February 28, 2013

Federal Maritime Commission to Open Use of Liner Negotiated Rate Agreements to Foreign NVOCCs

Holland & Knight Alert
J. Michael Cavanaugh

The United States Federal Maritime Commission (FMC) has issued a Notice of Proposed Rulemaking under which foreign unlicensed Non-Vessel Operating Common Carriers (NVOCCs) will be allowed to register with the Commission and begin using Negotiated Rate Agreements (NRAs) with their shippers.

NRAs are simple written rate contracts (which can be concluded by email) in which a shipper and NVOCC may agree to confidential negotiated rates for carriage of cargo in U.S. trades subject to the NVOCC's rules tariff without the need for a published rate tariff or filing of the NRA with the FMC.

Ongoing Deregulation of NVOCC Tariff Rules

This latest step taken by the FMC follows a progressive deregulation of NVOCC tariff rules that began in 2005 with an exemption in Petition P3-03 et al. to permit NVOCCs to enter confidential service contracts called NVOCC Service Arrangements (NSAs) with shippers. NSAs are similar to service contracts used by Vessel Operating Common Carriers. They may contain confidential non-tariff rates, but must meet extensive content and format requirements and be filed with the FMC. The "essential terms" in NSAs (origin, destination, commodities, minimum volume, length of term) must be published in the NVOCC's tariff. This was followed in March 2011 by the FMC's initial NRA rule in Docket 10-03, which allowed use of unfiled simple written rate agreements, provided the NVOCC published and gave free access to a rules tariff and maintained transaction records for subsequent audit. The FMC further liberalized rules as to the contents of NRAs in Docket 11-22 in June 2012.

However, the FMC has previously only allowed licensed NVOCCs to use NRAs. Under FMC licensing regulations in 46 CFR Part 515, domestic U.S. NVOCCs that ship in the outbound direction must publish an ocean tariff, be bonded and be licensed, which entails submission of detailed corporate information covering ownership, officers and directors and designating a "Qualifying Individual" with three years of requisite ocean transport intermediary experience. Foreign NVOCCs may ship into the United States without a license, provided they publish a tariff and are bonded. FMC staff took the position that the Commission lacks sufficient jurisdiction and control over foreign unlicensed NVOCCs and their offshore records to regulate them properly as to use of unfiled NRAs.

The industry, including shippers, carriers, shipping and logistics trade associations, continued to request that the FMC take the further step of allowing foreign NVOCCs to use of NRAs, noting that the simplicity and lack of a filing or publication requirement would facilitate shipping transactions at all levels of business, and would enhance competition and reduce costs for the shipping public. The FMC has decided to take this next step along with implementation of a registration requirement for foreign NVOCCs in order to give the FMC greater regulatory control.

Under the FMC's new rulemaking in Docket 11-22, published on February 21, 2013, the FMC will allow foreign NVOCCs to register, pursuant to a new Section 515.19 of the FMC licensing regulations. Registrations will be effective for three years, and may be terminated by the FMC in the event of Shipping Act or FMC regulatory violations or failure to maintain a tariff and bond. Registered NVOCCs must comply with FMC inspection and record production requirements in the same manner as licensed NVOCCs. Under a new Section 515.24, registered foreign NVOCCs must also designate an agent for service of process in the United States. The FMC also published proposed new conforming provisions in 46 CFR Part 532, the rule governing use of NRAs.

Deadline for Comments to the Rule

The FMC's proposed rule and registration process can be viewed on its website.

Comments on the new FMC Proposed Rule on foreign NVOCC use of NRAs are due by April 29, 2013.

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