Quinn Corporate Services, Inc.
       
      QCS Working Groups  >      proexport.us
      Public Policy Review & Analysis     




      Maritime Commerce Working Group
              Examine and Review the Issues,
              Promote Better Cooperation
              among Industry Stakeholders
              and Government




        January 2018  |  Issue 2

        Proposed Rulemaking

              The proposed rule expands flexibility and
        deregulates NVOCC Service Arrangements (NSAs)
        and Negotiated Rate Arrangements (NRAs).



      The deadline for filing comments
      with the agency is Monday, January 29, 2018.
      Comments received thereafter will be
      taken under consideration as informal advice.


      FMC NPRM link to Doc 17-10

      Notice of Proposed Rulemaking
      in PDF format




      Comments Submitted by
      Trade Stakeholders on Doc 17-10


      www.fmc.gov/17-10/





      www.fmc.gov/assets/1/Documents/17-10_nynjfffba_cmnts.pdf

      NYNJFFFBA






      www.fmc.gov/assets/1/Documents/17-10_sefco_cmnts.pdf

      Sefco Export




      Food for Thought



      Comment by Carlos Rodriguez, Partner
      Husch Blackwell LLP [PDF]



      This is an exercise in identifying areas where the Federal Maritime Commission (“FMC”), a federal agency, should consider easing the regulatory burden on ocean transportation intermediaries (“OTIs”), or in other words, “Why can’t OTIs be more like Indirect Air Carriers?” Indirect Air Carriers (“IACs”) perform the same function in the air transport arena as non-vessel operating common carriers (“NVOCCs”) do on the ocean side. Both purchase transportation from underlying transportation companies and then act as carriers and sell transport to small and medium-sized shippers at rates which generally these shippers might not be able to attain directly from the transportation companies. There is, however, one major difference between IACs and NVOCCs: IACs have been substantially deregulated since 1979.

      NVOCCs became substantially regulated as common carriers on May 1, 1999, when licensing for NVOCCs was first mandated. The corresponding regulatory sanctions for violation of tariff and other provisions applicable to NVOCCs had already been in effect for many years. Compromised settlement agreements in six figures1 are not uncommon at this time at the FMC for NVOCCs even where there is clearly no industry “victim” as a result of the alleged violations.


      1 - At this time a violation of the Shipping Act and implementing regulations can result in the following penalties: A) Not Willful: may not exceed $11,293/Violation/per day ; B) If found willful: $56,467/ Violation/Per day. C) Each day of a continuing violation is a separate violation. ( The above is adjusted for inflation as the statute requires)


      Ironically, the Civil Aeronautics Board (“CAB”) abolished tariff filing altogether for IACs on Jan. 24, 1979, pursuant to a bill signed by President Carter in October 1978. On the other hand, under the banner of deregulation, the FMC established formulaic pricing mechanisms such as Negotiated Rate Arrangements (“NRAs”) and NVOCC Service Arrangements (“NSAs”), as alternatives to tariff publishing, which still carry serious penalty risks, and legal costs to just understand them. This is so without even considering the costs of attorneys in defending alleged violations of these esoteric pricing structures relegated to NVOCCs as deregulatory steps.

      NSAs are shipping agreements between an NVOCC and its customer which are confidential and must be filed at the FMC. These require that Essential Terms be published in a public tariff but do not include either the identity of the parties nor the freight rates. Only destination, origin, and commodity information are published in Essential Terms. The complete terms of the NSA are included in the confidential NSA filed at the FMC. Amendments, until recently, had to also be filed prior to shipping pursuant to those amendments. Amendments are also confidential.

      NRAs are a collection of written exchanges (can be e-mail exchanges) between the NVOCC and the shipping customer by which the NVOCC provides quotations and the shipper either accepts or rejects the offers. These are not filed, but must contain an effective date, and cannot be modified once the cargo has been tendered to the NVOCC or its agent on intermodal transportation. While not filed at the FMC, the FMC can request copies of these exchanges to review them for accuracy, completeness, etc. In our opinion these pricing structures (NSAs, NRAs), and tariff publishing for NVOCCs do not pass the Trump test noted below.

