General VII (Transport). This ing a shared vision of what is to be har- University forum addressed issues in intermodal monized and the resulting benefits is freight transport in Europe and the United crucial to success. Edward Morlok States. One area identified for further con- The harmonization task is a change pro- University of sideration was standardization, harmoni- cess, and every change process has obstacles. Pennsylvania zation, or interoperability of equipment, Three types of barriers must be addressed information, and communication tech- to successfully achieve interoperable sys- October 1998 nologies. This paper provides a framework tems, equipment, and procedures: technical and background information reflecting barriers, business process barriers, and cul- observations and data contained in the lit- tural barriers. erature, as well as conversations with se- Technical barriers are specific to the nior industry representatives. industry or organizations. These sorts of Changes in the patterns of trade and barriers can sometimes be eliminated commodity flows are leading to a rapid through team-based efforts to design new increase in the amount of intermodal technologies or to design around the tech- transportation. This situation requires an nical barriers. Many of the issues associ- increased focus on system effects and the ated with harmonization of containers are need to modify facilities, equipment, and technical barriers. operating practices to provide seamless Business process barriers are often or- transport among modes and nations. This ganization or industry specific. These bar- naturally raises the issue of standardiza- riers are frequently the result of how an tion and the specific aspects of standard- organization or industry works. ization addressed in this report—container Cultural barriers consist of existing hab- standardization and interoperability in in- its, behaviors, and attitudes of everyone formation technology. in an organization, industry, region, or Containers and information technology nation, that is, the existing paradigms of represent major choices that affect the how the world is “supposed” to operate. form and operation of the system. These Broadly speaking, improvements in choices cannot be taken lightly. They are transportation take two forms: a reduction major investments with relatively long in the cost of transport and improvements lives associated with the equipment. Thus, in services that add value to the user. one of the most important contributions Clearly, many of the gains from increased that can be made by a document like this interoperability are of the cost-reduction report is to suggest a framework within variety, for example, improved container which these questions and the issues asso- use resulting from investments in informa- ciated with interoperability in containers tion technology that lead to better track- and information flow can be considered. ing and control or reduced costs of terminal handling resulting from standardization of sizes and locking apparatus. The conse- Interoperability and quences of these gains can be far reaching, Harmonization: A Change Process including improving the contribution margin of intermodal services for the carriers European and North American supply- involved and expanding the markets in chain management and freight transpor- which intermodal transport is competitive.

Interoperability in Intermodal Freight Transport 17 Equally important are changes that en- considered. Studies that quantify the ef- hance the range of transport service fect of adopting standards on these per- options, but that may increase the direct formance measures of the supply are cost of transport services. Nevertheless, needed. these changes benefit the system’s custom- Different stakeholders most likely can ers. Actions that increase speed and reli- achieve consensus about the objectives of ability of transport often fall into this standardization. Where disagreement be- category, with the increased cost of trans- gins is in predicting the effect of standards port being more than offset by reduced on costs and use by stakeholders in differ- shipper cost of inventory, reduced spoil- ent parts of the supply chain around the age, or increased shipper competitiveness world. The European standards organiza- resulting from more rapid and precise cus- tion developed standards that certainly re- tomer response. spond to European needs but at the same An increasingly important driver in time may conflict with the wider require- addressing interoperability will be ensur- ments of international trade with the ing that customer expectations are an in- United States and other countries. tegral part of the equation. In the final analysis, if customers receive no benefits from harmonization, customers will not Developing Interoperability: A pay for the costs associated with achiev- Summary of Information Technology ing interoperability. At the same time, customers are demanding increasing flex- Information systems in transportation ibility and visibility in managing their have become as important as the physical supply chains. If the intermodal freight movement itself. To facilitate the smooth transport industry does not provide flex- flow of information from one partner in ibility and visibility, customers will find the intermodal transport chain to another, some other service provider who will give information systems must work inter- them what they expect and demand. changeably and facilitate a diverse array of partnerships in a dynamic environment. The recent history of standards concerned Developing Interoperability: A with information systems is captured in Summary of Container the following quotation: Standardization Products based on official standards have not been widely implemented. The recent history of container standards On the contrary, they have often leaves a number of unresolved issues: been displaced by so-called de facto • Is there a need to develop a length stan- standardized products, that is, prod- dard longer than 40 feet (12.13 ucts successful in the market whose meters)? Europe is moving toward 13.6 technology is based on either public meters (44.06 feet), which is not in or private specifications (Bucciarelli harmony with any lengths developed in 1995, p. 423). the United States. This quotation leaves a number of un- • Is the existence of two width stan- resolved issues regarding harmonization of dards—2.438 meters (8 feet) and a information systems in intermodal trans- wider 2.55 meters (approximately 8 feet portation: 5 inches) so popular in Europe—a • How do we ensure that meeting shippers’ cause for concern? needs is an integral part of the justifica- • Is there a need to reconsider the com- tion of harmonization of intermodal patibility of pallet sizes, the possible freight information systems? emergence of small containers (logistic • How do we address concerns within the boxes), and the standard container? intermodal transportation community To answer these questions, issues of regarding data confidentiality, use of cost and ease (or speed) of moving goods information, business relationships, through the supply chain need to be power, and competitive conditions?

18 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps • What role can government have in fa- • Developing standards that are compat- cilitating the harmonization that is ible with operations and information occurring naturally within freight com- flows in all part of the supply chain and munities? in different transport modes is difficult. • How do we develop a shared vision of • The benefits and distribution of costs what is to be harmonized in informa- among different parts of the supply chain tion systems, and what will be the ben- and throughout the world are uncertain. efits for the various members of the Natural trends in production and dis- intermodal community? tribution are adding complexity to supply The following factors point to the need chains and to transportation. Thus, the for interoperability of hardware and soft- incentives for harmonization of informa- ware in the intermodal transport process: tion systems simply on the basis of self- • Economies of scale can be generated in interest are likely to increase. The producing standardized units. complexity of the many issues involved re- • Higher capital and operating costs can quires a more thorough understanding of be avoided by developing vehicles or the costs and benefits to different segments vessels that can carry different load of industry, as well as the timing of these units or combinations of load units. effects. The challenge for the intermodal • Costs for providing specialized handling transport industry is to develop forums equipment at intermodal transfer facili- within which these questions can be re- ties can be reduced. solved in a voluntary manner. • A limited customer base for specialized units often leads to inefficient use of equipment or unused carrying capacity on vehicles. The Forces Driving and • The ability to communicate with a Constraining Interoperability wider array of partners in the supply chain with reduced costs for interme- Rationale diary or translation software can be enhanced, particularly as the industry The need for interoperability in transpor- structure changes and new intermodal tation services is clear: Elements of the alliances are developed. system such as vehicles, guideways, and The main arguments against standard- controls must be able to operate together ized equipment and software are as to provide service. Also, the geographic follows: scope of transportation flows often leads • The flexibility to respond to unique to individual shipments being carried by market challenges may be stifled. two or more transportation companies, • The systems will be less responsive to often over facilities provided by yet an- specialized product requirements, meth- other organization (frequently a govern- ods of handling, or customer preferences. ment infrastructure agency). • Standardized equipment may not The issue of standardization is always necessarily translate into lower overall present in a dynamic technological envi- systems costs, particularly if the con- ronment, and the current situation of solidator function is not removed. continuous change in applications of new • The high initial capital costs of invest- technologies certainly raises the issue. Of ing in new equipment, facilities, or soft- equal importance are changes in demand ware may not be offset by future cost for transportation. In particular, increas- savings to the user. ing globalization and regionalization of • The “competitive edge” or stabilization supply chains necessitates transportation of partnerships that is provided by spe- services that transcend traditional na- cialized equipment and proprietary sys- tional and modal boundaries. Trends to- tems will be lost. ward just-in-time inventory policies, mass • Sharing data among nonproprietary customization, and rapid customer re- systems raises security concerns. sponse all demand more rapid and

Interoperability in Intermodal Freight Transport 19 reliable transportation services over in- more heavily asset based but use comple- creasingly intermodal and multicarrier mentary modes and organize use so that networks. it is transparent to the shipper. Examples The trend toward longer supply chains include United Parcel Service (UPS), vari- leads to longer hauls and increased like- ous truck lines, and national postal ser- lihood of intermodal movements. Modes vices. These firms also relieve modal that did not exchange much traffic, and carriers of direct responsibility for the thus developed in isolation in ways that intermodal aspects of transportation. Be- are not readily compatible, can suddenly cause so much work unique to intermodal be logical parts of integrated supply service is provided by these various firms chains. Thus, issues of compatibility and agencies, the immediacy of intermodal across different modal transportation ser- thinking among modal carriers is further vices arise. The trend toward new pat- reduced. terns (spatial and otherwise) of industrial In this environment, intermodal con- linkages also means that national or re- siderations are not of paramount impor- gional transportation providers who had tance to all transportation carriers. Their overlapping or contiguous service areas concerns for efficiency, responsiveness to but did not exchange traffic may find markets, and profitability are likely to be themselves called upon to provide ser- driven largely by other portions of their vices in an integrated way. business and activities. Thus, efforts at harmonization of intermodal systems must retain compatibility with the rest of Elements of Interoperability the relevant modal systems. Standardization and harmonization will Which elements of the transportation sys- not be undertaken because they are intrin- tem are reasonable targets of efforts at har- sically worthwhile, but rather because they monization to enhance interoperability? improve the system. There is a burden of Most elements of each modal system do justification of any harmonization: It must not operate directly with one another. In be shown to improve the system, that is, intermodal transportation, the primary the production and distribution system. elements related to seamless functioning This point argues for inclusion of ship- of the system are the containers that carry pers—users of the transport system—in the goods and the information flow on the any discussions of major changes, for stan- movement of containers and shipments. dardization and harmonization will suc- Our focus is on these two areas. ceed only to the extent shippers find receive any benefit from them.

Modal Ownership Patterns and Intermodal Transport The Institutional Framework

While the transport system is increasingly Setting standards involves a variety of pro- thought of as intermodal, the reality is that cesses and players. The United States and most transport is considered either all European countries have National Stan- (a) unimodal or (b) intermodal with only dards Organizations. In the United States, very limited interconnections. This situa- it is American National Standards Institute tion reflects both the physical reality and (ANSI), and the most influential ones in the result of institutional arrangements Europe are BSI (United Kingdom), that often diminish the apparent magni- AFNOR (France) and DIN (Germany). tude of intermodal connections. However, in Europe the European Stan- The prominent role of various third par- dards Organization—CEN—was created to ties or integrators in providing intermodal facilitate trade within Europe and to har- transport also diminishes the apparent sig- monize European standards. CENELEC nificance of intermodal transport to par- (for electrotechnical standardization) and ticipating modal carriers. Other firms are ETSI (for telecommunications) are sister

20 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps organizations. CEN now includes 19 mem- and ISO, take a more significant role than bers. By common agreement, all national their U.S. counterparts. Direct govern- standards bodies adopt the Euro standards ment input into the examination of stan- as their own national standards and with- dards often takes place, and the European draw any existing incompatible national Commission plays a more active role in standards. The International Standards facilitating industry action. Organization (ISO) is an independent in- One factor that necessitates such a ternational agency established to provide strong governmental role in the develop- a framework for developing international ment of standards in Europe is the diver- standards. Each national member carries sity of national outlooks and priorities. In one vote per nation in all ISO proceedings, the United States, transport interests can which on many issues requires a 75 per- be more focused on serving the large, rela- cent majority. European votes are signifi- tively homogenous domestic market. In cant and when cast as a block, can contrast, the European transport industry determine the outcome. All of the organi- is inherently more outwardly focused, zations use a set of technical committees with an obvious need to improve links to examine specific subject areas. between different countries and industrial The procedures adopted by ANSI are protocols. The sea change generated by different from its European counterparts. European Unification carries over into the ANSI is a federation of more than 175 development of international (within and standards-developing organizations external to the European Union) stan- (SDOs) and companies with interests and dards in the transport industry. expertise in standards development. ANSI The importance of Europe in setting itself does not develop standards, but fa- standards can be seen in the special fast- cilitates the process. It sets the procedures track process that can be used by ISO for that committees must follow, monitors the previously developed European standards. development process, officially approves While this process has the undoubted the results as national standards, and pub- merit of avoiding duplication of activities lishes them. The procedures laid down by already undertaken, it does restrict the ANSI require participation of all interested right of non-European inputs at limited parties, including manufacturers, suppli- and specific points. The recognition that ers, and users. All meetings must have European development process can be cru- widely distributed meeting notices, de- cial to U.S. trade interests (and vice-versa) tailed minutes, and a clear process for dis- has led to joint liaison procedures between pute resolution. Much of this procedural ANSI and CEN, in which the United emphasis stems from concern about not States can comment on proposed Euro- violating U.S. antitrust laws. The final pean standards. This cooperation has con- standards are seen as a validation of pri- centrated, in practice, on the subject of vate sector voluntary, open, and transpar- nontariff barriers to trade, leaving the ent standards development process. question of container size unresolved. The European national standards orga- A private sector initiative launched in nizations function as quasigovernmental 1995—TABD (Transatlantic Business entities receiving a significant proportion Dialogue)—is “designed to respond to the of their funding from national govern- new reality of trade, namely that compa- ments. Usually the development process nies are functioning globally ….” Follow- uses a combination of internal staff, paid ing its business-driven agenda, it has contractors, and technical representatives focused on standards, certification, and from industry who write the standards. regulatory policy by setting up the trans- Meetings are often closed. Trade associa- atlantic advisory committee on standards, tions do not always have a formal role in certification, and regulatory policy the developmental process and participa- (TACS). Concerned with a wide range of tion in committees is often narrower than sectors—automotive, energy, chemical, in the U.S. system. The secretariats in medical devices, pharmaceutical, telecom- European organizations, including CEN munications, and information technology

Interoperability in Intermodal Freight Transport 21 sectors—TACS provides an important fo- consequent losses in economies of scale. rum and framework for translating global Alternatively the carrying vehicles or ves- business requirements into recommenda- sels may incur extra capital and operating tions to government and standards agencies. costs to have the flexibility to carry different load units or, in the case of ships, combinations of different load units. A similar point applies to handling load units; Developing Interoperability: greater variety means either more equip- Container Standardization ment is necessary at intermodal transfer sites or more complex, and hence costly, Containers (load units) play a pivotal role equipment is necessary to accommodate in intermodal transport. The design and the variety. A proliferation of load units variety of these basic building blocks of also has implications for the use of those an intermodal transport system critically load units and carrying units. When vari- affect the system’s responsiveness to cus- ety is low, an empty container can find a tomer needs and its performance in terms new customer in the same vicinity rela- of cost and speed of movement through tively quickly. For specialized containers, the supply chain. The design of load units customers are rare and, in the extreme case affects the capital costs of the vehicles and of containers that are specific to one cus- vessels designed to carry them, the oper- tomer, the empty container has to return ating costs of these carriers, the costs of to that customer empty. In the case of handling between modes, and the costs of trains and ships, the need to carry differ- initial loading and final unloading. Cus- ent combinations of load units can mean tomers have different requirements, and poor use of trailers or space on vessels. All the ideal container for a consignment de- elements of the cargo-handling system, pends on the type of product (e.g., volume- from pallets to rail infrastructure, are in- density), its method of handling, its terconnected, as illustrated in figure 1. packaging, and the size of consignment. Standards concerning intermodal load units (ILUs) relate to different factors. While dimensions and engineering standards (regarding the integrity of the unit) Load Unit Standards are key definitions, standards also exist for and Intermodal Transport the design of corner fittings (for handling), bay plan systems in vessels, methods to A large number of container types have ensure safe handling, labeling, and remote emerged to meet these separate needs. condition monitoring of containers. Some However, variety and the proliferation of of these standards pertain to good prac- different types of units bring extra costs. tice, whereas others focus on ensuring If diversity is limited in some way, econo- compatibility and interoperability as units Figure 1. Factors to be considered in mies of scale in producing load units can pass along the supply chain from mode to load unit size be gained. Variety in load units also means mode and through handling stations. The decisions different designs of carrying units with most critical in the latter case are load-unit dimensions, associated weight limits, ability for stacking, and corner fittings.

The Emergence of ISO Series 1 Containers

The use of containers for international commerce developed rapidly in the late 1960s and 1970s. Now containers domi- nate international movements by sea, with more than 6 million in use throughout the

22 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps world. The most common sizes are en- refrigerated, or tank units. About 30,000 of shrined in international standard ISO 668 600,000 semitrailers are used in this format. and are referred to as ISO Series 1 con- A number of advantages of swapbodies tainers. The two most common dimen- and semitrailers have enabled them to gain sions are 8 feet wide by 8 feet 6 inch high an important niche in the ILU market in and either 20 feet or 40 feet long. Within Europe. The first advantage derives from this basic dimensions are various designs not meeting engineering requirements for with end doors, side doors, and open tops. stacking. The body can be less costly and Standards also refer to dry bulk, flat, and allow greater flexibility on loading (cur- refrigerated containers. tain sides). In international trade by sea, more than With regard to pallets, an international 95 percent of containers are the 20- or 40- standard (ISO 6780) defines standard di- foot standard. Turning to international mensions for pallets. One of the three stan- trade generally, a number of other signifi- dards (1200 x 1000 millimeters) has been cant types of load units have emerged as widely adopted throughout Europe. Asso- substitutes for maritime containers. ciated with this standard is a packaging module 400 x 600 millimeters that is inti- mately related to this first standard. How- European Developments ever, research among German shippers has also indicated that 80 percent are using While Europe adopted the ISO standard 1200 x 800 millimeters pool pallets. maritime container for inward and out- Elsewhere in the world (including the ward movements by sea, this container’s United States and Japan), this Europallet role for national and international move- standard has not been widely adopted. The ments within Europe is much more lim- third standard of 1140 x 1140 millimeters ited. A much larger role is played by is also widely used. The argument from swapbodies (caisse mobile, Wechselbhalter, Europeans is that the internal width of an cassa mobile) (Institute for Logistics and ISO container does not allow efficient Distribution Management (ILDM) 1996). loading due to the inability to load two These load units, which are not normally 1200 millimeters wide pallets side by side. strong enough to be stacked, come in a va- This situation can lead to a loss of capac- riety of types and sizes: ity of just under 20 percent for a 40-foot • Full length (12.2 to 13.6 meters) with container and nearly 30 percent for a 20- tilt (tarpaulin sided), van (solid sided) or foot container. The importance of this ar- refrigerated units, referred to as Type A gument in favor of a slightly wider ILU • Short length (7.15 meters, 7.45 meters, than 8 feet depends critically on the per- 7.82 meters), referred to as Type C centage of goods using Europallet sizes that • Bulk (9.125 meters and more) are, or could use, containers. In addition, • Swaptank (6.096 meters, 9.144 meters) the proportion of these containers that are While the short length is by far the most constrained by weight from being loaded numerous with more than 150,000 with the maximum number of pallets is throughout Europe, the vast majority (per- an important factor. Estimates in Europe haps 80 percent) is only used for road op- vary, but in some countries, as many as erations (and these might be referred to as 36 percent of goods may use Europallets, demountables). There is also a difference and of these, up to a third may be con- within Europe in the extent swapbodies strained by weight. In addition, approxi- are used, with Germany followed by mately 70 percent of all containers and France and Scandinavia as the most fre- swapbodies are loaded with pallets. The quent users. conclusion, therefore, is that swapbodies In addition to swapbodies, semitrailers with a slightly wider body are more effi- with reinforced lateral beams can be lifted cient in loading pallets. This incompatibil- by gantry or mobile cranes onto specially ity between pallet and container sizes was designed rail wagons (pocket wagons). partly responsible for the emergence of Again, these containers can be tilts, vans, another European standard for load units.

Interoperability in Intermodal Freight Transport 23 In the early 1990s, a new standard 6 inches (2.90 meters) and the width is emerged under the auspices of the German also increased to 8 foot 6 inches (2.59 standards organization (DIN), referred to meters). In response to this trend toward as a land container. The land container has a larger family of containers, a draft docu- an external width of 2.5 meters. This width, ment of ISO (referring to Series 2 contain- with an internal dimension of 2.44 meters ers) was prepared. This document was (as opposed to the ISO 2.336 meters), al- followed by a study funded under the pro- lows two 1200 millimeters pallets to be gram for European Cooperation in the field stacked side by side (or 3 x 800 millime- of Scientific and Technical research ters) as in a swapbody. Currently there are (COST) with a remit to examine the issue about 50,000 of these containers in Europe, of these large containers. COST is a frame- of which 75 percent (referred to as cellular work involving 25 European countries, pallet-wide containers—CPC) are designed which covers precompetitive research in to fit into an 8-foot (2.438-meters) ship cell a number of areas, including transport. slot. Recently CEN finished defining a While the program receives European stackable container with dimensions 7450 Commission support, it is not a program x 2550 x 2900 millimeters (compared with of the commission. the ISO 20-foot container 6058 x 2438 x The COST 315 study report (European 2590 millimeters). Commission 1994), focused on a length From the European perspective, the of 49 feet and demonstrates the wide range new container offers considerable advan- of topics that need to be addressed in tages in its ability to store (and load) pal- developing and possibly adopting a new lets. Yet the emergence of a different width standard for containers. The obvious ad- standard for the so-called land container vantage of larger containers is that they does mean more complications or con- offer the prospect of moving more goods straints concerned with equipment at lower cost. However, the increased vol- throughout the intermodal supply chain. ume of the proposed larger container ex- Some argue that cargoes may be trans- amined in the study offers more volume ferred between different size containers at with the same gross weight and thus a ports or other interchange points. How- lower payload (of one ton). This balance ever, this type of transfer activity runs between volume and weight offered a counter to leading supply chain manage- maximum density of only 276 kilogram/ ment practice wherein companies such as meter3 (kg/m3) compared with 670 kg/m3 Li & Fung (Magretta 1998) move partially for 20-foot and 411 kg/m3 for 40-foot con- filled containers multiple times so as to tainers. This configuration raises the im- eliminate the consolidator function en- mediate question of what proportion of tirely. While shipping costs are greater trade involves such low-density cargoes under this scenario, total systems costs are that might take advantage of the new con- lower. Thus, to introduce a requirement tainer. The report suggests (based on fig- for a consolidator function to be able to ures from one country) that such a load pallets more readily may be counter- configuration is only relevant to 2 percent productive in terms of the total supply of goods moved by containers. In addition, chain. road weight limits in Europe constrain the total payload of containers and further limit potential use of such large contain- Large Containers ers. With this rather dismal picture of the potential use and benefits of large contain- In the United States during the 1980s, ers is a long list of increased costs. manufacturers started to build containers It is argued that although 8 foot 6 inches longer than 40 feet in response to the re- (2.59 meters) is wide enough for two quirements of shippers, manufacturers, Europallets, it is wider than necessary. and truck lines. The different lengths in- Indeed, anything wider than 2.48 meters clude 44-, 45-, 46-, 49-, 53- and 56-foot probably requires stuffing to avoid unde- containers. The height is sometimes 9 feet sirable movement in the container.

