Although the $500 per "package" or per "customary freight unit" limitation that protects ocean carriers has been the law since passage of the U.S. Carriage of Goods by Sea Act (COGSA) in 1936, courts continue to struggle with the meaning of "package" and "customary freight unit."
Part of this is due to the changes in methods of shipping cargo: the bag, box or barrel which were shipped individually are now often shipped on pallets or in bundles or in large shipping containers that are supplied by the carrier but filled with cargo and sealed by the shipper.
Courts have generally avoided classifying a container itself as the "package", at least when what would ordinarily be considered packages are shipped in a carrier's containers and the number of units is disclosed in the bill of lading. This has raised issues where the carrier's container is loaded, sealed and locked by the shipper.
Sometimes the description provided by the shipper on the carrier's bill of lading printed form may also cause confusion. The shipper can avoid such problems by declaring the value of the shipment on the bill of lading, but this seldom occurs because the shipper would have to pay extra freight and it probably has privately insured the shipment.
Courts will generally not consider the carrier's containers as the COGSA "package" in the absence of "clear and unambiguous language" indicating agreement on the definition of "package" to include a carrier's container.
In a recent case in a federal court in New York, four cars were shipped in a container. The bill of lading acknowledged receipt of "1 cntr" but also noted the number of "packages" as four. The description of the bill of lading described the contents as "4 unpackaged...autos." The bill of lading also noted the shipment included "one lot of used auto parts." The definition of "package" in the bill of lading did not help either party. It defined packages as "any palletised or unitised assemblage."
The court threw up its hands and went back to the COGSA, which provides that where the units shipped are not "packages," limitation of liability under the Act depends on the number of "customary freight units" used in computing the freight. Courts have generally disregarded the word "customary" and have applied "the actual freight unit used by the parties to calculate freight for the shipment at issue." That is what the federal court ruled in Savanna Auto Sales v. Mediterranean Shipping Company (S.D.N.Y. July 22, 2013). Automobiles and other vehicles are often freighted on a "lump sum" basis. In such cases, the lump sum freight rate is considered a single freight unit, and as result, the limitation amounts to $500 under COGSA.