House Passes Ocean Shipping Reform Act of 2021: Common Carriers and Marine Terminal Operators Remain Wary
The Shipping Act of 1984, as amended (the “Shipping Act”),[1] is the primary statutory vehicle by which liner shipping and marine terminals operating in the foreign commerce of the United States are regulated. The Shipping Act applies to key supply chain participants, including “marine terminal operators” (“MTOs”)[2] and “common carriers,”[3] and is administered and enforced by the Federal Maritime Commission (the “FMC” or the “Commission”).[4]
The activities and practices of common carriers and MTOs have been the focus of increased concern and regulatory scrutiny in the United States over the last several years for various reasons.
Concerns over consolidation in the container liner trades and the sharp rise in market power of global shipping alliances led to Congressional hearings in 2017[5] and the eventual passage of Title VII of the Frank LoBiondo Coast Guard Authorization Shipping Act of 2018,[6] which amended certain provisions of the Shipping Act to address those concerns.
Concerns over the demurrage[7] and detention[8] practices of ocean common carriers and MTOs led to the FMC’s Fact Finding Investigation No. 28, Conditions and Practices Relating to Detention, Demurrage and Free Time in International Oceanborne Commerce, commenced in March 2018 (“FFI 28”),[9] and the subsequent adoption by the FMC of its Interpretive Rule on Demurrage and Detention Practices under the Shipping Act,[10] which introduced the “incentive principle” into the lexicon of these terms.
Concerns over inefficiencies in the shipping supply chain have been studied and debated for many years. Factors that have contributed to such inefficiencies in the United States have included, from time to time, trade imbalances with key trading partners, shortages and positioning imbalances involving intermodal equipment (containers and chassis), labor shortages, vessel “bunching,” port infrastructure limitations and deficiencies, the disappearance of the “working waterfront” in many ports, and just-in-time distribution requirements, among others. Most of these factors are commercial in nature and well beyond the jurisdictional reach of the FMC to remedy under its Shipping Act authorities.
All of these logistical inefficiencies were greatly exacerbated in the United States by the global pandemic beginning in March 2020. The pandemic drove U.S. consumer demand for overseas goods to record levels[11] and those demands further exploited existing inefficiencies, causing unprecedented and well-chronicled disruptions throughout the supply chain. As many marine container terminals in major U.S. ports began reaching their operational capacities, the dwell time for many inbound ships waiting to berth at those terminals increased from days to weeks to months, creating havoc with liner schedules, reducing vessel carrying capacities, and causing numerous blank sailings and massive delivery delays across multiple markets.[12] Marine terminals and depots engaged by common carriers became flooded with empty containers, making it difficult for them to accept additional empties which, in turn, created logistical nightmares for truckers wishing to make returns.
Concerns over supply chain dislocations led to the FMC’s Fact Finding Investigation No. 29, International Ocean Transportation Supply Chain Engagement (“FFI 29”), commenced in March 2020.[13] The original purpose of FFI 29 was to convene “supply chain innovation teams” to address the challenges that were then extant.[14] The FMC thereafter expanded the scope of FFI 29 to determine whether the practices of ocean common carriers calling at the Ports of Los Angeles, Long Beach and New York and New Jersey (specifically involving demurrage and detention, container return requirements and the availability of export containers) also constituted violations of the Shipping Act.[15]
In July 2021, the Fact Finding Officer assigned to FFI 29 issued her Interim Recommendations (the “FFI 29 Interim Recommendations”), which were aimed at “minimizing barriers to private party enforcement of the Shipping Act, clarifying Commission and industry processes, encouraging shippers, truckers, and other stakeholders to assist Commission enforcement efforts, and bolstering [the Commission’s] … ability to facilitate fair and fast dispute resolution.” The Fact Finding Officer also expressed her support for the Commission’s “continuing investigations into unreasonable demurrage and detention practices.”
The demurrage and detention practices of MTOs and common carriers continue to attract much attention at the FMC as a result of FFI 28 and FFI 29. For example, following its adoption of the Interpretive Rule, the FMC has witnessed an uptick in administrative case filings by cargo interests seeking reparations against ocean common carriers and MTOs based upon the alleged unreasonableness of their demurrage and detention practices and charges.[16]
In November and December 2021, the FMC commenced separate investigative proceedings against Hapag-Lloyd and Wan Hai Lines to determine whether their respective detention policies and charges involving empty container returns violate section 41102(c) of the Shipping Act.[17]
In September 2021, the FMC announced that it would develop an Advanced Notice of Proposed Rulemaking (ANPRM) seeking industry views on two questions relating to demurrage and detention: “first, whether the Commission should require ocean common carriers and … [MTOs] to include certain minimum information on or with demurrage and detention billings; and second, whether the Commission should require carriers and … [MTOs] to adhere to certain practices regarding the timing of demurrage and detention billings.”[18]
A. Passage of OSRA 2021
Amidst these cascading events, the U.S. House of Representatives passed H.R. 4996, cited as the “Ocean Shipping Reform Shipping Act of 2021” (“OSRA 2021”), on December 8, 2021, by an overwhelming vote of 364-60. The measure was received in the U.S. Senate and referred to the Committee on Commerce, Science, and Transportation on December 9, 2021, although its prospects for passage by the Senate in some form remain unclear at the moment. However, since OSRA 2021 has been introduced as the “first overhaul of Federal regulations for the international shipping industry since 1998,”[19] a closer look at its big ticket provisions and possible implications for common carriers and MTOs is in order.
B. Prohibited Retaliation and Discrimination
Under section 41104(a)(3) of the Shipping Act, a common carrier may not “retaliate against a shipper by refusing, or threatening to refuse, cargo space accommodations, when available, or resort to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, or has filed a complaint, or for any other reason.”[20] As is obvious from its wording, section 41104(a)(3) admonishes common carriers not to “retaliate” against shippers or “resort to other unfair or unjustly discriminatory acts” against shippers with respect to certain practices. It does not apply to retaliatory or discriminatory acts by other regulated entities nor does it protect supply chain participants other than shippers.
Section 8 of OSRA 2021 would broaden the proscriptions contained in section 41104(a)(3) by expanding (a) its anti-retaliation provisions to include MTOs[21] in addition to common carriers, and (b) the universe of persons against whom retaliation is prohibited to include, in addition to shippers, shippers’ agents and motor carriers.
This proposed legislative change follows the FFI 29 Interim Recommendations, which urged Congress to broaden the anti-retaliation provisions of the Shipping Act. In her Interim Recommendations, the Fact Finding Officer conjectured that the relative paucity of private party complaints seeking reparations against common carriers and MTOs, and the disinclination of shippers and their agents and contractors to provide information to Commission investigators, might be due to fears of retaliation. However, whatever logic applies to the proposed changes as they affect common carriers is noticeably absent with respect to the changes as they affect MTOs.