24 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps An examination of the implications for severe loss of capacity. The dimensions of vessel costs is pessimistic. Adaptation of inland waterway vessels are closely linked below decks on existing ships is prohibi- to the dimensions of locks and canals. tively costly. On deck is feasible and should Without a change in vessel sizes, wider lead to no loss of capacity, but requires a containers would mean only three rows new lashing system. In the case of new rather than four, and, in certain parts of ships, designing for the new length in ad- the network, double stacking of 2.90 dition to existing standard lengths is no meters containers is impossible due to great difficulty (hindsight has proved this bridge clearances. to be the case). Roll-on/Roll-on ships are Overall, the COST 315 study demon- identified as a special case where adapta- strates the wide variety of issues implied tion is impossible due to the restrictions by adopting a new standard. Some of the imposed by elevators. The conclusion is costs of such a move are identified (the that large containers lead to extra costs and purchase of new cranes, for example), but are constrained to certain routes. no attempt was made to provide a full In the case of maritime terminals, any breakdown of savings and costs deriving move toward larger containers requires from the new standard. The array of costs new cranes. Rail terminals would also re- and constraints identified in the report quire new cranes due to the restricted clearly outweighs the small benefits that width between the legs of gantry cranes. might accrue to a small proportion of trade. In the case of using large containers on Any move toward standardization on European railways, severe constraints are container length probably needs to focus identified (or alternatively heavy costs of on the more popular 45-foot and 53-foot adaptation are identified). Due to a lack lengths. Many arguments presented in of harmonization, maximum dimensions COST 315 apply just as strongly. The most masses, and axle loads of railway vehicles recent move on a European standard for vary throughout Europe, depending upon maximum truck lengths, for instance, of- local topography, date, and construction fers no relaxation of that constraint, even quality of the network. The increase in for the shorter 45-foot version. The issue width from 2.50 to 2.59 meters creates of a standard (or standards) for large con- problems on most routes or requires highly tainers is now frozen in the international specialized wagons. Electrification and arena of ISO activity. As far as Europe is bridge clearances also make an increase in concerned, CEN is developing a stackable height (to 2.59 meters) prohibitively costly. container fully compatible with ISO The move toward a longer container, strength requirements and with dimen- with existing wagon fleets designed for 20- sions of 13600 x 2550 x 2900 millimeters. foot modules or 7.15-meter swap modules, The width of the proposed unit is consis- would mean a poorer payload per wagon. tent with Europallet sizes, and the length Alternatively, introducing a fleet of spe- is some 1408 millimeters longer than the cially designed wagons would mean a mix 40-foot standard but shorter than 45 feet, of wagons and consequent poorer overall so as not to violate truck length limits. use of the total fleet. While U.S. legislation permits road vehicle dimensions of up to 53 feet, the case Small Containers in Europe is rather different. A container of 49 feet requires a chassis that is longer A recent initiative, COST 339, is to exam- than legally permitted in all European ine the issue of small containers (less than countries except Sweden. The width at the 20-foot container length and 7.15- 2.59 meters is (just) outside permitted di- meter swapbody), sometimes referred to mensions for nonrefrigerated vehicles. as the logistic box. The specific objective Turning to inland waterways (particu- is to produce guidelines for governments, larly significant in the Rhine valley), larger standardization organizations, transporta- containers could be adopted without mation associations, and container manufac- jor modifications, but there would be a turers to assist in developing rules for

Interoperability in Intermodal Freight Transport 25 implementing European-wide use of small stakeholders can most likely achieve con- containers (European Commission 1998). sensus about the objectives of standard- The project will deliver recommendations ization. Where disagreement begins is in to the competent standards authority (in predicting the effect of standards on the this case, Technical Committee 119 of costs and the use of stakeholders in differ- CEN). COST 339 aims to accelerate and ent parts of the supply chain in various simplify the development of new specifi- countries of the world. In Europe, CEN cations and standards needed to enable has pursued standards that certainly re- intermodal transport. spond to European needs but, at the same The structure of the study pays particu- time, may conflict with the wider require- lar attention to the demand side and ben- ments of international trade with the efits to users. It specifically addresses the United States and other countries. rapid growth (associated in many cases with just-in-time philosophy) in small con- signments of less than 10 pallets and the need to understand weight and volume Developing Interoperability: relationships, commodity group composi- Information Technology tion, and desired transit time. The effects on internal organization transport Information Technology (forklifting, automatic operation), loading characteristics, tracking and identification, As with almost all sectors of society, the and transshipment technology are also im- transportation sector has been significantly portant elements to be addressed. The transformed by information technology timeframe of the study (over three years use. This trend is expected to continue for starting in 1998) means that any influence the foreseeable future. Information technol- on standards is some years away. ogy in transportation has become as important as the physical movement itself. Information systems make the process Conclusions more efficient by facilitating the numerous interactions necessary between the users The recent history of container standards (shipper and consignee) and the providers leaves a number of unresolved issues. For of the service. The providers include not example, is there a need to develop a stan- only transport carriers—typically two or dard longer than 40 feet (12.13 meters)? more in the case of intermodal transport— Europe is moving toward a length of 13.6 but also other parties such as public-sector meters (44.06 feet) that is not in harmony terminal operators, customs brokers, and with any lengths developed in the United so forth. Information technology is also States. Is the existence of two standards—8 essential in ensuring that the service pro- feet (2.438 meters) and a wider 8 feet 5 vided is compatible with the requirements inches (approximately 2.55 meters) so popu- of the supply chain of which it is a part. lar in Europe—a cause for concern? Is there Three areas of information technology a need to reconsider the compatibility of are unique to transport: pallet sizes, the possible emergence of small • Identification of vehicles or other equip- containers (logistic boxes), and the standard ment, in particular containers (usually container? The factors that need to be con- referred to as AEI for automatic equip- sidered to answer these questions are well ment identification) known. They revolve mainly around issues • Identification of individual shipments of cost and ease (or speed) of moving goods and their tracking in space and time (usu- through the supply chain. What is missing ally termed ITV for in-transit visibility) is a framework that quantifies the effect of • Exchange of information, including standards adoption on performance mea- waybills and other documents between sures of the supply chain (COST 315 does the parties involved in movement (fre- provide a partly quantified framework for quently referred to as EDI for electronic the specific issue examined). Different data interchange)

26 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps While the use of information technology is highly developed in intermodal transportation, this development is also highly fragmented. This fragmentation reflects the existence of many distinct cargo communities within the industry. A community consists of firms that actually interact directly in providing and using transportation services, including shippers, carriers, agents, and so forth. These clusters of firms, related by their businesses, create interoperable systems, but give little or no attention to interoperability outside that cluster, as illustrated in figure 2. Indeed, incentives exist to ensure the lack of interoperability with firms outside the group, which create barriers to competition and new entrants. of having to translate documents and data. Figure 2. Islands Since then, various groups have attempted of interoperability to develop standardized data formats to enable exchange of data among shippers, Current Systems customs agents, brokers, ship lines, and terminals, all essentially compatible with Ocean Carriers the two widely used general standards. AEI tags are not widely used within the Ocean transport is inherently intermodal, maritime industry. A few carriers that although much of the burden of integrat- operate closed systems, such as Matson to ing water with land service rests with ship- Hawaii, have installed them. Only one pers’ agents and others. EDI is widely used major international firm had planned to in ocean shipping, and many early efforts deploy them, American President Lines were made to develop standards so that (APL). This firm was planning to use ISO- firms and government agencies could compatible tags, which are also compat- readily exchange data. These efforts ible with U.S. rail industry tags. However, tended to occur within cargo communi- midway in its adoption of the tags, APL ties with little regard for interoperability entered into a global alliance with other with the standards of other communities. carriers who did not agree on the invest- Therefore, for example, in 1983 ANSI es- ment in AEI, and the program was termi- tablished the ANSI X12 standards for data nated (Wolfe 1998, p. 18). This is clearly sets and protocols. U.S. water and rail a case of changes in the composition of a transportation carriers quickly adopted cargo community leading to a major these standards. In 1987, when the United change in the efficacy of information tech- Nations Commission of Western Europe nology. Interestingly, in this case it led to adopted a different set of standards—the a decision to withdraw from more ad- EDIFACT (EDI for administration, com- vanced technology, although in the future merce and transport) standards—they the question may be revisited. were rapidly adopted in international trade by ocean carriers, including U.S. carriers. Meanwhile, the ANSI standards continue Railroads to be used by domestic American carriers (Aylward 1995, pp. 20–22). Railroads have been heavily involved in the Software that enables translation be- use of information technology because the tween the two sets of standards (ANSI and complexity and interdependencies of rail EDIFACT) was developed, and documents operations make timely flow of informa- can be readily converted, overcoming the tion essential to efficient operations. In Eu- issue of incompatibility, although at a cost rope, the emphasis has been on developing

Interoperability in Intermodal Freight Transport 27 systems for train control, reflecting the between railroads. However, progress in high density of train traffic and the com- harmonization is being made, an example plex mix of local and express and freight being the joint effort of the Association of and passenger trains. Automatic Train American Railroads, the Railway Associa- Supervision (ATS) and Automated Train tion of Canada, and the customs offices of Control Systems (ATCS) are widely used. both countries to develop an automated However, European railroads have customs manifest system, which is now adopted the HERMES standards, which being deployed. Special data exchange pro- were developed through the Union grams also exist for various specific types Internationale de Chemins de fers (UIC, of business, including some for container the European railway association), for car- pools such as EMP and others for particu- load and trainload traffic and to commu- lar major customers such as truck lines. nicate with their customers. Separate Again, the prominence of specific efforts standards have been developed for inter- at developing interoperable systems for modal transport through various groups specific business communities is evident. including the DISK system (Disposition- ing and Information System for Inter- modal Transport) in Germany and the Trucking INFOTAINER system in France (van Zijst 1993, pp. 97–98). However, these Euro- The trucking industry is characterized by pean systems are considered inadequate far less concentration than other segments to support national and international in- of transportation, in both Europe and the termodal movements (van Zijst 1993). United States. Information technology is Prompted by the deficiencies in the inter- used far less uniformly in the trucking modal arena, the European Commissions’ industry than in water and rail transport. Fourth Framework research program in- Long distance truckload carriers on both cludes projects specifically framed around sides of the Atlantic have been adopting intermodal requirements. These projects the technology to track truck movements include CESAR (which will establish the and provide two-way communication with basis for a common standard interface for drivers for some time, primarily at the in- information and data exchange and dis- sistence of major shippers whose business tribution between combined transport would be lost if the capabilities were not operators and their clients, mainly road installed. haulers and freight forwarders), COREM The most common systems use satel- (concerned with improving the manage- lites for both tracking and communication, ment of container transport and handling although other technologies are also used. equipment), and MULTITRACK (con- These technologies enable substantial ef- cerned with tracking, tracing and moni- ficiencies in the use of the fleet and driv- toring goods). All these projects have ers and also provide the in-transit visibility implications for standards that will de- that so many shippers now demand. Less- velop in Europe. than-truckload carriers serve a very dif- In the United States, car and cargo ferent market and operate between major movement have had greater emphasis. Al- terminals at which shipments are aggre- most all cars in interchange service are gated and disaggregated into truck-sized equipped with standard AEI tags, and lots for long distance interterminal move- readers are located on all main lines and ment. The use of advanced information near major terminals and yards. This en- technology is moving much more slowly ables tracking cars throughout the system, in this market segment, but in the last year and most railroads provide reasonably or so, some carriers have been offering rapid response to shippers’ queries regard- time-definite delivery and ITV. ing shipment progress. U.S. railroads also Another important information technol- widely use EDI for information exchange ogy element in trucking has been a joint with shippers and consignees, although government-industry effort to enhance specific data formats and software differ trucking efficiency through intelligent

28 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps transportation system (ITS) programs. In freight forwarders, and feeder truck ser- Europe this is through the PROMETHEUS vices. Almost 20 proprietary systems have and DRIVE) programs, while in the United been developed to exchange air cargo way- States it is through the ITS commercial ve- bill data, customs data, and payments, each hicle operations (CVO) program. Common serving particular regions, shippers, and elements include providing (a) real-time carriers. Efforts to create a single elec- traffic condition data, (b) optimal route tronic air waybill have failed, in part be- guidance applicable to all traffic and ini- cause they failed to recognize unique tiatives directed specifically toward the features of different segments of the air trucking industry, (c) facilitation of bor- cargo market and the interest of the vari- der crossings, and (d) collection of road ous players—from integrators to carriers use charges. to users—in preserving current relation- In contrast to information technology ships and business practices (Forster and efforts in tracking and mobile communi- King 1995). The view that standards must cation, which connect transport operators be compatible with the interests of the and in many cases their customers, the players is widely echoed in the literature private–public ITS activities are directed on standardization. almost exclusively toward the relationship between truckers and governmental road authorities. While the use of specific new Express technologies is in most cases voluntary, the use of the roads is not, and thus the con- Small-package transport is singled out be- ditions under which the technology is con- cause (a) it is such a large and growing sidered are very different from those business, (b) it is truly intermodal, and applying to partners in the supply chain. (c) it illustrates the benefits of information However, the development of systems for integration. Federal Express and UPS are CVO applications involves government archetypal examples of this type of carrier. and the private sector in the form of both Both have developed their own proprietary the users (truckers) and technology ven- systems for identifying packages (using bar dors, all of whom are involved in develop- codes) and for entering shipment and ing open architecture and standards for other information electronically, includ- interoperability. ing data entry and retrieval at mobile units The standard for truck trailer AEI tags (delivery trucks). This information is key was developed through the American to real-time tracking of packages and to en- Trucking Associations. However, almost suring that the service guarantees are met. no truckers are using tags. Instead, they It is also essential in the integration of air, emphasize tractor tracking and use data- long-distance truck, rail, feeder truck, and bases to associate trailer movements with terminal activities necessary to deliver the tractor movements. service.

Air Regions and Ports

Air cargo is inherently intermodal. Low A somewhat unique and noteworthy in- door-to-door transit time and high reliabil- formation infrastructure has been created ity are the primary justifications for using in Singapore to link all modes of transport, air service, and hence integration of air with terminals, and agents involved in land, air, its feeder service (usually truck, though rail and sea trade in that area. It is called is beginning to be used for postal connec- TradeNet. It essentially replaces about 20 tions) is essential. The International Air different paper documents with 1 elec- Transport Association has created a pro- tronic form. TradeNet has been reported gram titled Cargo Media to develop and to have reduced processing times for trade promote the use of electronic communica- approvals from between two and four days tion for shipment tracking between airlines, to a few minutes or hours and reduced

Interoperability in Intermodal Freight Transport 29 documentation costs by about 20 percent. many such communities. These commu- However, as successful as it is, TradeNet nities are largely distinct from one another, has not been adopted elsewhere. The cost and they are continually evolving. Care- of imposing such a system on various play- ful consideration must be given to how ers is high and requires a degree of gov- various members of the community will ernmental authority that is not duplicated use the information, and how it will rein- in many other places. force or change current business relation- An example of the difficulty is provided ships, power, and competitive conditions. by the recent project WISDOM (Water- If information is perceived as a threat to borne Information System, Distributed to some players, then efforts at harmoniza- Other Modes). This project developed a tion will be resisted, as they were in the prototype architecture for data sharing air cargo industry. among participants in container flows Third, harmonization is occurring through ports, including ship lines, truck- naturally within freight communities, ing firms, freight forwarders, and port ter- compelled by a combination of market minal operators (Cap Gemini et al. 1998, forces (on firms) and geopolitical self-in- p. 19). This project was funded in part by terest on the part of governments. Efforts the European Commission and reached the appear to have been primarily private sec- stage of pilot applications in Rotterdam tor, with government entering as a facili- and Bremen. While the various partici- tator, and in some cases, a convener. pants were quite enthusiastic about poten- Fourth, many of the largest players in tial gains, continuation of the WISDOM intermodal transportation operate in both project is uncertain. Three reasons stand a single modal community as well as an out: (a) concern about sharing of data intermodal community. Railroads and among competitors or others with compet- trucking companies are obvious examples. ing interests, (b) high initial costs, and In this context, whatever is done in con- (c) uncertainty of achieving cost savings nection with intermodal transport must or other benefits. be compatible with operations and information flows within the remainder of the community with its single mode outlook. Fifth, there are noteworthy public sec- Common Themes tor-private sector partnerships such as the and Conclusions ITS, European Commission Fourth Framework programs, and Singapore’s A number of lessons and common themes TradeNet System. To take advantage of emerge that appear to be very important some opportunities in the intermodal in thinking about the harmonization of in- freight arena, governments may have to formation systems in intermodal transpor- take the lead, for example, in cases where tation. there is great fragmentation in the indus- First, perhaps most significant is that try. However, developing a shared vision often the user of the system, the shipper of what is to be harmonized, and what the or owner of the goods being transported, benefits will be, is crucial to success. provides the impetus for such advanced Finally, natural trends in production technology. This point is particularly evi- and distribution are adding complexity to dent in technology’s history and use in supply chains and transportation. These trucking. Thus, understanding the needs naturally lead to opportunities to use in- of shippers is crucial if such benefits are formation technology to advantage. In- to be part of the justification for harmoni- deed, it is often essential for transportation zation of information systems. companies to provide the required infor- Second, harmonization benefits clus- mation technology service to their custom- ters of firms who work together, firms that ers. Furthermore, the more complex the form particular communities within the network, the greater the potential gains to overall freight transportation arena. the carriers themselves in the form of bet- Intermodal transportation encompasses ter equipment use, reduced investment re-

30 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps quirements, more rational pricing, and Bucciarelli, Paola. 1995. The Current better service. Thus, incentives for harmo- Debate on Information Technology: nization are likely to increase simply on Standardization Policy in the Euro- the basis of self-interest. pean Union. In Standards Policy for Information Infrastructure, edited by Brian Kahin and Janet Abbate. Cambridge, MA: MIT Press, pp. 421– Questions 429. Cap Gemini, et al. 1998. WISDOM, In closing, three basic questions get at core Final Report, D1.2–VO.3 (NR 2527). issues in information technology harmo- European Commission. 1994. Large nization: Containers, EUR 15775. EN: • Can areas be identified where in- Bruxelles. creased use of information technology European Commission. 1998. Memoran- will improve the efficiency of the sys- dum of Understanding COST Action tem? If so, is the impediment a lack of 339. EN: Bruxelles. interoperability among information Forster, Paul W. and John L. King. 1995. systems of the various players within Information Infrastructure Standards the community, or is the impediment in Heterogeneous Sectors: Lessons of a different nature, for example, ben- from the Worldwide Air Cargo efits are not seen by all of the players? Community. In Standards Policy for • How will the needs of shippers (custom- Information Infrastructure, edited by ers of the transportation system) Brian Kahin and Janet Abbate. change, and what are the implications Cambridge, MA: MIT Press, pp. 148– of these changes for providers of trans- 177. portation services? Direct mandates Institute for Logistics and Distribution from customers are arguably the most Management (ILDM). 1996. Under- powerful incentives for change. These standing European Intermodal Trans- mandates will provide both specific report. Corby, England: Institute for quirements for harmonization and ma- Logistics and Distribution Manage- jor opportunities to look forward and ment. provide for interoperability in ways that Kahin, Brian, and Janet Abbate, eds. go beyond immediate needs. 1995. Standards Policy for Information • What specific steps will move the pro- Infrastructure. Cambridge, MA: MIT cess forward? This work involves iden- Press. tifying firms and public agencies who Magretta, Joan. 1998. Fast, global, and are critical members of the community entrepreneurial: Supply-chain man- and who are expected to benefit from agement, Hong Kong style, Harvard the effort. Benefits must be identified Business Review (September–Octo- and quantified to evaluate the effort, en- ber):103–114. ergize the process, and lead senior man- van Zijst, W.A. 1993, Report from the agement to make a commitment to Netherlands, in European Ministers of change. Transport ):61–110. Wolfe, Michael. 1998. Trends in the Use of Intermodal Freight Identification References Technology: Fostering Dialog Across Freight Communities. Paper prepared Aylward, Anne D. 1996. Intelligent for the Intermodal Freight Identifica- Transportation Systems and Inter- tion Technology Workshop, spon- modal Freight Transportation, VOLPE sored by the Intelligent National Transportation Systems Transportation Society of America Center Report, (December). Cam- and the U.S. Department of Trans- bridge, MA, VOLPE National Trans- portation (June). portation Systems Center.

