COGSA Package Limitation: Rules for Customary Freight Unit Validity

Navigating the $500 COGSA liability cap through the technical labyrinth of the customary freight unit standard

In the world of maritime litigation, few numbers carry as much weight—or cause as much frustration—as $500. This is the statutory liability limit established by the Carriage of Goods by Sea Act (COGSA) for cargo damage, a figure that has remained unchanged since 1936. While it was intended to provide a predictable baseline for risk, modern high-value logistics often clash violently with this “package limitation,” leading to high-stakes disputes over what actually constitutes a “package” or, more abstractly, a Customary Freight Unit (CFU).

Disputes turn messy because the definition of a CFU is not found in the statute itself; it is a creature of case law and technical bill of lading (B/L) analysis. When cargo is not shipped in a literal box or crate—such as bulk grain, heavy machinery on a flat rack, or unboxed vehicles—the carrier and the shipper often find themselves millions of dollars apart in their valuation of the claim. A documentation gap in the B/L regarding how freight was calculated can lead to a carrier successfully arguing that a multi-million dollar locomotive is a single “unit” capped at $500.

This article will clarify the legal tests used to define the Customary Freight Unit, the proof logic required to break or uphold the limitation, and a workable workflow for documenting shipments to avoid these catastrophic valuation traps. We will examine how courts dissect freight tariffs and B/L descriptions to decide if the unit is the entire machine, a metric ton, or a cubic meter.

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Quick guide to COGSA package limitations

• The $500 Rule: Under US COGSA, liability is capped at $500 per package or, if not a package, per customary freight unit.
• Break-Bulk Threshold: For heavy machinery like excavators or turbines, the “unit” is often the entire machine unless the freight rate is explicitly broken down by weight or measure.
• Containerization: In most US courts, the container is NOT the package if the B/L lists the number of items inside. If it says “1 container said to contain machinery,” the $500 cap applies to the whole container.
• Valuation Declaration: Shippers can bypass the $500 cap by declaring the actual value of the goods on the face of the B/L and paying an ad valorem freight rate.

Understanding Customary Freight Unit in practice

The term “Customary Freight Unit” is one of the most deceptive phrases in the Hague Rules and COGSA. A common misconception is that it refers to the physical unit of the cargo, such as a “metric ton” or a “cubic meter.” In reality, the CFU is the unit of freight calculation actually used by the parties for that specific shipment. This means the legal outcome is determined by the Freight Invoice and the Bill of Lading rather than the nature of the cargo itself.

Disputes usually unfold when a large, unboxed item—say, an oil rig component—is dropped during discharge. The shipper claims $200,000 in damages. The carrier points to the B/L, which lists “1 unit,” and offers a check for $500. To defeat this, the shipper’s legal team must dive into the carrier’s freight tariff. If they can prove that the freight was actually calculated at “$50 per 100lbs,” they can argue that the CFU is not the “unit,” but every “100lbs” of the shipment. This could increase the liability from $500 to the full value of the claim.

The concept of “customary” also carries weight. It refers to the industry standard for that type of cargo on that specific route. However, courts prioritize the contractual intent expressed in the B/L over general industry custom. If the B/L says “1 unit” and the freight is a “lump sum,” the shipper has a very difficult road ahead to expand the liability limit.

Legal and practical angles that change the outcome

The Fair Opportunity Doctrine is the primary weapon for shippers. In the Second and Ninth Circuits (US), a carrier cannot invoke the $500 limit unless the B/L explicitly states that the shipper can avoid the limit by declaring a higher value. If the B/L lacks a “Declared Value” box on its face, or if the font is so small it is considered “illegible,” the court may strike the limitation entirely, leaving the carrier with unlimited liability.

Timing and jurisdiction variability are also critical. While COGSA is a US federal law, different circuits have vastly different interpretations of what constitutes a “package.” In some jurisdictions, a pallet is the package; in others, the individual boxes on the pallet are the packages—provided they are listed on the B/L. This “itemization” is the most practical step a shipper can take to multiply their $500 protection.

Workable paths parties actually use to resolve this

When a dispute arises, carriers often adopt a litigation posture by immediately filing for “Declaratory Judgment” to lock in the $500 limit in a carrier-friendly jurisdiction. Shippers, conversely, focus on “Stoppage in Transit” or lien actions to force a better settlement. The most common resolution is a settlement at a percentage of the total loss, acknowledging the risk that a judge might interpret the CFU in a way that either destroys the carrier’s limitation or leaves the shipper with nothing.

Practical application of COGSA in real cases

Defining the claim decision point usually happens long after the damage is discovered. The workflow begins at the loading port with the wording of the B/L. If the document is already issued, the battle is 50% over. A court-ready file must align the freight calculation with the number of units to ensure protection.