      President Trump signed an executive action aimed at reducing federal red tape. It directs each federal agency to set up a task force to identify costly regulations that could be scaled back. "Every regulation should have to pass a simple test," President Trump said. "Does it make life better or safer for American workers or consumers? If the answer is no, we will be getting rid of it — and getting rid of it quickly." It is pretty difficult to justify these artificial pricing mechanisms on the grounds that they make “life better or safer for American workers or consumers.” On the contrary, the regulatory regimen in place puts an unnecessary burden on small, medium-sized, and even large NVOCCs with no tangible benefits to anyone. It does not make life better nor safer.

      Suggested Deregulatory Steps to Conform with the Presidential Mandate.

      1. NSAs. The FMC, in following the President’s mandate, recently revised NSAs reportedly pursuant to the President’s directive. NSAs, prior to the FMC’s recent change, had to be filed with the FMC, and cargo could not be accepted by the carrier prior to the effective date of the filing. The main element of the “deregulation” was that amendments to these can now be filed 30 days after the rates become effective. In other words, the requirement that a rate be in place prior to a shipment taking place, or otherwise be subject to monetary sanctions, has been removed as a precondition to a shipment. This step seems to recognize that the “filed rate” requirement is not essential to the reality of a transportation transaction, at least in an NSA amendment context. However, this action by the FMC has raised the question: why file an agreement with rates at all with a federal agency wherein the NVOCC carrier and shipper have reached an understanding as to rates to be charged? This recent FMC action seems to be saying that it really doesn’t matter much. However, this step is a tepid first step in removing the tariff burden altogether. If tariff publication is removed as a requirement altogether, disagreements, if they should subsequently arise between the NVOCC and the shipper, should become a run of the mill business dispute. In any case, they should not become a federal matter. Disputes relating to applicable rates and charges related to NSAs or NRAs are rare in our experience.

      2. NRAs. These have become a convenient way for an NVOCC to establish a shipping relationship with its customers. NRAs are comprised of written exchanges of communications between the parties and whatever is agreed to becomes the agreed rates applicable to the transportation. These are not filed or published anywhere, but need to be made available to the FMC if they request a copy. The federal requirement is that these be in writing. During FMC audits, copies of the NRAs are requested from the NVOCCs. Questions inevitably arise as to what constitutes a writing; whether a signed document is required; whether NRAs have to be numbered; whether the right person is communicating the offer or the acceptance; whether the effective date is clear; and so forth. Some of these “requirements” are included in the regulations, but may not be so clear; others are not to be found at all in the regulatory language. There is some trepidation for some NVOCCs to entering this murky environment. Does not sound like deregulation, does it?

      3. Co-loading Regulations. These regulations (46CFR§520.11) provide for tariff requirements for NVOCCs that co-load. These regulations over the years, due to certain provisions therein, have resulted in practices which are termed “carrier-to- carrier” arrangements. The NVOCC community has taken these regulations to mean that NVOCCs, pursuant to carrier-to-carrier agreements, do not have to publish those rates, nor adhere to any of the other alternative pricing mechanisms we have been discussing here (NRAs and NSAs) when accepting cargo from other NVOCCs under these carrier-to-carrier arrangements. The receiving NVOCC under this view offers services to the tendering NVOCC pursuant to a carrier-to-carrier agreement based on “fees schedules” which are not filed in tariffs, nor structured as NSAs or NRAs. There is currently major confusion on the part of the NVOCC community on co-loading due to some recent interpretations at the FMC that conclude that NVOCCs who are parties to service contracts cannot lawfully offer carrier-to-carrier services to other NVOCCs without violating the Shipping Act of 1998, as amended. This is not clear from the co-loading rules nor any other statutory provisions, and, therefore, need FMC attention to clarify the coloading rules, or better still, to modify them substantially, or do away with them altogether since in their present form they are difficult, if not impossible, to consistently interpret them.

      4. Rate Publishing. As a reminder, the above pricing mechanisms only came about as putative efforts to facilitate or obviate the tariff publishing requirement. In other words, the basic regulatory requirement for NVOCCs (as well as for the underlying ocean carriers) was that they initially needed to file public tariffs with the FMC before a shipment could be effected. If there was not a tariff timely on file before the shipments were effected, the carrier, including the NVOCC, was subjected to hefty penalties (see footnote 1). The next evolution of that requirement became that the ocean carrier or NVOCC needed to publish (not file) these rates on a public web site. However, the draconian possibility of penalties followed the nonpublishing of tariff rates if shipments were undertaken without published rates or if they were published after the cargo had already been accepted by the NVOCC for shipment. The more recent developments in the so-called deregulation process were the implementation of NRAs and NSAs. And as noted, just this month, pursuant to the President’s directive, the requirement to timely file NSA rate amendments was removed. (See above, where NSA amendments can be filed 30 days after their effective date). Lastly, the industry in many dozens of rule-making proceedings at the FMC has firmly established that the shipping public has never reviewed or relied on publicly filed rates. In other words, public tariff filings and publishing are vestiges from the old robber baron days of Theodore Roosevelt when the battle cry aimed at the railroads (and motor carriers) was that all shippers had a right to whatever rates were being offered to someone else. It was a time of “one rate fits all.” It is time to let go of archaic slogans!

