Federal Maritime Commission Chairman Mario Cordero sees the public comment and investigation period as an opportunity to create efficiencies and reduce costs within the ocean liner industry.
The Federal Maritime Commission voted Wednesday to seek comment on revising service contract rules to “clarify, update, encourage leveraging technology, and provide regulatory relief where possible.”
Chairman Mario Cordero said the agency’s staff will prepare an advanced notice of proposed rulemaking for service contracts as well as NVOCC service arrangements (NSAs), and invite public comment.
“I think there is an opportunity to create efficiencies…and reduce cost to the industry, which is good thing,” said Cordero. “I don’t want to jump ahead of the public commentary as to where those efficiencies may be, but that is what we are attempting to identify.”
Service contracts were authorized in the Shipping Act of 1984, and 30 years later, according to the FMC’s annual report, in fiscal year 2014 between 90 and 95 percent of the total cargo moving in the U.S. liner trades moves under service contracts, not tariffs.
The use of service contracts really caught fire in 1999 when the Ocean Shipping Reform Act (OSRA) went into effect.
“For the first time in the history of U.S. shipping policy OSRA made it possible for any ocean carrier to negotiate independent ‘service contracts’ with shippers, the terms of which may remain confidential, and which conferences may not deter in any way, either by action against any carrier or against any shipper,” noted Chris Sagers of the Cleveland-Marshall College of Law in an article entitled “The Demise of Ocean Shipping Regulation.”
“Service contracts enable the parties to tailor transportation services and rates to their commercial and operational needs and to keep these arrangements confidential,” the FMC said.
The number of service contracts and amendments has exploded, from 29,453 service contracts and 61,274 amendments in FY1999 to 44,208 service contracts and 573,208 amendments in FY2014.
In comments submitted to the FMC in 2012 as the agency began its review of regulations, attorneys for eight different carrier discussion agreements with about two dozen members said, “The filing of service contract amendments is the regulatory obligation imposed on carriers that results in the largest administrative burden for both carriers and their customers. The carriers believe some relief is needed in this area.
“While the Carriers understand the rationale for filing, relief is required to reduce the administrative burden associated with the filing requirement,” they added.
“Service contracts are the key activity between American importers and exporters, and predominately foreign-flagged carriers, and have not lived up to their potential,” said Commissioner Richard A. Lidinsky, Jr. “Hopefully industry reaction to the proposed rules will generate a great deal of commentary to assist Commissioners and staff as we advance this new regulatory review. I encourage all impacted by service contracts to participate in this important rulemaking process.”
“While I may not agree with the rule as proposed in the October meeting, I did vote in favor of moving forward with an advanced notice so that the public will have an opportunity to comment. I advise shippers to take notice, and that they fully understand the rule making process in this regard. I anticipate significant input from stakeholders in updating service contract rules,” said Commissioner William P. Doyle
The commission will publish its proposal for regulated service contracts and NSAs and request public comment later in the year, saying the review was initiated in response to comments it received from the industry about its ongoing retrospective review of existing regulations, in line with President Obama’s Executive Order 13563 in 2011, which ordered the FMC and all federal agencies to review regulations.
Ed Greenberg, counsel for the National Customs Brokers and Forwarders Association of America (NCBFAA), said his organization would like to see the FMC revise the rules “basically to eliminate the need for NSAs to have to be amended.”
In fiscal 2014 there were 1,538 NSAs and 1,864 amendments filed with the FMC.
In a petition to the FMC in April, the NCBFAA noted in 2003 it sought a broad exemption from the mandatory rate filing requirements of the Shipping Act of 1984, but that the FMC ultimately concluded to issue a more limited exemption of the NSAs, the functional equivalent for NVOCCs of shipping company service contracts.
Any NVOCC wishing to have a confidential NSA with its customer is required to file the contract with the FMC and publish its essential terms in its tariff.
“While the NSA exemption has had some limited utility for some NVOCCs, it has provided little relief for the overwhelming majority of NVOCCs and their customers,” the petition said.
NCBFAA said it wanted the FMC to initiate a rulemaking that would expand the exemption for Negotiated Rate Arrangements “to allow (1) inclusion of economic terms beyond rates into NRAs; and (2) modification of NRAs at any time upon mutual agreement between NVOCCs and their customers.”
Also on Wednesday, the FMC voted 4-1 to issue a final rule on requirements for ocean transportation intermediary (OTI) licensing and financial responsibility.
Cordero said he traveled to meet with OTI representative and said the FMC revised its rules adopted on Wednesday in response to concerns raised by the NCBFAA.
“The final product reflects that. We substantially drew back from what was put out there initially,” he said. “We have something that is reasonable and palatable to everyone.”
“The new OTI rules strike the appropriate balance between our regulatory responsibilities in this vital area of international waterborne commerce, and the mandate President Obama gave us to reduce unnecessary or cumbersome regulations,” said Lidinsky, Jr.
FMC to examine service contracts, NSAs