First, while retaliation allegations are not uncommon against common carriers under section 41104(a)(3),[22] it is unclear how the broadening of these provisions to include MTOs is justified or in line with the purposes of the Shipping Act. Because MTOs are not in contractual privity with shippers or their agents, it is difficult to imagine how an MTO could retaliate against a shipper or its agent. Shippers and their agents and truckers interact with marine container terminals only because of decisions taken (or not taken) by common carriers. Those decisions are not taken by MTOs which merely service the containerized cargoes delivered to them by their common carrier customers.
Second, because MTOs do not provide “cargo space accommodations” to shippers or their agent or truckers, any legislative requirement that MTOs not “retaliate” against them by refusing such accommodations is seemingly pointless.
Third, the anti-discrimination provisions following the “resort to” clause make little sense insofar as MTOs are concerned. Under the proposed legislation, an MTO could not resort “to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, has filed a complaint, or for another other reason.” However, this provision is derived from section 41104(a)(3) which, in turn, was derived from section 14 Third of the Shipping Act, 1916, which was copied “virtually verbatim” into the Shipping Act.[23] In construing these provisions in section 14 Third, the U.S. Supreme Court stated that the practices outlawed by the “resort to” clause of section 14 Third “take their gloss from the abuses specifically proscribed by the section; that is, they are confined to practices designed to stifle outside competition.”[24] These practices have no bearing on MTOs which lack the ability to affect competition in the liner trades.
Lastly, and perhaps most importantly, to the extent that Congress is genuinely concerned about discriminatory practices by MTOs, it should be emphasized that the Shipping Act already covers the field. Section 41106 of the Shipping Act specifically makes it illegal for an MTO to “(1) agree with another marine terminal operator or with a common carrier to boycott, or unreasonably discriminate in the provision of terminal services to, a common carrier or ocean tramp; (2) give any undue or unreasonable preference or advantage or impose any undue or unreasonable prejudice or disadvantage with respect to any person; or (3) unreasonably refuse to deal or negotiate.” Why is additional legislation necessary?
C. Demurrage and Detention
Despite the fact that the FMC has been consumed with demurrage and detention practices for well over three years, proposed reforms to such practices through amendments to the Shipping Act feature prominently in OSRA 2021.
Under its proposed section 8, common carriers and MTOs would be prohibited from charging detention or demurrage “under a tariff, marine terminal schedule, service contract, or any other contractual obligation” unless such charges are accompanied by an “accurate certification” stating that they “comply with all rules and regulations concerning demurrage or detention issued by the Commission.” This proposed requirement places an additional administrative burden on common carriers and MTOs and that burden has no de minimis exceptions. Accordingly, a certification would be required regardless of whether the charge is for $100 or $100,000.[25]
To give teeth to the proposed certification requirements, section 10 of OSRA 2021 would also provide that any failure by a common carrier to include a certification “alongside”[26] any demurrage or detention charge would “eliminate any obligation of the charged party to pay the applicable charge.”[27] Under this provision, a common carrier that fails to provide a certification, for whatever reason, essentially loses its right to collect the charge, regardless of its legitimacy and regardless of any associated lien rights. In addition, in the event that any certification is found to be “inaccurate” or “false,” in the context of a private party proceeding brought under section 41301 of the Shipping Act, the FMC would be authorized to impose monetary penalties against the common carrier or MTO if it also determines, in a separate enforcement proceeding, that “such certification was inaccurate or false.”
What is perhaps most confounding about OSRA 21’s certification requirement is its proposed substance. The certification must state that the associated demurrage or detention charge complies with “all rules and regulations concerning demurrage or detention issued by the Commission.” However, whether a charge complies with the FMC’s regulations may be a function of one’s interpretation of the incentive principle as it pertains to the circumstances of the specific charge. It comes as no surprise that shippers and common carriers often hold differing views as to the propriety of such charges. In view of the foregoing, does a charge subsequently found to be in violation of the incentive principle make its earlier compliance certification “false or inaccurate”?
Section 10 of OSRA 2021 would also amend the Shipping Act by requiring common carriers and MTOs, within 30 days of the law’s enactment, to (a) “act in a manner consistent” with any demurrage or detention rules or regulations issued by the FMC; (b) maintain records supporting the assessment of demurrage or detention charges for a minimum of five years; (c) provide such records to the invoiced party or the FMC “upon request”; and (d) “bear the burden of establishing the reasonableness of any … charges which are the subject of any complaint proceeding challenging [such] … charges as unjust and unreasonable.”
These last statutory directives seem a bit odd for at least two reasons.
First, what purpose is served by having the Shipping Act direct common carriers and MTOs to “act in a manner consistent” with the FMC’s rules and regulations on demurrage and detention? If the FMC establishes additional demurrage and detention rules and regulations in the future, and those rules and regulations have “legal effect” as a matter of administrative law, it stands to reason that such rules and regulations will have the force of law, and that regulated entities subject to the Shipping Act would be obligated to act in a manner consistent with them. Since the FMC is already authorized to “prescribe regulations to carry out its duties and powers,”[28] and since the “legal effect” of its regulations will be determined by applicable administrative law, there is really no need for such a statutory admonition which directs regulated entities to comply with them.
Second, a statutory requirement directing common carriers and MTOs to “bear the burden of establishing the reasonableness of any demurrage or detention charges which are the subject of a complaint proceeding” would seemingly turn established burdens of persuasion and production on their head. Under Rule 203 of the FMC’s Rules of Practice and Procedure,[29] the burden of proof is always on the proponent of a motion or order in cases governed by the Administrative Procedure Act. In other words, the ultimate burden of proving that a respondent violated the Shipping Act is on the complainant, and that burden must be supported by a preponderance of the evidence.[30] With respect to claims under section 41102(c) of the Shipping Act,[31] the FMC has already determined that “the complainant has the burden of persuading the Commission that a practice is unreasonable, and if that burden is met, the burden of refuting that conclusion in on the respondent.”[32] In view of the foregoing, any effort by OSRA 2021 to re-engineer these burdens will likely be met by strong industry opposition.
Despite the various regulatory initiatives already undertaken or announced by the FMC with respect to demurrage and detention, section 10 of OSRA would also require the FMC, within 120 days after enactment, to commence yet another rulemaking proceeding “to establish rules prohibiting common carriers and [MTOs] … from adopting and applying unjust and unreasonable demurrage and detention rules and practices.” OSRA 2021 directs such rulemaking to address a comprehensive list of 11 detailed issues relating to demurrage and detention rules and practices.
The need for such a rulemaking proceeding is puzzling.
First, section 41102(c) of the Shipping Act[33] and the FMC’s related interpretations and statements of policy[34] already cover this ground in broad terms. Second, the detailed level of content mandated for this proposed rulemaking is exactly what the FMC sought to avoid when it issued the Interpretive Rule. Third, the number of very specific “prohibitions” and “requirements” contemplated for this proposed rulemaking would seemingly short circuit the intended flexibility of the Interpretive Rule and its incentive principle. Fourth, one of the stated purposes of the Shipping Act is to “establish a nondiscriminatory regulatory process for the common carriage of goods by water in the foreign commerce of the United States with a minimum of government intervention and regulatory costs.”[35] Given the extensive content requirements mandated by the proposed rulemaking, it seems clear that minimal government intervention and regulatory costs were not legislative lodestars for the drafters of OSRA 2021.
