On March 31, 2022, the United States Senate passed the Ocean Shipping Reform Act of 2022 (S. 3580) (“OSRA 2022”), which had been sponsored by Senator Amy Klobuchar (D-MN) on February 3, 2022,¹ and reported from the Committee on Commerce, Science, and Transportation on March 24, 2022. OSRA 2022, which was heavily supported by numerous U.S.-based shippers’ associations, follows passage by the United States House of Representatives of the Ocean Shipping Reform Act of 2021 (H.R. 4996) (“OSRA 2021”) on December 8, 2021.²  Our previous report on OSRA 2021 can be found here.

OSRA 2022 comes during a period of heightened scrutiny and concerns concerning the practices of supply chain participants and the effect of such practices on supply chain efficiencies, delays and costs. Like its OSRA 2021 predecessor, OSRA 2022 attempts to meet the current challenges by strengthening the regulatory authorities of the Federal Maritime Commission (the “FMC” or the “Commission”) under the Shipping Act of 1984, as amended (the “Shipping Act”),³ while simultaneously increasing the statutory compliance requirements for various regulated entities, including common carriers,⁴ ocean common carriers (“VOCCs”),⁵ ocean transportation intermediaries (“OTIs”)⁶ and marine terminal operators (“MTOs”).

As a follow up to our analysis of OSRA 2021, this article reviews the headline changes which would be brought about by OSRA 2022.

A. Anti- Retaliation Amendments⁷

OSRA 2022 would expand the anti-retaliation provisions of the Shipping Act in two key respects. First, in its current iteration, the Shipping Act’s anti-retaliation provisions apply solely to the retaliatory practices of common carriers.⁸ Under section 5 of OSRA 2022, a new general prohibition would be added to section 41102 that would apply the Shipping Act’s anti-retaliation provisions to MTOs and OTIs, in addition to common carriers. Second, OSRA 2022 would expand the universe of persons against whom retaliation is prohibited to include, in addition to shippers, OTIs, shippers’ agents and motor carriers.

While the idea of expanding the scope of the Shipping Act’s anti-retaliation provisions may be laudable, OSRA 2022 contains some of the same legislative illogic as OSRA 2021 insofar as MTOs are concerned. As previously discussed (here), the position occupied by MTOs in the supply chain makes it impossible for them to “retaliate” against shippers or others by refusing or threatening to refuse “cargo space accommodations.” Unlike ocean common carriers, MTOs do not offer or sell cargo space accommodations so it is difficult to fathom how they could refuse such accommodations as a retaliatory tool.

In its current iteration, the Shipping Act also states that a common carrier may not “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.”⁹ Section 5 of OSRA 2022 would expand the scope of regulated entities covered by the “resort to” clause to include OTIs and MTOs, in addition to common carriers, and would expand the scope of protected parties to include shippers’ agents, OTIs and motor carriers, in addition to shippers.

Under the provisions of section 5, common carriers and OTIs and MTOs would be prohibited from “[resorting] to any other unfair or unjustly discriminatory action” for (a) the reason that a shipper or a shippers’ agent, OTI or motor carrier has (i) patronized another carrier; or (ii) filed a complaint against the common carrier, MTO or OTI, or (b) any other reason. Section 5 broadens the companion provisions contained in section 8 of OSRA 2021, and generally improves their logic by including shippers’ agents, OTIs and motor carriers within the class of persons protected under the “resort to” prohibitions. That said, it seems improbable that any MTO could stifle liner competition by resorting to any unfair or unjustly discriminatory actions because a shipper, shippers’ agent or OTI has “patronized another carrier.”

B. Unreasonable Refusals to Deal and Discrimination Amendments

OSRA 2022 would tighten the Shipping Act’s grip regarding unreasonable refusals to deal as they apply to common carriers. First, section 7 of OSRA 2022 would substitute a new provision to section 41104(a)(3) of the Shipping Act stating that common carriers shall not “unreasonably refuse cargo space accommodations when available,” or broadly “resort to other unfair or unjustly discriminatory methods.” Section 7 would also make clear that proscribed unreasonable refusals to deal or negotiate under section 41104(a)(10) of the Shipping Act specifically apply “with respect to vessel space accommodations provided by an ocean common carrier.” With respect to service contracts, section 7 would add new language to section 41104(a)(5) of the Shipping Act which specifically prevents common carriers from engaging in unfair or unjustly discriminatory practices “against any commodity group or type of shipment.” OSRA 2021 did not address these specific concerns.

