Federal regulation of marine terminal operators (“MTOs”) may be the most understated element of transportation law. Service contracting, cargo loss/damage, freight charge disputes, owner operator issues, personal injury, and other mainstay practice focuses receive abundant attorney attention in both litigation and transactional settings, and are subject to varying degrees of federal and state regulation. MTO liability and transactional issues, on the other hand, require far less lawyer attention, and rarely as a function of state and federal authority over them.
Yet, the importance MTOs play in our nation’s transportation infrastructure should not be ignored in the comprehensive study of regulatory trends. Policy considerations impacting MTO regulation are a function of a collective regulatory and judicial agenda, and their effects permeate transportation industry and law. The legal administration of American ports and other elements regulated as MTOs necessarily influences the administration of other aspects of surface and ocean carriage law.
This paper outlines federal administration of MTOs, beginning with an overview of the relevant regulatory scheme, and addressing the effects of deregulation of MTOs as part of the Ocean Shipping Reform Act of 1998 (“OSRA”) as the guiding force behind current port regulation dynamics. Matters the U.S. Federal Maritime Commission (“FMC”) has addressed in recent years are summarized for purposes of demonstrating current MTO issues. The paper concludes with suggestions of the direction MTO regulatory law appears to be taking, and how that direction might impact other areas of transportation law and business.
Consistent with prior law, OSRA defines MTOs as any entity “engaged in the United States in the business of furnishing wharfage, dock, warehouse, or other terminal facilities in connection with a common carrier, or in connection with a common carrier and a water carrier subject to subchapter II of chapter 135 [49 U.S.C.A. § 13521 et seq.] of Title 49, United States Code.” FMC regulations further define an MTO as follows:
A marine terminal operator includes, but is not limited to, terminals owned or operated by states and their political subdivisions; railroads who perform port terminal services not covered by their line haul rates; common carriers who perform port terminal services; and warehousemen who operate port terminal facilities. For the purposes of this part, marine terminal operator includes conferences of marine terminal operators.
Thus, carriers and other transportation entities which also undertake terminal operations may be regulated as MTOs concurrently with other regulated classifications, as can groups of MTOs that pool their resources for operational advantages.
Only facilities operating in international ocean transport are within FMC’s regulatory dominion. Terminals accommodating exclusively domestic transit are not federally regulated, although state regulation often is implemented. The MTO entities FMC governs fall under one of three classifications: (1) ports, or actual operators of terminal facilities, including their lessees, which often are private enterprises; (2) “public ports authorities,” the governmental or quasi-governmental agencies operating on state, multi-state or local levels to administer ports; and (3) “marine terminals,” the assigned areas for specific activities within ports, such as where cargo is received or stored. The unclear activities and ownership status of various entities occasionally have resulted in litigation over FMC jurisdiction.
FMC has regulatory authority over numerous aspects of foreign waterborne commerce, and exercises this authority through regulations it devises and implements. The agency administers an adjudicatory system with administrative law judges versed in relevant aspects of shipping law and regulation. Governance of MTOs is the province of FMC as provided by OSRA, and FMC has promulgated a series of regulations specific to that function.
FMC is a regulatory, as opposed to a promotional, administrative body as regards the ocean shipping industry. Established in 1961 as the successor to the Federal Maritime Board, FMC’s mission is to enforce law and implement policy pertaining to foreign waterborne commerce. The agency is comprised of five commissioners (one of whom is chairman), and is divided into various departments dedicated to specified activities including enforcement. While OSRA and its program of promoting market-driven (as opposed to government policed) shipping relationships greatly curtailed the agency’s function, FMC continues to play an important role in monitoring practices of those engaged in international shipping. The agency also administers ocean transportation intermediary (“OTI,” or ocean freight forwarders and non-vessel operating common carriers) licensing and financial responsibility requirements, discriminatory foreign law, filing of carrier-shipper service contract filing requirements, and other activities.
The most significant development to impact ocean shipping regulation in recent memory was OSRA and its deregulation of relationships between parties to international transportation. Volumes could be, and have been, written about the advantages, disadvantages, potentials, consequences and status of a free contract-based shipping environment as compared to the near-mandatory common carriage system it replaced vis-à-vis carriers, OTIs and shippers. Much less attention has been given to OSRA’s effect on MTOs. This is not surprising, given the much smaller prominence MTOs enjoy in transportation law issues, their relatively low numbers, and the fact they often are governmental or quasi-governmental concerns.
Despite their welcomed freedom from the yoke of a mandatory tariff system that had prevailed for nearly a century, MTOs, like carriers and OTIs, still are subject to significant FMC regulation. For example, OSRA’s provisions governing MTOs still preclude MTOs from unreasonably refusing to deal or negotiate with a carrier customer or shipper customer; failing to establish just and reasonable regulations for receiving, handling and delivering cargo; and giving an unreasonable preference or advantage to one customer over another.
