Served July 16, 1999
FEDERAL MARITIME COMMISSION
PETITION NO. P5-98
PETITION OF NATIONAL CUSTOMS
BROKERS & FORWARDERS
ASSOCIATION OF AMERICA FOR ISSUANCE OF RULEMAKING
OR, IN THE ALTERNATIVE, FOR A DECLARATORY ORDER
ORDER DENYING PETITION
INTRODUCTION
The National Customs Brokers & Forwarders Association of America ("NCBFAA") has petitioned the Federal Maritime Commission ("Commission" or "FMC") to institute a rulemaking proceeding or, in the alternative, for a declaratory order to address the scope of the term "shipper" as defined in section 3(23) (now section 3(21)) of the Shipping Act of 1984, as amended, and to amend the Commission's Rules at 46 C.F.R. § 510.23(a)(now §515.42(a)).(1) Notice of the filing of the Petition was published in the Federal Register, 63 FR 71288 (December 24, 1998). Three comments on the Petition were received, from the Council of European and Japanese National Shipowners' Associations ("CENSA"), from an ocean common carriers group ("Ocean Carriers"),(2) and finally from the National Industrial Transportation League ("NITL").
THE PETITION
NCBFAA indicates that it is an association of 30 affiliated local associations whose members handle 90% of the cargo moving in and out of the U.S. via ocean transportation. Petitioner states that its freight forwarder members are responsible for booking export cargo both as licensed freight forwarders (acting solely as agents for shippers) and as NVOCCs when they issue their own "house" bills of lading.
The Petition requests initiation of a rulemaking "pertaining to the proper scope of the term 'shipper' as used in section 3(23)" and to "address an existing rule pertaining to the disclosure of principal, . . . 46 C.F.R. §[515.42(a)]." NCBFAA states that "it is plain that there are substantially divergent views within the industry on the topic of who may properly act as a shipper within the meaning of § 3(23)." Petition at 1. Alleging that the Commission "has begun to address this issue in the past," but "has never provided clear or unambiguous guidelines," NCBFAA says it "has recently discovered" that licensed ocean freight forwarders have no clear guidance on the issue.
NCBFAA maintains that freight forwarders are being pursued in "forfeiture proceedings" brought by the Commission's Bureau of Enforcement ("BOE") for activities the forwarders thought were proper, even though the forwarders have service contracts on file that had been filed at the FMC for several years without rejection. Therefore, NCBFAA maintains, freight forwarders are proceeding at risk. NCBFAA also charges that BOE is seeking to "advance its viewpoint through a series of ad hoc enforcement proceedings" which NCBFAA contends is not the most appropriate mechanism for resolving "legitimate, well-grounded differences in interpreting the statute." Id. at 2.
NCBFAA alleges that "[i]t has been the practice for years that forwarders (and other 'middlemen') have been considered under certain circumstances to be the 'person for whose account the ocean transportation is provided,' so that they have acted as shippers on service contracts and with respect to time/volume rate and other tariffs [sic]." Id. at 3-4. NCBFAA states that BOE has taken the position in enforcement proceedings that an ocean freight forwarder may never be legally the "person for whose account transportation is provided" within the meaning of section 3(23) in its role as an ocean freight forwarder; when it identifies itself as "shipper" on a carrier master bill of lading, it is acting as an NVOCC and must have a tariff and bond on file. NCBFAA condemns this position as unreasonable; inconsistent with previous Federal Maritime Commission and court decisions; in conflict with procedures required of ocean freight forwarders by other federal agencies; and bad public policy.
NCBFAA maintains that prior Commission proceedings in HUAL A/S - Service Contracts and Time Volume Rate Arrangements with Ocean Freight Forwarders, Docket No. 98-15, Order of Investigation served Aug. 14, 1998 ("HUAL") and Fact Finding Investigation No. 15, Practices of Various Entities Operating as Intermediaries for the Transportation of Goods in the United States Water Borne Foreign Commerce, 24 S.R.R. 1197 (1988) ("Fact Finding Investigation No. 15") do not provide legal precedent for the position it ascribes to BOE.(3) With respect to HUAL, NCBFAA maintains that the decision approving a settlement agreement establishes no precedent, despite the respondent carrier's stipulation to violations and acknowledgment that ocean freight forwarders acting solely in that capacity could not enter into service contracts.
In addition, NCBFAA asserts that the Report in Fact Finding Investigation No. 15 was not a Commission decision but a report to the Commission by "a staff employee of BOE." Id. at 6. NCBFAA alleges that the Report's reliance on several key cases(4) was misplaced. These cases, says NCBFAA, turned on the language of the Shipping Act, 1916, 46 U.S.C. app. 801 et seq. (1984)("1916 Act"), defining an "independent ocean freight forwarder" as "not a shipper or consignee," a requirement for independence from shippers and non-proprietary interest in cargo on the part of freight forwarders not repeated in the 1984 Act which replaced the 1916 Act with respect to shipping in the U.S. foreign commerce. Petition at 7-8.
NCBFAA alleges that a freight forwarder in fact may be legally responsible for paying for the transportation it arranges when it acts as agent for an undisclosed principal. NCBFAA cites the Restatement of Agency 2d and Cleary Bros. v. Christie Scow Corp., 15 F.2d 740, 742-44 (2nd Cir. 1954) for the proposition that an agent for an undisclosed principal is liable as a party to a contract. Although it recognizes that the Commission's regulations, by requiring that the identity of the shipper be shown in the "shipper identity" box on the bill of lading, prohibit the practice of a freight forwarder acting for an undisclosed shipper/principal, NCBFAA suggests that those regulations be changed. Petition at 9. NCBFAA also argues that the phrase "for whose account the transportation is provided" provides no reason to limit the term "shipper" to the party that pays the freight. NCBFAA contends, to the contrary, that this phrase has been interpreted very broadly, and should include the entity which "controls or otherwise has dominion over the traffic." Petition at 12-13. NCBFAA points to decisions of the Interstate Commerce Commission ("ICC") (now the Surface Transportation Board) finding that a warehouse may be considered a shipper under the Interstate Commerce Act ("ICA") as supporting this view. Id.
