The Federal Maritime Commission Newsroom

News

Proposed Rule - Docket No. 05-05 - Non Vessel Operating Common Carrier Service Arrangements


Issued August 3, 2005

FEDERAL MARITIME COMMISSION

46 CFR Part 531

Docket No. 05-05

RIN 3072-AC31

Non-Vessel-Operating Common Carrier Service Arrangements


Agency: Federal Maritime Commission.

Action: Notice of Proposed Rulemaking.

Summary: The Federal Maritime Commission is proposing changes to its exemption for non-vessel-operating common carriers (NVOCCs) from the tariff publication requirements of the Shipping Act of 1984. The proposed rule would revise the exemption to allow NVOCCs and shippers’ associations with NVOCC members to act as shipper parties in NVOCC Service Arrangements.

Dates: Submit original and 15 copies of comments (paper), or e-mail comments as an attachment in WordPerfect 10, Microsoft Word 2003, or earlier versions of these applications, no later than August 23, 2005.

Addresses: Address all comments concerning this proposed rule to:

Bryant L. VanBrakle
Secretary
Federal Maritime Commission
800 North Capitol Street, N.W., Room 1046
Washington, D.C. 20573-0001
Secretary@fmc.gov

For further information contact:

Amy W. Larson, General Counsel
Federal Maritime Commission
800 N. Capitol St., N.W.
Washington, D.C. 20573-0001
(202) 523-5740
generalcounsel@fmc.gov 

Supplementary Information:

I. Background


On January 19, 2005, a final rule of the Federal Maritime Commission (“FMC” or “Commission”) exempting non-vessel-operating common carriers (“NVOCCs”) from certain tariff publication requirements of the Shipping Act of 1984, 46 U.S.C. app. 1701 et seq. (“Shipping Act”), became effective. 69 Fed. Reg. 75850 (December 20, 2004). The rule was issued pursuant to the Commission’s authority under section 16 of the Shipping Act, 46 U.S.C. app. 1715. The exemption enables individual NVOCCs to offer NVOCC Service Arrangements (“NSAs”) to NSA shippers, provided that such NSAs are filed with the Commission and their essential terms are published in the NVOCC’s tariff. The rule defines an NSA as “a written contract, other than a bill of lading or receipt, between one or more NSA shippers and an individual NVOCC 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 time period, and the NVOCC commits to a certain rate or rate schedule and a defined service level.” 46 CFR 531.3(p). The rule also defines an “NSA shipper” as a cargo owner, the person for whose account the ocean transportation is provided, the person to whom delivery is to be made, or a shippers’ association. 46 CFR 531.3(o). This definition, however, specifically excludes NVOCCs and shippers’ associations with NVOCC members. Id.

The Commission previously stated that it would continue to consider how it could remove the limitations on shipper participation while ensuring the criteria of section 16 were met. 69 Fed. Reg. at 75852. The Commission now proposes to remove those limitations.


II. Discussion

An NVOCC is defined by the Shipping Act as “a common carrier that does not operate the vessels by which the ocean transportation is provided, and is a shipper in its relationship with an ocean common carrier.” 46 U.S.C. app. 1702(17)(B). An NVOCC simultaneously holds two transportation roles – as a carrier vis-à-vis the shipper to which it offers service, and as a shipper vis-à-vis the ocean common carrier from which it obtains service. 
The Commission was concerned that a court could interpret section 7(a)(2) of the Shipping Act, 46 U.S.C. app. 1706(a)(2), to immunize NVOCCs acting under filed NSAs from the antitrust laws. Cf. United States v. Tucor, 189 F.3d 834 (9th Cir. 1999) (holding 46 U.S.C. app. 1706(a)(4) immunized a price-fixing arrangement among NVOCCs related to the foreign inland provision of services). Therefore, the exemption did not allow NVOCCs either individually or as members of shippers’ associations to act as NSA shippers. 46 CFR 531.3(p).