Interoperability in Intermodal Freight Transport 31 Article B: Intermodal Transportation and Carrier Liability

This paper presents the need for developing cern to Europeans. At the European Regina Asariotis an integrated liability system is established Union level, the adoption of an intermodal Southampton University and potential regulatory options, as well as liability system by way of European possible key elements of such a system. Commission (E.C.) legislation would pro- September 1998 vide a viable regulatory option. Special consideration needs to be given to the issue of substantive conflict with Summary and Main Conclusions existing conventions. All conventions establish minimum levels of liability. At the The present legal framework determining same time, carriers are entitled to limit or an intermodal carrier’s liability for delay, exclude their liability under certain cir- loss of, or damage to goods consists of (a) a cumstances. Under most of the conven- confused jigsaw of international conventions, contractual increase of the carrier’s tions designed to regulate unimodal car- liability is admissible. riage, (b) diverse national laws, and To be both acceptable to industry and (c) standard term contracts. Liability is compatible with states’ international ob- fragmented and unpredictable, thus gen- ligations under existing transport conven- erating unnecessary costs. Past attempts tions, any new liability regime should be at developing a uniform liability system voluntary. A voluntary regime that oper- have been unsuccessful. Increasing prolif- ates as a default-system, allowing contract- eration of national solutions further com- ing parties to “opt out,” but otherwise plicates the situation and illustrates the overriding any conflicting contractual pro- urgent need for uniform regulation at the visions, would ensure more widespread international level. availability of this regime than traditional Any potential solution must take into “opting in” systems. account the key features of current prac- The liability system should be applicable tice and provide satisfactory means of (by default) to all intermodal transport and avoiding or reducing current problem fac- should also enable contracting parties to tors. Liability rules should be simple and any unimodal transport contract to adopt predictable and operate in a straightfor- its provisions (in which case it would reward and cost-effective way. At the same place all otherwise applicable law). time, any new liability system must be Any new intermodal liability regime compatible with existing international law, should provide for carrier liability in ex- that is, address the issue of overlap and cess of established minimum levels. At the conflict. Uniform rules could be success- same time, the liability rules should be fully adopted by way of international con- simple and transparent, minimizing uncer- vention. However, any such solution tainties and avoiding the need for costly would take considerable time to develop litigation. The rules should cover liability and may eventually fail to be accepted by for all types of losses (damage, loss, or de- national parliaments. lay) and operate irrespective of (a) the The successful development of an in- modal stage where a loss occurs and terregional convention (European Union– (b) the causes of a loss. United States) would establish an effective The most cost-effective solution ap- uniform liability regime and provide a sig- pears to be a system that concentrates the nificant political impetus for an interna- transport risk on the contracting carrier tional agreement. This convention, (the intermodal operator procuring or un- however, would require reconsideration of dertaking to procure carriage). This sys- recent U.S. proposals for national legisla- tem would provide for strict and full (e.g., tion (draft U.S. Carriage of Goods by Sea invoice value plus 10 percent or market (U.S. COGSA 1998)), which are of con- value) liability throughout the intermodal

Intermodal Transportation and Carrier Liability 33 transaction. The liability would be allo- investing in technological developments, cated to the contracting carrier as a mat- improving the systems for transferring ter of agreed commercial risk, thus making cargo between different modes and mak- the need for separate cargo insurance ing this a sophisticated industry. largely redundant and avoiding costs as- Over the past decade, the market for sociated with legal uncertainties and evi- transport services has undergone a dra- dentiary inquiries. matic change due to deregulation, time- As the regime would not be mandatory, based competition, and the resulting focus operators who do not wish to assume ex- by many transport users on just-in-time tensive liability would be able to opt out manufacturing strategies. These develop- of the regime. However, the system should ments, along with globalized production provide an attractive option for both the and supply-chain management, have customer, who would enjoy a higher stan- turned the traditional transaction-based dard of service and better protection, and relationship between cargo owner and the intermodal operator, who would be operator into what is now being reported able to offer a competitive service. by many manufacturers as a choice of part- Through voluntary incorporation into ners. As many more firms pursue unimodal contracts, this type of regime downsizing and outsourcing in the inter- may attract, in time, widespread use and est of improved competitiveness, innova- could eventually play a role in developing tive contractual arrangements continue to an international regime. develop. The move by transport users to Any new regime should take develop- contracted logistics supply is often accom- ments regarding the use of electronic com- panied by a carrier-reduction strategy, munication and documentation into which focuses on selecting a few trusted account. carriers for longer-term use. The current intermodal liability framework does not reflect developments that have taken place in terms of cargo volume, The Need for an transportation patterns, technology, and Integrated Liability System markets. Operators providing modern and cost-effective transport logistics should have Intermodal Transport at the opportunity to make their liability com- the Turn of the Century patible with their otherwise sophisticated services; currently, this is not the case. Globally and at the European level, trade is increasingly conducted by way of intermodal transportation. According to the Current Legal Liability Framework latest annual United Nations Conference on Trade and Development (UNCTAD) No uniform regime governing liability for Review of Maritime Transport, the volume cargo loss or damage is in force. The of world seaborne trade in containerized present legal framework determining a cargo is forecast to more than double over carrier’s liability consists of (a) a confused the next few years and to rise to 1 billion jigsaw of international conventions de- tons by the year 2006. Most of this con- signed to regulate unimodal carriage, tainerized cargo will involve transporta- (b) diverse national laws, and (c) standard tion by more than one mode before term contracts. reaching its final destination. Construct- As every intermodal transaction is ing road networks and land-bridges, de- made up of unimodal stages, a number of veloping block train services, and mandatory international liability regimes undertaking international joint ventures potentially apply, depending on the scope between operators continuously increase of application and the stage of transport the potential for the expansion of inter- where a damage or loss occurs. Accord- modal transport. At the same time, inter- ingly, two different regimes may apply to modal and port operators are heavily the same claim or the regime that applies

34 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps can only be identified when it is clear dur- responsibility and impossible to accurately ing which stage of the transport a loss or preassess liability. damage occurred. Where the stage of trans- Uncertainty concerning the contract port during which a loss or damage oc- and the identity of the carrier, in particu- curred cannot be identified, where loss or lar the role and liability of the entity ITO damage occur gradually, or in the course with which the consignor deals (agent, of (value-added) services ancillary to forwarder, carrier, third-party logistics transportation (e.g., warehousing), a provider) gives rise to a number of prob- carrier’s liability will often depend on na- lems. For example, if the ITO is not a car- tional laws or the contractual agreement. rier, the consignor has difficulty As a result, both the applicable liability identifying and pursuing the actual car- rules and the degree and extent of a rier responsible for loss or damage. By the carrier’s liability vary greatly from case to time the consignor does so, evidence may case and are unpredictable. Liability for be hard to obtain or a suit may be time delayed delivery is not always covered by barred. In particular, the consignor may the same rules as liability for loss of or find that the liability of the actual carrier damage to the goods. is governed not by an international regime, The current state of affairs is of particu- but by local law with a short limitation lar concern in view of current intermodal period, the content of which is unknown transport practice, which increasingly to the consignor. If the time and place shows the following features: when damage occurred cannot be estab- 1. One operator: One party, the inter- lished, what then? Currently, there is no modal transport operator (ITO), pro- uniform answer to this question in the case cures or undertakes to procure the of an ITO. A variety of contractual stan- carriage of goods (often including an- dard term documents, such as the Inter- cillary services) by unspecified modes national Federation of Freight Forwarders of transport. This party may or may Association (FIATA) bill of lading (FBL) not carry out all or a part of the trans- 1992, provide varying liability rules, but port. these documents are always subject to 2. Anonymity: The consignor is neither mandatory laws. aware of nor, in many instances, inter- Substantive uncertainty as to the appli- ested in the choice of modes or the iden- cable legal regime and its effects (e.g., fi- tity of modal subcarriers. Cargo owners nancial limits of liability, time limits for may not control transport arrangements making a claim) affects the speed and cost themselves (e.g., when contracting on a of claims handling and may lead to litiga- number of international commercial tion. Provisions in standard term docu- terms (INCOTERMS)). Transport is in- ments are often difficult to understand and creasingly becoming a commodity. give precedence to mandatory national and 3. Sealed units: The use of containerized international law without providing fur- transportation leads to difficulties in at- ther guidance as to which regime is man- tributing a loss to a particular mode or datorily applicable. Which mandatory laws carrier and in establishing the regime will be applied depends not only on under which liability is to be determined. whether the stage of transport where a loss 4. Changing demands: Certain transport occurs can be established, but also on the users are increasingly concerned about courts in the country in which proceedings delays in delivery in connection with are brought—a matter that can only be effective supply-chain management. partly foreseen at the time of contracting. Existing regulation is fragmented and incomplete because potentially relevant Uncertainty and Diversity regimes were often drafted for commercial practices that are less widespread today. Uncertainty raises costs and discourages Whether a particular regime covers a loss trade. Uncertainty about the time of loss in any given instance is often subject to or damage makes it difficult to allocate nationally different rules and views.

Intermodal Transportation and Carrier Liability 35 The diversity of contractual liability predictable and cost-effective liability sys- rules, as well as mandatory national and tem that eliminates much of the present international liability rules, make compre- uncertainty and cuts costs associated with hending central issues difficult, particu- loss-recovery would have clear advantages. larly the differing liability systems, the At the same time, such a regime may have differing burdens of proof, and the differ- marked benefits for operators, particularly ing requirements for the successful insti- those cooperating with large commercial tution of legal proceedings. The customers; in this relationship, an im- proliferation of potentially relevant re- proved claims-handling service, ensuring gimes encourages “forum shopping” and speed and certainty and reducing the po- costly multiple proceedings. tential for contention and litigation, may At present, applicable legal regimes, be a significant benefit. For both users and their content, and interpretation are of- operators, an improved legal framework ten uncertain, and potential liability can- may be considered an investment in the not be assessed in advance. Standard future, facilitating the sustainable devel- contract terms are based on systems that opment of intermodal transportation. are far too complex for operational efficiency. This situation is undesirable and costly. Too many factors require clarifi- Past Attempts at Unification cation before a simple question can be an- swered: Who is liable (and to what Over the years, there have been several extent) for delay, loss of, or damage to attempts to solve the problem by a uniform the goods? law text of some kind, but none of these Although it is not possible to accurately attempts has provided a satisfactory result. assess the degree to which unnecessary costs are generated, clearly substantial costs associated with claims handling and The 1980 United Nations litigation could be avoided by both cargo Convention on Multimodal interests and operators (or their liability Transportation of Goods insurers) if the legal liability framework The United Nations Convention, which was simpler and less fragmented. Current in principle operates a uniform system of regulation of liability is not cost-effective, liability for claims arising out of nor does it provide adequate protection multimodal transport contracts, has failed for the customer. In view of the uncer- to attract sufficient signatures and ratifi- tainties about incidence and extent of a cations to enter into force. One of the rea- carrier’s liability, separate cargo insur- sons appears to be that the convention is ance is a necessity. This insurance, how- largely based on the 1978 United Nations ever, does not cover all risks, such as Convention on the Carriage of Goods by delay. It also invites recourse actions Sea (Hamburg Rules). Although in force, against carriers caught by mandatory li- the Hamburg Rules have not been ratified ability and results in a peculiar and costly by any of the major shipping nations. This reshuffling of the costs of incurred losses situation is unlikely to change. The to the benefit of no one. Multimodal Convention does not provide a truly uniform (i.e., mode-independent) system for liability arising out of intermodal transport. If the particular Conclusion stage of the transport where a loss occurs is known, the convention gives precedence The present liability system is inefficient to applicable international conventions or and requires change. Because carriers and national law providing for a higher limit shippers have found ways to cope with the of liability (Article 19). Accordingly, the inadequacies of the system, change will need (or incentive) to establish the stage appear attractive only if it translates into where a loss occurs and to determine tangible benefits. For transport users, a whether diverse mandatory national or

36 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps international law applies remains. More- considered when drafting a uniform inter- over, the convention provides for a differ- national regulation, both in terms of the ent financial limit if a contract does not substantive solutions offered and in terms include carriage of goods by sea or inland of the legal (possibly mandatory) effect. waterway (Article 18 (3)).

The UNCTAD/Interstate Commerce Possible Future Regulation Commission Model Rules for Multimodal Transport Documents The Aims of Any Future Regulation

The UNCTAD/Interstate Commerce Any potential solution must take into ac- Commission (ICC) Model Rules, which count the key features of current practice came into effect on January 1, 1992, do and provide satisfactory means of avoid- not have the status of mandatory law, but ing or reducing current problem factors. will override any conflicting contractual Liability rules should be simple and pre- provisions if they are incorporated into a dictable and operate in a straightforward contract. Like the Multimodal Conven- and cost-effective way. At the same time, tion (Article 4), the rules give precedence any new liability system must be compat- to mandatory law (Rule 13). The rules ible with existing international law, that are based on the “network principle.” is, address the issue of overlap and con- That is, the rules provide that when the flict. To be successful, a new regime should unimodal stage of the transport where a therefore be— loss occurs can be established, the liabil- • Compatible with existing unimodal ity is limited according to the national or regimes international law that would have applied • Uniform mandatorily if a separate (uni-modal) • Cost-effective contract had been made for that stage • Acceptable to the transport industry (Rule 6.4). Again, the need (or incentive) to examine whether a unimodal regime would have applied remains. Compatibility with Existing Because of the failure of international Unimodal Regimes attempts to provide a uniform solution, a certain “drafting fatigue” has occurred. At A central and problematic issue in the same time, individual states are opting developing an intermodal liability system for national measures to resolve the prob- is the existence of mandatory conventions lems created by the lack of a coherent li- that govern the carriage of goods by sea, ability system. Some European states have air, road, and rail. All of these transport adopted the 1956 Convention for Carriage conventions establish minimum levels of of Goods by Road (CMR) (i.e., interna- liability. At the same time, carriers are en- tional road-carriage) regime for domestic titled to limit or exclude their liability un- carriage or have closely modeled their leg- der certain circumstances. Under most of islation on it. In the United States, a draft the conventions, a contractual increase of bill (draft U.S. COGSA 1998) proposes to the carrier’s liability is admissible. extend the mandatory application of a As every intermodal transaction is made modified Hague–Visby liability regime to up of different modal stages, it is unclear intermodal contracts (which include par- whether existing conventions have a man- tial carriage of goods by sea) to or from the datory effect in connection with intermodal United States. The proliferation of such transport. This has been a contentious is- unilateral, national solutions further com- sue for many years. The answer depends plicates the current liability situation and partly on the convention at issue (i.e., its illustrates the urgency of achieving unifor- individual scope of application) and partly mity at the international level. At the same on the type of undertaking contained in a time, national developments need to be contract for intermodal transportation (i.e.,

Intermodal Transportation and Carrier Liability 37 whether or not the contract specifies the of an interregional regime would entail, respective modes of transport). however, reconsideration of recent propos- In considering options for an inter- als for national legislation in the United modal liability system, the issue of con- States (draft U.S. COGSA 1998). The pro- flict needs to be addressed. This is relevant posed legislation consists of a modified regarding both the type of regulatory version of the Hague–Visby (i.e., maritime) framework and substantive issues, such as liability regime and would be mandatorily existing minimum levels of liability on the applicable to all intermodal transports in- one hand and existing limitations or ex- volving sea-carriage to or from the United clusions of liability on the other hand. States. Europeans are concerned about the unilateral nature of the proposed legislation and its compatibility with existing Regulatory Options for transport conventions. a Uniform Liability Regime

A potentially effective means of achieving E.C. Legislation uniformity is by way of international or interregional convention or, at the Euro- At the E.U. level, a regional uniform re- pean level, by way of E.C. Convention or gime could be created by way of second- E.C. legislation. In principle, an interna- ary E.C. legislation. Directives and tional convention would be the best means regulations are possible instruments. of ensuring the application of a unified While a directive is binding on member system at an international level. However, states and requires implementation by way as the example of the 1980 United Nations of national legislation, a regulation is di- Multimodal Convention shows, the suc- rectly applicable and effective. cess of any attempt at agreeing on a uni- Special care would need to be taken in versally accepted regime is uncertain. drafting such legislation to ensure the com- A regional convention, such as an E.C. petitiveness of operators and to adequately Convention would be subject to the same take into account the transportation of caveat, albeit to a lesser extent: there are goods within the European Union, as well potentially fewer state parties with poten- as into or out of the European Union. Con- tially more common interests. National le- sideration would also need to be given to gal systems are less diverse and, in some the compatibility of this regime with those areas (such as conflict of laws, jurisdic- applicable in neighboring and other mation, and enforcement of judgments), uni- jor trading partner states. form. A regional solution would establish, in the short to medium term, a predictable liability regime at the European level, Mandatory or but could provide, in the longer term, an Nonmandatory Regime? incentive and key elements for an international consensus. Any regional solution A mandatory international or regional re- would need to ensure the global competi- gime that applies by force of law creates tiveness of European operators. uniformity. At the same time, such a regime An interregional convention agreed to may be rejected by some sectors of power- by two important trading blocks (Euro- ful national industries lobbying their gov- pean Union–United States) would estab- ernments during the negotiation, drafting, lish an effective uniform liability regime and ratification processes and thus fail to and, very likely, lead the way toward a attract sufficient support. Fear of change, broad international consensus by provid- suspicion of mandatory law, or uncertainty ing a significant political impetus. In view as to possible implications may lead to draft- of the increasingly chaotic legal framework ing more complex provisions that in turn and the urgent need for action, this step create new insecurities and eventually per- would clearly be the most promising and petuate a cycle of rejection and ineffective effective way forward. The development attempts at achieving a satisfactory result.

38 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Clearly, any viable solution must be Cost-Effectiveness acceptable to the affected industries. Model rules, which are by definition only The liability system needs to be simple and applicable if the parties to a contract so transparent, thus avoiding uncertainty and agree, would not encounter any significant costly litigation regarding the applicable resistance. However, past experience rules, terminology, and evidentiary mat- shows that such voluntary solutions may ters, such as the place and cause of dam- fail to lead to widespread application of a age or loss. The rules should cover liability regime because contracting parties fail to for all types of losses (damage, loss, or de- opt for this solution. Reasons for this fail- lay) and operate irrespective of the modal ure may be inertia, lack of awareness, or stage where a loss occurs and the causes uncertainty as to the legal implications. of a loss. Moreover, model rules (other than those The most cost-effective solution, dis- contained in legislative instruments) lack pensing in many instances with the need the legal status of mandatory national or for separate cargo insurance, would be to international legislation, which take pre- concentrate the transit risk on one party cedence in the event of overlap or conflict. and provide for strict and full liability of One possibility of achieving widespread the contracting carrier (the intermodal op- application of a nonmandatory new re- erator procuring or undertaking to procure gime would be to adopt a default system, carriage). Unlimited liability of the con- which applies unless the parties agree oth- tracting carrier would not be realistic and erwise. Such a system would be voluntary, probably would be uninsurable. However, as parties would be able to “contract out,” liability should be higher or at least as high but would be more likely to achieve wide- as the insurable value under cargo insur- spread application, as parties need not ance, that is, the invoice value plus 10 per- “contract in” (e.g., the 1980 United cent, or the market value of the goods, in Nations Convention on the International the claimant’s option. The contracting Sale of Goods). To ensure transparency of carrier would be liable for delay, loss of, regulation and predictability of liability, or damage to the goods, regardless of fault such a regime, although not mandatory, and the stage of transport where the loss would need to be overriding, that is, take occurred. This scheme would make costly precedence over any conflicting contrac- inquiries into the applicable legal regime tual provisions and not be subject to modi- and the causes and place of a loss largely fication (i.e., partial application). redundant. These matters may remain relevant in connection with feeder contracts and in the context of recourse actions by the contracting ITO against subcontract- Substantive Key Features of a ing unimodal carriers. However, with re- Possible New Liability Regime gard to subcontracts entered into by a contracting ITO, the regime could be Compatibility with adopted voluntarily by contractual incor- Existing Regimes poration. From the transport user’s point of view, a clear set of mode-independent To avoid substantive conflict with exist- liability rules concentrating the risk of ing mandatory liability regimes, a new delay, loss, or damage to the goods through- nonmandatory regime should provide for out the intermodal transaction on one liability in excess of established minimum party would provide better protection than levels. This provision would allow the re- existing standard term contracts and thus gime to be incorporated into unimodal mean enhanced quality of service. subcontracts, ensuring effective use of the liability rules in back-to-back contracts.

