THE Federal Maritime Commission is taking a hard line on carriers that seek to profit from tight markets by ignoring contracted rates and forcing shippers onto the more profitable spot market.
The FMC last week issued its final rule concerning “Definition of Unreasonable Refusal to Deal or Negotiate with Respect to Vessel Space Accommodations”, which establishes the necessary elements for the Commission to apply 46 U.S.C. 41104(a)(3) with respect to refusals of cargo space accommodations when available, and 46 U.S.C. 41104(a)(10) with respect to refusals of vessel space accommodations.
The new rules follow the Commission’s investigations into widespread complaints that during the market chaos of high demand brought on by COVID-19, container lines refused to meet contracted space allocations and rates and instead gave preference to any shipper prepared to pay higher freights. According to reports this resulted in shippers seeking over US$70 million in damages, extending also o unjust detention and demurrage charges.
The Ocean Shipping Reform Act (OSRA) of 2022 mandated that ocean common carriers cannot unreasonably refuse to deal or negotiate vessel space accommodations. However, “vessel space accommodations” had never been defined in legislation, or interpreted by the FMC. A Notice of Proposed Rulemaking (NPRM) published after the law’s passing aimed to define “vessel space accommodations” and outlined criteria for establishing violations, shifting the burden of proof from shippers to carriers.
Under the new regulation, effective from 23 September 2024, where an alleged refusal by an ocean common carrier takes place during the “negotiation” phase of a transaction, 46 U.S.C. 41104(a)(10) will apply. If an alleged refusal takes place after the negotiation phase, during the “execution” stage, 46 U.S.C. 41104(a)(3) will apply.
Claims brought before the Commission under either section will be reviewed and decided on a case-by-case basis, based on their specific facts and circumstances. Requirements established by the rule apply to vessel-operating common carriers (VOCC) and containerised cargo.
Not all refusals by a VOCC will constitute a violation, the FMC says. If a VOCC can prove there was a reasonable basis for refusing to negotiate or carry cargo, their conduct will not be found in violation of the law. The rule establishes non-binding and non-exhaustive examples and considerations of unreasonable behaviour the Commission may use in evaluating allegations that an ocean common carrier violated the law.
The rule will require VOCCs to file a confidential documented export policy annually with the Commission. The documented export policy shall contain information on pricing strategies, services offered, strategies for equipment provision, and descriptions of markets served, the FMC said.