D. Equipment, Facilities and Export Cargoes
Concerns by shippers, beneficial cargo owners and truckers have been raised throughout the pandemic concerning the unavailability of intermodal equipment, empty container returns, and the availability of export container slots aboard vessels. While many of these concerns seem to be directly related to the unprecedented congestion at U.S. ports caused by the pandemic, section 9 of OSRA 2021 seeks to remedy them by adding to the Shipping Act several new prohibitions applicable to common carriers.
First, OSRA 2021 would make it a violation of the Shipping Act for a common carrier “to engage in practices that unreasonably reduce shipper accessibility to equipment necessary for the loading and unloading of cargo.” What equipment is contemplated by this prohibition? A shipper does not have direct access to gantry cranes, yard hustlers and other container handling equipment used in most marine container terminals. And although a shipper clearly needs access to containers and chassis to deliver cargo, most common carriers do not control the terms by which shippers access chassis within a port. By process of elimination, are containers the only articles of “equipment” which are relevant here? The intended direction of this prohibition is unclear.
Second, OSRA 2021 would make it a violation of the Shipping Act for a common carrier to “fail to furnish or cause a contractor to fail to furnish containers or other facilities and instrumentalities needed to perform transportation services, including allocation of vessel space accommodations, in consideration of reasonably foreseeable import and export demands.” Among other things, this provision is seemingly linked to precedent which states that common carriers are required to provide “adequate terminal facilities” for their shippers and consignees.[36]
Third, OSRA 2021 would make it a violation of the Shipping Act for a common carrier to “unreasonably decline export cargo bookings if such cargo can be loaded safely and timely, as determined by the Commandant of the Coast Guard, and carried on a vessel for the immediate destination of such cargo.” This provision seemingly is linked to certain frustrations expressed by U.S. exporters, particularly agricultural exporters, in securing containers and container slots for their export products. As explained by FMC Commissioner Daniel Maffei in his prepared remarks delivered to Congress in July 2021:
I remain particularly concerned about exporters – especially many agricultural exporters – due to the shifting dates of when ships are expected to make their port calls and the lack of reliability of service. While export shipping rates remain much lower than import rates, they too have gone up dramatically. Furthermore, exporters are finding themselves in the frustrating position of having to deal with the fact that a carrier is making so much money on a container full of imports than exports that it is often in the carrier’s best short-term economic interest to get more empty containers back to Asian factories faster rather than carrying more export containers.[37]
In connection with the third mandate above, OSRA 2021 would require the FMC, within 90 days after enactment, to commence a rulemaking proceeding to define the term “unreasonably decline.” Such rulemaking would require the FMC to “address the unreasonableness of ocean common carriers prioritizing the shipment of empty containers while excluding, limiting, or otherwise reducing the shipment of full, loaded containers when such containers are readily available to be shipped and the appurtenant vessel has the weight and space capacity available to carry such containers if loaded in a safe and timely manner.”
The third prohibition and its corresponding rulemaking may be well intended, but they seem unwieldy and impractical. For example, with respect to containerized export cargo that is shut out, is the Commandant of the Coast Guard going to become an arbiter as to whether a violation of the Shipping Act has occurred? It seems impractical and unlikely, even if the Commandant was willing to weigh in on a case-by-case basis as to whether shut out export cargo could have been loaded “safely and timely.”
E. Required Rulemaking on Minimum Service Standards
Section 10 of OSRA would require the FMC, within 90 days after enactment, to commence a third rulemaking proceeding to “incorporate” the minimum service provisions of OSRA 2021, including the following:
“(1) The obligation to adopt reasonable rules and practices related to or connected with the furnishing and allocation of adequate and suitable equipment, vessels space accommodations, containers, and other instrumentalities necessary for the receiving, loading, carriage, unloading and delivery of cargo.
“(2) The duty to perform the contract of carriage with reasonable dispatch.
“(3) The requirement to carry United States export cargo if such cargo can be loaded safely and timely, as determined by the Commandant of the Coast Guard, and carried on a vessel scheduled for such cargo’s immediate destination.
“(4) The requirement of common carriers to establish contingency service plans to address and mitigate service disruptions and inefficiencies during periods of port congestion and other market disruptions.”
A proposed rulemaking designed to set “minimum service standards” along the lines set forth in OSRA 2021 seems like regulatory overkill. For example, if a common carrier fails to perform a contract of carriage with “reasonable dispatch,” that may constitute a breach of the contract or a violation of other statutes relating to the carriage of goods, but how is it a violation of the Shipping Act? Similarly, how can a common carrier establish “contingency service plans” to address and mitigate “service disruptions and inefficiencies” occurring during “periods of port congestion and other market disruptions” when each event is likely to be sui generis? And if such a plan fails to sufficiently “mitigate” the event, how is that failure a violation of the Shipping Act in view of the Act’s long established purposes?
F. Conclusion
OSRA 2021 is a sweeping and intrusive piece of legislation which, if passed by the Senate and signed into law, would introduce significant burdens and radical changes for common carriers and MTOs under the Shipping Act. Although it seems unlikely that OSRA 2021 will be passed by the Senate in its current form, common carriers, MTOs and their industry trade associations, such as the World Shipping Council and the National Association of Waterfront Employers, remain wary of this legislation and should keep close tabs on its progress. We suspect that they will.
[1] 46 U.S.C. Subtitle IV, Part A.
[2] A marine terminal operator is “a person engaged in the United States in the business of providing wharfage, dock, warehouse, or other terminal facilities in connection with a common carrier.” 46 U.S.C. § 40102(15)
[3] A common carrier is a person that “(i) holds itself out to the general public to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation; (ii) assumes responsibility for the transportation from the port or point of receipt to the port or point of destination; and (iii) uses, for all or part of that transportation, a vessel operating on the high seas or the Great Lakes between a port in the United States and a port in a foreign country.” 46 U.S.C. § 40102(7) A common carrier includes “non-vessel operating common carriers” as well as “ocean common carriers” (i.e., vessel operating common carriers). 46 U.S.C. §§ 40102(17)-(18)
[4] The FMC is a small, independent federal agency whose administration of the Shipping Act is said to be for the benefit of “U.S. exporters, importers, and the U.S. consumer.” Federal Maritime Commission, 59th Annual Report for Fiscal Year 2020 at 9.
[5] See Maritime Transportation Regulatory Issues: Hearings Before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 115th Cong., 1st Sess. (May 3, 2017); Authorization of Coast Guard and Maritime Transportation Programs: Hearings before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 115th Cong., 1st Sess. (Apr. 4, 2017).
[6] Public Law 115-282 (Dec. 4, 2018).
[7] The term “demurrage” is generally associated with the charge assessed against cargo for remaining at a marine terminal in excess of allotted free time. See Federal Maritime Commission, Fact Finding Investigation No. 28, Conditions and Practices Relating to Detention, Demurrage and Free Time in International Oceanborne Commerce, Interim Report at 6 (Sept. 4, 2018) (“FFI 28 Interim Report”).
