FMC Finalizes New Rules Governing Unreasonable Ocean Carrier Conduct

The rule, released July 22, outlines how the FMC will assess whether a carrier violated the commission’s regulations in declining to provide that space. It also adds or updates a range of definitions that the commission will use when evaluating potentially unreasonable carrier conduct, including definitions for “blank sailings,” “cargo space accommodations,” and the set of “transportation factors” that are “reasonably foreseeable” to a carrier and that may require it to provide a shipper another way to deliver its cargo.

The FMC also finalized a new requirement -- over the objections of most ocean carriers -- that will force vessel operating common carriers to file an annual, confidential export policy with the FMC, detailing the carrier’s pricing strategies, the export services they offer and more.

The rule takes effect Sept. 23, except for the new export policy requirement, which is “pending approval” with the Office of Management and Budget, the commission said. The FMC plans to announce that effective date in a separate Federal Register notice.

The FMC began working on this rulemaking in 2022 after the enactment of the Ocean Shipping Reform Act, which called on the commission to better regulate ocean carriers that may be violating shipping laws by refusing vessel space to shippers. The commission issued a notice of proposed rulemaking in September 2022 that was widely criticized 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 commission then spent months revising its proposal before issuing an updated version in June 2023 (see 2306120075). Most shippers said the rule was an improvement, although carriers said it would unfairly favor exporters and stretch beyond the authority granted to the FMC by OSRA (see 2308030052).

The 90-page final rule released this week builds on and revises several portions of the June 2023 proposed rule, but it notably keeps a requirement for ocean carriers to submit annual export policies to the commission. Several carriers had warned the FMC that crafting and disclosing an export policy and strategy would impose a “significant administrative burden” and place them at a “significant competitive disadvantage,” especially if any portion of the policy became public.

But the commission said it plans to keep those export policies confidential, adding that they are meant only to help it “determine whether a particular refusal was reasonable or unreasonable.” The FMC also said it revised the rule to “clearly state that documented export policies and information therein is not disclosable,” although it may compile “aggregate data” from those policies and submit that data in reports to Congress. Those reports “will not reveal confidential information provided by or about individual carriers.”

The rule details how the FMC will assess unreasonable carrier conduct in two separate scenarios. One scenario -- governed by 46 U.S.C. 41104(a)(3) -- covers a carrier’s refusal to specifically make cargo space available, which occurs “at the execution stage, after the parties reached a deal or mutually agreed on service terms and conditions.” The other -- governed by 46 U.S.C. 41104(a)(10) -- covers a carrier’s refusal to make vessel space available, which occurs during negotiations, “before the parties reached a deal or mutually agreed on service terms and conditions.”

The FMC said it will evaluate claims brought under either section on a case-by-case basis, but it will consider different factors for each when determining possible violations. For example, for refusals of cargo space that occur after the parties reached a deal, the FMC said a blank sailing with no advance notice -- among other factors -- would be an example of unreasonable conduct. Other examples of unreasonable conduct under this section could be:

• vessel capacity limitations not justified by legitimate transportation factors
• failing to alert or notify shippers with confirmed bookings of any other changes to the sailing that will affect when their cargo arrives at its destination port
• scheduling insufficient time for cargo tendering or vessel loading so that cargo is constructively refused
• providing inaccurate or unreliable vessel information
• the de facto, absolute, or systematic exclusion of exports in providing cargo space accommodations.

For refusals of vessel accommodation while the parties are still negotiating, the FMC said unreasonable conduct may instead include, for example, a carrier that quotes rates “so far above current market rates they cannot be considered a good faith offer or an attempt at engaging in good faith negotiations.” Another example, the FMC said, also would be the “de facto, absolute, or systematic exclusion of exports in providing vessel space accommodations.”

The commission said “clearly delineating these distinctions as part of the current rulemaking lessens the time and resources that shippers, carriers, and the Commission will otherwise need to devote to defining these concepts in individual cases.” It also said the rule will help the FMC and others “discern whether a carrier’s refusal was at the negotiation or execution stage. Additional guidance from the Commission now may help avoid needless disputes over that issue.”

It also said it “acknowledges that it has not previously recognized a temporal distinction between (a)(3) and (a)(10).” But including the same factors in both sections “would violate the canon of statutory construction against construing statutes in a manner that renders language superfluous or meaningless.”

Other changes made by the rule add or update a range of definitions. One new definition lists “blank sailing” as a sailing that skips “one or more specific port(s) while still traversing the rest of the scheduled route or the entire sailing being canceled.”

The FMC also updated its definition of “cargo space accommodations” after receiving comments from the National Industrial Transportation League and the National Association of Chemical Distributors, which said the proposed definition needed to be expanded because it only covered “negotiated” vessel space. They said the definition also should cover vessel space that hasn’t been “negotiated” between a carrier and a shipper “in the traditional sense,” such as when a shipper wants more space under an existing contract and simply pays the rate quoted in the carrier’s published tariff.

The FMC agreed and made this change to “avoid ambiguity.”

The commission made another change to clarify its definition of “transportation factors,” a term the FMC will use to determine whether there were “legitimate transportation factors” that affected a carrier’s decision to refuse cargo or vessel space to a shipper.

Several commenters, including the Retail Industry Leaders Association, urged the commission to “differentiate” between transportation factors that are “reasonably foreseeable to the carrier under the circumstances and those that are not reasonably foreseeable.” According to the FMC, RILA said most of the time those factors are reasonably foreseeable by the carrier, which “has a responsibility to its customers to forecast and plan for those factors.”

“RILA stated that the regulation’s failure to distinguish between foreseeable and unforeseeable events allows the carriers to make a general assertion, such as ‘port congestion,’ and advance that as a legitimate transportation factor,” the commission said.

The FMC agreed and revised its definition to exclude factors that are “reasonably foreseeable” by an ocean carrier. The commission also said it agreed with other industry groups that argued that the carrier has a “responsibility to its customers to find alternative pathways to deliver the cargo and otherwise mitigate the negative impacts of that factor” if the carrier could have reasonably foreseen those negative impacts.

But the commission also stressed that the rule isn’t meant to “automatically punish a carrier for making decisions in response to changing conditions.” The FMC “understands the ever-changing shipping landscape and that it can be affected by a number of items,” the rule said, adding that the “commission’s examination of cases involving a refusal to deal or negotiate may examine all factors that led a carrier to make that decision, in order to determine whether the decision was reasonable.”

The FMC also said it disagreed with several commenters that its definition of “unreasonable” was “too vague,” subjective and “contrary to law.” It noted that the term “reasonable,” the “inverse” of “unreasonable,” is a “familiar legal standard,” and reasonableness statutes “are ubiquitous throughout the United States and have been uniformly upheld against constitutional challenges.”

“Because the underlying conduct -- unreasonable refusal -- is not unconstitutionally vague, neither is the FMC’s implementing regulation,” the commission argued.

But the commission did make a change to its definition of “unreasonable” after multiple commenters -- including the National Industrial Transportation League and BassTech International -- said the previous definition had a loophole that would allow ocean carriers to avoid liability. The change adds the phrase “from the ocean common carrier” to the end of the “unreasonable” definition: an “ocean common carrier conduct that unduly restricts the ability of shippers to access ocean carriage services from the ocean common carrier.”

The NITL and BassTech said this would clarify that a carrier can’t escape liability for an “unreasonable refusal” by pointing to the fact that the shipper could have chosen alternative market choices and service options from other carriers.