Details of FMC Final Rule on NVOCC Rate Tariffs Exemption, Add'l Comment Request Expected

The Federal Maritime Commission has issued a final rule, effective April 18, 2011, to create a new 46 Part 532 and amend Part 520 to make available to licensed non-vessel-operating common carriers (NVOCCs) a new, voluntary exemption from the requirement to publish rate tariffs, if they agree to Negotiated Rate Arrangements (NRAs) with their shippers.

Comment Request Expected on Foreign NVOCCs, Expanding NRAs, Other Exemptions

The FMC also plans to initiate a process to seek additional comments on potential modifications to the final rule, especially regarding: (1) whether the rule’s exemption should be extended to foreign-based unlicensed NVOCCs; (2) whether NRAs should be expanded to include other economic terms such as credit terms, minimum quantities, etc.; and (3) whether NVOCCs using NRAs should be exempt from certain prohibitions against discriminatory practices and unreasonable preferences.

The rulemaking is in response to a petition filed by the National Customs Brokers and Freight Forwarders Association of America, Inc. (NCBFAA).

Highlights of FMC Responses to Comments

The following are highlights of FMC responses to the 44 comments it received on its May 2010 proposed rule to exempt NVOCCs from the requirement to publish rate tariffs, if they agree to NRAs with their shippers:

Relieving NVOCCs from Rate Tariffs Publishing Will Increase Competition

FMC has concluded that relieving the more than 3,300 NVOCCs from the costs and burdens of publishing in tariffs the rates they charge for cargo shipments will enhance competition and will not be detrimental to commerce.

Must Notify FMC of Initial Intent to Use NRAs in FMC-1 Form

All licensed NVOCCs will need to access the Commission’s FMC-1 form in order to make an initial choice among: (1) moving all cargo pursuant to tariff rates; (2) moving all cargo pursuant to NRAs; or (3) moving cargo either via tariff rates or via NRAs. The Commission intends to modify the FMC-1 form to allow NVOCCs to notify the Commission of their intentions in advance of the effective date of the Final Rule and will make an announcement via its website when the ability to do so is available.

NRA Is Alternative to Published Rates, Currently Can’t Include Other Terms

FMC states that under the final rule, an NRA is an alternative to a published rate and cannot include other economic terms such as credit and payment terms, late payment interest, freight collect or prepay, rate methodology, including minimum quantities, time/volume arrangements, penalties or incentives, the methods for implementation of rate changes, or provisions for arbitration, forum selection for disputes and variance of per-package liability limits. However, FMC will seek more comments on this issue as the Commissioners currently hold differing views on the topic.

Must Enter Into New NRA for Each Transport Service, Cargo Quantity

FMC notes that an NRA, by definition, is a written and binding arrangement between a shipper and an NVOCC to provide specific transportation service for a stated cargo quantity from origin to destination. As such, an NVOCC must enter into a new NRA for each specific transportation service and cargo quantity. However, FMC adds that an NRA may cover more than one shipment as long as all shipments are specified in the NRA.

Must Specify Surcharges If Not “All-in” Rate, Can’t Increase Rates via GRI

FMC states that as is the case with respect to tariff rates, the rate stated in an NRA may specify the inclusion of all charges (all-in rate) or specify the inclusion of only certain accessorials or surcharges. However, if the rate contained in an NRA is not an all-in rate, the NRA must specify which surcharges and accessorials from the rules tariff will apply. To the extent surcharges or accessorials published in the NVOCC’s rules tariff will apply, the NRA must state that the amount of such surcharges and accessorials is fixed once the first shipment has been received by the NVOCC, until the last shipment is delivered. In addition, rates stated in an NRA may not be increased via a General Rate Increase (GRI).

NRAs Can’t Be Modified After Receipt of Cargo by Carrier/Agent

The FMC declines to modify the rule as requested to allow for amendment of an NRA after receipt of the cargo by the carrier or its agent. The Commission states that while NRAs are defined as “written and binding” arrangements, they function more like tariff rates and, like tariff rates, they may not be amended by the parties once the subject cargo has been received. The Commission believes that maintaining the integrity of NRA rates protects both the shipper and the NVOCC.

Must Place Prominent Notice of NRA on BOL or Similar Doc

The final rule has been modified to include a requirement that an NVOCC moving cargo pursuant to an NRA for a particular cargo quantity (either shipment or shipments), must place a prominent notice to that effect on its bills of lading or equivalent documents for that cargo quantity (in addition to the general notice in its rules tariff and its FMC-1 form filed with the Commission).

5 Year Recordkeeping Requirement Begins from NRA Completion Date

The FMC has determined that the 5 year record keeping period required in the final rule should begin from the completion date of performance of the NRA by an NVOCC (rather than the date when the initial shipment is received by the carrier or its agent).

Affiliates of Shipper Entitled to Access NRA Rates

Though not addressed in comments, FMC finds no reason to treat affiliates differently under NRAs than they are treated under NSAs. Therefore, it has added a definition of affiliate to the final rule so that with the mutual concurrence of the NRA parties, affiliates of the shipper are entitled to access the NRA rates, in which case, the names and addresses of eligible affiliates will have to be identified in the NRA.

NVOCC Can Enter Into NRA with Another NVOCC

Although also not addressed by the comments, the FMC says it wishes to make clear that it did not intend to preclude an eligible NVOCC from entering into an NRA with another NVOCC. Accordingly, the term “NRA shipper” has been added to the definition section.

