THE IMPACT OF THE OCEAN SHIPPING

REFORM ACT OF 1998

FEDERAL MARITIME COMMISSION

SEPTEMBER 2001
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CONTENTS

INTRODUCTION ............................................................. 1

EXECUTIVE SUMMARY ...................................................... 2

REGULATORY AND ECONOMIC OVERVIEW ................................... 8

Regulatory Overview ........................................................ 8

Service Contracts ........................................................ 8

Agreements/Voluntary Service Contract Guidelines ............................. 8

Tariffs ................................................................. 9

Restrictive Foreign Practices ............................................... 9

OTI Licensing and Bonding ................................................ 9

Economic Overview of US Trades ............................................. 9

Competitive Conditions ................................................... 9

Transpacific - Inbound ............................................. 10

Transpacific - Outbound ........................................... 10

Transatlantic Trade ............................................... 11

Mediterranean/Middle East Trade .................................... 12

South American Trade ............................................. 13

Central American and Caribbean Trades ............................... 13

Concentration .......................................................... 14

CHANGES IN SERVICE CONTRACTING ....................................... 16

Statutory Changes ......................................................... 16

The NOI and the Random Sample of Service Contracts ............................ 17

SERVICE CONTRACT CONFIDENTIALITY ..................................... 22

OSRA’s Changes .......................................................... 22

Industry Experiences ....................................................... 22

AGREEMENT ACTIVITY/VOLUNTARY

SERVICE CONTRACT GUIDELINES ........................................ 25

Industry Structure Overview ................................................. 25

Discussion Agreements ..................................................... 25

Operational Agreements .................................................... 26

Internet Portal Agreements .................................................. 28

Voluntary Service Contract Guidelines ......................................... 28

Guideline Content ......................................................... 28

Adherence to Service Contract Guidelines ...................................... 29

Agreement Issues Noted in NOI Comments ..................................... 30

Discussion Agreements .................................................. 30

Agreement Filings ...................................................... 31

Agreement Monitoring Reports ............................................ 31
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OTI LICENSING AND BONDING .............................................. 32

The OTI Industry at a Glance ................................................. 32

Licensing/Bonding and Tariff Publication ....................................... 33

Competitive Activity ....................................................... 33

TARIFF PUBLICATION ....................................................... 35

Tariff Publishing Under OSRA ............................................... 35

The NOI and Tariff Use Under OSRA ......................................... 36

OTHER ISSUES (CONTROLLED CARRIERS,

FOREIGN SHIPPING PRACTICES,

TRUCKING, AND E-COMMERCE) .......................................... 38

Controlled Carrier Oversight ................................................. 38

Unfair Foreign Shipping Practices ............................................. 40

Port Trucking Issues ........................................................ 41

E-Commerce ............................................................. 42

CLOSING OBSERVATIONS ................................................... 45

Snapshot of Findings ....................................................... 45

Ongoing Evolution of the Industry ............................................ 46

Continuing Regulatory Issues ................................................ 47

Suggestions for Further Legislative Consideration ................................ 50

Freight Forwarder Compensation .......................................... 50

Tariffs ................................................................ 50

Level of Civil Penalties and Monetary Sanctions .............................. 50

Definition of “Ocean Common Carrier” as it Affects the Scope 

 of Agreements and Service Contracts ...................................... 51

Service Contract/Bill of Lading Inconsistency ................................ 52

Controlled Carrier Issues (Section 9) ........................................ 53

Service contracts ................................................. 53

Taking cost into account ........................................... 53

Definition of controlled carrier to include NVOCCs ...................... 54

Remedies to address violations of section 9 ............................ 54

APPENDIX I

NOI REVIEWS BY QUESTION ............................................. 56

APPENDIX II

SERVICE CONTRACT RANDOM

SAMPLE AND SURVEY ................................................... 82

APPENDIX III

OCEAN TRANSPORTATION INTERMEDIARY STATISTICS .................... 86
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INTRODUCTION

It now has been two years since the implementation of the Ocean Shipping Reform Act of

1998 (“OSRA”) -- a sufficient period of time for those in the industry to begin to adjust to the

new regulatory environment and for the Federal Maritime Commission (“FMC” or

“Commission”) to make an initial candid assessment of how the impact of the legislation appears

to be unfolding. While there may be divergent views ripe for intriguing debate on various issues,

the focus of the following pages is to provide objective, impartial findings on the regulatory and

commercial impact of OSRA to date. We have relied on a broad range of sources in collecting

information on how the legislation has played out across the industry. Representatives of all

sectors of the industry have provided the Commission with their views and comments throughout

this two-year period. The responses to the Commission’s Notice of Inquiry (“NOI”) on OSRA’s

impact were voluminous. An in-house review of hundreds of service contracts provided a rich

source of information, as has our continued monitoring of carrier activity exercising statutory

antitrust immunity. We also have drawn on the Commission’s numerous and varied experiences

in dealing with all aspects of this new law over the past two years. Taken together, this

information provides a wealth of insight on the state of US ocean shipping under OSRA.

It is important to emphasize that this report concentrates on the impact of OSRA -- we have

not undertaken to present a general trade study on everything that has occurred in US liner

shipping since May 1, 1999. Our focus is the manner in which OSRA has shaped or affected

operations and developments in that time frame. As indicated throughout the report, OSRA does

appear to be achieving its primary policy objectives. However, several areas do present

significant issues that the Commission must continually assess to determine if responsive action

becomes warranted.

This study is divided into five topics: service contracts, agreements, ocean transportation

intermediary (“OTI”) licensing and bonding, tariffs, and a grouping of other relevant issues. The

views of the various sectors of the industry, as well as an assessment of OSRA’s impact on these

groups, are reflected throughout each section. We have focused on what we believe to be more

significant points or developments so as to offer a streamlined report. Nonetheless, we have cited

some particular details or nuances to clearly convey OSRA’s impact on those who participate in

US liner shipping.
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EXECUTIVE SUMMARY

General

• The major regulatory changes made by OSRA were aimed at promoting a more marketdriven, efficient liner shipping industry. After two years of operations under this statute,

indications are that it generally is achieving this objective.

• The liner shipping industry has been experiencing dynamic structural changes over the

past several years. OSRA was enacted in full recognition of these changes, and has

helped to foster their continuing evolution.

• Developments in US liner shipping in the past two years, while occurring in large

measure due to the interplay of market forces, were impacted by the changed business

environment brought about by OSRA.

• While there is no industry-wide consensus on most specific issues involving the impact of

OSRA, this disparity of views has not had a major negative effect on business

relationships or ongoing arrangements among industry participants. 

• The FMC developed comprehensive regulations to implement OSRA, and has altered its

approach to industry oversight to facilitate the attainment of OSRA’s basic policy

direction.

Service Contracting

• Numerous pro-competitive reforms enacted under OSRA to increase industry market

responsiveness focused on service contracting. The ability to deal with individual

carriers, the elimination of the “me-too” requirement for similarly situated shippers, and

the confidentiality of certain commercially sensitive service contract terms have fostered

a shift to contract carriage -- carriers generally report that 80 percent or more of their liner

cargo currently moves under service contracts.

• The 200 percent increase in the number of service contracts and amendments filed since

May 1999, as well as the increase in the volume of cargo moving under service contracts

is due, in part, to the flexibility and confidentiality of individual service contracting. 

• Most shippers presently are negotiating one-on-one with individual carriers for

confidential service contracts, instead of negotiating with rate-setting conferences or

groups of carriers.
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• Many service contracts continue to be linked to tariffs for accessorial charges, surcharges,

and certain rules.

• Responses to the Commission’s NOI contained no allegations that shippers could not

secure service contracts.

• Non-vessel-operating common carriers (“NVOCCs”) would like to have the authority to

engage in service contracting with shipper customers, so as to put them on equal footing

with vessel-operating common carriers (“VOCCs”). 

Agreements

• The emergence of global markets, the improved service of non-conference carriers, and

the deregulatory nature of OSRA are catalysts that have contributed to the restructuring of

the liner shipping industry. This has led to a de-emphasis of traditional conferences and a

dramatic increase in efficiency-enhancing operational types of agreements, such as

vessel-sharing and space charters. 

• While there were 35 conference agreements on file with the Commission in 1998, there

were only 19 as of June 1, 2001. Operational agreements made up 58 percent of all

effective agreements as of June 1, 2001. Internet portal agreements, basically “one-stop

shopping” Internet sites, are innovative agreements that promise to further improve

operational efficiencies. 

• Carriers continue to use supply-side operational agreements, including global strategic

alliances, to expand service and geographic coverage, while limiting individual risk and

capital. Industry reports indicate that in the main east-west trades, alliances now account

for between 60 to 65 percent of all capacity deployed, and have, along with the use of

new technologies, enabled ocean carriers to reduce their average cost by more than

$260/TEU over the past four years.

• Broad-based discussion agreements with non-binding rate authority have become the

primary forum for carriers to exercise their antitrust immunity with regard to rate levels. 

Attention has focused on agreement members’ adoption of and adherence to voluntary

service contract guidelines affecting individual service contracts. These guidelines must

be strictly voluntary and are non-enforceable by the agreement. 

• At present, the Commission receives confidential guideline submissions from 19

agreements. The guidelines establish objectives for general rate increases (“GRIs”),

minimum rate levels, or rate increases for specific major-moving commodities,

surcharges, or accessorials. A Commission audit of 2000 and 2001 service contracts

indicated that carrier success in gaining guideline adherence generally depended upon

overall market conditions. 
4

OTI Licensing and Bonding

• Since OSRA’s implementation, the number of individual NVOCCs and ocean freight

forwarders has declined slightly, whereas the number of OTIs that are both NVOCCs and

freight forwarders more than doubled. 

• Consolidation among OTIs, similar to that occurring elsewhere in the liner industry, and

the merging of NVOCC and freight forwarding functions into one firm, help explain the

decrease in the number of NVOCCs and freight forwarders.

• OSRA requires that NVOCCs in the US now be licensed. Additionally, the

Commission’s rules implementing OSRA subjected all NVOCCs and ocean freight

forwarders to a higher bonding level than pre-OSRA. OTIs generally have not objected

to these additional licensing and bonding requirements, nor is there any evidence that

these new requirements have had a significant effect on OTI operations.

• OTIs voiced concern over what they perceive to be a closer FMC scrutiny of their

activities vis-a-vis those of VOCCs. Similarly, NVOCCs in the US pointed to the

significant and unfair advantage enjoyed by unlawfully-operated NVOCCs who do not

establish or adhere to published tariffs. 

Tariffs 

• The Commission’s proposed tariff publication rules sought to implement OSRA’s

requirements and enable the industry to take advantage of existing technology. Based on

comments received, the Commission significantly altered its proposal so as to reduce

compliance burdens further, and to provide carriers with additional flexibility in

publishing their tariff systems. 

• The Commission continues to monitor accessibility of tariffs, and works with tariff

publishers to ensure an effective and efficient tariff publication system. Systems that do

not achieve statutory compliance are subject to appropriate enforcement action as

circumstances warrant.

• NVOCCs are of the opinion that they are at a competitive disadvantage in relation to

VOCCs because they must make all of their rate information publicly available, while

VOCCs are free to enter into confidential service contracts with their shipper customers. 
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Other Issues

Unfair Foreign Shipping Practices

• OSRA amended section 19 of the Merchant Marine Act, 1920, and the Foreign Shipping

Practices Act of 1988 (“FSPA”) to clarify that pricing practices are among the types of

activities that create unfavorable conditions to shipping in the US foreign trades.

• Most commenters to the Commission’s NOI believe that OSRA did not materially impact

this area. The Commission remains active in monitoring and addressing unfair shipping

practices as they arise. Periodic reports from carriers in specified trade areas are used

when appropriate to monitor developments.

• The Commission has established a permanent Task Force that meets regularly to

exchange information about new and continuing areas of concern, and to formulate

recommended approaches to restrictive foreign shipping practices that may require

Commission action.

Controlled Carriers

• OSRA expanded the definition of a controlled carrier by deleting the previous limitation

that an entity can be a controlled carrier only when it operates vessels registered under the

government that controls the carrier. This change removed a potential loophole that may

have enabled a controlled carrier to “flag-out” or register its vessels under the laws and

regulations of another country, and thereby avoid the controlled carrier provisions.

• The Commission’s OSRA rules require an ocean common carrier controlled by a

government in any manner to provide the Commission with immediate written

notification to that effect. The recent addition of China Shipping Container Lines Ltd.

(“CSCL”) to our controlled carrier list was accomplished after that carrier advised us of

its controlled status.

• OSRA also removed three conditions that previously qualified as exceptions from

controlled carrier provisions: agreement membership, operations in a controlled carrier’s

bilateral trade with the US, and signatory status to the Organization for Economic

Competition and Development (“OECD”) shipping policy. 

• The Commission actively monitors controlled carrier practices to ensure continuing

statutory compliance. The Commission intends to intensify its efforts in order to preserve

fair competition and promote international trade.
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Port Trucking Issues

• The International Brotherhood of Teamsters, Port Division (“Teamsters”) raised several

issues not addressed by others. The Teamsters believe that OSRA permits ocean

common carriers, through their agreements’ voluntary guidelines, to establish harmfully

low, “anti-competitive ceiling rates” for through and inland transportation. They contend

that port driver wages have declined, driver bankruptcies and truck repossessions have

increased, and working conditions for port drivers are generally “abusive.” 

• A comprehensive examination of voluntary guidelines on file with the Commission did

not reveal any indication that inland carriers are unable to negotiate inland rates with

ocean carriers, as alleged by the Teamsters. Further, the Commission reviewed the

confidential minutes of meetings of conferences and discussion agreements on file and

found no indication of discussions among the respective agreement members concerning

the negotiation of US inland divisions with motor carriers. Additionally, agreement

representatives confirm that no arrangements involving motor carriers have been

implemented pursuant to agreements that authorize joint negotiation of inland divisions

with motor carriers.

E-Commerce

• Although the emergence of e-commerce in the ocean shipping industry is not a direct

result of OSRA, the new law did create a more competitive, market-oriented environment

in which “dot-com” businesses have grown in importance. Since an explosion in the

number of transportation-related e-commerce companies in 1999, many such sites have

been bought or gone out of business due to a lack of shipper interest and carrier

cooperation. 

• Track-and-trace technologies, as well as cargo-based e-commerce portals, are the current

trend and are receiving much support from the major carrier companies. The concept of

“supply-chain collaboration” also has been gaining attention in the industry and promises

to streamline the logistics process significantly.

• The Commission will continue to address the question of how these entities fit within the

Shipping Act of 1984 (“1984 Act”), as well as the appropriate extent of Commission

oversight they warrant. 

Continuing Regulatory Issues

• The FMC recognizes the dramatic changes taking place in international trade against the

backdrop of OSRA. The Commission is committed to fulfilling its statutory

responsibilities in a manner that gives deference to market processes while defending

against market-distorting abuses.
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• Notwithstanding the apparent widespread general satisfaction with the current US

regulatory framework for ocean shipping, the Commission will be focusing on several

major aspects of US shipping laws that cause concern for those less than fully satisfied

with OSRA’s changes. 

• The Commission will continue to evaluate the impact of discussion agreements on rates. 

It is incumbent on those who participate in the ongoing debate to address the effects of

discussion agreements within the context of the current regulatory environment.

• While the Commission’s analyses and the comments of parties suggest that discussion

agreements are not utilizing service contract voluntary guidelines to unreasonably

increase rates, the issue merits ongoing close attention as the industry evolves in the postOSRA environment. 

• The Commission’s requirements for electronic tariff systems imposed a minimum of

restrictions and requirements, so as to maximize carriers’ flexibility in meeting their

obligation to maintain accurate and accessible tariffs. Although the regulations

themselves have generated few complaints, the adequacy of compliance remains a

concern, which necessitates continuing review of carrier systems. 

• Given that service contracts have become the overwhelmingly predominant rate-setting

vehicle, the Commission will continue to employ techniques such as random sampling to

evaluate trends and activities in this area and to identify any market-distorting practices

that arise.

• While the Commission intends to encourage the advantages and efficiencies obtained via

e-commerce innovations, it will continue to evaluate this area to ensure that any

regulatory issues of concern are addressed as appropriate. 

• Experience in administering the 1984 Act as revised by OSRA, leads the Commission to

suggest that several provisions could be revised for greater clarity or to eliminate

ambiguities. These provisions include those dealing with controlled carriers, freight

forwarder compensation, new or initial tariff rates, civil penalties, and the definition of an

ocean common carrier for certain purposes.
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REGULATORY AND ECONOMIC OVERVIEW

 

Regulatory Overview

Service Contracts

OSRA’s amendments to the Shipping Act of 1984

(“1984 Act”) are dramatically altering the way business is

conducted in the ocean liner industry. Nowhere is this

more evident than in the material changes made to the

service contracting process. The opportunity for shippers

and carriers to enter into individual, confidential service

contracts, and the inability of carrier agreements to

prohibit or directly interfere in that process, are the

cornerstones of the new statute. Under OSRA, fewer

service contract essential terms and no rates are made

public. Shippers no longer have “me-too” rights to obtain

the same essential terms as similarly situated shippers,

but for the first time, unrelated shippers have the option

to collectively enter into service contracts. OSRA also

extended the authority to offer joint service contracts to

any agreement among ocean common carriers, not just

conferences.

Agreements/Voluntary Service Contract

Guidelines

OSRA has greatly affected the functions of traditional

liner conferences. While OSRA maintained antitrust

immunity for concerted carrier activities, agreements no

longer may prohibit service contracting by their members,

or require members to disclose the details of their service

contract negotiations. An agreement may establish

voluntary service contract guidelines applicable to

members’ individual service contracting practices, but

they are non-enforceable by the agreement. Additionally,

notice of independent action on tariff rates or charges was

reduced from 10 to 5 days. 

