Now, you don't have empty chassis around for a thing like this, so you have to bring in chassis carrying empty containers. And you lift one empty container on to the ship and one full one off and put it on the chassis and you simply reload the ship full of empty chassis. And then they decide that they can repair the ship.

So here you tie up 350 empty, valuable containers while the ship is in drydock; but what would you have done if you tried to discharge this ship at a pier that didn't happen to have chassis that you could bring in like that? What a mess you'd have, and who would pay for it?

After all these years of stressing adequate compartmentation of ships, it is rather unnerving to see the cutaway model of a modern rollon, roll-off container ship with what appears to be--and I'm told that this is so by people who visited the ship-to be four full decks, completely uncompartmented from bow to stern.

And as I saw this cutaway, two pages later I came across the picture of a new tanker with one of these bulbous bows that sticks out under water some 18 feet forward of the ship.

What would happen if the battering ram happened to go into the side of this ship? You'd have a total loss of the ship.

I don't pretend to know the answers.

There are some legal matters related to containerization, and again I don't know the answers.

The marine underwriter is interested in their evolution and resolution. They include the legality of bill-of-lading provisions, allowing the operator the option of stowing on deck or below deck; the definition of a package under the terms of the Hague rules. A shipowner can limit his liability to $500 per package.

Actually, it's to their interest to claim that the 40-foot container is a package. At the time of the Hague rules, a package was what two of you could pick up and move; and nobody ever contemplated that there'd be very many cases of a package being worth over $500.

A container was damaged the other day. Fortunately, it was not a total loss—and containing $450,000. Is it right to limit liability to $500 on such a container?

The amount of limitation of carrier's liability, the matter of subrogation-these are all legal problems. In connection with subrogation though, you will recognize that it is often difficult, if not impossible, to determine where damage occurred to the contents of a container. Admiral Harllee has called the container "an aluminum curtain over the contents."

If a consignee receives goods in damaged condition and if they have been discharged from the container and the container has been taken away, a surveyor may have no means of determining whether there is any connection between condition of container and damage to the goods.

Unless the chain of responsibility has been alertly maintained from door to door, unless the container is inspected at each transfer of custody and a notation of conditions is made, unless it is closely examined by both shipper and consignee, they are in an awkward, if not impossible, situation.

This points to two very possible conclusions. One: the inability to subrogate, or effective subrogation, will tend to increase the marine

underwriter's and shipper's overall loss experience and cost. Two: the cost of making loss surveys will increase.

The other legal matters probably have or will be explored by a competent lawyer or somebody more qualified than I am. I'm only a sea lawyer. I'm concerned that these matters be resolved so we will know which way to go in adapting ourselves to the promises and the facts of containerization.

Now, please remember, marine insurance will adapt itself to the needs of the buyers of insurance. Wherever the losses occur, they will be paid; and losses will have to be balanced by premium rates. It is not a question that somebody can offer cheaper insurance-whether it be called marine insurance, protection and indemnity (third-party liability) insurance, bill-of-lading insurance, value insurance, or anything else. The losses must be made whole out of someone's pocket, and that pocket is the insurer.

The critical point to which attention should be directed is the reduction of losses. Marine insurance, by whatever name it may be called. should not be used to divert attention from technical and legal problems created by the competitive development of unitized transport. We all hope it will succeed.

Thank you.

Mr. BLUM. How about filling up our coffee cups before we begin on the questions? And I'm sure there are many questions.

Mr. SCHMELTZER. I just want to ask you, when you ask your questions, to please state your name. A reporter is here, and he would like to be able to get the name of the persons who asked the questions.

I'd like to state, first, that Mr. McDowell is a very cheerful fellow when he's not talking about cargo claims.

But he is talking about cargo claims tonight, and Paul Page has the first question.

Mr. PAGE. Paul Page, Maritime Commission.

I believe this is the obvious question, and it is a double question. First, what effect has containerization had so far on the cost of insurance? And, second, what tentative conclusion can be drawn as to its ultimate cost, the cost of the insurance?

