Both sides blast proposal affecting ocean carrier profits, service contracts

Federal regulators are caught in the crossfire of calls from ocean carriers and shippers seeking changes to a proposed rule affecting how vessel space is allocated for import and export containers.

The Federal Maritime Commission is using the rulemaking process to define what constitutes an unreasonable refusal by carriers to deal or negotiate when booking freight capacity with their customers. But the bulk of the roughly 25 comments from both sides of the negotiating table are unhappy with the notice of proposed rulemaking (NPRM) as outlined — with the carriers’ ability or inability to make a profit a major concern.

“By including carriers’ pursuit of ‘profitability’ and ‘compatibility with business development strategy’ as a reasonable basis upon which to refrain from accepting and carrying export cargo, the NPRM provides carriers a loophole large enough to sail a 22,000 TEU ship through — with room to spare,” asserted the Agriculture Transportation Coalition (AgTC).

“It suggests a greater interest in promoting ocean carriers’ ‘profitability’ than in supporting the ‘growth and development’ of U.S. exporters. Not only is the legal reasoning for this conclusion as set forth in the NPRM faulty, but we believe it is inconsistent with Congress’ and the Commissioners’ stated views.”

AgTC also asserts that the rule does not sufficiently address decisions by carriers to refuse or cancel bookings or delay export cargo. It wants the FMC to withdraw the proposed rule and begin a new draft, proposing that the agency seek congressional support to extend the time for implementing the rule, currently slated for mid-December.

The American Chemistry Council, whose members are importers as well as exporters, commented that the proposed regulation, along with how the FMC intends to interpret it, “strongly suggests that the rule would not improve the situation for U.S. exporters and may even make things worse.”

Statements in the rule as currently proposed, according to the group, “strongly suggest that a [carrier] could decide to accept only the most profitable cargo shipments and still be in compliance with the proposed rule. The commission cites a case in which it found that the term ‘reasonable’ may mean ‘ordinary or usual.’ If providing poor customer service is ‘ordinary or usual,’ then this could provide [carriers] with a collective incentive not to change their unreasonable practices, as well as a legal hook to justify them.”

The proposal, which is required as a provision within the Ocean Shipping Reform Act of 2022 (OSRA 22), stems from numerous complaints by shippers as well as trends over the past two years revealing dramatic changes in the U.S. import-export balance, particularly between the U.S. and Asia. Shippers have alleged — and the FMC has documented — that carriers have been taking advantage of more lucrative import rates at the expense of reasonable rates and service provided to exporters.

Carriers contend, however, that it is not their practice to refuse service to individual shippers “unless it is for a legitimate transportation or business purpose, and even then, only when that shipper has presented a circumstance in which the carrier feels a business transaction cannot reasonably be undertaken,” the World Shipping Council (WSC) emphasized in its comments on the proposed rule.

WSC also takes issue with language in FMC’s proposal suggesting that giving regular customers special treatment is likely to be viewed by the regulator as unreasonable, citing authority established by the Shipping Act that allows shippers and carriers generally to be able to structure contracts as they see fit.

“Because OSRA 22 did not amend or in any way limit the Shipping Act’s authorization to enter into confidential contracts, there is no legal basis” for the language as proposed by the FMC, the group stated. “The same principles of freedom to contract continue to apply … and the commission must make clear in any final rule that this is the case. Otherwise, the rule will be tainted by a fundamental error of law that undermines the entire rule.”

Dole Ocean Cargo Express, an ocean carrier, agreed that language in the rule requiring that a carrier’s business decisions with respect to service contracts be applied in a fair and consistent manner be removed. “It is the essence of service contracting that carriers be able to treat each customer differently.” 

Related articles:

Click for more FreightWaves articles by John Gallagher.

The post Both sides blast proposal affecting ocean carrier profits, service contracts appeared first on FreightWaves.