NCBFAA argues that the Federal Maritime Commission has declined to espouse a cramped view of the term "shipper" in several rulemaking proceedings, asserting that these decisions should be viewed as establishing precedent for the broader interpretation urged here. NEC Petition for Rule Regarding the Term "Shipper", 23 S.R.R. 1381, 1385 (1986)("NEC Petition"); Service Contracts, Final Rule, 24 S.R.R. 277 (1987); and Definition of Shipper & Availability of Mixed Commodity Rates, 25 S.R.R. 1372-1374 (1991)("Definition of Shipper"). NCBFAA notes in particular that, in denying the NEC Petition, the Commission refused the conferences' request to restrict the 1984 Act's definition of shipper to those with a beneficial interest in the cargo. NCBFAA also points out that in Definition of Shipper, 25 S.R.R. at 1372-1374, the Commission proposed a rule which would have categorically excluded certain entities including shippers' agents, freight forwarders, brokers or untariffed NVOCCs. However, noting criticisms of the categorical exclusions in its "relatively terse" decision, Petition at 15, the Commission rejected the proposed rule as faulty and "unrealistically [attempting] to simplify the complex relationships and activities in the shipping industry," and discontinued the proceeding. 25 S.R.R. at 1374.
NCBFAA also focuses on what it describes as the "requirements of another government agency, namely the Department of Commerce's Census Bureau," as being "flatly inconsistent" with BOE's position in various proceedings that ocean freight forwarders may not be considered "shippers" or listed as the shipper on an ocean common carrier bill of lading, citing in particular the show cause order in Helen Khadem d/b/a Worldwide Cargo Express/Trading, Docket No. 98-17. Petition at 17-18.
The problem, says NCBFAA, is that the Census Bureau does not permit foreign-domiciled purchasers of U.S. goods to act as the "exporter of record," requiring them to appoint an agent in the U.S. for purposes of the Shipper Export Declaration.(5) The problem also arises, according to NCBFAA, when goods are sold "ex-works" in the U.S. In such transactions, title transfers at the seller's premises and the buyer has the responsibility for arranging and paying for transportation and insurance, and securing export licenses and documents. Thus, when ocean freight forwarders perform these functions, they are required by the Census Bureau to be shown as the shipper on the Shipper Export Declaration. NCBFAA states that ocean freight forwarders file approximately 90 per cent of Shipper Export Declarations. NCBFAA further maintains that it is expected that the identification of the shipper on the Export Declaration will be consistent with the shipper identified on the ocean bill of lading. This is particularly necessary, says NCBFAA, for transportation involving letters of credit and international customs clearances. NCBFAA maintains that BOE's position seems to be that a non-beneficial owner acting as agent must be an NVOCC, and that this position threatens freight forwarders' ability to act as an agent for overseas principals, and has a detrimental effect on the industry and international commerce.
NCBFAA suggests that the Commission address this problem by amending its rules governing freight forwarders at 46 C.F.R. § 515.42.(6) NCBFAA suggests that the rule's requirement that the freight forwarder's principal be disclosed on the bill of lading was incorporated in the rules issued to implement the 1984 Act only as a "carry-over" of the 1916 Act definition of the ocean freight forwarder as being independent of shippers, without explanation. Nevertheless, it is inconsistent, says NCBFAA, with the 1984 Act's broad definition of ocean freight forwarder and should be changed. NCBFAA argues that the regulations of the Department of Commerce's Bureau of Export Administration ("BXA"), at 15 C.F.R. §758.4(c)(1) require consistency among the export license, export declaration and ocean bill of lading for licensable commodities. The rule further provides that a bill of lading is specifically "not consistent" with these other documents if it "names [as] a shipper any person other than the licensee . . . or the licensee's duly authorized forwarding agent." §758.4(c)(2). Thus, argues NCBFAA, this rule conflicts with the Commission's rules at §515.42(a) because a foreign purchaser cannot be the licensee for export. NCBFAA suggests §515.42(a) be reworded to provide for listing of the "shipper or its agent" in the shipper identification box of the bill of lading, and to provide that "[i]f the licensee is acting as the agent of the shipper for this purpose, its name must be identified as "shipper's agent." Petition at 26.
No public policy justifies the rule's restriction, NCBFAA maintains: there is no reason that the steamship line must know the identity of the underlying shipper. So long as the shipper is undisclosed, the ocean carrier may look to the freight forwarder to pay the freight.
According to NCBFAA, one of the functions of a freight forwarder is to provide confidentiality, by protecting the identity of its principal, which is essential to trading in certain industries. NCBFAA cites in particular the trade in forest products and non-ferrous metals, as industries in which foreign traders do not want sellers to know the country of destination or identity of the ultimate consignee. In these transactions, the ocean freight forwarder acts for the foreign trader; confidentiality is, says NCBFAA, an essential element without which the deals would not happen. Petition at 25, text and n.16.
The Petition requests that the Commission initiate a declaratory order proceeding or, in the alternative, a rulemaking, and that it direct BOE to participate as a party. NCBFAA maintains that the Commission should resolve this issue through "legislative" action rather than through ad hoc adjudication in enforcement proceedings.(7) Petition at 20. "[A]lthough it recognizes that the Commission has discretion on whether to initiate a declaratory order proceeding, the NCBFAA respectfully suggests that it would be an abuse of that discretion in this instance to not do so in this situation." Petition at 22.
COMMENTS
A. CENSA
Characterizing the Petition as an "attempt to obtain unwarranted changes to the regime being introduced under the Ocean Shipping Reform Act" ("OSRA") through an administrative procedure, CENSA urges that the petition be dismissed without rulemaking or changes to 46 C.F.R. § 515.42(a). CENSA comments at 1. CENSA alleges that these changes were considered and rejected by Congress. Although Congress made extensive changes to the 1984 Act's tariff and service contract provisions, CENSA notes, it maintained the distinction between ocean freight forwarders and NVOCCs (now grouped together under the definition of ocean transportation intermediary or "OTI") and did not materially alter the definition of shipper. Moreover, says CENSA, the ability of parties to enter into service contracts and the availability of such service contracts to third parties (whether by reselling space or otherwise) was a key issue addressed by Congress in considering OSRA. CENSA argues that the full Senate considered, and rejected by a substantial majority, an amendment to broaden the rights of OTIs to participate in service contracts. Id.
