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More Authority to FMC and More Pressure on Carriers via Ocean Shipping Reform Act of 2022

April 14, 2022


The US Senate unanimously passed the Ocean Shipping Reform Act of 2022 (“OSRA 2022”) on March 31, 2022.  The version that the Senate has passed is not much different from the version that the House had passed back in December of 2021.  Those small differences will be ironed out in Committee with the help of FMC, and then the bill can be expected to be sent to President Biden, who has indicated his willingness to sign the new law into effect.

The bottom line for the entire industry is that OSRA 2022 means significant changes are coming in amid an era that includes unprecedented port congestion, rate hikes, and other supply chains issues that US commerce and customers have been suffering.   Common carriers, including both VOCCs and NVOCCs,  that have been enjoying unprecedented profitability with record high ocean freight rates, have been getting much of the blame for the congestion and other supply chain issues.

A notable relationship between DOJ and FMC was formalized recently to this endeavor.  An MOU of interagency cooperation was signed between DOJ and FMC in July 2021.  And in February of 2022, DOJ and FMC issued a statement reaffirming the partnership of the two agencies in order to “promote fair competition in the shipping industry”  The Biden administration has made clear that it is encouraging the two agencies to exchange manpower and expertise necessary to enforce the regulations and rulings of the agency.   And assuming the bill passes quickly and without much change, the FMC has now been given powers by Congress that are intended to put some teeth into their regulation of the ocean container carriage industry.

Here are some of the notable changes as a result of OSRA 2022:

  • The FMC will have the power to publish (among other things) all findings by the FMC of false demurrage and detention invoice information by common carriers, as well as the power to assess  penalties imposed or assessed by carriers against shippers.  The FMC will also have the power to not only assess civil penalties,  but also order refunds in case of unlawful demurrage or detention practices.
    • Implications: These expanded responsibilities of the FMC will further impact the detention and demurrage practices of the common carriers. At the very least the new law can be expected to create some ambiguity and confusion as to what will be permitted or not permitted by the FMC.
  • The FMC will also publish on its website the total import and export tonnage and total loaded and carried by each ocean common carriers.
    • Implications: This new responsibility of the FMC may allow the Commission to more actively collect a wide range of additional trade data from common carriers. It will allow ocean carriers (and shippers as well) to check out their competitors for the actual amount of cargo carried in the various trade routes.
  • Common carrier’s demurrage and detention invoice practices must comply with federal regulations (ie. 46 CFR Part 545).
    • Implications: The FMC already issued a guideline back in May, 2020, to prohibits any ‘unjust and unreasonable practice in respect to demurrage and detention.’  Now, the resulting interpretive rules by the FMC may allow even more grounds for shippers or truckers to reject or fight the demurrage and detention charges invoiced by the ocean carrier.  What is more – the ocean common carrier now has the burden of proving or justifying that their demurrage or detention invoices were ‘reasonable’ pursuant to the applicable federal rule (shifting the burden from the shipper that used to have the burden to show that the invoices were unjust and unreasonable).
  • Common carriers cannot unreasonably refuse cargo space accommodations on their vessels when the space is available, or resort to other unfair or unjust discriminatory methods.
    • Implications: This rule may become the basis for shippers to challenge and to test the carrier’s long-held practice or process of selecting which container to carry and which container to roll-over.  The wording of the terms in each service contract (or even tariff) will become an important factor in disputes between shippers and common carriers over space allocation and rolling issues. Carriers should be looking over their service contracts now to ensure that their terms will not invite an investigation by the FMC.  Booking departments and the loading teams for common carriers will have to be more careful in their communications with the shippers and terminal operators to avoid any appearance of unreasonable container loading practice.
  • The FMC will be responsible for initiating additional rulemakings to specifically address Congress’ desire to more strictly in enforce the Shipping Act.
    • Implications: The FMC, via additional rules under OSRA 2022, may become more involved in overseeing carrier practices,  and can be expected to monitor not just the demurrage and detention practice, but also the general operations of the common carrier as well as their respective business (eg. service contract negotiation) practices as well.

This bill is also expressly applicable to the marine terminal operators that often control and contribute a critical role in respect to congestion and other supply chain issues.  It remains to be seen when, how and what the FMC will exercise their jurisdiction over the marine terminal operators.  We anticipate that the FMC will focus at a minimum on the  respective policies and practices of marine terminals involving berthing, container pick up, and empty container return processes.

References:

https://www.congress.gov/bill/117th-congress/senate-bill/3580/text

https://www2.fmc.gov/readingroom/docs/19-05/19-05_fnl_rul_fr.pdf/

https://www.justice.gov/opa/pr/justice-department-and-federal-maritime-commission-sign-memorandum-understanding-support

https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/fact-sheet-lowering-prices-and-leveling-the-playing-field-in-ocean-shipping/

https://www.justice.gov/opa/pr/justice-department-and-federal-maritime-commission-reaffirm-and-strengthen-partnership