Expert Column Cargo Packaging and Stowage Problems for Open Top and Flat Rack Container

Importance of Packaging and Stowage for Special Containers An open top container is a type of container where the opened parts of both sides of the wall are covered with items such as a canvas to secure water tightness. On the other hand, a flat rack container does not have a ceiling and a wall but has a device installed in the bottom part that tightly fixes cargo. It is structured to secure solidity just with the pillars of the four corners. These two containers are used for maritime transportation of cargo with long length, heavy goods, or machinery including automobiles, machines, plywood, pipes, and steel bars. Open top and flat rack container cargo are usually stored on the deck of the vessel, but it is stored inside of the deck if a shipper specially requests.

If destruction or damage of open top or flat rack container cargo occurs during the process of ocean transportation, the agent who takes responsibility is decided depending on the cause of the damage: poor packaging or stowage issue. The agent is either the vendor, vendee, forwarder, or ocean carrier (actual transporter). In a lawsuit between a vendee and a forwarder, the vendee won the lawsuit (Seoul High Court 2018B2023061) because the court decided that the cargo was damaged as the forwarder stored the open top and flat rack container cargo on the deck, not the inside. As a result, the forwarder filed another lawsuit against the ocean carrier, and the court decided for the ocean carrier arguing the damage was caused by the ocean carrier’s poor packaging (Seoul High Court 2021B2010140). Even though the two cases are equal, one court held the stowage obligation accountable, and the other court pointed out the poor packaging. Since packaging and stowage are becoming the standards for ocean transport cases, let’s take a look at the definitions of those two.

1) Packing Methods and Practices of Special Containers
Packaging was made to protect transport and handle cargo easily. There are no objective standards that decide the completeness of packaging because the packaging does not always have to fully cover the transport cargo, and what needs to be packaged is decided following the customs of the transport industry or the social norms. According to the Institute Cargo Clauses (ICC) 4-3 of Article 4, the insured or the user should package and prepare insurance objects so that they can withstand the general transportation process. If the insurance objects get destructed or damaged because they did not completely and appropriately prepare or packaged them, then the insured will be exempt from responsibility regarding the damage and cost. The problem here is the way to define “complete and appropriate packaging.”

There are millions of cargo traded in trades and their characteristics and transport types are also diverse. Therefore, the definition of appropriate packaging varies depending on the cargo, the commercial practices at that time, and the specific routes. However, generally, it refers to the minimum packaging that allows cargo to withstand all the transport conditions that may occur during the transportation or the packaging that enables cargo to endure conditions handled by the carrier, his/her substitute, or user during transportation.

The packaging intensity and method of open top and flat rack container cargo are also decided by the customs or social norms of the transport industry. The packaging of open top and flat rack container cargo requires professional packaging technologies. The vendor who exports open top and flat rack container cargo owns a detailed export packaging specification but delegates the work by making contracts with professional companies. Finally, the vendor approves the packaging through an inspection procedure.

A professional packaging company packages following the export packaging specifications provided by the vendor. The export packaging specification includes the purpose, general information, responsibilities and authorities, definition of terms, packaging procedures, pre-packaging product handling, photographing of goods, product protection, packaging standards, packaging materials, container fixing after stuffing (shoring/lashing), precautions during packaging, attachment of final documentation list to the outer packaging, prevention of container damage and proof, submission documents, and packaging and container types applied by section and item. Generally, open top and flat rack container cargo is packaged by methods such as bundle, skid, and vacuum packaging. Bundle packaging does not require a pallet and can endure water and humidity. Therefore, it is suitable for packaging industrial structures, simple-shaped items, and large-sized outdoor structures that do not have issues during exposed transport and storage. Bundle packaging uses steel bands or other appropriate materials, taking into consideration the nature, shape, mode of transportation, loading/unloading conditions, impact, and storage, in order to prevent damage caused by contact with other items during handling, transportation, and loading. A skid is a method of packaging when loading cargo in the container, and it is a way to load and fix cargo covered with silica gels (desiccant) on the pallet. Skid can withstand rain and snow, and the structure of the skid is strong enough to prevent cargo damage from contact. This packaging method is usually applied when loading cylindrical cargo with long lengths and square cargo in a vertical or horizontal manner. The packaging is done with wires or bolts that are used to fix wooden skids and cargo. Vacuum packaging is a method that creates a vacuum inside the cargo to prevent rust and corrosion. It uses nitrogen injection, sealing oil, and sealing film to prevent air from entering. These three kinds of packaging for special container cargo are performed depending on pre-packaging work, packaging work, and container stuffing work.