On June 14, 2005, the U.S. Court of Appeals for the Fourth Circuit found, inter alia, that price fixing by two NVOCCs was not immunized from the antitrust laws by section 7(a)(2). United States of America v. The Pasha Group and Gosselin World Wide Moving, N.V., ___ F.3d. ___, 2005 WL 1389531, Slip Op. No. 04-4877 (4th Cir. June 14, 2005), reh’g denied, July 12, 2005 (“Gosselin”). Finding the case factually distinguishable from Tucor, the Fourth Circuit declined to decide whether conduct by NVOCCs could ever be immune from the antitrust laws under the Shipping Act, thus leaving the issue unsettled. Gosselin, Slip Op. at 11-12; 17 n.3. 

We disagree with Tucor’s broader holding that the Shipping Act may be read to immunize any price-fixing agreement among NVOCCs from the antitrust laws. We continue to believe that the rationale of Tucor is incorrect, and that its precedential value is limited to section 7(a)(4).

With respect to the limitations the Commission placed on who may act as an NSA shipper, the agency was concerned that price fixing between NVOCCs acting as shippers and NVOCCs acting as carriers would adversely affect the price eventually paid by the end-user, i.e., the beneficial cargo owner. However, unlike horizontal price fixing, collusion is not inherent in an arrangement between an NVOCC acting as a carrier and an NVOCC acting as a shipper. Instead, a reduction in competition or detriment to commerce would occur only if (1) two or more NVOCCs chose to collude in violation of the antitrust laws; and (2) in the event of prosecution, the antitrust laws were then deemed not to apply to those NVOCCs because of the Tucor analysis.
With regard to NVOCC coordination through shippers’ associations, it may similarly be the case that ill effects on beneficial cargo interest shippers are unlikely. It appears that shippers’ associations function only as buyers’ collectives, and it is unlikely that shippers’ associations with NVOCC members purchasing space pursuant to NSAs could effectively coordinate their resale of that space under the auspices of a shippers’ association. Were they to do so, it is clear that they would no longer meet the U.S. Department of Justice’s “safe harbor” provisions for joint purchasing agreements, and would likely be subject to enforcement action. See Antitrust Division Response to Request for Business Review Letter – Household Goods Forwarders Association of America, Inc., September 19, 1985, B.R.L. 85-21, 1985 WL 71889 (DOJ) (unopposed because there was no collective rate making or discussions and because the negotiation of rates for services in a market substantially controlled by the group expressly was not authorized).

On the basis of the above, it appears that amending the exemption to allow NVOCCs and shippers’ associations with NVOCC members to act as shippers in NSAs may satisfy the dual criteria of section 16. The Commission seeks comment on whether the proposed rule would or would not result in a substantial reduction in competition or be detrimental to commerce. 

III. The Proposed Revisions

For the foregoing reasons, the Commission proposes to make the following changes to 46 CFR Part 531. First, the Commission proposes the deletion of the last sentence of 46 CFR 531.3(o), which currently reads: “The term does not include NVOCCs or shippers’ associations whose membership includes NVOCCs.” The Commission proposes a revised definition that would mirror its definition of shipper in the Shipping Act. 46 U.S.C. app. 1702(21). The revised provision would thus read, “NSA shipper means a cargo owner, the person for whose account the ocean transportation is provided, the person to whom delivery is to be made, a shippers' association, or an ocean transportation intermediary, as defined in section 3(17)(B) of the Act, that accepts responsibility for payment of all applicable charges under the NSA.”

Second, the Commission proposes to revise the final sentence of 46 CFR 531.6(c)(2) to insert the phrase “acting as carrier” to describe which tariff appropriately may be cross-referenced, to read thus:

(c) Certainty of terms. The terms described in paragraph (b) of this section may not:

[. . . ]

(2) Make reference to terms not explicitly contained in the NSA itself unless those terms are contained in a publication widely available to the public and well known within the industry. Reference may not be made to a tariff of a common carrier other than the NVOCC acting as carrier party to the NSA. 

