FMC Floats Fixes to Unreasonable Carrier Conduct Rule

The Federal Maritime Commission this week released a revised version of its proposed rule on unreasonable carrier conduct to amend and add to a rulemaking that was widely criticized by shippers and lawmakers last year (see 2301250032, 2211090026 and 2210280051). The new supplemental proposed rule offers new definitions, clarifications, edits and additions that the FMC hopes will allow it to better implement a congressional mandate to address ocean carriers that refuse vessel space to shippers.

The proposed rule builds on and revises several areas of its September 2022 rule (see 2209130040), including a revised definition for the term “unreasonable” and a non-exhaustive list of unreasonable conduct scenarios; a clarification that vessel space services are already included in the definition of vessel space accommodations; and a proposal to define a “documented export policy” that carriers must use. The rule also proposes to require that carriers submit their documented export policy to the FMC annually and revises the definition of "transportation factors" to “focus on vessel operation considerations,” among other things.

Comments on the proposed changes are due July 31.

Among the changes in the proposed rule, mandated by the Ocean Shipping Reform Act, is a definition for “unreasonable,” which now is defined as “ocean common carrier conduct that unduly restricts the ability of shippers to access ocean carriage services.” The rule also includes a set of examples that may qualify as unreasonable carrier conduct, including:

• Blank sailings or schedule changes with insufficient advance notice
• Vessel capacity limitations not justified by legitimate transportation factors
• Failing to alert or notify shippers with confirmed bookings
• Scheduling insufficient time for vessel loading so that cargo is constructively refused
• Providing inaccurate or unreliable vessel information
• Categorically or systematically excluding exports in providing cargo space accommodations
• Any other conduct the Commission finds unreasonable

The FMC said it wanted to list specific scenarios because shippers may “find it more difficult to identify and litigate claims for unreasonable refusals” without a “clearer indication from the Commission of conduct covered by that provision.” It also said its investigation and enforcement arm would have likely been forced to “devote considerable resources to litigating how an ‘unreasonable refusal’ should be defined and the elements required to prove a violation of that provision.”

The proposed rule also defines a “documented export policy” to mean a “written report produced by an ocean common carrier that details the ocean common carrier’s practices and procedures for U.S. outbound services.” The FMC said it received requests from several trade groups to craft a formal policy governing carriers' export strategies, particularly after shippers complained about carriers sending empty containers back overseas rather than filling them with exports because the carriers can charge higher rates for imports (see 2104280031).

But the FMC also noted that trade groups representing carriers, including the World Shipping Council, said export strategies are constantly evolving and are “sensitive business documents,” saying they shouldn’t be required to be given to the commission once a year. WSC also said it was concerned the “lack of an export strategy might be considered a per se indicator of unreasonableness.”

The commission said “that is not the intent behind the inclusion of this provision. The intent is to provide carriers with the opportunity to document that their actions align with a documented export policy.” The FMC also noted that a “cursory glance at the continued decline in containerized exports carried by some ocean common carriers raises the question about the carriers’ operations concerning export trades.”

The FMC said it’s justified in requiring carriers to maintain and report on their export policies because they can “shed light on what an individual ocean common carrier’s best business practice would generally be and whether it was adhered to in an individual case.” Proposing that carriers submit their policy annually “is an important part of monitoring the industry for unreasonable behavior vis-à-vis exports in an effort to address those concerns.”

Other proposed changes include a definition of “transportation factors,” which could impact how the FMC determines whether a carrier’s conduct is unreasonable. When making that determination, the FMC would be required to take into consideration whether there were “legitimate transportation factors” that explained the carriers’ conduct. The FMC proposed to define those as any factors that “encompass the vessel operation considerations underlying an ocean common carrier’s ability to accommodate laden cargo for import or export.” They may include:

• Vessel safety and stability
• Weather-related scheduling considerations
• Other factors related to vessel operation outside the vessel operators’ control.

The FMC’s original proposed rulemaking included “legitimate business factors” in the definition, which was met with strong pushback from shippers. The commission said several commenters, for example, suggested that carriers would use “legitimate business factors” to “justify rejecting entire classes of cargo, such as hazardous materials.”

"The Commission clarifies that this reference is not intended to allow ocean common carriers to wholesale refuse to deal or negotiate with respect to carriage of certain categories of cargo, such as hazardous materials,” the FMC said. The new definition focuses the scope “more squarely on vessel operation considerations,” it said.

The revised proposed rule addresses a range of other issues brought up by commenters and stressed that blank sailings by carriers were among the “primary drivers that prevented them from getting their cargo to overseas markets.” The FMC also said it’s working on a separate rule to implement an OSRA provision that requires it to define unfair or unjustly discriminatory methods, which will “define different terms than those defined in this” rule.

The FMC said it hopes these proposed changes better target disadvantages plaguing U.S. exporters in the ocean maritime market. “U.S. exporters are in an untenable position if they cannot rely on vessels calling at U.S. ports to load and transport their cargo to overseas destinations as scheduled or agreed to by the ocean common carrier,” the commission said. “The longer reliability issues persist, the more harm U.S. exporters will suffer and the more difficult it will be to restore lost confidence in ocean transportation for U.S. exports.”