[8] The term “detention” is generally associated with the charge assessed against cargo for use of a container, outside of a marine terminal, in excess of allotted free time. See FFI 28 Interim Report at 6.
[9] FFI 28 came on the heels of a petition submitted to the FMC by shippers, truckers and others requesting that the FMC adopt a rule specifying the circumstances in which the demurrage and detention practices of common carriers and MTOs would be deemed to be unreasonable. See Coalition for Fair Port Practices Petition for Rulemaking, FMC No. P4-16 (Dec. 7, 2016).
[10] Federal Maritime Commission, Interpretive Rule on Demurrage and Detention under the Shipping Act, Docket 19-05, 85 F.R. 29638 (May 18, 2020) (the “Interpretive Rule”). See 46 C.F.R. § 545.5.
[11] The economic recession in the United States caused by the pandemic did stop Americans from purchasing goods. Instead, bolstered by the Paycheck Protection Program, “which saved hundreds of thousands of businesses and millions of jobs, and nearly $400 billion in government stimulus checks,” U.S. consumers went on a buying spree, purchasing “nearly $1 trillion more in goods in 2021 compared with pre-pandemic times.” S.K. O’Neil, Why the Supply Chain Slowdown Will Persist, Foreign Affairs (Dec. 21, 2021) (https://www.foreignaffairs.com/articles/world/2021-12-21/why-supply-chain-slowdown-will-persist).
[12] To make matters worse, reported freight costs associated with transporting containerized cargo from Asia to the United States spiked dramatically and, in some reported cases, by a factor of ten in less than one year. See 167 Cong. Rec. 7472 – 7479, Ocean Shipping Reform Shipping Act of 2021 (Statement of Rep. Garamendi).
[13] 85 Fed. Reg. 19146 (Apr. 6, 2020).
[14] In November 2021, the FMC announced that six supply chain innovation teams were being convened “to identify and implement improvements to the process and timing of return and delivery of containers to marine terminals.” Federal Maritime Commission, New Supply Chain Initiatives Announced at FMC Meeting (Nov. 17, 2021) (https://www.fmc.gov/new-supply-chain-initiatives-announced-at-fmc-meeting/).
[15] As part of its investigation, the FMC sent information demands to 27 entities in connection with FFI 29 – ten common carriers and 17 MTOs.
[16] See e.g., TCW, Inc., v. Evergreen Shipping Agency (America) Corporation, Informal Docket No. 1966(I) (FMC 2021); Eucatex of North America Inc. v. CMA CGM (America) LLC et al., Docket No. 21-08 (FMC 2021); Mohawk Global Logistics Corp. MSC Mediterranean Shipping Company (USA) Inc. et al., Informal Docket No. 1971(I) (FMC 2021); Orange Avenue Express, Inc. v. Hapag-Lloyd AG, Docket No. 21-10 (FMC 2021); Greatway Logistics Group, LLC v. Ocean Network Express Pte. Ltd, Docket No. 21-04 (FMC 2021).
[17] See Federal Maritime Commission, Order of Investigation and Hearing, Hapag-Lloyd, A.G. and Hapag-Lloyd (America) LLC – Possible Violations of 46 U.S.C. § 41102(c), Docket No. 21-09, 86 Fed. Reg. 64203 (Nov. 17, 2021); Federal Maritime Commission, Order of Investigation and Hearing, Wan Hai Lines, Ltd. and Wan Han Lines (USA) Ltd. – Possible Violations of 46 U.S.C. § 41102(c), Docket No. 21-16, 87 Fed. Reg. 781 (Jan. 6, 2022).
[18] See FMC to Issue Guidance on Complaint Proceedings and Seek Comments on Demurrage and Detention Billings, https://www.fmc.gov/fmc-to-issue-guidance-on-complaint-proceedings-and-seek-comments-on-demurrage-and-detention-billings/ (Sept. 15, 2021). The ANPRM has not been issued as of this writing.
[19] 167 Cong. Rec. 7472 – 7479, Ocean Shipping Reform Shipping Act of 2021 (Statement of Rep. Garamendi).
[20] Under the Shipping Act, a “shipper” is defined to mean “(A) a cargo owner; (B) the person for whose account the ocean transportation of cargo is provided; (C) the person to whom delivery is to be made; (D) a shippers’ association; or (E) a non-vessel-operating common carrier that accepts responsibility for payment of all charges applicable under the tariff or service contract.” 46 U.S.C. § 40102(23)
[21] The proposed legislation would also cover “ocean transportation intermediaries.” Under the Shipping Act, an “ocean transportation intermediary” is defined to mean an “ocean freight forwarder or a non-vessel-operating common carrier.” 46 U.S.C. § 40102(20)
[22] On December 28, 2021, the FMC issued a policy statement explaining how it interprets the anti-retaliation and anti-discrimination provisions contained in section 41104(a)(3) insofar as they involve or affect common carriers and shippers. See Federal Maritime Commission, Statement of the Commission on Retaliation, Docket No. 21-15 (Dec. 28, 2021).
[23] MAVL Capital Inc. et al. v. Marine Transport Logistics, Inc., et al., Initial Decision Partially Dismissing Complaint, at 26, Docket No. 16-16 (FMC 2017) (“MAVL Capital”), citing International Association of NVOCCs v. Atlantic Container Line, 1990 FMC LEXIS 5 (ALJ Jan. 25, 1990).
[24] MAVL Capital at 26, quoting, Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 495 (1958).
[25] On the other hand, OSRA 2021 sensibly takes into account that the billing practices of MTOs and common carriers are such that one party will sometimes bill and collect demurrage or detention as an accommodation for the other party. In such circumstances, OSRA 2021 would apply the certification requirement only “to the entity that establishes the charge,” meaning that a common carrier or MTO that collects a charge on behalf of the other would not be responsible for providing the certification other than one from the party “that established the charge” being collected.
[26] The use of the term “alongside” suggests that, as a matter of timing, the certification must accompany any demurrage or detention invoice issued by the common carrier.
[27] As passed by the House, section 10 does not impose similar forfeiture provisions on MTOs that fail to provide required certifications.
[28] 46 U.S.C. § 46105(a).
[29] 46 C.F.R. § 502.203.
[30] Maher Terminals LLC V. The Port Authority of New York and New Jersey, Memorandum Opinion and Order at 27 (FMC Docket No. 08-03) (Dec. 17, 2014) (“Maher”).
[31] 46 U.S.C. § 41102(c).
[32] Maher at 27.
[33] 46 U.S.C. §41102(c).
[34] See 46 C.F.R. §§ 545.3 and 545.4.
[35] 46 U.S.C. § 40101(1) .(emphasis added)
[36] See Interpretive Rule at 29650 and text accompanying footnote 194.
[37] See Review of Fiscal Year 2022 Budget for the Coast Guard and Maritime Transportation Programs: Hearings Before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 117th Cong., 1st Sess. (July 21, 2017) (Statement of Commissioner Maffei at 2).
