The U.S. Federal Maritime Commission is already facing a packed agenda of industry issues, and it is only the first month of the federal government’s new fiscal year.
The FMC will review the shipping public comments related to its proposed interpretive rule on the fair assessment of demurrage and detention fees by ocean carriers and marine terminal operators against shippers.
The agency also has tasked itself with monitoring liner carriers for any potential abuse of bunker fuel surcharge assessments on American shippers with the International Maritime Organization’s new low-sulfur fuel requirement taking effect on Jan. 1.
In addition, the commission is working its way through implementing the requirements of the 2018 Frank LoBiondo Coast Guard Authorization Act, which placed further antitrust restrictions on cooperation between ocean carriers and marine terminals on harbor services.
American Shipper recently interviewed FMC Chairman Michael Khouri on the status of these actions and others to be taken by the commission during fiscal year 2020.
Demurrage and detention rule
On Sept. 6, the commission unanimously voted to publish a notice of proposed rulemaking soliciting comments regarding Commissioner Rebecca Dye’s recommendations on how to bring about fairness in the way demurrage and detention fees are administered within the container shipping industry.
Demurrage pertains to the time an import container sits in a container terminal, with carriers responsible for collecting penalties on behalf of the marine terminals. Detention relates to shippers holding containers for too long outside the marine terminals.
In the past five years, shippers have become outspoken about the way these fees are assessed against them, often pointing out that they are financially penalized for industry events, such as sudden marine terminal congestion, which are out of their control.
In December 2016, the Coalition for Fair Port Practices filed a petition with the FMC requesting regulatory action against unfair demurrage and detention fee assessments, which was followed by public hearings at the commission in early 2018. The FMC approved initiation of the Fact Finding 28 investigation in the spring of 2018 and put Dye in charge.
Comments already have been filed to the commission regarding the proposed interim rule for demurrage and detention. “We anticipate a lot of public interest” before the close of the comment period on Oct. 31, Khouri said.
Khouri expects the commission to be “measured and cautious” in its analysis of the comments before finalizing a demurrage and detention rule.
“What is a reasonable business practice for one scenario may be considered an unreasonable practice in another setting,” Khouri said. “We’ll need to be careful as we set out a rule to cover this area of detention and demurrage from A to Z.”
Khouri commended Dye for her work on the detention and demurrage fact-finding investigation and final recommendations. He anticipates the commission to complete its work on the interpretive rule within the fiscal year.
IMO 2020
The FMC is keeping track of how container carriers will manage their cost recovery with shippers as the IMO’s Jan. 1 deadline looms for the mandatory use of bunker fuel with a sulfur content of 0.5%. Ocean carriers previously were allowed to burn bunker fuel with a sulfur content of 3.5%.
The expectation among shippers is that their container shipping rates will rise sharply when the IMO’s low-sulfur fuel content mandate takes effect Jan. 1. According to various industry analyst estimates, the low-sulfur requirement could increase ship-operating costs by one-third and add costs of $10 billion to $15 billion to the ocean carrier industry. Those costs are expected to be transferred to shippers in the form of bunker surcharges.
Khouri has met with ocean carrier representatives at the commission’s headquarters in Washington and emphasized to them the need for clearly defined bunker surcharge practices.
“For those service contracts that include bunker fuel adjustment and agreed to surcharge processes, our interest in this area is that the agreements and adjustment formulas must be clear and understandable to the cargo interests,” he said.
“We have people in BTA [Bureau of Trade Analysis] who are assigned to this particular issue and task,” Khouri said. “At this point in time, no problems have been brought to us. No shippers have come to us with specific complaints.”
LoBiondo Act requirements
The LoBiondo Act prompted the FMC to review more than 300 agreements for references to joint purchases of harbor services that may conflict with the Shipping Act’s antitrust laws.
Khouri said the commission identified 172 agreements with language pertaining to joint purchases of harbor services and letters were sent to those agreement parties. So far, the FMC has received 145 responses to those letters, of which 111 responses informed the commission that they have not engaged in any joint purchases of harbor services identified by the LoBiondo Act.
Twenty-eight of the 172 identified agreements were terminated, since they were no longer active. Three agreements were amended to remove language for joint purchasing of harbor services. Another three agreements provided additional details on their terminal services, which the commission will analyze for any competitive issues, Khouri said.
“At this date, no corrective action has been identified or taken to promote competition,” he said.
Khouri said the FMC will continue filing annual reports to Congress on the status of its LoBiondo legislation commitments.
Mis-declared cargoes and co-loads
Khouri foresees the FMC playing a bigger role in the federal government’s efforts to curtail hazardous cargo mis-declarations. It is estimated that every eight weeks there is a shipboard fire resulting from these improperly identified cargoes.
