Institute of International Economic Law

Research Plan

Sustainable Freight.
Legal and logistical impacts of the European intermodal transport chain project.

1. Background

Towards a European sustainable transport policy
The background for this project is the development of a new, sustainable and competitive transport policy for the European Union. The question of a common European transport policy has been on the political agenda for about 15 years because of the growing problems of congested roads and transport pollution in central Europe. The challenge for the Community’s transport system has been defined as how to provide, in the most efficient manner, the services that are necessary for the continued success for the single market while at the same time reduce the inefficiencies and imbalances of the system and safeguarding against the harmful effects that increased transport activity generates. Moving the transport of goods from road based traffic to more sustainable modes by creating an attractive intermodal transport alternative, would be one way of decreasing the pollution from the industry.

This was fully recognised in a communication from the Commission COM (97) 243 final “Intermodality and intermodal freight transport in the European Union”, in which an action plan for a sustainable, intermodal European transport chain is launched. The objective was phrased as to develop a framework for an optimal integration of different modes so as to enable an efficient and cost-effective use of the transport system through seamless, customer-oriented door-to-door services whilst favouring competition between transport operators.  According to the European Commission, the aim still is to “… disconnect mobility from its adverse effects. This means, above all, promoting co-modality, i.e. optimally combining various modes of transport within the same transport chain, which is the solution for the future in the case of freight.”

From 1970 to 1997 European freight transport had increased by about 70%. In the same period, road transport had increased its market share from nearly 50% to 72%. Costs of traffic congestions raised to 120 billion ECU or 2% of the EU GDP.  Decoupling transport growth from GDP growth, which was one of the objectives of the 2001 White Paper, has not has taken place.  The demand for freight transport in the EU grew on average by 2.7% per year between 1995 and 2007, as opposed to an average GDP increase of 2.5%. Leaving the question of a sustainable transport industry to the industry itself is consequently not the way to go. The reason why the transport industry itself is not capable of reforming the transport system is explained by the fact that any change of mode in the current modally-oriented transport system involves a change of system, rather than a mere technical transhipment. This change of system creates friction costs that prevent the formation of a competitive intermodal transport chain. In other words, in order to strengthen the intermodal transport chain, the friction costs must be identified and reduced.

The legal obstacles; unclear legal position of the parties
In intermodal transport the friction costs are linked to the unclear legal position of the parties especially regarding the questions on liability for damaged, lost or delayed goods. Intermodal (or multimodal) transport is normally characterised by the fact that the carriage is performedusing two or more modes of transport, in an integrated transport chain, and that the carriage is governed by one contract only. This opposed to the traditional unimodal system, where separate contracts govern each leg of the transport, which may be undertaken, e.g., by air, sea, road or rail. Both the bases of liability as well as the limits on liability vary according to the different legal regimes governing these different modes of transport. In intermodal transport there is no harmonised legal regime. A conflict will be governed by the relevant unimodal legal regime.

A major concern when the cargo is damaged, lost or delayed under an intermodal transport contract is identifying the time and place when the damage occurred. Only once the time and place of the damage are known is it possible to decide which unimodal liability system is applicable. And even if it is obvious which regime applies, the legal position under the existing unimodal regimes is not always clear-cut. The relevant conventions have been implemented differently in different states. The key questions on the carrier’s liability, such as the period of liability, the basis of liability, the limitations etc. are not resolved at all homogenously. In addition, some Member States within the EU have their own legal framework governing internal multimodal transport. An example that could be mentioned is the German HGB § 452 – 452d regulating various questions in relation to Frachtvertrag über eine Beförderung mit verschiedenartigen Beförderungsmitteln (Contract of Carriage by Various Modes of Transport).