When buying and exporting open top and flat rack container cargo in local, the vendee needs to make purchase contract with the seller that produces open top and flat rack container cargo and should specify the details of packaging in the purchase contract. The details of packaging in the purchase contract are as follows.

First, the seller should package the cargo based on the package specification stated in the purchase contract by the vendee. The producer is responsible for all the packaging and should pack so that the open top and flat rack container cargo is perfectly protected during storage, shipment, transport, and loading/unloading. It should be stated that all the responsibility for the packaging lies with the producer.

Second, regarding packaging intensity, it needs to be stated that the producer packages open top and flat rack container cargo so that it can endure long-distance ocean/inland transportation and multiple shipments as well as loading/unloading. It says all possible measures need to be taken to prevent damage that occur due to the characteristics of open top and flat rack cargo including moisture, corrosion, and shock.

Third, the packaging specification of open top and flat rack container cargo should be stated in detail. If the packaging specification of the producer is deemed incompatible with the shipment, the vendee may demand that the producer make the necessary modifications and improvements at their own cost. The vendee will not be responsible for any costs related to the improvement and modification of packaging after the purchase order has been issued, and all responsibility and costs will be borne by the producer. The producer must package open top and flat rack container cargo to meet the standards indicated in the attached packaging specifications and KS specifications.

Fourth, the intensity of the packaging material is specified. The packaging material must be able to withstand loading, unloading, and outdoor storage for 12 months during transportation to the final destination, as well as exposure to climate during the approximately one-year period from when the open-top and flat-rack container cargo are unloaded at the destination port and stored at the installation site without being destroyed or damaged. The producer is responsible for all damage caused to the materials due to inappropriate packaging, inaccurate additional labeling, preservation, or transportation, and should bear all the costs of packaging and transportation resulting from repair or replacement of the damage. Cargo with electronic and electrical components attached must be packed in a waterproof box and placed in the center of the main packaging material to prevent damage during transportation. If the instruments and electrical products are easily susceptible to moisture damage, they should be packed in waterproof packaging material. After removing all air, the packaging should be filled with dry inert gas and heat-sealed. The internal surface of the box should be lined with waterproof material.

To sum up, open top and flat rack container cargo should be packaged so that it can withstand being transported not only inside but also on the deck. This means the container should be covered in waterproof packaging and coated so that it can endure all transport conditions.

2) Definition of Stowage
Stowage is preventing the vibration of cargo caused by the collapse of cargo and the loosening of the lashing/securing devices. For example, when transporting heavy steel plates by sea, repeated changes and deformations caused by their own weight and the load from other steel plates due to strong vibrations occur. This deformation and recovery are repeated due to the restorative properties of the material. As the number of deformation increases, gaps occur between the steel plates packed unit by unit in each layer, and fine scratches occur on the plated surface due to separate movements, resulting in transportation stains. To prevent this, coils are typically stacked in three layers, with the upper coils placed between the lower coils to eliminate space. Support brackets are inserted into the uppermost layer, and several coils are firmly tied with a rope to prevent movement in the space between the coils.

Stowage of open top and flat rack container cargo refers to securing the cargo in open top and flat rack containers to prevent it from moving due to external impact or motion to securing the open top and flat rack containers on the vessel's deck to prevent them from moving during maritime transportation. If an open top container or flat rack container is improperly secured and lost or damaged during transportation, the ocean carrier is held accountable. However, if the container is properly secured and still lost or damaged, it is considered packaging defect. Therefore, the carrier is not liable, and the vendor must take responsibility.

Open top and flat rack containers should be fixed with pins on the deck to prevent movement during ocean transportation, except when specifically requested by the shipper.

Responsibility Problems Occurring Related to Packaging and Stowage Now let’s turn to responsibility problems that occur between a vendor and a vendee, a vendee and a forwarder, and a forwarder and an ocean carrier regarding packaging and stowage. First, Responsibility Problems Between a Vendor and a Vendee Regarding Packaging In July 2008, the United Nations Commission on International Trade Law (UNCITRAL), a UN agency, adopted the United Nations Convention on Contracts for the International Carriage of Goods by Sea in New York, and the Rotterdam Rules were created as a result of its approval at the UN General Assembly in December 2008. The purpose of the Rotterdam Rules is to modernize international cargo transportation law and integrate different transportation norms. According to Article 27, paragraph 1 of the Rotterdam Rules, unless otherwise agreed in the transport contract, the shipper must deliver the goods to be transported that are ready for transport. In any case, the shipper is responsible for delivering the cargo to the carrier in a condition that can withstand the planned voyage, including loading, handling, stowage, and securing, without causing damage to people or property. In the Incoterms 2020 (International Commercial Terms), it is specified that the responsibility for packaging export goods lies with the vendor. Therefore, in ocean transportation, the vendor (or exporter) is responsible for ensuring that the goods are properly packaged and secured for transport.

