The Federal Maritime Commission (FMC) is making it harder for ocean carriers to refuse vessel space accommodations for shippers.
When the Ocean Shipping Reform Act (OSRA) of 2022 was signed into law that June by President Biden, one byproduct of the legislation was a proposal that ocean carriers could not unreasonably refuse to deal or negotiate vessel space accommodations.
On Monday, the agency issued a final rule defining what constitutes as such an “unreasonable refusal,” including requiring carriers to file a confidential documented export policy annually with the FMC.
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The export policy, which had been floated by the agency since last summer, will force carriers to share information on pricing strategies, services offered, strategies for equipment provision and descriptions of markets served.
Carriers have been largely against the export policy for numerous reasons, in that it would add more costs and regulation, and could lead to a loss of competitive advantage.
The FMC argues that the information requested are just practices and procedures that describe an ocean carrier’s usual way of doing business—just like revealing data on blank sailings and other schedule disruptions.
In the final rule, the commission also added a new requirement for ocean carriers, making them reveal insight into rules and practices for the designation and use of sweeper vessels.
That decision was made after Mediterranean Shipping Company (MSC) and the World Shipping Council requested that FMC revise the definition of “sweeper vessel” to permit these designated vessels to carry empty containers so that they can also carry export cargo if they have the capacity to do so.
The container shipping firms like MSC, Maersk, Hapag-Lloyd, Cosco Shipping and CMA CGM, also were unhappy with some of the “unreasonable conduct scenarios” established in the making of the ruling.
One scenario the carriers took umbrage with was the agency’s determination that quoting rates “so far above current market rates they cannot be considered a good faith offer or an attempt at engaging in good faith negotiations” was considered unreasonable.
The commission defended itself against the concerns of the carriers.
“Contrary to the commenters’ assertions, the Commission is letting the market work here because it is allowing the market to set the rates and is then examining whether the rates that any carrier puts forth in negotiations is so far above those market rates as to be unreasonable,” the FMC said in its ruling.
Last year, container shipping expert John McCown pointed out that the terminology behind the rate quoting was too vague and didn’t address issues like opaque pricing.
“The sunlight of transparency cures many ailments,” McCown said last August. “There simply shouldn’t be as wide a range of views on actual market pricing for shipments that have already occurred.”
Specifically, the ruling differentiates between refusals occurring during the “negotiation” phase and those during the “execution” phase. Each claim brought before the FMC under these sections will be evaluated individually, ensuring that the unique facts and circumstances of each case are considered.
The FMC made sure to establish that not all refusals by an ocean carrier will constitute a violation.
“If an ocean common carrier can prove there was a reasonable basis for refusing to negotiate or carry cargo, their conduct will not be found in violation of the law,” the agency wrote. “The rule establishes non-binding and non-exhaustive examples and considerations of unreasonable behavior the Commission may use in evaluating allegations that an ocean common carrier violated the law.”
The ruling goes into effect Sept. 23, 60 days after its publication into the Federal Register.
Since OSRA’s passing, the FMC has held increasingly more oversight over the ocean carriers to ensure their compliance with laws and establish a fair environment for American importers and exporters.
Last year, the agency hit Maersk-owned Hamburg Sud with a $9.8 million fine after it found the shipping company refused to fulfill contract obligations for furniture retailer OJ Commerce. Bed Bath & Beyond has filed complaints against multiple liners for breaching similar service commitments, including MSC, Evergreen, OOCL and Yang Ming.
Additionally, the agency is now tasked with enforcing detention and demurrage (D&D) fees, where the agency can now investigate complaints and enforce monetary penalties. D&D fees have been another cause of commotion among shippers like Bed Bath & Beyond and Peloton that contend that the fees are unjust.
