Redefining Package Limitation in the United States

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For nearly a century, the United States Carriage of Goods by Sea Act (COGSA) has granted ocean carriers the right to limit their liability to $500 per package. Yet,
because the statute famously declines to define what a package actually is, this
seemingly simple provision has fueled decades of litigation.

Traditionally, the container revolution led U.S. courts toward a cargo-friendly consensus: the shipping container itself was rarely considered the package if the bill of lading referenced any smaller units, such as cartons, bags, or crates. However, a recent and decisive shift in the Second Circuit is upending the economics of cargo recovery, providing carriers and P&I Clubs with a powerful tool to cap exposure.

The Power of the Definition Clause
The new line of authority focuses on a carrier’s right to contractually define the package within the bill of lading terms and conditions. The catalyst for this shift was Hercules OEM Grp. v. Zim Integrated Shipping Servs. Ltd. (S.D.N.Y. 2023). In that case, the Bill of Lading contained an express definition:

For limitation purposes under the Hague-Visby Rules or U.S. COGSA, it is agreed that the meaning of the word “package” shall be any palletized and/or unitized assemblage of cartons which has been palletized and/or unitized for the convenience of the Merchant, regardless of whether said pallet or unit is disclosed on the front hereof.

The court found this clause enforceable, granting partial summary judgment to the carrier. Crucially, the court held that the contractual definition of a package superseded the description of individual cartons on the face of the bill of lading.

A Trend Becomes a Precedent
The Hercules decision was not an outlier. It has been rapidly reinforced by a string of Southern District of New York decisions over the last two years:

• Fed. Ins. Co. v. MSC (2025): Pallets were held to be the relevant package despite the bill of lading face listing individual cases.
• HDI Glob. Ins. Co. v. Kuehne + Nagel, Inc. (2025): The court upheld the pallet-as-package definition even after a full bench trial.

The turning point for practitioners arrived on March 2, 2026. The Second Circuit Court of Appeals issued a summary order affirming the trial court’s decision in HDI Global. While a summary order does not always carry the weight of a formal published opinion, its impact on the New York market has been immediate. Cargo recovery firms, recognizing the writing on the wall, are increasingly settling claims based on pallet counts rather than carton counts where these specific bill of lading clauses exist.

The mathematical shift in liability is staggering. Given that standard shipping containers rarely exceed 22 pallets, this clause effectively caps most containerized cargo losses at $11,000, regardless of the actual value of the goods inside. Claims of upwards of a million dollars are now being settled for tens of thousands of dollars.

Recommendations for Carriers
The enforceability of these clauses in the Second Circuit provides a clear roadmap for risk mitigation. To take advantage of this development, shipowners, VOCCs, and NVOCCs should:

1. Ensure the bill of lading includes a U.S. Clause Paramount expressly incorporating COGSA by contract, so that the $500/package limitation and the contractual package definition clause have a clear and consistent foundation and application across all trades where the bill of lading is used.
2. Ensure their bill of lading includes a mandatory and exclusive forum selection clause requiring all suits to be brought in the Southern District of New York.
3. Ensure their bill of lading includes an express definition of package as any palletized and/or unitized assemblages of goods and that this definition applies regardless of what is listed elsewhere on the face of the bill of lading.
4. Ensure their bill of lading provides space for a declaration for higher value, even if it is rarely used, to satisfy the requirement that a shipper be given a fair opportunity to declare a higher value.

The Second Circuit has provided the map; it is now up to carriers and NVOCCs to ensure their bill of lading terms are fit for the voyage.

For further advice on how to take advantage of this legal development contact Jon Werner or Robert E. O’Connor of Montgomery McCracken’s Maritime and Transportation Industry Group.