C. Demurrage and Detention Amendments

Section 7 of OSRA 2022 would prohibit any common carrier from assessing “any party for a charge that is inconsistent or does not comply with all applicable provisions and regulations,” including the provisions set forth in section 41102(c) of the Shipping Act, which require the establishment, observance and enforcement of “just and reasonable regulations and practices” related to the receiving, handling, storing or delivering of property. Section 7 would also prohibit any common carrier from invoicing “any party for demurrage or detention charges” unless the invoice includes certain specified information, discussed below, showing that the charges comply with the interpretive provisions and statements of policy contained in part 545 of the Commission’s rules,¹⁰ including the rules implementing the Commission’s incentive principles.¹¹

The information that OSRA 2022 would require on detention and demurrage invoices issued by common carriers tracks the information proposed by the Commission in its recent Advance Notice of Proposed Rulemaking (the “ANPRM”).¹² Unless otherwise determined by the Commission as part of the ANPRM, the information contents of an invoice required by section 7 of OSRA 2022 would include 13 specific items. Most of this billing information is already provided by common carriers (and MTOs with respect to demurrage), with two notable exceptions. First, under section 7, invoices issued by common carriers would be required to include a statement that the invoiced charges are “consistent with any of . . . [the Commission’s] rules with respect to detention and demurrage.” Second, such invoices would be required to contain a further statement that “the common carrier’s performance did not cause or contribute to the underlying invoiced charges.”

The legal compliance statement required by section 7 of OSRA 2022 tracks similar provisions in OSRA 2021, and is a bit puzzling for the same reasons.¹³ As previously explained (here), whether a particular detention or demurrage charge is “consistent” with the Commission’s corresponding regulations may be a function of one’s interpretation of the incentive principles as they pertain to the circumstances of the charge. Common carriers and shippers often have divergent views on whether charges are supported (or not) by the incentive principle, which is why the Commission has administrative law judges who are trained to resolve such contested matters.

The second required statement – that the common carrier’s performance did not “cause or contribute to the underlying invoiced charges” – seems equally puzzling and particularly ham-handed. Determinations of cause and effect and contributing factors often require the investigation of facts that may not be obvious or immediately apparent at the moment when a loaded import container exits a marine terminal, which is when most demurrage calculations and billings are settled. What is the point in having a VOCC make final, legally relevant certifications as to direct and contributory causes when the information necessary to make such certifications may be unavailable?

These statements as to legal compliance and cause and effect would not be overly problematic but for the administrative hammer that OSRA 2022 would use to enforce them. First, section 7 of OSRA 2022 states that any failure to include required information on an invoice having detention or demurrage charges, including required statements with respect to compliance and cause and effect, will “eliminate any obligation of the charged party to pay the applicable charge” – regardless of the legitimacy of the charge. Moreover, if the Commission later determines following an investigation that an invoice is “inaccurate or false,” the common carrier would become subject to potential refund orders and the assessment of civil penalties under section 41107 of the Shipping Act.

D. Complaints Concerning Common Carrier Charges

Section 10 of OSRA 2022 would provide the Commission with a new, streamlined tool to address disputed or contested charges assessed by common carriers. Under section 10, any person would be authorized to submit to the Commission, and the Commission would be required to accept, “information concerning complaints about charges assessed by a common carrier,” including bill of lading numbers, invoices or “any other relevant information.” Upon receipt of a submission, the Commission would be obligated to investigate the charge to determine compliance by the common carrier with the prohibitions contained in sections 41104(a) and 41102 of the Shipping Act.

In response to such an investigation, the common carrier would be provided an opportunity “to submit additional information related to the charge” and would bear the burden of “establishing the reasonableness of any demurrage or detention charges” in light of the incentive principles contained in the Commission’s Interpretive Rule.¹⁴ As previously discussed in connection with OSRA 2021, the imposition of such evidentiary burdens on common carriers would seemingly turn established burdens of persuasion and production on their head. In the event that the Commission determines that the charge does not comply with sections 41104(a) or 41102 of the Shipping Act, section 7 would compel the Commission to order a refund and assess a civil penalty against the common carrier under section 41107.