CENSA further points out that the Commission has refused to narrow or broaden the scope of the term "shipper" on previous consideration of this same issue. CENSA finds no merit in NCBFAA's suggestion that the Commission's earlier refusal to narrow the term should be taken as a license to regard ocean freight forwarders as included in the term. CENSA points out that NCBFAA itself quotes the Commission's statement in Definition of Shipper, 25 S.R.R. at 1374, that "because a freight forwarder is an agent of the shipper and not the shipper, the statute would not appear to permit a freight forwarder to enter into service contracts on its own." CENSA comments at 2. NCBFAA also, says CENSA, accurately describes the difference between freight forwarders and NVOCCs as the assumption of responsibility for the safe transportation of the goods by NVOCCs which is not undertaken by freight forwarders, who act as agents for shippers. CENSA also points out that the 1984 Act specifically denominates NVOCCs as shippers, but does not so denominate freight forwarders.
Addressing NCBFAA's proposal to amend §515.42(a), CENSA notes that the rule permits freight forwarders to be listed in the shipper identity box of the bill of lading, so long as the actual shipper is also shown. CENSA reports that this is consistent with the definitions in the rule of "principal" (§510.2(o), now §515.2(q)) and "freight forwarding services" (§510.2(h), now §515.2(i)) as well as the distinction between "shipper" and "agent." According to CENSA, "[t]his rule is not at all ambiguous." CENSA comments at 2.
B. OCEAN CARRIERS
The Ocean Carriers charge that the Petition seeks a result which Congress refused to adopt in OSRA. OSRA's legislative history is "directly relevant," say the Ocean Carriers. They point out, moreover, that the Senate Commerce Committee Report makes clear that Congress considered the term shipper and specifically chose a "revised definition . . . intended only to clarify the meaning of the term 'shipper,' as it is defined in the 1984 Act, and interpreted by the FMC, not to change that definition." Ocean Carrier comments at 2, citing S. Rep. No. 105-61, 105th Cong. 1st Sess. at 20. The Ocean Carriers find it very telling that NCBFAA discusses the legislative history of OSRA only at page 24 of its 27 page Petition, with a "terse footnote reference." Ocean Carrier comments at 2. However, say the Ocean Carriers, OSRA "deserves more thorough consideration." Id.
The Ocean Carriers maintain that Congressional rejection of an amendment which would have permitted NVOCC/OTIs to offer service contracts means that "[g]ranting the subject petition would be in direct conflict with that Senate determination because it would permit middlemen to provide transportation with no government oversight at all." Ocean Carrier comments at 2. The Ocean Carriers allege that the Petition is inconsistent with OSRA's retention of Commission oversight over tariffs and service contracts and would blur the line between freight forwarders and NVOCCs. Although Congress explicitly decided not to allow NVOCCs to offer service contracts to their shipper customers, the Ocean Carriers state that NCBFAA's petition would permit
forwarders to operate as shippers, enter into service contracts with VOCCs, and sell the transportation so obtained to their customers without publishing tariffs, issuing bills of lading, or being subject to any regulatory oversight. Granting the Petition would thus enable the newly-created ocean transportation intermediaries to act in a manner expressly rejected by Congress.
Ocean Carrier comments at 3.
The Ocean Carriers further point out that freight forwarders would not be moving cargo they own or for which they "have direct control over the volume provided for shipment" and would have to "sell" the space they contract for to shippers who actually control cargo. In doing so, the Ocean Carriers assert, they would not be operating under an NVOCC tariff or bond, even though many freight forwarders are also NVOCCs. Remarking on Petitioner's acknowledgment that forwarders would profit in many cases by charging their customers more than they pay the vessel operating carrier, the Ocean Carriers charge that "significant volumes of cargo would move outside the tariff publication system that exists now and that has been retained in OSRA in a different form." Id.
The Ocean Carriers also believe that the documentation requirements established by other agencies do not support the relief requested, noting that the Census Bureau rules differ in context and purpose. They point out that, while freight forwarders "almost always appear as agents for their principal on the bill of lading," Census acknowledges that the freight forwarder is merely an "authorized agent" in the U.S. and not the "actual exporter," as reflected in the Census Bureau letter at Exhibit 3 to the Petition. This approach, say the Ocean Carriers, is consistent with FMC rules and 1984 Act requirements. Id. at 4.
The Ocean Carriers find it unclear whether NCBFAA's proposal would be limited to FMC-licensed freight forwarders or would extend to foreign entities called "forwarders," consolidators or other entities such as brokers. Although the Ocean Carriers decline to fully address the merits of the Petition, which merely seeks commencement of a proceeding, they nevertheless find NCBFAA's argument based on agency law to be misplaced. While agency law may make a freight forwarder liable for payment of ocean freight when its principal is undisclosed, the Ocean Carriers argue that agency law does not make freight forwarders shippers because they are always acting on behalf of another party who controls the cargo, whether or not the principal is disclosed. The plain meaning of the phrase "person for whose account the ocean transportation is provided" is the underlying shipper, not the agent, say the Ocean Carriers. The sole exception to this meaning, they posit, is the statutory provision that NVOCCs are shippers in relation to the ocean common carriers.
C. NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE
NITL agrees with NCBFAA that freight forwarders can qualify as "shippers" under the 1984 Act "in circumstances where the forwarder's arrangement with its customer authorizes the forwarder to 'control' the transportation movement." This, NITL submits, is "where a forwarder exercises control over the transportation (i.e. by selecting the carrier(s) to perform the transportation and determining the routing for the movement, but does not assume responsibility for the safe transportation of cargo), it may be a shipper without having to be an NVOCC." NITL comments at 1-2. This, says NITL, is consistent with the ICC's interpretation of the ICA provisions governing domestic intermediaries.
NITL also agrees that §515.42(a) should be amended as NCBFAA requests. No policy purpose is served, NITL argues, by requiring disclosure of the underlying shipper on the bill of lading. The suggested change also would be consistent with the practices of the Census Bureau and the BXA for shipper export declarations and export licenses and would "eliminate unnecessary regulatory impediments to the operation of the market." Id. at 2.
