FMC proceeds with NVO service arrangement rulemaking
The U.S. Federal Maritime Commission gave the green light to proceed with a rulemaking to allow non-vessel-operating common carriers to enter into confidential service arrangements with shippers, despite concerns from some commissioners about the ability of shippers’ association to participate in this activity.
The rule, proposed by the agency Oct. 27, will become effective 30 days after its publication in the Federal Register, or by mid-January. NVOs could begin making service arrangements (NSAs) with shippers just before the start of the new ocean shipping contract season.
“I think this rulemaking will provide our shippers with a better shipping environment,” said FMC Chairman Steve Blust at an agency meeting in Washington Tuesday. “I look forward to our industry taking advantage of NSAs.”
However, two of the commissioners cited ongoing concerns about the rule’s preclusion of shippers’ association with NVOCC members from entering service arrangements. Commissioner Joseph Brennan even voted not to proceed with the rulemaking until these concerns are resolved.
The rulemaking “doesn’t go far enough,” Brennan said. “Why not give (shippers’ associations) a chance?”
FMC Commissioner Harold J. Creel Jr. said he’s worried that the rules could relegate shippers’ associations to “second class” in terms of competition in the ocean shipping industry. However, he did not oppose going forward with the rulemaking.
The Washington-based American Institute for Shippers’ Associations (AISA) challenged the FMC’s proposed NSA rulemaking in recent comments, stating the agency lacks statutory authority to adopt a restriction against shippers’ associations based on the identity of their members.
The FMC said its final rule would permit shippers’ association with only shipper members to enter NSAs with NVOCCs but not those with NVOCC members.
AISA said it may consider an appeal of the FMC’s vote to restrict the right of shippers’ associations with NVOCC members to enter into confidential NVOCC service arrangements.
“Any decision to appeal and challenge the FMC’s actions will be dependent upon AISA’s analysis of the commission’s final written decision,” said Ronald N. Cobert, AISA’s general counsel in a statement Tuesday. “However, based on the commission’s notice of proposed rulemaking, the restrictions that the commission has proposed appear to be unlawful and subject to judicial challenge.
“AISA will examine all available options, including judicial challenge, once it has seen the scope of the commission’s written decision,” Cobert said.
The FMC’s final rule also precludes pure freight consolidators from entering NSAs with other NVOCCs, citing potential antitrust violations.
The FMC defines NVOCC service arrangements as: “A written contract, other than a bill of lading or receipt, between one or more NSA shippers and an individual NVO in which the NSA shipper makes a commitment to provide a certain minimum quantity or portion of its cargo or freight revenue over a fixed period, and the NVO commits to a certain rate or rate schedule and a defined service level. The NSA may also specify provisions in the event of nonperformance on the part of any party.”
According to the FMC, 27 NVOCCs have filed applications to enter service arrangements, and more are on the way.
The commission said it would track the progress of the NSA implementation in the industry.
“The door is not closed on this,” said FMC Commissioner Paul Anderson. “We’ll continue to monitor the situation.”
The agency is watching the outcome of the case “United States vs. Gosselin World Wide Moving and The Pasha Group,” which is pending in the U.S. Court of Appeals for the Fourth Circuit. The case involves price fixing in the movement of military household goods from Europe to the United States. The companies admitted to wrongdoing but said they had antitrust immunity under the Shipping Act. The court’s decision is due by the end of 2005.
While the FMC believes that only vessel operating common carriers have antitrust immunity under the Shipping Act, some federal courts have ruled that NVOCCs are entitled to such immunity. The FMC is concerned that NVOCCs offering NSAs could be immune from both antitrust prosecution and FMC oversight.
Blust said the Gosselin case and other concerns from the shippers’ associations should not hold up the NSA rule’s implementation. “I think it’s a creative industry, and they will take advantage of the opportunities,” he added.
NVOCC and shipper representatives at the meeting were generally pleased with the commission’s decision to move forward with finalizing the rule.
Peter Gatti, executive vice president of the National Industrial Transportation League, said the commission acted appropriately by not slowing down the implementation of the NSAs.
“This is good for our customers, good for the industry and good for competition,” said David Bolger, a UPS spokesman. “We will be ready once the final rule is implemented.”