Pan Pacific Conference Proceedings
The Rotterdam Rules and Incoterms 2000
Roberto Bergami
School of Economics and Finance, Centre for International Corporate Governance Research, Victoria
University, P.O. Box 14428, MCMC, Vic, 8001, Australia
Email: Roberto.Bergami@vu.edu.au
ABSTRACT
“The United Nations Convention on Contracts for the
International Carriage of Goods Wholly or Partly by
Sea”, commonly known as the Rotterdam Rules, were
adopted on December 11, 2008, by the General
Assembly of the United Nations and opened for
signature on 23 September 2009. Subject to
ratification by individual signatory states, the
Rotterdam Rules have the opportunity of becoming an
international convention in the future.
The aim of the Rotterdam Rules is to provide one
international convention that covers the transport of
goods by sea and connected transport, thereby
replacing the three international conventions currently
used in global trade, that is, the Hague Rules; the
Hague-Visby Rules; and the Hamburg Rules. Logic
suggests that one set of uniform rules is a far better
proposition than having to contend with three sets of
rules.
However, on closer examination, the adoption of the
Rotterdam Rules signals new problems for
international traders in the context of transport
contracts. The main issues of concern surround the
opportunity for variation to contract of carriage
conditions that may be agreed to between the shipper
(sender of the goods) and the carrier, and the
consequential reduction in carrier liability. Such
variations are expressed in vague terms in the
Rotterdam Rules (e.g. Article 80 on volume contracts),
making it problematic for traders to fully understand
the implication of such variations.
Under the Rotterdam Rules, carriers may contract out
of liabilities through inducements, such as cheaper
freight rates, however these may be more than offset
by a reduction in carrier liability. Such arrangements
effectively shift the burden of risk towards the shipper
and may create problems in the context of
international delivery terms (Incoterms 2000). This is
because variations to a contract of carriage may
negatively impact on insurance options and the right
of the consignee (receiver of the goods) to pursue any
claims against the carrier.
This paper considers the most important
consequences of variations to contracts of carriage
under the Rotterdam Rules when using Incoterms
2000 and concludes that, to avoid problems between
buyers and sellers, sales/purchase contracts should
specifically incorporate appropriate clauses to address
the issues of contract of carriage variations.
INTRODUCTION
It is commonly accepted that the vast majority of
goods traded internationally are carried by sea. There
are currently three international conventions for the
carriage of goods by sea:
 The International Convention for the Unification
of Certain Rules of Law relating to Bills of
Lading (1924), commonly referred to as the
Hague Rules;
 Protocol to Amend the International Convention
for the Unification of Certain Rules of Law
Relating to Bills of Lading ("Visby Rules")
(1968), commonly referred to as the Hague-
Visby Rules. These rules were amended in 1979
via the Protocol (SDR Protocol) amending the
International Convention for the Unification of
Certain Rules of Law relating to Bills of Lading
of 25 August 1924 (The Hague Rules), as
amended by the Protocol of 23 February 1968
(Visby Rules), commonly referred to as the SDR
Protocol; and
 United Nations Convention on the Carriage of
Goods by Sea ("Hamburg Rules") (1978),
commonly referred to as the Hamburg Rules.
Each of these conventions has been adopted by
different countries around the world, and it appears
that the amended Hague-Visby Rules is the most
commonly used convention. However, it has been
claimed that the concurrent use of these international
conventions creates a confusing environment for
traders and service providers alike. Additionally, as
containerization did not become commonplace until
the 1970s, the current conventions are regarded by
some as no longer appropriate to modern day shipping
practices.
As a consequence, a new international convention
has been proposed to replace the existing conventions,
with the aim of having only one standard international
convention simultaneously operating in all countries
of the world. The new convention is the United
Nations Convention on Contracts for the International
Carriage of Goods Wholly or Partly by Sea,
commonly referred to as the Rotterdam Rules. The
Rotterdam Rules was opened for signature on 23
September 2009 at Rotterdam. Although the required
minimum quota of twenty signatory states was not
achieved at the opening, sufficient signatures have
now been obtained to enable the rules to progress to
international convention in due course.
The Rotterdam Rules will not become an
international convention until one year after the
twentieth signatory member has ratified these. This is
not likely to occur before 2012 at the earliest.