OSRA did not alter the 45-day period for Commission

review of agreements -- they continue to become effective

in that time absent Commission action to reject, request additional information, or seek to enjoin

an agreement. And, while OSRA made no changes to the general standard for opposing

substantially anti-competitive agreements, a Senate Commerce Committee Report accompanying

OSRA urged the Commission to take a more active and vigilant role in administering it.

• OSRA has dramatically

altered the way business is

done in the ocean liner

industry.

• OSRA has given shippers and

carriers the ability to enter

into individual, confidential

service contracts.

• OSRA maintained antitrust

immunity for ocean carriers, 

but limited the scope of

permissible concerted

activities.

• Tariffs no longer are filed

with the FMC, but must be

made publicly available.

• OSRA has strengthened the

Commission’s ability to

address unfair foreign trade

practices.

• Under OSRA, freight

forwarders and NVOCCs in

the US must be licensed and

bonded. NVOCCs outside the

US must be bonded and

tariffed, and have the option

of obtaining a license.
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Tariffs

OSRA eliminated the requirement that tariffs be filed with the Commission, requiring instead

that carriers develop individual electronic tariff systems available to the public for a reasonable

access charge. The Commission is mandated to prescribe conditions for the accessibility and

accuracy of these systems, and to review them periodically. 

Restrictive Foreign Practices

OSRA gave the Commission greater ability to guard against predatory pricing by clarifying

that pricing activities are among the practices that may constitute a condition unfavorable to

shipping. OSRA also made the suspension of service contracts available as a remedy to address

unfair foreign practices. 

OTI Licensing and Bonding

OSRA has grouped both ocean freight forwarders and NVOCCs under the heading of OTI.

NVOCCs in the US now join ocean freight forwarders in being required to obtain a license -- the

Commission’s implementing regulations also permit NVOCCs outside the US to apply for a

license if they so choose. OSRA also requires that every OTI have a bond or other financial

security on file with the Commission. The bond amounts are $50,000 for freight forwarders,

$75,000 for NVOCCs in the US, and $150,000 for non-licensed foreign NVOCCs.

Economic Overview of US Trades

Competitive Conditions

The US liner trades continue to reflect the ebbs and flows of the world’s economy which

distinctively play out in specific trade areas. US international trade volumes continue to grow,

with predictions that cargo volume will double over the next ten years. In the near term, US

containerized imports and exports for 2001 are forecasted to grow at a slower rate of

approximately 5.7 and 1.4 percent, respectively, over last year’s totals. 

Source: Journal of Commerce/PIERS - Trade Horizons
1

 The Commission’s observations regarding guideline adherence discussed in this section are based on research

described in the Agreem ent Activity/Vo luntary Service Contract G uidelines sectio n of this study.

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Transpacific - Inbound: The Transpacific

Stabilization Agreement (“TSA”) is the prime example

of a discussion and policy-setting agreement with

voluntary pricing authority. The members exchange

information and discuss proposed GRIs, standardized

surcharges, and other pricing-related issues in the US

inbound Far East trade.

TSA members were largely successful in

implementing proposed GRIs and peak-season

surcharges during 1998 and 1999, a period during which

demand consistently outstripped the supply of vessel

capacity. More recently, members of TSA have been

less effective in implementing proposed pricing

objectives. The cohesiveness of TSA and its ability to

implement rate increases have been reduced by several

changes in underlying competitive trade and market

conditions: an increase in the number of carriers serving

the trade; an increase in vessel capacity deployed; a

reduction in import cargo growth; and a shift to

individual, confidential service contracting. Nonetheless,

the group still enjoys a high market share, i.e.,

approximately 80 percent at the end of the first half of

2001. During the latter half of 2000 and into early 2001,

carriers and shippers reported declining rates and vessel

oversupply following declines in retailers’ orders from

Asia and rising unemployment rates in the US.

TSA has adopted and filed with the Commission

voluntary service contract guidelines that the members

may use in their contract negotiations. A review of TSA

members’ individual service contracts shows that, in

general, TSA’s ability to effectively implement GRIs and peak-season surcharges appears to have

diminished considerably due to enhanced competition between members in a new individual,

confidential service contracting environment ushered in by OSRA. Negotiations for annual

contracts in May 2000 often resulted in lower rates and, generally, proposed increases were not

achieved. In light of increases in vessel capacity (10 percent) and soft economic trade growth (4-

5 percent) during the first half of 2001, it was no surprise that carriers were unable to obtain the

May 2001-announced GRI.1

Transpacific - Outbound: The Westbound Transpacific Stabilization Agreement

(“WTSA”) is the outbound counterpart to TSA and, likewise, provides a forum for the exchange

 • Competitive trade and market

conditions -- more competing

carriers, excess vessel

capacity, lower import cargo

growth, and the shift to

individual, confidential

contracts -- appear to be the

main driving force behind liner

pricing in the Asia to US

trades since the latter half of

1999.

 • The individual, confidential

service contracting

environment resulting from

OSRA has diminished TSA’s

ability to implement GRIs and

peak-season surcharges.

 • Despite earlier failure to

achieve rate increases, the

WTSA members were able to

achieve some success in

increasing rates between

October 1999 and September

2000.
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of information (including pricing) among its members. WTSA became the primary pricing

forum in the westbound transpacific trade following the demise of the outbound conference, the

Transpacific Westbound Rate Agreement, on May 1, 1999. 

Despite the growing post-OSRA prominence of discussion agreements in the transpacific,

WTSA, for the most part, was unable to implement relatively minor rate increases as market

conditions prevented members from becoming a cohesive group on pricing. The dramatic trade

imbalance (with vessels reportedly operating at approximately 50 percent of capacity)

significantly contributed to the failure of WTSA members to achieve proposed rate increases.

However, between October 1999 and September 2000, the members of WTSA began to

experience higher vessel capacity utilization as demand increased. Even though the inbound and

outbound trades remained imbalanced, WTSA members were able to achieve some measure of

success in increasing rates.

WTSA has adopted and filed voluntary service contract guidelines that the members may use

in their contract negotiations. A review of a sample of WTSA members’ individual 2000 and

2001 service contracts reveals that, in general, WTSA’s relative success in 2000 appears to have

been temporary. Declining trade growth, coupled with expanding capacity, precluded

achievement of rate increases during the first half of 2001. Carriers, however, were more

successful in implementing a chassis usage charge during the first half of 2001.

Transatlantic Trade: From the early 1990s to the

present, rate-related agreement activity in the

transatlantic trade primarily focused on the major

conference between the US and North Europe. At

present, the Trans-Atlantic Conference Agreement

(“TACA”) faces a much higher degree of rate

competition from independent carriers than in the past. 

In addition, the authority the conference once exercised

over its members’ service contracts has eroded. A

combination of regulatory actions both in the US and

Europe dramatically altered the structure and influence

of the conference. The conference declined both in

market share and membership. From its initial

formation in 1992, the collective market share of the

conference dropped from close to 80 percent to roughly

50 percent at present. In terms of conference

participants, TACA’s membership has fallen from a high

of 17 carriers to a low of 7 carriers.

Starting in 1999, TACA amended its service contract provisions to comply with OSRA, and

to resolve legal issues before the European Commission (“EC”). As such, TACA revised its

• TACA’s market share has

dropped from 80 percent to

about 50 percent, and its

membership has declined from

17 to 7 carriers.

• Of over 1,000 service contracts

entered into by TACA

members in 1999, only 30

were conference service

contracts. By 2000, conference

service contracts had dwindled

to 3.
2

 The EC specifically considers conference service contracts to be those contracts negotiated directly through

the conference secretariat on behalf of the TACA members. The EC considers a ll other contracts negotiated outside of

the conference secretariat by TACA members to be non-conference service contracts. OSRA, however, distinguishes

between agreement service contracts and individual carrier service contracts. Agreement service contracts under OSRA

are those contracts ne gotiated pu rsuant to the ag reement’s rate authority, which are not necessarily administered through

an agreem ent secretariat.

12

authority to permit TACA members to enter into non-conference service contracts.2

 By the EC’s

directive, TACA members are prohibited from adopting voluntary service contract guidelines

that affect their non-conference service contracts. Further, the EC restricts TACA members from

discussing their non-conference service contracts, and no data or information on such contracts

may be submitted to, or collected by, the conference. TACA, however, may establish a model

conference service contract and rate matrices, provided such information is publicly available. 

TACA members are permitted to refer to and adopt such information in their non-conference

service contract negotiations, if they so choose.

Prior to the foregoing changes, a major portion of the trade’s cargo moved under TACA’s

conference service contracts. For instance, TACA reported in its NOI response that nearly 600

conference service contracts were entered into in 1998. In 1999, however, with OSRA becoming

effective and competition accelerating in the trade, TACA members actively entered into nonconference service contracts. By the end of 1999, TACA members reported that upwards of 80

percent of their cargo moved under non-conference service contracts. Of over 1,000 service

contracts entered into by TACA members in 1999, only 30 were conference service contracts. In

2000, TACA entered into only 3 conference service contracts. Thus, the decline in TACA’s

direct authority over its members’ service contracts, and hence pricing, was precipitated by

OSRA and the directives of the EC.

In general, freight rates have reflected market conditions in the transatlantic trade. Over the

past several years, a trade imbalance has resulted from higher cargo growth in the inbound

direction from North Europe to the US. Consequently, freight rates for inbound cargo have

increased steadily in response to higher demand, while outbound freight rates have remained

unchanged or fallen due to weaker European demand for US exports. In 2001, TACA

implemented moderate tariff GRIs in both trade directions, and plans to introduce further tariff

GRIs toward the end of the year. The direct impact of TACA’s tariff GRIs is limited, however,

since the amount of cargo moved under the conference’s rates has diminished. Recently, TACA

reported that only about 10 percent of the cargo carried by TACA members moved under

conference rates. To further gauge the prevailing trends in freight rates, the Commission

examined a limited number of 2000 and 2001 non-conference service contracts for TACA

members. The Commission found that contract rates in the inbound direction increased

moderately from the 2000 contract period to the 2001 contract period. In the outbound direction,

however, the majority of contract rates remained unchanged and, in some cases, declined in

2001. These results tended to correspond to the overall market trends in the trade. 

Mediterranean/Middle East Trade: The Mediterranean is a logical collection point for intransit cargo. This area attracts a number of carriers outside the direct US/Mediterranean and

Middle East trade, which contributes to available cargo space. It also has seen numerous types of
13

arrangements focused on bringing stability to a heavily imbalanced trade, with imports into the

US far exceeding US exports.

Like the trade between the US and North Europe, rate-related agreement activity in the

US/Mediterranean trade is focused primarily on the major conference serving the trade. The

United States South Europe Conference (“USSEC”) covers the trade between ports and interior

destinations in the US, and South European countries on the Mediterranean. USSEC has three

carrier members with a collective market share of less than 50 percent as of the first half of 2001.

As is the case in the transatlantic trade, the EC prohibits USSEC members from adopting

voluntary service contract guidelines that affect their non-conference service contracts,

discussing their non-conference service contracts, and sharing information or data on such nonconference service contracts through the conference secretariat. USSEC members advise that

they have increased their use of individual service contracts substantially since the enactment of

OSRA. The convenience of one-on-one negotiations with shippers is specifically noted as a

driving factor for this increase. The intense competitive economic environment in the

US/Mediterranean trade has kept freight rates low, especially in the outbound trade from the US.

However, conference members are attempting to implement rate increases in the relatively

stronger inbound trade – announcing a tariff GRI in January 2001 and a subsequent tariff GRI in

May 2001.

The Eastern Mediterranean Discussion Agreement (formerly the Israel Discussion

Agreement), which covers the trade between the US and Israel, Egypt and Turkey, has adopted

and filed voluntary service contract guidelines. However, given the current overall competitive

trade conditions, adherence appears to be limited.

South American Trade: Changing competitive trade conditions in South America, along

with regulatory changes under OSRA, have resulted in the demise of the major conferences that

once dominated the South American trades. Joint carrier activity now is accomplished pursuant

to two rate discussion agreements: the East Coast of South America Discussion Agreement

(“ECSADA”) and the West Coast of South America Discussion Agreement (“WCSADA”). The

members of both discussion agreements have commanded a high market share of at least 90

percent in each trade direction from 1999 through the first half of 2001. Whereas the predecessor

conferences had hundreds of conference service contracts, the only collective contracting taking

place under either discussion agreement at present involves a number of members contracting

jointly without the involvement of the others. Virtually all service contracts in both agreement

trades now are negotiated by the member lines on an individual basis. ECSADA and WCSADA

have adopted and filed voluntary service contract guidelines that the members may use in their

individual contracts. It appears that members are more likely to follow the voluntary service

guidelines when the market is tight, i.e., when demand is high and capacity tight, than during

slack-demand periods with overcapacity. For example, during 2000 and the first half of 2001,

ECSADA members appear to have adhered closely to their respective commodity-specific

service contract guidelines most of the time.

Central American and Caribbean Trades: The Central America and Caribbean trades

have undergone significant changes since the passage of OSRA. Beginning in 1999, the
3

 During 1999, American President Lines, Ltd. (“APL”), Evergreen Marine Corp. (Taiwan) Ltd. (“Evergreen”),

Maersk Line, P&O Nedlloyd, Limited (“P&O N edlloyd”), and Mitsui OSK Lines (America), Inc. (“MOL”) entered the

trade in an effort to expand their sepa rate global services.

14

economies of the region slowed, with a concomitant decline in cargo, causing excess capacity

and falling rates. These depressed trade conditions were further compounded by the entry of five

new carriers in the trade during 1999.3 Rate instability forced as many as six carriers to either

scale back services or leave the trade, contributing to the demise of three conference agreements.

Although there remain two conferences serving the Central America and Caribbean trades, as in

other trade areas, discussion agreements are now the main forum for rate and policy discussions.

Both trades also have witnessed a growth in operational agreements -- mostly two-party vesselsharing arrangements.

The Central America Discussion Agreement (“CADA”) and the Hispaniola Discussion

Agreement are the predominant agreements now operating in the trades. Over the past several

years, CADA’s membership and market share have fallen. As of the first half of 2001, CADA’s

membership stood at five, down from nine in 1999. However, while CADA’s outbound market

share to the US remained relatively flat from 1999 through the first half of 2001, its outbound

market share from the US fell from 73.5 percent in 1999 to 62 percent as of the first quarter of

2001. Individual service contracting by the members of these two agreements since OSRA

became effective appears to have increased, although many of the service contracts are for small

volumes, often as little as one twenty-foot equivalent unit (“TEU”). While CADA has adopted

and filed voluntary service contract guidelines, a review of its members’ service contracts shows

that they rarely follow them.

Concentration

Like other transportation industries,

international liner shipping has been

undergoing major structural changes for

several years. Liner companies are being

driven by the same fundamental forces: the

ongoing globalization of manufacturing,

technological innovations (especially those

that support vertical integration of

transportation services, e.g., electronic

communications, automated data systems,

larger/faster vessels, etc.), intense competition

and relatively low profit margins,

development of global service networks,

deregulation, and privatization. Carriers have responded to these pressures in several ways,

including engaging in a rash of mergers and acquisitions and forming global strategic alliances. 

Since 1994, nearly all principal global containership operators have grouped themselves into

alliances. Through operational cooperation, carriers have the opportunity to reduce costs and

business risks, while offering a broader range of improved customer service options. The

Source: Drewry Shipping Consultants, Ltd.
4Various issues of Containerisation International, and Drewry Shipping Consultants L td., The Drewry

Contain er Mark et Quarte rly, September 2000.

5

Ibid., Note 4: Drewry Shipping C onsultants Ltd ., The Dr ewry Co ntainer M arket Qu arterly, September 2000.

15

formation of global strategic alliances arguably has slowed the pace of concentration in liner

shipping because they offer a number of the benefits associated with mergers (i.e., economies of

scale, expansion and improvement of services, etc.) while limiting members’ exposure to

investment risk. Some carriers have chosen to venture beyond alliances and have engaged in

mergers or acquisitions that increase their size and expand their scope of operations. Since 1995,

seven principal mergers and more than 30 acquisitions have taken place. 

As a result of this increased merger and

acquisition activity, the liner shipping

industry has become more concentrated over

the last decade. In 1990, the 20 largest liner

operators controlled approximately 40

percent of the global container slots. In

1995, their share grew to 50 percent; three

years later it jumped to 77 percent. By 2000,

the top 20 operators controlled 81 percent of

the worldwide fleet.4 While the industry is

still highly fragmented -- with several

hundred companies (including feeder

operators) offering regular liner services --

the largest operators clearly dominate

current container supply.

Industry reports suggest that over the next three years, more than 1.5 million additional TEUs

will be deployed, representing an increase over current worldwide fleet capacity of nearly 35

percent, or an annualized growth rate of more than 12 percent.5

 In contrast, worldwide trade

growth is expected to increase by less than 9 percent. While the long-term effect of continued

industry consolidation remains uncertain, some industry representatives believe that under these

pressures, renewed merger/acquisition activity can be expected. 

Source: Containerisation International and The Drewry

Container Market Quarterly - September 2000
6Exceptions to this occurred just prior to the implementation of OSRA when a number of conferences, in

anticipation of OSRA’s reforms, relinquished their control over individual member service contracting.