Mr. McDOWELL. I have to repeat one thing I said. And that is that marine insurance, as it is constituted today, is a contract between an underwriter and an assured. And the rate of premium is going to depend upon that assured's experience-in other words, not the result of containerization worldwide or east coast of the United States or any area; it's going to be the results for that assured.

Now Paul Johnson of Sealand is here, and Paul has quoted to me figures of experience for his company. If he cares to repeat them here, I would call them advertising but I think that they're rather startling overall results for a carrier who is carrying the goods of many assureds. So you see a certain concentration of, I think rightly called, improvement in that particular instance.

On the other hand, we have assureds who never had bad records before who had gone to containers and suddenly developed a loss record that means their premium should go up. So it's a spotty situation.

Now, for your long-range question: Obviously, if containerization is going to work, it should overall reduce the cost of insurance, the rate

of premium-if it's going to work. But I think you can see the many questions that have to be resolved.

Now, if Paul wants to say a word, I wish he would.

Mr. SCHMELTZER. Well, you can step up and make a panel out of it, if you like.

Mr. JOHNSON. From the effect on the cost, to answer the first part of your question, in the early days of containerization before what we had known-not what we're thinking of tonight but the early days of the Dravo container-there was an effect on the cost of individual shipper's experience.

Now, that effect was about 40 percent improvement on the handling damages.

I'm thinking of the Dravo containers and I'm thinking in specialized trade-Hong Kong, Puerto Rico, and the like.

Now, 40 percent of the handling damage is not 40 percent of the total rate. If you had a rate of 50 cents, that would be 40 percent of 40, let's say, which would be 16 cents. You'd take 16 cents off the total rate of 50 cents and that would be your rate.

Now, it was gauged-the rate itself was judged in each and every instance by the underwriter, who would evaluate each and every risk in those days.

Now, during that first 10 years of Sea-Land service, we had no dramatic losses. We had no dramatic losses until this year. I would say that there was the same effect on the short-term rating of marine insurance for the shipper as I just finished describing for Dravo containers. However, I can't answer the question. That's one of the reasons I'm here tonight.

I think that the insurance industry is looking for awfully good reasons not to continue what they had started in the way of rating Dravo containers and Sea-Land, for example, for reasons best known to themselves and their profit-and-loss statement.

Mr. McDOWELL. Thank you, Paul.

This is a very difficult situation in which to make generalizations. You can take an inbound container of Swiss cheese that can move right from the container on to the shelf in the grocery store without any wrapping at all.

That is a great improvement for everybody concerned.

On this study of the German-United States experiment with containers, container after container moved without any damage at allorange juice in glasses, beer. Apparently the only pilferage on the whole carton of inbound beer occurred before the carton was ever put in the container, and it was just one carton.

The same can be said for movement of whisky. This is showing a great improvement.

Other questions?

Mr. SCHMELTZER. I was going to ask you whether you had found cases where the experience of shippers grew better when they went to containers.

Mr. McDOWELL. Yes. There are many examples of it, many favorable examples.

Mr. NORRIS. My name is Don Norris, FMC.

I have a three-part question. One, to what extent is the contract between yourselves and the insured affected by the bill of lading, the

tariff, and also in terms of the new mode of transportation envisaged here?

Mr. McDOWELL. The bill of lading and the tariff?

Mr. NORRIS. Right. And also in terms of the transmodal type of transportation. In other words, have you read a new type of bill of lading yet which would affect your liability?

Mr. MCDOWELL. Is that the three-part question or is that one?
Mr. NORRIS. That wraps it up, sir.

Mr. MCDOWELL. Well, first of all, all of this is in transition and some of it is going into the courts. There probably is going to be a long time before there's some resolution of this thing.

Now, insofar as the bill of lading is concerned, this, of course, is a very difficult situation, because there is no standardization on the part of the carriers yet of bill-of-lading provisions.

There's a difference there. We, as underwriters, are not in a position, mind you, under our antitrust laws to enter into any agreement among ourselves as to what provisions we will agree to or not agree to. We do know that we are in a difficult situation because in London an underwriter goes out and handles it this way, in Sweden this way, in France this way; and the subject is somewhat in a mess right now. Now, that's the bill-of-lading part of it.

