Carriers Criticize, Shippers Support FMC’s Revised Unreasonable Carrier Conduct Rule

While most shippers applauded the Federal Maritime Commission’s revised proposed rule on unreasonable carrier conduct, carriers urged the commission to again amend the wording, saying it unfairly favors exporters and stretches beyond the authority granted to the FMC by the Ocean Shipping Reform Act of 2022. Several major carriers said the commission should narrow the rule’s proposed definition for “unreasonableness,” allow carriers to rely on “legitimate business factors” as a reason for why they may refuse cargo space, remove the rule's documented export policy requirement and revise other proposals they say disadvantage carriers.

The World Shipping Council, which represents many of the world’s leading carriers, said the FMC is “impermissibly attempting to use its regulatory authority to recast OSRA 22 as an export focused statute,” calling some of the rule’s proposed provisions illegal. “The Commission’s approach is not authorized by the statute” and “must be withdrawn.”

The latest round of public comments, released this week, comes after months of work by the FMC to revise a proposed September 2022 rule, mandated by OSRA, that sought to define unreasonable carrier conduct (see 2209130040). That initial rule was widely panned by shippers and lawmakers, who said it missed congressional intent and wouldn’t solve the issue of carriers unfairly declining to take exports in favor of imports (see 2301250032 and 2211090026).

The FMC proposed a new version of the rule in June, which offered new definitions, clarifications, edits and additions, including a revised definition for the term “unreasonable” (see 2306120075). In comments this week, the WSC said the new definition is “so vague that any conduct could fit into the Commission’s definition of unreasonable.”

Mediterranean Shipping Company made similar points, saying the FMC needs to “provide clarity and regulatory certainty to carriers, shippers, and finders of fact as to what actions the Commission believes constitute reasonable or unreasonable behavior.” Hapag-Lloyd said blank sailings should be removed from the proposed set of examples that may qualify as unreasonable carrier conduct.

The carriers also asked the FMC to eliminate a proposal that would require them to submit their documented export policy to the FMC annually, and which would allow the FMC to use those export policies as a factor when considering unreasonableness. Hapag-Lloyd said requiring carriers to craft and disclose an export policy and strategy “will impose a significant administrative burden” on ocean carriers and put them at a “significant competitive disadvantage.” If any of their “critical information becomes publicly accessible,” the carrier said, “it may be exploited by rival companies, leading to a loss of competitive advantage and potential market share erosion.”

WSC said there is “no authority” in OSRA or other U.S. shipping regulations that allows the FMC to “impose an export policy requirement on ocean carriers or use a required export policy as a factor in determining reasonableness." The council also said the commission didn’t “adequately” explain how an export strategy document “can be used as a benchmark for determining reasonableness, rendering it arbitrary, capricious, and not in accordance with the law.” The proposal is an “unprecedented Commission interference with commercial businesses that is untethered to any statutory authority and is plainly unlawful," WSC said.

Carriers also urged the FMC to include “legitimate business factors” back in the definition of “legitimate transportation factors” that the FMC would be required to consider when evaluating a carriers’ potentially unreasonable conduct. The commission said it removed “business factors” from the definition after shippers said the factor would allow carriers to rely on profit-driven motives when rejecting cargo.

But this “ignores the fact that Hapag-Lloyd is a business and profit is important to ensuring a competitive and sustainable service,” the carrier said. It added that business factors “include far more considerations besides profit,” such as employee safety.

“Ocean carriers are more than simply vessels on a liner service,” Hapag-Lloyd said. “Ocean carriers have entire shore-based operations to provide intermodal assistance and customer service. Impacts to our non-vessel-based personnel and operations can have a direct impact on the operational success of a voyage and the safety of all personnel involved.”

The Retail Industry Leaders Association disagreed, saying the FMC’s removal of business decisions as criteria for determining reasonableness was an “important step to limiting unreasonable carrier conduct,” saying its members “strongly support” the move.

Shippers also applauded other areas of the rule, including what the American Cotton Shippers Association said is a better defined “standard” for unreasonable conduct. The group also said it “applauds” the FMC for “broadening the scope of this rulemaking” to define carriers’ unreasonable refusals to deal that occur both while negotiations are underway and after a deal has been reached.

"While there may be distinctions in the timing of certain actions of an ocean common carrier that variously constitute unreasonable conduct," the association said, "the short-term costs and long-term harm to U.S. shippers, and to the producers of their goods, are essentially indistinguishable.”

The U.S. Meat Export Federation said the revised proposed rule addresses “many of the concerns” it had with the FMC’s original rule in September, which “fell well short of satisfying the congressional mandate outlined in OSRA.” It said the rule includes a “much more meaningful ‘reasonableness’ standard on carriers that choose to decline export bookings and takes steps to ensure that carriers engage in goodfaith negotiations.”

The U.S. Dairy Export Council and National Milk Producers Federation also applauded the changes, but urged the FMC to also take into account exporters that contract with ocean carriers for rail carriage from an “inland origin” to a coastal port. They said the scope of the FMC’s regulations “under both negotiation and execution should include the intermodal rail movements contracted through the ocean carriers.”

The groups acknowledged that rail is “generally outside the scope of the FMC’s mandate,” but “since these rail shipments are contracted through ocean carriers, it should be accommodated under this rule.” This would better clarify which carrier is responsible for those cargo services and give shippers “a method to seek relief if ocean carrier-contracted rail services are either subject to unreasonable refusal to negotiate, or an unreasonable refusal to provide cargo accommodations.” More than 70 trade groups earlier this year asked Congress to amend shipping regulations to give the FMC jurisdiction over certain fees assessed by railroads under ocean bills of lading (see 2305030079).

The Agriculture Transportation Coalition -- which was one of the staunchest critics of the FMC’s original September rule and accused the commission of promoting ocean carriers’ profits over supporting U.S. exporters (see 2210280051) -- said the new proposed wording “addresses all the criticism head-on.”

AgTC did suggest, however, that the FMC rein in its requirement for carriers to submit annual export policy documents. The requirement “should be tailored” so carriers are required to provide only “essential information” and “no more,” adding that the current wording “appears to be overly broad.”

The group said it agreed with many of the rule’s other proposals. “This second attempt demonstrates how serious the Commission is in meeting the objectives of Congress in OSRA 2022, and how diligently it considered all the comments of US shippers,” AgTC said. “Clearly, the Commission is taking its obligations to the US exporters and importers seriously and should be commended.”