Can you believe it’s been nearly twelve years since President Clinton signed the Ocean Shipping Reform Act of 1998 (OSRA) into law? Remember all the hoopla? How a new era had descended upon us, with market-driven forces and freedom of contract supplanting common carriage that federal statutes had essentially mandated? With over 90% of ocean freight moving by service contract now, it’s hard to remember why we thought one-price-fits-all tariff pricing was a good idea.
You might also recall how the ocean transportation intermediary (OTI) world missed out on much of OSRA’s joy, at least at the time the statute was inked. Observers had different theories – some said the deregulated world didn’t have time for middlemen; others blamed OTIs for not mobilizing during OSRA’s debate and drafting process; and still others pointed to the leftover vestiges of a labor dispute. But no one could deny that ocean freight forwarders, and certainly non-vessel operating common carriers (NVOCCs), were left high and dry when it came to operating free from Uncle Sam’s regulatory yoke. Ocean carriers could enter into confidential service contracts with their shippers without worry that similarly situated shippers would demand similar terms. NVOCCs couldn’t.
NVOCCs function as a legal hybrid. They serve as carriers of record to freight-owning shippers, without moving freight or owning and operating vessels; and shippers of record to ocean carriers, without owning the freight they book. Unfortunately, deregulation left them with the worst of both worlds dictated by an antiquated system. They still had to play by the old rules (and limitations) of mandatory common carriage, when everyone else enjoyed the benefits of free dealing.
With time, NVOCCs were liberated from the economic and administrative millstones of mandatory common carriage. In 2005, the U.S. Federal Maritime Commission (FMC) heeded calls from virtually all sectors of the ocean transportation industry, and revised regulations to allow NVOCCs to enter into “NVOCC Service Arrangements” (NSAs). Through NSAs, NVOCCs were enabled to enter into the same kinds of volume and time-based contracts with preferred shipper customers as can ocean carriers, and could entering into larger and more secure service contracts with carriers. As a result of industry practices and custom, the volumes NVOCC customers often have, the economy, and other factors, we haven’t seen the migration to contract-based service in the NVOCC sector that steamship lines got. The free contract option clearly is a plus, but it doesn’t fully address the NVOCC sector’s unique circumstances.
OSRA left NVOCCs stuck with mandatory tariff filing, publishing and adherence to set terms and prices. As it stands, NVOCCS can enter into NSAs, but they still have to post unbendable tariffs for their other – typically less volume intensive – business. Unlike ocean carriers, NVOCCs can, and want to, administer a very wide range of shipping trades, routes, schedules and related services to their customers. These often aren’t on a business level justifying an NSA. Is it fair to require NVOCCs to post separately haggled out terms as part of their public tariffs, so that every Tom, Dick and Harry who claims to have similar freight can enjoy the same pricing?
A number of transportation intermediaries and their associations think rather not. The National Customs Brokers and Forwarders Association of America recently filed a petition with FMC requesting that the agency exercise its statutory authority to nip mandatory NVOCC tariff filing in the bud. Supported by many other players, it proposed NVOCC tariff filing exemption terms with certain caveats designed to alleviate contemplated objections.
The proposed exemption, as FMC’s notice states, is crafted to be subject to the following: it would be “voluntary; … relate only to rates tariffs, not to rules tariffs; disputes relating to exempt contracts would be settled only under contract law; … NSAs, to the extent used, would continue to be filed with [FMC] and NSA essential terms will continue to be published; exempt contracts would be memorialized in writing; [FMC] would have access to documentation relating to exempt contracts; the exemption would not be construed to extend antitrust immunity to NVOCCs; and only NVOCCs that are licensed or registered … would be eligible to use the exemption.”
In other words, there are still reigns on non-NSA NVOCC shipping deals designed to prevent the potential freedom from morphing into a free-for-all, but the relaxed program would ease up disadvantages our friends in the middle currently live with. The proposal would create a new tool called a “negotiated rate agreement” to accomplish all this.
Per procedure, FMC is seeking comments from the public on the proposal which will be considered in the rule-making process. The deadline is June 4, 2010. Specifics on how to make your voice heard are on FMC’s website (see the link below).
NVOCC tariff exemption would enable intermediate service providers to do their job more efficiently, avoiding tariff administrative costs and impracticalities associated with the tariff system generally. It’s the next logical step in ocean shipping deregulation’s evolution, and the best nest step in maximizing efficiency. Let’s make it happen!
Ref: FMC Notice of Proposed Rulemaking, available on FMC’s website at: http://www.fmc.gov/userfiles/pages/file/10-03-Notice%20of%20Proposed%20Rulemaking.pdf
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