In addition, NITL supports NCBFAA's view of the need for clarification of the "long-standing ambiguity" in the law, given recent BOE enforcement efforts. Id. at 3. Noting NCBFAA's statement of BOE's position ("that a freight forwarder may never legally be considered the person for whose account the ocean transportation is provided and therefore is always acting as an NVOCC when it is listed as the shipper on a bill of lading"), NITL says this interpretation would limit the legitimate business opportunities of freight forwarders unless they subject themselves to the additional regulatory requirements applicable to NVOCCs. Id. at 4. Noting NCBFAA's contention that BOE's position conflicts with established commercial practice, NITL "submits that the BOE's position would also operate to restrict the extent to which beneficial cargo owners may use the services of forwarders to assist in the transportation of their commodities." Id. at 4-5. NITL supports the Petition and believes an "interpretation allowing freight forwarders to be shippers, under certain circumstances, is consistent with the statutory language and policies of the original 1984 Shipping Act and OSRA, and with interpretations of the activities of transportation intermediaries that operate in the domestic transportation industries." Id.
NITL finds in Congress' exhortation to "plac[e] a greater reliance on the marketplace" through the OSRA reforms an expression of Congressional intention to have the Commission read the phrase "person for whose account transportation is provided" even more broadly. NITL comments at 7. Whether freight forwarders act in the capacity of NVOCCs depends on "how they elect to conduct their business and structure their transactions." Id. at 8. Thus, the "certain circumstances" in which NITL believes a freight forwarder may be considered a shipper are "where a freight forwarder undertakes to arrange transportation for the benefit of a customer and pursuant to their arrangement maintains 'control' over the selection of the carrier(s) and the routing, among a range of other possible functions, but (i)does not hold itself out to the general public as a common carrier and (ii) does not assume responsibility for its customer's cargo." Id. at 8.
NITL further argues that a freight forwarder who books cargo for a customer on a carrier who may not even know the customer's identity provides a "valuable service" as a middleman by correlating its customer's need for transportation with a carrier's availability of space and completing the necessary paperwork, and may be responsible for payment of the freight. This relationship, NITL maintains, should be permitted and should qualify the freight forwarder to be considered a shipper.
NITL suggests that the ICC's treatment of "property brokers" and cargo owners in the trucking industry "offers an appropriate framework for assessing the relationship between ocean freight forwarders and cargo owners in the maritime context." NITL comments at 9-10. The ICC, according to NITL, recognized property brokers as "shippers" qualified to enter into contracts with motor carriers in Dixie Midwest Exp., Inc. Extension - General Commodities, 132 M.C.C. 794 (1982). NITL says subsequent cases adopted this ICC ruling, citing Noble Graham Transport, Inc. v. Interstate Commerce Comm., 766 F.2d 222, 223 (6th Cir. 1985).
NITL maintains that the characterization of the broker-owner relationship under the ICA in Dixie Midwest Exp., 132 M.C.C. at 815, aptly describes many of the key features of the ocean freight forwarder-cargo owner relationship in the maritime context.(8) This, suggests NITL, encompasses serving as agent of the shipper and exercising substantial control over the transportation, including selection of the carrier and routing, without being required to assume responsibility for the safe transportation of the cargo which is left to the carrier that performs the actual transportation. NITL urges the Commission to follow the example set by the ICC in construing the definition of shipper in a broad and flexible manner. NITL comments at 12.
DISCUSSION
Although the Petition and comments cite the same Commission proceedings addressed to requests to refine the statutory definition of "shipper" to exclude or to include particular entities, the parties reach diametrically opposed conclusions. We have reviewed each of the seven occasions on which the Commission has considered the matter since passage of the 1984 Act, on its own motion or at the suggestion or petition of various industry parties. On each of those occasions, we declined to deviate from the statutory formulation of the definition or to adopt a general rule addressing the application of the definition under other sections of the 1984 Act. Review of our previous treatment of this issue reveals nothing which supports NCBFAA's suggestion that freight forwarders are generally entitled to be treated as shippers for purposes of eligibility to enter into service contracts on their own behalf. Nor do these cases support NCBFAA's contention that the issue is most appropriately addressed by a general rule promulgated through a "legislative" or rulemaking proceeding, or by a declaratory order of the Commission. On the contrary, our earlier proceedings repeatedly suggest that the issue of when an entity may be considered to be acting as a shipper is one best suited to ad hoc determination. We continue to embrace that view. However, the following discussion of our earlier proceedings should provide some guidance as to the particular circumstances in which a forwarder may in fact be acting as a shipper in a given transaction.
In In the Matter of Petition for Rulemaking Concerning Shippers' Associations, 22 S.R.R. 1624 (1985), eleven conferences serving the Latin American trades petitioned the Commission for rules establishing procedures by which carriers and conferences could determine whether an entity claiming to be a shippers' association actually conforms to the statutory definition. The Commission found no need to establish industry-wide procedures: in addition to noting that carriers could establish their own tariff rules defining what information they would require before negotiating a service contract with a shippers' association, we stated our reluctance to involve ourselves in the regulation of shippers' associations based on the legislative history of the 1984 Act. The Commission also reiterated its earlier-expressed expectation that the involvement of shippers' associations in activities subject to the 1984 Act could best be addressed on an ad hoc basis. In the Matter of Petition for Rulemaking Concerning Shippers' Associations, 22 S.R.R. at 1627; Status of Shippers' Associations Under the Shipping Act, 1984, 22 S.R.R. 896 (1984).
In response to the 1984 Petition of the American Institute for Shippers' Associations, Inc. ("AISA"), the Commission declined to exclude NVOCCs from participating in shippers' associations, by restricting membership and participation in shippers' associations to the owners or beneficial owners of goods shipped through the association. In the Matter of Petition for an Amended Statement of Policy Concerning Status of Shippers' Associations Under the Shipping Act of 1984, 22 S.R.R. 1629 (1985). The Commission reasoned that the statute's inclusion of the "person for whose account" clause as well as "owner" in the definition of shipper clearly envisioned a more inclusive range of persons, noting also that NVOCCs are specifically denominated shippers in relation to ocean common carriers. Id. at 1633.