Intermodal Transportation and Carrier Liability 39 Acceptability to Industry cargo insurance will not lead to a dispropor- tionate increase in the carriers’ liability in- If a nonmandatory (but overriding) “de- surance premiums and thus in freight rates. fault” system were adopted, a carrier who did not wish to assume extensive liability would be able to opt out of the regime. Ad- Electronic Documentation herence to the regime would be a matter of commercial decision making. However, a Any new legal regime for carriage of goods cost-effective regime that offers a high de- should allow for electronic documentation gree of protection would be particularly at- on a voluntary basis (cf., 1996 United tractive to cargo interests and thus be Nations Commission on International competitive. Unimodal carriers could opt Tarde Law Model Law on Electronic Com- into the regime (by contractual incorpora- merce; INCOTERMS 1990, A8). tion), thus making their services more com- For a more detailed account of the mat- petitive. Such voluntary adoption would ters raised in this paper, see— extend, in effect, the application of the liability system to a wider spread of contracts, Asariotis, Bull, Clarke, Herber, Kiantou- that is, to transport contracts generally. Pampouki, Moran-Bovio, Ramberg, de Wit, Zunarelli. 1998. Intermodal Trans- portation and Carrier Liability, Draft Insurance Implications Report submitted to the European Com- mission, July 1998. Any substantial increase of carrier liabil- United Nations. 1997. UNCTAD Review ity has implications for the structure of of Maritime Transport. (UNCTAD/ insurance coverage and may affect the ex- RMT(97)/1). New York/Geneva, Swit- isting market. In particular, the position zerland: United Nations. Paragraph 5 and market share of present insurance pro- at p. 13, 74–76. viders may be changed. Kindred, Hugh M, and Mary, R. Brooks. Under any of the unimodal conven- 1997. Multimodal Transport Rules. The tions, carrier liability is based on fault and Hague/London/Boston: Kluwer Law subject to a financial ceiling. Although in International. most instances, contracting parties can agree on an increase of the carrier’s liabil- No studies have been carried out to give ity (e.g., by including in the transport docu- a reliable indication of how much money ment an express declaration of value), this is being lost as a result of the inadequacies does not usually happen for fear of a dis- of the fragmented liability framework. proportionate rise in the freight rate. More- This is illustrated by the fact that the re- over, even where full liability is agreed cent U.S. Department of Transportation upon, the need for separate cargo insur- Cargo Liability Study (August 1998) uses ance remains, as a carrier is only liable for figures from 1975. Obviously, these data damage or loss arising from its own fault. do not take into account the dramatic Simplifying the liability rules by shift- changes that have taken place in terms of ing the risk of cargo loss, damage, or delay cargo volume and transport patterns and to the carrier would make the need for practices over the past two decades. separate cargo insurance largely redundant Any potential conflict with Article 41 and thus reduce costs. However, this shift CMR could be resolved by amending that presupposes that the regime covers the provision so that contractual increase of whole period from start to end and that liability is admissible. the savings made in dispensing of double

40 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Article C: U.S. Intermodalism: Cargo Liability Issues

Introduction where the carrier has full responsibility for Richard Biter the goods in its care to the shipper or con- Deputy Director In seeking to understand the U.S. laws and signee assuming all or some portion of the Office of Intermodalism regulations governing cargoes moving to, liability for the goods in return for a more U.S. Department of from, or within the United States, the most favorable transportation rate. Where trans- Transportation basic statements that can be made are as portation involves small shippers, such as Washington, DC follows: a local gift shop or an individual needing • No single regime of rules or uniform to send goods or priority business letters November 1998 liability system for addressing loss and occasionally, carrier liability terms are damage issues exists. stipulated in the bill of lading and offered • Few reliable sources for data allow de- on a take-it-or-leave-it basis. tailed analysis of the problem. Released value rates are used in both At present, the terms and conditions of contract and common carrier arrange- shipment are key to determining how li- ments. Under these arrangements, the ability is apportioned among the various shipper or consignee agrees to assume all parties to the intermodal transportation at or a portion of the liability in return for a issue. In the almost two decades of sub- more favorable transportation rate. When stantial economic deregulation of the assuming cargo liability, the shipper or transport modes, the marketplace forces consignee can self-insure or secure third- of competition have proliferated the ways party insurance to protect against loss or shippers and carriers resolve these issues. damage. These variations fall generally into three Common carrier liability has two dis- approaches: tinct portions: domestic liability, where the • Contract law, where the terms of the carrier has full responsibility for the goods agreement govern loss and damage while in its care and international liabil- • Released value rates, where the shipper ity, where there are a variety of defenses, assumes all or a portion of the liability especially for the maritime carrier. In ad- in return for a more favorable transpor- dition, several international liability trea- tation rate ties governing goods moving by sea and • Common carrier liability, where the car- air are active or pending. Exhibit 1 shows rier has full responsibility for loss and the complexity of the common carrier li- damage ability system of the United Sates and In the United States, most commercial monetary implications for each regime. transportation occurs under contract. Appendix A shows the complexity world- This is especially true for intermodal wide, breaking out the requirements for shipments. Shippers generally include li- most of the world. ability provisions in their contracts. A In domestic transportation, carriers 1997 survey of about 100 shippers indi- sometime “interline” shipments with cated approximately one-half had long- other carriers or with owner-operators, term contracts with their carriers.1 Other that is, act so that multiple carriers are estimates indicate 80 percent or more of involved in a move. If loss or damage oc- total domestic rail tonnage moves by con- curs, the shipper or consignee files a claim tract.2 with the original carrier who, in turn, Where large volumes of goods are in- seeks to reclaim those amounts from the volved, such as major retail stores and other carrier(s) once the point or source Fortune 1,000 companies, the terms and of damage is identified or allocated. conditions of liability are a matter of ne- In terms of statistics, within the United gotiation between the parties. Under these States, cargo theft (reported and unreported) arrangements, liability can range from the is estimated at $10 billion a year with traditional common carrier arrangement damage totaling about 25 percent of that

U.S. Intermodalism: Cargo Liability Issues 41 Exhibit 1 Limits On International Multimodal Cargo

Per Unit of Weight Dollars per Treaty Per Package Per Kilo Pound U.S. Carriage of Goods by $500 per package Sea Act or customary unit None None on which the freight charges are based Visby Amendment 667 SDRs 2 SDRs $667 A $0.91 A $760 B $1.04 B $853 C $1.15 C $912 D $1.23 D $933 E $1.27 E Hamburg Rules 835 SDRs 2.5 SDRs $1.14 A $835 A $1.30 B $952 B $1.44 C $1,068 C $1.54 D $1,143 D $1.59 E $1,169 E International Multimodal 920 SDRs 2.75 SDRs Transport Convention

· If a sea leg is involved $920 A $1,049 B $1.25 A $1,177 C $1.43 B $1,284 D $1.58 C $1,288 E $1.69 D $1.75 E · If no sea leg is involved 920 SDRs 8.33 SDRs $3.79 A $4.32 B $4.80 C NA $5.13 D $5.30 E

A (When 1 SDR = $1.00) Summer 1985 D (When 1 SDR = $1.37) April 1988 B (When 1 SDR = $1.14) February 1986 E (When I SDR = $1.40) February 1992 C (When 1 SDR = $1.27) June 1987 SDR = Special drawing right

Source: Transportation Consumer Protection Council

42 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps total or $2.5 billion. The Federal Bureau through filing of released rates,9 if those of Investigation sets the theft loss at $3.5 rates were just and reasonable. For vari- billion but supports estimates that 60 per- ous reasons, several types of carriage recent of cargo theft is unreported.3 The mained outside of this liability regime. In value of goods shipped in the United States addition, the Pomerene Bills of Lading Act is roughly $6 trillion domestic and $1 tril- of 1916 gave further statutory status to the lion international for a total of about $7 bill of lading and also defined the extent trillion.4 On a value basis, theft and dam- of carriers’ liability in relation to the con- age affects less five percent, and possibly ditions stated in the bill of lading. less than two percent, of all goods moving Motor carriage was brought under the to, from, or within the United States. How- ICC’s jurisdiction in the 1935 Motor Car- ever, actual numbers vary by commodity, rier Act and thus became subject to the with the higher-valued goods being tar- Carmack Amendment’s liability regime.10 geted much more often (see appendix B). Subsequently, freight forwarders were also This paper outlines the laws creating brought under ICC jurisdiction and the today’s liability regimes and explores the Carmack liability regime.11 issues influencing any international liabil- In addition to its jurisdiction over re- ity regime for intermodal cargoes. leased rates, the ICC regulated the processing of claims for loss, damage, injury, or delay to property transported in interstate commerce by railroads, express compa- History nies, motor carriers, water carriers, and freight forwarders. The ICC established The concept of common carriage devel- requirements for the filing, acknowledg- oped in Europe during the middle ages. ment, and disposition of claims and re- Basic to common carriage is the notion of quired that a claim be investigated and treating all customers in the same way.5 paid, declined, or compromised. However, Besides the duty to avoid discriminating the ICC did not itself adjudicate claims. among customers, the other two elements of common carriage are the duties to provide service and to be subject to strict liability.6 Market Forces and Contracts In 1887, Congress adopted the Inter- state Commerce Act. The act originally The Motor Carrier Act of 1980 partially applied only to railroads. It established the deregulated motor carriage. Released rates Interstate Commerce Commission (ICC) were only required to be reasonable and and gave the ICC the function of ruling became easier to obtain.12 The Staggers on the reasonableness of rates. Public ac- Rail Act of 1980 provided substantial de- cess rates at the commission were an es- regulation of the railroad industry.13 In ad- sential element of ICC rate regulation. dition, it allowed carriers and shippers to Carrier liability became the subject of enter freely into contractual agreements federal legislation in 1906 in the Carmack on limitation of liability without regard to Amendment to the Interstate Commerce reasonableness. Act.7 The Carmack Amendment estab- Most domestic U.S. intermodal ship- lished a codified strict liability regime with ments, perhaps in excess of 90 percent,14 established common carrier defenses to are moved under contract, and the terms liability. The regime provided for full-value of that contract determine responsibility compensation, except to the extent that for loss and damage. In other words, these carriers were able to limit liability by fil- shipments fall outside the traditional com- ing released rates. mon carriage system. They are transported The 1915 Cummins Amendment abol- in a marketplace environment where a ished the practice of limitations on liabil- carrier may enter into a contract “to pro- ity;8 the second Cummins Amendment in vide specified services under specified 1916 allowed limitations on liability rates and conditions.”15

U.S. Intermodalism: Cargo Liability Issues 43 Under U.S. law, the carrier and shipper less than 25 percent of all truck shippers negotiating for contract carriage may make use the arrangement known as the any reasonable contractual stipulations, “Carmack Amendment.”17 This means the except that they may not waive provisions majority of U.S. freight is handled without governing the carrier’s registration, insur- loss and damage requirements being man- ance (other than cargo), or safety fitness. dated by law. Even where common carrier Contracts of carriage determine liability ac- service is provided, there are categories or cording to the desires of the parties to the classes of freight that are exempt from li- contract. Depending on contract terms and ability provisions or are treated specially by conditions, disputes normally are resolved other sections and subsections of transport either in the courts or by arbitration. law. These include the following:18 Widespread commercial use of released • Agricultural Carriage—Exempt19 value rates has its genesis in the economic • Household Goods—Special Treatment20 deregulation acts of 1980.16 These acts al- • Express and Package Carriage—Special lowed shippers and carriers to mutually Treatment21 agree to limit or remove a carrier’s tradi- • Incidental to Air—Exempt22 tional common carrier responsibility to be • Other Exemptions—Intrastate carriage fully liable for goods it was transporting. even when performed by interstate car- Although released value rates were legal for riers;23 wood chips; broken, crushed, decades, they required prior approval from and powdered glass; transportation in the ICC, which rarely granted such requests. a municipal zone; occasional carriage; These arrangements, in which shippers and emergency towing24 can self-insure or secure insurance at rates Where common carrier obligations for or coverage levels that are more favorable loss and damage still exist, they consist of than could be obtained by their carriers, a complex mosaic of regulatory structures, became commercially popular among each with their own requirements and li- larger shippers. They became popular ability. Exhibit 2 compares the different among carriers serving medium and modal liability regimes. smaller business because transportation services could be offered at rates that served market needs. Released value rates can be offered in either contract or com- United States Domestic mon service. Truck

The Trucking Industry Regulatory Re- Common Carrier Liability form Act of 1994 (TIRRA) eliminated the ICC tariff filing requirement for motor car- Finally, there is the traditional framework riers acting independently in setting their of full common carrier liability. In the rates.25 When the Interstate Commerce United States between 1906 and the Commission Termination Act of 1995 1970s, Congress created an economic regu- (ICCTA) was adopted, much of the Inter- latory framework that made the common state Commerce Act was eliminated.26 carrier—railroad, freight forwarder, or Without ICC oversight of the reasonable- trucking company—fully responsible for ness of released rates, the Carmack Amend- the goods in its care. This liability regime ment has been significantly changed. has only five general defenses available to Under the ICCTA, neither the Department the carrier or forwarder: act of God, act of of Transportation (DOT) nor the Surface public enemy, act of shipper himself, act Transportation Board (STB) has author- of public authority, and inherent vice or ity to compel a carrier to pay or settle a nature of the goods. claim. The function of compensating for Given the high use of contracts and re- loss and damage now rests with the courts. leased value rates in today’s operating envi- United States motor carriers are liable ronment, a reasonable rough estimate is that to the person entitled to recover under the

44 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps bill of lading or receipt for the goods.27 The board may limit liability to a value carriers’ liability is for the actual loss or established by written declaration of the injury to the property caused by (a) the shipper or by written agreement between receiving carrier, (b) the delivering carrier, the parties. or (c) another carrier over whose line or Internationally, there seems to be little route the property is transported within call for a motor carrier liability conven- the United States (or from a place in the tion between the United States and Eu- United States to a place in an adjacent for- rope since virtually no direct link trucking eign country) when transported under a occurs between our nations aside from through bill of lading. some limited RO/RO (roll-on/roll-off) A carrier also may limit liability if that maritime trade.30 However, U.S. and Eu- limit is reasonable under the circum- ropean motor carrier liability regimes do stances surrounding the transportation. become an issue when a shipper or con- The statute is not specific as to who tracting carrier directly arranges and con- should determine reasonableness of a li- tracts for connecting modal movements as ability limitation. The statute does not part of an overall through movement be- assign to either DOT or STB the func- tween the United States and Europe. tion of determining reasonableness, and it appears that this issue may be left to the courts to determine in a claim for Rail damages. The motor carrier (other than a house- Rail carriage liability is not governed by hold goods carrier) need not file tariffs the ICCTA. Like a motor common carrier, with the STB. However, the ICCTA pro- a rail carrier is liable to the person entitled vides that the carrier, upon request of the to recover for the actual loss or injury to shipper, supply the shipper with a writ- property caused by it.31 However, a rail ten or electronic copy of the rate, classifi- carrier may establish rates for transporta- cation, rules, and practices (including tion of cargo under which (a) the liability limits on liability) upon which any rate for carriage is limited to a value established applicable to a shipment is based. The copy by written declaration of the shipper or provided by the carrier must clearly state by written agreement between the shipper the dates of applicability of the rate, clas- and the carrier; or (b) specified amounts sification, rules, or practices. are deducted, pursuant to written agree- In addition, a carrier and a shipper may ment between the shipper and the carrier, enter into a service contract governed by from any claim against the carrier with specified rates and conditions.28 This kind respect to cargo carried. of contract is not governed by the stan- The Staggers Rail Act gave rail carriers dard liability regime.29 In a service con- the freedom to limit liability contractually, tract, the shipper and carrier may waive without governmental oversight of the rea- any rights and privileges relating to mo- sonableness of established rates. Actions tor carriage. may be brought only (a) against the origi- Civil actions may be brought in either nating rail carrier at the point of origin, federal or state courts against the deliver- (b) against the delivering rail carrier in the ing carrier in a court in a state where the judicial district where the claimant has its defendant carrier operates. Action may principal place of business if the deliver- also be brought against the carrier that ing carrier also operates in that district, caused the loss or damage in the judicial or (c) against the delivering rail carrier at district where the loss or damage is alleged the point of destination. to have happened. Claims must be filed Claims also may be brought in the dis- within nine months, and lawsuits must be trict where the loss or damage is alleged brought within two years. to have occurred. Claimants have at least Household goods carriers may petition nine months to bring claim and up to two the STB to modify, eliminate, or establish years to file suit. Rail carriers’ liability for transportation rates. Consequently, the loss and damage of goods transported

U.S. Intermodalism: Cargo Liability Issues 45 between points within a given country is air carriers will provide the opportunity governed by the law of that nation. There for the shipper to declare higher value. is no international liability regime for rail Furthermore, the liability limit does not shipments. apply if the damage is caused by the will- ful misconduct of the carrier, in which case the claimant may seek full damage resti- Air tution, or if the air waybill fails to contain essential information. When using air bills of lading, shippers The air waybill requires 17 documen- may consign the goods to a bank at desti- tation details. Absence of some of these nation, directing the bank to retain con- details from the air waybill may cause for- trol of the goods until the consignee pays feiture of the limitation on liability pro- the required amount. The liability of U.S. vided to cargo carriers under the Warsaw air carriers, with respect to loss, damage, Convention. A lower limitation may not and delay of air cargo moving in U.S. do- be negotiated, but the shipper and the car- mestic carriage, has been deregulated. The rier may negotiate a higher limit. A car- federal government no longer regulates rier is presumed liable for loss, damage, or carrier tariffs for carriage of domestic air delay unless it proves that it has taken all cargo. The air carriers are subject to liabil- necessary measures. ity regimes based on the air common car- Like maritime carriers, air carriers also rier liability regime.32 Thus in U.S. use contractual extensions of the air re- domestic air carriage, air carriers are liable gime to related surface transportation. for loss and damage if caused by the negli- Such contractual extension is allowed to gence of the carrier or its agents. The terms the extent allowed by applicable surface of liability, including limitation, are pre- transportation law. Most countries have sented by the carrier to the shipper in the adopted an updated version of the War- air waybill and are contractually accepted saw air waybill.33 The United States has when shipment is made on that air way- not done so. bill. The U.S. Departments of State and Transportation have urged Congress to ratify the 1975 Montreal Protocol No. 4, which addresses air cargo transport liabil- International ity. The protocol does not affect the current limit of liability, but would make a Air major contribution in air cargo facilitation by allowing for electronic data transmis- Internationally, the Warsaw Convention sion. It would eliminate several archaic of 1929, applicable to international air requirements under the Warsaw Conven- commerce, became effective for the United tion, particularly the requirement that a States in 1934. The Hague Protocol was copy of the air waybill accompanies the adopted in 1955 as an amendment to the goods and that the air waybill be completed Warsaw Convention, but it has not been before the carrier accepts the goods. ratified by the United States. Most other nations have adopted this revision of the Warsaw Convention. Maritime Under the Warsaw Convention, the air carrier is liable when loss or damage is The Harter Act and 1936 Carriage of caused by negligence. Here, the burden is Goods by Sea Act (U.S. COGSA) are the on the carrier to prove that it was not neg- two primary U.S. statutes governing wa- ligent, tending to create a de facto strict ter carrier liability. U.S. COGSA is the U.S. liability regime. Liability is limited to $20 enactment of the provisions of the 1924 per kilogram (approximately $9.07 per Brussels Convention (Hague Rules) on the U.S. pound). When the limitation is less maritime bill of lading. The Harter Act, than full value, for an additional charge, enacted in 1893, has been superseded by

46 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps U.S. COGSA for shipments between U.S. airfreight forwarders subject to DOT ju- ports and foreign ports. To limit liability, risdiction almost universally adopt the maritime carriers almost universally stipu- rules of liability of the Warsaw conven- late in their bills of lading that the U.S. tion in their tariffs. COGSA liability regime applies in domes- The Nonvessel Operating Common tic carriage.34 Absent such a stipulation, Carrier (NVOCC) by water is treated as the unlimited liability of the Harter Act an indirect common carrier by water in applies. the foreign commerce of the United States. The Harter Act governs the time before The NVOCC is generally subject to the the goods are loaded or the time after they same liability applicable to ocean carriers are discharged from the ship. Many mari- but assumes greater liability for move- time contracts stipulate that road transport ments between foreign ocean ports and to and from the ship is governed by the foreign inland points. U.S. COGSA regime.35 U.S. COGSA holds the carrier responsible for liability from loss or damage arising from the carrier’s failure to exercise Intermodal Transportation due diligence to provide a seaworthy vessel at the inception of the voyage and to Although it may appear that the transpor- properly load, stow, carry, care for, dis- tation of cargo constitutes a continuous charge, and deliver the goods entrusted to process, much U.S. domestic and most in- be transported. It also provides 17 defenses ternational cargo shipments use two or against loss and damage claims, including more transport modes. Legally, however, negligence.36 each of these modes constitutes a distinct U.S. COGSA specifies the essential con- segment where the contractual relation- tents of the bill of lading, including the iden- ship with the cargo interest is concerned. tification and weight of the cargo. The Intermodal transport is characterized as statutory liability limitation is $500 per “through carriage.” One of the participat- package. A lower limitation is not permit- ing modal carriers or freight forwarders ted, but the parties may negotiate a higher usually arranges for all transportation and limit. In some disputes over loss and dam- related services from origin to destination. age, it has been argued that a container is a The parties to a contract of carriage may package and thus subject to the $500 limit. stipulate that the originating carrier’s li- This is a point of contention between ship- ability regime applies to the entire jour- pers and carriers. A number of countries ney. Otherwise, the liability for such have adopted updated versions of the Hague transport is usually governed by the liabil- Rules, also known as the Visby or the Ham- ity regime that applies to the mode of car- burg Rules. The United States has not. riage at the time of loss or damage. Thus, the shipper, unless adequately protected, often is exposed to differences in liability regimes, although the goods may be in Third-Party Intermediaries through transport under a through bill of lading. Under the ICCTA, domestic surface freight As a rule, the originating modal liabil- forwarders assume the same liability for ity regime is often extended by contract to loss and damage to cargo as do U.S. rail successive modes of transportation used and motor common carriers. A freight for- to deliver the goods. The parties to the first warder is considered both the receiving contract of carriage stipulate that the origi- and the delivering carrier. Domestic air nating carrier’s liability regime applies to freight forwarders, also called indirect air the entire journey. In the absence of such carriers, are subject to Federal Aviation a stipulation, the different modal liability Act, but exempted from DOT regulations. regimes apply. They tend to publish the same liability as While the United States is not a party, the underlying air carriers. International the Multimodal Liability Convention of