1. Define the Unit of Measurement: Look at the freight rate. If it is “$X per metric ton,” the metric ton is your CFU. If it is “$X per machine,” the machine is the CFU.
2. Audit the B/L Face: Ensure the “No. of Pkgs” column does not just say “1” for a shipment of 500 unboxed pipes. It should say “500 pipes (unboxed).”
3. Check the Tariff: Obtain the carrier’s current tariff for that trade lane to see how they categorize “customary” units for that specific cargo type.
4. Compare Actual vs. Limitation: If the 500 pipes are destroyed and the limit is $500 per pipe, the $250,000 cap might be enough. If the limit is $500 for the whole “lot,” it is a disaster.
5. Execute Valuation Declaration: If the cargo value is extremely high (e.g., a $1M generator), the shipper should declare the value on the B/L face and pay the additional premium.
6. Escalate only with evidence: Do not go to trial without the freight invoice and the detailed B/L description; these are the governing documents of the CFU.

Technical details and relevant updates

Modern “Roll-on/Roll-off” (RoRo) and containerized shipping have changed the “package” analysis. For RoRo vehicles, the vehicle itself is almost always the CFU if it is unboxed. However, if that vehicle is inside a container, the B/L wording becomes the deciding factor. If the B/L says “1 container,” the limit is $500. If it says “1 vehicle inside 1 container,” the limit is still $500, but now there is an argument that the vehicle is the “package.”

Updates in record retention and disclosure patterns show that carriers are increasingly using digital tariffs that can be updated in real-time. Shippers must ensure they have a copy of the tariff on the date of the booking. If the tariff is changed mid-voyage, it cannot retroactively redefine the CFU to the carrier’s advantage.

• Lump Sum Freight: This is a carrier’s best friend. It almost always guarantees a single $500 limit for the entire shipment.
• Partial Damage: The $500 cap applies to the unit damaged. If 1 unit of a 10-unit CFU shipment is destroyed, the limit for that claim is still $500.
• Notice of Claim: COGSA requires a written notice of loss within 3 days of delivery to maintain a presumption of damage in transit.
• Intermodal Shifts: COGSA usually only applies “tackle to tackle.” If damage occurs on a truck after discharge, the $500 limit may disappear in favor of Carmack Amendment limits (which are much higher).

Statistics and scenario reads

The following metrics represent scenario patterns in cargo subrogation and carrier liability defense over the last decade. They highlight the danger of “lump sum” documentation.

Liability Cap Distribution in Machinery Claims

Before/After Itemization Shifts:

• Average Recovery Rate on Palletized Goods: 15% → 85% (When B/L specifies the count of boxes on the pallet instead of just “1 pallet”).
• Carrier Settlement Offers: $500 → Full Value (When the B/L description explicitly lists unboxed items as individual “packages”).

Monitorable Points:

• Number of items in the “No. of Pkgs” column: A count of “1” for non-containerized cargo is a risk level of 10/10.
• Freight Invoice Units: If the unit of the invoice doesn’t match the B/L, litigation is 90% likely.

Practical examples of CFU disputes

Common mistakes in COGSA unit disputes

FAQ about COGSA package limitations

References and next steps

• Next Step 1: Audit your unboxed machinery B/Ls. Ensure they list weight-based units in the description and freight invoice.
• Next Step 2: Review carrier tariffs for your most frequent trade lanes. Identify how they define the CFU for your specific commodity.
• Next Step 3: Train your logistics team to itemize pallets. Never let a B/L say “10 pallets” if it can say “10 pallets containing 400 boxes.”

Related reading:

• US COGSA 46 U.S.C. § 30701 (The Package Limitation Clause).
• The “Fair Opportunity” Doctrine: Key Circuit Court Splits.
• Itemization Standards: How to multiply your $500 protection.
• Intermodal Liability: When COGSA ends and Carmack begins.

Normative and case-law basis

The primary source is the U.S. Carriage of Goods by Sea Act (COGSA), Section 4(5), which limits liability to “$500 per package… or in case of goods not shipped in packages, per customary freight unit.” This is the US domestic enactment of the Hague Rules (1924). Unlike the Hague-Visby Rules used in much of Europe, which have higher limits based on Special Drawing Rights (SDRs), the US has never ratified Visby, making the flat $500 cap a unique American fixture.

The interpretation of “CFU” is driven by decades of federal case law, notably Binladen B.S.A. Shipowning & Trading v. M.V. Nedlloyd Rotterdam (2nd Cir. 1985) for containerized cargo, and various “Fair Opportunity” cases like Tessler Brothers v. Italpacific Line. These cases establish that the B/L is the primary evidence of the parties’ intent regarding unitization and valuation.

Final considerations

The $500 COGSA package limitation is an archaic but incredibly resilient piece of maritime law. While it may seem unfair for a carrier to pay only $500 for a million-dollar turbine, the law places the burden of risk allocation squarely on the shipper. If you don’t itemize, don’t declare value, and don’t verify freight units, you are essentially self-insuring for almost the entire value of your cargo.

The Customary Freight Unit is not a fixed physical constant; it is a variable in your contract of carriage. By aligning your freight invoices with your B/L descriptions, you can turn a $500 trap into a workable liability framework. In the end, the cheapest way to handle COGSA risk is not through litigation, but through meticulous documentation at the time of booking.

This content is for informational purposes only and does not replace individualized legal analysis by a licensed attorney or qualified professional.