16

CHANGES IN SERVICE CONTRACTING

Statutory Changes

Before the OSRA amendments, the 1984 Act

permitted only individual carriers and conferences to

enter into service contracts. Conferences had the

authority to regulate or prohibit their members’ use of

service contracts. Except for brief periods, conferences

rarely permitted their members to engage in any form of

independent service contracting. 6 The statute required

service contracts to be confidentially filed with the

Commission, and rates and other essential terms to be

made available to the public in tariff format. To

discourage any undue discrimination, carriers and

conferences were required to make the same essential

terms available to similarly situated shippers for a period

of 30 days. This requirement was known as the “me-too”

provision. In 1993, the publication of tariffs and essential

terms was computerized with the introduction of the

Commission’s Automated Tariff Filing and Information

(“ATFI”) System.

Numerous pro-competitive reforms enacted under OSRA to increase the market

responsiveness of the industry were aimed at service contracting. Under OSRA, only certain

essential terms now are required to be published; significantly, freight rates are among the nonpublished terms. Consequently, freight rates and other unpublished terms now can be structured

in confidence between the contracting parties. In addition, the “me-too” requirement for similarly

situated shippers was eliminated.

Significant reforms relating to service contracts were directed at reducing the collective

control of conferences. For one, all agreements now are permitted to enter into service contracts,

not just conferences, as was the case under the 1984 Act before amendment. With this change,

however, strict statutory prohibitions were placed on the contracting authority of agreements.

OSRA prohibits agreements from restricting the right of their members to independently

negotiate and enter into individual service contracts. Moreover, agreements cannot require

members to disclose their individual service contract negotiations or unpublished terms, nor

adopt mandatory rules affecting such contracts. Voluntary service contract guidelines, however,

may be adopted by agreements so long as they are unenforceable and confidentially submitted to

the Commission.

Individual carriers and agreements still are required to file their service contracts

confidentially with the Commission under OSRA. For ease of filing, the Commission replaced its

• Freight rates and other

unpublished terms now can be

structured in confidence

between the contracting

parties.

• Service contract guidelines

may be adopted by agreements

so long as they are voluntary

and unenforceable on

members, and confidentially

submitted to the Commission.
17

former paper-format filing system with the electronic Service Contract Filing System

(“SERVCON”). The Commission placed SERVCON into operation when OSRA became

effective on May 1, 1999. 

The NOI and the Random Sample of Service Contracts

In order to identify pertinent developments concerning service contracting under OSRA, the

Commission’s NOI solicited comments from carriers and shippers on specific issues. In

addition, the Commission conducted a comprehensive service contract survey. As discussed in

Appendix II, the Commission’s survey was based on two computer-generated random samples of

original service contracts on file in SERVCON. Each random sample contained 500 contracts,

so that a total of 1,000 separate contracts were reviewed. Relevant information from each

contract was entered into a unique database for each sample. This approach allowed the

Commission to analyze and compare the survey results of the two separate random samples. A

high degree of consistency existed between the two samples on most of the issues examined,

which added confidence to the survey results. (See Appendix II.)

Overall, the use of service contracts has increased

significantly under OSRA. According to NOI comments,

this increase in contracting was due primarily to the

change from conference control of service contract

availability to easily obtainable and flexible individual

service contracts. The 200 percent increase in the

number of service contracts and amendments filed with

the Commission since May 1999 bears witness to the

fact that service contracting is now overwhelmingly the

primary rate-setting vehicle. As noted below, however,

most service contracts are linked to tariffs for accessorial

charges, surcharges, and certain rules. To effect changes

across numerous contracts, it is more expedient for

carriers to make a single tariff change than amend

multiple service contracts. Carriers also use tariffs to

publish the required service contract essential terms. 

The increase in individual contracting also

has altered the structure of the industry. In their

NOI comments, carriers related that the high

demand for individual contracts led to the

termination or suspension of major conference

agreements in such trade areas as the transpacific

and South America. In their place, carriers have

structured their collective associations more

loosely under discussion agreements with

voluntary rate authority and service provisions. In

trades where conferences remain, agreement

contracts among conference members have fallen

• The number of service

contracts and amendments

filed with the Commission

since May 1999 has increased

by 200 percent.

• In certain of the major trade

lanes, some shippers now are

moving nearly 100 percent of

their cargo under service

contracts.

Source: Federal Maritime Commission
18

significantly. In comparing calendar years 1998 and 2000, conference service contracts fell from

596 to 3 for TACA, and from 125 to 7 for the US Australasia Agreement. Former and present

conference carriers in these trades now are entering into a greater number of service contracts on

an individual basis with shippers outside the direct control of their respective agreements.

Service contracts also are being used to ship a greater volume of cargo as a result of OSRA.

NOI commenters revealed that substantial portions of cargo shipped under tariffs prior to OSRA

shifted to individual contracts. In certain of the major trade lanes, some shippers now are moving

nearly 100 percent of their cargo under service contracts. This shift is due primarily to the

confidentiality and flexibility achieved through individual contracts. In several trades where the

volume of service contract cargo had been 50 to 60 percent, some carriers indicated that the

volume jumped to 80 percent and greater under OSRA.

The preference for individual contracting clearly was discernible from the Commission’s

random sample survey. Of the 1,000 separate contracts surveyed, 98 percent were individual

contracts. In their responses to the NOI, carriers and shippers reported numerous advantages of

contracting on an individual basis, but acknowledged an increased administrative burden in

managing the contracts. The main advantage was the ability to engage in one-on-one negotiations

with greater flexibility to structure contracts as needed. Overall, shippers have found carriers

more responsive in meeting their specific contract requirements under OSRA. The process of

obtaining and amending individual contracts also was reported to be easier and more efficient

than in the past when dealing with conference contracts. No longer are extended delays incurred

in seeking the approval of contracts and amendments through the conference’s voting

procedures. Consequently, individual contracts are amended more frequently to reflect changing

market conditions.

Specific changes in contracting included a trend toward smaller minimum volume

commitments. The Commission’s survey showed that roughly 60 percent of the contracts

sampled had minimum volume commitments of 100 TEUs or less -- commitments ranged from

one TEU to 68,000 TEUs. The willingness of carriers to allow smaller minimum volume

commitments was recognized in the NOI comments as a new development attributable to OSRA.

Contract duration, however, has remained predominantly within a one-year period as before

OSRA. The survey revealed that 90 percent of the contracts had durations of 11 months or less,

with a range from a few days to upwards of two

years. So far, contracts with smaller cargo

commitments and limited durations seem to be the

market preference. Several commenters noted,

however, that such terms frequently are expanded

through amendments beyond those initially agreed

to in the original contract. 

The Commission’s survey found no significant

changes from the results of past studies on the

division of contracts between proprietary owners,

NVOCCs, and shippers’ associations. Of the

contracts sampled, over 70 percent were with

proprietary owners, roughly 25 percent were with

NVOCCs, and 2 percent were with shippers’ Source: Federal Maritime Commission
19

associations. No shippers complained of an inability to obtain contracts. However, some

shippers’ associations noted that since OSRA, carriers have tried more aggressively to solicit

independently their individual members. To prevent this, some associations have included

specific clauses addressing such solicitation in their contracts.

OSRA also increased the ability of carriers and shippers to expand contract scopes by

including multiple US trades and adding foreign-to-foreign trades. Combining more trades and

cargo within a single contract gives shippers greater leverage in their negotiations with carriers.

While most NOI respondents reported some expansion of contract scopes, the Commission’s

survey results revealed that the majority of contracts had scopes confined to one US trade or

geographic area, particularly in the US/Asia trade. Ten percent of the total contracts sampled had

scopes with multiple US trade lanes, and 8 percent had global scopes -- i.e., scopes which

included foreign-to-foreign trades. Shippers that conduct a broader and more varied range of

business worldwide may take advantage of contracts with expanded scopes. Such shippers

include large multi-national companies, NVOCCs, and shippers’ associations. Some NOI

commenters related problems with the regional dispersion of operations among both shippers and

carriers, which complicated structuring multi-trade and global contracts. Carriers further noted a

reluctance among some shippers to include their foreign-to-foreign arrangements in US trade

contracts.

Changes to the content of contracts have been

moderate thus far under OSRA. Carriers commented that

the approach to adding contract clauses has been gradual

and cautious, with shippers preferring as much contract

simplification as possible. Recent developments show a

compromise between contracting parties, with some

clauses favoring shippers and others benefitting carriers.

The most common changes include the addition of

confidentiality clauses, specific vessel space guarantees,

advance booking notices, slack-season volume

guarantees, and certain standard or model contract terms.

An increase in the use of vessel space guarantees in

contracting occurred post-OSRA, particularly in the

inbound transpacific as a result of tight demand during

1998 and 1999. Carriers also mentioned more service

guarantees for equipment and set transit times. On the

other hand, some shippers expressed concern over the

use of service commitment disclaimers to cover cases

where the carrier uses chartered vessel space. Shippers

also mentioned their interest in increasing carrier liability

for cargo loss and damage beyond that provided in the

standard bill of lading. The Commission’s survey

examined contracts specifically for such provisions as

equipment guarantees, transit times, and increased carrier liability. Less than 10 percent of the

contracts sampled contained any of these provisions. While such provisions are not widespread

• The most common changes in

service contracts since OSRA

include the addition of

confidentiality clauses,

specific vessel space

guarantees, advance booking

notices, slack-season volume

guarantees, and shipper boilerplate contract terms.

• In their NOI responses, carriers

consistently maintained that

rate levels are determined by

market forces, and contended

that individual contracting has

created more rate competition.
7Bullet rates are specific commodity rates that are added to a service contract after its original effective date.

(This is a publication feature which is similar to adding specific commodity rates to an existing tariff.) In effect, bullet

rates provide the flexibility of tariff rates and the confidentiality of service contracts.

20

as yet, both carriers and shippers foresee many of these issues as areas of future contract

development over the next five years.

Under OSRA, the prevailing rates no longer are transparent and contracting has become more

customized. In their NOI responses, carriers consistently maintained that rate levels are

determined by market forces, and contended that individual contracting has created more rate

competition. NVOCCs complained that their inability to contract as carriers places them at a rate

disadvantage under OSRA. At the same time, NVOCCs acknowledged that carriers are more

agreeable to establish “bullet rates”7 in contracts, enabling them to amend their contract rate

levels with carriers more easily and frequently. Some shippers commented that GRI clauses and

other such tariff links in contracts which allow for the pass-through of rate increases and

surcharges that are difficult to anticipate or ascertain are antithetical to the purpose of contracting

for a specified rate. Carriers maintained that such tariff references and links make drafting and

managing contracts easier.

The Commission’s survey revealed that

roughly 10 percent of the contract rates were

completely all-inclusive, while approximately 90

percent were linked or referenced to a tariff. The

survey defined completely all-inclusive as single

rates inclusive of freight and all other applicable

charges for a fixed duration. Many contracts

contained rates inclusive of specific surcharges

for fixed durations, with the proviso that any

other charges in the governing tariff would apply.

Such contracts, however, did not meet the

survey’s definition of completely all-inclusive. In

addition, the survey found that 36 percent of the

contracts contained GRI clauses or other such provisions for the general increase of freight rates

connected to tariff rate increases. Some GRI clauses directly passed through the tariff rate

increases, while others gave the shipper the option to terminate the contract. While tariff

references in contracts are not new, their use under OSRA has created some controversy

regarding the carriers’ ability to influence contract rate levels and terms collectively. 

Thus far, OSRA’s reforms have increased the use of contracting both in terms of the number

of service contracts and cargo volume. New options in contracting are available, and business

relationships are evolving as contemplated. OSRA has reduced the direct control of conferences,

with greater freedom and flexibility of contracting on an individual basis, while preserving the

option for agreement contracts. With contract rates and certain service terms no longer published,

parties are free to privately structure their contracts in accordance with their individual business

requirements. Service contracts are easier to obtain and amend. For the most part, OSRA has

enabled contracts to be fashioned and consummated in a more market-responsive environment as

intended. 

Source: Federal Maritime Commission
21

SERVICE CONTRACT CONFIDENTIALITY

OSRA’s Changes

As previously discussed, OSRA’s changes regarding

the confidentiality of service contracts have had a

significant impact on the way service contracts are

developed and negotiated. OSRA discontinued the

publication of rates and certain other terms -- published

essential terms now are limited to the origin/destination

port ranges, commodities, minimum commitments, and

durations of service contracts. All other essential terms

now can be kept confidential between the contracting

parties. In this new environment, added measures to

preserve confidentiality in contracting have evolved.

Specific clauses and provisions have been included in

contracts to restrict the disclosure of unpublished terms

to third parties. In some cases, contracting parties have

entered into agreements to ensure confidentiality prior to

negotiations, or added penalty provisions for breach of

confidentiality. The Commission specifically explored

the effects and use of contract confidentiality in both its

NOI and its survey of service contracts randomly

selected from SERVCON.

Prior to OSRA, carriers and shippers could access

the contract rates and terms of their competitors directly,

and relied heavily on the published essential terms of

service contracts as benchmarks in their own

negotiations. Contract terms achieved by a particular

shipper were published and made available to any

similarly situated shipper through the “me-too”

provision. Accordingly, carriers were more reluctant to

grant specific contract concessions for a particular

shipper since their other customers could request equal

treatment. The transparency of information constrained

the commercial benefits of contract specialization for

both carriers and shippers.

Industry Experiences

The confidentiality of information under OSRA has altered the process of negotiating

contracts considerably. Comments in response to the Commission’s NOI indicate that contract

negotiations are less focused on meeting a market-rate benchmark, or matching the terms of

competitors, and more attention is given to internal cost factors and individual service

• Overall, enhanced

confidentiality under OSRA

has provided shippers and

carriers with an environment

that is conducive to effective

business transactions.

• Specific clauses and other

internal measures have evolved

to require negotiations and

unpublished contract terms to

remain confidential.

• As a result of OSRA’s

confidentiality requirements,

closer attention now is given to

internal cost factors and

individual service requirements

in contracts.

• NVOCCs concurred with the

general view that

confidentiality has improved

the contracting process, but

commented that tariff

publication puts them at a

competitive disadvantage

relative to VOCCs. 
8The actual use of confidentiality provisions may be understated since the surve y confined its ex amination to

the texts of the sampled contracts. Certain gov erning tariffs of carriers and co nferences co ntain genera l confidentiality

provisions which apply to service contracts and which may not be cross-referenced in the contract. Further, some industry

participants have indica ted that confid entiality agreements may be r eached p rior to the negotiation of the service co ntract.

22

requirements in contracts. Shippers and carriers advise that they can discuss and address

commercially sensitive issues more freely, and privately structure their contracts accordingly.

Respondents note that greater emphasis is placed on the skill of conducting negotiations to

achieve business objectives. In their comments, shippers and carriers reported that confidentiality

has created a more favorable contracting process in which it is easier to accommodate specific

rate discounts and terms. NVOCCs concurred with the general view that confidentiality has

improved the contracting process, but commented that tariff publication puts them at a

competitive disadvantage relative to VOCCs.

Since OSRA, more attention must be devoted to evaluating market conditions through other

sources of information. Carriers commented that internal contract accounts and rate bids from

shippers constitute their main sources of market information. They contended that some shippers

use rate quotes from competing carriers as leverage for better rate offers. Carriers noted,

however, that such rate information is hard to validate, and added that tariffs generally are not

reflective of market rates. Shippers commented that a wide range of published information and

data including tariffs is used in their market evaluations. They disclosed that carrier sales

representatives also provide a certain amount of market information. Shippers’ associations

support their shipper members by collecting and distributing market information.

Shippers claimed to be at a disadvantage relative to carriers in terms of market knowledge,

noting that carriers can make broader observations due to their greater access to information

about the overall market. Further, shippers complained that voluntary service contract guidelines

adopted by agreements allow carriers to share contract rate information at agreement meetings.

Carriers and agreements acknowledged that some contract rate information is shared at

agreement meetings, but stressed that carriers must honor the confidentiality provisions of their

individual contracts. Carriers pointed out that much less specific contract information is made

available to agreement secretariats as a result of OSRA. They also questioned the accuracy of

contract rate information shared by competing carriers at agreement meetings. Clearly, reliable

rate information now is more valuable and increasingly sought throughout the industry. 

However, confidentiality clauses and provisions increasingly are being added to contracts to

restrict the disclosure of unpublished contract terms. The Commission’s survey specifically

reviewed the texts of the contracts for any of the following forms of confidentiality between the

parties: (1) a specific confidentiality clause or provision, (2) a cross-reference to a tariff

provision that describes the parties’ obligations with respect to confidentiality, or (3) a stamp or

mark of confidentiality within the contract. The survey revealed that just over 35 percent of the

contracts sampled contained one of the aforementioned forms of confidentiality stated within

their texts.8 For the most part, the confidentiality clauses found in the survey stipulated that

neither the carrier party nor the shipper party could disclose unpublished contract information to

third parties. In some cases, clauses were less restrictive and allowed the carrier party to share
23

unpublished information with an agreement secretariat or other carrier members of an agreement

without identifying the shipper party. 

Certain carriers disclosed in their NOI

comments that internal controls and new

procedures were developed to limit the

exposure of confidential contract information

within their companies. On the use of

confidentiality in contracting, roughly half of

the carrier respondents indicated that standard

confidentiality clauses automatically are

included in 100 percent of their contracts.

Those carriers also reported that shippers

requested specifically crafted confidentiality

clauses or language in about 5 percent of the

carriers’ contracts. Such requests were

acceptable to the carriers so long as the confidentiality terms were reciprocal. Other carriers

stated that as a matter of policy, confidentiality clauses are added to contracts only at the

shipper’s request. Further comments disclosed that some of the larger shippers sought

confidentiality agreements prior to conducting contract negotiations. Such agreements usually

were initiated by shippers, and here again, carriers found them acceptable as long as the terms

were reciprocal.

