FMC Releases Final Fact Finding Recommendations, Stresses Mutually Enforceable Contracts

Commissioner Rebecca F. Dye of the Federal Maritime Commission (FMC or the Commission) has released her Final Report for Fact Finding 29 titled "The Effects of COVID-19 on the U.S. International Ocean Transportation Supply Chain." The report, issued on May 31, 2022, is the culmination of a detailed two-year investigation aimed at identifying operational solutions to cargo delivery system challenges related to the COVID-19 pandemic. (See Holland & Knight's previous alert, "FMC Issues Fact Finding Order in Response to COVID-19 Challenges," March 31, 2020.)

In her first set of recommendations, which were released in July 2021, Dye presented eight Interim Recommendations, and to date, the FMC has implemented all recommendations that did not require legislative action. Shortly thereafter, the FMC announced in September 2021 that it would move forward with two demurrage-and-detention related initiatives proposed by Dye as part of Fact Finding 29. (See Holland & Knight's previous alert, "FMC Announces Actions to Address Demurrage and Detention Charges," Sept. 16, 2021.)

Final Report Recommendations and Findings

In her Final Report, which includes her second set of recommendations, Dye made the following 12 recommendations:

• a new FMC "International Ocean Shipping Supply Chain Program"
• a rulemaking to provide coherence and clarity on Empty Container Return practices
• a rulemaking to provide coherence and clarity on Earliest Return Date practices
• continued support for the new FMC "Ocean Carrier Compliance Program," including a new requirement for ocean common carriers, seaports and marine terminals to employ an FMC Compliance Officer
• an FMC outreach initiative to provide more information to the shipping public about FMC competition enforcement, service contracts, forecasting and shippers associations, among other topics
• enhanced cooperation with the federal agency most experienced in agricultural export promotion, the U.S. Department of Agriculture, concerning container availability and other issues
• a Commission investigation into practices relating to the numerous charges assessed by ocean common carriers and seaports and marine terminals through tariffs
• a rulemaking to provide coherence and clarity on merchant haulage and carrier haulage
• a new "National Seaport, Marine Terminal, and Ocean Carrier Advisory Committee" to work cooperatively with the FMC's National Shipper Advisory Committee
• a revival of the Export Rapid Response Team program as agreed upon by all ocean carrier alliance CEOs
• an FMC Supply Chain Innovation Teams engagement to discuss blank sailing coordination and information availability
• a reinvigorated focus on the extreme supply chain equipment dislocations in Memphis railheads and other rail facilities throughout the country

The Final Report also includes a number of findings and conclusions concerning freight rates, market competition, billing practices and FMC enforcement matters. Interestingly, Dye's findings indicate that the number of major ocean carriers in the trans-Pacific and trans-Atlantic trades decreased from 20 in 2015 to 11 by 2022. Despite this consolidation, and the advent of the three containership lines' alliances in the interim, Dye found that the market for container shipping services is "vigorous." She also highlighted that in order to meaningfully address bottlenecks in the supply chain and generally make the supply chain more efficient, "shippers and ocean carriers [need to] move beyond vague and unenforceable rate agreements."

Takeaways and Considerations

Dye's analysis regarding rate agreements raises an interesting regulatory issue. The FMC's regulations at 46 CFR §530.3(q) require that in order for a carrier-shipper "service contract" to qualify for exemption from tariff rates, the carrier must "commit to a certain rate or rate schedule and a defined service level." If, as the FMC's report indicates, current rate agreements are "vague and unenforceable," such agreements would not seem to be eligible "service contracts" under the regulations. The FMC has examined and sometimes rejected filed service contracts for having an insufficient carrier service commitment to the shipper. But these agreements, at least for now, are exempted from filing, and the sufficiency of the carriers' service obligations is seldom challenged by the FMC or shippers.

Dye's report comes nearly six months after the U.S. House of Representatives passed the Ocean Shipping Reform Act of 2021 and two months after the U.S. Senate passed the Ocean Shipping Reform Act of 2022. If Congress reaches an agreement on consolidating the legislation, it would increase the FMC's regulatory clout and require the Commission to undertake additional rulemakings.

The Final Report's suggestions that the FMC continue to closely scrutinize containership lines' competitive pricing and practices, demurrage and detention practices, and freight fluidity issues are consistent with the Biden Administration's ongoing efforts to tackle supply chain disruptions. This is also in line with the cross-collaboration between the U.S. Department of Justice's Antitrust Division and FMC – both of which have announced their intention to address perceived collusive supply chain schemes. (See Holland & Knight's previous alert, "Biden Administration Intensifies Offensive Against Ocean Shipping Industry," March 1, 2022.)

For specific questions on how the FMC initiatives could affect your organization, please contact the authors or another member of Holland & Knight's Maritime Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.