      Why is the FMC tiptoeing to the ultimate deregulatory step of removing tariff and other ineffective ocean transport pricing requirements altogether? As the old refrain from My Fair Lady says, “Why can’t OTIs be more like Indirect Air Carriers?” President Carter got us there in 1979 with the IACs!

      To the FMC’s credit they have established a Regulatory Reform Task Force for the purpose “to identify burdensome, unnecessary, and outdated directives and recommend how they should be remedied.” It remains to be seen whether these will be seriously dealt with in the spirit of the President’s directive.

      Why Statutory Amendments Are Not Required to Achieve Deregulation.

      The usual response by administrative agencies is that they are following congressional mandates and cannot modify existing congressional requirements. However, the FMC has routinely utilized the following two statutory provisions to exempt certain traffic, practices, and activities from what would otherwise be considered congressional mandates. The removal of tariff and other similar requirements from the activities of NVOCCs would be consistent with other actions previously taken by the FMC when establishing NRAs and NSAs in lieu of tariff publishing. The FMC has relied on the following two statutory provisions to exempt NVOCCs from tariff publishing by utilization of NRAs and/or NSAs:

      A. 46 U.S. Code § 40103(a) - Administrative exemptions.

      In General.—

      The Federal Maritime Commission, on application or its own motion, may by order or regulation exempt for the future any class of agreements between persons subject to this part or any specified activity of those persons from any requirement of this part if the Commission finds that the exemption will not result in substantial reduction in competition or be detrimental to commerce. The Commission may attach conditions to an exemption and may, by order, revoke an exemption. (Emphasis supplied).

      On the matter at hand, doing away with the filed/published tariff and these other alternative pricing devices would actually result in increased competition which would, of course, not be detrimental to commerce as it has not in the air transport industry. The airline industry, including the IAC segment, has prospered very nicely since deregulation.

      B. The FMC has also relied on 46 U.S. Code §42101. Regulations of the Commission for reaching the same conclusions---i.e, the exemption of NVOCCs from certain requirements of the Shipping Act, including the regulations relating to NRAs.

      Conclusion.

      We recommend for the above cited reasons that the FMC, pursuant to President Trump’s current directives, remove all tariff, NSA, co-loading, and NRA requirements from NVOCCs, and that NVOCCs in offering ocean transport to their customers, be put on an equal footing with IACs on the air transport side. Rate quotation processes are a fast moving, fluid phenomenon these days in both air and ocean transport. These industries would be hindered by a formal rate quoting and rate setting process as exists for NVOCCs currently. In the unlikely event that the FMC determines that it might not have authority to accomplish this through rule-making, we strongly suggest that congressional actions be immediately sought in the direction noted herein. As noted above, we strongly suggest that NVOCCs urgently make their views known to the FMC Regulatory Reform Task Force to address these and other regulations which impact NVOCCs which we believe would not pass President Trumps test:

      "Does it make life better or safer
      for American workers or consumers?"





      Carlos Rodriguez is a partner at Husch Blackwell LLP in Washington, D.C. He concentrates his practice on international and domestic transportation law, admiralty, regulatory maritime law, international commercial transactional law, transportation litigation and export licensing and compliance matters. He is also involved with transport and security issues involving the U.S. Customs and Border Protection and the Transportation Security Administration. He is transportation counsel to the New York/ New Jersey Foreign Freight Forwarders and Brokers Association. Mr Rodriguez can be reached at (202) 378-2365 or via email at Carlos.Rodriguez@huschblackwell.com





        QCS - Quinn Corporate Services, Inc. - New York, New York  
       contact:  909 Third Avenue, No. 7299, New York, NY 10150 USA 







      All rights to reprinted article/commentary remains with the author, reprinted for fair use/educational purposes.


      (c) 2011-2018 QCS Quinn Corporate Services, Inc.