On a related issue, the Commission’s survey showed that only 2 percent of the contracts

sampled contained penalty provisions for breach of confidentiality. The breach penalties

predominantly focused on the recourse of legal action with court remedies. Most NOI comments

voiced no significant concern with respect to breach of confidential information. Carriers stated

that cases of suspected breach usually were treated by limiting the number of participants in

future negotiations. Certain carriers recognized that sales representatives and shippers exchanged

market information in the course of making contract proposals, but did not characterize breach of

confidential information as a problem. Another shippers’ association expressed concern over the

possible breach of confidentiality given non-contract parties’ broad access to rate information on

bills of lading.

Overall, the responses reflect that confidentiality under OSRA has provided shippers and

carriers with the privacy they deem necessary to freely transact business. With the ability to

shield such information, the contracting process is not constrained by the previous standards of

meeting benchmarks and matching terms identically. Commercially sensitive issues and business

requirements can be discussed more freely and accommodated more easily with specific contract

terms. Carriers and shippers are more focused on achieving their individual rate and business

objectives through contract negotiations. Specific clauses and other internal measures have

evolved to ensure that negotiations and unpublished contract terms remain confidential.

Source: Federal Maritime Commission
9

 Drewry Sh ipping Co nsultants Ltd., Globa l Contain er Mark ets, July 1996.

24

AGREEMENT ACTIVITY/VOLUNTARY

SERVICE CONTRACT GUIDELINES

Industry Structure Overview

While liner operators have enjoyed antitrust

immunity since 1916, the last decade has seen dramatic

changes in their exercise of this privilege. No longer can

the structure of liner shipping be viewed as fifty or so

major carriers operating autonomously. It is more

appropriate to view the industry as blocs of operational

partnerships with crisscross ties via space charters

between and among different members of different

partnership blocs. Such arrangements are important to

understand when reviewing the use of antitrust authority.

The Commission is acutely aware of the growing mosaic

of vessel-sharing, alliance, and space-chartering

configurations that can form a web, often with a

discussion agreement bringing all involved carriers

together. An economic understanding of a trade no

longer can be garnered merely by focusing on a single

agreement -- the competitive impact of carrier behavior

across a myriad of interconnected relationships must be

assessed.

The emergence of global markets and anticipated deregulation under OSRA were the twin

catalysts that triggered de-emphasis on traditional conferences and the continual migration to

operational agreements. In 1996, one observer opined that “[a]ny history of the industry will have

to distinguish between ‘Before Global Alliance’ and ‘After Global Alliance,’ so radical are the

changes which the new structure promises.”9 The story of the use of antitrust immunity under

OSRA is the progressive shifting from a demand-side focus to a realization of the considerable

possibilities to be gained from a supply-side focus.

Discussion Agreements

During the 1980s, the traditional demand-side preoccupation was with rate stability, and the

vehicle to address this single concern was the stereotypical, binding-ratemaking conference. The

emergence of strong non-conference carriers, bringing a homogeneity of services across most

liner operators, fractured the existing industry structure of strong conferences and weak 

non-conference carriers. The conference system was unable to deal with outsiders that provide a

similar level of service, traditionally the exclusive domain of conference carriers. Given

continued price-spread tensions between conference and committed non-conference carriers, in

• To gain an economic

understanding of a trade, one

now must assess the

competitive impact of carrier

behavior across a myriad of

interconnected arrangements. 

• Members of discussion

agreements are not bound to

specific rate levels, and are

attracted by the opportunity to

exchange information and the

ability to agree voluntarily on

pricing policy.
25

the face of endemic overtonnaging, there was pressure for some forum to mitigate rate

competition between these two groups. The Eurocorde Discussion Agreement in the transatlantic

and TSA in the US inbound Far East trade emerged in response to these forces. While the

conference carriers were unable to entice the committed independents to become conference

members and engage in binding ratemaking, they were able to bring them under the discussion

agreement umbrella of voluntary ratemaking. Furthermore, during the late 1980s, carriers

realized that supply-side control could be extremely powerful in curtailing destructive rate

competition and consequently turned to capacity management in discussion agreements.

With the demise of the conference

system, the discussion agreement, by default,

became the sole forum for collective carrier

pricing activity in most US liner trades. In the

major trades, it is able to attract key players

by being less bureaucratic and autocratic than

the traditional conference. Members are not

bound to specific rate levels, and among the

variety of their features found attractive, the

opportunity to exchange information and the

ability to agree voluntarily on pricing policy

are paramount. Although a discussion

agreement’s ratemaking may not be on the

rigid, enforceable scale of the traditional

conference, the ability of the members to share commercial information and formulate pricing

policy can have a considerable demand-side influence under certain economic conditions. 

Unlike conferences, which saw a marked decline in their numbers (almost one-third either

disbanded or were suspended about the time OSRA became effective in May 1999), the number

of rate discussion agreements has remained somewhat stable during the first two years of OSRA.

As of June 1, 2001, there were 19 conferences and 36 discussion agreements in effect. Further,

consistent with the decline in the number of conferences, the number of discussion agreements

that include a conference as a member has likewise fallen. The Commission’s June 2000 Interim

Status Report noted that there were 18 such agreements at that time. Currently, there are only

four such agreements.

Operational Agreements

The demand-side demise of the traditional conference system and the emergence of

discussion agreements undoubtedly are major hallmarks of the OSRA era. But the bigger

headline is on the supply side, where carriers have turned to operational agreements to achieve

significant efficiencies and global service expansion.

Globalization requires carriers to expand into new markets, and deregulation made it unlikely

that strong conferences would be the vehicle for such expansion. The global strategic alliance

soon emerged as the key vehicle for a carrier’s entry into new markets by offering the ability to

expand service and geographic coverage, while limiting individual risk and capital.

Source: Federal Maritime Commission
10Only four were on file with the Commission as of June 1, 2001.

11Containerisation International, November 2000, p.14; “Drewry predicts better times ahead,” The Drewry

Shipping C onsultants, The Drewry Annual Container Market Review and Forecast 2000.

12Other shippers stated that, while there may be some service problems during the initial process of merging or

coordinating different services and organizations, financially stronger and, therefore, more stable carriers with improved

services are th e long-run res ult.

26

Alliances, like globalization and deregulation, developed gradually. Upon recognizing the

advantages of operational cooperation, carriers initially ventured into space-chartering, joint

services, and vessel-sharing arrangements that were typically confined to a single trade lane.

Positive experiences in deployment and vessel-sharing cost savings led to more involved

cooperation, and ultimately to the global strategic alliance as we know it. Alliances essentially

strove to maximize the advantages of operational cooperation while maintaining individual

marketing. Alliance partners worked to capture efficiencies across the entire gamut of shared

operational assets such as vessels, containers, marine terminals, equipment, and inland facilities. 

Operational agreements comprised 58

percent of all effective agreements on file

with the Commission as of June 1, 2001.

They range in scope and complexity from

simple space-sharing arrangements (for

example, one carrier selling to another 25

TEUs of space on one vessel operating in a

single trade), to the highly integrated multicarrier, multi-trade lane, global strategic

alliances (typically, 3-5 carriers coordinating

the services of numerous -- often as many as

80 -- vessels calling at ports worldwide).

Although global alliance agreements are not

numerous,10 reports indicate that in the main east-west trades, alliances now account for between

60 to 65 percent of all slots deployed. Moreover, alliances and the use of new technologies have

enabled ocean carriers to reduce their average cost by more than $260/TEU over the past four

years.11

While operational agreements such as global alliances and basic space-chartering/vesselsharing arrangements have the potential to reduce costs and expand the service network of each

participant, there may be down sides to such supply-side forms of cooperation. Some shippers

pointed out in their NOI responses that, in certain cases, carriers that are party to these integrated

operational arrangements no longer have complete control over assets and, therefore, are unable

to guarantee vessel space.12 There also may be instances in which service levels (i.e., capacity

and number of vessel calls) are reduced as a result of carrier cooperation because the service is

“shared” among carriers.

On the other hand, operational agreements offer an alternative to consolidation through

mergers and acquisitions. These operational agreements arguably provide shippers with more

Source: Federal Maritime Commission
27

service choices and the possible preservation of competition with respect to price and ancillary or

related services, as compared with the results of mergers and acquisitions.

Internet Portal Agreements

Like most other industries, ocean shipping is adapting to the age of the Internet. A new

carrier innovation that improves operational efficiencies and financial results is the formation of

Internet portal agreements. Two portal agreements have been filed with the Commission that

provide “one-stop shopping” Internet sites. Under these agreements, the participating carriers

have established a common Internet portal and platform through which the carriers and other

transportation service providers interact with shippers through a common set of transactions

covering tracking and tracing, booking, and the like. The portals also contain links to the

individual carriers’ own web-sites.

Voluntary Service Contract Guidelines

With the proliferation of individual service contracts since OSRA, greater scrutiny has shifted

toward determining the degree of influence agreements are able to exert on the contracting

practices of their agreement members. As broad-based discussion agreements evolved in many

trades, attention has focused on the agreement members’ adoption of and adherence to voluntary

service contract guidelines affecting individual service contracts. The extent to which agreement

members adhere to voluntary service contract guidelines, especially on rate matters, gives an

indication of the agreement’s collective influence or market power in its respective trade. Under

OSRA, agreements that adopt guidelines are required to submit them confidentially to the

Commission. Because of the confidential nature of the guidelines and the service contracts

actually filed, the results of our review of the nature of and adherence to voluntary service

contract guidelines may be reported only in general

terms. At present, the Commission receives guideline

submissions from 19 agreements. 

Guideline Content

The guidelines adopted by the respective agreements

vary considerably. It is evident in some trades that

agreement members actively discuss, and set or amend

their guidelines, on a regular basis. Activity often centers

on very specific rules or charges for particular countries

within the geographic scopes of the agreements.

Conversely, in other trades, agreement members set very

basic guidelines on an infrequent or sporadic basis. Most

of the guidelines establish objectives for GRIs, minimum

rate levels, or rate increases for specific major-moving

commodities, surcharges, or accessorials. One particular

set of guidelines recommended that agreement members

use time-volume rates rather than service contracts.

Many guidelines encouraged open communication

• At present, the Commission

receives guideline submissions

from 19 agreements. 

• In some trades, agreement

members actively discuss, and

set or amend their guidelines,

on a regular basis.

• Most of the guidelines

establish objectives for GRIs,

minimum rate levels, or rate

increases for specific majormoving commodities,

surcharges, or accessorials.
13The transatlantic is distinct from other U S liner trades r egarding gu idelines. As previously mentioned, the EC

prohibits carrier agree ments that includ e Europ ean Unio n nations from setting voluntary se rvice contra ct guidelines.

Moreover, the EC significantly restricts any discussion or collection of information on service contracts negotiated

outside of an agreement secretariat. Such agre ements, however, a re permitted to establish a se rvice contra ct rate matrix

that must be ma de public ly available. By the terms of their agreement, conference members may refer to and adopt such

rates in their individual contract neg otiations, if they so c hoose. N onetheless, the transatlantic was in cluded in the audit

because o f its commerc ial significance. 

28

between members on information relating to proposed or effective individual service contracts,

provided that no confidentiality agreements are breached. Other guidelines discouraged rate

discount mechanisms in their contracts, and instead recommended including automatic GRI

clauses. Some guidelines further recommended using prescribed confidentiality clauses, as well

as establishing specific dollar limitations for cargo loss or damage in line with the Carriage of

Goods by Sea Act. 

Adherence to Service Contract Guidelines

To measure guideline adherence, the Commission

undertook an audit of service contracts for the 2000 and

2001 contract periods. While all guidelines are

reviewed, the audit focused on major agreements in

various US liner trades including: the transpacific,

transatlantic,13 Australia/New Zealand, and South and

Central America. The Commission selected a range of

service contracts on file with the Commission for major

commodities moved by a variety of agreement carriers in each trade. Rate levels in each contract

were examined to determine whether agreement members were able to implement and/or sustain

the rate objectives specified in each agreement’s guidelines. In the case of GRIs, contracts and

amendments for 2000 were matched with the corresponding 2001 contracts for each identical

shipper and carrier to gauge the level of rate change. The rates were evaluated from 2000 through

the start of the 2001 contract renewal period to determine whether carriers were able to

implement increased rates by the full or partial GRI amount, or not at all. Where guidelines set

commodity rates at specific levels, contracts for the same commodities were retrieved for 2000

and 2001 to determine whether the rates adhered to the guideline criteria. Adherence to the

commodity rate guidelines was considered to be affirmed if the contract rates were at or above

the specified levels. Other common guidelines regarding additional charges also were evaluated.

If applicable, contracts were reviewed to determine whether carriers adhered to the guidelines by

assessing a peak-season or equipment imbalance surcharge, and/or a chassis usage charge.

The results of the Commission’s review of over 600 individual service contracts and rate

observations confirm that carriers’ success in gaining guideline adherence generally depended

upon overall market conditions. For example, it appears that guideline adherence in 1999, when

high demand kept inbound Far East vessels relatively full, was greater compared to 2000 and

2001. The current weaker US trade conditions, with anticipated additions in capacity, resulted in

actual rate erosion in the inbound Far East trades in the face of guidelines calling for rate

increases. However, the audit found that carriers in the inbound Far East trades were more

Carriers’ success in gaining

guideline adherence generally

tracked overall market conditions.
29

successful with adherence to surcharge guidelines than those pertaining to GRIs. This result was

similar across the other trades audited.

The degree of adherence to voluntary service contract guidelines is routinely reviewed by the

Commission. In sum, our findings were consistent with the preliminary findings made in the

Commission’s June 2000 Interim Status Report on OSRA: “. . . overall carrier compliance with

[the guidelines] has been limited, depending on the trade in question . . . . The most important

factor [to adherence] is the general economic conditions in the trade.” While these findings

remain true, the results of this audit yielded additional information with respect to adherence.

Overall, the percentage of contracts adhering to guideline recommendations on surcharges and/or

accessorials was mixed, ranging from 34 to 100 percent depending on the trade. Given the

extensive impact of surcharges on a shipper’s bottom-line costs, a high degree of adherence on

such items merits the continued close attention of the Commission in evaluating the

anticompetitive effects of an agreement under the section 6(g) standard. Adherence to

guideline-recommended GRIs and commodity-specific rate increases was less successful, ranging

from none to upwards of 60 percent.

Agreement Issues Noted in NOI Comments

A number of commenters raised issues concerning agreements, with a particular focus on

discussion agreements, agreement filings, and monitoring reports.

Discussion Agreements

There were numerous comments and suggestions for future Commission action regarding

agreement structure and activities. Carriers emphasized the necessity for discussion agreements

and the benefits of exchanging information, i.e., a more stable environment which benefits

shippers and provides carriers with the security to make additional financial investments.

Shippers suggested that the anti-competitive effects of discussion agreements should be

examined by the Commission. Many believed that voluntary service contract guidelines are not

voluntary and that carriers use them, as well as their exchange of information on capacity and

surcharges, to increase freight rates. A number of shippers contended that discussion agreements

contravene the pro-market thrust of OSRA. (See Appendix I: questions 14-17.)

As noted above, the Commission thoroughly reviews

all agreements, with a particular emphasis on discussion

agreements. Under the Commission’s monitoring

program, the activities of discussion agreements and the

web of agreements that make up the structure of

agreement activity are evaluated through examination of

confidentially-filed monitoring reports, agreement

minutes, service contracts and other trade sources. The

information contained in the Commission’s service

contract database is evaluated continuously, along with

voluntary service contract guidelines, to determine

whether there is abuse of antitrust immunity. This

• Carriers emphasized the

necessity for discussion

agreements and the benefits of

exchanging information.

• Shippers emphasized the anticompetitive effects of

discussion agreements in

increasing freight rates.
30

information is analyzed in conjunction with other pertinent data, including agreement monitoring

reports and minutes of meetings.

Agreement Filings

Several commenters suggested that the Commission consider exempting certain carrier

agreements from filing and waiting requirements. For example, commenters variously proposed

that agreements regarding specific aspects of space-charter arrangements (i.e., operational

matters), changes to space allocations, and the expansion of the geographic scope of agreements,

be allowed to become effective on filing or effective on less than 45-days’ notice (e.g., effective

after five business days). These agreement-related issues, as well as others, currently are being

reviewed by the Commission’s staff, and proposals are being developed in connection with a

Notice of Inquiry - Docket No. 99-13 - The Content of Ocean Carrier and Marine Terminal

Operator Agreements Subject to the Shipping Act of 1984, August 3, 1999, 64 FR 42057.

Agreement Monitoring Reports

A number of carrier commenters raised a variety of concerns regarding the Commission’s

monitoring report program. They suggested that the Commission review, revise, or reduce its

monitoring report requirements in light of the changes brought about by OSRA. The commenters

acknowledged that some reporting is necessary in order for the Commission to fulfill its

regulatory responsibilities. However, they noted that the present reporting requirements "predate" OSRA and argue that they are not well suited to a regulatory system in which a majority of

cargo moves under the confidential terms of individual service contracts. Several carriers

questioned the necessity of having any monitoring report requirements on various types of

agreements such as operational agreements which are entered into for efficiency purposes and to

meet the specific needs of customers. Carriers made a number of other suggestions for

streamlining the reporting process which many found burdensome and costly. 

 Based on the Commission’s experiences with monitoring reports over the last several years,

and in light of the reforms introduced under OSRA, the Commission has begun to consider

possible changes to the agreement information form and monitoring report requirements. Any

proposed changes to these requirements would be addressed at some future date in a proposed

rulemaking.
31

OTI LICENSING AND BONDING

The OTI Industry at a Glance

OSRA, together with the continuing logistics and supply-chain evolution, is bringing about

significant change in the structure of the OTI industry. Since OSRA became effective, the

number of NVOCCs has decreased by almost 15 percent and ocean freight forwarders by 21

percent; however, the number of OTIs that are both NVOCCs and ocean freight forwarders has

more than doubled. Overall, the total number of OTIs has fallen by about 6 percent, but the

number of foreign NVOCCs keeps rising.