Vedder Thinking | Articles House Passes Ocean Shipping Reform Act of 2021: Common Carriers and Marine Terminal Operators Remain Wary
Newsletter/Bulletin
January 13, 2022
The Shipping Act of 1984, as amended (the “Shipping Act”),[1] is the primary statutory vehicle by which liner shipping and marine terminals operating in the foreign commerce of the United States are regulated. The Shipping Act applies to key supply chain participants, including “marine terminal operators” (“MTOs”)[2] and “common carriers,”[3] and is administered and enforced by the Federal Maritime Commission (the “FMC” or the “Commission”).[4]
The activities and practices of common carriers and MTOs have been the focus of increased concern and regulatory scrutiny in the United States over the last several years for various reasons.
Concerns over consolidation in the container liner trades and the sharp rise in market power of global shipping alliances led to Congressional hearings in 2017[5] and the eventual passage of Title VII of the Frank LoBiondo Coast Guard Authorization Shipping Act of 2018,[6] which amended certain provisions of the Shipping Act to address those concerns.
Concerns over the demurrage[7] and detention[8] practices of ocean common carriers and MTOs led to the FMC’s Fact Finding Investigation No. 28, Conditions and Practices Relating to Detention, Demurrage and Free Time in International Oceanborne Commerce, commenced in March 2018 (“FFI 28”),[9] and the subsequent adoption by the FMC of its Interpretive Rule on Demurrage and Detention Practices under the Shipping Act,[10] which introduced the “incentive principle” into the lexicon of these terms.
Concerns over inefficiencies in the shipping supply chain have been studied and debated for many years. Factors that have contributed to such inefficiencies in the United States have included, from time to time, trade imbalances with key trading partners, shortages and positioning imbalances involving intermodal equipment (containers and chassis), labor shortages, vessel “bunching,” port infrastructure limitations and deficiencies, the disappearance of the “working waterfront” in many ports, and just-in-time distribution requirements, among others. Most of these factors are commercial in nature and well beyond the jurisdictional reach of the FMC to remedy under its Shipping Act authorities.
All of these logistical inefficiencies were greatly exacerbated in the United States by the global pandemic beginning in March 2020. The pandemic drove U.S. consumer demand for overseas goods to record levels[11] and those demands further exploited existing inefficiencies, causing unprecedented and well-chronicled disruptions throughout the supply chain. As many marine container terminals in major U.S. ports began reaching their operational capacities, the dwell time for many inbound ships waiting to berth at those terminals increased from days to weeks to months, creating havoc with liner schedules, reducing vessel carrying capacities, and causing numerous blank sailings and massive delivery delays across multiple markets.[12] Marine terminals and depots engaged by common carriers became flooded with empty containers, making it difficult for them to accept additional empties which, in turn, created logistical nightmares for truckers wishing to make returns.
Concerns over supply chain dislocations led to the FMC’s Fact Finding Investigation No. 29, International Ocean Transportation Supply Chain Engagement (“FFI 29”), commenced in March 2020.[13] The original purpose of FFI 29 was to convene “supply chain innovation teams” to address the challenges that were then extant.[14] The FMC thereafter expanded the scope of FFI 29 to determine whether the practices of ocean common carriers calling at the Ports of Los Angeles, Long Beach and New York and New Jersey (specifically involving demurrage and detention, container return requirements and the availability of export containers) also constituted violations of the Shipping Act.[15]
In July 2021, the Fact Finding Officer assigned to FFI 29 issued her Interim Recommendations (the “FFI 29 Interim Recommendations”), which were aimed at “minimizing barriers to private party enforcement of the Shipping Act, clarifying Commission and industry processes, encouraging shippers, truckers, and other stakeholders to assist Commission enforcement efforts, and bolstering [the Commission’s] … ability to facilitate fair and fast dispute resolution.” The Fact Finding Officer also expressed her support for the Commission’s “continuing investigations into unreasonable demurrage and detention practices.”
The demurrage and detention practices of MTOs and common carriers continue to attract much attention at the FMC as a result of FFI 28 and FFI 29. For example, following its adoption of the Interpretive Rule, the FMC has witnessed an uptick in administrative case filings by cargo interests seeking reparations against ocean common carriers and MTOs based upon the alleged unreasonableness of their demurrage and detention practices and charges.[16]
In November and December 2021, the FMC commenced separate investigative proceedings against Hapag-Lloyd and Wan Hai Lines to determine whether their respective detention policies and charges involving empty container returns violate section 41102(c) of the Shipping Act.[17]
In September 2021, the FMC announced that it would develop an Advanced Notice of Proposed Rulemaking (ANPRM) seeking industry views on two questions relating to demurrage and detention: “first, whether the Commission should require ocean common carriers and … [MTOs] to include certain minimum information on or with demurrage and detention billings; and second, whether the Commission should require carriers and … [MTOs] to adhere to certain practices regarding the timing of demurrage and detention billings.”[18]
A. Passage of OSRA 2021
Amidst these cascading events, the U.S. House of Representatives passed H.R. 4996, cited as the “Ocean Shipping Reform Shipping Act of 2021” (“OSRA 2021”), on December 8, 2021, by an overwhelming vote of 364-60. The measure was received in the U.S. Senate and referred to the Committee on Commerce, Science, and Transportation on December 9, 2021, although its prospects for passage by the Senate in some form remain unclear at the moment. However, since OSRA 2021 has been introduced as the “first overhaul of Federal regulations for the international shipping industry since 1998,”[19] a closer look at its big ticket provisions and possible implications for common carriers and MTOs is in order.
B. Prohibited Retaliation and Discrimination
Under section 41104(a)(3) of the Shipping Act, a common carrier may not “retaliate against a shipper by refusing, or threatening to refuse, cargo space accommodations, when available, or resort to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, or has filed a complaint, or for any other reason.”[20] As is obvious from its wording, section 41104(a)(3) admonishes common carriers not to “retaliate” against shippers or “resort to other unfair or unjustly discriminatory acts” against shippers with respect to certain practices. It does not apply to retaliatory or discriminatory acts by other regulated entities nor does it protect supply chain participants other than shippers.
Section 8 of OSRA 2021 would broaden the proscriptions contained in section 41104(a)(3) by expanding (a) its anti-retaliation provisions to include MTOs[21] in addition to common carriers, and (b) the universe of persons against whom retaliation is prohibited to include, in addition to shippers, shippers’ agents and motor carriers.
This proposed legislative change follows the FFI 29 Interim Recommendations, which urged Congress to broaden the anti-retaliation provisions of the Shipping Act. In her Interim Recommendations, the Fact Finding Officer conjectured that the relative paucity of private party complaints seeking reparations against common carriers and MTOs, and the disinclination of shippers and their agents and contractors to provide information to Commission investigators, might be due to fears of retaliation. However, whatever logic applies to the proposed changes as they affect common carriers is noticeably absent with respect to the changes as they affect MTOs.