The argument that the ICC's treatment of shippers' associations under the ICA provided the appropriate model for the Shipping Act was also made in that proceeding. The Commission found, first, that "the uses of the term 'shippers' association' occur in different contexts and are clearly intended to serve different purposes" in the two statutes, and second, that the ICA's definition of shipper was not as expansive as that of the 1984 Act. Id. at 1635 and n. 12. NCBFAA and NITL make a similar argument here by analogy to the ICA. For reasons similar to those we articulated in 1985, we find the analogy inapposite.
Neither the ICC cases cited to us by NCBFAA (finding that a warehouse may be a shipper within the meaning of the ICA) nor those cited by NITL (involving ICC-regulated property brokers) suggest a basis for the general rule sought here under the 1984 Act. NITL's reliance on Dixie Midwest Exp., Inc. Extension - General Commodities, 132 M.C.C. 794 (1982) as an analogous basis for a general rule that freight forwarders should be considered shippers for purposes of service contracts under the 1984 Act is misplaced. That case indicates that the issue of the eligibility of an ICC-licensed property broker to act as a shipper in a contract relationship with a motor contract carrier, which arose in individual proceedings on motor carrier applications for authority to operate as contract carriers, would be determined by the ICC on an ad hoc basis. The decision in that case emphasized that "the key issue remains always actual control of the transportation." Thus, while a broker's payment of the freight charges would create a presumption of control, the presumption could be rebutted by evidence that another party exercised control over carrier selection and cargo routing. Id. at 815. If the ICC cases cited by NCBFAA and NITL demonstrate anything apposite to this proceeding, it is the appropriateness of this ad hoc approach to the question. Nevertheless, this ad hoc treatment is precisely the situation which NCBFAA maintains leaves its members without guidance under the 1984 Act.
In In the Matter of Petition of the U.S. Atlantic-North Europe Conference and the North Europe-U.S. Atlantic Conference for a Rule Regarding the Term "Shipper," 23 S.R.R. 1381 (1986), the Northeast Conferences raised the issue of shipper definition by requesting that the Commission specifically interpret the phrase "person for whose account transportation is provided" in its service contract rules to mean a person with a beneficial interest in the cargo other than the owner, or an NVOCC with a tariff on file. The Petition was denied on grounds that the problem it addressed (the possible re-selling of contracted-for space by untariffed NVOCCs) was actionable under other sections of the 1984 Act and the proposed clarification was likely to create confusion as to the rights and obligations of shippers' associations. The Commission, "[u]nder the circumstances presented and at the . . . time, [did] not believe that such an amplification of the definition of 'shipper' [was] warranted." Id. at 1385. The expansive nature of the statutory definition was again noted, as the Commission pointed out that an entity which qualifies to be considered a shipper may nevertheless "also be the subject of other rights and responsibilities under the Act." Id.
However, in recognition of the "considerable confusion" existing as to the legitimacy of roles with respect to service contracts and shippers' associations being played by "various intermediaries involved in ocean transportation," the Commission simultaneously initiated a Fact Finding Investigation, to develop "a complete factual record of how intermediaries conduct their operations . . . in the through movement of goods in our waterborne foreign commerce." Id. See also Practices of Various Entities Operating As Intermediaries For the Transportation of Goods In The United States Waterborne Foreign Commerce, Order of Investigation, 23 S.R.R. 1386 (1986). The Fact Finding Investigation addressed particularly the "person for whose account" phrase of the statutory definition, and canvassed numerous industry participants as to their practices with a view to ascertaining "whether middlemen are joining shippers' associations, . . . or entering into service contracts, . . . or otherwise acting as 'shippers.'" Fact Finding Investigation No. 15, 24 S.R.R. at 1198 (1988).
The Report briefly described the history of the Commission's treatment of the issue, and described the operations of various middlemen, including ocean freight forwarders, export trading companies, shippers' associations, domestic property brokers and freight forwarders, NVOCCs, and their experiences in dealing with ocean common carriers and conferences with respect to service contracts. The Report noted that the 1984 Act's expansive definition of "shipper" appeared to be based on existing case law, which the legislative history demonstrated no Congressional intention to modify. Id. at 1208. Under the Shipping Act, 1916, the courts had construed the term "shipper," which was not defined in the Act, to include those "for whose account the transportation was performed," but applied that phrase only to those legally responsible for paying for the transportation. Freight forwarders, however, had not been found to be among those legally responsible for such payments, because they made payment on behalf of their shipper clients. The Fact Finding Officer found no basis upon which to depart from this legal history in concluding that "an ocean freight forwarder is not a person for whose account the transportation is provided." Id. The Report further concluded that "[w]hether an entity seeking transportation services is a 'shipper' for purposes of the 1984 Act does not appear to be creating significant difficulties." Id. at 1210.
Finally, the Report concluded that the only middlemen entities that had attempted to enter or succeeded in entering into service contracts with ocean common carriers or conferences were shippers' associations and NVOCCs. The Report found that there was "some activity" by others to use the "person for whose account" phrase to act as shippers, resulting in some confusion and uncertainty. Although the Report made no specific recommendations for Commission action, it suggested that the Commission "could" act to counter this confusion by initiating ad hoc formal or informal investigations of any shippers' associations with members other than beneficial cargo owners and NVOCCs, or by defining the phrase through rulemaking. With respect to the possible rulemaking, the Report's formulation would have limited the definition to those legally responsible for payment of freight charges, consistent with case law under the 1916 Act. In other words, the Fact Finding Officer would have had the Commission codify the narrow view which NCBFAA now objects to and seeks to broaden.
NCBFAA maintains that the Report produced by this Fact Finding Investigation was not a Report of the Commission and therefore its conclusions, with which NCBFAA does not agree, do not constitute agency precedent.(9) Nevertheless, NCBFAA demonstrates thereby that despite the basis provided by Fact Finding Investigation No. 15, the Commission instead decided not to tamper with the statutory definition in order to make general rules or policy pronouncements to determine the very fact-bound circumstances in which these issues arise.(10)
In Docket No. 86-6, promulgating rules on service contracts, the Commission first proposed on its own motion a rule which would have permitted a licensed ocean freight forwarder to sign a service contract "as the actual shipper,"(11) with the proviso that the forwarder be named on the shipper line of the bill of lading and prohibited from collecting ocean freight forwarder compensation on such shipments. Service Contracts, Final Rule, 24 S.R.R. at 285-86. The proposed rule was meant to clarify "that NVOs and ocean freight forwarders, which cannot offer service contracts as carriers, may enter into them as shippers, but only under certain conditions." Id. at 285. The Commission ultimately concluded that the proposed rule was "subject to misinterpretation" and elected not to issue it, concluding that it did "not appear necessary." Id. The Commission concurred with the comments of Sea-Land, noting that "only ocean common carriers, conferences, shippers, and shippers' associations can be parties to a service contract. If an NVO or forwarder is to be become a party to a service contract, it must be a 'shipper,' as defined in section 3(23) of the 1984 Act." Id. The Commission's rationale for abandoning its proposal to permit forwarders to enter into service contracts appears premised on the recognition that a forwarder's possible shipper status is determinable on a case-by-case basis.