There are several possible explanations for the decrease in the total number of OTIs. One is

the increasing consolidation among OTI firms, similar to that occurring elsewhere in the liner

industry. Second, as just cited, is the increase in the number of OTIs adding freight forwarding or

NVOCC activities to their existing functions. This increase in the number of OTIs that are both

NVOCCs and ocean freight forwarders was explained by some commenters to the Commission’s

NOI as an effort to remain competitive by offering a wide variety and level of services. These

intermediary respondents noted that ocean carriers also are diversifying operations by developing

and offering their own value-added services and performing traditional OTI activities. With the

increased awareness of efficiencies from, and customer demand for, supply-chain management,

carriers are developing and selling services traditionally offered by OTIs and logistics providers.

Confidential contracting between shippers and carriers has fostered the rapid growth in carriers

providing logistics and value-added services. Through the confidential contracting process,

Ocean Freight NVOCCs

Forwarders

NVOCCs/ Freight

Forwarders

Distribution of OTI Types Over Time

Source: Federal Maritime Commission
32

carriers and shippers jointly can customize service packages that include both ocean

transportation and logistics services.

Licensing/Bonding and Tariff Publication

OSRA requires that NVOCCs in the US now be licensed by the Commission. Additionally,

the Commission’s rules implementing OSRA increased the bond amount required from all

NVOCCs. Ocean freight forwarders, while already licensed and bonded, also are subject to a

higher bonding level under the Commission’s implementing regulations. The vehicle for insuring

financial responsibility to date has been surety bonds exclusively. (See Appendix III.) OTIs

generally have not objected to these additional licensing and bonding requirements, nor have

there been indications that these new requirements have had a significant impact on OTI

operations. However, OTIs have raised various concerns since OSRA became effective. They are

troubled that their regulatory burden increased, and consistently have questioned the regulatory

need for NVOCC tariff publication. They also believe that they are subjected to more FMC

oversight -- tariff publication, adherence to tariffs, and common carriage provisions of the 1984

Act -- than vessel operators. Similarly, OTIs in the US contend that they have a significant and

unfair competitive disadvantage since they face closer FMC scrutiny regarding statutory

compliance. Some commenters suggested a relaxation, simplification, or elimination of

applicable requirements and/or a reduction of enforcement activities directed at NVOCC

compliance with tariff and common carriage provisions of the 1984 Act.

Competitive Activity

As mentioned, many shippers’ associations and OTIs

expressed concern with the greater level of regulation of

OTIs relative to VOCCs. They point to the fact that

NVOCCs still must make their rates publicly available,

while VOCCs are free to sign confidential service

contracts. In their opinion, this gives ocean common

carriers a commercially competitive advantage over

NVOCCs, who cannot protect their customers’ rates and

terms of service from public scrutiny via confidential

service contracts. They submit that ocean carriers are

using all the competitive tools at their disposal, including

confidential contracting and antitrust immunity, to

compete head-to-head with transportation intermediaries,

both on the ocean side and in market sectors such as

logistics and supply-chain management. Several

intermediary commenters indicated that VOCCs are able

to provide a bundling of services from warehousing, to

customs brokerage, to ocean shipping all in one confidential package, and therefore have a

substantial advantage over OTIs who are legally prohibited from offering confidential “one-stop”

transportation packages to shipper-clients. Some commenters believe the Commission should

examine more closely carriers’ concerted activities and allegedly unfair shipping practices. 

• OTIs are troubled that their

regulatory burden increased,

and consistently have

questioned the regulatory need

for NVOCC tariff publication.

• OTIs in the US contend that

they have a significant and

unfair competitive

disadvantage since they face

closer FMC scrutiny regarding

statutory compliance.
33

While the Commission does not have evidence of specific harm to OTIs vis-a-vis ocean

carriers due to OSRA’s changes, OTIs as a group have voiced their concerns at the highest

national levels. And as previously mentioned, the doubling in the number of OTIs that are both

NVOCCs and ocean freight forwarders can be attributed to a perceived need to offer more

service to customers in an effort to strengthen competitive position under what is seen as a more

difficult operating environment under OSRA. The FMC recognizes the importance of the

interplay between the VOCC and OTI sectors, and will monitor future activities closely.
34

TARIFF PUBLICATION

Tariff Publishing Under OSRA

Tariff publication was the area affected the most by

OSRA’s regulatory approach. Effective May 1, 1999,

OSRA eliminated the requirement that carriers and

conferences file their tariffs and essential terms

publications with the Commission. OSRA requires

carriers and conferences to publish their tariff rates and

services in automated systems to be made available to

any person, without time, quantity, or other limitation,

through appropriate access from remote locations.

OSRA also authorizes assessment of a “reasonable

charge” for tariff access. Additionally, with respect to

service contracts, OSRA removed rates and charges,

service commitments, and any liquidated damages from

the essential terms required to be made public. Instead,

public essential terms of service contracts now are: the

origin and destination port ranges; commodity or

commodities; minimum volume or portion; and the

duration of the contract. OSRA also provides that marine

terminal operators (“MTOs”) may publish schedules of

their rates, regulations, and practices, if they so choose.

OSRA mandates the Commission to prescribe the

requirements for the accessibility and accuracy of carrier

automated tariff systems (“CATS”) and, after periodic

review, to prohibit the use of any automated tariff system

that fails to meet these requirements. The Commission

issued a proposed rule to implement OSRA that covered

all relevant aspects of tariff publication. Based on public

comments received from affected parties, the

Commission significantly altered its proposal to reduce

further the burdens of compliance, and to provide

carriers with more flexibility and options in publishing their CATS. All conferences, VOCCs and

NVOCCs are required to publish the services they offer. 

Following the implementation of OSRA, the Commission reviewed a number of tariff

systems and found that many appeared to limit the public’s access to tariff information. The

Commission contacted carriers and publishers in an attempt to rectify significant problems. The

Commission consistently concentrated on compliance with OSRA’s requirements that tariffs be

accessible to the public and accurate -- a number of questions were asked and clarifications

sought.

• OSRA eliminated the

requirement that carriers and

conferences file their tariffs

and essential terms

publications with the

Commission.

• The FMC continues to review

on-line tariff systems to ensure

statutory compliance.

• Most ocean carriers use tariffs

not only to publish rate

information, but to link their

service contracts to basic terms

and conditions that are spelled

out in tariffs -- particularly

GRIs, surcharges and

accessorial charges. 

• NVOCCs, on the other hand,

view tariffs as burdensome

because they retain the

pre-OSRA format which

includes the publication and

maintenance of all rate line

items.
35

After several failed attempts to obtain overall industry statutory compliance, the Commission

issued Circular Letter No. 00-1, Public Access to Tariffs and Tariff Systems Under the Ocean

Shipping Reform Act of 1998, on April 6, 2000. The circular letter, addressed to carriers,

conferences, and tariff publishers, indicated that a number of tariff systems failed to provide

adequate user instructions, had no commodity index or failed to provide a commodity search

feature, had no historical data search capability, required a considerable time to download or

move from one function to another, and had access fees and/or monthly minimum requirements

that appeared to discourage public use. The Commission urged publishers to correct access

deficiencies and advised public users to notify the Commission of any problems that might be

experienced in accessing tariff systems. The circular letter also expressed the Commission’s

desire to work with the industry to address any problems that limit public access to tariff systems.

The letter concluded with the admonition that, if the problems were not remedied voluntarily, the

Commission would consider other remedial actions to ensure public access to tariffs in

accordance with the Congressional mandate contained in OSRA.

The Commission also issued an Advance Notice of Proposed Rulemaking addressing the

issues of access fees and monthly minimum charges, seeking input from all interested parties on

the reasonableness of such fees and charges. Based on a review of the comments, the

Commission determined not to proceed with a rulemaking and instead issued Circular Letter No.

00-2, Charges Assessed for Access to Tariffs and Tariff Systems, on October 6, 2000. The

Commission stated that while it was not promulgating regulations governing tariff access

charges, it was providing guidance with respect to access fees and monthly minimum charges

assessed by carriers, conferences, and tariff publishers, as well as certain costs and expenses that

should not be recovered when establishing charges for tariff access. The Commission indicated

that voluntary adherence to the guidelines mentioned in the circular letter would obviate the need

for further Commission action.

No written complaints have been received by the Commission concerning the issues

addressed in the two circular letters. The Commission’s staff, however, has received informal

inquiries from members of the public requesting assistance in retrieving tariff information.

During the course of these communications, allegations have been made that some carriers’ tariff

access fees are too high, hence the request for staff assistance. Such inquiries generally involve

only a minor amount of tariff research. 

The Commission will continue its monitoring efforts so as to ensure equitable, uniform

compliance with OSRA’s requirements. Given the various uses of tariffs, particularly their

applicability to service contracts, fair and effective administration of this responsibility is

important. Additionally, since OSRA, and the Commission’s implementing regulations, greatly

reduce the burden of publishing tariff information, compliance should not be difficult to achieve.

Naturally, our efforts will continue to seek voluntary compliance. However, more formal action

may need to be instituted for those who refuse to comply or are involved in particularly egregious

activity.

The NOI and Tariff Use Under OSRA

Comments received in response to the Commission’s NOI expressed varying opinions

concerning the accessibility and accuracy of tariffs. (See Appendix I, summary of responses to
36

questions 24 through 29.) Most ocean carriers use tariffs not only to publish freight rate

information, but to link their service contracts to basic terms and conditions that are spelled out

in tariffs -- particularly GRIs, surcharges and accessorial charges. The carriers indicated that the

linkage between tariffs and service contracts relieves them of the burden of repeating these

common service contract provisions separately in each contract. It would also appear that linking

service contracts to these tariff terms and conditions makes it easier for carriers to take such

items out of the negotiation process. Consequently, most ocean carriers are satisfied with presentday tariff publication requirements. 

NVOCCs, on the other hand, view tariffs as burdensome because they retain the pre-OSRA

format, which includes the publication and maintenance of all rate line items. NVOCCs also are

of the opinion that they are disadvantaged because most of the active VOCC rates are contained

in confidential service contracts, and therefore NVOCCs are precluded from reviewing them.

They point to the fact that VOCCs individually have access to specific commercial information,

and depending on specific agreement authority, may collectively exchange this information as

members of discussion or other types of agreements (within the restrictions of any service

contract confidentiality requirements). In addition, many NVOCCs want the tariff requirement

removed entirely. They believe this would put them on equal footing with VOCCs.

Ocean freight forwarders generally stated that they had no real difficulty in accessing tariff

systems, although one forwarder group advised that the lack of appropriate standards made

access difficult for its members. Many OTIs viewed tariffs as very useful for inland rate

information, which they said can be incorporated in their rate quotes. Other OTIs contended that

tariff information was not relevant in the current trading environment.

Shippers varied in their views on the ease of access to, and overall usefulness of, tariffs.

Some stated that they had no difficulty in accessing carrier systems and found the published data

informative. Others indicated that they had no occasion to refer to tariffs. And still others referred

to them as too cumbersome, or complained that they did not have adequate guidance on how to

access linked tariffs which are issued by different publishers. Certain shippers advised that they

contacted carriers directly for rate and rate-related information. Shippers’ associations reported

that they referred to tariffs regularly since their contracts so often were linked to them. They

accessed tariffs to verify charges, obtain rates for service contract movements, or for general

market information. One association emphasized that the publication of a commodity index and

bottom-line rates would increase tariffs’ utility. 

Maintaining public tariffs and adherence to specific publication requirements continue to be a

contentious issue. Despite OSRA’s deregulatory changes in this area, debate still persists on the

usefulness of tariffs, the burden of applicable statutory and regulatory requirements, and tariffs’

overall impact on industry operations. Not only do the different sectors of the industry disagree,

but there is far from unanimity within sectors. Often, a company’s views on tariffs are dictated as

much by its internal circumstances and general approach to business, as they are by the

competitive consequences of pricing services. Clearly this issue is far from resolved, and

indications are that it may be presented in some form for Commission consideration in the future.

The Commission will continue to fulfill its oversight role with the aim of assisting the industry in

achieving compliance as efficiently as possible, while helping to create the trade environment

envisioned by OSRA.
37

OTHER ISSUES (CONTROLLED CARRIERS,

FOREIGN SHIPPING PRACTICES,

TRUCKING, AND E-COMMERCE)

Controlled Carrier Oversight

The 1984 Act defines a controlled carrier as an ocean

common carrier whose operating assets are, directly or

indirectly, owned or controlled by a government. Due to

a controlled carrier’s close national ties, profit cannot

always be assumed to be the chief motivation for its

operations. To address this concern, Congress enacted

the Controlled Carrier Act (section 9 of the 1984 Act), to

prevent controlled carriers, whose marketplace decisionmaking can be influenced by governmental priorities or

by their access to non-market sources of capital, from

engaging in unreasonable below-market pricing practices

that could disrupt trade or harm privately-owned

shipping companies. 

A number of changes instituted under OSRA

strengthened the controlled carrier provisions. OSRA

expanded the definition of a controlled carrier by deleting

the previous limitation that an entity can be a controlled

carrier only when it operates vessels registered under the

government that controls the carrier. This change

removed a potential loophole that may have enabled a

controlled carrier to “flag-out” or register its vessels

under the laws and regulations of another country,

thereby avoiding the controlled carrier

• OSRA expanded the definition

of a controlled carrier by

deleting the previous

limitation that an entity can be

a controlled carrier only when

it operates vessels registered

under the government that

controls it.

• OSRA removed three

conditions that previously

qualified as exceptions from

controlled carrier provisions:

agreement membership,

operations in a controlled

carrier’s bilateral trade with

the US, and signatory status to

the OECD shipping policy.

• OSRA clarified the types of

foreign activities that create

unfavorable conditions to

shipping in the US foreign

trades, and enumerated pricing

practices as among those

activities that may create

unfavorable conditions. 

• OSRA also authorized

suspension of service contracts

as a remedy available to the

Commission to address

unfavorable conditions and

restrictive foreign practices. 
14To improve th e process of identifying con trolled carrie rs operating in the US trades, the Commission’s rules

implementing OSRA provided that an ocea n commo n carrier that is ow ned or co ntrolled by a government, in any manner,

must furnish the Commission with immediate written notification as to its status as a controlled carrier.

15There are currently 1 3 carriers o n the Commission’s list of con trolled carrie rs. Two of the most recent

additions include CSCL and China National Foreign Trade (Group) Corporation (“SINOTRA NS”).

16COSC O’s volume in the trade between the US and the rest of the world increased from 4.9 percent (847,688

TEUs) in 1999 to 5 percent (962,995 TE Us) in 2000. During the same period, while the volume of cargo carried by

COSCO in the bilateral trad e between the US an d the PRC increase d, its market sha re decrea sed from 1 3.9 to 12 .1

percent. Source: Journal of Commerce (“JOC”) PIERS.

17Source: JOC PIERS.

18Petition of China Ocean Shipping (Group) Company for a Partial Exemption from the Controlled Carrier

Act, Petition No. P3-99, March 31, 1999.

38

provisions.14 In addition, OSRA removed three exceptions from the controlled carrier

provisions: agreement membership, operations in a controlled carrier’s bilateral trade with the

US, and OECD signatory status. Prior to OSRA, the rates, charges, classifications, rules, etc., of

a controlled carrier were exempt from the controlled carrier provisions when they were pursuant

to a conference tariff. The removal of the second exception now brings cargo in a controlled

carrier’s bilateral trade under the controlled carrier provisions of OSRA. The last change

regarding OECD signatory status appears to have had minimal impact. 

Over the past several years, carriers of the People’s Republic of China (“PRC”) have been the

largest group of controlled carriers.15 Currently there are five PRC-controlled carriers. COSCO

North America, Inc. (“COSCO”), the largest of the group, has grown from a very modest

beginning to become one of the largest carriers in the world -- during 2000 it ranked as one of the

top five carriers serving the US trades.16 COSCO’s fleet consists of more than 500 ships which

call at ports in approximately 180 countries. It also is a very diversified company, offering nonshipping services such as real estate, finance, and insurance. CSCL, one of the newest controlled

carriers, has grown considerably. It currently has more than 100 ships and has embarked on a

building program to further expand its fleet. CSCL’s market share in the trade between the US

and the rest of the world increased from .02 percent (2,707 TEUs) in 1999 to 1.1 percent

(205,616 TEUs) in 2000. During the same period, it increased its market share in the trade

between the US and the PRC from 0.1 percent (1,328 TEUs) to 3.9 percent (139,947 TEUs).17

In response to the Commission’s NOI, COSCO reiterated some of its earlier comments made

in a petition for regulatory relief before the Commission.18 In its latest petition, COSCO

requested the Commission to expand its current exemption from the Controlled Carrier Act (as

amended by OSRA) to permit COSCO to publish tariff rate decreases in the US foreign
19In October 2000, SINO TRANS filed a petition (Petition of China National Foreign Trade Transportation

(Group) Corp. (SINOTRANS) for Exemption from Section 9(c) of the Shipping Act of 1984, Petition No . P2-00) with

the Commission requesting the same relief granted to COSCO in an earlier proceeding. This was an exemption from the

requireme nts of section 9(c) to allow it to lower tariff rates to exceed or meet competitors’ rates, but not to undercut

them. Both P3-99 and P2-00 are pe nding before the Commission.