First, while retaliation allegations are not uncommon against common carriers under section 41104(a)(3),[22] it is unclear how the broadening of these provisions to include MTOs is justified or in line with the purposes of the Shipping Act. Because MTOs are not in contractual privity with shippers or their agents, it is difficult to imagine how an MTO could retaliate against a shipper or its agent. Shippers and their agents and truckers interact with marine container terminals only because of decisions taken (or not taken) by common carriers. Those decisions are not taken by MTOs which merely service the containerized cargoes delivered to them by their common carrier customers.
Second, because MTOs do not provide “cargo space accommodations” to shippers or their agent or truckers, any legislative requirement that MTOs not “retaliate” against them by refusing such accommodations is seemingly pointless.
Third, the anti-discrimination provisions following the “resort to” clause make little sense insofar as MTOs are concerned. Under the proposed legislation, an MTO could not resort “to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, has filed a complaint, or for another other reason.” However, this provision is derived from section 41104(a)(3) which, in turn, was derived from section 14 Third of the Shipping Act, 1916, which was copied “virtually verbatim” into the Shipping Act.[23] In construing these provisions in section 14 Third, the U.S. Supreme Court stated that the practices outlawed by the “resort to” clause of section 14 Third “take their gloss from the abuses specifically proscribed by the section; that is, they are confined to practices designed to stifle outside competition.”[24] These practices have no bearing on MTOs which lack the ability to affect competition in the liner trades.
Lastly, and perhaps most importantly, to the extent that Congress is genuinely concerned about discriminatory practices by MTOs, it should be emphasized that the Shipping Act already covers the field. Section 41106 of the Shipping Act specifically makes it illegal for an MTO to “(1) agree with another marine terminal operator or with a common carrier to boycott, or unreasonably discriminate in the provision of terminal services to, a common carrier or ocean tramp; (2) give any undue or unreasonable preference or advantage or impose any undue or unreasonable prejudice or disadvantage with respect to any person; or (3) unreasonably refuse to deal or negotiate.” Why is additional legislation necessary?
C. Demurrage and Detention
Despite the fact that the FMC has been consumed with demurrage and detention practices for well over three years, proposed reforms to such practices through amendments to the Shipping Act feature prominently in OSRA 2021.
Under its proposed section 8, common carriers and MTOs would be prohibited from charging detention or demurrage “under a tariff, marine terminal schedule, service contract, or any other contractual obligation” unless such charges are accompanied by an “accurate certification” stating that they “comply with all rules and regulations concerning demurrage or detention issued by the Commission.” This proposed requirement places an additional administrative burden on common carriers and MTOs and that burden has no de minimis exceptions. Accordingly, a certification would be required regardless of whether the charge is for $100 or $100,000.[25]
To give teeth to the proposed certification requirements, section 10 of OSRA 2021 would also provide that any failure by a common carrier to include a certification “alongside”[26] any demurrage or detention charge would “eliminate any obligation of the charged party to pay the applicable charge.”[27] Under this provision, a common carrier that fails to provide a certification, for whatever reason, essentially loses its right to collect the charge, regardless of its legitimacy and regardless of any associated lien rights. In addition, in the event that any certification is found to be “inaccurate” or “false,” in the context of a private party proceeding brought under section 41301 of the Shipping Act, the FMC would be authorized to impose monetary penalties against the common carrier or MTO if it also determines, in a separate enforcement proceeding, that “such certification was inaccurate or false.”
What is perhaps most confounding about OSRA 21’s certification requirement is its proposed substance. The certification must state that the associated demurrage or detention charge complies with “all rules and regulations concerning demurrage or detention issued by the Commission.” However, whether a charge complies with the FMC’s regulations may be a function of one’s interpretation of the incentive principle as it pertains to the circumstances of the specific charge. It comes as no surprise that shippers and common carriers often hold differing views as to the propriety of such charges. In view of the foregoing, does a charge subsequently found to be in violation of the incentive principle make its earlier compliance certification “false or inaccurate”?
Section 10 of OSRA 2021 would also amend the Shipping Act by requiring common carriers and MTOs, within 30 days of the law’s enactment, to (a) “act in a manner consistent” with any demurrage or detention rules or regulations issued by the FMC; (b) maintain records supporting the assessment of demurrage or detention charges for a minimum of five years; (c) provide such records to the invoiced party or the FMC “upon request”; and (d) “bear the burden of establishing the reasonableness of any … charges which are the subject of any complaint proceeding challenging [such] … charges as unjust and unreasonable.”
These last statutory directives seem a bit odd for at least two reasons.
First, what purpose is served by having the Shipping Act direct common carriers and MTOs to “act in a manner consistent” with the FMC’s rules and regulations on demurrage and detention? If the FMC establishes additional demurrage and detention rules and regulations in the future, and those rules and regulations have “legal effect” as a matter of administrative law, it stands to reason that such rules and regulations will have the force of law, and that regulated entities subject to the Shipping Act would be obligated to act in a manner consistent with them. Since the FMC is already authorized to “prescribe regulations to carry out its duties and powers,”[28] and since the “legal effect” of its regulations will be determined by applicable administrative law, there is really no need for such a statutory admonition which directs regulated entities to comply with them.
Second, a statutory requirement directing common carriers and MTOs to “bear the burden of establishing the reasonableness of any demurrage or detention charges which are the subject of a complaint proceeding” would seemingly turn established burdens of persuasion and production on their head. Under Rule 203 of the FMC’s Rules of Practice and Procedure,[29] the burden of proof is always on the proponent of a motion or order in cases governed by the Administrative Procedure Act. In other words, the ultimate burden of proving that a respondent violated the Shipping Act is on the complainant, and that burden must be supported by a preponderance of the evidence.[30] With respect to claims under section 41102(c) of the Shipping Act,[31] the FMC has already determined that “the complainant has the burden of persuading the Commission that a practice is unreasonable, and if that burden is met, the burden of refuting that conclusion in on the respondent.”[32] In view of the foregoing, any effort by OSRA 2021 to re-engineer these burdens will likely be met by strong industry opposition.
Despite the various regulatory initiatives already undertaken or announced by the FMC with respect to demurrage and detention, section 10 of OSRA would also require the FMC, within 120 days after enactment, to commence yet another rulemaking proceeding “to establish rules prohibiting common carriers and [MTOs] … from adopting and applying unjust and unreasonable demurrage and detention rules and practices.” OSRA 2021 directs such rulemaking to address a comprehensive list of 11 detailed issues relating to demurrage and detention rules and practices.
The need for such a rulemaking proceeding is puzzling.
First, section 41102(c) of the Shipping Act[33] and the FMC’s related interpretations and statements of policy[34] already cover this ground in broad terms. Second, the detailed level of content mandated for this proposed rulemaking is exactly what the FMC sought to avoid when it issued the Interpretive Rule. Third, the number of very specific “prohibitions” and “requirements” contemplated for this proposed rulemaking would seemingly short circuit the intended flexibility of the Interpretive Rule and its incentive principle. Fourth, one of the stated purposes of the Shipping Act is to “establish a nondiscriminatory regulatory process for the common carriage of goods by water in the foreign commerce of the United States with a minimum of government intervention and regulatory costs.”[35] Given the extensive content requirements mandated by the proposed rulemaking, it seems clear that minimal government intervention and regulatory costs were not legislative lodestars for the drafters of OSRA 2021.