U.S. Intermodalism: Cargo Liability Issues 47 1980 is an international treaty whose legislative changes. This August 1998 premise is that compensation for loss, study concluded that the current liability damage, and delay should be in harmony system “functions reasonably well and among other modes of carriage. It is based that it requires only modest adjustment to on the belief that harmonization benefits assure fairness to all parties.” The study all parties. Further, it contends that ship- made eight recommendations37 and iden- pers are not surprised by significant dis- tified only one issue requiring a legislative parities in compensation systems; remedy: Senate ratification of the 1975 insurance companies and carriers can bet- treaty amending the Warsaw Convention ter assess the risk of carriage and are not on aviation liability (Montreal Protocol surprised by extraordinary claims; and No. 4). courts are aided in applying established DOT urged carriers to improve the in- case law to other modes of carriage. formation provided to common carrier ship- The Multimodal Liability Convention pers about the applicable liability regime. seeks to establish a harmonious liability The department saw two ways to accom- regime among all the modes. It also care- plish this goal: shippers and carriers volun- fully preserves the individual shipper’s tarily agreeing to a better notice process or option of shipping exclusively under a a technical amendment to existing law.38 modal liability regime. However, with re- The study also identified one area for gard to liability limitation, this convention possible regulatory action: a uniform bill distinguishes between maritime and sur- of lading containing minimum identifying face transportation. For example, when a information. “Shippers and carriers,” DOT maritime leg exists in multimodal trans- said, “should establish a uniform bill of lad- portation, it is usually the dominant leg, ing containing minimum identifying infor- and therefore only harmony with the mari- mation. In the event that the parties cannot time liability limitation is necessary. If agree, then DOT’s Federal Highway Admin- there is no maritime leg, then the limita- istration should designate minimum re- tion prevalent in other (surface) transpor- quirements along the lines of proposed tation is the guide to harmony. The rulemaking of October 21, 1996.”39 convention adopted the limitation of the The department saw no need for legis- Contract for International Carriage of lative action on the following: Goods by Roads Convention (8.33 special • Requiring a shipper to purchase addi- drawing right (SDR) per kilogram, ap- tional insurance to cover cargo loss and proximately $5.00 per U.S. pound for sur- damage face carriage when there is no maritime • Reestablishing regulatory procedures leg or 2.75 SDRs per kilogram, approxi- for dispute settlement (However, it did mately $1.80 per U.S. pound when there call for increased use of methods such is a maritime leg). as mediation and arbitration to accel- It is within this legal framework that erate settlements and relieve pressure any policy discussions about uniform in- on the courts.) ternational loss and damage regimes would • Imposing a more uniform liability sys- occur. Further shaping this debate are tem for U.S. domestic transportation. other forces such as a recent DOT study “The current system of full value re- on loss and damage issues and changes in covery with flexibility to vary liability operating environments. by released rates or contract [should] be continued until the parties come closer to agreement on an alternative liability regime.” The Department of However, DOT did find areas that could Transportation Study benefit from federal involvement: international harmony, intermodal harmony, and When it closed the ICC, Congress man- better shipper and carrier understanding. dated an analysis of the current loss and To promote international harmony, the damage liability regimes and the need for department said, “Nations should consider

48 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps proceeding on an Inter-American Conven- vide equipment. However, in the past two tion on international carriage of goods by decades, another entity has evolved that road.” DOT noted that while carriers and owns neither the freight nor the equipment shippers tend to view domestic U.S. mo- but makes its profits from its transporta- tor carriage in isolation from other modes tion expertise beyond that of the tradi- of transportation, carriers and insurers tional freight forwarder. Known by many tend to favor a uniform Inter-American names, this third-party intermediary cur- liability regime for international motor rently accounts for 20 percent of the carriage. freight industry and is expected to account Another step to promote harmony, the for 50 percent within the next decade or department said, would be to encourage so as a result of increased corporate shippers and carriers to work toward outsourcing of transportation services.40 multimodal harmony, including possibly Some firms act as independent brokers. reexamining the Multimodal Liability Con- Others created by carriers compete more ef- vention with the goal of making the fectively by offering a full range of transpor- proposed multimodal regime more flexible tation services. Those created by shippers and adaptable to each mode and to both keep the corporate focus on the primary domestic and international transportation. mission. Seen as a carrier by the shipper and “However,” DOT cautioned, “if air is in- as a shipper by the carrier, the participation volved in intermodal transport, a uniform of third parties in the process complicates liability limit should not be less than the questions concerning responsibility for loss $20 per kilogram ($9.07 per pound) ap- and damage, including who is in control of plicable for international air cargo trans- the goods or the equipment, who is the dam- port under the Warsaw Convention.” aged party; and what level of damage is in- The study also proposed greater ship- curred by the various participants to today’s per–carrier dialogue on liability issues and more complicated logistics processes. noted that any resulting consensus would Technology is now providing virtually be a prerequisite for government action. real-time information not only about a The department found that the shipper– shipment’s location but also about the con- carrier dialogues that occurred as a result dition of the cargo, such as temperature. of this study’s calls for comments and pub- Computers and robots are assembling lic hearing helped the parties clarify their goods, processing them through ware- positions. Thus, the process in itself houses, and loading them into vehicles for tended to promote better understanding. transportation. These higher levels of con- “Understanding would be enhanced in the trols by shippers and carriers call into future if the study stimulated shippers and question older assumptions about assign- carriers to continue their own dialog and ing fault for loss and damage. As technol- activities in the field of cargo liability.” ogy improves, it raises questions about traditional defenses and responsibilities for safe handling and transportation of international cargoes. Operating Environment The diverse interests of shippers, carriers, third parties, insurers, and others in- Today, the United States operates in a world volved in loss and damage disputes create of ever-increasing change, where the lines an environment where it is easier for gov- of traditional transportation roles blur; ernment not to act than to risk the contro- technology strives to yield total in-transit versy that would result from any action. It visibility; and the interests of shippers, car- has been almost 30 years since the United riers, and third parties are not synonymous. States has endorsed an international treaty U.S. loss and damage rules are pat- on this issue. This inaction is primarily due terned on the precept that the two parties to the inability of the domestic stakeholders to the transaction—shipper and carrier— to come to consensus on a course action. have a common economic self-interest. Certain U.S. motor carriers are cur- Shippers own the freight and carriers pro- rently advocating adoption of a uniform

U.S. Intermodalism: Cargo Liability Issues 49 liability limit of $2 per pound. There is ing on two important issues: the increas- limited support among their customers. ing globalization of commerce and the ben- Certain shipper advocates are calling for efits that result from harmonization. A new legislation that modifies COGSA by good example of this understanding is the adopting a “compromise position” devel- U.S. Congress’s instructions to DOT to oped by the Maritime Lawyers Associa- consider international harmony in under- tion.41 This compromise is meant to end taking the Cargo Liability Study.43 If there almost two decades of conflicts among U.S. is a unifying premise in the claims and li- shippers, carriers, and others over the cur- ability debate, it is the need for governments rent international treaties: Hague, Ham- to consider and promote international in- burg, and Multimodal. Congress has held termodal harmony in our laws, regulations, hearings on the plan, and legislation is and business practices. However, as noted expected to be introduced next year. How- in the DOT liability study, this harmony ever, it is not clear whether there is presently exists only when the contract or sufficient multiinterest support to enact bill of lading stipulates that the liability it into law. Certain European interests scheme of the originating carrier is ex- have opposed the plan.42 tended to the other carriers in the logistics According to newspaper reports, Euro- chain or when transportation occurs be- pean opposition is based on three issues: (a) tween nations that are signatories to the the proposal covers door-to-door rather than Multimodal Convention.44 port-to-port moves and defines intermedi- The challenge for U.S. and European aries and other support such as stevedores governments is to develop the tools and as carriers, (b) the proposal could affect non- techniques to make international U.S. trucking companies and railroads while intermodal harmony a reality in a way that exempting U.S. rail and motor carriers, and recognizes the increasing sophistication of (c) the proposal limits court and arbitration technology and logistics in a global mar- procedures to U.S. entities. ketplace. Any U.S.–E.U. cooperative ef- Another issue is the need for better in- forts must recognize the differences formation on loss and damage, both in between and among national liability sys- terms of actual incidents and in terms of tems. These efforts must focus on gener- the benefits that could result from a more ating the information essential to making coordinated approach to the problem. In the business case for harmonization. They seeking reliable figures for this paper, as must also facilitate dialogue between the well as for its Cargo Liability Study, DOT public and private sector entities whose learned that there were few sources of de- cooperation is essential to spanning these tailed information that would help to build differences and creating a single interna- the business case for standardization. tional liability regime. In fact, the figures for the Cargo Liabil- In the United States, there is no single ity Study were essentially extrapolations uniform liability system, only a collection of the numbers developed and used in of uniform liability regimes for some of DOT’s original 1975 review of the issue. the transport modes (air and maritime) The National Cargo Security Council, a that often are extended by agreement private sector trade association, is seeking among the parties to the other modes. legislation to compel the parties to begin Domestic surface common carriage tradi- keeping more detailed data that would al- tionally has made the railroads or truck- low better analysis of the issue. ing companies fully liable for the goods they transport. Contracts also have played a role by relegating loss and damage to the list of service issues subject to negotiation Developing an Action Plan between business parties. One essential factor that is key to Despite the differences in our loss and prompting all the stakeholders to seek a damage claim regimes, U.S. and European common international intermodal liabil- governments share a common understand- ity regime is a broad-based and commonly

50 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps accepted database of freight liability expe- should this convention establish a harmo- rience. However, whether in the United nious liability regime across all the modes States or Europe, easily assessable, reliable and between the United States and the data on international loss and damage is European Union, while carefully preserv- lacking. ing the individual shipper’s option of ship- If a database of shared liability experi- ping exclusively under a modal liability ence is desirable and important to any ef- regime? fort making the business case for uniform The product of international coopera- liability limits, then the next step is to re- tion, the convention could serve as a way solve questions such as who will collect of framing the debate between shipper, the information, how the data elements carriers, third parties, and insurers about will be defined and analyzed, how the sys- the difficult and contentious limitation tem will be administered, who will dis- issues, such as whether to limit liability seminate the information and how often, per package or per shipment, whether a and so forth. Once these matters are container is a package or a shipment, or settled, there is the issue of developing a whether limitation should be broken in framework in which to assess the benefits case of intentional torts. The convention of a uniform liability regime’s effect on could provide a template or model for de- international transportation costs. termining liability limits that are fair to Making a strong business case on the all shippers and carriers, regardless of type benefits of international harmonization or size of operation or frequency of use. would be an important tool in any facili- Essential components of a fair liability tation effort to create a meaningful liabil- regime include mutually understood terms ity regime capable of meeting the needs of of liability, appropriate sharing of respon- a 21st century logistics system. Cargo se- sibility among parties, and ease of admin- curity interests in the United States are istration of the system. Such a dialogue lobbying for legislation that would require also has the advantage of extending the mandatory reporting of loss and damage regime to air carriage. date. This legislation would provide more Having government serve as the stimu- accurate information on our national loss lus for further discussions among the par- and damage experience. ties can be beneficial. The DOT study Facilitating dialogue among and be- noted dialogues that occurred as a result tween the public and private sectors is of its calls for comments and public hear- another important process for realizing ing helped the parties clarify their posi- international intermodal harmony. The tions. Thus, the process in itself tended to goal of any facilitation would be an promote better understanding. “Under- emerging agreement among shippers, car- standing would be enhanced in the future riers, third parties, insurers, and others if the study stimulated shippers and carri- on important elements that might be covers to continue their own dialog and ac- ered in future legislation, regulation, con- tivities in the field of cargo liability.”45 ventions, or voluntary agreements. Today we can begin a process to reach Exploring the U.S. and European per- the goal of international harmonization. spectives on the compromise with all of It will take a variety of skills and processes, the affected parties could be one way to all of which rest on government’s willing- help resolve differences and move closer ness to help provide (a) the necessary in- to our long-term goal. formation to make the business case for Another starting point for dialogue harmonization and (b) the leadership could be the Multimodal Convention, through facilitation to bring the parties which provides an intermodal framework together for a consensus solution to this for addressing these issues. Can and long-standing public policy issue.

U.S. Intermodalism: Cargo Liability Issues 51 Appendix A A Survey of the Cargo by Sea Conventions as They Apply to Certain States

Country Hague Visby Hamburg Limit Algeria 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

52 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Country Hague Visby Hamburg Limit Gibraltar Denounced Yes 667/2 SDR Goa Yes Greece Yes Yes 667/2 SDR Grenada Yes Guinea Yes Yes 835/2.5 SDR Guyana Yes Signature only Holy See Signature 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 Yes (as Malagasy Madagascar Signature only Republic) 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

U.S. Intermodalism: Cargo Liability Issues 53 Country Hague Visby Hamburg Limit Paraguay 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-Netherlands Comm Code Antilles St. Vincent and the Yes Grenadines 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 Virgin Denounced Yes 667/2 SDR Islands 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

54 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Appendix B 1993 Commodity Flow Survey: Shipment Characteristics by Mode of Transportation for the United States

Value Tons Ton miles Value Tons Ton miles Value per Value per Ton in millions in in in in in ton pound miles Mode of dollars thousands millions percent percent percent in dollars in dollars per ton CFS 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, courier $563,277 18,892 13,151 9.2 0.2 0.4 $29,815.6 $14.91 696 service Truck (for-hire, private, $4,403,495 6,385,915 869,536 71.9 52.5 24.0 $689.6 $0.34 136 both) Air (including truck and $139,087 3,139 4,009 2.3 0.0 0.1 $44,309.3 $22.15 1,277 air) Rail $247,394 1,544,148 942,561 4.0 12.7 26.0 $160.2 $0.08 610 Water $64,077 518,912 271,981 1.0 4.3 7.5 $123.5 $0.06 524 Pipeline $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 $1.02 927 Other intermodal $13,382 148,883 185,030 0.2 1.2 5.1 $89.9 $0.04 1,243 combinations1 Other and unknown $242,691 544,335 96,972 4.0 4.5 2.7 $445.8 $0.22 178 ORNL estimates Water (not in CFS) $187,085 1,609,309 614,104 3.1 13.2 16.9 $116.3 $0.06 382 Pipeline (not in CFS) $90,413 859,303 592,900 1.5 7.1 16.3 $105.2 $0.05 690 Intermodal2 total $659,741 208,399 235,856 10.8 1.7 6.5 $3,165.8 $1.58 1,132

— 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 and water; 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).

U.S. Intermodalism: Cargo Liability Issues 55 Appendix C Summary of U.S. National Freight Policy

The U.S. National Freight Policy defines 2. Promoting economic growth by remov- the United States’s national interest as ening unwise or unnecessary regulation suring “a safe, reliable, and efficient freight and promoting the efficient pricing of transportation system that supports eco- a publicly financed transportation in- nomic growth and international competi- frastructure tiveness both now and in the future, while 3. Ensuring a safe transportation system protecting and contributing to a healthy 4. Protecting the environment and con- and secure environment. The goal of this serving energy statement is to provide guidance for mak- 5. Using advances in transportation tech- ing the nation’s transportation system nology to promote transportation effi- serve its citizens better. To achieve this ciency, safety, and speed goal, new partnerships must be formed 6. Effectively meeting our defense and among public agencies, the freight trans- emergency transportation requirements portation industries and shippers.” This 7. Facilitating international trade and policy was adopted in 1996, and it con- commerce tains eight tenets: 8. Promoting effective and equitable joint use of transportation infrastructure for 1. Provide funding and a planning frame- freight and passenger service work that establishes priorities for allo- cating federal resources to cost-effective infrastructure investments that support broad national goals

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

1U.S. Department of Transportation, Cargo Liability Study (Washington, DC: U.S. Department of Transportation, 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.

U.S. Intermodalism: Cargo Liability Issues 57 Endnotes

36Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from the following: • Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier 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 be construed 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 burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents 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 traditional maritime “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.

58 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Article D: Legal and Regulatory Issues Affecting Intermodalism in the European Union

Executive Summary unimodal basis rather than on an inter- Vincent Power modal basis. This is a regulatory impedi- A&L Goodbody The purposes of this paper are as follows: ment to the facilitation of intermodalism. • to describe the laws and regulations that The current E.U. antitrust regime is make up the “playing field” for inter- built around the unimodal transport modal transport model, and therefore, it is not possible • to identify the European Union (E.U.) to have arrangements across different legal and regulatory issues impeding in- modes without specifically notifying the termodal freight transport regulators. • to describe the effect of these issues on The European Union could stimulate stakeholders and facilitate intermodal transport by lib- • to identify potential opportunities for eralizing or restructuring its own regime resolving these issues and by coordinating the way in which • to propose potential mechanisms for member states regulate intermodalism at regulatory change the national level. The thrust of E.U. law is toward regu- E.U. antitrust law could assist in facili- lation rather than facilitation of intermo- tating and operating intermodalism by wid- dalism. This approach is typified by the ening the type and form of relationships E.U.’s competition and antitrust rules, and arrangements automatically that are which seek to scrutinize and control rather exempted as a matter of E.U. law and that than facilitate intermodalism. Operators do not need to be notified to, and cleared involved in intermodalism have high com- by, the European Commission (E.C.). pliance costs, reduced legal certainty, and Clearly the differing rules, conflicting increased regulatory delays in terms of time limits, and absence of a comprehen- their arrangements. sive regime to cover all of the modes mean Intermodalism is regulated within the that anyone concerned with intermodal- European Union at different levels and in ism has a much more difficult task. It different ways. In the context of the Euro- would be easier to have a single regime that pean Union, it is important to remember deals with intermodalism in a structured that anyone who is engaged in intermo- and ordered manner. Stakeholders in the dalism in the European Union must com- current system must cope with conflict- ply with a set of three different rules that ing rules and rules that do not sit easily may conflict with one another: with one another. • the rules operating on the international Intermodalism must not be impeded by level, some member states artificially assisting • the rules adopted by the European or supporting state companies (such as Union, and state railways) or state champions in a way • the rules adopted by the member states. that distorts competition. A state-sup- Unfortunately, not only is there this ported railway could automatically be- three-leveled impediment, but also the E.U. come a dominant player in the intermodal regime operates on three further levels: market. This impediment can be removed competition in intermodalism is regulated or reduced only by regulation and vigi- by three different regimes (one for road, lance. Many of the regulations are in place, rail, and inland waterway; one for mari- but they will be useless if there is no vigi- time transport; and one for air transport). lance. It is up to the commission and par- A key problem associated with the ap- ticularly industry to monitor and brief the plication of E.U. competition law to in- commission on such impediments. termodalism is that E.U. competition law There is strong support for the view in the transport sector has been formu- that E.U. law is not well suited to deal with lated, and continues to be operated, on a multimodalism because the rules are

Legal and Regulatory Issues Affecting Intermodalism in the European Union 59 structured on a unimodal basis. The E.U. Intermodalism regulatory procedures involve compliance cost for businesses. The regulatory struc- The term intermodalism is defined, for the ture needs to be able to allow intermodal purposes of this paper, as the carriage or arrangements to be made and imple- transport of goods between two points by mented with the minimum of delay or two or more modes or means of transport complication. Any system that causes un- (such as air, sea, rail, and road or inland necessary delay and complication is, by waterway). definition, an unattractive and inefficient one. The unimodal approach is inefficient because only unimodal arrangements may European Union benefit from the current block exemptions. The current competition regime is thus an The term European Union is defined, for impediment to intermodalism in terms of the purposes of this paper, as the interna- increased compliance and regulatory costs. tional organization consisting of 15 mem- The Council of Ministers and the Euro- ber states in western and central Europe. pean Commission could assist in remov- This union of states is the largest trading ing this regulatory impediment by bloc in the world. The European Union repealing the specific unimodal regulations has sought to internalize its market to and adopting more generous and wider eliminate barriers to the free movement regulations, which transcend modes. of goods, persons, capital or the establish- Moreover, the E.U. regime, which is cur- ment of businesses. rently focused on regulation rather than stimulation, should become more of a facilitator than a regulator. Scope of the Paper

This paper concentrates on the legal and regulatory issues adopted by the European Introduction Union itself. It is not possible, in this paper, to examine the law of each of the 15 This paper examines selected aspects of member states. It should be noted, how- the law of the European Union as it re- ever, that (a) if there is any conflict be- lates to intermodal freight transport in the tween the law of the European Union and European Union. the law of a member state, then the law of the European Union will prevail in accor- dance with the principle of supremacy of Purpose E.U. law, and (b) if there is an impediment placed by a member state in the way of The purposes of this paper are as follows: intermodalism, then such an impediment • to describe the laws and regulations that may well be capable of removal by virtue make up the “playing field” for inter- of being incompatible with E.U. law. modal transport • to identify the E.U. legal and regulatory issues impeding intermodal freight transport Regulation of Intermodalism • to describe the effect of these issues on in the European Union stakeholders • to identify potential opportunities for The E.U.’s competition and antitrust re- resolving these issues gime is aimed more at regulating and con- • to propose potential mechanisms for trolling than stimulating and facilitating regulatory change intermodalism because its rules are aimed at scrutinizing and regulating rather than exempting en bloc a wide range of agreements involving different modes.

