Ocean carriers warn FMC against regulating prices

WASHINGTON — Revisions made to a proposed rule aimed at curbing the ability of container ship carriers to refuse to provide vessel space to their customers has delved into the dangerous area of price regulation, according to the carriers.

In a rulemaking proposed last year, the U.S. Federal Maritime Commission attempted to define what is an “unreasonable refusal to deal or negotiate” the vessel space that carriers provide for their customers’ containers.

After both carriers and shippers took issue with the agency’s effort to modify the regulations — with carriers calling the proposal overly burdensome and their import and export customers contending it didn’t go far enough — the FMC revised the proposal through a supplemental notice of proposed rulemaking (SNPRM) issued in June.

But carriers say the revised proposal strays even further from what they consider to be reasonable modifications to improve customer protections.

They point to a provision that would allow the agency, in evaluating whether an ocean carrier’s refusal to deal or negotiate on vessel space is reasonable, to consider a list of factors that includes when carriers quote rates “that are so far above current market rates they cannot be considered a real offer or an attempt at engaging in good faith negotiations.”

The Pacific Merchant Shipping Association (PMSA), which represents ocean carriers and marine terminal operators at U.S. West Coast ports, said such a provision would make it “hard to ascertain where the FMC intends to draw the line such that it does not act as a pricing regulator,” stated PMSA Vice President Mike Jacob.

“The commission has no authority to regulate prices,” asserted the World Shipping Council (WSC), which claims to represent 90% of the world’s liner vessel services. “There is no scenario under which an agency that does not have authority to regulate rates can permissibly use rate levels as a measure of reasonableness, and that legal reality is the end of the matter.

“Clear law aside, the commission’s proposal cannot work as a practical matter,” WSC added. “How high is too high, and on what basis is the commission to decide?”

Carriers also pointed to what they consider to be another dangerous revision proposed by the FMC, which would require carriers to file with the agency an annual export policy.

The policy, according to the revised proposal, would include submitting the carrier’s pricing strategies, services that it offers, its strategies for providing container equipment, and descriptions of the markets it serves. The carriers want the provision removed.

“Revealing intricate details of a company’s strategies to the greater public can put businesses at a significant competitive disadvantage,” according to container ship operator Hapag-Lloyd (America) LLC.

“In the global market, companies must safeguard their trade secrets, market research, pricing structures, and supply chain information to maintain their edge over competitors. If any of this critical information becomes publicly accessible, it may be exploited by rival companies, leading to a loss of competitive advantage and potential market share erosion. As a result, ocean carriers may become hesitant to innovate or invest in export strategic initiatives if their proprietary data is not adequately protected.”

Container ship operator Maersk warned that having to create an export policy would not only add costs, but would not support the goals of the FMC.

“The regulation should not transform the Shipping Act into a loaded gun pointed at ocean carriers for each difficult negotiation with individual customers about vessel space in a tight demand market,” stated Douglas Morgante, Maersk Agency USA’s vice president of government relations.

“We are not aware of any comments … that identified shipper-ocean carrier contract practices as unreasonable and the root cause of shipper capacity problems.”

Shippers support changes

In contrast, carrier customers, which pushed the FMC to make the proposed rule more restrictive toward ocean carriers, were mostly happy with the changes.

Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), said that providing a broader basis for determining if a carrier’s refusal to provide vessel space is reasonable is “one of the most important revisions” made by FMC.

Specifically, AgTC supports the FMC’s revision replacing carriers’ pursuit of “profitability” and “compatibility with business development strategy” with “transportation factors” in determining if they are reasonably rejecting exports.

Such factors include “vessel safety and stability, weather-related scheduling considerations and other factors related to vessel operation outside the vessel operators’ control,” according to the proposal.

“Fortunately, the supplemental rule now rejects … pursuit of maximized revenue as a reasonable justification for export cargo denial,” Friedmann said.

The Retail Industry Leaders Association (RILA), whose members account for more than $1.5 trillion in annual sales and include nine of the 15 largest importers in the U.S., wants the FMC to go a step further by including an import policy as well as an export policy.

“Importers have also been negatively impacted by unreasonable carrier conduct — schedule changes with no or insufficient advance notice, receiving inaccurate and unreliable information, quotation of unreasonable rates, etc. — and not just during the pandemic,” commented Sarah Gilmore, RILA’s director of government affairs.

“Requiring carriers to submit and follow an annual documented import policy would allow the commission and interested stakeholders to examine whether a carrier’s behavior is fair and reasonable across all types of transactions, and otherwise consistent with the [U.S.] Shipping Act. Similarly, whether or not a carrier adhered to that policy should be added as a consideration for the commission … when it considers whether the carrier’s conduct is unreasonable.”

Related articles:

• Maersk: Downturn on predicted course, liners acting ‘rationally’
• New FMC rule expands shippers’ eligibility for carrier refunds
• FMC needs more staff to enforce ocean shipping reforms

Click for more FreightWaves articles by John Gallagher.

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