Mr. NORRIS. All right. Now, what about the tariff?

Mr. MCDOWELL. Whose tariff?

Mr. NORRIS. The conference tariff.

Mr. McDOWELL. The conference tariff provision, of course, is much the same as the bill-of-lading situation, if the carriers have gotten together in that conference; but you've got a number of nonconference carriers going in another direction.

I think I'm right. Some of the carriers can disagree with me if I'm sort of far afield here.

Mr. SCHMELTZER. What does that tariff provision provide?

Mr. McDOWELL. Well, it would be the responsibility of the shipowner to the goods. Is that what you mean?

Mr. SCHMELTZER. No, sir. Well, a limitation of liability per box, for the container-just to start with.

Now, given this provision of the tariff, how does this affect your contract with the assured?

Mr. McDOWELL. Well, we're asking that question. Is that tariff provision legal?

Mr. SCHMELTZER. Are we supposed to decide it?

Mr. MCDOWELL. We don't know. It looks to me that you know a lot more about this, Mr. Schmeltzer, than I do, because you're right in the middle of the problem, as it's going to have to be eventually resolved at an international level.

Mr. SCHMELTZER. Let me try to get the question and answer a little plainer.

The carriers recently amended their tariffs to say that the limitation of liability on the containerloads of freight carried by members of a North Atlantic conference is $500 per container. This tariff amendment was submitted to us recently.

Mr. McDOWELL. It's in the conference tariff, and I think the question that is being asked is: What are the courts going to do with

this? What is the Federal Maritime Commission going to do with this? What does Mr. McDowell think is going to be done with it?

Mr. SCHMELTZER. My question is this: To what extent do tariff provisions and bill-of-lading provisions affect the insurance contract with the assured?

Mr. MCDOWELL. Oh, I'm sorry, I probably missed the point completely.

You remember I mentioned that the open-cargo policy usually includes a limitation of value that can be exposed on deck at any one time. That usually amounts to about 10 percent of the limitation of values in the policy.

Now, the carriage on deck, traditionally and legally, in this relationship between tariff, bill of lading, and underwriter, means that the goods cannot be shipped on deck, unless so declared by the shipper and an additional premium paid.

Now, here we are in a situation that the tariff provides this and the bill of lading provides that the carrier has the option of on-deck/ under-deck loading.

We say this is not a legal provision in the bill of lading and that it cancels the coverage granted to the shippers and the underwriters— and this is very annoying to the carriers but we can't see any other way of pursuing this to a conclusion.

The underwriters have had to instruct shippers to require that the goods be stowed underdeck.

This isn't always being followed, and the underwriters are not canceling insurance. We're wondering to what extent we're being locked into a decision by precedent and usage.

In other words, there is a relationship between the tariff, the bill of lading, and the insurance policy; and there are goods being shipped today that the underwriter could say, "Your insurance is not applicable." Does that apply to the question?

Mr. SCHMELTZER. Let me try. Do you mind? I think maybe I know. Stop me early if this is not what you're getting at.

There are two court cases that say that the understanding of the parties is important in determining whether liability can be limited to $500 per container. One case concerned a pallet; the other one concerned a container. In both cases-and, Jerry Blum, I think maybe ought to remember the name of them-the court looked at the understanding of the parties.

A lot of this was external indicia, letters, things like this.

Jerry, do you remember what it was in that case involving Mexican sea food to Puerto Rico?

Mr. BLUM. One case didn't directly deal with the $500 provision. There's been no case directly yet on whether a container is a package. One case is United Purveyors, Inc. in the Southern District Court in Miami, Fla., on frozen fish from Mexico to Puerto Rico (250 F. Supp. 102). The fish spoiled. The other case was about palletized cargo in New York. It was Standard Electric v. German Hamburg Lines (375 F. 2d 943). And there it was, palletized cargo-each pallet holding six cartons of 40 TV tuners each. And the court held it was a package or unit of freight. However, in that case, the court hung its hat on a letter indicating that the parties had considered the whole pallet as one package and saying the intention is important.