60 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps The European Union could stimulate intermodal market is this matrix of laws and facilitate intermodal transport by lib- and each of these sets of laws having dif- eralizing or restructuring its own regime ferent rules relating to different modes. This and by coordinating the way in which situation naturally creates a regulatory im- member states regulate intermodalism at pediment for intermodalism, and the only the national level. solutions are harmony at the E.U. level and Intermodalism is regulated within the either harmonization or mutual recognition European Union at different levels and in at the national level. different ways. In the context of the Euro- pean Union, it is important to remember that anyone who is engaged in intermodalism in the European Union must E.U. Antitrust comply with a set of three different rules or Competition Law that may conflict with one another: • the rules operating on the international It is useful to dwell, for a moment, on E.U. level, antitrust or competition laws to more fully • the rules adopted by the European understand the relationship between com- Union, and petition law and intermodalism. • the rules adopted by the member states. The competition rules are primarily Unfortunately, not only is there a three- embodied in Articles 85–94 of the Euro- leveled impediment but also the E.U. re- pean Commission (E.C.) Treaty. These gime operates on three further levels: rules are largely administered by the Eu- competition in intermodalism is regulated ropean Commission (in particular, Direc- by three different regimes (one for road, torate-General IV). Directorate-General rail, and inland waterway; one for mari- VII (Transport) does not administer the time transport; and one for air transport). competition rules even in the transport This means, for example, that in the sector. However, aggrieved persons may context of an arrangement between busi- decide to institute proceedings in the mem- nesses for the transport operator planning ber state courts or complain to the com- to move goods from New York to London mission about the behavior of others. by air and onwards to Edinburgh by road Each of the fundamental rules of E.U. and rail must comply with the following: competition law (i.e., Articles 85, 86, 90, • the international rules relating to the and 92–94 of the E.C. Treaty) apply to all international transportation of goods modes of transport equally. However, the by air detailed rules relating to the way in which • the Council of Ministers Regulation competition applies in practice are de- 1017/68 on competition in the road, signed largely on a unimodal basis. rail, and inland • waterway sectors, as well as the Coun- cil of Ministers Regulation 3975/87 on Anticompetitive Arrangements: competition in the air transport sector; Article 85 of the E.C. Treaty and • the United Kingdom’s own laws on the Article 85(1) of the E.C. Treaty prohibits transport of goods. all arrangements that prevent, restrict, or This situation is further complicated by distort competition in the common mar- the fact that intermodal transport passing ket or any part of the common market. In through two or more E.U. member states this context, “arrangements” means— will have four or more sets of laws with • all agreements between undertakings, which to comply. The situation can also be • decisions by associations of undertak- complicated by virtue of conflicts between ings, or these member state laws and the fact that • concerted practices involving under- the member state laws are at different stages takings. of development and in different forms. The Article 85(2) provides that such ar- problem facing those operating in the E.U. rangements are void. Article 85(3) permits

Legal and Regulatory Issues Affecting Intermodalism in the European Union 61 the European Commission (but no other State Aid: Articles 92–94 of institution) to grant an exemption in re- the European Commission Treaty spect of arrangements which are, on balance, beneficial to the economy. The type As a general principle, Articles 92–94 of of arrangements covered by Article 85 the E.C. Treaty provide that member states would include pricing arrangements or may not provide financial aid (whether exclusivity arrangements in the context of direct or indirect) in a discriminatory intermodalism. Many intermodal arrange- manner without prior approval by the ments fall within the scope of Article 85. European Commission. This means that Article 85 represents an impediment to intermodal arrangements that breach Article 85(1) being imple- Consequences of mented and operated quickly and cheaply Breaching E.C. Competition Law unless the arrangement has been exempted by the Commission. A breach of E.U. competition law has serious consequences. First, the agreement may be void (i.e., unenforceable) in whole Abuse of Dominance: Article 86 or in part where it breaches competition of the European Commission Treaty law. This would cause serious consequences for anyone who is party to an Article 86 of the E.C. Treaty prohibits a anticompetitive agreement because the ar- dominant undertaking abusing its domi- rangement would be unenforceable. Sec- nant position in the common market or ond, the parties to an anticompetitive in a substantial part of the common mar- agreement may be liable to fines of up to ket. (A port may be a substantial part of 10 percent of worldwide turnover. Third, the common market.) For example, an in- parties may be liable to actions for dam- termodal operator or a group of operators ages before the courts of the member could be dominant (either on an indi- states. It might be argued that the exist- vidual or collective basis) and be deemed ence of such draconian sanctions means to be acting unlawfully because it was that some businesses may be deterred from abusing the dominant position. This is even concluding intermodal arrangements not so much an impediment to intermo- where there might be some doubt about dalism as it is a measure of control on their compatibility with E.U. competition intermodalism. law. It is important that intermodal arrangements can be concluded with legal certainty because stakeholders should not Public Authorities: be exposed to risk of nonconformity be- Article 90 of the E.C. Treaty cause the rules are not clear or are cumbersome. Article 90 of the E.C. Treaty provides that state authorities in the European Union are subject to the competition rules except The Interventionist Nature in the most limited circumstances. Article of the European Commission 90 is of limited relevance to many intermodal operators but is relevant to port Many have criticized the European Com- operators. Article 90 means that even mission for being somewhat intervention- state-owned and state-controlled port op- ist in the marketplace. An example of this erators are normally subject to competi- approach is the statement by the European tion law and may not engage in Commission in its 1994 Report on Mari- anticompetitive arrangements or abuse time Transport that it would not grant a dominance. block exemption for shipping lines to fix land rate, but it would consider each agreement individually. (A block exemption would not have given the European

62 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Commission the opportunity to scrutinize E.U. Competition Law the arrangements because they would not and Intermodalism have been notified.) In particular, some believe that the European Commission has One of the key problems associated with refused to adopt the so-called “rule of rea- the application of E.U. competition law to son” approach, which is so much a part of intermodalism is that E.U. competition U.S. antitrust law, so that arrangements law in the transport sector has been for- would have to be notified to the European mulated, and continues to be operated, on Commission to allow the commission to a unimodal basis rather than on an inter- intervene in such arrangements. In this re- modal basis. This is a regulatory impedi- spect and others, it is important to recall ment to the facilitation of intermodalism. that U.S. and E.U. antitrust and competition laws are not identical. They evolved in response to different economic and geo- Application of Articles 85 graphic conditions. Therefore, it is often and 86 to the Transport Sector dangerous to apply the rules laid down by one side of the Atlantic to the other side Articles 85 and 86 of the E.C. Treaty ap- of the Atlantic. ply to transport and have always applied to the transport sector since the entry into force of the E.C. Treaty. However, it was Subsidiarity not always easy to apply Articles 85 and 86 to the E.C. Treaty because of the ab- The European Commission is eager to del- sence of implementing regulations. This egate the enforcement of competition absence of rules to facilitate the applica- policy and some of the rules to member tion of the competition rules to transport states in some circumstances. This act may meant that transport generally (and inter- have advantages in some circumstances, modalism in this context) was effectively but it may well lead to different approaches left unregulated for many years. between member states, which is an im- The absence of implementing regula- pediment in its own right. This situation tions in the transport sector was resolved is far from ideal in an international inter- on only a phased and a modal basis. First, modal environment. in 1968, the Council of Ministers adopted Regulation 1017/68 to deal with competition in the road, rail, and inland water- Deregulation, Liberalization, way sectors. Second, in 1986, the Council and Privatization of Ministers adopted Regulation 4056/86 to address competition in the international The European Commission has made sig- maritime sector. Third, in 1987, the nificant progress in deregulating and lib- Council of Ministers adopted Regulation eralizing large tracts of the European 3975/87 to address competition in the air economy. Examples include the telecom- transport sector. munications and the air transport sectors. It is very welcome that the European Despite considerable progress, however, Union has been implementing regulations there has not been sufficient liberalization to facilitate the application of E.U. compe- or deregulation in the transport sector as tition law to the transport sector. However, a whole. Individual modes have been lib- from the specific perspective of intermodal- eralized to a greater or lesser extent, but ism, as opposed to one particular mode, this there is a need to facilitate a more inte- unimodal approach is inefficient and inef- grated approach. fective because intermodal agreements cannot benefit from the individual regulations.

Legal and Regulatory Issues Affecting Intermodalism in the European Union 63 Regulation 1017/68 Ehlermann’s Views

Council of Ministers Regulation 1017/68 Claus-Dieter Ehlermann is a former Di- enables the European Commission to ap- rector-General of DGIV. In a leading ar- ply the competition rules in Articles 85 ticle in 1992, Dr. Ehlermann recognized and 86 in the road, rail, and inland water- that it was inconvenient and undesirable way transport modes. It also contains to have separate transport regulations. He some block exemptions under Article recommended that Regulations 1017/68, 85(3) of the E.C. Treaty. 4056/86, and 3975/87 be combined into one transport regulation. This proposal is both practical and desirable. Anyone who Regulation 3975/87 believes that there should be reform should canvass hard for such a change! Within Council of Ministers Regulation 3975/87 each regulation, some measures will need enables the European Commission to ap- to be specific to a mode, but this it is not ply the competition rules in Articles 85 entirely unusual or difficult to achieve. and 86 in the air transport mode. It also contains some block exemptions under Article 85(3) of the E.C. Treaty. Carsberg Group

The Carsberg Group was established in Regulation 4056/86 1995. It recommended in 1997 that there be no impediment to a block exemption Council of Ministers Regulation 4056/86 for collective inland price-fixing by liner enables the European Commission to ap- shipping conferences. ply the competition rules in Articles 85 and 86 in the international maritime transport mode. It also contains some block ex- Essential Facilities Doctrine emptions under Article 85(3) of the E.C. Treaty. It is useful to recall the so-called “Essen- Regulation 4056/86 was a Council of tial Facilities” doctrine in competition law. Ministers regulation and block exemption. This doctrine may be useful to some op- This is unusual. Some commentators be- erators in the intermodal sector because it lieve that the European Commission has could remove impediments in terms of ac- always been suspicious of this regulation cess to essential facilities. The doctrine al- because of its origin, but this has been lows one to use competition law to open strenuously denied by the Competition up markets and facilities. The doctrine Commissioner, Karel Van Miert. posits that a dominant undertaking that Regulation 4056/86 is narrow. It only has a facility (e.g., a port) must provide applies to international maritime transport. access to the facility where it is vital or The block exemption is limited to the mari- essential for someone to obtain access to time leg and not the inland leg. This situa- compete in the market. The consumer will tion causes problems for intermodal have to take access subject to any agreements because they cannot be auto- grandfathered rights that others may have matically exempted under the regulation. accumulated over time. The European Instead they have to be notified to and Commission has been willing to assist the cleared by the European Commission, which claims of various supposed competitors involves compliance costs, commercial (normally, shipping companies and air- uncertainty, and regulatory delays for the lines) who wished to obtain access by in- intermodal operators involved. voking Article 86 of the E.C. Treaty. In this regard, E.U. law can be used to assist rather than hinder those engaged in intermodalism.

64 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Merger Control Regulation Maritime Cabotage

The European Council’s Merger Control The restrictions on maritime cabotage that Regulation regime provides that any operated in some E.U. member states have merger of a particular type of a large been phased out by virtue of Council Regu- enough financial size must be notified and lation 3577/92. These restrictions im- cleared by the European Commission. peded integration and competition in the Various arrangements in the transport sec- same way as the Jones Act in the United tor (such as the Acquisition by Stinnes of States. The elimination of cabotage restric- BTL from Finnlines) have been notified tions in the European Union has been a and cleared by the European Commission. phased process (apart from those coastal states that never had or simply abolished the restrictions). However, the issue has Vertical Arrangements been of great significance in only two member states (Greece and Spain), and the Vertical arrangements that could prevent, issue has been greatest for passenger traf- restrict, or distort competition must be fic rather than freight traffic. It is likely approved by the European Commission that cabotage restrictions that were im- under Article 85 of the E.C. Treaty in ap- pediments to intermodalism in the Euro- propriate circumstances. Notwithstanding pean Union will be phased out or that the agreement may have an anticom- eliminated over time. Short sea shipping petitive element, the agreement may none- should be assisted in no small way by theless be exempted by the European Council Regulation 3577/92. Where im- Commission where the arrangement is, on pediments remain, those involved in the balance, beneficial to the economy. industry can eliminate them by bringing theses impediments to the attention of the European Commission (in particular, DGVII) as a matter of urgency. E.U. Transport Law and Intermodalism Facility Access and Construction Institutional Perspective It should be recalled that the European The European Commission’s Directorate Union has assisted enormously in con- General for Transport, DGVII, is based on structing and improving infrastructure different directorates dealing with specific throughout Europe particularly by means modes. Attempts have been made within of so-called structural funds, cohesion DGVII to look at transport in a multimodal funds, and regional funds. The improve- manner. This is very welcome. Nonethe- ment in facilities is particularly notable in less, many of the laws and rules have been the peripheral or less developed states. The adopted in regard to specific modes rather E.U.’s contribution should be borne in mind than on a multimodal manner (but this is when one is criticizing the fact that E.U. not the fault of DGVII). laws are not well-suited to intermodalism and that all future funding arrangements should be vetted for their contribution to The Modal Nature intermodalism. of E.U. Transport Law

E.U. transport law generally has evolved on a modal basis with rules being developed on specific modes. In part, such an approach is inevitable and even desirable because it allows measures to contain only what is necessary and relevant.

Legal and Regulatory Issues Affecting Intermodalism in the European Union 65 State Aid and Intermodalism Do the E.U. Rules Impede Intermodalism? The E.C.’s Treaty controls the ability of E.U. member states to grant state aid or Intermodalism is commonplace in the assistance that distorts competition in the European Union. It is therefore clear market place and would not be the type of that the European Union has not curbed financial assistance that would not be the existence of intermodalism. How- given by rational investors or rational op- ever, have E.U. laws and regulations erators in the marketplace. Articles 92– made it more difficult to operate, or are 94 of the E.C. Treaty provide that member the rules too difficult to apply in prac- states must notify the European Commis- tice? Have the rules caused difficulties sion of any proposal to provide aid and for those operating within the system— that they must not provide the aid until whether as E.U.-based operators or op- the commission has approved the aid pack- erators based outside the European age. Unlawful aid could include unfair Union? advantages to railway companies. Reduced Clearly, the differing rules, conflicting or waived taxes may well be considered time limits, and absence of a comprehen- state aid where the measures are not sim- sive regime to cover all of the modes mean ply measures of general application. that anyone concerned with intermodal- Anyone operating in the intermodal en- ism has a much more difficult task. It vironment in the European Union must would be easier to have a single regime that be aware of the possibility that competi- deals with intermodalism in a structured tors could be granted unlawful aid. This and ordered manner. Stakeholders in the means that the European Commission and current system must cope with conflict- multimodal operators must vigilantly ing rules and rules that do not sit easily monitor unlawful state aid. Operators who with one another. believe that competitors are being provided with unlawful state aid must consider complaining about it to the European Commission. The unlawful state aid could Eliminating Impediments: include providing facilities at less than Ways to Facilitate Trans-Atlantic commercial rates, providing finance at less Freight and Intermodal Transport than commercial rates, or providing other subsidies. One of the concerns of the intermodalism Intermodalism must not be impeded by debate is how to increase or improve the some member states artificially assisting level of transatlantic freight transport. or supporting state companies (such as Whether it is desirable to eliminate or state railways) or state champions in a way more practically, minimize, the barriers that distorts competition. A state-sup- that exist is indisputable. Minimizing such ported railway could automatically be- barriers will generally increase the level come a dominant player in the intermodal of intermodal transport. It is therefore market. This impediment can be removed appropriate to ensure that the barriers are or reduced only by regulation and vigi- reduced as much as possible. 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- Moving Away from the Unimodal ticularly industry to monitor and brief the Approach to Transport commission on such impediments. Multimodalism Regulation

The E.U. regime is structured on the basis of individual modes. It would be very helpful for the European Union to enact a single comprehensive measure to embrace all of the transport modes. This action

66 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps would help to reduce the E.U.’s “internal” dialogue. It would be wrong to imagine that problem within the European Union. there would ever be an identical approach.

Embracing the Global Dimension Shortening the Approval and Cooperation Processes Adopting a competition measure that would address transport and the market- Like all industries, the intermodal indus- place generally rather than address specific try needs to trust that it can establish joint modes would help to ease the burden for ventures or other alliances quickly and multimodal operators in the European easily within a specific and relatively short Union. However, this solution would not time scale. The European Commission has address the broader issue of facilitating made enormous strides at shortening the trade and multimodal transportation be- clearance process for joint ventures, but tween (a) the European Union and the perhaps the intermodal industry is still not United States and Canada and (b) the Eu- aware of these improvements. ropean Union and the rest in the world. In essence, we are discussing how the So, what would be the lever to help open European Union and the rest of the world further this trade pattern? Clearly, greater can sort out the differences that arise be- international dialogue and legislation will tween them due to differing rules and rules assist. that are not ideal for meeting the challenges of evolving situations. This is not an entirely new problem. It is a regular Unifying National Laws issue in the field of antitrust (particularly May Be Difficult: Would It Be in regard to merger notifications that are Worth the Effort? made in Europe and the United States). The solution has been for the United The ideal future may not necessarily be States and the European Union to adopt a abolishing rules and regulations (which cooperation agreement to address matters is not entirely desirable anyway). of potential conflict so that there can be Rather, adopting common or near-com- early warning signals leading to early dia- mon rules across the European Union logue, agreed timetables so that there are would probably be more useful for the no regulatory problems, and common intermodal sector. Indeed, abolishing standards so that there are no divergent rules or regulations might actually cre- results. Consideration should be given to ate a vacuum that could lead to compli- a formal agreement between the United cations that would cause more problems States and the European Union on how to the industry. best to deal with transport and, in particular, intermodal transport. There is strong support for the view that Recognizing Differences E.U. law is not well suited to address inter- That Cannot Be Eliminated modalism because the rules are structured on a unimodal basis. The E.U. regulatory It would be ideal for a single antitrust and procedures involve compliance costs for competition law system to operate on both businesses. The regulatory structure needs sides of the Atlantic. However, it would to be able to allow intermodal arrangements be impractical and unrealistic to imagine to be made and implemented with mini- that a single system will be created even mum delay or complication. Any system in the medium to long term. There are his- that causes unnecessary delay and compli- torical and political reasons for the differ- cation is, by definition, unattractive and in- ences and the ways in which the systems efficient. The unimodal approach is operate mean that unification would be inefficient because only unimodal arrange- next to impossible. Instead, the aim is sim- ments benefit from the current block ply for meaningful cooperation and exemptions. The current competition

Legal and Regulatory Issues Affecting Intermodalism in the European Union 67 regime is thus an impediment to intermo- regulations and adopting more generous dalism in terms of increased compliance and wider regulations that transcend and regulatory costs. The Council of Min- modes. Moreover, the E.U. regime, which isters and the European Commission could is currently focused on regulation rather assist in removing this regulatory impedi- than stimulation, should become more of ment by repealing the specific unimodal a facilitator than a regulator.

68 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Article E: Legal and Regulatory Barriers to Better International Intermodal Transport

Abstract • Allowed companies operating in one Damian J. Kulash† mode to buy carriers in other modes Eno Transportation This paper examines how the U.S. regula- • Greatly extended the circumstances un- Foundation tory system for transport evolved, particu- der which carriers in all modes are free larly features of that system that affect to negotiate rates October 28, 1998 intermodal transport. It concludes by • Made it easier to license railroad motor sketching a few areas of pending change carrier start-ups that may pose opportunities for improved • Gave carriers broad latitude to set rates intermodal freight transport between Eu- for rail piggyback service rope and the United States. It represents • Made it easy for railroads to spin off the second step of a dialogue between Eu- short lines and branch lines ropean and U.S. leaders, which began with • Deregulated interstate trucking (and a forum in Washington, DC, in October later intrastate trucking) 1997, seeking improved intermodal freight • Allowed the Ocean Rate Shipping Con- service between these two regions. ference to set joint rates that covered U.S. transport regulations evolved sepa- both the inland and water transport rately as each mode developed. This pro- links cess began with the regulation of railroads These steps have revolutionized trans- in the mid- to late 1800s; then steamship port in the United States. They have gen- lines in the early 1900s; followed by pipe- erally kept rates down and have not lines, motor carriers, and airlines in the produced widespread service abandon- mid-1930s. Legislation was generally pat- ments. The result has been a rapid rise in terned after that previously applied to other third-party logistics providers and in- modes, but was enacted through separate creased vertical integration. Deregulation statutes applying to each mode without has spurred the growth of intermodal consideration of intermodal coordination. transport. By the 1970s, it was generally accepted Economic growth can be helped by fur- that these modal regulatory structures had ther advances in both domestic and inter- outlived their initial purposes, were not national intermodal freight transport. effective in protecting the public interest, These advances may occur by continuing were creating price and service inefficien- to remove regulatory barriers, promoting cies, and were impeding the advancement fuller competition, and facilitating new of improved transport services, including entrants. Several pending issues and re- intermodal transport. Regulatory ineffi- cently concluded actions may offer spe- ciency and the lack of system coordina- cial opportunities for such advances. First, tion gave rise to a deregulation movement the U.S. Congress passed legislation this in the regulatory commissions, as well as year to reform ocean shipping and allow in the Congress. Airfreight services were carriers to negotiate confidential contracts deregulated in 1977, interstate motor car- with shippers. As the provisions of this riers in July 1980, railroads in October law are translated into regulations, they 1980, and ocean shipping in October 1998. will affect many aspects of international The effects on intermodal transport intermodal freight transport. Second, long- were significant: The deregulatory steps standing restrictions on cabotage by wa- of the last two decades have— ter will be difficult to change, but some

†Section II of this paper draws from Gerhardt Muller’s excellent book, Intermodal Freight Transportation, published jointly by the Intermodal Association of North America and the Eno Transportation Foundation. The fourth 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.

