UK: E-freight on non-MAP4/Montreal Routes – can the risk be Mitigated?

Last Updated: 2 September 2010
Article by Sue Barham, Peter Coles and Zohar Zik

In this article we explain the objectives of e-freight, the legal and contractual framework underpinning the relationship between carriers and freight forwarders and discuss the possibility of using e-freight on non-MAP4 and MC991 trade lanes.

What is e-freight?

E-freight is an IATA project which aims to take the paper out of air cargo, by capitalising on the more liberal approach of MAP4 and MC99 towards paperless cargo contracting and, in particular, the use of electronic air waybills. E-freight simply makes sense as a concept; it catches up with technology and with similar trends, such as the effectively universal adoption of etickets. E-freight is also expected to deliver significant savings across the aviation cargo industry and to reduce its overall environmental footprint by eliminating thousands of tonnes of paper documents.

BLG has been at the forefront of this process, advising clients on the underlying contractual framework documentation proposed by IATA and on the possibility of extending e-freight processes to non- MAP4/MC99 routes (or trade lanes, using efreight terminology) to allow them to benefit from the scheme on a wider basis whilst minimising risk exposures for carriers and their insurers.

Why e-freight?

On average, each air cargo shipment generates 30 paper documents, split into three categories: Trade documents, such as invoice, packing list, certificate of origin, letter of instruction, dangerous goods declaration; Transport documents, such as flight manifest, master air waybill or house air waybill; and Customs documents, such as export and import goods declaration and release. E-freight seeks to replace the majority of them with electronic messages.

The benefits of e-freight could be significant and include:

  • annual savings across the supply chain, estimated by IATA to be potentially as high as US$4.9bn, depending on the level of adoption
  • faster supply chain - shipment documentation can be sent before the cargo itself is shipped, which could reduce the industry cycle time by an average of 24 hours, significantly reducing the cost of capital to finance goods in transit
  • greater accuracy - one time electronic data entry at point of origin reduces delays to shipments due to inaccurate or inconsistent data entry and electronic documents are less likely to be misplaced so shipments are not delayed because of missing documentation
  • better tracking - electronic data means shipments can be tracked en route
  • environmentally friendly - eliminate thousands of tonnes of paper documents
  • increased security - electronic documents only available to those who require them for completion. E-freight is already operational in many countries around the world and IATA aims to implement it in 44 countries by the end of 2010, representing over 80 per cent of global freight volumes.

The legal basis for e-freight under MAP4 and MC99 and the legal challenges for e-freight under Warsaw/Warsaw-Hague

To participate in e-freight, a country must first pass a High Level Assessment (HLA) and then a Detailed Level Assessment (DLA). The HLA centres on whether the country's customs can cope with electronic release of import and expert cargo and goods and, most crucially, whether the country in question has ratified MAP4 or MC99. If neither has been ratified, then that country (and its registered carriers and other cargo operatives) may not be able to benefit from e-freight for the time being.

This is because both MAP4 and MC99 anticipate e-freight and the use of electronic air waybills, stating that instead of the requirements that an air waybill be delivered, "any other means which would preserve a record of the carriage to be performed may... be substituted for the delivery of an air waybill"2. Also key is the fact that limits of liability under MAP4/MC99 for loss of or damage to cargo are unbreakable (17 Special Drawing Rights per kilogramme) and, whilst MAP4/MC99 each do contain requirements for the making out and content of air waybills, non-compliance with those requirements does not result in loss of those limits. That is central to preserving the certainty as to risk exposures required by carriers, consignors, freight forwarders and insurers alike.

By contrast, the Warsaw Convention and Warsaw-Hague3 (the "Warsaw Regime") contains strict paper-based requirements for carriage of cargo and the content and processing of air waybills which are not readily transposed to a fully electronic cargo process. The Warsaw Regime requires that air waybills must be "made out" in three original parts; the copies are to be marked separately ("for the consignee", "for the consignor"); they are each to be signed by different parties in the cargo chain - copy one by the consignor, copy two by the consignor and the carrier, copy three by the carrier; and that one copy must "accompany the cargo". Liability limits for loss of or damage to cargo under the Warsaw Regime can be broken; crucially, when compared with MAP4 and MC99, the consequence if an air waybill is not made out as required is that liability limits may be lost.

The contractual framework for e-freight

IATA has produced an industry standard agreement on Electronic Data Interchange (the "EDI Agreement"), which is intended to be entered into between carriers and freight forwarders and which documents the applicable e-freight procedures. In particular, the EDI Agreement envisages that each shipment would be initiated electronically by the freight forwarder sending an electronic shipment record containing all relevant cargo information before sending the cargo itself. The cargo contract would only be concluded when the carrier accepts it as ready for carriage and confirms this to the freight forwarder electronically. Needless to say that this arrangement can only be supported on MAP4 or MC99 trade lanes, but not others.

Or can it? Well, not necessarily. Using a creative approach to ensuring compliance with the Warsaw Regime documentary requirements and some innovative and careful contractual drafting, the EDI Agreement can be extended to routes governed by the Warsaw Regime whilst minimising the risk of liability limits being lost. Although the process still requires the issuance of paper air waybill it would nonetheless give carriers the opportunity to standardise their operating and acceptance procedures for cargo more widely and to maximise e-freight related savings as a result.

That said, whilst the new process meets contractual requirements and complies (with some minor adaptations) with the formality requirements of the Warsaw Regime, thereby reducing risk exposures for insurers and carriers of loss of liability limits, it still falls short of the IATA process. Accordingly, carriers wishing to use it would need to ensure that their due diligence process covers issues that would otherwise be dealt with by IATA through its HLA and DLA audits including, for example, ensuring that the governments in question can and are willing to cope with electronic release of import and export cargo and goods to support the process.

In addition to the complex regulatory environment in which e-freight resides, carriers should bear in mind that the EDI Agreement is a model agreement and, as such, envisages that parties to it will seek to adapt and modify certain provisions to ensure that they deal with the subject matter comprehensively and appropriately to each particular carrier's requirements. For example, parties are encouraged to consider whether they ought to beef up clauses pertaining to data security and confidentiality, data integrity and storage. Other provisions, such as those dealing with governing law and jurisdiction or termination, might also merit revision to ensure that parties' respective positions are adequately protected.

Footnotes

1 Respectively, the Convention for the Unification of Certain Rules Relating to International Carriage by Air, signed at Warsaw, 12 October 1929 as amended by Montreal Protocol No. 4 (MAP4), and the Convention for the Unification of Certain Rules for International Carriage by Air, done at Montreal on 28 May 1999 (MC99)

2 Article 5(2) Warsaw Convention as amended by Hague Protocol and by MAP4; Article 4(2) MC99.

3 Respectively, the Convention for the Unification of Certain Rules Relating to International Carriage by Air, signed at Warsaw, 12 October 1929 (Warsaw Convention) and the Warsaw Convention, as amended in the Hague (Warsaw Hague)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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