Like ocean carriers, MTOs enjoy antitrust immunity for certain varieties of activity government and the transportation industry generally accept as essential. However, FMC monitors agreements among MTOs, and between MTOs and ocean carriers, to “discuss, fix, or regulate rates or other conditions of service; or engage in exclusive, preferential, or cooperative working agreements, to the extent that such agreements involve ocean transportation in the foreign commerce of the United States.” Those agreements must be filed with FMC, and the agency’s regulatory administration of them is similar to agreements between carriers and carrier groups.
Many of the same issues shippers, carriers and OTIs have faced in acclimating to the deregulated environment also confront MTOs. The context, however, differs. Other industry participants typically are profit-motivated enterprises privately owned and with ample opportunity to adjust their business plans in response to the fluxes of market circumstances. Ports, on the other hand, are driven by state law and policy, local culture and concerns, and other factors which compel activity not necessarily in the entity’s best economic interests. Moreover, MTOs are stationary and subject to economic conditions beyond their control. For these reasons, the future of ports in the deregulated environment is even more speculative than it is for other sectors of the transportation industry.
MTOs are the subject of infrequent but noteworthy FMC attention. Two of the most significant administrative decisions in recent years are Ceres Marine Terminals, Inc. v. Maryland Port Administration (“Ceres”) and Carolina Marine Handling, Inc. v. South Carolina State Ports Authority, et al, (“SCSPA”) which address the substantive context in which FMC is empowered to govern America’s largest MTOs. A series of pending actions and new decisions may demonstrate the direction FMC’s current panel of commissioners will take this realm of federal regulation.
The largest and most significant MTOs are ports authorities owned and administered in different fashions by state and local government. They often are given governmental or quasi-governmental status in the conduct of their affairs. Some operate as functional ocean shipping industry participants wielding enormous power over shipping operations in their various regions, while others are little more than landlords exercising minimal functional control over shipping activities. The latter should not be dismissed as insignificant in regulatory or operational context, however, as their relationships with tenants – who also may be regulated as MTOs – play a role in industry dynamics.
The issue of state sovereign immunity has received considerable FMC attention in recent years as the result of complaints against state ports authority by entities claiming unfair or uneven practices as proscribed by OSRA and FMC regulations. SCSPA and Ceres both involve allegations by private concerns of such discriminatory practices purportedly committed by state-owned MTOs. These actions are vastly complex, both involving numerous claims and defenses before multiple tribunals over several years. Their treatment here is necessarily cursory and only for purposes of demonstrating a direction FMC has taken with regard to its adjudication of publicly-owned ports. However, study of them is useful to a thorough understanding of contemporary FMC treatment of MTOs.
SCSPA originally was docketed at FMC in 1999, and produced extensive administrative and federal judicial proceedings (including a U.S. Supreme Court decision). The most recent installment was a June 30, 2006 FMC order determining that certain port entities are entitled to state sovereign immunity, while further discovery is needed to determine whether others enjoy the same.
Analyzed nearly concurrently with, yet relying on authority created by, SCSPA, Ceres was the subject of an August 16, 2004 FMC order determining that the Maryland Ports Administration (“MPA”) was a constituent unit of the state of Maryland, that MPA serves an essential government function and is overseen by government authorities, and other particulars indicating MPA essentially was a governmental concern. While FMC found that MPA had not demonstrated any judgment against it would be paid with state funds – a point the federal judiciary has deemed significant in the sovereign immunity analysis – enough state control over port affairs demonstrated that allowing a private entity’s claim to proceed would “infringe upon Maryland’s dignity by subjecting it to the coercive process of a Commission adjudication.” Thus, it appears FMC, consistent with federal judicial decisions, is moving away from assuming jurisdiction over state-owned ports.
A few actions instigated over the past few years have tested the extent to which FMC will regulate OSRA provisions requiring nondiscriminatory MTO practices. Most of these are still pending, and may not be decided for some time given the slow progression rate of FMC proceedings. In light of the recently evinced deference to state entities pursuant to sovereign immunity principles, query whether the most significant MTOs, i.e., those owned and operated by states, will succeed in dodging FMC scrutiny.
OSRA’s intended effect was to allow market forces to drive the economics of shipping relationships, as opposed to policy-oriented “one-price-fits-all” common carriage. A byproduct of market-driven competition, of course, is thinner carrier profit margins. This could force ports, already encumbered by increased security requirements and a fluctuating international trade climate, to face added pressure from their chief customers to sell more for less. Seattle port attorney Thomas Tanaka fears this may adversely impact ports:
One logical scenario is that the carriers will seek to minimize their costs wherever possible, including their landscape/port operations. They could therefore seek to squeeze additional concessions out of the ports.
One consequence of this for ports is that they will be forced to compete more than ever.