In deleting this section of the proposed rule, we further noted that section 19(d)(4) of the Act itself prohibited freight forwarders from receiving compensation from a carrier for any shipment in which the forwarder "has a direct or indirect beneficial interest." Id. This latter reference to a "beneficial interest" in the cargo suggests that a forwarder's qualification to be considered an "actual shipper" was viewed as arising under the first element of the statutory definition, that is, from actual or imputed status as "owner" of the cargo, rather than the second element or "person for whose account" phrase.
Thus, the case expressed no support for the proposition that a forwarder's position as an agent for an unrelated shipper, or a number of unrelated shippers, would qualify it to enter a service contract in its own name. It is this more general authority to enter into service contracts in their own names which NCBFAA seeks for its members here.
Moreover, neither NCBFAA or NITL addresses the related question of whether a forwarder could collect compensation from a carrier for any shipment on which it acted as "shipper" without being in violation of section 19(d)(4) of the 1984 Act, as amended, or the Commission's rules at 46 C.F.R. §§ 515.41 and 515.42. NCBFAA may be correct as to the genesis of the courts' and the Commission's initial development of the case law precluding freight forwarders from being considered shippers, i.e. that the 1916 Act defined an ocean freight forwarder as a person independent of the shippers it served. The fact that this requirement was modified in the 1984 Act, to the extent of permitting a forwarder to be related to a shipper but prohibiting it from collecting compensation for any shipment in which it has a beneficial interest, does not alter the soundness of the case law distinguishing between shippers and forwarders. NCBFAA's argument merely demonstrates that the 1984 Act continued the distinction between the "agent" and the shipper for whom it acts, by requiring that a freight forwarder may not be treated as both a shipper and a compensable freight forwarder on the same transaction. This is consistent with the Act's requirement that the non-ocean carrier party to a service contract be a "shipper" or a shippers' association.
In 1989, the Commission initiated a rulemaking concerning the availability of mixed commodity rates in which it proposed to amend the definition of shipper in its tariff and service contract rules and to require that mixed commodity rates be made available only to entities which fit the new definition. 54 FR 40891 (October 4, 1989). The proposal, like the suggestion made in the Report of Fact Finding Investigation No. 15, was to define "shipper" as "the person who is legally responsible to pay the ocean common carrier for the transportation" and was intended to "limit the scope of those that can act as 'shippers' vis-a-vis the ocean common carrier, preclude untariffed NVOCC operations and otherwise ensure that the statutory scheme contemplated by the [1984 Act] is preserved." Definition of Shipper, 25 S.R.R. at 1373. However, based upon the overwhelmingly negative comments on the proposal, the Commission discontinued the proceeding, concluding that the proposed definition was faulty and "unrealistically attempted to simplify the complex relationships and activities in the shipping industry." The proposed rule, said the Commission, "proved to be excessively rigid and consequently unintentionally exclusionary in its application to the myriad of entities with interests of various kinds in oceanborne cargo." Id. at 1373-1374. Thus, recognizing that some confusion as to the qualification of some entities to act as shippers in certain cases would continue to exist, as reflected in the "mutually contradictory" arguments and "misreadings and misinterpretations of the Proposed Rule" contained in the comments, the Commission once again found it infeasible to act on the issue through promulgation of a general rule. Id. at 1374.
Review of the aforementioned proceedings does not support NCBFAA's assertion that they demonstrate implicit Commission endorsement of NCBFAA's position. NCBFAA's Petition presents no new reason for the Commission to reverse its repeated conclusion that this issue is best left for determination in commercial settings on a case by case basis. Rather, the Commission has come to recognize with respect to this complex issue that any attempt at simple codification would necessarily result in either an overinclusive or underinclusive generalization, creating more confusion than clarification.
The arguments offered by NCBFAA for a general rule resolving the rights of freight forwarders to act as shippers based on the regulations of other agencies, namely the Census Bureau and the BXA, are not persuasive. Neither the Census Bureau's requirements for the completion and filing of the shippers export declaration nor BXA's rules calling for consistency among documents required for goods which must be licensed for export are in conflict with either the Shipping Act or the Commission's regulations governing freight forwarders.(12) Neither administrative scheme is inconsistent with the long-standing statutory and regulatory requirements administered by the Commission for some degree of transparency and openness in the dealings of licensed ocean freight forwarders with the shippers and carriers they serve. See, e.g., 46 C.F.R. §§ 515.32(c) and 515.42(a)-(c).(13) To the contrary, BXA's export administration regulations themselves provide specifically that "[n]othing contained in this part 758 shall relieve any person from complying with any other law of the United States or rules or regulations issued thereunder, including those governing SEDs and manifests, or any applicable rules and regulations of the U.S. Customs Service." 15 C.F.R. §758.9. Section 515.42(a) unambiguously provides the means by which freight forwarders acting as agents for foreign-domiciled exporters for whom they prepare and file export declarations and export licenses may comply with the requirement of 15 C.F.R. 758.4 for document conformity: the freight forwarder's name and role as "agent" may be listed in the shipper identity box of the bill of lading along with that of the actual shipper. Therefore, conformity with other federal agencies' requirements provides no basis for the Commission to amend its rules.