“We are working with the Coast Guard cooperatively on this hazardous cargo issue,” Khouri said. “I believe that we should be able to trace back to the NVO [non-vessel-operating common carrier] parties that are involved in these incidents, investigate to the extent that they may be responsible and consider license revocations for those NVOs,” Khouri said.
Khouri expects Robert Borden, the FMC’s newly appointed director of field investigations in the Bureau of Enforcement, to “bring a lot of energy” to this topic of hazardous cargo mis-declarations.
The FMC also expects to bring clarity to the container shipping industry practice of co-loading.
Earlier this summer, Khouri attended a National Customs Brokers and Forwarders Association of America meeting with other government agencies, including Customs and Border Protection. “One thing that came through very clearly is that when it comes to co-loading, the Federal Maritime Commission has one idea and one definition and Customs and Border Protection has a totally different way of looking at it and the industry has a third view. It’s a topic that has bedeviled a lot of folks for quite a while,” he said.
Under Section 10(a)(1) of the Shipping Act, Khouri said, “there are several ways one can run afoul of the regulations, such as the use of false weights and measures, or other contravenes, to gain freight rates below the established rates.”
Unfair co-loading may occur when a NVO has a service contract with an ocean carrier and is approached by another NVO, which is not a party to that service contract, to move its cargo using the same freight rate.
“The industry may ask, ‘What’s the harm to commerce?’” Khouri said. “There are situations when neither the NVO nor the carrier might be aware that someone is accessing their service contract. These types of bad actors are out there.
“I’d like to see us get these three groups — the FMC, CBP and the industry — into one room over the year and come up with common language on co-loading and get the rules updated so that we’re all on the same page.”
More with less
The FMC remains a tiny agency with 116 staff and a lofty mission to ensure competitive fairness for users of container shipping services in the U.S. international trades under the Shipping Act.
The White House budget proposal for fiscal year 2020 requests a congressional appropriation of $28 million for the FMC, which is expected to be just enough to cover the cost of its personnel, office rent, travel and general operational expenses.
Khouri realizes those resource constraints aren’t going away, and he continues to find ways within the commission’s statutory authority to improve overall operations and ensure the agency is quicker on its feet in responding to container shipping industry events.
“We’re in a constrained budget environment,” Khouri said. “So we’ve been looking bureau by bureau to find where we can streamline our operations.”
The commission terminated a rulemaking on agreement filing practices and is exploring a new way to streamline the intake and review process as ocean carriers and marine terminal operators file their agreements with the agency.
This procedural change would allow the Bureau of Trade Analysis staff to have more information on the front end, so there is a greater ability for the commission to vote on agreements within the 45-day statutory period and avoid the need to request additional information from the agreement filers that delays the effective dates of agreements.
“It’s all about getting these agreements in the front door, through the mill and out the back door with more efficiency,” Khouri said.
The FMC also has continued to make improvements to the way it manages ocean transportation intermediary licenses for freight forwarders and NVOs.
Under the old rules, an individual could obtain an OTI license at 21 years old and there was no statutory requirement to provide further proof of operations. Today, every three years the license holder must renew all the underlying information of the license with the FMC to prove his or her activity.
The FMC’s Bureau of Certification and Licensing has contacted a third of the license holders each year for the past three years that they update their license background information with the agency.
“As we suspected, we found that there were a fairly significant number of NVOs and freight forwarders who had changed their qualified individual (QI) and not informed us in order to have that new QI go through the required character and background checks,” Khouri said.
There were also instances in which licensed NVOs and forwarders failed to notify the FMC of changes in their ownership or office relocations, he said.
“We didn’t bring any fines or civil actions during this period when people were out of compliance,” Khouri said. “Now that we’ve gone through all of this, we’re going to be stricter, especially on the important issues like having the qualified individual background checks and knowledge of ownership.”
Khouri said, “People rely on the integrity of the NVOs and forwarders for a number of reasons, some of which includes national security.”
According to the FMC, the number of licensed OTIs in the U.S. today is 4,829, which includes 857 forwarders, 1,750 NVOs and 2,222 forwarders/NVOs.
To more efficiently process and monitor OTI licenses, Khouri said the FMC is considering the use of new technology. “We want to get this to be a less-hands-on, manual process,” Khouri said.
Operational changes also are planned for the FMC’s Bureau of Enforcement. During the closed session of a Sept. 26 meeting, the commission voted to issue a request for comments on a direct final rule creating a new enforcement process for the bureau, especially regarding commission oversight.
The final rule, which is expected to be finalized by early 2020, will require the Bureau of Enforcement to recommend both informal and formal enforcement actions with the commission for approval before they proceed. The commission’s approval also will be required for any proposed informal compromise agreements for violations.
“The process forward is going to involve the commission having a more direct role from a policy perspective on which types of matters — getting back to budget constraints — are going to have higher priority for enforcement to pursue,” Khouri said.
