Matt Thomas, a Partner in the Washington D.C. Shipping Group, considers the recent regulations published by the US Federal Maritime Commission relating to rate-filing requirements

On February 25, 2011, the US Federal Maritime Commission (FMC), which regulates U.S. international shipping services, published new regulations substantially reducing longstanding rate-filing requirements on US-licensed Non-Vessel- Operating Common Carriers (“NVOCCs”).

Up to this point, common carriers in US trades (both vessel operators and NVOCCs) have been required by the Shipping Act of 1984 to publish rate tariffs. Rates charged to shippers have been required to be set out in those tariffs or in regulated service contracts that must be submitted electronically to the Commission prior to shipment.

The new rule, 46 CFR Part 532 - NVOCC Negotiated Rate Arrangements, establishes an instrument called a “negotiated rate arrangement,” dispensing with the burdensome filing requirements and providing more contracting flexibility to NVOCCs and their customers. NVOCCs who enter into negotiated rate arrangements with their customers are exempted from the requirement of publishing their rates in tariffs or filed contracts, if certain conditions are met.

To qualify for the exemption, NVOCCs must be licensed by the FMC. Currently, licensing is mandatory for US NVOCCs, but elective for overseas entities. (Currently, there are over 3300 FMC-licensed NVOCCs authorized to operate in the US trades, and over a thousand non-licensed carriers, according to FMC records.) The FMC will launch follow-on proceedings to determine whether and how similar exemptions might apply to unlicensed NVOCCs based outside the US.

Under the new system (effective from mid-April 2011) NVOCCs must continue to publish “rules tariffs” containing terms and conditions (but not rates) for shipments. Rates charged by NVOCCs must be agreed to and memorialized in writing by the date cargo is received for shipment, and the carrier must retain documentation of the agreed rate for a period of five years.

The rule contains a few idiosyncrasies that could be traps for the unwary in future rate disputes. In general, the new regulation indicates that general contract law should control in case of disputes. Presumably, the contracting parties may select the law of New York, England, or any other jurisdiction with suitable maritime contract law. But in certain regards, the regulation seeks to supplant ordinary contract law principles. Most significantly, the rule contains a prohibition on parties cancelling or modifying the contract after the cargo (or the first in a series of multiple shipments) is received by the carrier (see 46 CFR § 532.5(e)).

Beyond the major impact for NVOCCs, the rule is significant because it represents a first step by US shipping regulators to reexamine and reduce unnecessary regulatory burdens on business, responding to a governmentwide mandate from President Obama. This rulemaking raises the possibility that other shipping sectors seeking relief from unnecessary FMC rate-filing requirements, such as regulated ro-ro, breakbulk and heavy lift carriers, might find the agency newly willing to discuss and consider similar deregulatory reforms.