Legal and Regulatory Barriers to Better International Intermodal Transport 69 progress in this direction might arise as distortions of competition that give an reciprocal rights provisions are considered advantage to specific modes within the in connection with the Passenger Vessel intermodal chain. For example, ownership Act. Third, the rapid growth in third-party restrictions, antitrust laws, mode-specific logistics providers is closely linked to a taxes and user fees, and hours-of-service fertile market for intermodal service, and regulations can be administered in ways the treatment of nonvessel owning com- that favor specific modes or carriers to the mon carriers (NVOCCs) may remain on detriment of intermodal service. the policy agenda following other ocean While a broad range of laws and regu- shipping reforms. Finally, continued lations are enacted for many purposes growth of multimodal and intermodal unrelated to economic competitiveness, companies appears to promise synergy, virtually every regulation has economic although a host of cultural, technological, implications that affect modal competi- labor, and management complications has tiveness to a greater or lesser extent. For made this potential somewhat elusive thus example, regulations governing the size far. Pending changes to rules and regula- and weight of trucks, which are driven tions should be reviewed from an inter- primarily by concerns about safety and modal vantagepoint to see if they are pavement wear, profoundly affect the eco- contributing to this difficulty. nomics of motor carriage. Broadly con- Leaders from Europe and the United strued, the term “legal and regulatory” States met at a second forum in Munich could be interpreted to cover almost any in November 1998 to consider, among of thousands of laws affecting safety, the other things, opportunities to improve the environment, infrastructure manage- legal and regulatory structures of both re- ment, competitiveness, antitrust protec- gions as they affect intermodal transport. tion, labor, and every other aspect of The past experiences and future opportu- transport. nities sketched here are presented as a The 1997 forum recognized this un- starting point for that discussion. wieldy range when it noted “… the scope of such an effort could easily grow beyond a manageable effort. Such a search must be focused if it is to be productive.” To Introduction focus future dialogue between European and U.S. leaders in the most productive The purpose of this paper is two-fold: direction, the 1997 discussions narrowed (1) to examine how the U.S. legal and regu- the term “legal and regulatory” to mean a latory system for transport evolved, par- focus on economic competitiveness, ticularly features of the system that affect namely— intermodal transport, and (2) to set out a • General statutes that govern the open- few areas of pending change where forum ness of competition, the ability of new participants might find opportunities of entrants to compete in markets, and the common interest—areas where they could capacity for vertical integration across work within their respective systems for modes related improvements in intermodal • Mode-specific regulations that limit a freight transport between Europe and the modal firm’s involvement in intermodal United States. or international supply chains In October 1997, European and U.S. A key concern is the extent to which leaders convened a forum on Intermodal current regulatory structure blocks new Freight Transport in Europe and the entrants from competing in intermodal United States. This forum explored ways transport markets—start-up companies to improve intermodal freight transport seeking to provide transport or logistics between the regions. In these discussions, services, equipment, or infrastructure. legal and regulatory issues were singled out These companies are developing innova- as top-priority areas for future attention. tive supply-chain management strategies Disparate regulations and subsidies create to reduce costs, improve service, and gain

70 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps competitive advantage. Transport is an • Examine the regulatory context and ac- important aspect of the supply-chain man- tions that have been taken to deregulate agement process as manufacturing and transport on both sides of the Atlantic. distribution firms create new partnerships • Identify and study existing barriers to to meet these objectives. As a result, ship- free entry and vertical integration, as they pers are making transport choices that are affect international intermodal transport. neutral in their reliance on specific modes, During discussions at the 1997 forum, but that concentrate instead on cost and European firms indicated that they have reliability. not yet realized the same benefits brought The transport industry has responded about by deregulation as their U.S. coun- to these challenges by developing new ca- terparts. Reducing the legal and regulatory pabilities across modes, whether through impediments to efficient intermodal trans- strategic alliances or through the acquisi- port—particularly through further deregu- tion of other transport firms. For example, lation—was deemed a high priority. integrated operators such as American President Lines (APL), Federal Express (FedEx), and United Parcel Service (UPS) have emerged as highly integrated, full-ser- Regulation and Deregulation vice operators, providing a harbinger of the in the United States industry’s future. In Europe, new entrants must contend In the United States, regulations have his- with various rules governing competition torically evolved separately, mode by and must seek to build integrated services mode, with little explicit consideration of around a set of state-owned railroads. Some their intermodal effects. As each mode highly integrated firms—such as APL and came on the scene and developed markets, UPS—are acquiring multimodal assets and regulations were attached to it, usually to providing new customer-oriented, door-to- limit economic power that appeared door services. This market could grow threatening to specific shipper groups, geo- faster if competition rules and regulatory graphic regions, or established services. structures were revised to be more ame- This process began with the regulation of nable to efficient vertical integration. railroads in the mid- and late 1800s; then While major deregulation of all modes steamship lines in the early 1900s; fol- has occurred in recent decades in the lowed by pipelines, motor carriers, and United States, an uneven set of modal airlines in the mid-1930s. Legislation was regulations remains in force, and other patterned along the lines of earlier mod- statutes prevent the ability of non-U.S. els applicable to other modes, but estab- carriers serving international routes to lished as separate statutes applying to each compete in domestic distribution. mode without consideration of intermodal Complete international harmonization coordination. of legal and regulatory regimes is an unre- One feature of these rules was to pro- alistic goal, but piecemeal actions leading hibit carriers of one mode from owning in this direction can play a valuable role or controlling carriers of another. For ex- in building up improved intermodal trans- ample, railroads could not own water car- port markets. Specifically, as regulatory riers, and freight forwarders could not changes and other actions are being con- directly own carriers. Such ownership re- sidered on either side of the Atlantic, they strictions impeded coordination, vertical can be used as opportunities for the par- integration, and the provision of inter- ticipants in this forum to discuss common modal services. interests and then use the results to pro- Separate commissions—the Interstate vide background to decision makers in Commerce Commission (ICC), the Federal Brussels and Washington. Two lines of Maritime Commission (FMC) and the inquiry show promise as productive next Civil Aeronautics Board (CAB)—were set steps to promoting international inter- up under different acts to regulate specific modal freight transport: modes. Each commission was charged

Legal and Regulatory Barriers to Better International Intermodal Transport 71 with promotion and welfare of its particu- whose coordination was in the national lar mode or modes. This charge sometimes interest. The statement was limited to put even the commissions in competition those modes regulated by the ICC, how- against each other, rather than working ever, and it was a general policy statement, together toward an integrated intermodal not a detailed regulatory code. system. This modal fragmentation was less Another major step toward deregula- pronounced in the ICC, which regulated tion came with the creation of the U.S. economic issues of domestic inland water- Department of Transportation (DOT) in ways, trucklines, pipelines, and railroads, 1967, which placed certain authority— but which nonetheless had separate legis- mostly related to noneconomic matters— lative authority and separate regulatory for all modes under a single department. responsibility for each. This action reflected growing recognition During the period of regulation, modal that intramodal regulation and adminis- companies, reinforced by separate modal tration were inadequate. The new depart- regulatory rules, sought policy provisions ment made a series of statements to and rights that furthered modal divisions. articulate and advance a more unified They competed against other modes for multimodal vision of transport policy. government grants, tax easements, labor These statements provided a framework rules, subsidies, and grants in their own to support and coordinate a series of modal direct interest and had little incentive to deregulation laws. promote intermodal service. In 1976, a National Transportation Throughout most of the period of regu- Policy Study Commission was created by lation, especially prior to 1940, antitrust the Congress to formulate broad themes laws were intended to ensure free and for future transport policy. In 1979, this open competition within and among Commission issued its final report, Na- modes to give the consumer an opportu- tional Transportation Policies through the nity to get the lowest price. Commissions Year 2000, which recommended— had the authority to suspend antitrust laws • Multimodal systems planning rather if they found cooperative agreements than an intramodal approach among carriers to be in the public inter- • Reduced government economic regu- est. Thus, for example, limited antitrust lation immunity has been a feature of ocean ship- • Equal government treatment among ping regulation since 1916. While the com- modes missions could have encouraged • More competition and improved effi- intermodal agreements, their decisions ciency by placing maximum reliance on mostly favored through routes. Rates and market factors interchange points were almost, without • Economic analysis of all policy exception, intramodal, not intermodal. • More streamlined government organi- Each commission believed, with justifica- zation tion, that intermodal facilitation was be- • Greater coordination of government yond its scope. Each believed its powers efforts were limited to regulating its designated • Maximum use of the private sector mode or modes. All these developments reflected a The inefficiencies and inequities of this growing consensus that modal regulatory system became increasingly apparent. One structures had outlived their initial pur- of the early calls for reform came in 1940 poses, were not effective in protecting the when a congressional statement of na- public interest, were creating inefficien- tional transport policy called for economi- cies, and were impeding the advancement cal and efficient service that fostered of improved transport services, including “sound economic conditions in transpor- intermodal transport. Concerns about tation and among the several carriers.” It regulatory inefficiency and the lack of sys- called for “fair and impartial regulation of tem coordination created a mood in the all modes of transportation,” recognizing regulatory commissions and in Congress that the modes were all parts of a system that strongly favored deregulation in the

72 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps late 1970s. Some commissions took steps The number of airfreight forwarders to deregulate without waiting for statutory grew from 300 in 1976 to more than 1,200 direction from Congress. in 1979. By the late 1980s, their numbers A wave of deregulatory activity swept decreased to about 700 because of merg- through the various modes, their regula- ers, consolidations, and bankruptcies. tors, and their congressional overseers. However, by 1997, the International Air Airfreight services were deregulated in Transport Association’s cargo arm, Cargo 1977, interstate motor carriers in July Network Services, estimated that the air 1980, railroads in October 1980, and freight forwarder industry experienced a ocean shipping in October 1998. The re- resurgence—growing to 1,400 companies. mainder of this section sets out a few of The busiest 45 of those 1,400 firms con- the highlights of this history: trolled 60 percent of the business, and the • Air cargo deregulation largest 85 firms controlled 95 percent of • Railroads deregulation the industry’s business. • Vertical integration and multimodal Single-document intermodal air way- companies bills have been common for many years. • The potential for increased piggyback The effect of deregulation on airfreight has carriage been the same as in other modes: to give • Inland waterway transport following shippers a wider choice of modes and car- rail deregulation riers, combinations of modes and carriers, • Maritime regulations and intermodal and combination and joint rates. transport Air carriers, airfreight forwarders, cou- • Motor carrier deregulation rier services, small commuter airlines, and • The North American Free Trade Agree- nonscheduled airlines have taken advan- ment (NAFTA) and possible transport tage of deregulation by expanding into ramifications each other’s areas. Some larger airfreight • Priority for intermodal transport in forwarders have purchased or leased recent U.S. legislation planes and have, in effect, become airlines to a large portion of their business. This occurred at the same time that the num- Air Cargo Deregulation ber of U.S. air forwarders was expanding explosively. Today, a small number of large Airfreight was the first mode to be deregu- forwarders operate their own aircraft. In lated by formal legislation in the wake of response to airline-type activities of air- the National Transportation Policy State- freight forwarders, many scheduled air- ment of 1975. Amendments to the Federal lines have taken on consolidation and Aviation Act implementing deregulation of door-to-door transport activities formerly airfreight were made effective in the Air considered the preserve of airfreight for- Cargo Act of 1977. This act deregulated air- warders. freight almost entirely in terms of rate mak- Overall, the industry has grown dra- ing and freedom to enter or withdraw from matically. In the past 20 years, total in- service. Air deregulation was a precursor to dustry revenue has grown 16-fold. Within deregulation in other modes, in that the CAB this market, forwarders and third parties made spontaneous moves toward deregula- account for much of the growth: They tion in parallel with action by the Congress. have marketed intermodal capabilities to Airfreight deregulation, effective No- shippers, while most airlines have contin- vember 1977, was implemented in two ued to concentrate on port-to-port move- phases. The first phase was immediately ments. applicable to so-called “grandfather” car- Airfreight deregulation led to a rapid riers already engaged in airfreight opera- rise in express package delivery operations. tions. The second phase was implemented Small package, integrated carrier traffic has a year later, opening the field to all appli- increased 250-fold since deregulation. By cants and completely liberalizing airfreight making it easier to acquire larger, more rate making. efficient aircraft, deregulation has helped

Legal and Regulatory Barriers to Better International Intermodal Transport 73 express delivery operators such as UPS, Railroad Deregulation FedEx, DHL Worldwide Express, TNT, and others develop more rapidly. The ICC had regulated railroads in the Hand-in-hand with air cargo deregula- United States since 1887. The ICC was the tion, carriers quickly expanded into other first independent regulatory agency estab- services, and the number of express deliv- lished by Congress, and it became a model ery operators rose rapidly. More recently, for many others. At the time it was estab- a variety of partnerships, mergers, alli- lished, the public—“business men and ances, and other marketing and opera- farmers”—demanded protection from tional agreements have formed. They have what were perceived to be excessive rail- blurred the conventional distinctions be- road rate-setting powers. The act that cre- tween scheduled carriers, forwarders, and ated the ICC outlawed pools and rate express-package operators. discrimination and required that rates be The Motor Carrier Act of 1980 further published and “reasonable and just.” An spurred the growth of intermodal air cargo independent commission was established by exempting from regulation “… trans- to oversee these requirements. portation of property (including baggage) Over the years, the ICC’s power and by motor vehicle as part of a continuous scope was modified repeatedly. By the movement, which, prior or subsequent to 1970s, few would argue that it had been a such part of the continuous movement, failure, although the reasons for failure has been or will be transported by an air were—and continue to be—a source of carrier ….” This act allowed more air– debate. Some argue that the railroads them- truck transport. The CAB had previously selves captured control of the ICC and ma- specified a 35-mile radius limit around air- nipulated it to their advantage. Some argue ports for surface transport pickup and that railroad-hating progressive politicians delivery services in connection with air set up barriers that led to the railroad transport, and required carriers to file industry’s economic starvation. Some ar- separate tariffs describing their pickup and gue that the type of cartel structure behind delivery services beyond this 35-mile zone. the ICC was doomed to failure from the These restrictions were eliminated follow- start. Others claim that weak commission- ing the 1980 Act. ers and a bureaucratic staff led to a stag- Deregulation of international air cargo nated and ineffective ICC. Whatever the has not advanced as rapidly as it has in the reason, there was little disagreement in the U.S. domestic market, although the United 1970s that the regulatory structure created States has taken several deregulatory steps by the ICC had run its course, and a new on its own. These steps include (1) elimi- approach was needed. nating requirements for filing air cargo In 1979, the ICC deregulated rail rates rates, dropping enforcement of cargo rate on fresh fruit and vegetable shipments, re- agreements set by the International Air sulting in a 26 percent increase in rail pro- Transport Association (IATA), (2) freeing duce traffic the first year. With their cargo agency commissions from regulation, new-found freedom, railroads sometimes (3) releasing airfreight forwarders from changed rates on produce traffic daily. The regulation, and (4) allowing motor carri- ICC also gave railroads the freedom to es- ers operating as part of international air tablish special contracts with large shippers movements to be substantially free of regu- based on volume and service. Much pro- lation, subject to international reciprocal duce and contract rate traffic was diverted provisions and other limitations. from through truck haul to an intermodal Since a foreign airline must have prior truck–rail–truck haul. Before deregulating approval of its route authority to operate rail shipments of produce, railroads carried scheduled services to and from the United one percent of this traffic; today the rail States, exemptions from the Motor Car- market share is more than five percent, due rier Act and the approval to provide air– to increased use of intermodal rail services. motor intermodal service are based on Across-the-board rail deregulation came such route authority. in 1980 with the passage of the Staggers Rail

74 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps Act. This act made it easier for railroads to To some extent, this power remains with sell abandoned, nonrevenue-producing lines the STB. The railroad industry, for ex- and operations and to eliminate or price ample, continues to have a common-car- competitively nonremunerative services. It rier obligation to serve and is subject to allowed railroads to sign confidential con- maximum rate regulation for traffic fall- tracts with shippers. It allowed the ICC to ing under the STB’s jurisdiction. Never- exempt certain classes of traffic (an author- theless, the policy trend over the past two ity that rapidly led to the exemption of decades has been to substantially loosen piggyback traffic, discussed in a separate sec- the regulation of freight transport and to tion below) as well as motor vehicle parts open the door for growth in intermodal and other goods. It set a threshold (namely, transport services. a 180 percent ratio of revenues to variable cost) beneath which rates were not subject to challenge by shippers. Vertical Integration and The Staggers Act has had far-reaching Multimodal Companies effects. The ICC reported that only about 10 percent of all rail traffic is now subject The ability of firms to integrate vertically to rates that it regulates; the other 90 per- was spurred largely by the massive deregu- cent moves under exemptions, contracts, lation of the transport industry that oc- and rates below the 180 percent threshold. curred in the 1970s and 1980s. In the In the face of continued opposition to process, many ownership restrictions and ICC surface transport regulations, which regulatory requirements have been lifted, are perceived as no longer necessary, and particularly in the trucking and railroad in concert with a general move toward re- industries, paving the way for the emer- duced regulation, Congress passed the ICC gence of multimodal transport companies. Termination Act of 1995. This act elimi- Deregulation helped to liberalize per- nated many ICC functions, primarily mo- mission for carriers of one mode to own tor-carrier-related functions, and turned and operate carriers of another. In 1983, others over to the newly created Surface the ICC eliminated most regulatory restric- Transportation Board (STB). Most of the tions enacted in 1935 to protect the then- role assigned to the STB focused on rail- infant trucking industry from railroads. road-related functions, although the board Additionally, railroads and trucklines were also retained all regulation of domestic granted more freedom to merge with each water carriage, except for noncontiguous other. domestic trade jurisdiction and tariff fil- In establishing motor carrier operations ing for pipelines. DOT took over the rein the past, railroads had to adhere to a maining motor carrier functions, except “special circumstances” test, requiring for common carrier obligations, exemp- proof that there was overwhelming reason tions, registration of carriers, reasonable- to grant motor carrier operating authority ness of rates (especially those that involved to a railroad. When granted, this author- residential household goods movers), joint ity frequently restricted railroads to radial motor–water rates in noncontiguous do- patterns of truck service from important mestic trades, pooling, and shipper under- intermodal terminal “gateways.” Taken charges. together, these restrictions placed an al- The abolishment of the ICC does not most insurmountable burden of proof on mean a complete end to the regulation of railroads to demonstrate that trucking ser- surface transport in the United States. As vice was required and severely constricted long as the ICC existed, the modes re- the economics of such operations. As a mained regulated to one extent or another. result, the only railroads that had sizable As the regulator, the ICC had the power motor carrier operations were those that to exempt certain activities or operators had been previously granted “grandfather” from regulation. In effect, what the ICC authority by the 1935 Motor Carrier Act. gave in the name of deregulation, it still In 1984 (Ex Parte No. 156) the ICC had authority to take back or modify later. eliminated the “special circumstances”

Legal and Regulatory Barriers to Better International Intermodal Transport 75 doctrine for licensing new railroad motor The Potential for carrier startups. New rail-affiliated trucking Increased Piggyback Carriage services were merely required to meet standards of fitness that applied to any other new An important deregulatory boost to inter- motor carrier. The special circumstances doc- modal transport came with the freeing of trine still applied to rail acquisition of exist- the rail portion of piggyback or trailer-on- ing trucking firms. Ex Parte No. 438, flatcar (TOFC) carriage from all ICC regu- however, gave three conditions that must be lations. This was accomplished by met by a railroad purchasing an ongoing legislation and an exemption promulgated trucking business: in an ICC rule-making procedure under 1. The proposed transaction must be in the the umbrella of the Staggers Rail Act. The public interest. ICC proceeding (Ex Parte No. 230) re- 2. The motor carrier must be integrated into sulted in a rule late in 1980, after both the the railway’s operation. Motor Carrier Act and Staggers Rail Act 3. There must be no adverse competitive ef- had become law. It gave railroads greater fects on the motor carrier industry. ability to price piggyback or TOFC com- A number of rail carriers showed their petitively with truck hauls and increased eagerness to become totally integrated trans- flexibility for routing traffic on joint rail port providers. Some acquired new motor TOFC or container-on-flatcar (COFC) carriers, such as Norfolk Southern and North hauls involving rail-owned trucklines. American Van Lines and the Union Pacific Deregulation of rail piggyback, com- and Overnite Transportation. Norfolk bined with new intermodal technology Southern’s subsidiary, Triple Crown Service, and operating economies, is changing long- operating the RoadRailer fleet, became a haul shipping practices. Prior to rail pig- jointly owned subsidiary of Norfolk South- gyback deregulation, long-haul truckers ern and Conrail. There have been some moves were able to price services below rail pig- by railroads in recent years, however, to di- gyback. Now, however, with the combina- vest themselves of these motor carriers. tion of rail rate-making freedom and new Other railroads formed alliances with mo- types of tractor and container/tractor tor carriers in which railroads handled the equipment, the trend is moving toward in- long-distance hauls (often recognized in the creased intermodal service, with trucks United States as being more than 500 miles) providing primarily the initial and final and truckers concentrated on shorter dis- portion of the haul. tances, including drayage. J.B. Hunt and In this newly deregulated intermodal Schneider National are two of the many market, freight forwarders are returning. long-haul truckload motor carriers who Helped in part by the Surface Freight For- joined forces, through contracts or partner- warders Deregulation Act of 1986, which ships, with U.S. railroads to move their eliminated the ICC’s jurisdiction over most motor carrier trailers and containers long of the industry, freight forwarders face distances. Contracts to move fixed volumes new competitive threats. With their newly of cargo over a specified time period helped found door-to-door intermodal capability, to solidify these alliances. Motor carriers are railroads have the ability to supplant now ordering equipment in 45-, 48-, and 53- trucklines and forwarders in consolidat- foot lengths and 102- and 110-inch widths. ing and moving freight. Intermodal facili- Most of these units are capable of being car- tators who have invested heavily in ried by railroad and ocean carrier electronic data interchange are competing doublestack equipment. vigorously against forwarders for business. Transport deregulation, its effect on Several important mergers have oc- improved efficiency, and its spurring of incurred since 1980 that have consolidated termodal transport have had positive envi- the rail sector to only four or five Class I ronmental effects. Motor carrier trailers and carriers. There has also been a notable containers carried by rail remove traffic from increase in nonunionized regional carri- the highways with substantial reductions in ers and short lines since the Staggers Act. fuel consumption and emissions. More than 500 of these lines are now