Therefore, if there is any packaging defect in the open top and flat rack container cargo, it will be considered a violation of the sales contract by the vendor. Article 25 of the United Nations Convention on Contracts for the International Sale of Goods states that a violation of the contract by one party is fundamental if it results in such detriment to the other party as to substantially deprive him/her of what he/she is entitled to expect under the contract. Essentially, a fundamental violation of the contract is when one party to a contract fails to fulfill an obligation in such a way that it makes it impossible for the other party to receive the expected benefits of the contract, which a reasonable person could foresee as a loss. In the case of improper packaging of goods, it would fall under this definition. According to Article 39 of the United Nations Convention on Contracts for the International Sale of Goods, the vendee has the right to claim damages from the vendor for any losses incurred due to defective packaging. The vendee can make such a claim within 2 years from the date on which the goods were handed over to the carrier at the final destination. Second, Responsibility Problems Between a Vendor and a Vendee Regarding Stowage In the FOB (Free On Board) Incoterm, the point of delivery of the vendor’s goods is the main vessel designated by the vendee. The vendor is responsible for loading the open top and flat rack container cargo onto the main vessel docked at the loading port operated by the carrier with whom the vendee has concluded a contract of carriage. Once the containerized cargo is loaded and stowed on board the vessel's main deck at the port of shipment designated by the vendee, the vendor’s responsibility ends, and from then on, the vendee assumes all responsibility.

However, in cases where the nature of the containerized cargo requires loading and stowage inside the deck, the vendor is responsible for the loading and stowage of the cargo on the deck, and the vendor’s responsibility ends when the loading and stowage inside the deck are completed. Once the container cargo is loaded onto the main vessel, the carrier will arrange for proper stowage or lashing of the cargo based on the vendor’s request, cargo characteristics, and destination to ensure that the cargo is not damaged.

The carrier may not be aware of the nature of the container cargo, so the vendor must instruct the carrier to load the cargo on the deck if it must be loaded there due to the nature of the container cargo at the time of shipment. If the vendor fails to do so, the carrier will be exempt from any loss or damage to the cargo. Therefore, when the carrier loads the container cargo on the deck, he/she receives an agreement from the vendor that the vendor will be responsible for any loss or damage that may occur as a result of the cargo being loaded on the deck. According to this agreement, the vendor cannot hold the carrier responsible for any loss or damage that may arise from the container cargo being loaded on deck. The vendor has agreed to take full responsibility for any loss or damage that may result from the container cargo being loaded on deck. Even if the vendor requested the carrier to load the container cargo inside the deck, if the container cargo is loaded on the deck and is lost or damaged as a result, the carrier will be responsible for all such loss or damage. Third, Responsibility Problems Between a Vendee and a Forwarder Regarding Packaging Carriers are exempt from liability for losses resulting from inadequate packing according to Article 4, paragraph (2)(n) of the Hague Rules. This relieves carriers of responsibility for losses or damages to goods caused by insufficient or improper packaging of the cargo. The improper packaging of cargo can be considered an inherent characteristic of the goods or a result of neglecting one's duty, for which no one else can be held liable.

There is a close relationship between the sufficient packaging status of the shipper's cargo and the carrier's duty of care in handling the cargo. Therefore, it is often difficult to determine exactly where the line is between insufficient packaging and the carrier's negligent handling when damage occurs during transportation. The carrier must prove that the damage to the cargo that occurred during transportation was caused by insufficient packaging. He/she should prove that the damage to the cargo occurred because of inadequate packaging of the cargo during transportation, not because of the carrier's negligence or breach of duty in his/her management, even if he/she accepted the cargo and issued a clean bill of lading.

The burden of proof as to how the insufficient packaging of the transported goods caused damage to the goods rests with the carrier. If the carrier fails to prove this, he/she must bear responsibility for the cargo damage. Regarding the carrier's burden of proof, the shipper must prove that the goods were packaged sufficiently to withstand the transport at the time of shipment. If the shipper fails to prove this, he/she must bear responsibility for the damage caused by the insufficient packaging of the goods during transport. Fourth, Responsibility Problems Between a Vendee and a Forwarder Regarding Stowage The ocean cargo transportation contract is a contract that is established by the promise of the carrier to transport the cargo received from the vendor or vendee from the receiving point to the destination and to receive freight in compensation. Article 3, paragraph 2 of the Hague Rules (1924) on carriage, storage, and handling of goods specify that the carrier is required to load, handle, stow, carry, keep, care for, and discharge cargo properly and carefully. This article distinguishes the carrier's duties into the following obligations: loading, stowage, transport/storage, and discharge.

