As shipping worldwide faces a slew of ongoing challenges, the National Industrial Transportation League (NITL) has submitted a proposal to Congress to reform the Shipping Act of 1984. The proposal targets service issues and business-practices concerns between carriers and their customers, recognizing the complexity involved with port congestion, which requires a broader solution related to infrastructure, technology, investment, and more.
Karyn Booth, partner and practice group leader for transportation at Thompson Hine, recently outlined to ISRI members NITL’s proposal to strengthen the authorities of the Federal Maritime Commission (FMC) and other changes to improve the situation for U.S. shippers.
U.S. shippers face port congestion; labor unrest; inadequate vessel capacity; reduced equipment availability; rising demurrage and detention charges; cancelled service contracts; high freight rates; and business interruption. With disruptions to commercial contracting markets, ocean carriers are ignoring commitments and pushing companies to the spot market, Booth says, while shippers worry they will face retaliation from ocean carriers if they complain. Though the FMC has no jurisdiction over breach-of-contract issues, it can take action against business practices if there’s a pattern of bad behavior.
In 2020, the FMC launched multiple investigations into these disruptions, beginning with the Los Angeles and Long Beach, Calif., and New York-New Jersey ports, and container shortages. The FMC’s Fact Finding 29 seeks to identify operational solutions to COVID-19-related cargo delivery system challenges. In February, FMC Commissioner Rebecca Dye issued information-demand orders to ocean carriers and marine terminal operators (MTOs) to determine if they were meeting legal obligations related to demurrage and detention practices.
There’s a growing consensus from shippers, organizations, and Congress that the FMC should move more quickly on these investigations. Lawmakers submitted letters to the FMC on this issue, and there will be a hearing June 15 by the House Transportation and Infrastructure Committee. Many organizations and companies see a path forward through reforms to the U.S. Shipping Act, which governs international ocean transportation.
Instead of a wholesale reworking of the law’s structure, NITL’s proposal focuses on targeted reforms to address service deficiencies and unfair business practices. “We think there’s an opportunity to address a number of specific problems with more targeted reforms,” Booth says. The proposal has four key areas:
- Addressing demurrage and detention practices;
- Modifying the prohibited acts to address unfair business practices related to the allocations of equipment and space on vessels;
- Common carriers’ service obligations to provide equipment and vessel space; and
- Expanding the FMC’s authority to act on complaints filed against the carriers.
Detention and Demurrage Practices
NITL proposes making the FMC’s interpretive rule on detention and demurrage mandatory. The FMC chose an interpretive rule to allow for other ways to provide “just and reasonable” practices. But by making it mandatory, “carriers and terminals would be required to adhere to a number of important concepts that were included in the industry guidance,” Booth says. NITL wants to flip the burden of proof on detention and demurrage complaints from the individual to the ocean carrier. Currently, the individual looking to challenge files a complaint and bears the burden to show the carrier’s practices are unreasonable under the law. By putting the initial burden of proof on the carriers, they would be required to first demonstrate that their practices are reasonable.
Prohibitive Acts for Ocean Carriers
The proposal recommends additional prohibitive acts added to the Shipping Act. The act already includes a large list of potential unfair business practices but Booth says the details were “watered down” after the 1998 amendment because of individual contracting with steamship lines and customers. “The hope was that if you could negotiate one-on-one you wouldn’t need government oversight with contracts,” Booth explains. But in the current climate, the commercial market isn’t working as intended, she adds. According to the proposal common carriers may not:
- Fail to furnish or cause a contractor to furnish the facilities and instrumentalities needed to perform the transportation services, including containers;
- Establish rules and practices for the allocation and interchange of containers, chassis or other equipment that unreasonable reduce accessibility to such equipment or efficiencies in performance of the transportation service;
- Fail to establish, observe, and enforce just and reasonable regulations and practices relation to the allocation of vessel space accommodations in consideration of foreseeable import and export demands.
Common Carrier Service Obligations
The third section describes common carrier service obligations to require establishing minimum service standards that meet public interest. Determining what minimum service means requires input from many voices. “It needs to get fleshed out through a rulemaking process by the FMC that allows all interested stakeholders to weigh in,” Booth says. Common carriers have a duty to perform the contract of carriage with reasonable dispatch which, “requires a factual analysis as to what is reasonable for performance of a specific transaction and movement,” Booth says. NITL recommends the FMC put standards around what facts should be examined to determine if performance is reasonable under the new standard.
Rather than recommend changes to the existing legal standard, “We want to open up complaints to the current standard at the FMC by private parties if alliances take too much capacity out of the market that could potentially be unreasonable and reduce service or increase costs,” Booth explains. The proposal would allow private parties to intervene in FMC-filed court challenges to enjoin anticompetitive conduct. “Changing the law and increasing the risk that these alliances face will better discipline [carriers’] behavior,” Booth says.
NITL has seen a lot of interest in its proposal from trade associations and companies whose members faces these challenges. “The greater support we can get the better the odds of getting change adopted,” she says.
In the meantime, exporters and importers have some options for dispute resolution. They can report unfair business practices to the FMC’s Consumer Affairs & Dispute Resolution Services (CADRS) office or Bureau of Enforcement. “The consumer affairs office is a free service and they’ll help you work through disputes. If a problem gets worse you can take it to the Bureau of Enforcement,” Booth says.