Recently, some Commissioners at the Federal Maritime Commission (FMC) have expressed a desire to minimize regulation that might be considered intrusive to the industry it regulates. That is not necessarily a bad thing. However, in the context of the port congestion debacle that doesn’t seem to go away, some of the carrier practices are so outrageous that they clearly require the FMC to decide that particular practices are “unjust and unreasonable,” and thereby unlawful.
There is a statutory basis for such legal conclusions. Some of the recent activities employed by ocean carriers are clear violations of the Shipping Act of 1998 (the Act), as amended. However, few in authority are picking, or even willing to admit they see this low-hanging fruit. The common sense rationale as to why such actions should not be considered commercially intrusive is that this industry is still a regulated industry. Ocean carriers (almost all of which are foreign companies) still enjoy antitrust immunity based on the Act for jointly setting rates and practices, entering into talking agreements, and forming alliances. Hence, the industry already operates in a commercial environment in which normal economic principles are distorted; however, in light of recent events, it does so to the detriment of the shipper segment. A segment that is still largely U.S. dominated.
In a recent American Shipper article, Commissioner Richard A. Lidinsky, Jr. acknowledged that in the current regulated environment there are “virtually no U.S. flagged vessels to serve our international waterborne trade.” He further stated, “While we’ve yet to feel their full impact here on the Atlantic, much of the port congestion troubles that just took place on the West Coast, reportedly resulted from alliance cargo, stowed to reflect new alliance ties, rather than previous stowage practices, so it had to be directed to a specific terminal or trucker, thus exacerbating the overall problems.”
The Statute. Why has there not been any action taken by the FMC to moderate the ill effects of certain ocean practices? Such practices have resulted in millions of dollars in direct damages (some say billions) to shippers and other industry segments, and are claimed to have had a devastating effect on the U.S. economy. If the response is truly that the activities do not reach the level of violations of the Act, disagreement is in order. The pertinent statutory section states:
(c) Practices in Handling Property. A common carrier, marine terminal operator, or ocean transportation intermediary may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.
The Low-Hanging Fruit. The salient subjects of the statute “receiving, handling, storing, or delivering property” are those squarely involved in the port congestion scenario, and the practices by ocean carriers and terminals that pertain to those activities have resulted in significant demurrage and detention charges to U.S. importers and exporters. For example, the following practices that were common during the recent West Coast fiasco and continue to be common in the current contract period are “unreasonable regulations and practices” by ocean carriers and/or terminal operators. This low-hanging fruit, obvious practices of ocean carriers and marine terminals that resulted in port congestion, is unjust, unreasonable, and in violation of the Act:
- On door delivery moves, the carriers, notwithstanding what the service contracts state to the contrary, inevitably have tariff regulations stating that any demurrage that results is for the account of the shipper (importer) even on a door move. This is clearly not a reasonable tariff rule - i.e., the carrier has undertaken the responsibility with its own truckers to deliver the goods to the shipper’s door but if they don’t do it in a timely manner, then the shipper pays demurrage or any resulting detention charges. This is an unreasonable regulation by the carriers/terminals and unlawful pursuant to the Act. A shipper has no obligation to pick up the container from the terminal or the railhead, and has no control over the means of delivery, but is held responsible for demurrage and detention by a tariff rule. The carrier on the other hand, does have these obligations, collects the demurrage from the shipper for what it (the carrier) is unable to do.
- Activities at terminals such as chassis shortages (caused by carriers that have given up the means of delivery, the chassis), alliance practices, inadequate terminal operations (inability to find containers causing significant delays), labor slowdowns – could all be the basis for a finding that charging detention due to inability to return equipment in a timely manner is an unjust and unreasonable practice. Common sense dictates that since all the contributing factors that have resulted in exaggerated detention charges to shippers and truckers are carrier/terminal related – and none shipper related – such charges are being unreasonably levied. The carriers/terminals have taken a strict liability approach to the situation “no matter who is at fault, the shipper pays.” Ironically, this is happening pursuant to existing U.S. maritime regulations related to the role of tariffs, without applying the “just and reasonable” standards of the Act.
The above provides examples of “low hanging fruit.” At this time, the FMC has yet to get directly into the fray, other than provide its April 3, 2015, Report: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports. However, pressure is mounting. Ninety-four industry groups representing shippers and truckers told the FMC that they believe container carriers and terminals may be violating the Act by charging unfair and unreasonable fees for detention and demurrage.
In their letter, organizations, including the National Association of Manufacturers, National Industrial Transportation League, National Retail Federation, and Agriculture Transportation Coalition stated, “BCOs and their motor carriers are frustrated by the fact that they are being charged detention and demurrage fees when factors beyond their control make it impossible for them to return chassis or empty containers, or pick up or drop off loaded containers within free time limits...the practice of charging detention and demurrage under such circumstances represents an unfair and unreasonable practice that may potentially violate the Shipping Act.”
Solutions. There are several approaches to address the problems, including:
- Address current damages by seeking reparations from ocean carriers and/or terminals based on violations of the Act and contract breaches (in federal court or through the FMC).
- Initiate a petition for rulemaking with the FMC. Clearly spell out risk allocations for the type of events that have recently occurred and eliminate the strict liability results that current regulations are encouraging through archaic legal interpretation of tariffs.
- In the longer term, explore legislative modification of the Act to prevent the “strict liability” results that the current regulatory structure encourages, and that forces aggrieved parties to seek costly and protracted litigation to redress grievances.
- Lastly, the area of antitrust immunity should be revisited in view of the current state of affairs; otherwise, there is a great likelihood we will be having this conversation repeatedly.