FMC Declines to Eliminate Service Contract Filing Requirements for Ocean Carriers

Transportation Update

Date: January 16, 2020

On December 20, 2019, the Federal Maritime Commission (“FMC” or the “Commission”) granted in part and denied in part the World Shipping Council’s (“WSC”) Petition which requested an exemption from the service contract filing and essential terms (“ET”) publication requirements of 46 U.S.C. § 40502(b) and (d). The Commission declined to exempt ocean carriers from the service contract filing requirement but granted the exemption from the ET publication requirements.

In its petition, WSC argued that the requested exemptions would not result in a substantial reduction in competition or be detrimental to commerce. The WSC also argued that the exemptions would relieve the vessel operating common carrier (“VOCC”) industry from a substantial regulatory burden, that the filing and publication requirements no longer comport with the modern regulatory regime, and that they would place VOCCs on the same regulatory footing as non-vessel-operating common carriers (“NVOCCs”) with respect to contracting practices, since the Commission exempted NVOCCs from these same regulatory obligations in 2018.

Nonetheless, the Commission found that the WSC failed to meet its burden to prove that an exemption from the service contract filing requirement would not be detrimental to commerce. Specifically, the Commission found that the filing requirement may prevent harm to the shipping community by serving as a deterrent for VOCCs to include unreasonable surcharges or unfair terms in service contracts. The Commission also disagreed with the WSC’s contention that the requested exemption would not result in a substantial reduction in competition because VOCCs, unlike NVOCCs, hold significant market power through the antitrust immunity secured pursuant to their filed agreements and that they are able to discuss and coordinate freight rates and/or vessel capacity and services.

On the other hand, the Commission granted the WSC’s request for an exemption from the requirement to publish the ETs in a tariff format. The Commission found that the exemption would not be detrimental to commerce because such requirement is of questionable value since the Commission already can review service contracts for potential abuses absent a publication requirement. The Commission also found that eliminating ET publication would not cause a substantial reduction in competition because the ETs do not contain the most competitively relevant terms (i.e., rates). The Commission noted that it will address this issue in a forthcoming rulemaking.

In a dissenting opinion, Commissioner Rebecca F. Dye opined that an exemption from the service contract filing requirement would not be detrimental to commerce because the Commission already has the ability to exercise adequate oversight and prevent harm to shippers through existing ocean common carrier service contract record keeping and audit requirements. Furthermore, Commissioner Dye set forth a standard to evaluate whether an exemption is detrimental to commerce, stating that the Commission should “balance the known regulatory costs and burdens, and the harm that would be experienced by shippers and consumers if it relieved an identified regulatory burden.”

FOR MORE INFORMATION

For additional information on the FMC’s decision and for assistance preparing responsive comments to the forthcoming rulemaking proceeding, please contact:

Karyn A. Booth
202.263.4108
Karyn.Booth@ThompsonHine.com

Jason D. Tutron
202.263.414
Jason.Tutrone@ThompsonHine.com

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