The commercial arguments put forth by NCBFAA are also not persuasive as to the need for a general rule which would significantly alter the relationships among players in the ocean shipping industry at this time. Moreover, we are not persuaded that either NCBFAA's arguments relating to the commercial desirability of the ruling it seeks or the parade of horribles it offers involving BOE positions taken in FMC-initiated enforcement proceedings provide the specificity required by the Commission's rules for the "name [of] the persons" or "complete statement of the facts" which provide the basis for a declaratory order to "terminate a controversy or to remove uncertainty." 46 C.F.R. § 502.68(a)(1) and (2). A specific scenario posing a controversy, involving a particular forwarder seeking a service contract in relation to a certain shipments or shippers, rather than the instant generalized statement of the issue, might have provided a more appropriate basis for a declaratory order.
Neither the commercial desirability of confidentiality for export transactions in the industries or the nature of sales transactions posited by NCBFAA justifies a departure from longstanding statutory requirements, unchanged by OSRA, that the participation of ocean transportation intermediaries in shipping transactions be transparent. In fact, Congress' election to maintain the distinction between ocean freight forwarders and NVOCCs at the same time that it included both in the newly-defined term "ocean transportation intermediary" or "OTI", argues strongly against NCBFAA's Petition. As pointed out by CENSA, in defining the term "ocean transportation intermediary," Congress specifically chose to differentiate between forwarders and NVOCCs in part by defining as a shipper only those OTIs operating as NVOCCs, i.e., through a tariff. Nothing in the legislative history of OSRA suggests a Congressional intention to alter or expand the existing bases upon which freight forwarders may claim to be acting as shippers in their own right. To the contrary, as CENSA also points out, the considerable Congressional focus on the issue of service contract authority as well as the Senate's specific rejection of a proposal to broaden OTI access to service contracts reflect that OSRA implements the full extent of the changes to the rights and responsibilities of "shippers" which Congress determined to make. Moreover, we are particularly mindful that Congress, in revising the definition, "intended only to clarify the meaning of the term 'shipper,' as it is defined in the 1984 Act, and interpreted by the FMC, not to change that definition." S. Rep. No. 105-61, 105th Cong. 1st Sess. at 20.
Thus, the Commission will continue to address the question of whether a particular freight forwarder acts as a "shipper" in relation to particular shipments and ocean carriers in the individual commercial contexts presented. In individual instances where the specific nature of a forwarder's agency relationship with a particular principal includes delegation to the forwarder of sufficient control over the transportation of a stream of cargo, carriers may elect to treat the forwarder as a shipper for purposes of a service contract under present Commission case law. Nothing in the 1984 Act's definition of "shipper" or the FMC's case law precludes a finding in an appropriate factual context that an individual freight forwarder's relationship with a principal qualifies the freight forwarder to act as a shipper in connection with a particular shipment or shipments, where the principal delegates that role, or the relationship between the forwarder and its principal results, directly or indirectly, in the forwarder having a beneficial interest in the cargo (in which case the "forwarder-shipper" would no longer be authorized to collect carrier compensation). Whether a forwarder exercises control over the movement of its principal's cargo and whether it has a direct or indirect beneficial interest in that cargo are questions of fact to be determined on a case by case basis, as the necessity arises. However, nothing in that determination suggests the more general rule sought here by NCBFAA: that qualification to act as a shipper with respect to the cargo movements of one cargo owner qualifies a freight forwarder to be treated as the shipper of the cargo of other cargo owners under a single service contract. Such a rule would administratively create rights and responsibilities far different from those Congress specifically articulated in its recent legislative endeavors.(14)
NOW THEREFORE, IT IS ORDERED, That the Petition of the National Customs Brokers & Forwarders Association of America is denied; and
IT IS FURTHER ORDERED, That this proceeding is discontinued.
By the Commission.(15)
Bryant L. VanBrakle
Secretary
ENDNOTES
1. The Shipping Act of 1984 ("1984 Act") at former § 3(23), 46 U.S.C. app. § 1702(3)(23) (1997) defined "shipper" as "an owner or person for whose account the ocean transportation is provided or the person to whom delivery is to be made." Now §3(21) of the 1984 Act as amended, 46 U.S.C. app. §1702(21), the definition provides: "'shipper' means - (A) a cargo owner; (B) the person for whose account the ocean transportation is provided; (C) the person to whom delivery is to be made; (D) a shippers' association; or (E) an ocean transportation intermediary, as defined in paragraph (17)(B) of this section, that accepts responsibility for payment of all charges applicable under the tariff or service contract."
The Petition was filed before the Commission amended its rules. Section 510.23(a), now §515.42(a), is substantively unchanged. For ease of reference, in this Order we refer to the rule by the new section number.
2. This group consists of the Westbound Transpacific Stabilization Agreement, the Transpacific Westbound Rate Agreement, the Mediterranean North Pacific Coast Freight Conference, and the Trans-Atlantic Conference Agreement.
3. In HUAL, the Commission charged the carrier with violations of sections 10(b)(1), 10(b)(4), 19(d)(1) and 19(d)(4) of the 1984 Act for having entered into service contracts with parties ineligible for such contracts. The case was dismissed on October 26, 1998, upon approval of a settlement in which HUAL stipulated to violations and acknowledged that freight forwarders acting in their capacity as freight forwarders could not enter into service contracts. In Fact Finding Investigation No. 15, the investigating officer concluded that ocean freight forwarders could not be considered shippers under the 1984 Act.
4. New York Foreign Freight Forwarders & Brokers Ass'n v. Federal Maritime Commission, 337 F2d 289, 297 (2nd Cir., 1964) and Norman G. Jensen, Inc. v. Federal Maritime Commission, 493 F.2d 1053, 1056 (8th Cir., 1974).
5. NCBFAA cites Census Bureau rules at 15 C.F.R. §30.7(d)(1) and a rule of the Bureau of Export Administration, 15 C.F.R. § 758.4(c), as requiring ocean freight forwarders who obtain export licenses on behalf of foreign principals to be shown on the export declaration and the bill of lading as exporter of record and shipper respectively.
6. Section 515.42(a), Disclosure of Principal, provides: "The identity of the shipper must always be disclosed in the shipper identification box on the bill of lading. The licensed freight forwarder's name may appear with the name of the shipper, but the forwarder must be identified as the shipper's agent."
7. NCBFAA points out that none of the enforcement proceedings in which the issue has been raised has gone to decision - they have been settled, offering no precedent or guidance to the industry. The respondent's stipulation to violations in HUAL, NCBFAA argues, does not constitute an adjudication of the issue and thus creates no precedent.