As per the FOB (Free On Board) trade condition, in the ocean freight contract between the vendee and the forwarder, the vendor has the responsibility for the loading of the goods onto the vessel. Therefore, the forwarder has no obligation regarding the loading of cargo. Unless the vendor specifically requests to load the open top or flat rack containers in the deck, the forwarder may load them in or above the deck at his/her discretion. The forwarder has the right of choice, not the vendee. When the cargo is loaded onto the main line of the ship, the carrier must properly and carefully handle and stow the cargo at appropriate locations or positions on the main line depending on the characteristics of the cargo and the destination, in order to prevent damage to the cargo. This process represents the "properly and carefully handle, stow" provision of the Hague Rules.

The forwarder may not be aware of the unique nature of open top and flat rack container cargo. Therefore, the vendee must inform the forwarder of such information at the time of shipment. If the vendee fails to do so, the forwarder is exempt from liability for any damage to open top and flat rack container cargo that occurs during ocean transportation.

Article 1, paragraph c of the Hague Rules is as follows: "Goods" includes goods, wares, merchandise, and articles of every kind whatsoever except live animals and cargo which by the contract of carriage in stated as being carried on deck and is so carried. This means that cargo carried on deck is not considered part of the goods category and therefore may not receive the same level of protection as other goods. This is due to the higher risk of loss or damage to cargo carried on deck, which allows the people directly involved in the maritime transport contract to freely negotiate different terms and conditions, including exemption clauses. Thus, to avoid the application of the Hague Rules by loading the cargo on deck, which provides limited protection to cargo, it must be indicated in the bill of lading that the cargo will be shipped on deck and the cargo should actually be loaded and transported on deck as indicated.

To protect the interests of the vendee, the interpretation of deck cargo markings in the shipping contract has been strictly enforced. If an ocean carrier loads cargo onto the deck and transports it without the shipper's consent, it has fundamentally violated the shipping contract and has been treated as a completely separate issue from deck cargo. Carriers reserved the right to deck load cargo in the back of the bill of lading and also stipulated in their fine print that they are not liable for damage caused by such measures. With the appearance of containers in ocean transportation, separate container terms were specified in addition to the deck stowage terms specified in the bill of lading. If the cargo is loaded into a container, the carrier may transport the cargo on deck or in the deck without notice to the shipper, and cargo loaded in containers, vans, or trailers transported on deck except for dangerous goods is considered as transported inside the deck.

Goods loaded inside containers, vans, and trailers can be transported by being stowed on deck or inside the deck. If goods loaded inside containers, vans, or trailers are stowed on deck, the carrier is not required to indicate "on deck" on the front of the bill of lading, even though it is the business custom.

Before the advent of containers in ocean transportation, the interpretation of deck stowage of cargo was strict. However, after the introduction of containers, the bill of lading has been interpreted as granting the carrier the discretion to stow the cargo on deck when the shipper has agreed to the cargo being loaded on deck. Fifth, Responsibility Problems Between a Forwarder and an Ocean Carrier Regarding Packaging The relationship between a forwarder and an ocean carrier is similar to that of the shipper and the carrier. Therefore, if the damage to open top and flat rack container cargo is caused by poor packaging, the vendor who has the responsibility is held accountable. However, the forwarder takes all the responsibility on behalf of the shipper, so the forwarder cannot claim the vendor for the damage regarding poor packaging. Only the vendee who is the agent of the trade contract can demand compensation for the poor packaging. The forwarder is in a law blind spot since he/she cannot file a claim for damages to the vendor. Sixth, Responsibility Problems Between a Forwarder and an Ocean Carrier Regarding Stowage

Article 791 of the Korean Commercial Code stipulates that a contract of affreightment in a general ship is established when a carrier undertakes to transport individual goods from the ocean to a vessel, and the shipper agrees to pay the freight for this. The carrier refers to a forwarder who enters into an ocean cargo transport contract with the consignor and takes over the cargo to be transported according to the contract. It does not include the meaning of the actual carrier.

American Carriage of Goods by Sea Act defines a carrier as a forwarder, performing carrier, and ocean carrier. A forwarder refers to the one that enters into a contract of carriage with the consignor of the cargo, while a performing carrier refers to a party that assumes all or part of the forwarder's responsibility under the contract of carriage or undertakes to perform the carriage. The ocean carrier is the party responsible for the actual ocean transport.