39

commerce that would be effective upon publication, without regard to competing carrier rates.19

In both the petition and in its response to the Commission’s NOI, COSCO contends that it lost its

short-term flexibility to price tariff cargo freely in the trade between the US and the PRC due to

the repeal of the bilateral trade exception to the Controlled Carrier Act; therefore, it contends its

burden of regulation has increased under OSRA. COSCO has found this burden especially

difficult with regard to oversized project and forwarder-controlled cargoes that need quick (often

one-day) tariff publication. COSCO would like to see the 30-day notice requirements for its tariff

publications dropped. The merits of the specific regulatory relief sought by COSCO will be

evaluated by the Commission in the proceeding that considers Petition P3-99. The Commission

also will increase its focus on controlled carrier activities to ensure that the Controlled Carrier

Act objectives of preserving equitable competition and promoting international trade are being

met. 

Unfair Foreign Shipping Practices

OSRA amended section 11a of the 1984 Act (FSPA), and section 19 of the Merchant Marine

Act, 1920, to add the suspension of service contracts to the remedies available to the

Commission to address unfavorable conditions, and to clarify the types of foreign activities that

create unfavorable conditions to shipping in the US foreign trades, enumerating pricing practices

as among those activities that may create unfavorable conditions. 

The majority of those commenting on this issue in response to the NOI believed that OSRA

had no impact on potentially unfair shipping practices. Several commenters stated that it was

beneficial for the FMC to have authority to take action against foreign restrictive practices and

noted their concern regarding such practices in particular US foreign trades. (See Appendix I,

question 30.)

The Commission continues to address unfair shipping practices as they arise. The

Commission requires periodic reports from carriers in specified trade areas, when appropriate, to

monitor developments. Further, the Commission has established a permanent Task Force on

Restrictive Foreign Practices, chaired by the General Counsel, with representatives from a

number of bureaus and offices. The Task Force meets regularly to exchange information about

new and continuing areas of concern, and to formulate recommended approaches to restrictive

foreign shipping practices which may require action under the Commission’s statutory

authorities. Since the implementation of OSRA, the Commission has continued to address unfair

shipping practices under existing proceedings and continuously monitors new developments in

this area.
40

Port Trucking Issues

Question 23 of the Commission’s NOI asked: “What impact, if any, has the implementation

of OSRA had on the port trucking industry?” In responding to this question, the International

Brotherhood of Teamsters complained that port driver wages have declined, driver bankruptcies

and truck repossessions have increased, and working conditions for port drivers are generally

“abusive.” The Teamsters believe that OSRA permits ocean common carriers, through their rate

agreements’ voluntary guidelines, to keep inland rates harmfully low by setting anti-competitive

and unreasonable “ceiling” rates for both through and inland transportation. Further, they claim

that the inland transportation rates “dictated by ocean common carriers and shippers” to trucking

companies are non-negotiable rates and prohibit trucking companies from providing a living

wage to port drivers. The Teamsters provide several examples of poor working conditions in the

container hauling industry, including port congestion, unpaid waiting time at ports, unroadworthy

chassis, overweight containers, and improperly labeled hazardous materials.

Because the purpose of the Commission’s NOI

proceeding was to examine the impact of OSRA, the

Commission is not treating the Teamsters’ comment as a

petition for formal action, nor is the Commission

addressing whether the Teamsters’ concerns would be

remediable by the Commission were a complaint or

petition filed. It does not appear, however, that the

Teamsters’ concerns are occasioned by the passage of

OSRA. Rather, its comments reflect longstanding

difficulties faced by the port trucking industry in its

relationship to the ports and ocean carrier industry. One

apparent change in the law related to the Teamsters’

concerns is found in section 10(c)(4). Prior to OSRA,

section 10(c)(4) prohibited concerted action in

negotiating with non-ocean carriers on “rates or services

provided to ocean common carriers within the US by

those non-ocean carriers.” OSRA amended the

prohibition to allow for such concerted action if

“negotiations and any resulting agreements are not in

violation of the antitrust laws and are consistent with the

purposes of this Act.” The Teamsters do not cite

specifically to this change in the law and do not provide

specific facts alleging unlawful concerted action in

negotiating with inland providers. Furthermore, the Commission has no information to indicate

that this particular change in the law has had a detrimental effect on the port trucking industry.

Voluntary guidelines for service contracting are filed confidentially with the Commission

pursuant to 46 C.F.R. § 535.802(e). These were examined carefully to determine which

guidelines could affect port trucking. Some guideline provisions were found that could

theoretically impact inland truckers and port drivers. Certain of the voluntary guideline

provisions would appear to aim at relieving port congestion, one of the Teamsters’ significant

• The Teamsters believe that

OSRA permits ocean common

carriers, through their rate

agreements’ voluntary

guidelines, to keep inland rates

too low by setting anticompetitive and unreasonable

“ceiling” rates for both

through and inland

transportation.

• The Teamsters’ concerns, as

opposed to being occasioned

by the passage of OSRA,

appear to reflect longstanding

difficulties faced by the port

trucking industry in its

relationship to ports and ocean
41

concerns, and thereby would benefit port truck drivers. Nothing in the voluntary guidelines,

however, substantiates the Teamsters’ apparent claim that they allow carriers to jointly negotiate

inland divisions, defined in section 3 (11) as “the amount paid by a common carrier to an inland

carrier for the inland portion of through transportation offered to the public by the common

carrier.” Section 7(b)(2) establishes that antitrust immunity is not extended to discussion

agreements or conferences for the purpose of discussion or negotiation regarding the “inland

divisions.” The inland division is specifically distinguished in section 7(b)(2) from the inland

portion, or the amount charged by the common carrier to its customer for inland services. Nor do

the voluntary guidelines indicate that carrier practices with regard to agreements affecting the

inland portion of through rates have changed as a result of OSRA: carrier antitrust immunity for

such activities by conferences and rate agreements existed under the 1984 Act prior to the

passage of OSRA. Its extension by OSRA to voluntary rate discussion agreements does not

appear to have any connection to the Teamsters’

concerns as they were presented; no specific allegations

or evidence was provided to suggest such a connection.

Further, the voluntary guidelines do not provide any

indication that inland carriers are unable to negotiate

inland rates with individual ocean carriers, as alleged by

the Teamsters. In sum, the Commission is unaware of

any agreements which, through their voluntary

guidelines, permit concerted activity with regard to

inland trucking in contravention of the 1984 Act. 

In addition to the examination of voluntary service

contract guidelines, the Commission also identified

several agreements that contain language authorizing the

respective members to jointly negotiate inland divisions

with motor carriers. Agreement representatives,

however, confirm that no arrangements involving motor

carriage have been implemented. The Commission also

reviewed the confidential minutes of meetings of

conferences and discussion agreements on file with the

Commission and found no indication of discussions

among the respective agreement members concerning

the negotiation of US inland divisions with motor

carriers. The Commission will continue to review

guidelines, minutes, and agreement provisions to

ascertain whether agreement authority is occasioning any

adverse effects on port and trucking operations.

E-Commerce

Prior to the passage of OSRA, transportation-related,

e-commerce businesses had already started appearing on

the liner shipping scene. Many of the original Internet-

• Traditional information

management dot-com

companies, either

independently or in

cooperation with liner shipping

firms, have entered the liner

shipping arena, offering an

array of automated, valueadded service packages.

• Cargo-based, e-commerce

portals, which provide a

centralized location for “onestop shopping” for various

participating carrier services,

are the current trend and are

receiving much support from

major liner companies. 

• The concept of “supply-chain

collaboration” has been

gaining attention in liner

shipping and promises to

streamline the process

significantly.
42

based companies focused specifically on developing automated services (including e-commerce

auction sites) tailored to the business of liner shipping. Many of these start-ups were founded by

carrier and shipper executives displaced as a result of industry down-sizing that occurred during

the 1990s. These former carrier and shipper executives have combined their extensive industry

expertise with today’s high-tech capabilities to advance industry automation. Traditional

information management companies, either independently or in cooperation with liner shipping

firms, also have entered the liner shipping arena, offering an array of automated, value-added

service packages.

While OSRA is not directly responsible for the emergence of these dot-com businesses, it

arguably has created a more competitive, market-oriented environment in which these companies

have grown in importance. For example, 1999 saw an explosion in the number of dot-com

companies focused on the design and promotion of automated services customized for liner

shipping. Since then, however, liner shipping dot-com firms have generally followed the same

consolidation trends of those in other industries -- by January 2001, many firms that partially

were labeled as “Internet auction” companies had been bought or gone out of business. The

surviving companies have changed their emphasis drastically from auction sites to focus on more

fundamental, practical applications.

For example, track-and-trace technologies, which provide visibility, are gaining in popularity.

Cargo-based, e-commerce portals are the current trend and are receiving much support from

major liner companies. These Internet portals provide a centralized location for “one-stop

shopping” for various participating carrier services and obviate the need for shippers to refer to

numerous individual carrier web-sites. INTTRA and Global Transportation Network, two ocean

carrier-backed Internet portals, focus on track-and-trace systems as a core capability. Extensive

carrier collaboration is expected to continue in this area. In addition, one carrier recently unveiled

six products that it will provide shippers, along with a track-and-trace feature. These products

include: vessel schedule information, on-line booking capability and shipping instructions,

ability to print remote bills of lading, automated shipment tracking, and a complete on-line

invoicing and payments system.

E-commerce for value-added services was seen by the NOI commenters as something that

was likely to prove more useful than e-auctions, both in allowing carriers and shippers to reduce

costs, and improving carrier-shipper relationships. E-auctions, however, received very little

support from vessel operators because the auctions are meant to fill unused capacity by

auctioning-off unused slots at reduced rates. Carriers generally believed that participation in

e-auctions only hurts their operations by further lowering rates. It is no surprise that those

companies who concentrated on this type of service largely were unsuccessful. Shippers

additionally noted that they are looking for applications that go beyond ocean carriage to include

middleman functions as well. Some also contended that because many lines offer their own

systems, the complexity of dealing with multiple systems makes the current offerings less useful

than otherwise might be the case. The new portals look to ease this complexity.

A relatively new development in the area of logistics and e-commerce also may address the

problem of multiple, complex systems. The concept of “supply-chain collaboration” has been

gaining attention in liner shipping and promises to streamline the process significantly. True

collaboration involves two or more companies working jointly to develop shared information,
43

design and execute a logistics supply-chain plan, measure performance, and share equally in the

rewards. In essence, collaboration involves the supply-chain partners sharing commercially

sensitive, customer-demand forecast information, and using it throughout the supply chain, to

ensure the correct and timely delivery of products. Collaboration is considered so critical in

today’s highly competitive environment that many of the largest US-based shippers (including

Wal-Mart, K-Mart, Eastman Kodak, etc.) formed a group known as VICS -- Voluntary

Interindustry Commerce Standards -- to develop uniform documentation and standards for

supply-chain collaboration. 

The advent of auction dot-coms, transportation exchanges, Internet portals, and similar ecommerce entities has increasingly blurred the distinction between forwarding (OTI) and other

value-added services. Some commenters to the Commission’s NOI believe these new entities

should be reviewed to determine how they fit within the 1984 Act, as amended. The Commission

recognizes the important role that these entities play in the efficient movement of goods in the

US-foreign commerce, as well as in reducing operational costs. The question of the rights and

responsibilities of these entities under OSRA and the role, if any, of the Commission in

regulating their activities is an issue that the Commission will continue to evaluate. In the

meantime, it is likely that transportation exchanges and similar e-commerce firms will continue

to evolve and provide cost-saving solutions to the industry. 
44

CLOSING OBSERVATIONS

Snapshot of Findings

The changes in the liner shipping industry, and OSRA’s impact over the past two years, can

be characterized as significant, but are not totally unexpected. Certainly the dissolution of the

traditional conference system in most major trades, and the ascendency of discussion agreements,

was anticipated. The wholesale reshaping of carrier supply-side operations, replete with various

types of partnering and vessel-sharing arrangements, continued a trend that had begun several

years ago. And the across-the-board surge in service contracting (as reflected in the number of

contracts, the cargo volume, and the percentage of cargo moved under such contracts), while

greater and more sudden than most expected, was consistent with the anticipated decline in tariff

movements as a result of individual confidential contracting and the removal of conference

oversight authority.

But these changes over the past two years nonetheless have been noteworthy. The high

percentage of service contracts entered into by individual carriers (98 percent of all contracts in

the Commission’s 1,000 contract random sample) is remarkable. The confidentiality, flexibility,

and lack of conference control over these instruments have made them attractive to carriers and

shippers alike, who share the desire to find cost savings and efficiencies through individualized

arrangements. The portal for tariff information has

migrated from the FMC’s ATFI System to the Internet. 

And while the preponderance of service contracts refer

to the respective carrier tariff for accessorial and GRI

information, tariffs are far different from those of a mere

two years ago. They no longer are the center stage for

rate information, but more the coordinating link across

most service contracts. Of course, NVOCC rate

information still is contained in published tariffs.

Consolidation is also taking place in the OTI sector as

more traditional freight forwarders and NVOCCs seek to

wear both hats; this is consistent with attempts to

respond to customer demand for more integrated logistic

services.

OSRA specifically amended the 1984 Act to

encourage the growth of US exports through “. . . a

greater reliance on the marketplace.” The changes in

service contracting and the rise in carrier efficiencyenhancing agreements suggest that OSRA has achieved

this objective. Many see the replacement of the

conference system with discussion agreements as

resulting in a less rigid form of carrier control over the

liner trades. Others, however, remain concerned with the degree to which such agreements are

able to achieve adherence to voluntary service contract guidelines. As indicated earlier, the

• It is now the Internet, not the

FMC’s ATFI System, that is

the portal for tariff

information.

• Tariffs are no longer the center

stage for ocean carrier rate

information, but more the

coordinating link across most

service contracts.

• The changes in and popularity

of service contracting, and the

rise in carrier-efficiencyenhancing agreements, suggest

that OSRA has brought greater
45

Commission’s confidential review of carrier service contracts found limited adherence to

contract guidelines, although carrier actions in this regard appear to be dictated by prevailing

market conditions. 

Ongoing Evolution of the Industry

OSRA is but one factor in the ongoing reshaping of

worldwide distribution (in which liner shipping is one

component). This evolution is driven by the powerful

and recent economic forces of technology, partnering,

globalization and process integration. The fundamental

concept behind these forces is as old and unchanging as

the market itself: buyers looking for the most

advantageous deals and sellers striving to provide a

service that attracts and retains customers. 

Limits on the speed and accuracy of information

exchange historically have constrained efficient market

processes. The rapid availability of electronic

information has radically eased such limits and helped to

promote globalization. No longer do companies confine

themselves to their service segment, when it has become

clear that significant efficiencies are to be captured from

integration across all segments. Supply-chain

management, which integrates traditionally independent

processes, has led to efficiencies in each link of the chain, from product inception to delivery.

Sellers of goods must partner with their customers and work with others in the supply chain to

realize and share available economic benefits. Hence, liner operators, middlemen, third-party

logistics providers, consolidators, and others all now seek to redefine themselves beyond their

traditional transportation sector. More than one liner operator’s mission statement, for example,

has been revised to indicate a broader distribution and logistics focus than just liner movements.

When viewed from the broad perspective of worldwide distribution, OSRA was a clear

response to calls for an institutional scheme that was more adaptive to the emerging economic

order of integrated, information-intense, supply-chain processes. This is nowhere more evident

than in the rush of carriers and shippers to enter into one-on-one service contracts that

accommodate broader and more customized distribution arrangements. As shown, there has been

a surge in individualized contracting, a transformation in the manner by which ocean carriers in

any given trade collectively address pricing and service matters, and a proliferation in efficiencyenhancing operational carrier arrangements. 

One issue worth noting is the apparent impact of OSRA on limitations of carrier liability for

cargo loss or damage. As our report reflects, both shippers and carriers reported to us that some

shippers are seeking service contract provisions which would raise carriers’ liability, and that

certain carriers are seeking to address the issue collectively through discussion agreement service

contract guidelines. While the issue of carrier limitations of liability for cargo loss or damage is

not addressed in the 1984 Act, the availability of confidential, individual carrier service contracts

• Instantaneous electronic

information exchange has

ushered in the era of

globalization, breaking down

traditional national and market

boundaries.

• Participants in various sectors

of the ocean shipping industry

now seek to redefine

themselves beyond their

traditional transportation

sector.
46

pursuant to OSRA appears to be providing a new medium in which shippers and carriers will

address such matters. To date the FMC has not received formal complaints or requests for action

under the statutes it administers to address this issue. We intend to monitor ongoing

developments in this important area. 

By any standard, OSRA is still in its infancy. Clearly, its impact on liner shipping and

worldwide distribution will continue to unfold. As this occurs, and those in US ocean shipping

further adapt to a new trade environment, its direct effects should be even more discernable. 

Continuing Regulatory Issues

The dramatic changes taking place in international

trade against the backdrop of OSRA, and the issues they

raise, are focal points for the Commission. The FMC is

committed to fulfilling its statutory responsibilities in a

manner that gives deference to the market process while

defending against market-distorting abuses. Its mission

statement and strategic goals are based on this

underlying premise.

 Despite what appears to be widespread general

satisfaction with most aspects of the current US

regulatory framework for ocean shipping, a number of

issues remain as points of contention. Some of these

issues stem from changes made by OSRA; others include

policies which preceded OSRA but which OSRA left

unchanged, or policies which OSRA did not amend as

radically as some proponents had advocated during the

legislative process. There appear to be several major

aspects of the US shipping laws which are generating the

most expressions of concern among those less than

wholly satisfied with the 1984 Act as amended by

OSRA.