Another problem regarding the liability issues is that the task of the traditional carrier is changing. The duty of a carrier is normally limited to transporting goods from A to B.  The European Commission has, however, launched the idea of a new kind of carriers, the (Intermodal) Freight Integrators, being service providers with a broader mission than the traditional.  A Freight integrators job is to arrange full load, door-to-door transportation by selecting and combining without prejudice the most sustainable and efficient mode(s) of transportation. Many of these issues have traditionally been handled by the Freight Forwarders. Usually the unimodal legal regimes on international transport do not cover the liability of a Freight Forwarder. The questions connected to when a Freight Forwarder is actually operating as a carrier and thus is subject to the existing unimodal liability regimes, are open and complicated. With a broader undertaking for the Transport Integrator these questions get even more complicated.

The present international situation; no binding legal instrument
As mentioned above, the present international situation is that there is no binding legal instrument in operation regarding intermodal transport and carrier liability. The attempt to regulate the area, through the United Nations Convention on International Multimodal Transport of Goods (Geneva, 24 May 1980), failed. This Convention was never accepted and has not been ratified or implemented by any leading transport nation. The main reason seems to be disagreement on the question of liability. The carriers are unwilling to accept a liability system that would be more onerous than the existing one. The wish for uniform, predictable rules does not outweigh this risk.

How to overcome this problem is still on the international agenda. In the paper “Multimodal Transport: The feasibility of an international legal instrument”, the United Nations Conference on Trade and Development (UNCTAD/SDTE/TBL/2003/1, January 2003) discusses whether there is a demand for an international harmonised legal instrument on multimodal transportation and, if there is, how this instrument should be drafted. To promote an informed discussion of these topics, UNCTAD produced a questionnaire that was distributed to virtually all interested parties, including operators of transport services, freight forwarders, providers of logistics services and terminal operators, liability insurers and cargo insurers, as well as shippers and users of transport services. Responses were received from, inter alia, 60 governments of both developing and developed countries and 49 industry representatives. On the question of the desirability of a new international instrument, the great majority (92%) of respondents considered an international instrument governing liability arising from multimodal transportation desirable.

The legal content of such an instrument was, however, less easy to agree on. One key question concerned the kind of liability system the legal instrument should embody. Here UNCTAD presented three optional systems, in general based on existing liability systems: the uniform liability system; the network system; and the modified liability system. A uniform liability system applies the same liability rules irrespective of the unimodal stage of transport during which loss, damage or delay occurs. Under such a system, the result should be the same whether or not the loss can be localised. In a network liability system, different liability rules will apply depending on the unimodal stage of transport during which the loss, delay or damage takes place. The network system implies the existence of a secondary “fall-back” set of rules to apply when the damage cannot be localised. This is, to a large extent, the international legal situation today. The third optional system discussed by UNCTAD is the modified liability system. This system more-or-less represents a compromise between the two liability systems mentioned above. The system would be flexible and allow for many different solutions. On the other hand, such an instrument would lack the benefits of a uniform system, such as the important aspect of predictability. As far as predictability is concerned, a uniform liability system would undoubtedly be better.

The United Nations Commission on International Trade Law, UNCITRAL has recently decided on a United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (the Rotterdam Rules). The Rotterdam Rules contains provisions on multimodal carrier liability where the transport has a sea leg. The solutions provided in the Rotterdam Rules have clear connection to the present maritime conventions, is based on a network system and will not resolve the problems of unpredictability regarding intermodal transport that does not include a sea leg. So far the international effort has not resulted in a legal tool that would strengthen the position of intermodal transport and hence provide the industry with an environmentally friendly competitive alternative. Consequently the European Union is still working on a regional efficient and sustainable transport policy that might result in a regional legal instrument promoting intermodal transport.

2. Objectives

The object of this research project is to analyse the above mentioned development towards sustainable freight within the European Union from the point of view of private law and economical logistics.

Traditionally environmental issues have been ignored as regards regulating the contract between the parties in private agreements. The contract has to this point been balancing the interests of the parties and external arguments have only to a small degree been regarded valid.  By proposing a regional legal instrument on intermodal transport, the European Union is using contract law as a tool to promote environmental issues. The idea is that a harmonized straight forward legal instrument regulating intermodal transport will make the service more attractive for the users and therefore make the intermodal transport chain more competitive compared to the traditional unimodal transport. From a normative perspective the research interest lies in the connection of the general discussion and the proposed provisions. A key question is whether or not “green” arguments are, or can be, visible in international transport law and particularly in the EU context. This will be analyzed both regarding the task of the Freight Integrator as well as regarding the proposed liability regime. One might ask in which way the environmental issue will influence the interpretation of the duties of the Transport Integrator and the liability connected to breach of contract.