According to Article 1 of the Hamburg Rules, the carrier refers to the person who has concluded an ocean cargo transport contract with the consignor, either in his/her own name or on behalf of another person. The actual carrier is the person who has been entrusted by the carrier with the performance of the whole or a part of cargo transportation. Anyone who has been entrusted with such performance is included.

In the legal relationship between the actual carrier and the forwarder, the forwarder is the consignor and the actual carrier is the transporter. If the forwarder uses the performing carrier as its agent, then the forwarder becomes the consignor in the legal relationship with the actual carrier. However, if the performing carrier is not the agent of the forwarder, the performing carrier becomes the consignor and the forwarder becomes the consignee in the legal relationship between the performing carrier and the actual carrier while the actual carrier remains the transporter.

The carrier makes an agreement saying he/she is not responsible for any loss or damage of cargo that may occur by loading open top and flat rack containers on deck from the forwarder. If open top and flat rack containers must be loaded inside the deck, a special request should be given to the ocean carrier. In such cases, the carrier is responsible for loading the cargo in the deck. Precautions in the Trade Businesses If a vendor packages cargo with a specialized packaging company following the packaging contract, stows cargo in the open top or flat rack container and delivers them to the carrier, the carrier writes the shipper’s load and count in the bill of lading or sea waybill and issues a bill of lading to the vendor. Shipper's load and count mean that the vendor is responsible for any damage caused by improper loading of the container because he/she loaded the cargo into the open top or flat rack container. In short, it means that the carrier is not responsible for any such damage, and all responsibility lies with the vendor. It should be noted that the carrier cannot be held responsible for improper packaging or loading of the container, and even if cargo insurance has been taken out, no compensation can be received from the insurer for such incidents.

Therefore, to prevent such risks, the vendor needs to specify in the packaging contract concluded with the specialized packaging company that all responsibility lies with the packaging company if the cargo in the open top and flat rack containers is lost or damaged due to packaging or container loading defects during the ocean transportation.

When importing under the FOB (Free On Board) trade condition, the vendee can make a shipping contract with a forwarder, who will then enter into a contract with the actual carrier to transport the vendee's cargo from the loading port to the destination port. If the cargo is lost or damaged during this maritime transportation process, the vendee can file a claim for damages against either the vendor or the forwarder, depending on the cause of the loss or damage.

As per the maritime transport contract it has signed with the vendee, the forwarder is responsible for transporting the cargo from the designated departure point specified by the vendee to the destination port. The forwarder is responsible for performing all tasks related to transportation within the transportation scope specified by the vendee at the designated departure point to the destination specified by the vendee in the maritime transport contract concluded with the vendee. The forwarder also undertakes that all work related to transportation within the scope designated by the vendee is performed on behalf of the vendee and that the forwarder must transport the requested cargo promptly, accurately, and safely to the location designated by him/her in accordance with the transportation schedule requested by the vendee. It means that the forwarder accepts the responsibility for all tasks related to transportation within the transportation range specified by the vendee and performs them on behalf of the vendee. If an accident occurs during the transportation of the goods, or if the goods are lost, damaged, or missing due to any reason, the forwarder must compensate the vendee for all resulting damages according to their contractual relationship.

When a forwarder enters into a maritime transport contract for open top and flat rack container cargo with a vendee, the contract must clearly specify whether the container cargo should be loaded inside the ship's deck. The vendee must also indicate in the contract that he/she cannot hold the forwarder responsible for any loss or damage that may occur as a result of loading flat rack container cargo on the deck of the ship. There is a provision in the bill of lading the ocean carrier issues that allow the loading of containers on the deck of the vessel at his/her discretion, and such on-deck carriage is deemed to be the same as carriage inside the vessel. Therefore, the forwarder must also specify the same provision in the ocean transportation contract that he/she concludes with the vendee.

The following corresponds to the deck cargo liberty clause, which grants the carrier the discretion to transport cargo by loading it on the deck, depending on their choice: Unless the bill of lading explicitly states that the cargo will be loaded below deck, the cargo can be loaded on deck or below deck without notice to the shipper. An explicit statement indicates that the cargo will be transported at the carrier's discretion on deck. A clause in the open top and flat rack container provisions state that the carrier may load the cargo on deck at the shipper's risk. These do not mean that the carrier is exempt from liability for loss or damage caused by the shipment of open top and flat rack container cargo on deck. Therefore, in order for the carrier to be exempt from such liability, the shipper must clearly state on the front of the bill of lading or the sea waybill that he/she cannot hold the carrier liable for any liability arising from these.

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