FMC Proposes to Change Ocean Service Contract Publication Requirements
- The Federal Maritime Commission (FMC) issued a notice of proposed rulemaking on Feb. 14, 2020, proposing to change tariff publication requirements related to ocean service contracts.
- The proposed rule would grant an exemption from the current requirement that vessel operating common carriers (VOCCs) publish essential terms, but in its place would establish a new requirement to publish a "statement of service contract rules and notices."
- The exemption component of the proposed rule is the logical result of the FMC's prior P3-18 Order, but the newly proposed contract rules publication requirement may have unintended consequences. Comments on the proposed rules are due by April 14, 2020.
The Federal Maritime Commission (FMC) issued a notice of proposed rulemaking on Feb. 14, 2020, proposing to change the publication requirements related to ocean service contracts. Currently, vessel operating common carriers (VOCCs) must file with the FMC each service contract that it enters and publish certain "essential terms" of the contract. 46 USC §40502(b)-(d). In summary, the proposed rule would grant an exemption from the current requirement to publish essential terms, but in its place would establish a new requirement to publish a "statement of service contract rules and notices." Comments on the proposed rules are due by April 14, 2020.
Background and the Proposed Rule
The World Shipping Council requested an exemption from the current filing and essential terms publication requirements in September 2018. The FMC issued an order on Dec. 20, 2019 (the P3-18 Order) denying the request for an exemption with respect to filing the service contracts themselves, but granting the exemption with respect to publication of essential terms, and indicated that a rulemaking would follow.
Consistent with the P3-18 Order, the proposed rule would eliminate the need to publish the "essential terms" for each contract: i.e., the 1) origin and destination port ranges, 2) commodity, 3) minimum volume or portion, and 4) duration. However, the proposed rule departs from the order by adding a new requirement that VOCCs publish a "statement of service contract rules and notices." The notice describes the proposed new statement as "rules and notices that generally apply to all service contracts"; "a 'blanket' rule or notice . . . that applies to most, or all, service contracts"; and "generally applicable service contract tariff rules and notices." Except for requirements that the statement may not be "uncertain, vague, or ambiguous" and that terms should not be incorporated by reference to other unpublished terms, the specific content and intended function of the proposed statement is not explained in the proposed regulation.
Carriers are not currently required to publish this information, and there was no indication in the P3-18 Order that this new requirement would be included in the rule, or any discussion of the need for publication of service contract tariff rules. The FMC states in the proposed rulemaking that carriers often include service contract terms in their essential terms tariff, so the Commission "wants to ensure that carriers continue to publish generally applicable service contract tariff rules and notices." However, making this publication mandatory is a substantial change from current requirements. Some VOCCs include special service contract provisions in their published rules tariff, up to and including the entire text of the VOCC's standard contract form. Other VOCCs publish little or no detail about contracts in their tariffs, and simply include all applicable contract language in the confidential contract, which is often highly customized for individual shipper customers.
The efficacy of this new requirement is unclear. On one hand, removing the requirement to publish certain contract-by-contract "essential terms" removes a burden on VOCCs. On the other hand, by adding a new requirement to publish generally applicable service contract tariff rules and notices, a new burden is being imposed. Potentially the burden might not be large, as perhaps VOCCs could simply add a brief section on service contracts to their rules tariff setting forth some boilerplate terms, such as the method for making amendments, choice of law and disputes resolution provisions. But the new burden could be larger for others, especially those who do not currently publish such generally applicable terms. The proposed rule may also have unintended consequences for the way that VOCCs and shippers currently negotiate confidential service contracts.
It is not clear why the FMC is seeking publication of information that is already filed with the FMC, and pursuant to the filing statute, is treated as confidential information. The FMC already receives the VOCCs' entire service contract upon filing, and the VOCC's shipper also sees all such information and applicable contract text in the contract it negotiates and signs. Since the service contract process enables the carrier and shipper to contract around tariff terms freely on a case-by-case basis, the published rules are only a point of departure for negotiation. The notice does not state any intent to depart from these established principles, but to the extent that the Commission is intending the proposed publication of "general" service contract terms to provide some form of public notice to potential contracting shippers regarding contracting expectations or standards, the proposed publication would have limited value given that the actual terms and conditions of specific service contracts remain freely negotiable.
Another issue that may arise is the ease of access to tariff information by shippers. The proposed new provision at 46 CFR §530.12(a) appears to require the VOCC to publish the contract rules in its tariff under the automated tariff system. However, some VOCCs publish their tariffs online with free access while others utilize subscription tariff services, and in order to see the latter tariff provisions, shippers would have to subscribe to the tariff publisher's system and pay fees for access. Conversely, for the analogous provisions applicable to NVOCC Service Arrangements (NSAs), at 46 CFR §531.4, and Negotiated Rate Agreements (NRAs), at 46 CFR §532.4, any Non-Vessel Operating Common Carrier (NVOCC) using NSAs or NRAs must make tariff terms available for free.
Finally, it is unclear where the FMC derives the authority for this proposed new publication provision. No statute requires the publication of service contract terms. Rather, federal law entitles service contracts to confidential treatment, other than the four "essential terms" that the FMC has proposed to eliminate. 46 USC §§40502(b)(1) and (d) (certain collective bargaining agreement information must also be disclosed upon request pursuant to 46 USC §40502(e), which is not applicable to the proposed rule). While the FMC has authority to exempt the essential terms publication requirement in 46 USC §40502(d), requiring publication of confidential "general" service contract terms is another matter.
For more information or assistance in preparing a comment on the proposed rule, contact the authors.
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