From a logistical perspective the main object is to evaluate whether or not the assumptions of the Commission on the need for a legal instrument is representative for the industry itself. Another key issue is whether or not sustainability is becoming a competitive advantage for the door-to-door or other service providers. Third key issue is the development of business models and service providers’ roles in logistics service industry. We can ask; is it possible to achieve at the same time increased service efficiency, better customer service, improved service agility and sustainability by e.g. using modularity of business models, services, organizations and processes in intermodal transport’s service provision. In addition we can ask, what are the new legal needs regarding liability issues for service offerings and business models in intermodal transports.

3. Research methods and material

The research will be performed by legal scholars as well as economists. Both legal and economical methods will be used in order to answer the questions raised. The legal part will be based on comparative and international legal theory, in combination with the input of the economical research performed during the project. The point of departure is a political process starting in the European Union, a process that will have an impact both globally, on a European as well as national (Finnish) level. This process and its dogmatic impacts on the chosen sectors of Transport Liability and Freight Integrators will be studied in light of the theoretical discussion on whether societal policies can and should be pursued through the means of private law. The material in use will be legal documents (sources) such as preparatory works, legal texts, theory, court and business practises etc. These legal sources will originate from different legal cultures and different legal levels as the study will be comparative on different levels.

In both research areas for the current state analysis of the literature we will use systematic literature analysis (see e.g. integrative research review presented by Cooper (1989) and systematic review presented by Tranfield et al (2003)). The systematic review approach has been previously used e.g. by Bontekoning et al. (2004) and Pittaway et al. (2004). Based on Cooper (1989), an integrative research review summarizes past research by drawing overall conclusions from separate studies. In the integrative review, reviewer(s) aim to present the state of knowledge regarding the topic and to highlight important issues that research has left unresolved. In the case part we will use qualitative research methods as they are preferred if the goal is to explain or to understand a phenomenon, i.e. the aim is to develop understanding of real-world events (see e.g. McCutcheon and Meredith, 1993; Sachan & Datta, 2005) and their needs. In addition, case studies may also be used to support, expand, test and generate theory or raise doubts about existing theories (see eg. Eisenhardt, 1989; Eisenhardt and Graebner, 2007; McCutcheon and Meredith, 1993, Voss et al., 2002).
In this research multiple case studies are used to identify the current state and future prospect of legal and logistical constraint and expectation, as well as implications of modularity of logistics services and service providers. The empirical study will be performed by personal and phone interviews, queries and/or delfoi panels.  Quantitative research methods might be applicable in the latter stage of the research. All ethical issues are taken into account in all stages of research project.

4. Implementation

The legal and logistical researchers will work in close collaboration following a three step model. The first step will be completed within the first year of the research project. In the three following years the deep studies on the core questions will be fulfilled.

The first step of the research project is of exploratory nature, focusing on gathering the relevant material and as a result of this posing the more concrete research questions. Of relevant material could be mentioned the EU and international reporting of this phenomenon. Also case law and business practises will be collected. In the introductory stage a systematic review of international refereed articles and other scientific material regarding this phenomenon will be performed. As a result of this exploratory study the main research questions for future studies are introduced. During this step the content of the liability rules of the different proposals will be analyzed and compared with the existing legal frameworks of unimodal conventions. The liability issues represent a core problem in the international discussion on intermodal transport. There is no existing binding international legal instrument. Several attempts have been done to reach an international agreement in these questions, so far without success. The result is that every mode of transport is linked to a special convention with more or less obligatory liability systems of its own. In intermodal container transport a typical situation is that the goods arrive damaged, but it is almost impossible to locate where the damage occurred. This uncertainty on the liability questions open for costly legal proceedings. And even if the damage is localized, problems might arise when the transport integrator seeks recourse from the actual carrier.

