Air cargo payout. How ICAO’s revised liability can benefit Indian trade

The International Civil Aviation Organization (ICAO) — a United Nations agency that helps 193 countries cooperate and share their skies for their mutual benefit — has raised the liability limits under the Montreal Convention with effect from December 28.

This move will benefit Indian exporters, who can negotiate better marine insurance premiums for air shipments as any subrogation will increase the realisable component for the underwriter.

International conventions in the field of transport define the various responsibilities cast upon a consignor and carrier, especially for international transport. National legislation often mirrors these responsibilities.

A key area codified in these conventions is the liability limits of the carrier (airlines) for loss/ harm to the life and property in their custody during transportation.

International air transportation is governed under the Montreal Convention of 1999, which replaced the Warsaw Convention of 1929. The Montreal Convention establishes airline liability in the event of death or injury to passengers, as well as delay, damage or loss of baggage and cargo. It unifies the many international treaty regimes covering airline liability that had developed haphazardly since 1929.

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India is a signatory to the Montreal Convention, which enshrines various articles (statutes) covering air transport of passenger/ baggage and cargo. The Montreal Convention is also designed to be revised once in five years to adjust for inflation.

Articles 17 to 24 deal with the liability limits on an air transporter, including death/injury of passenger, damage to baggage, damage to cargo, and delays.

Revised limits

There is an inbuilt provision in the convention for the periodic revision of the liability limits. 

It may be noted that the limits of liabilities are in the World Bank currency SDR (special drawing rights) and not the currency of any specific country. The conversion rate is about ₹111.66 for 1 SDR.

The revised liability limits are:

Article 21 (death or injury to passenger) — raised from SDR 1,28,821 to SDR 1,51,880; 

Article 22 Para 1 (damage caused by delay in carriage of passenger/ baggage or cargo) — raised from SDR 5,346 to SDR 6,303;

Article 22 Para 2 (loss/ destruction/ delay of checked baggage) — raised from 1,288 to SDR 1,519;

Article 22 Para 3 (loss/ destruction/ damage to cargo) — raised from SDR 22 to SDR 26 per kg of gross weight of the cargo declared in the airway bill.

An Indian exporter whose air consignment is lost or destroyed during transit without an insurance cover can receive directly from the airline a compensation of about ₹111.66 per kg of the declared gross weight. SDR 26 will be about ₹2,900.

Unlike in marine transportation, where freight is calculated on the higher value of weight or volume, in air transportation a ratio of 1:6 is applied in calculating the chargeable freight (for example, 1 kg will be 6,000 cubic cm). If this ratio is exceeded, then the freight is collected on the volume weight.

Enhanced limit

To determine the limitation of liability, only the actual gross weight of the consignment is considered, not the chargeable weight, for calculation of freight. There are provisions for the ship to enhance the liability limit by paying an additional valuation charge apart from freight charge.

This increase in liability limit is also beneficial to underwriters in the realisation of subrogated claims from shippers who have insurance cover and face loss or damage to freight during transportation. It will aid the shippers in seeking lower premiums for their marine policies.

(The writer is former chair, expert committee on logistics, Madras Chamber of Commerce and Industry)