E. Investigations, Reports and Public Disclosures

Under the Shipping Act, the Commission is currently authorized to investigate, either on its own or on the basis of a filed complaint any conduct or agreement that it believes to be in violation of the Act.¹⁵ Section 11 of OSRA 2022 would expand the scope of this investigatory authority to include “fees and charges” that the Commission believes to be in violation of the Shipping Act. The results of such investigations will be made publicly available on the Commission’s website under the heading: “Fact Finding No. 29, International Ocean Transportation Supply Chain Engagement.”

Section 6 of OSRA 2022 would add a new provision to section 46106 of the Shipping Act which would require the Commission to publish, and annually update, on its website its findings of “false detention and demurrage invoice information by common carriers” and corresponding “penalties imposed or assessed against common carriers.” Such scarlet letter postings by the Commission on its website are presumably meant to alert shippers to recidivist common carriers and to incentivize compliance by such carriers.

F. Additional Rulemaking Proceedings

OSRA 2022 would require the Commission to initiate three separate rulemaking proceedings.
The first rulemaking would further define prohibited practices by VOCCs, MTOs and OTIs “regarding the assessment of demurrage or detention charges,” in relation to section 41102(c) of the Shipping Act, which requires the establishment, observance and enforcement of “just and reasonable regulations and practices” related to the receiving, handling, storing or delivering of property. The rule would seek to clarify “reasonable rules and practices” related to the assessment of detention and demurrage charges to address matters relating to the incentive principles.

The second rulemaking would define “unfair or unjustly discriminatory methods” of common carriers under newly amended section 41104(a)(3) of the Shipping Act.

The third rulemaking would define, in consultation with the Commandant of the U.S. Coast Guard, “unreasonable refusals to deal or negotiate with respect to vessel space” under newly amended section 41104(a)(10) of the Shipping Act.

Conclusion

The Senate returned S. 3580 to the House of Representatives on April 4, 2022, seeking its concurrence.¹⁶ Passage of the measure by the House, in substantially the form in which it was received from the Senate, and signing into law by President Biden, are widely expected.

¹ Senator Klobuchar also introduced the Ocean Shipping Competition Reform Act of 2022 (S. 3586), which has been referred to the Committee on the Judiciary.
² OSRA 2021 was received in the Senate on December 9, 2021, and referred to the Committee on Commerce, Science, and Transportation.
³ 46 U.S.C. §§ 40101 – 41309.
⁴ A “common carrier” is broadly defined to include ocean common carriers and non-vessel-operating common carriers. Id. at § 40102(7).
⁵ An “ocean common carrier” is a “vessel-operating common carrier.” Id. at § 40102(18).
⁶ An “ocean transportation intermediary” is an “ocean freight forwarder” (“OFF”) or a “non-vessel-operating common carrier” (“NVOCC”). Id. at § 40102(20) An OFF is a person that, “(A) in the United States, dispatches shipments from the United States via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers; and (B) processes the documentation or performs related activities incident to those shipments.” Id. at 40102(19) A NVOCC is a common carrier that “(A) does not operate the vessels by which the ocean transportation is provided; and (B) is a shipper in its relationship with an ocean common carrier.” Id. at 40102(17).
⁷ The OSRA 2022 provisions on retaliation should be read in conjunction with the Commission’s recent Statement on Retaliation, issued on December 28, 2021 (Docket No. 21-15).
⁸ Id. at § 41104(a)(3).
⁹ Id.
¹⁰ 46 C.F.R. Part 545.
¹¹ Id. at § 545.5.
¹² See Federal Maritime Commission, Demurrage and Detention Billing Requirements, Advance Notice of Proposed Rulemaking, Docket No. 22-04, 87 Fed. Reg. 8506 – 8509 (Feb. 15, 2022).
¹³ Unlike OSRA 2021, however, section 7 of OSRA 2022 does not require legal compliance statements or certifications to be made by MTOs in connection with their demurrage charges.
¹⁴ 46 C.F.R. § 545.5. In recent testimony before the Senate Committee on Commerce, Science, and Transportation, FMC Commissioner Rebecca Dye emphasized the point that the Interpretive Rule is not “merely guidance,” but that it “acts as the ‘interpretation’ of demurrage and detention charges as potential ‘unreasonable practices’ under section 41102(c) of [the Shipping Act].” See The Ocean Shipping Reform Act, Hearings Before the Senate Committee on Commerce, Science, and Transportation, 117th Cong., 2d Sess. (March 3, 2022) (Testimony of Rebecca F. Dye).
¹⁵ 46 U.S.C. § 41302.
¹⁶ See Congressional Record at H4131 (April 4, 2022).

April 2022 Newsletter