The problem, as mentioned above, is that ports perate subject to inherent restrictions not applicable to private industry. Moreover, these effects could negatively impact other sectors of transportation that depend on fluid and predictable port operations for their own profitability. Rail and trucking concerns depend on ports to provide advantageous connections. If port resources are strained or diverted from such essentials, effects could be far reaching.
FMC’s determination that ports owned and operated by states enjoy sovereign immunity – one that is driven by federal judicial decisions – is a departure from a trend that appeared to be in the direction of national uniformity in international shipping issues. The Supreme Court recently went to great lengths in Norfolk Southern Railway Co. v. James N. Kirby, PTY Ltd., d/b/a Kirby Engineering, and Allianz Australia Insurance Limited to preserve uniformity in this domain. While MTO business activity with domestic clients and tenants is removed from most typical issues in which national uniformity might be desirable, the potential impact of state ports operating under differing legal regimes cannot be ignored. It is now left to Congress to decide whether state ports should be subject to a single body of law administered by a federal agency.
On the other hand, diminished federal government regulation over state affairs also has been a theme in modern legislation and federal jurisprudence. FMC specifically is charged with MTO regulation, but other policies may dictate the actual extent FMC exercises its authority over this unique participant in international transportation. All of this will be in the context of challenges MTOs face in adapting to a deregulated shipping environment and extensive DHS security requirements.
 The Shipping Act of 1984, 46 USC App. § 1701 et seq., as amended by the Ocean Shipping Reform Act, P.L. 105-258. Subsequent OSRA citations are to sections within the statute.
 46 App. U.S.C.A. 1702.
 46 CFR 525.1(c)(13).
 For more information about these three varieties of MTO, see FMC’s website at http://www.fmc.gov/home/MTOInformation.asp.
 See, e.g., Plaquemines Port, Harbor and Terminal Dist. v. Federal Maritime Com'n, 838 F.2d 536 (CADC 1988); and Bridgeport and Port Jefferson Steamboat Co. v. Bridgeport Port Authority, 335 F.Supp.2d 275 (D. Conn. 2004).
 These are found at 46 CFR 500 et seq.
 46 CFR 502.
 46 U.S.C. App. 1709.
 46 CFR 535.
 Administrative promotion of America’s ocean shipping industry is implemented by the U.S. Department of Transportation’s Maritime Administration (known as “MARAD”), which can be explored athttp://www.marad.dot.gov/.
 For a review of FMC’s activities, see the agency’s website at http://www.fmc.gov/about/index.asp.
 Tariff-driven MTO operations was first imposed by the Shipping Act of 1916, 46 U.S.C. 801.
 46 U.S.C. App.1709(b)(10).
 46 U.S.C. App. 1709(d)(1).
 46 U.S.C. App. 1709(d)(4).
 46 U.S.C. App. 1706
 46 U.S.C. App. 1703(b).
 There are exemptions from the filing requirement for certain arrangements, such as terminal services and facilities agreements, and from the waiting period requirements of the Shipping Act for certain other MTO agreements. See FMC’s website at http://www.fmc.gov/home/MTORegulatedActivites.asp, and 46 CFR § § 535.308, 535.309, 535.310.
 30 S.R.R. 358 (2004), FMC docket No. 94-01.
 FMC docket No. 99-16.
 Perhaps the largest developing field of MTO regulation is with regard to security administered by the U.S. Department of Homeland Security (“DHS”). While beyond the scope of this paper, a thorough understanding of the legal and industry challenges MTOs must include security issues. For an overview of DHS concepts in this area, see DHS’s website at http://www.dhs.gov/dhspublic/display?theme=22.
 Order available at C:\Documents and Settings\Michelle\Local Settings\Temporary Internet Files\OLK1F\99-16 Report and Order with edits.wpd. For an extensive review of SCSPA, see Monahan, A Tempest in the Teapot: State Sovereign Immunity and Federal Administrative Adjudications in Federal Maritime Commission v. South Carolina State Ports Authority, 88 Cornell L. Rev. 1794 (Sept. 2003).
 C:\Documents and Settings\sblock\Local Settings\Temporary Internet Files\Content.IE5\4PARCT2V\94-01 Ceres v MPA 8-16-04 order.htm.
 Ristow v. South Carolina Ports Authority, 58 F.3d 1051 (4th Cir. 1995).
 See, e.g., Odyssey Stevedoring of Puerto Rico v. Puerto Rico Ports Authority, FMC docket No. 02-08; The Lake Charles Harbor and Terminal District v. West Cameron Port, harbor and Terminal District, FMC docket No. 06-02; and San Diego Unified Port District v. Pacific Maritime Association, FMC docket No. 03-12
 Thomas H. Tanaka, Senior Port Counsel, Port of Seattle, “Deregulation in the Shipping Industry and Its Effects on Pacific Northwest Ports,” presented at the annual conference of the Association of Transportation Law Professionals, June 13, 2006.
 543 US 14, 125 S. Ct. 385, 160 L.Ed.2d 283, 2004 AMC 2705 (2004).
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