D. Equipment, Facilities and Export Cargoes
Concerns by shippers, beneficial cargo owners and truckers have been raised throughout the pandemic concerning the unavailability of intermodal equipment, empty container returns, and the availability of export container slots aboard vessels. While many of these concerns seem to be directly related to the unprecedented congestion at U.S. ports caused by the pandemic, section 9 of OSRA 2021 seeks to remedy them by adding to the Shipping Act several new prohibitions applicable to common carriers.
First, OSRA 2021 would make it a violation of the Shipping Act for a common carrier “to engage in practices that unreasonably reduce shipper accessibility to equipment necessary for the loading and unloading of cargo.” What equipment is contemplated by this prohibition? A shipper does not have direct access to gantry cranes, yard hustlers and other container handling equipment used in most marine container terminals. And although a shipper clearly needs access to containers and chassis to deliver cargo, most common carriers do not control the terms by which shippers access chassis within a port. By process of elimination, are containers the only articles of “equipment” which are relevant here? The intended direction of this prohibition is unclear.
Second, OSRA 2021 would make it a violation of the Shipping Act for a common carrier to “fail to furnish or cause a contractor to fail to furnish containers or other facilities and instrumentalities needed to perform transportation services, including allocation of vessel space accommodations, in consideration of reasonably foreseeable import and export demands.” Among other things, this provision is seemingly linked to precedent which states that common carriers are required to provide “adequate terminal facilities” for their shippers and consignees.[36]
Third, OSRA 2021 would make it a violation of the Shipping Act for a common carrier to “unreasonably decline export cargo bookings if such cargo can be loaded safely and timely, as determined by the Commandant of the Coast Guard, and carried on a vessel for the immediate destination of such cargo.” This provision seemingly is linked to certain frustrations expressed by U.S. exporters, particularly agricultural exporters, in securing containers and container slots for their export products. As explained by FMC Commissioner Daniel Maffei in his prepared remarks delivered to Congress in July 2021:
I remain particularly concerned about exporters – especially many agricultural exporters – due to the shifting dates of when ships are expected to make their port calls and the lack of reliability of service. While export shipping rates remain much lower than import rates, they too have gone up dramatically. Furthermore, exporters are finding themselves in the frustrating position of having to deal with the fact that a carrier is making so much money on a container full of imports than exports that it is often in the carrier’s best short-term economic interest to get more empty containers back to Asian factories faster rather than carrying more export containers.[37]
In connection with the third mandate above, OSRA 2021 would require the FMC, within 90 days after enactment, to commence a rulemaking proceeding to define the term “unreasonably decline.” Such rulemaking would require the FMC to “address the unreasonableness of ocean common carriers prioritizing the shipment of empty containers while excluding, limiting, or otherwise reducing the shipment of full, loaded containers when such containers are readily available to be shipped and the appurtenant vessel has the weight and space capacity available to carry such containers if loaded in a safe and timely manner.”
The third prohibition and its corresponding rulemaking may be well intended, but they seem unwieldy and impractical. For example, with respect to containerized export cargo that is shut out, is the Commandant of the Coast Guard going to become an arbiter as to whether a violation of the Shipping Act has occurred? It seems impractical and unlikely, even if the Commandant was willing to weigh in on a case-by-case basis as to whether shut out export cargo could have been loaded “safely and timely.”
E. Required Rulemaking on Minimum Service Standards
Section 10 of OSRA would require the FMC, within 90 days after enactment, to commence a third rulemaking proceeding to “incorporate” the minimum service provisions of OSRA 2021, including the following:
“(1) The obligation to adopt reasonable rules and practices related to or connected with the furnishing and allocation of adequate and suitable equipment, vessels space accommodations, containers, and other instrumentalities necessary for the receiving, loading, carriage, unloading and delivery of cargo.
“(2) The duty to perform the contract of carriage with reasonable dispatch.
“(3) The requirement to carry United States export cargo if such cargo can be loaded safely and timely, as determined by the Commandant of the Coast Guard, and carried on a vessel scheduled for such cargo’s immediate destination.
“(4) The requirement of common carriers to establish contingency service plans to address and mitigate service disruptions and inefficiencies during periods of port congestion and other market disruptions.”
A proposed rulemaking designed to set “minimum service standards” along the lines set forth in OSRA 2021 seems like regulatory overkill. For example, if a common carrier fails to perform a contract of carriage with “reasonable dispatch,” that may constitute a breach of the contract or a violation of other statutes relating to the carriage of goods, but how is it a violation of the Shipping Act? Similarly, how can a common carrier establish “contingency service plans” to address and mitigate “service disruptions and inefficiencies” occurring during “periods of port congestion and other market disruptions” when each event is likely to be sui generis? And if such a plan fails to sufficiently “mitigate” the event, how is that failure a violation of the Shipping Act in view of the Act’s long established purposes?
F. Conclusion
OSRA 2021 is a sweeping and intrusive piece of legislation which, if passed by the Senate and signed into law, would introduce significant burdens and radical changes for common carriers and MTOs under the Shipping Act. Although it seems unlikely that OSRA 2021 will be passed by the Senate in its current form, common carriers, MTOs and their industry trade associations, such as the World Shipping Council and the National Association of Waterfront Employers, remain wary of this legislation and should keep close tabs on its progress. We suspect that they will.
[1] 46 U.S.C. Subtitle IV, Part A.
[2] A marine terminal operator is “a person engaged in the United States in the business of providing wharfage, dock, warehouse, or other terminal facilities in connection with a common carrier.” 46 U.S.C. § 40102(15)
[3] A common carrier is a person that “(i) holds itself out to the general public to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation; (ii) assumes responsibility for the transportation from the port or point of receipt to the port or point of destination; and (iii) uses, for all or part of that transportation, a vessel operating on the high seas or the Great Lakes between a port in the United States and a port in a foreign country.” 46 U.S.C. § 40102(7) A common carrier includes “non-vessel operating common carriers” as well as “ocean common carriers” (i.e., vessel operating common carriers). 46 U.S.C. §§ 40102(17)-(18)
[4] The FMC is a small, independent federal agency whose administration of the Shipping Act is said to be for the benefit of “U.S. exporters, importers, and the U.S. consumer.” Federal Maritime Commission, 59th Annual Report for Fiscal Year 2020 at 9.
[5] See Maritime Transportation Regulatory Issues: Hearings Before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 115th Cong., 1st Sess. (May 3, 2017); Authorization of Coast Guard and Maritime Transportation Programs: Hearings before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 115th Cong., 1st Sess. (Apr. 4, 2017).
[6] Public Law 115-282 (Dec. 4, 2018).
[7] The term “demurrage” is generally associated with the charge assessed against cargo for remaining at a marine terminal in excess of allotted free time. See Federal Maritime Commission, Fact Finding Investigation No. 28, Conditions and Practices Relating to Detention, Demurrage and Free Time in International Oceanborne Commerce, Interim Report at 6 (Sept. 4, 2018) (“FFI 28 Interim Report”).