The researchers involved have already started this part of the work.

Step two and three are reserved to the core question for this research group; whether or not the new environmental issues are generating innovative solutions in intermodal transport law and logistics on an international level both inside the European Union as well as globally. The most innovative feature of the European process towards sustainable freight seems to be the linking of “sustainability” with the need of a straight forward, easy and foreseeable liability system. The research group will challenge this connection by using both legal and economical logistical methods.

From a legal point of view different models on regulating liability will be analyzed. Should the legal framework be binding, or based on opt-out solution? Do we need a legal regime at all, why can the parties not be satisfied with an opt-in alternative of standard contracts as of today?  From a logistical point of view the crucial question is whether high levels of liability truly will motivate the transport customers to choose a multimodal, environmental friendly alternative or whether the customers are not aware of the liability questions at all. An empirical study focusing on the Finnish users of Intermodal transport service will be performed. Important questions are: How do companies use different intermodal transport modes and to what extent do customers/senders make their decisions based on the new EU-policy/environmental issues? We are interested in what the relevant issues are as customers choose between alternative solutions. Here the liability system is an important issue.  Furthermore, we will ask about the benefits and challenges regarding the business models of different types of intermodal transport chains. In addition we will also ask can service modularity improve service efficiency, customer service, service agility and sustainability in intermodal transport service offerings. Special focus will be on intermodal transport chains that include rail road transportation as a sustainable option.  The empirical study focusing on service providers and users of intermodal transport services will be performed by personal and phone interviews, queries and/or delfoi panels.

During step three the second most innovative result of the European policy on sustainable freight from a legal point of view, the development of a Freight Integrator will be analyzed from a theoretical point of view. It is clear that this feature is a result of a European Policy on greening transport. How this policy in detail can be found in the chosen private law solutions will be explored and compared to the solution in other fields of transport, where social arguments, such as environmental, are not (yet?) present. As mentioned, thetask of the Transport Integrator/Intermodal Transport Integrator has expanded due to environmental issues. It is not only to perform the carriage, but also to procure it with an environmental friendly result. Traditionally the obligation of procuring the carriage has been carried out by freight forwarders or agents, organizing the transport and the contact between the sender and the carrier. In a door-to-door industry the traditional concept does not fit. In different proposals to intermodal legal instruments we see that the traditional carrier no more exists. Instead a new concept, the transport integrator is introduced. Here the contractual obligations of the performing party are expanding. The transport integrator is replacing both the traditional carrier as well as the freight forwarder/agent. Both from an empirical and a normative perspective this new legal person is interesting.

From an empirical point of view the questions are whether the Multimodal Carrier/businesses has followed the recommendations of the Commission and are actually expanding their concepts, or if parts of the performance is outsourced to others, such as freight forwarders and agents. The contractual obligations taken on by the Transport Integrator are closely linked to the key question of transport law; the liability issue. Empirical studies focusing on intermodal service operators in Finland (Logistics service providers, 2PL, 3PL, 4PL) will be performed at this stage. Some questions are: What are the current and future roles of different types of intermodal transports? What are the roles of different service providers? To what extent are the new environmental issues taking into consideration and generating innovative service solutions within the industry? Is sustainability becoming a competitive advantage? Who are the (current and potential) integrators of intermodal services in EU? The empirical study focusing on intermodal service providers will be performed by personal and phone interviews, queries and/or delfoi panels.

