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FMC keeps spotlight on ocean forwarder, consolidator concerns

The coronavirus pandemic may have disrupted international supply chains for much of the year, but a top official at the Federal Maritime Commission said his agency has remained vigilant in its responsibility to ensure competition within the U.S. ocean container shipping trades.

“I am pleased to say that, because of advance planning and preparation, the commission has remained fully open and operational throughout these difficult times,” FMC Chairman Michael Khouri told online attendees of the National Customs Brokers and Forwarders Association of America (NCBFAA) Government Affairs Conference on Monday.

“The commission has provided its employees with maximum flexibility to work remotely, but every bureau and office of the commission is fully engaged and available by email or telephone,” he added.

Khouri offered the NCBFAA’s ocean freight forwarder and consolidator members assurance that the FMC has not diminished its attention to their regulatory and competitive concerns involving ocean container shipping.

“The commission is committed to fulfilling its statutory and constructive role for the U.S. economy in ensuring competition and integrity in the international supply chain,” he said.

Detention and demurrage

One of the key issues for forwarders and consolidators prior to COVID-19 is the imposition of demurrage and detention fees by ocean carriers and marine terminal operators due to supply chain disruptions not of their making.

Demurrage pertains to the time an import container sits in a container terminal, with carriers responsible for collecting penalties on behalf of the marine terminals. Detention relates to shippers holding containers for too long outside the marine terminals.

For years, shippers have complained to the FMC about the unfair imposition of these fees whenever container equipment cannot be returned or picked up during the free period for reasons out of their control. The daily fees reportedly range from $150 to $350 per container.

The FMC initiated its container availability rulemaking process last fall, after the commission unanimously approved Commissioner Rebecca Dye’s container availability recommendations on Sept. 6, 2019. The proposed rule received over 100 comments, which were mostly positive.

In April, the FMC finalized new guidance on how it will assess whether ocean carriers’ and marine terminal operators’ demurrage and detention practices are reasonable.

“At this point, the commission is closely monitoring the behavior of ocean carriers, ports, intermediaries and truckers to determine if the interpretative rule is having the intended effect to incentivize the movement of cargo and promote freight fluidity,” Khouri told the NCBFAA.

Khouri believes the interpretative rule is already having a positive impact on the imposition of demurrage and detention fees.

“We have some anecdotal evidence by way of CADRS (Consumer Affairs and Dispute Resolution Services) complaint resolution processes that marine terminals and vessel operators — when presented with the new rules as a defense to detention-demurrage charges — are reducing or even canceling charges in certain fact situations,” he said.

“If you have examples where the interpretive rule has made a difference, we would be happy to hear about it,” Khouri added. “If you have examples of where carriers or terminals are not in compliance with the interpretive rule, we need to hear that as well.”

With freight volumes now increasing to the U.S. West Coast ports, forwarders and their shipper-customers worry about detention and demurrage charges. (Photo: Jim Allien/FreightWaves)

Enforcement reforms and priorities

In December, the FMC revised its delegations of authority to the Bureau of Enforcement and revised procedures for initiating and settling enforcement actions.

“This seemingly modest change is of more importance to NCBFAA members than you might think,” Khouri said.

He explained the change enhances the commission’s oversight of agency enforcement actions. The new procedure requires the commissioners to vote to approve the initiation of compromise negotiations by the FMC’s Bureau of Enforcement and then must approve any compromise agreements by the bureau before the agreement becomes final.

Overall, Khouri said the FMC’s new enforcement procedure is modeled after the decades-old process used by the U.S. Security and Exchange Commission. “I’m confident that, in the end, these changes will achieve a better result for both the commission and its stakeholders,” he said.

The FMC has also increased its enforcement over forwarders and consolidators engaged in wrongdoing, such as those entities operating without the required license or bond and those offering ocean carriers misdeclared hazardous cargoes.

Revisiting co-loading rules

Khouri wants the FMC to revisit and refine tariff-filing requirements for “co-loads” as part of the agency’s regulatory reform initiative.

“Differences of the definition of co-loading between the commission and other [federal] agencies, such as Customs and Border Protection (CBP), and even within the commission, has created confusion among stakeholders,” he said, adding that he has spoken with the NCBFAA about its co-load concerns.

The FMC had last considered its co-loading requirements in 2004 and discontinued the matter without further action.

“It is time for the commission to revisit the co-loading rules in light of the continuing evolution of the competitive container shipping industry and changes in commission regulations over the last 16 years, including the important effects that NRAs (negotiated rate arrangements) and NSAs (NVOCC service arrangements) have had in bringing greater rate flexibility to the NVO (non-vessel-operating common carrier) market,” Khouri told the NCBFAA.

The FMC’s managing director has set up a cross-bureau working group to specifically look at what changes might be appropriated to the co-loading regulation.

“I cannot, at this stage, predict a final result of this ‘must-do’ project,” Khouri said, “but look forward with great interest to its completion and in engaging my colleagues on the commission in a candid discussion upon the topic of the co-loading regulations.”

Other enforcement policy reviews included the commission’s response to unauthorized access to service contracts.

Khouri said the FMC is looking into a concern from the NCBFAA that some ocean carriers are inserting a clause into their standard bill of lading that lumps forwarders, consolidators and customs brokers among “shippers” who are responsible for paying freight and related accessorial charges.

The FMC has a full commission (from left to right: Commissioner Louis Sola, Commissioner Rebecca Dye, Chairman Michael Khouri, Commissioner Daniel Maffei, and Commissioner Carl Bentzel). (Photo: U.S. Federal Maritime Commission)

COVID-induced blank sailings and rates

The FMC is aware of recent capacity and rate concerns among forwarders and consolidators due to ocean carriers using blank sailings in their port schedules as a means to shield their vessel-operation costs against erratic container volumes during the COVID-19 pandemic.

Under the Shipping Act, ocean container carriers may use blank sailings to reduce capacity in response to low demand. The FMC, however, has an obligation under section 6(g) of the act to ensure that the capacity reductions are not unreasonable and do not cause unreasonable increases in transportation costs for shippers.

The FMC generally requires notice from the alliances before blank sailings are implemented and no later than 15 days after any such changes are agreed upon. Alliances may request a waiver from the FMC if they are unable to make a timely filing.

Khouri said the FMC places the highest level of scrutiny on alliance blank sailing announcements.

“If the FMC detects any indication of carrier behavior that may violate section 6(g), we will immediately seek to address these concerns with the carriers directly, and if necessary, the FMC will go to federal court to seek an injunction to enjoin further operation of the alliance agreement,” he said.

Khouri is hopeful that ocean carrier blank sailings are abating as global COVID-19 restrictions are gradually lifted and American shippers seek to replenish diminished inventories. He said the FMC is already receiving notices from ocean carriers of reinstated sailings in the trans-Pacific and trans-Atlantic.

Related news

FMC finds NY/NJ port ‘minimally impacted’ operationally by COVID-19

How the FMC monitors ‘blank sailings’ and their competitive impacts

FMC tracks COVID-19-induced supply chain bottlenecks

Click for more FreightWaves/American Shipper articles by Chris Gillis.

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