NVOCCs Entering NRAs Not Currently Exempt from “10(b)” Prohibitions

FMC has decided to move forward as proposed and not exempt NVOCCs entering into NRAs from the prohibitions in 46 USC 41104(4) (against unfair or unjustly discriminatory practices) and 41104(8) (against undue or unreasonable preferences). However, FMC will seek additional comments on this issue as the Commissioners hold differing views on the subject.

Foreign Unlicensed NVOCCs Not Currently Eligible for Rate Tariffs Publishing Exemption

At this time, FMC has decided to limit the final rule’s rate tariffs publishing exemption to licensed NVOCCs. Therefore, the exemption will not be extended to the approximately 1,100 foreign-based NVOCCs who are unlicensed. However, it plans to seek additional comments on this issue as the Commissioners currently hold differing views of staff concerns on the topic.

(Staff concerns include a lack of information about the experience and “character” of foreign-based NVOCC, difficulties obtaining information from such entities, concerns about payment of civil penalties, etc. The staff also refutes claims by the trade that limiting the final rule’s exemption to licensed NVOCCs would invite retaliation by foreign countries against U.S.-based NVOCCs. According to FMC staff, these concerns are speculative, because the path to licensure is readily available to foreign-based NVOCCs to the same extent as U.S.-based entities. Foreign unlicensed NVOCCs may apply for and, if qualified, obtain an NVOCC license. Currently, 55 foreign-based NVOCCs hold FMC-issued licenses.)

Highlights of Final Rule

The following are highlights of the final rule:

Licensed/Bonded NVOCCs Exempt from Tariff Rate Publishing if Conditions Met

The final rule exempts duly-licensed and bonded NVOCCs from the tariff rate publication and adherence requirements of the Shipping Act of 1984 (see list below) as long as they meet the following requirements:

Free electronic access to rules tariffs. An NVOCC must provide electronic access to its rules tariffs to the public free of charge prior to entering into an NRA with a shipper.

Ensure NRA requirements are met. For the exemption to apply, the NRA must:

• be in writing;
• contain the legal name and address of the parties and any affiliates; and contain the names, title and addresses of the representatives of the parties agreeing to the NRA;
• be agreed to by both NRA shipper and NVOCC prior to the date on which the cargo is received by the common carrier or its agent (including originating carriers in the case of through transportation);
• clearly specify the rate and the shipment or shipments to which such rate will apply; and
• may not be modified after the time the initial shipment is received by the carrier or its agent (including originating carriers in the case of through transportation).

Indicate intent to invoke exemption. An NVOCC wishing to invoke the exemption must indicate that intention to the FMC and to the public by: (1) a prominent notice in its rules tariff and bills of lading or equivalent shipping documents; and (2) by so indicating on its Form FMC-1 on file with the Commission.

Maintain records. An NVOCC invoking this exemption must maintain original NRAs and all associated records, including written communications, in an organized, readily accessible or retrievable manner for 5 years from the completion date of performance of the NRA by an NVOCC, in a format easily produced to the Commission.

Produce records upon request. If requested, the NVOCC must promptly produce the NRAs and associated records, including written communications. All records produced must be in English or be accompanied by a certified English translation.

(Failure to keep or timely produce original NRAs and associated records and written communications will disqualify an NVOCC from the exemption and may result in a Commission finding of a violation of 46 USC 41104(1) (on false billing), 41104(2)(A) (on services not in accordance with published tariffs, service contracts, etc.) or other acts prohibited by the Shipping Act.)

NVOCCS with NRAs with Shippers Would Be Exempt from Certain Requirements

When the above conditions have been met, the final rule will exempt the NVOCC from the following requirements:

Final Rule’s Definitions

Under the final rule, the following definitions apply:

NVOCC NRA - means a written and binding arrangement between an NRA shipper and an eligible NVOCC to provide specific transportation service for a stated cargo quantity, from origin to destination, on and after receipt of the cargo by the carrier or its agent (or the originating carrier in the case of through transportation).

Rate - means a price stated for providing a specified level of transportation service for a stated cargo quantity, from origin to destination, on and after a stated date or within a defined time frame.

Rules tariff - means a tariff or the portion of a tariff, as defined by 46 CFR 520.2, containing the terms and conditions governing the charges, classifications, rules, regulations and practices of an NVOCC, but does not include a rate.

NRA 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 (46 USC 40102(16)), that accepts responsibility for payment of all applicable charges under the NRA.

Affiliate - means two or more entities which are under common ownership or control by reason of being parent and subsidiary or entities associated with, under common control with or otherwise related to each other through common stock ownership or common directors or officers.

(See ITT’s Online Archives or 02/28/11 news, 11022705, for initial BP summary of FMC posting the final rule.

See ITT's Online Archives or 02/24/11 news, 11022420, for BP summary of NCBFAA's list of options for foreign unlicensed NVOCCs and pointing out limitations of the final rule.

See ITT’s Online Archives or 02/17/11 news, 11021712, for BP summary of the FMC’s February 16 meeting on the rulemaking.

See ITT’s Online Archives or 05/07/10, 10050749, for BP summary of the NRA proposed rule.

See ITT’s Online Archives or 02/09/11 news, 11020924, for BP summary of the trade’s comments on the proposed rule, including the belief that the rule’s exemption should also apply to foreign-based NVOCCS.)

FMC press release, dated 03/01/11, available here.

(D/N 10-03)