5. How the project links to other research of the research team

Dr. Ellen Eftestøl-Wilhelmsson has a main interest in the interface between the political development of a European Transport Policy and the legal development of a new liability regime for multimodal transport mainly in Europe, but also globally. She will particularly concentrate on the theoretical question of to what extent societal (e.g. environmental) policies can and should be pursued through the means of private law (see e.g. recently Hanoch Dagan, 56 AM. J. COMP. L. 809(2008)), using the invention of Freight Integrators and the question on liability as an example.  Ellen Eftestøl-Wilhelmsson is currently running the transport law research team at the Institute of International Economic Law (KATTI) at the University of Helsinki. She also holds a 30% research position at the Scandinavian Institute of Maritime Law in Oslo, which is co-financing her post-doc research project. Eftestøl-Wilhelmsson has previously been working with European contract law, with emphasis on agency agreements, but has lately had her main interest in international transport law.

LL.Lic. (trained on the Bench) Lalli Castrén has been writing his doctoral thesis on the cargo liability of air carriers according to the Montreal Convention.  This type of liability, a combination of strict liability and an unbreakable limit of liability, differs considerably from what would be considered the norm in transport law and general contract law in European countries. As the application of the Montreal Convention extends to other forms of transportation in some situations, the presence and potential abuse of such an exceptional liability system has implications for multimodal transport. The defence will take place in 2010. As a post doctoral project he will analyse how this very special form of liability can function in a multimodal transport environment, by looking at the liability systems in closely related transportation forms, such as road transport, and the important European and international attempts at the unification of multimodal transportation.

Dr. Anu Bask has her background in logistics research and is an expert in supply chain management and supply chain relationships and her doctoral thesis focused on that area. The industry she has been specialising in is a broad context of logistics service offerings. Lately her research has focused on modularity of services, modularity of service organizations service strategies, business models as well as e-business logistics. Modularity of products and manufacturing has a long research history, however modularity in service context is a new and emerging research area. In this new research area of service modularity Copenhagen Business School invited all researchers to 1st international seminar on service modularity on January, 2010. Bask and Rajahonka participated this seminar. It is argued that modularity provides flexibility and enables firms to serve a variety of customer needs (Schilling and Steensma, 2001; Voordijk et al., 2006). Modularization makes it possible to integrate and disintegrate business components efficiently and effectively, either by sharing modular components internally, or by outsourcing modular components to external suppliers (Janssen and Joha, 2008). In this research project on intermodal transports our aim is to study what are implications of this new research field to intermodal transports e.g. companies business models, services production processes, and legal environment.  Modularity approach enables research of multimodal transport solutions from new innovative perspectives as multimodal transportation can be seen consisting of modular process steps and interfaces between the process steps consisting of data, people and contracts between firms that build up the multimodal transport chain.

LL.M, M.Sc. (Tech) Mervi Rajahonka is a doctoral student in logistics and her research focuses on modular logistics services and processes as well as new innovative modular business models, including research on efficient, cost effective and customer responsive logistics chains in the multimodal transport alternative.

Consequently, this research project goes in an important new research area combining legal and logistical issues i.e connecting the needs for legal issues and real life business environment of intermodal transport services while aiming to more sustainable transport service solutions.

6.  Expected research results

The expected results of the project include:

  • Analysis of current state of legal and logistical environment of intermodal transports
  • Suggestions for new legal and logistical needs for intermodal transports
  • Analysis of service modularity and it’s benefits in intermodal transports
  • Suggestions for new innovative business models supporting sustainability and their implications to service efficiency, improved customer service, service agility, and their legal needs for liability issues

The project will result in a final report written in English and published internationally. Further, it will produce several reports and international refereed articles in high quality refereed journals, all written in English in collaboration by senior researchers. Moreover, one doctoral dissertation will be finished during the project. The best way for dissemination of the results for academic community is through published reports and international refereed journals as researchers around the world follow up and reference published articles. In addition active participation and presentation of the results in international conferences supports dissemination of the results to the academic community and strengthens the group’s research network.

The project will have also wider societal impact while research group organizes conferences as well as workshops and seminars. To these events representatives from international and domestic academic community, industry, Finnish government, European Commission, associations and other organizations will be invited for participation. This allows real-time reflections to the results of the research group.  We have already organized a kick-off conference in January 2009. The conference gathered nearly 100 representatives from the industry, the Finnish government and the European Commission as well as researchers from different European Universities.