The first of the issues is the aforementioned concern with the rise of discussion agreements

and the relative merits of antitrust immunity for rate-setting forums. While the 1984 Act’s

section 6 provisions for FMC action on agreements remained unchanged, the OSRA amendments

included refinements to the section 4 provisions describing the agreements within the scope of

the 1984 Act, as well as the section 5 provisions prescribing independent action and the rights of

agreements in addressing service contract matters. Thus, Congress reaffirmed the general

principle of limited antitrust immunity for rate-setting arrangements, while amending the scope

and conditions of that immunity. Therefore, the validity and appropriateness of continued limited

antitrust immunity must be evaluated in the context of the changes effected by OSRA. Among

the factors relevant to such an assessment are the decline in conference power and influence, the

proliferation of individual carrier contracts, the freight rate levels predominating in the trades, the

impact of discussion agreement rate discussions and information sharing as well as voluntary

guideline authority, and the other services, charges, innovations and developments, for better or

• The FMC is committed to

fulfilling its statutory

responsibilities in a manner

that gives deference to the

market process while

defending consumers against

market-distorting abuses. 

• Notwithstanding general

satisfaction with the current

regulatory framework for US

ocean shipping, issues of

concern remain which require

ongoing Commission

assessment.
47

worse, brought about via concerted carrier activity under the post-OSRA regulatory scheme.

Moreover, the effects of immunity under a variety of economic and trade conditions would

provide the best means of fully evaluating its impact. The overall low freight rates prevailing in

most US trades may appear to suggest that agreement and conference authority has limited

impact at the present time, but under trade conditions more favorable to the carrier sector, the

newly amended authorities may prove less benign from the shipper perspective. Thus, it is

incumbent on the Commission to continue to assess and evaluate the impact of discussion

agreements on rates, in order to assess more accurately the OSRA amendments’ influence on the

role and effects of immunity for ratemaking. Similarly, as the debate continues, it is of paramount

importance that the participants address the alleged benefits and harm resulting from immunity

for ratemaking under the current revised regulatory scheme, rather than to reiterate the arguments

pro and con expressed over the last decade. 

Of particular relevance is OSRA’s authorization of voluntary guidelines for discussion

agreements and the degree of adherence to such guidelines among agreement members. Critics

argue that such authority has vested in discussion agreements effectively the same authorities that

the now weakened or defunct conferences had once wielded. This is another issue of continued

spirited debate, and the subject demands ongoing attention on the part of this agency. As noted

supra, an agreement’s cohesiveness on service contract matters varies with the trade and

particular market influences. The fact that guidelines are “voluntary” and unenforceable does not

render those guidelines and the discussion agreements ineffectual; on the other hand, the fact that

the carriers are occasionally, frequently or regularly cohesive does not suggest that they are

abusing that authority or that the guidelines are violative of the 1984 Act merely because they are

having the intended consequences. When the Commission promulgated its regulations

implementing OSRA, one of the more challenging undertakings was in fact the regulations

corresponding to the voluntary guidelines language of OSRA’s addition to section 5(c)(3) of the

statute. The Commission retreated from its earlier, more restrictive reading of those provisions

enunciated in its proposed rule, and instead adopted in its final rule a more permissive approach

toward voluntary guidelines that was, the Commission majority concluded, consistent with the

new language of the statute. The Commission’s own analyses and the comments in response to

our NOI suggest that the dire predictions that discussion agreements would abuse this authority

to effect unreasonable rate hikes have not, to date, been realized. However, as noted above, the

issue merits continuing close attention as trade conditions change and as the industry evolves in

the post-OSRA environment.

Tariff publication is another matter generating some controversy within the industry. OSRA

eliminated the responsibility to file tariffs with the Commission, substituting a responsibility

merely to publish tariffs electronically. OSRA clearly reflected a compromise between the

competing interests in transparency on the one hand (a seemingly necessary component of

common carriage), and flexibility and competition on the other. In promulgating implementing

regulations, the Commission imposed a minimum of restrictions and requirements, opting

instead, as an initial approach, to maximize the carriers’ flexibility in meeting their obligation to

have accurate and accessible tariff publications. The regulations themselves have generated few

complaints, although the Commission has some concerns about the adequacy of compliance,

particularly as to accessibility. However, the underlying statutory mandate for some form of
48

public rate information continues to be challenged by some as unnecessary in light of the

overwhelming predominance of shipments which are now rated under service contracts in lieu of

tariffs.

The question of the usefulness of tariff publication requirements takes on additional nuances

in that those challenging tariff publication tend primarily not to be ocean common carriers, but

rather the NVOCC-OTIs. The OTI complaint generally is that the NVOCCs bear the burden of

being treated as a common carrier when it comes to tariff publication, but that NVOCCs do not

enjoy the privilege afforded to ocean common carriers of offering service contracts to their

shipper customers. Thus, a common grievance expressed in the course of this Inquiry was that

even under the OSRA amendments, the 1984 Act continues to provide NVOCCs all the

obligations of being a common carrier but few of the advantages (some citing as well the new

requirement for NVOCCs to be licensed as well as bonded, neither of which requirements

applies to ocean common carriers). Whether to confer upon NVOCCs the right to enter into

service contracts in their carrier capacities is peculiarly a legislative prerogative and is not a

matter subject to administrative discretion. The Commission is aware that some in the NVOCC

community have proposed petitioning the Commission for an exemption from the statutory tariff

publication requirement under the Commission’s section 16 exemption standards. It would be

premature, therefore, for the Commission to address this issue further in advance of an

anticipated petition, and without the input of other interested persons who have the right to offer

comment on any petition that is filed.

The foregoing represent what appear to be the major contentious issues arising from or

continuing beyond the passage of the OSRA amendments to the 1984 Act. They are by no means

the only regulatory issues which may be debated. Other topics of increasing interest may include

the proliferation of e-commerce companies and how they fit into the current regulatory scheme.

Technological advances are thriving in the OSRA environment and are creating new and

evolving efficiencies. While the Commission wants to encourage the advantages and efficiencies

gained through these innovations, it must further evaluate this area to address any regulatory

issues of concern. 

Additionally, service contracts have become the overwhelmingly predominant rate-setting

vehicle, and as carrier/shipper cooperation increases, they no doubt will become even more

important. With confidentiality and streamlined contracting, it is all the more critical that

smaller-volume shippers receive fair treatment. The Commission will continue to employ

techniques such as analysis of random samples of service contracts to evaluate trends and

activities in this area. 

While the Commission’s experience under OSRA to date, and the industry’s account of its

own experiences since May 1999, have not demonstrated an obvious or compelling need for

revisions in the foregoing areas at this time, they remain the matters on which the Commission

intends to focus its attention and resources in the immediate future. 

In sum, OSRA thus far has accommodated the ongoing process of industry transformation.

As liner operators vie with other participants in the distribution industry to serve as supply-chain

managers/collaborators, only time will tell how successful they will be and how much further

OSRA can accommodate such directions. Clearly, the industry as we know it today will not look

the same in the future. It is within this context that the Commission will continue to encourage a

free-market environment which enhances the ability of the shipping industry to operate as

efficiently and effectively as possible.
49

Suggestions for Further Legislative Consideration

In the course of administering the OSRA-amended 1984 Act over the past two years, the

Commission has identified several provisions in the statute which are either ambiguous or could

be revised in order better to effect the intentions of Congress. To this end, the Commission

suggests that Congress might wish to consider certain amendments and clarifications, addressing

the following matters.

Freight Forwarder Compensation

Section 8(a)(1)(C) of the 1984 Act, 46 U.S.C. app. § 1707(a)(1)(C), requires that a tariff state

the level, if any, of freight forwarder compensation to be paid by a carrier or conference. Section

19(e)(4), 46 U.S.C. app. § 1718(e)(1), provides that no conference or group of two or more

carriers authorized to agree on the level of compensation, may either deny any member or group

the right to take independent action on the level of compensation to be paid, or agree to limit that

compensation to less than 1.25 percent of the aggregate of the applicable rates and charges. The

level of freight forwarder compensation is now being included as a negotiable term in many

service contracts, independent of the level set forth in the applicable tariff. 

Congress may wish to clarify whether, under sections 8(a)(1)(C) and 19(e)(4), the level of

freight forwarder compensation paid for shipments moving under a service contract may be

different from the level of compensation paid for shipments rated according to a tariff rate. That

is, did Congress intend that parties to a service contract be permitted to negotiate the level of

freight forwarder compensation to be paid on shipments moving under the service contract?

Tariffs

Section 8(d) provides that 

No new or initial rate or change in an existing rate that results in an increased cost to the

shipper may become effective earlier than 30 calendar days after publication. The

Commission, for good cause, may allow such a new or initial rate or change to become

effective in less than 30 calendar days. A change in an existing rate that results in a

decreased cost to the shipper may become effective upon publication.

46 U.S.C. app. § 1707(d). Prior to OSRA, carriers and conferences were required to obtain

“Special Permission,” granted upon the showing of good cause, to file new or initial rates on less

than 30 days’ notice. However, since OSRA, the Commission has, in practice, allowed such rates

to become effective immediately, rather than on 30 days notice, and without the filing of a

special permission request, to better serve the shipping community.

We suggest that section 8(d) be amended to reflect this policy. Changes in rates or charges

that result in an increased cost to the shipper would still require a 30-day publication period

before becoming effective. 

Level of Civil Penalties and Monetary Sanctions

We suggest that the following sections be annotated to indicate that the amount of the civil

penalty set forth therein has been adjusted for inflation by the Federal Civil Penalties Inflation
50

Adjustment Act of 1990, 46 U.S.C. 2461, as amended by the Debt Collection Improvement Act

of 1996, Pub. L. 104-134, and further, that such adjustment will continue to be made every four

years. 

United States Code Citation Civil Monetary Penalty description

46 U.S.C. app. sec. 817d Failure to establish financial responsibility for death or

injury

46 U.S.C. app. sec. 817e Failure to establish financial responsibility for nonperformance of transportation

46 U.S.C. app. sec. 876 Failure to provide required reports, etc. -- Merchant

Marine Act of 1920

46 U.S.C. app. sec. 876 Adverse shipping conditions/Merchant Marine Act of

1920

46 U.S.C. app. sec. 876 Operating after tariff or service contract

suspension/Merchant Marine Act of 1920

46 U.S.C. app. sec. 1710a Adverse impact on US carriers by foreign shipping

practices

46 U.S.C. app. sec. 1712 Operating in foreign commerce after tariff suspension 

46 U.S.C. app. sec. 1712 Knowing and willful violation/ Shipping Act of 1984 or

Commission regulation or order

46 U.S.C. app. sec. 1712 Violation of Shipping Act of 1984, Commission

regulation or order, not knowing or willful

31 U.S.C. sec. 3802(a)(1) Program Fraud Civil Remedies Act/giving false

statement

31 U.S.C. sec. 3802(a)(2) Program Fraud Civil Remedies Act/giving false

statement

Definition of “Ocean Common Carrier” as it Affects the Scope of Agreements

and Service Contracts

Another matter which has arisen in connection with the Commission’s implementation of the

OSRA amendments relates to the 1984 Act’s definition of an “ocean common carrier.”

Section 3(16). That term, by incorporating the more general definition of common carrier at

section 3(6)(B), provides that an ocean common carrier is “a person holding itself out . . . to

provide transportation for passengers or cargo between the United States and a foreign country
51

[utilizing] . . . a vessel operating on the high seas or the Great Lakes between a port in the

United States and a port in a foreign country.” In applying that definition in the context of

agreements within the scope of section 4 of the 1984 Act, which are exempt from the antitrust

laws once filed and effective, the Commission ruled that a conference could not include in its

filed agreement any provision authorizing rate setting for calls between foreign ports. In

Transpacific Westbound Rate Agreement v. FMC, 951 F.2d 950 (9th Cir. 1991) (“TWRA”), the

Ninth Circuit Court of Appeals upheld the Commission’s ruling declining jurisdiction over

foreign-to-foreign portions of mixed foreign and US-trade agreements and found the

Commission’s regulatory power over common carriers is limited to the US trades. The

Commission’s and the Court’s interpretation turned on the 1984 Act’s definition of the term

“common carrier by water.” 

The agreement at issue in TWRA was a rate-setting agreement. However, industry

developments in the intervening years, including the proliferation of new forms of operational

and cooperative working arrangements among carriers, such as the VSAs and global alliances

discussed in this study, as well as the new authority under OSRA for ocean common carriers to

enter into individual service contracts pursuant to collectively established voluntary guidelines,

have led to the filing of agreements and service contracts which are of global scope or whose

terms are applicable, in part, to service between foreign ports. In many such agreements,

sanitization of the parties’ actual agreement or contract to omit or delete portions affecting nonUS service is impracticable or would result in less than a full reflection of the parties’

arrangements affecting the US trades. As a practical matter, the Commission has permitted the

filing of agreements whose reach extends beyond the US trades when the agreement parties

recognize and acknowledge that no antitrust immunity or Commission jurisdiction attaches to

foreign-to-foreign provisions or activities by virtue of the filing and effectiveness of the

agreement. Nevertheless, we recognize that carrier agreements and service contracts may have

terms which affect US trades by including trade-offs of services and prices in one trade for

another. While we might view such agreements as falling within the scope of section 4 in their

entirety by virtue of their inclusion of terms affecting the US trades, the status of such agreement

terms under the antitrust laws might be called into question in light of the 1984 Act’s ocean

common carrier definition and the TWRA decision. Moreover, in view of the increasing

frequency with which carrier agreements include supply-side arrangements of multi-trade or

global scope, as well as the authorization of multi-trade and global service contracts pursuant to

OSRA, it might be useful for Congress to re-examine these issues. 

Service Contract/Bill of Lading Inconsistency

Section 8(a)(1)(E) of the 1984 Act requires that carrier tariffs “include sample copies of any

loyalty contract, bill of lading, contract of affreightment, or other document evidencing the

transportation agreement.” As indicated in our study, many carrier tariffs now serve as the source

of common elements affecting or incorporated by reference in service contracts. The 1984 Act

does not specifically address the relationship between tariffs or boilerplate bills of lading issued

by ocean common carriers and their service contracts. Many carrier service contracts provide

that, where service contract terms conflict with bill of lading terms, the bill of lading will prevail.

However, absent such provisions, there may be instances in which carrier bills of lading issued

for shipments of cargo booked pursuant to a service contract include terms which are not

consistent with particular service contract terms, such as those relating to carrier liability for loss
52

or damage. In such instances, it may be unclear which document would govern. This may be an

issue appropriately addressed through legislation.

Controlled Carrier Issues (Section 9)

When the Controlled Carrier Act (now section 9 of the 1984 Act) originally was adopted by

Congress in 1978, it was done in the context of an industry which operated much differently than

it does today. 

Service contracts: Although section 9 was amended by OSRA to recognize that service

contract rates provide another vehicle by which controlled carriers may unreasonably underprice

their competition, Congress may again wish to consider section 9 in light of the fact that service

contracts have become the primary measure for, as well as method to implement, changes to

pricing. Congress may wish to give the Commission greater authority to address unjust and

unreasonable rates contained in service contracts filed by controlled carriers by:

• Providing explicit authority for the Commission to impose further form and manner

requirements for the filing of service contracts of controlled carriers to facilitate review of

their rates; and 

• Revising section 9(c) to include a thirty-day delay for the imposition of service contract rates

which result in lower rates (section 9(c) currently applies only to reductions in tariff rates).

Taking cost into account: OSRA made the Commission’s examination of costs an issue

which the Commission must, rather than may, take into account in an assessment of a controlled

carrier’s rate. Prior to OSRA, below-cost pricing was just one of several factors the Commission

could consider when it examined controlled carriers’ rates. As revised, section 9(b) requires the

Commission to 

take into account whether the rates or charges which have been published or assessed or

which would result from the pertinent classifications, rules or regulations are below a

level which is fully compensatory to the controlled carrier based upon that carrier’s actual

costs or upon constructive costs.

In prior proceedings, the Commission had found it necessary to examine costs only when a

controlled carrier’s “overall rate structure” was at issue; when the examination concerned an

individual commodity rate, the Commission’s analysis focused on the extent to which the rate

caused disruptive effects on the trade. OSRA’s revision to section 9(c) appears to invalidate this

distinction, and may have been intended to create a presumption that a controlled carrier’s use of

a particular commodity as a “loss leader” makes that rate unjust and unreasonable. However, the

revision also appears to impose the extraordinary, perhaps unintended burden on the Commission

of undertaking a cost analysis when it seeks to address individual commodity rates of controlled

carriers even though there may be other sufficient bases to establish whether particular rates are

not just and reasonable. Congress may wish to clarify this matter.

Some may also contend that the Commission must take such costs into account in any case

before it requests a statement of justification from the controlled carrier under section 9(c). 
53

Congress may wish to clarify that the Commission need not make an initial finding (akin to a

probable cause showing), that the rates in question are below cost and therefore unreasonable

before the Commission may require the controlled carrier to justify those rates. Conversely,

Congress may wish to direct the Commission that the initial assessment may be based on factors

other than a price/cost comparison.

 

Definition of controlled carrier to include NVOCCs: Controlled carriers are currently

defined by section 3(8) of the 1984 Act as ocean common carriers owned or controlled by a

government. Congress may wish to consider expanding the application of the prohibitions and

limitations on controlled carriers to all common carriers, whether they be ocean (and therefore

vessel-operating) or non-vessel-operating common carriers, owned or controlled by a

government.