Third, for similar reasons the Commission proposes to insert the same phrase in 46 CFR 531.5 (a), as follows: “(a) The duty under this part to file NSAs, amendments and notices, and to publish statements of essential terms, shall be upon the NVOCC acting as carrier party to the NSA.” 

Finally, the Commission proposes a provision to mirror the prohibition of the Shipping Act from concluding contracts with NVOCCs who are not in compliance with the Shipping Act. 46 U.S.C. app. 1709(b)(12).


IV. Statutory Reviews and Requests for Comment

In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., the Chairman of the Federal Maritime Commission certifies that this rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. The Commission recognizes that the majority of businesses that would be affected by this rule qualify as small entities under the guidelines of the Small Business Administration. The proposed rule, however, would broaden the optional method for NVOCCs to carry cargo for their customers to be used at their discretion. The rule would pose no economic detriment to small business entities.

This regulatory action is not a Amajor rule@ under 5 U.S.C. 804(2).

The collection of information requirements contained in this proposed revision to 46 C.F.R. Part 531 have been submitted to the Office of Management and Budget (AOMB@) for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The estimated total annual burden for the estimated 635 annual respondents is 190,252 manhours. This estimate includes, as applicable, the time needed to review instructions, develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to respond to a collection of information, search existing data sources, gathering and maintain the data needed, and complete and review the collection of information; and transmit or otherwise disclose the information.

Send comments regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Derek O. Scarbrough, Deputy Director/Chief Information Officer, Office of Administration, Federal Maritime Commission, 800 North Capitol Street, N.W., Washington, D.C. 20573 or by electronic mail to cio@fmc.gov; and to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for the Federal Maritime Commission, Washington, D.C. 20503. Please reference the information collection’s title and OMB number in your comments. A copy of the OMB submission may be obtained by contacting Jane Gregory by telephone at (202) 523-5800 or by electronic mail at jgregory@fmc.gov.

List of Subjects for 46 CFR Part 531

Exports, Non-vessel-operating common carriers, Ocean transportation intermediaries.

For the reasons set forth in the preamble, the Federal Maritime Commission proposes to amend 46 CFR Part 531 as follows:

1. The authority citation for Part 531 continues to read as follows:

Authority: 46 U.S.C. app. 1715.

2. Revise paragraph (o) of § 531.3 to read as follows:

§ 531.3 Definitions.

* * * * *

(o) NSA shipper means a cargo owner, the person for whose account the ocean transportation is provided, the person to whom delivery is to be made, a shippers' association, or an ocean transportation intermediary, as defined in section 3(17)(B) of the Act, that accepts responsibility for payment of all applicable charges under the NSA.

* * * * *

3. Revise paragraph (a) of § 531.5 to read as follows:

§ 531.5 Duty to file.

* * * * *

(a) The duty under this part to file NSAs, amendments and notices, and to publish statements of essential terms, shall be upon the NVOCC acting as carrier party to the NSA.

* * * * *

4. Revise the final sentence of paragraph (c)(2) of § 531.6 to read as follows:

§ 531.6 NVOCC Service Arrangements.

* * * * *

(c) * * *

(2) Make reference to terms not explicitly contained in the NSA itself unless those terms are contained in a publication widely available to the public and well known within the industry. Reference may not be made to a tariff of a common carrier other than the NVOCC acting as carrier party to the NSA.

* * * * *

5. Add new paragraph (d)(4) to § 531.6 to read as follows:

§ 531.6 NVOCC Service Arrangements.

* * * * * 

(d) * * *

(4) No NVOCC may knowingly and willfully enter into an NSA with an ocean transportation intermediary that does not have a tariff and a bond, insurance, or other surety as required by sections 8 and 19 of the Act.

* * * * *



Bryant L. VanBrakle
Secretary