On August 22, 2016, the Federal Maritime Commission (FMC) published in the Federal Register a Notice of Proposed Rulemaking (NPR) for amendments to the regulations governing vessel-operating-common-carrier (VOCC) Service Contracts and non-vessel-operatingcommon-carrier (NVOCC) Service Arrangements (NSAs). The deadline for submitting comments to the FMC in response to the proposed amendments is September 23, 2016.
These changes are of interest to all parties to contracts for ocean carriage. On the whole, they advance the FMC’s charge to modernize and increase flexibility of the regulations in order to align with business needs. The changes will impact effective dates, the timeline for filing amendments and corrections, as well as the information required for filing. These are clearly of benefit to Ocean Transportation Intermediaries (OTIs) and shippers alike. Certain areas will require careful consideration by OTIs, however, including a new definition of “Affiliates” for VOCCs, a required field in SERVCON for NVOCC Organization Numbers, and a new requirement for NVOCCs to obtain shipper certifications.
New Timeline for Filing Amendments
The proposed amendments seek to relax filing requirements for amending both in Service Contracts and NSAs. Changes to the definition of “Effective Date” will permit the filing of amendments to Service Contracts and NSAs up to thirty (30) days after their Effective Dates. This generally well-received change accommodates the speed of business by allowing for the implementation of agreed-upon terms even in advance of the FMC filing process. However, the deadline for filing initial Service Contracts or NSAs will not change. Each must be filed on or prior to the Effective Dates.
New Timeline for Correcting Errors
The proposed amendments also seek to relax filing requirements for correcting errors in Service Contracts and NSAs. For each, the deadline for Corrected Transmission filings to address technical data transmission errors will be extended from 48 hours to 30 days. Likewise, the deadline for filing Correction Requests for substantive errors will be extended from 45 days to 180 days. As with the increased flexibility in filing amendments, these changes are intended to accommodate business needs where typographic and substantive errors may go unnoticed until the current deadlines have passed.
New Definition of "Affiliate" for Service Contracts
The FMC will add the definition of “Affiliate” to the Service Contract regulations. The term “Affiliate” will refer to “two or more entities which are under common ownership or control by reason of being parent and subsidiary or entities associated with, under common control with, or otherwise related to each other through common stock ownership or common directors or officers.” The proposed definition mirrors similar language applicable to NSAs. The FMC received frequent questions about inclusion of Affiliates under Service Contracts due to the lack of parity with the NSA regulations.
This definition is significant because it governs the scope of parties that may book as shippers under any particular Service Contract. In the interest of flexible, consistent application of the regulations, the FMC contends that the proposed definition does not implement a minimum ownership requirement and achieves consistency with commonly understood definitions of “Affiliate” even beyond its jurisdiction. However, at least one commentator to the advance notice observed that it would be most pro-competitive to instead eliminate the definition from NVOCC Service Arrangement regulations, rather than extending it to Service Contract regulations.
New Field for NVOCC Organization Number
The proposed amendments will add a new required field to the FMC’s SERVCON filing system for the input of a NVOCCs six-digit Organization Number when they are the contract holder or an affiliate. This data entry will allow the FMC to alert filers immediately if the NVOCC is not in compliance with FMC requirements for tariff filing and proof of financial responsibility. Although this field will be required, the FMC expects that the change will assist filers in complying with the obligation to not knowingly or willfully enter into Service Contracts or NSAs with noncompliant NVOCCs by receiving alerts at the time of filing. OTIs must continue to be vigilant in identifying their NVOCC customers, as well as maintaining and entering accurate records.
New NVOCC Requirement for Shipper Certification
The proposed amendments will also add a new requirement for NVOCCs to obtain certifications of shipper and affiliate status. As with other proposals, this seeks to increase parity between VOCC and NVOCC regulations and eliminate uncertainty in application. VOCCs are presently required to obtain certifications for Service Contracts. This amendment will require NVOCCs to review and update NSA forms to ensure that certifications are included and the business processes required to obtain and manage completion.
Regulatory Requirements Remaining Unchanged
The FMC received comments during this rulemaking on certain areas that will not result in amendments to the regulations. The significant areas that will remain unchanged include the requirement to publish essential terms, the list of excepted and exempted commodities, and the option to provide consolidated amendments in a single filing.
VOCCs and NVOCCs should consider how compliance with the proposed regulations would impact their operations, and inform the FMC of any anticipated issues that should be addressed by way of submitting comments. Meanwhile, begin considering updates to business policies and procedures for filing amendments to and correcting errors in Service Contracts and NSAs, to accommodate the proposed new timelines, and including NVOCC organization numbers and shipper certifications in NSAs. VOCCs may also want to further define “Affiliate” within Service Contracts to specify a certain minimum level of ownership percentage to the extent they are not already doing so, in light of the new broad definition being proposed. Overall, the temperature of the proposed regulations suggest greater flexibility, particularly in filing amendments, and should facilitate transparency as to the status of contracting parties, and the prompt implementation of service contracts.