FMC Extends Service Contract Exemption and Issues Ocean Carrier Billing Practice NOI

Transportation Update

Date: October 14, 2020

Temporary Exemption from Certain Service Contract Requirements

On October 1, the Federal Maritime Commission (FMC) extended a temporary exemption that allows carriers to file original service contracts up to 30 days after they take effect. The temporary exemption will remain in effect until June 1, 2021.

The FMC initially granted the exemption on April 27, after supply chain innovation teams established under the Fact Finding 29 Investigation and led by Commissioner Rebecca Dye found that COVID-19 was disrupting service contract negotiations and making compliance with its service contract filing rule difficult. Under the filing rule, a service contract must be filed before any cargo moves under it.

The FMC decided to extend the temporary exemption, which was set to expire on December 31, to address COVID-19’s continuing effects and provide “certainty and stability to supply-chain stakeholders” through the upcoming service contracting season in the spring. Under the exemption, a carrier must file with the FMC a true and complete copy of every original service contract no later than 30 days after any cargo moves under the contract; each service contract filed must include the effective date, which may not be more than 30 days prior to the contract’s filing date; and performance under the contract cannot begin until its effective date.

On October 9, the FMC also announced that it voted to issue a notice of proposed rulemaking to make the temporary exemption permanent. The details of the proposal are yet to be seen, as it needs to be finalized. Nonetheless, it signals the FMC’s desire to grant a permanent exemption from the requirement of filing original service contracts before performance under the contract begins.

NOI on Ocean Carrier Billing Practices

On October 7, the FMC issued a notice of inquiry (NOI) seeking public comments on vessel operating common carriers’ definition of “merchant,” which they might be using expansively in bills of lading to hold parties not listed on the bill of lading responsible for paying various charges arising from the underlying transportation, including demurrage and detention. These parties typically include third-party logistics providers, harbor truckers, stevedores, customs brokers, freight forwarders and others who provide services for a person listed on the bill of lading but have no contractual relationship with the carrier. The requested comments must be submitted by November 6.

The NOI responds to concerns that carriers may be using an expansive definition of merchant to enforce the provisions of bills of lading against third parties who are not parties to, and have not agreed to be bound by, the bill of lading. The FMC has received allegations that carriers are using this practice to seek payment of transportation-related charges from these third parties and that carriers threaten to prohibit the third parties from providing service for future shipments handled by the carriers unless amounts due on a current shipment are paid. Because contract law generally prohibits enforcement against a person who did not agree to be bound by the contract, these allegations have prompted the FMC to seek comments on how carriers define merchant.

The FMC has requested that interested parties’ comments address how carriers apply the term merchant in their bills of lading; whether the definition, as applied, subjects third parties who are not in contractual privity with the carrier to joint or several liability; and whether carriers have enforced the definition of merchant against third parties who have not consented to be bound by, or otherwise accepted, the terms and conditions of the bill of lading. With the help of the comments submitted in response to the NOI, the FMC aims to determine whether carriers unfairly enforce their bills of lading against third parties who do not have a direct contractual relationship with them and have not assented to be bound by a contract of carriage.

FOR MORE INFORMATION

For more information, please contact:

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

Jason D. Tutrone
202.263.4143
Jason.Tutrone@ThompsonHine.com

Kerem Bilge*
202.263.4104
Kerem.Bilge@ThompsonHine.com

*Not admitted in the District of Columbia; practice is supervised by principals of the firm.

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