76 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps operating, at least 350 of which were cre- been any competitive problems following the ated following the Staggers Act. Rail carri- CSX–American Commercial Barge Lines ers are not compelled to provide labor acquisition. No other rail carrier has ac- protection when they spin off parts of the quired a bargeline since then. CSX subse- system such as branch and light density quently sold off its majority interest in lines. Rail carriers would prefer to reorga- American Barge Lines. Perhaps even more nize unprofitable railroads as a short line, significant, with nearly a decade of experi- than abandoned service so that they can ence under the Staggers Act, barge carriers retain at least a portion of the traffic. In- were not active in filing complaints under deed, as railroads have transferred branch Section 707 of the act, which prohibits any lines, sometimes to former employees, they practice that is “unfair, destructive, preda- have often erected “paper barriers” in the tory, or otherwise undermines competition.” form of agreements by which the short line company agrees to an exclusive traffic arrangement with the former parent railroad. Maritime Regulation New regional rails and short line opera- and Intermodal Transport tors often can turn a profit on lines that Class I and II carriers did not believe to be The roots of maritime regulations reach viable because of the lower cost structure. far back. The Shipping Act of 1916 pro- In September 1998, Class I railroads and vided limited antitrust immunity, allowed the American Short Line and Regional carriers to form open conferences, and Railroad Association reached an agree- created a U.S. Shipping Board to regulate ment to address “paper barriers” and other and promote ocean commerce. The name issues of concern to smaller railroads. This of the U.S. Shipping Board was changed agreement should enhance the partner- several times, finally becoming the FMC, ships between the large and small railroads. which in 1961 was established as an independent regulatory agency. The FMC regulates ocean carrier rate Inland Waterway Transport making on foreign routes; investigates dis- Following Rail Deregulation criminatory rates and practices among shippers, carriers, terminal operators, and Transport by inland waterway tradition- freight forwarders; licenses ocean freight ally has been a low-cost option for ship- forwarders; and ensures that carriers serve pers of bulk commodities. Fierce the public interest. It regulates liner trade competitive battles for traffic have oc- to and from the United States and provides curred over the years between water car- limited antitrust immunity to shipping con- riers and railroads. ferences to the extent it finds conference The Staggers Act gave railroads the abil- activities to be in the public interest. In this ity to cancel joint rates and through routes, connection, the FMC requires all liner tar- coupled with greater freedom to merge. iffs to be filed. The FMC prohibits rebat- Bargelines fear this act gives railroads ev- ing, pooling, or “rationalization” of services, ery incentive to close off the intermodal unless approved by the commission. rail–barge interchange. This fear was The most important reforms in mari- brought to a head in 1984. Coincidental time regulation came with the Shipping to the purchase of El Paso Natural Gas, Act of 1984, which established the basis the CSX Corp. acquired American Com- for streamlining FMC procedures, espe- mercial Barge Lines, one of the largest cially in the area of rate regulation and waterway operators in the United States. agreement processing. Antitrust immunity The Coal Exporter Association expressed for carriers, conferences, and ports was alarm, fearing a lack of competition if CSX redefined to allow for greater rationaliza- was able to control both rail and barge tion of resources and services. The act also rates and services. allowed shippers and carriers to negotiate To date much of this concern seems service contracts or volume pricing out- unnecessary, as there do not appear to have side the tariff system.

Legal and Regulatory Barriers to Better International Intermodal Transport 77 The Shipping Act of 1984 gave smaller Conferences were established to bring a shippers the right to form associations to measure of order and stability to ocean increase their influence on carriers simi- rates and competition. They allow carri- lar to those larger shippers had been able ers to join together without the threat of to form previously. This right allowed antitrust actions by a governing agency, to them to consolidate members’ freight and establish joint rates, and to provide com- obtain volume rates or service contracts. mon levels of service and schedules on a Such associations have existed for many particular trade route. years in Europe and Canada for maritime The Shipping Act of 1984 allows con- shipments that did not involve U.S. car- ferences to establish different levels of rate goes or ports. making, including noncontract rates that The Shipping Act of 1984 promoted are the basic rates charged to shippers who rail–ocean cooperation to its fullest poten- do not have sufficient volume or frequency tial. More importantly, the act gave a boost of shipments to justify special rates (so- to single-bill intermodal rates by allowing called “tier I” rates). Larger shippers can ocean conference members to agree on in- negotiate special rates with the conference land rates without violating the provisions (“tier II rates”). These shippers sign “ex- of antitrust laws. A movement in this di- clusive patronage agreements” with the con- rection had already begun when carriers ference, in return for which they are were required to publish such rates on an charged rates that sometimes are 10 percent individual basis. The service consider- to 15 percent lower than noncontract rates. ations and economics of doublestack move- In exchange, conference shippers must use ment made point-to-point rates inevitable. only member carriers of the conference. Deregulation legislation and rule mak- The conference system, however, is not ing did away with the need to file inter- without problems. Carriers frequently modal rates and the divisions of those rates withdraw from a particular conference. with the government. The Shipping Act Thus a carrier may belong to a conference of 1984 allowed the Ocean Rate Confer- in one direction and not be a member for ence to file joint rates covering both the hauls in the opposite direction. Confer- inland portion and the water movement ences are also being threatened by rate-cut- of an intermodal movement, which could ting nonconference carriers serving the apply to many carriers on several routes. same trade route. This freedom allowed carriers to establish New carrier alliances have made con- through routes on an ad hoc basis, adjust- ference membership confusing. Alliances ing them daily if desired. All participants act in some ways as a conference, but the are allowed to contract for rates and ser- terms and conditions of their agreements vices, particularly rail and steamship op- are more extensive, including vessel and erators. These rates and contracts, if filed container slot sharing using alliance mem- by an ocean-borne carrier, must still be ber terminals and operations. If this trend filed with the FMC. Rail and motor carri- continues, the conference system as it ex- ers are not required to file contract rates ists today will no longer be an effective with the government. The amount of rail force for either shippers or carriers. traffic actually moving under contract In October 1998, the Ocean Shipping rates is between 40 percent and 60 per- Reform Act was signed into law, and its cent, with the proportion increasing each provisions took effect on May 1, 1999. year. This 1984 act has increased the This act has been compared to previous amount of competition between ports and bills that ushered in aviation and truck- made it more difficult for competitors to ing deregulation. It allows individual car- obtain data. Overall, however, the Ship- riers to negotiate confidential service ping Act of 1984 has increased shipper contracts with shippers that keep their choices and made intermodal shipment a rates secret from other shippers. Rate-set- more viable option. ting conferences will continue to exist and A key responsibility of the FMC is keep- be given antitrust immunity. Conferences ing track of ocean carrier conferences. will be allowed to establish voluntary

78 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps guidelines that apply to the confidential load segment and possible safety problems contracts entered into by their members, in some marginal operations. Intermodal thus opening the possibility that carriers rail and truck competition has kept in- could discuss the confidential contracts creases in rail rates below the general in- among themselves. Opinions vary widely flation level. Rail intermodal services have on the effect that the new law will have expanded the scope of competition by ex- on rates, different shipper groups, and spe- tending service well beyond a rail carrier’s cific segments of the ocean shipping in- own lines. dustry. Intermodal operations could be Despite deregulation of interstate truck- particularly affected, as ocean shippers ing since 1980, 41 states continued to regu- face new competitive challenges and op- late trucking within their borders during the portunities within the ocean shipping 1980s. Six bills to deregulate this sector failed market. As their focus turns to port-to-port to win congressional approval between 1985 operations, ocean shippers may draw back and 1993. Shippers together with large car- from earlier forays into double stack and riers, notably UPS and FedEx, pressed to other railroad businesses, both in the deregulate this part of the industry. United States and internationally. Progress in this area came by attaching intrastate trucking deregulation provisions to airport legislation. A section of the Air- Motor Carrier Deregulation port Improvement Program (AIP) Reau- thorization Act of 1994 states that local During the late 1970s, as railroad regula- governments or bistate agencies are pro- tion at the ICC was under fire, deregula- hibited from regulating “prices, routes, or tion was also transforming the trucking services” of any motor carrier—common, industry. This effort resulted in the Mo- contract, or private. tor Carrier Act of 1980, which relaxed re- When the proposal was initially intro- quirements for entry into the trucking duced, it covered only “intermodal all- business. The number of new trucking ap- cargo air carriers” or airfreight forwarders plicants in the first year of deregulation or carriers that used air cargo carriers more than quadrupled. Many restrictions 15,000 times a year. However, as it went on truck routes, types of traffic carried, through the legislative process, the act and areas served by existing carriers were came to embrace almost all intrastate eliminated. trucking. Section 601 does not cover These deregulatory activities provided household goods carriers, nor does it pre- a substantial measure of rate freedom to vent states from regulating safety or insur- both the trucking and rail modes. The ance issues. In addition, it continues to changes gave shippers a wider range of allow states to set guidelines for uniform price and service options and intermodal bills of lading, cargo liability, or credit rules combinations of carriers. and preserves antitrust immunity for joint These steps were bold, and many made rates or routes, classifications, and mile- dire predictions of how deregulation age guides. would affect different regions of the country, modal transport patterns, and the profitability of individual companies. Now, The North American almost two decades later, motor carrier de- Free Trade Agreement and regulation is widely acknowledged to have Possible Transport Ramifications been one of the most effective policies ever applied to improve transport efficiency. No With the exception of a large volume of area in the United States is without ser- goods flowing between the United States vice, although remote areas often pay and Canada, geography, regional economic higher rates. Nor have any reports of wide- advantages, and trade patterns have re- spread rate gouging surfaced. Concerns sulted in a transport system in Canada, the center on the increasing concentration by United States, and Mexico that primarily the largest carriers in the less-than-truck- runs east-west. This pattern is expected

Legal and Regulatory Barriers to Better International Intermodal Transport 79 to change in the next few decades as trad- shorter sea routes to the United States and ing patterns acquire a greater north–south Canada. To realize this potential, however, component. ports in Mexico will need to invest heavily In 1994, NAFTA opened trade and in port infrastructure. The move toward transport possibilities between Canada, privatization of these ports may attract the the United States, and Mexico. In doing private investment needed to do this. In so, it created one of the world’s largest free addition, Mexico could potentially develop trade areas—an area that includes more land bridge services that compete with than 360 million people and has a com- U.S. land bridge services and with vessels bined annual output of more than $8.0 using the Panama Canal. trillion. NAFTA established a timetable for removal of the barriers for international cargo and passengers. Free trade Priority for Intermodal between the countries has the potential to Transport in Recent U.S. Legislation change distribution strategies by allowing a company to relocate its distribution cen- The deregulation of transport that oc- ters, which could shift the demand for curred in the United States in the last two trucking, rail, water, and intermodal trans- decades is credited with reducing logistics port. Many companies have started to look costs, providing environmental benefits, at North America as a single distribution and encouraging the growth of intermodal region. This new perspective will alter how transport services. As the prospects of business is conducted as well as the trans- system coordination have become more port systems necessary to serve it. evident throughout this period, intermo- Under NAFTA, U.S. railroads and in- dalism has increasingly become an end in termodal companies will continue to take itself. It has become a key strategy for ra- advantage of gains they made through in- tionalizing transport policy generally. formal agreements with Mexico. These in- Many earlier administrations and con- formal agreements affect the ability to gresses have spoken of the need for an in- market services; operate unit trains; con- tegrated, coordinated, national transport struct, own, and operate terminals; and policy, but this goal has proven to be ex- finance rail infrastructure. NAFTA also traordinarily difficult to achieve. The im- opens up full investment and operating mense U.S. transport system is owned and rights to U.S. and Canadian companies in operated by a vast array of public and pri- Mexico’s port facilities. vate organizations, and no one has the Mexican trucks are now allowed to op- ability to coordinate them all to conform erate in commercial zones in the border to some master plan. The creation of the states, but the administration still has not U.S. DOT in 1967 was intended to help allowed their operation throughout the bring about better modal coordination, but entire United States. By the year 2000, all it has had only limited success in achiev- restrictions on cross-border access are ing this. Centralized “command and con- scheduled to be lifted. Trucks from each trol” multimodal planning might, in the of the three countries will be able to travel abstract, appear to embrace the many ele- within each other’s borders to deliver or ments of the system, but it does not fit at pick up international cargo. Meeting this all with the rights, needs, or objectives of timetable may prove difficult because of private carriers and shippers. sharp differences in safety regulations and Intermodal transport offers a useful rules governing truck length and weight. focal point for advancing total system co- NAFTA promises to bring major ordination. It provides a market-based set changes to ocean transport as well. of signals around which multimodal co- Tangled restrictions imposed to protect ordination can be realistically improved. labor and other interests have reduced It offers a strategic device for focusing marine transport between Mexico and the public and private attention on key bottle- United States and Canada. The develop- necks and gaps in the overall system. This ment of ports in Mexico could create strategy gained new priority in 1991 with

80 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps the passage of the Intermodal Surface but there is little consensus on the specif- Transportation Efficiency Act (ISTEA). ics. The underlying issues are complex and This bill aimed to “… develop a National often controversial. One of the aims of the Intermodal Transportation System that is November 1998 forum on Intermodal economically efficient, environmentally Freight Transport in Europe and the sound, provides the foundation for the Unites States is to move the discussion nation to compete in the global economy, closer to resolution by identifying possible and will move people and goods in an en- opportunities for increased competition in ergy efficient manner.” international intermodal freight transport. These goals are encouraged through Four issues on the U.S. side that might be improved intermodal connectivity, reliabil- considered at that forum are listed below: ity, and flexibility. This legislation pro- • Ocean shipping reform vided $155 billion over six years for • Non-U.S. companies providing trans- highway, highway safety, public transpor- port service in domestic markets (in- tation, and other surface transportation cluding aviation, the Jones Act, and programs. other cabotage laws) The 1991 act also established the Of- • New entrants in third-party logistics fice of Intermodalism to assist the U.S. • Crossmodal ownership barriers DOT in developing policies and programs This list, or any such list, is not likely designed to encourage and support inter- to find unanimous acceptance. Rather, the modal programs and projects. The fund- intent is to offer a few examples, stimu- ing and organizational attention given to late discussion, and begin a process that intermodal transport signal a new recog- focuses on issues of common concern. nition that the long-sought goal of a coordinated, multimodal, national transport system is most effectively addressed by Ocean Shipping Reform focusing on key intermodal points in the system. Some believe that the regulations govern- This intermodal strategy was further ing ocean shipping are cumbersome, re- advanced in 1998 when Congress passed strictive, and confusing. Advocates for the Transportation Equity Act for the 21st change have sought the right to negotiate Century. This law establishes eligibility for private, confidential service contracts be- improvements to highway connections tween carriers and shippers that would not from the National Highway System to need to be filed under present regulations. major intermodal terminals over the next They also wanted increased availability of six years. It authorizes some $217 billion global contracts covering multilink move- for surface transport projects, and part of ments, which would help preserve the con- this funding is available for intermodal fidentiality of rates on certain important projects. routes within the overall contract. Before the passage of the Ocean Shipping Reform Act of 1998, tariffs had to be filed with the FMC, and carriers could monitor each Possible Steps Toward other’s deals. Better European–U.S. Under the new provisions, confidential Intermodal Transport contracts are possible, and carriers will not always know what their competitors were To further enhance the health of inter- offering. This situation could create com- modal freight transport between Europe petitive pressures to bid lower. The advan- and North America, we need to reduce tages of being a carrier cartel are largely regulatory barriers, promote fuller compe- eroded. Carrier conferences are likely to tition, and allow new competitors to en- lose members and rate-making power. ter the market. Each carrier, shipper, Those who pressed for this change be- terminal, and region can identify differ- lieve that if cargoes such as bulk cargo, ent opportunities to enhance competition, forest products, recycled metal scrap,

Legal and Regulatory Barriers to Better International Intermodal Transport 81 waste paper, and paper are exempt from contend that the act, like some of the re- FMC’s filing requirements, other cargoes strictions connected with FMC-affected should be exempt as well. They wanted vessel operations, affects the spirit and ocean carriers and shippers to be able to intent of deregulation, causing the mari- negotiate with each other the same way time industry to lag far behind the other truckers and railroads negotiate with their modes. customers. Meanwhile, American carriers and The provisions of the new law are now shipyards are waiting to see what the fu- being translated into administrative regu- ture holds before they invest in building lations by the FMC. These regulations will and operating U.S.-flag vessels. In addi- open a new chapter in ocean shipping in tion, the strict requirements of the Oil international intermodal freight transport. Pollution Act of 1990 are forcing many By some accounts, these regulations may older vessels to be removed from domes- give ocean carriers more leverage in rate tic services. and service negotiations by allowing the Similar cabotage restrictions apply to air- carriers to join together in negotiations freight carriers. Critics of such restrictions with railroads. Such leverage could lead argue that this is more than a “zero-sum” to improved rail service. The new law may game in which profits are redistributed be- also alter the balance in negotiations between companies or countries. Instead, they tween truckers and ocean carriers. The contend, these barriers introduce inefficien- regulations that are drafted and phased in cies in international intermodal transport to implement the new law will govern the that impede economic trade and economic competitive structure of ocean shipping for growth. a number of years. International inter- The arguments surrounding the Jones modal freight interests have a stake in how Act and similar protections have gone on these new regulations are drafted. for decades, and few anticipate that Con- gress will make any major changes here soon. Growing global commerce, and the Non-U.S. Companies Providing rise of international intermodal services, Transport in Domestic Markets could potentially increase the chances of change. The issue might receive some at- International air and water carriers serv- tention as reciprocal cabotage arrange- ing U.S. airports and ports are restricted ments are considered in connection with in their ability to carry goods between the Passenger Vessel Act. points in the U.S. The Jones Act of 1920 is one such restriction. To protect U.S.- flag shipping, the Jones Act requires that New Entrants in all domestic waterborne freight move on Third-Party Logistics U.S.-built ships crewed with American citizens. This form of cabotage has been Third-party logistics has grown rapidly in in existence for centuries, especially by the United States in the 1990s. This sec- nations that were particularly vulnerable tor has shown that the specialization and to foreign-flag competition in their own flexibility inherent in placing the logistics waters. function outside both carrier and shipper There are approximately 35 “Jones can improve service and reduce costs. Act” containerships operating in domes- More than 1,000 firms now provide third- tic trade lanes between the continental party logistics services in the United United States and Puerto Rico, Hawaii, States, accounting for gross revenues of Guam, and Alaska. In recent years, how- some $34 billion. About $9 billion of this ever, the act has been under attack by ship- total goes to companies with international pers, such as the Jones Act Reform operations. Coalition, who argue that they are forced Facilitating entry into this sector is key to pay higher rates for their cargoes be- to the growth of intermodal services, cause of the lack of competition. Others since third-party logistics firms operate

82 Toward Improved Intermodal Freight Transport in Europe and the United States: Next Steps free of any need to protect fixed invest- synergy of such arrangements has been dif- ment in facilities or equipment. Such ficult to realize. With their fixed routes, firms function best in a flexible regula- railroads have a different sense of customer tory environment where the full range relations than do truckers. With their mas- of modal and intermodal options is avail- sive capital investment, the culture of com- able. Free entry into this segment will petition in railroads also differs from that reward companies that effectively ex- of motor carriers. The advantages that at- ploit communications, transport tech- tach to vertical integration cannot be real- nology, market knowledge, and systems ized without favorable geographic management. The ability of new en- conditions. The scale of multimodal com- trants to thrive in this sector reflects the panies may be too large to achieve in-house pace of intermodal transport overall. synergy. Labor agreements involving a Steps that enhance the ability of third- company may be transferred to its acquisi- party logistics to function in interna- tions. For all these reasons, it has proven tional movement are key to progress in difficult for carriers to be successful in the area. crossmodal acquisitions. The opportunities to enhance third- Regulatory barriers per se are probably party logistics are different in Europe and not responsible for the apparent difficulty the United States. The issue may get fur- in crossmodal and multimodal ownership. ther attention as provisions of the Ocean However, the apparent synergy promised Shipping Reform Act of 1998 are imple- by such arrangements continues to be elu- mented. Under the new law, freight for- sive, and the economic consequences of warders and NVOCCs can continue to the full set of rules and regulations at- provide third-party ocean transport tached to each of the modes may be part through contracts with carriers. Unlike of the difficulty. ocean carriers, NVOCCs currently cannot deal directly with individual shippers, but can negotiate only within shipping associations. Some have argued that this re- Conclusion striction on third parties places them at an unnecessary disadvantage and that The opportunities sketched here are in- fuller competition would be achieved by tended to stimulate discussion. This list is allowing them to negotiate separately with not complete, nor do these issues repre- shippers. While NVOCCs did not get the sent priorities that are shared by all par- powers they sought from the recent bill, ties. Rather, these opportunities are this issue promises to remain in the pub- presented as a point of departure for dis- lic spotlight as ocean shipping reform cussions among participants at the Novem- moves forward. ber 1998 Forum in Munich. The carriers, shippers, government officials, and ana- lysts present will each be aware of many Crossmodal Ownership Barriers other specific opportunities for advancing intermodal service. The objective is to con- While economic deregulation has greatly sider all such possibilities and to identify expanded the ability of carriers in one areas of common interest where partici- mode, such as railroads, to own carriers in pants from both regions may be able to another mode, like trucking, the potential return and work for compatible progress.

Legal and Regulatory Barriers to Better International Intermodal Transport 83 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 Acronyms and Abbreviations 85 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

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