[8] The term “detention” is generally associated with the charge assessed against cargo for use of a container, outside of a marine terminal, in excess of allotted free time. See FFI 28 Interim Report at 6.
[9] FFI 28 came on the heels of a petition submitted to the FMC by shippers, truckers and others requesting that the FMC adopt a rule specifying the circumstances in which the demurrage and detention practices of common carriers and MTOs would be deemed to be unreasonable. See Coalition for Fair Port Practices Petition for Rulemaking, FMC No. P4-16 (Dec. 7, 2016).
[10] Federal Maritime Commission, Interpretive Rule on Demurrage and Detention under the Shipping Act, Docket 19-05, 85 F.R. 29638 (May 18, 2020) (the “Interpretive Rule”). See 46 C.F.R. § 545.5.
[11] The economic recession in the United States caused by the pandemic did stop Americans from purchasing goods. Instead, bolstered by the Paycheck Protection Program, “which saved hundreds of thousands of businesses and millions of jobs, and nearly $400 billion in government stimulus checks,” U.S. consumers went on a buying spree, purchasing “nearly $1 trillion more in goods in 2021 compared with pre-pandemic times.” S.K. O’Neil, Why the Supply Chain Slowdown Will Persist, Foreign Affairs (Dec. 21, 2021) (https://www.foreignaffairs.com/articles/world/2021-12-21/why-supply-chain-slowdown-will-persist).
[12] To make matters worse, reported freight costs associated with transporting containerized cargo from Asia to the United States spiked dramatically and, in some reported cases, by a factor of ten in less than one year. See 167 Cong. Rec. 7472 – 7479, Ocean Shipping Reform Shipping Act of 2021 (Statement of Rep. Garamendi).
[13] 85 Fed. Reg. 19146 (Apr. 6, 2020).
[14] In November 2021, the FMC announced that six supply chain innovation teams were being convened “to identify and implement improvements to the process and timing of return and delivery of containers to marine terminals.” Federal Maritime Commission, New Supply Chain Initiatives Announced at FMC Meeting (Nov. 17, 2021) (https://www.fmc.gov/new-supply-chain-initiatives-announced-at-fmc-meeting/).
[15] As part of its investigation, the FMC sent information demands to 27 entities in connection with FFI 29 – ten common carriers and 17 MTOs.
[16] See e.g., TCW, Inc., v. Evergreen Shipping Agency (America) Corporation, Informal Docket No. 1966(I) (FMC 2021); Eucatex of North America Inc. v. CMA CGM (America) LLC et al., Docket No. 21-08 (FMC 2021); Mohawk Global Logistics Corp. MSC Mediterranean Shipping Company (USA) Inc. et al., Informal Docket No. 1971(I) (FMC 2021); Orange Avenue Express, Inc. v. Hapag-Lloyd AG, Docket No. 21-10 (FMC 2021); Greatway Logistics Group, LLC v. Ocean Network Express Pte. Ltd, Docket No. 21-04 (FMC 2021).
[17] See Federal Maritime Commission, Order of Investigation and Hearing, Hapag-Lloyd, A.G. and Hapag-Lloyd (America) LLC – Possible Violations of 46 U.S.C. § 41102(c), Docket No. 21-09, 86 Fed. Reg. 64203 (Nov. 17, 2021); Federal Maritime Commission, Order of Investigation and Hearing, Wan Hai Lines, Ltd. and Wan Han Lines (USA) Ltd. – Possible Violations of 46 U.S.C. § 41102(c), Docket No. 21-16, 87 Fed. Reg. 781 (Jan. 6, 2022).
[18] See FMC to Issue Guidance on Complaint Proceedings and Seek Comments on Demurrage and Detention Billings, https://www.fmc.gov/fmc-to-issue-guidance-on-complaint-proceedings-and-seek-comments-on-demurrage-and-detention-billings/ (Sept. 15, 2021). The ANPRM has not been issued as of this writing.
[19] 167 Cong. Rec. 7472 – 7479, Ocean Shipping Reform Shipping Act of 2021 (Statement of Rep. Garamendi).
[20] Under the Shipping Act, a “shipper” is defined to mean “(A) a cargo owner; (B) the person for whose account the ocean transportation of cargo is provided; (C) the person to whom delivery is to be made; (D) a shippers’ association; or (E) a non-vessel-operating common carrier that accepts responsibility for payment of all charges applicable under the tariff or service contract.” 46 U.S.C. § 40102(23)
[21] The proposed legislation would also cover “ocean transportation intermediaries.” Under the Shipping Act, an “ocean transportation intermediary” is defined to mean an “ocean freight forwarder or a non-vessel-operating common carrier.” 46 U.S.C. § 40102(20)
[22] On December 28, 2021, the FMC issued a policy statement explaining how it interprets the anti-retaliation and anti-discrimination provisions contained in section 41104(a)(3) insofar as they involve or affect common carriers and shippers. See Federal Maritime Commission, Statement of the Commission on Retaliation, Docket No. 21-15 (Dec. 28, 2021).
[23] MAVL Capital Inc. et al. v. Marine Transport Logistics, Inc., et al., Initial Decision Partially Dismissing Complaint, at 26, Docket No. 16-16 (FMC 2017) (“MAVL Capital”), citing International Association of NVOCCs v. Atlantic Container Line, 1990 FMC LEXIS 5 (ALJ Jan. 25, 1990).
[24] MAVL Capital at 26, quoting, Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 495 (1958).
[25] On the other hand, OSRA 2021 sensibly takes into account that the billing practices of MTOs and common carriers are such that one party will sometimes bill and collect demurrage or detention as an accommodation for the other party. In such circumstances, OSRA 2021 would apply the certification requirement only “to the entity that establishes the charge,” meaning that a common carrier or MTO that collects a charge on behalf of the other would not be responsible for providing the certification other than one from the party “that established the charge” being collected.
[26] The use of the term “alongside” suggests that, as a matter of timing, the certification must accompany any demurrage or detention invoice issued by the common carrier.
[27] As passed by the House, section 10 does not impose similar forfeiture provisions on MTOs that fail to provide required certifications.
[28] 46 U.S.C. § 46105(a).
[29] 46 C.F.R. § 502.203.
[30] Maher Terminals LLC V. The Port Authority of New York and New Jersey, Memorandum Opinion and Order at 27 (FMC Docket No. 08-03) (Dec. 17, 2014) (“Maher”).
[31] 46 U.S.C. § 41102(c).
[32] Maher at 27.
[33] 46 U.S.C. §41102(c).
[34] See 46 C.F.R. §§ 545.3 and 545.4.
[35] 46 U.S.C. § 40101(1) .(emphasis added)
[36] See Interpretive Rule at 29650 and text accompanying footnote 194.
[37] See Review of Fiscal Year 2022 Budget for the Coast Guard and Maritime Transportation Programs: Hearings Before the Subcommittee on Coast Guard and Maritime Transportation of the House Committee on Transportation and Infrastructure, 117th Cong., 1st Sess. (July 21, 2017) (Statement of Commissioner Maffei at 2).