The following rates of depreciation are published as a guide to indicate the rates that will generally apply for purposes of setting loss/damage clams. The rates and maximum depreciation set forth are subject to average care and/or usage, and may be adjusted upward or downward by the carrier when it is show by inventory annotation, inspection of the goods, or other evidence that care or usage was greater or less than average. Normally, base value is considered to be current replacement cost at owner's destination area of residence. Dollar amounts computed under this guideline cannot exceed the "Limitation of Carrier Liability" as set forth in the Government Bill of Lading.

Note 1. Compute applicable depreciation on the basis of miles used (miles used/30,000 miles) or mileage guaranteed period, ration, if known; otherwise use 30%.

Note 2. China: Settlement will be based on 90% of the current cost for 5 piece place setting under $50; 100% for 5 piece setting costing more than $50.

Note 3. Crystal: Settlement will be based on 100% of actual cash value.

Note 4. Cost of material and processing, when applicable, only.

Note 5. Use depreciation factor only if local retail value is not obtainable.

Note 6. Sterling: Settlement will be based upon 90% of replacement cost.

The following are examples of the application of this depreciation guide. The key concepts are actual cash value and residual value. Actual cash value is that determined by applying the depreciation rate to the age of the property. An item with a 10% per year depreciation rate is fully depreciated after 10 years; that is, it is considered to have an actual cash value of $0. However, residual value is that value an item has because, no matter how old it is, it maintains usefulness. The difference between the replacement cost and the amount of maximum depreciation is the residual value. Even though the 10 year old item is considered to have no actual cash value, it has a residual value because it has usefulness. If the maximum depreciation rate is 75%, then the residual value equal 25% of the replacement cost. Simply put, no matter how old an item is, it still has value and that value cannot be any less that the residual value. These examples assume normal wear and tear to the property.

Example 1: A four year old sewing machine is damaged. Its replacement cost is $1,500. The "Sewing Machine" item under Electrical Appliances shows a depreciation rate of 5% the first year, 5% in subsequent years, with a total maximum depreciation of 75%. Five percent of $1,500 is $75. Four years depreciation equals $300. Thus, the actual cash value of the item is $1,200. Maximum depreciation equals $1,125, producing a residual value of $375 (that is, $1,500 minus the maximum depreciation). The carrier’s maximum liability is the greater of the actual value or the residual value. In this example, that liability would be repair or replacement, whichever is less, but not to exceed the actual cash value or $1,200.

Example 2: A fifteen year old card table is damaged. Its replacement cost is $500. There is no listing for a "Card Table" as such. Two possibilities are present. First, the initial item in the schedule is for any item not otherwise listed and shows a depreciation rate of 10% the first year, 10% in subsequent years, with a total maximum depreciation of 75%. Second, the "Ordinary Wood, Chrome, Plastic, etc." item under Furniture shows a depreciation rate of 7% the first year, 7% in subsequent years, with a total maximum depreciation of 75%. While it can be argued that a "card table" may be furniture, it is irrelevant in this instance because the age of the card table exceeds the assumed useful life; that is, 10 years in the first case, and 14 years in the second. That the carrier’s maximum liability equals the residual value of $125 ($500 minus the maximum depreciation of $375).

Example 3: Same as 2, but the card table is 6 years old. At 10% per year, the actual cash value equals $200; while at 7% per year, the actual cash value equals $290. Because the actual cash value exceeds the residual value, the carrier’s maximum liability is actual cash value. The determination of which actual cash value is a function of the kind of card table and how it was used. A card table that was part and parcel of a game or recreation room is furniture.