8. In our view, if a broker is performing some function beyond that of acting purely and exclusively as a traffic solicitor and sales agent for carriers on a shipment-by-shipment basis, and if it is shown that either by agreement with the owners of the goods, or by habitual acquiescence, the broker is in fact exercising control of the transportation, by selecting carriers and routing shipments, then the inference should be drawn that this control facilitates the broker's performance of his functions or serves the owner's convenience. In other words, if the owners are in fact choosing not to exercise their legal right to control the transportation, but are in fact delegating this power to the broker, it should be inferred that they have valid business reasons for doing so. If in fact the broker exercises working control of the transportation, he can qualify as a contract shipper.
Dixie Midwest Exp., 132 M.C.C. at 815.
9. NCBFAA erroneously identifies Fact Finding Officer David R. Miles as "a staff employee of BOE." Petition at 6. BOE appears as a party in some proceedings before the Commission; the designated Fact Finding Officer was and is a member of the Commission's staff in the Office of the General Counsel, which advises the Commission in proceedings.
10. The Commission did act on other suggestions of the Fact Finding Officer, such as by clarifying that a shippers' association need not secure a business review letter from the Department of Justice prior to contract negotiations. 24 S.R.R. at 1210. See 46 C.F.R. § 571.1 (1998).
11. The proposed rule alternatively permitted a freight forwarder to sign a service contract in its capacity as forwarding agent for and on behalf of a named contract party, but required that it submit written authorization for such signature to the carrier party to the contract, to be filed, in confidence, with the service contract.
12. The parties' arguments refer to present Census Bureau and BXA rules. However, both agencies are considering changes to those rules as they relate to the persons or entities which may be reflected as the "exporter of record" or "exporter" under the cited rules. 63 FR 41979 (August 6, 1998) (Census Bureau). Neither agency has issued new final rules. Our consideration of the issue is limited to the existing rules. We note, however, that the existence of the rulemaking proposals confirms our view that the differing roles and statutory purposes of the agencies involved argue against the suitability of the regulatory definition of "shipper" sought here by NCBFAA.
13. Among the freight forwarder duties specified in the Commission's rules is the obligation to exercise "due diligence to assure that all information provided to its principal or provided in any export declaration, bill of lading, affidavit, or other document which the licensed freight forwarder executes in connection with a shipment is accurate." 46 C.F.R. § 515.32(c). See also former §§ 510.21(f) and 510.22(b)-(c).
14. Commissioner Moran's dissenting opinion suggests that the Commission has demonstrated reluctance to "provide guidance and certainty as to whether there are circumstances in which a freight forwarder may be a shipper." The Commission in fact provides such guidance in the course of discussing the issues raised in the Petition. Additional or more detailed guidance is not likely to emerge from a rulemaking proceeding addressing the same issues presented in the Petition, nor would initiation of the rulemaking proposed by Petitioner provide the Commission with industry insight different from what we have already received in response to publication of the Petition.
Further, the Petition itself is not a general call for an exploration of ways to minimize regulation and to maximize private sector flexibility, nor has the Commission rejected the Petition "out-of-hand" as suggested by the dissent. NCBFAA has presented a specific proposal which we conclude, based on careful review, would contravene the letter of the law which went into effect fewer than three months ago. Our denial of the Petition is not premised on any reluctance to reduce unnecessary restrictions or to redefine how we can best perform our responsibilities under OSRA; the NCBFAA has not requested regulatory relief through the exemption process. Rather, our decision is based on the rights and responsibilities assigned carriers, shippers and intermediaries by Congress in the course of its very recent overhaul of the regulatory scheme governing shipping. Those fundamental statutory determinations must be respected by the Commission.
15. Commissioner John A. Moran's dissent is attached.
Commissioner John Moran's statement of dissent concerning NCBFAA's petition to institute a rulemaking proceeding, or in the alternative, for a declaratory order to address the scope of the term "shipper" as defined in section 3(23) (now section 3(21)) of the Shipping Act of 1984, as amended, and to amend the Commission's Rules at 46 C.F.R. § 510.23 (a) (now § 515.42(a)).
I recognize that there are several good reasons for the Commission to deny the petition of the National Customs Brokers and Freight Forwarders Association of America (NCBFAA), including the fact that just last October Congress passed and the President signed the Ocean Shipping Reform Act (OSRA). I also know that the question of who may properly act as a "shipper" within the meaning of the Shipping Act of 1984 has been before the Commission in one form or another on several occasions over the past several years. Furthermore, I am sensitive to the regulatory responsibilities of the Commission and the "long-standing requirement for some degree of transparency and openness in the dealings of licensed ocean freight forwarders." I believe, however, that the petition offers the Commission a real opportunity and challenge following the enactment of OSRA and I am not prepared to reject out-of-hand NCBFAA's petition to initiate a rulemaking.
First, I believe the Commission has the responsibility to provide clear, prospective guidance and certainty -- to the extent it can -- with respect to what is permissible under the Shipping Act. Whenever possible, this guidance should be determined in a proceeding where all interested parties have the opportunity to be heard.
Second, a major challenge for the Commission arising out of the Ocean Shipping Reform Act is to explore ways to further reduce regulatory costs and burdens that limit market flexibility without serving substantial regulatory interests or needs. The clear policy objective of OSRA is "to promote the growth and development of United States exports through competitive and efficient ocean transportation and by placing a greater reliance on the marketplace." In addition, OSRA liberalized the Commission's exemption authority making it easier for the Commission to use. Congress expects the Commission to consider additional ways to reduce unnecessary regulatory restrictions. I understand that there may be legitimate and substantial concerns about whether the definition of shipper suggested by the NCBFAA would undermine the FMC's responsibilities under OSRA. But in this case and others, the Commission should proactively search for ways to maximize private sector flexibility and competition and accomplish the Commission's mission in the least costly, least restrictive, and least burdensome manner possible. A rulemaking provides the Commission an opportunity to do that.
Therefore, I am dissenting from the order denying the petition. I would vote to initiate a rulemaking in which all interested parties could be heard to consider whether the Commission can provide some guidance and certainty as to whether there are circumstances in which a freight forwarder may be a shipper.