Due to length limitations, this paper limits the
discussion of the Rotterdam Rules to the issue of
contract derogation, in the context of the Incoterms
2000. Firstly the paper briefly defines and explains the
Incoterms 2000 in the next section, and the subsequent
section discusses the challenges of derogation for both
the contract of carriage of goods by sea and cargo
insurance considerations. It should be noted that the
terms seller and exporter are used synonymously in
this paper, as are the words buyer and importer.
INCOTERMS 2000
Incoterms is an acronym for international
commercial terms. First published in 1936 by the
International Chamber of Commerce, these terms have
been regularly updated, and Incoterms 2000 is the
current version. Incoterms provide[1]
a set of international rules for the interpretation of
the most commonly used trade terms in foreign
trade (p. 5).
There are thirteen Incoterms 2000 and these are
divided into four groups, as show in Table 1.
Table 1: Incoterms 2000 groups
Group Terms
E Ex Works (EXW)
Free Carrier (FCA)
F Free Alongside Ship (FAS)
Free on Board (FOB)
Cost and Freight (CFR)
Cost, Insurance and Freight (CIF)
C contracts[3].
Carriage Paid To (CPT)
Carriage and Insurance Paid To
Delivered at Frontier (DAF)
Delivered Ex Ship (DES)
D Delivered Ex Quay (DEQ)
Delivered Duty Unpaid (DDU)
Delivered Duty Paid (DDP)
In groups E and F, the buyer is responsible for the
movement of the goods and, consequently, must enter
into a contact of carriage and pay for this service. The
buyer will decide whether to insure the cargo or not,
based on their risk appetite.
In all C terms, the seller is responsible for entering
into contract of carriage, at their cost, however the
cargo is carried at the buyer’s risk. For CFR and CPT
terms, it is up to the buyer as to whether to insure the
cargo or not. In CIF and CIP terms the seller
additionally provides insurance coverage at their cost.
Insurance is based on the Institute Cargo Clauses – a
common worldwide standard.
In group D terms, the seller is responsible for
entering into a contract of carriage, and they retain the
risk in transit of the cargo until it reaches its final
destination. The seller will decide whether to insure
the cargo or not, based on their risk appetite.
Group C presents challenges because, even though
the buyer pays for the carriage of the goods and,
where appropriate, insurance, it is the seller that enters
into such contracts. To date this has not been regarded
as a problem, because the various conventions are
quite prescriptive about issues such as carrier liability
and derogations (deviations) from the conventions.
However, the Rotterdam Rules introduce a new
freedom to contract[2] approach that is bound to cause
concerns to traders, carriers, logistical service
providers, and insurers - this is discussed in the next
section.
ROTTERDAM RULES
The freedom to contract is synonymous with
volume contracts, as defined in Article 1.2 of the
Rotterdam Rules:
“Volume contract” means a contract of carriage that
provides for the carriage of a specified quantity of
goods in a series of shipments during an agreed
period of time. The specification of the quantity
may include a minimum, a maximum or a certain
range.
It can be noted that the definition of a volume
contract is quite flexible, neither specifying a
minimum nor maximum trigger point. Some have
suggested that as little as three sea freight container
movements per year may qualify as volume
Volume contracts are not, in themselves, the
challenge. The challenge is what can be done with
volume contracts, as Article 80 of the Rotterdam
Rules states in part:
(1) … a volume contract to which this Convention
applies may provide for greater or lesser rights,
obligations and liabilities than those imposed by
this Convention.
(5) The terms of the volume contract that derogate
from this Convention … apply between the carrier
and any person other than the shipper provided that:
(a) Such person received information that
prominently states that the volume contract
derogates from this Convention and gave its
express consent to be bound by such derogations.
 The effect of Article 80(5) will be the introduction
of two freight rates into the market “one in case of the
RR [Rotterdam Rules] applying, the other in case of
derogations”[4]. The cheaper freight rates will be an
inducement for shippers to enter into contracts of
carriage with derogations, in the belief that they will
reduce costs. Yet, in doing so shippers may
inadvertently achieve a cost reduction by acquiring
greater risk. This is because the carrier reduces their
liability, by transferring risk onto the shipper. The
savings are counterbalanced as “this greater risk of
shipping goods, transforms into higher insurance,
therefore greater costs of good[s]”[5].
