FMC Seeks to Make Pandemic-Related Service Contract Rules Change Permanent

Daily life has changed during the COVID-19 pandemic. Many expect that some of these changes will become part of the "new normal" when the pandemic is over. The Federal Maritime Commission (FMC) has gotten a head start on this process by recently proposing a rule that would make permanent the relief granted to ocean common carriers during the pandemic.

FMC regulations in 46 CFR § 530 require electronic filing of original ocean common carrier service contracts with the Commission no later than the service contract effective date while allowing contract amendments to be filed within 30 days after the amendment takes effect. By a Federal Register notice dated Jan. 19, 2021, the FMC now proposes to allow vessel operators to commence performance of contracts on their effective date, with filing to follow within 30 days, as well as several minor technical amendments to Section 530. This proposed change to the regulations mirrors temporary relief authorized by the FMC on April 27, 2020, and extended until June 1, 2021. Public comments on the FMC's proposed rule changes are due by March 5, 2021. (Note: The FMC Notice in Docket No. 20-22 states that the reply date is March 4, 2021, but the Federal Register notice states March 5.)

However, a memorandum issued by the White House just after President Joe Biden's Jan. 20 inauguration has ordered that all executive branch agencies temporarily pull back proposed rule changes until further consideration by newly appointed agency heads. It is not clear whether this delay directive technically applies to the FMC, an independent federal agency, but in the recent past the FMC has complied with such general regulatory freeze orders. In any event, because the temporary order has already been extended, a freeze on the permanent rulemaking process would not have an immediate impact.

Background

Since the enactment of the Ocean Shipping Reform Act in 1998, FMC regulations have allowed ocean common carriers (i.e., liner vessel operators) to enter confidential rate agreements with shippers and to use such contract rates in lieu of published tariff rates, provided such contracts are filed with FMC in advance of commencement of performance. In 2005, in Docket P3-03, the FMC extended similar service contract privileges to Non-Vessel Operating Common Carriers (NVOCCs). More recently, the FMC exempted NVOCCs from filing their service contracts, but declined to grant similar relief from this filing obligation to vessel operators. However, the FMC has changed Section 530 to allow amendments for operator service contracts to be filed up to 30 days after the amendment effective date.

Responding to the COVID-19 pandemic, the FMC issued a temporary exemption permitting original service contracts, like amendments, to be filed up to 30 days after their effective date. The Commission has stated that its recent experience with service contract filing during the COVID-19 exemption period and the apparent regulatory relief benefits of allowing deferred filing for original ocean carrier service contracts support its determination to revise its regulations at 46 CFR § 530 and make the temporary filing time relief permanent.

The FMC also proposes additional technical amendments to its service contract regulations, including: 1) removal of a reference to "essential terms publication" that was inadvertently retained during a prior revision and 2) addition of language describing the exemption more fully to ensure that affected stakeholders are more aware of the after-the-fact filing exemption.

Possible Regulatory Freeze

The White House Chief of Staff's Jan. 20 "Memorandum for the Heads of Executive Departments and Agencies" directed agencies to suspend rule-making activities underway, and with respect to rules that have already been published in the Federal Register to "… consider postponing the rules' effective dates for 60 days from the date of this memorandum, consistent with applicable law and subject to the exceptions described in [the memorandum], for the purpose of reviewing any questions of fact, law, and policy the rules may raise."

It is not clear whether the specific delay requirements of the memorandum will apply to a notice of a proposed rule, as opposed to a final rule. However, in analogous instances in the past, FMC has generally complied with such directives. Accordingly, FMC may revise its notice to extend the comment due date or otherwise delay consideration. In the meantime, interested stakeholders should consider submitting comments prior to the early March deadline.

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