The requirement for the Rotterdam Rules Article 80
is that for derogations to apply, third parties must be
notified of such derogations and agree to these, to the
satisfaction of the carrier. To recall, the Incoterms
2000 where derogations may be problematic are the C
terms, where the exporter contracts for carriage, but
the movement of cargo is done at the importer’s risk.
In this situation, the exporter quoting a price will need
to investigate whether cheaper freight rates are
available, and whether the importer is willing to
accept same. Where the importer is not willing to
accept derogations, the standard contract of carriage
will need to be used.
It may be possible for the importer to secure
insurance to compensate for derogations through
insurance as mentioned above, but this “would lead to
higher liability premiums, but it might well lead to
insurers being unable to accept the contract”[6].
Where the insurer is not willing to do so, a contract of
carriage with derogations will be left with a risk gap –
the difference between the diluted carrier liability and
the uninsured risk. This may be a proposition beyond
the risk appetite of an importer buying on C terms. It
must be remembered that insurance does not apply
retrospectively, therefore, insurance coverage must be
arranged before the commencement of the journey.
C GROUP INCOTERMS 2000 AND CONTRACT
OF CARRIAGE UNDER ROTTERDAM RULES
The buyer needs to be vigilant to ensure that the
fulfillment of obligations under C terms by the seller
do not introduce additional risk elements. The most
important issue considered in this paper is that of
derogations to the contract of carriage under the
Rotterdam Rules.
Before accepting contracts with derogations, the
buyer should seek appropriate legal advice. Indeed, it
has been suggested that the Rotterdam Rules are quite
complex and in relation to transport documents, they
“seem fit for only a small select group of trained
lawyers”.
Where derogations are contemplated and the seller
issues insurance, the buyer should insist that
confirmation of acceptable insurance coverage be
provided by the insurer. If the insurer is unwilling or
unable to provide evidence of acceptable insurance
coverage, the importer should not trade on CIF or CIP
terms, but rather make its own insurance
arrangements.
CONCLUSION
The Rotterdam Rules will provide new challenges
for sellers and buyers. Although the future
implementation of volume contracts and derogations is
uncertain at this time, what is certain is that current
negotiation flows will be disrupted by the introduction
of the freedom to contract. Whereas, presently,
international conventions provide stability and
certainty by limiting carrier liability exclusion, the
Rotterdam Rules have the potential to operate in the
opposite. Consequently, as part of their risk
management approach, buyers trading with group C
Incoterms 2000 will need to review their contractual
arrangements for acceptability.
REFERENCES
[1] International Chamber of Commerce (1999) ICC
official rules for the interpretation of trade terms:
Incoterms 2000, Paris, France: ICC Publishing S. A.
[2] Mukherjee, P.K., & Bal, A.B. (2009) ‘A legal and
Economics Analysis of the Volume Contract Concept
under the Rotterdam Rules: Selected issues in
perspective’, paper presented at the UNCITRAL
Colloquium on Rotterdam Rules, 20-23 September
2009, Malmö, Sweden, available at:
<http://www.rotterdamrules2009.com/cms/uploads/De
f.%20tekst%20Abhinayan%20Basu%20Bal%20-
%20Volume%20Contract%20Final.pdf.
[3] Diamond, A. (2008) ‘The Next Sea carriage
Convention?’ Lloyds Maritime and Commercial Law
Quarterly (2): 135-187.
[4] Honka, H. (2009) ‘United Nations Convention on
Contracts for the International Carriage of Goods
Wholly or Partly by Sea: Scope of Application and
Freedom of Contract’, paper presented at the
UNCITRAL Colloquium on Rotterdam Rules, 20-23
September, Malmö, Sweden, available at:
http://www.rotterdamrules2009.com/cms/uploads/Def.
%20tekst%20Hannu%20Honka.pdf.
[5] Parker, A. (2007) ‘The Rotterdam Rules: A Step
Backwards for Australian Shippers?’, Logistics
Association of Australia Ltd., available at:
http://www.laa.asn.au/pdf/ldaarticles/AP1.pdf.
[6] CLECAT (European Association for Forwarding,
Transport, Logistics and Customs Services), Position
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<http://www.uncitral.org/pdf/english/texts/transport/ro
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[7] Tetley, W. “A Summary of General Criticisms of
the UNCITRAL Convention (The Rotterdam Rules)”,
2008 (December 20), available at:
<http://www.mcgill.ca/files/maritimelaw/Summary_of
_Criticism_of_UNCITRAL__No_1.pdf>