Remedies to address violations of section 9: It appears that the only applicable remedies

to address unjust or unreasonable rates under section 9 are prospective: suspension or prohibition

of the use of those rates. Because of the time-consuming nature of determining if the controlled

carrier is engaged in predatory pricing, the remedies may be moot as the rates may no longer be

in effect by the time such findings are made (when, for example, the service contracts containing

those rates have expired or will soon expire). It appears that no retroactive penalties, i.e., the

assessment of fees, are presently available under the statute. Thus, Congress may wish to

consider giving the Commission the authority to impose retrospective penalties. Congress may

also wish to clarify whether any person may bring a complaint under section 11 alleging

violations of section 9, and if so, what penalties or damages would be available to a successful

complainant.
APPENDICES
55

APPENDIX I

NOI REVIEWS BY QUESTION

NOI General Description

The FMC’s NOI was issued on January 22, 2001, with comments to be returned to the

Commission by March 12, 2001. On March 7, 2001, a Notice of Extension of Time was issued

which extended the comment date through March 22, 2001. The Commission asked thirty-five

questions concerning the impact of OSRA on all sectors of the international ocean liner

transportation industry. Several key areas are addressed in the NOI, including service contracting,

the activities of carrier agreements, the impact of OSRA on OTIs, shippers’ associations and

other affected parties, and tariff accessibility and accuracy. Of the sixty-one responses that the

Commission received, twenty-one came from individual carriers, eleven from freight forwarders

and NVOCCs, ten from shippers and shippers’ associations, eight from various industry groups,

seven from discussion agreements, and four from carrier conferences. These comments have

assisted the Commission’s analysis and evaluation of the new Act’s effects during its first two

years in force, and have been incorporated in the present study. The following is a list of the

commenters:

A.N. Deringer, Inc.

American International Freight Association & Transportation Intermediaries Association

American President Lines, Ltd.

Americana Carriers (Lykes Lines Limited, LLC and Mexican Line Limited, LLC)

Atlantic Container Line

Australia-New Zealand Direct Line

Australian Peak Shippers Association

Central America Discussion Agreement

Contship Containerlines Limited

COSCO North America, Inc.

Crowley Liner Services, Inc.

Dryvit Systems, Inc.

DuPont Co. (USA)

East Coast of South America Agreement/West Coast of South

America Discussion Agreement

Evergreen Marine Corp. (Taiwan) Ltd.

Gemini Shippers’ Association, Inc.

Globe.Com Lines, LLC.

Hamburg Süd Group (Columbus Line, Inc., Crowley American

Transport, and Alianca Lines, Inc.)

Hanjin Shipping

Hapag-Lloyd Container Line

Hayleys Export Shipping Department
56

Hispaniola Discussion Agreement

Hyundai Merchant Marine Co., Ltd.

Importers Association of Australia

International Transportation Group of ATOFINA Chemicals, Inc.

International Brotherhood of Teamsters

Israel Trade Conference

Judy July

“K” Line America

LTD Shippers Association

M. G. Maher & Company, Inc.

Maersk Sealand

Mediterranean-North Pacific Coast Freight Conference

Middle East Indian Subcontinent Discussion Agreement

Mitsui OSK Lines (America), Inc.

National Customs Brokers & Forwarders Association of America, Inc.

National Industrial Transportation League

National Unaffiliated Shippers’ Association

New York/New Jersey Foreign Freight Forwarders and Brokers Association, Inc.

Nippon Yusen Kaisha Line

North Atlantic Alliance Association, Inc.

Orient Overseas Containerline Limited

Orion Marine Corp.

P&O Nedlloyd, Limited

Roadway Express, Inc.

Samuel Shapiro & Company, Inc.

South Florida NVOCC - NAOCC Association, Inc.

Toy Shippers Association, Inc.

Trans Service Line, NVOCC

Trans-Atlantic Conference Agreement

Transpacific Stabilization Agreement

Tucker Company

US Shippers Association

United States South Europe Conference

United States Australasia Agreement and US/Australasia Interconference

and Carrier Discussion Agreement

Wallenius Wilhelmsen Lines AS

Westbound Transpacific Stabilization Agreement

Westwind International Inc., Westwind Maritime International Inc. and 

Westwind NVOCC Inc.

World Shipping Council

Yang Ming Line

Zim-American Israeli Shipping Co., Inc.
57

The following are summaries of the responses to the NOI. Unless specifically noted,

comments attributed to “shippers” include comments of shippers’ associations. The variation in

detail provided in the summaries reflects in large measure the various degrees of explanation,

illustration and argument provided in the comments themselves. Anyone interested in reviewing

a particular respondent’s actual submission should contact the Commission’s Office of the

Secretary. In several instances our questions called for differentiation and specificity in

responses. When our summaries do not reflect such differentiation and specificity, it is because

it was not provided by the respondents. It should also be noted that in a number of instances our

summaries reflect inconsistencies in responses, for example, where a single respondent or group

of respondents pointed to favorable impacts of certain types of agreements in one question and

detrimental impacts of the same type of agreements in other questions. 

Service Contracting

1. Has your company’s use of service contracts expanded under OSRA? Why or why not? 

If so, please include the approximate increase (by volume of cargo shipped) of such use, by

relevant trade lane.

Most carriers commented that OSRA has significantly expanded both the use of service

contracts and the volume of cargo moving under service contracts. Common reasons given for

the increase in service contracts were customer demand and preference for a contractual

relationship that preserves the confidentiality of the terms of the contract without fear of

competition undercutting contract deals, as well as the opportunity for shippers and carriers to

build a working relationship or partnership. Carriers that were previously members of

conferences reported the largest increase in usage of service contracts, as the number of

conference service contracts drastically diminished or have been completely eliminated. All or

most contracts are now executed by individual lines. However, independent, non-conference

carriers reported that their use of service contracts had not significantly expanded, as they were

using service contracts to meet their objectives prior to OSRA. Hamburg Süd Group (“Hamburg

Süd”), while reporting an increase in service contracts, noted that overall volume had not

changed significantly due to more small-volume contracts with minimum commitments of 25

TEUs or less. 

Most shippers and shippers’ associations reported that the number of contracts increased

following OSRA. DuPont Co. (USA) (“DuPont”) pointed out that OSRA has allowed for more

freedom and flexibility in contracting. However, some shippers reported that OSRA’s impact has

been mixed regarding the overall volume of cargo moving under service contracts; e.g., Gemini

Shippers’ Association (“Gemini”) believes that cargo volumes have expanded dramatically,

while the Toy Shippers Association, Inc. (“Toysa”) advised that overall volumes have not

increased. 

The majority of OTIs/NVOCCs/freight forwarders and their associations reported an increase

in the use of service contracts. The National Customs Brokers & Forwarders Association of

America (“NCBFAA”) and the New York/New Jersey Foreign Freight Forwarders and Brokers

Association, Inc. (“NY/NJ Forwarder Group”) pointed out that this increase is due to the
58

dissolution of conferences and the rise of one-on-one contracting with individual carriers. Orion

Marine Corp. (“Orion”) explained that its use of service contracts has not expanded because it

can obtain “ad hoc” terms of carriage under tariff rates that are more favorable than fixed

contract provisions. Trans Service Line, an NVOCC, contended that the use of service contracts

has increased due to market conditions rather than a result of OSRA. M. G. Maher & Company,

Inc. (“Maher”), a licensed OTI and customs broker, stated that OSRA has not detracted from nor

enhanced its business opportunities, but that it is “handicapped” without the ability to sign

service contracts as a carrier. 

2. Has OSRA changed the way you negotiate contracts? If so, in what ways (for example,

shifting from conference contracts to individual contracts, or changes in the negotiating

process itself)? If no, why not? Are your contracts being amended more frequently under

OSRA? If so, why?

With the exception of two independent carriers, carriers and carrier agreements opined that

OSRA has changed the way contracts are negotiated, noting that prior to OSRA many contracts

were negotiated through a conference structure. They pointed out that now contracts are, for the

most part, negotiated directly between a shipper and a carrier, allowing for “tailor-made

solutions” to meet shipper requirements. Moreover, carriers and conferences noted that this

flexibility and efficiency extends to rate and non-rate parts of the service contract. APL advised

that there is now an increased customer demand for multi-trade and global service contracts.

Further, many carriers reported a sizable increase in the number of contract amendments, while a

few noted minimal or no changes to amendment volumes or changes only in certain trades.

Hapag-Lloyd Container Line (“Hapag-Lloyd”) added that through amendments the parties can

address changing business requirements without fear of competitors finding out. 

Shippers noted that they now are able to work more closely with individual carriers as

opposed to conference members. Shippers also pointed out that, due to the confidentiality aspects

of OSRA, carriers are more willing to customize contracts to suit individual shipper needs,

allowing shippers to better meet their requirements. Most shippers stated that negotiations have

become faster with carriers being more responsive. Toysa thought the negotiation process had

become more complicated and time-consuming. 

Most OTIs responded that OSRA has changed the way contracts are negotiated. As a result

of the one-on-one negotiation process, contracting is more rapid and flexible. Samuel Shapiro &

Company, Inc. (“Shapiro”) also points out that carriers now are willing to sign contracts for

smaller volume commitments. 

3. Have the types of contracts your company signs (single trade, multi-trade, global, multishipper, multi-carrier) changed under OSRA? [Note: A multi-trade contract is one that

covers multiple US trade lanes in one contract, but no foreign-to-foreign trades. A global

contract is one that covers multiple trades, including foreign-to-foreign trades.]

Most carriers reported increases in the number of global and multi-trade contracts. While

many reported only modest increases, APL indicated that global and multi-trade contracts
59

together now represent 48 percent of its total service contract volume. A reason given for the

increase was shippers’ apparent preference to deal with selected global carriers to meet all of

their requirements, which is seen as improving the bargaining power of the shipper while

simplifying the negotiation process. Still other carriers advised that there has been no (or at least

no significant) increase in these types of contracts. “K” Line America (“K Line”) indicated that

multi-carrier contracts are not popular because they are more cumbersome than individual

contracts. K Line also stated that multi-shipper contracts, though increasing somewhat, still are

not widely used. Other carriers also reported very few multi-carrier contracts.

Many shippers noted that global contracts are more accessible when negotiating with an

individual carrier as opposed to negotiating with a conference. OTIs pointed out that carriers are

offering various incentives to be flexible in their contracts, allowing OTIs to expand their

opportunities under OSRA. Also, NVOCCs believed that various types of contracting and

negotiating options now are available to them since they no longer are restricted to dealing

through the conference secretariat. 

4. Has the content of your service contracts changed (for example, the inclusion of new

types of clauses) under OSRA? If so, what are those changes? Why have they occurred? 

Carriers agreed that under OSRA the content of service contracts has changed to fit the needs

of both shippers and carriers. Carrier and carrier agreements commented that there has been an

increase in unique and customized service contracts. The most significant changes include an

increased demand for special clauses. For example, many service contracts now include

confidentiality clauses, service commitment clauses, performance guarantees (which include 

penalty and liability clauses, space and equipment guarantee clauses), GRI clauses, and transit

time guarantees. K Line stated that “[t]hese changes have occurred because shippers are seeking

to protect their legal interests [by shifting liability to the carrier and/or increasing the limits of the

carrier’s liability].” 

Most shippers agreed that rates were the primary focus of contracts prior to OSRA, and that

service issues now have become more important. Shippers also noted that one of the

developments in service contracts was the increase in carrier liability. 

5. Have OSRA’s service contracting provisions (for example, the end of public filing of

rates and certain terms, the removal of conference authority to regulate members’

contracts, allowing explicit confidentiality agreements in contracts) had any impact on your

contract rates? Please explain, and include relevant illustrative examples where possible.

Most carriers agreed that market conditions of supply and demand continue to be the most

critical factor in determining rates. Although most felt that OSRA has had little to do with rates,

some carriers added that identifying market-rate levels has become increasingly more difficult,

which has given the shipper an edge in obtaining lower rates. Several carriers noted that OSRA’s

service contract provisions have made rates more competitive, with a clear downward pressure

on rate levels. Yang Ming Line (“Yang Ming”) added that ending the public filing of contract

rates has made its pricing policy more flexible and more attractive to its customers.
60

All shippers commented that OSRA’s service contracting provisions have had an impact on

contract rates. Some believed OSRA’s service contracting provisions have created a more

competitive and more market-based environment with lower rates. They emphasized that one-onone relationships between a carrier and a shipper have improved, particularly in previously

conference-dominated trades. Others voiced the view that OSRA has not removed the carriercollusive nature of the business, since carriers have antitrust immunity and engage in discussion

agreements. 

OTIs generally believed that OSRA has resulted in lower rates, creating competition among

the carriers. However, Westwind International Inc., Westwind Maritime International Inc., and

Westwind NVOCC Inc. (“Westwind International”) pointed out that individual shippers often

receive rates from carriers much lower than what NVOCCs can negotiate, even when the latter

guarantee significantly more TEUs per annum. NCBFAA contended that although OSRA

initially had an impact on rates, it is too soon to determine the true extent of the effects. 

6. Are there any service contract issues that you believe are likely to become of increasing

importance in the next 5 years? For example, issues concerning space guarantees, service

commitments, standardization of contract formats, or liability clauses. Please explain. 

Most carriers reported that contracts are now fairly uniform, with clauses added as necessary

to meet specific needs of the shipper or the carrier. The contract issues that carriers believe to be

increasingly important include: space guarantees; electronic information (e-business)

requirements and resulting protective clauses; liability clauses; service commitments; further

globalization of service contracts; rate structures, i.e., “all-in rates” versus port-to-port rates plus

surcharges; and contract clauses dealing with the application of GRIs. Carriers most frequently

cited liability clauses, with one carrier noting that increasing carrier liability can have negative

effects on carriers that lack adequate insurance coverage. Carrier comments also mentioned the

increasing importance of “tailor-made” contracts. Crowley Liner Services, Inc. (“Crowley”),

noted the importance of incorporating ocean shipping services into supply-chain logistics

packages. 

The most common issues reported by shippers were: more flexibility in contracts in regard to

pricing and service; contract volume commitments (with shortfall penalties being cited as

counter-productive to contract flexibility); and penalties for service incidents along with rewards

for good service. OTIs recognized the increasing importance of commitment to service. 

7. For shippers, shippers’ associations, and NVOCCs: For the following categories of

contract terms, please indicate the type of change, if any, that has occurred in the contracts

you have signed since the implementation of OSRA (May 1, 1999). 

Respondents were asked to indicate their degree of satisfaction with the following contract

terms: space guarantees, service commitments, liquidated damages, breach of contract, range of

commodities included, and level of rates and charges. Each term was to be characterized as “less

satisfactory,” “unchanged,” or “more satisfactory” since OSRA. The following chart reflects the
61

percentage of respondents selecting the degree of satisfaction for each contract term listed -- 13

parties responded to this question. 
62

Contract Term Less

Satisfactory Unchanged More

Satisfactory

 Space guarantees 23% 54% 23% 

 Service commitments 8% 62% 31% 

 Liquidated damage terms 0% 54% 46% 

 Breach of contract terms 0% 67% 33% 

 Range of commodities included 0% 54% 46% 

 Level of Rates and Charges 23% 54% 23% 

For each of the identified contract terms, a majority of respondents stated no change since the

implementation of OSRA. Nevertheless, 46 percent of respondents indicated that they were more

satisfied with the changes they have experienced in liquidated damage terms and the range of

commodities included in service contracts, while approximately one-third indicated more

satisfaction with contract terms relating to service commitments and breach of contract.

Responses pertaining to space guarantees and level of rates and charges were split, with 54

percent citing no change, 23 percent less satisfied, and the remaining 23 percent more satisfied. 

8. For VOCCs and NVOCCs: In their role as shippers, have NVOCCs been able to use

(a) the initial contract negotiation process, and/or (b) the ability to subsequently amend

contract rates (e.g., use “bullet” rates), to benefit from OSRA’s contracting reforms? 

Please explain your response (referring to specific trade lanes where relevant). 

A number of VOCCs reported that NVOCCs have benefitted from OSRA’s contracting

reforms as evidenced by the increase in the number of service contracts signed with NVOCCs

and subsequent contract amendments. Reasons given for the increase in NVOCC contracts and

amendments include the ability to deal with selected global carriers to meet all their

transportation requirements, and the freedom to avoid contacting individual conferences covering

different trade lanes. K Line reasoned that NVOCCs, more than beneficial cargo owners, need to

frequently adjust their contracts to meet market conditions. Several carriers reported that

NVOCCs are treated the same as beneficial cargo owners, with an identical contracting process

for each. Wallenius Wilhelmsen Lines AS (“Wallenius”) added that NVOCCs benefit because

they are able to re-market carrier rates and services without significant capital investments. 

Most VOCCs also noted the substantial use of “bullet” rates by NVOCCs. Bullet rates are

specific commodity rates that are added to a service contract after its original effective date,

thereby effectively providing the flexibility of tariff rates and the confidentiality of service

contracts. NVOCCs acknowledged that they have benefitted from the ability to obtain “bullet”

rates by amending contracts to accommodate specific needs.
63

Contract Confidentiality

9. What significant effects, if any has OSRA’s elimination of public filing of contract rates

and services had on the way your company does business? Please explain.

 Many carrier comments cited improved carrier/shipper relationships and freedom to

negotiate as a positive OSRA effect. Further, without “me-too” clauses, carriers advised that they

are now negotiating more individualized and efficiency-oriented contracts. Instead of monitoring

filed rates, carriers advised that they now use more market-based approaches for rates. Carriers

reported that they now are better able to accommodate niche shippers, and rates can be tailored to

the best interests of the carrier and shipper alike. Several carriers mentioned that improved oneon-one relationships between the carrier and shipper encourage long-term partnerships. Carriers

also reported that they now dedicate more resources to statistical information and to analyzing

market conditions. One carrier added that it now pays closer attention to fixed and variable costs. 

Most shippers noted that OSRA has made contracting easier because they can negotiate

individual contracts. Shippers added that OSRA has placed greater reliance on the marketplace,

which in turn has forced them to improve their market intelligence skills to remain competitive.

Most NVOCCs noted that OSRA's elimination of public filing of contract rates and services

facilitated negotiation of contracts with increased volumes. NCBFAA pointed out that the

confidentiality that the parties to a contract desire may not be achievable because of the reporting

requirements of Customs and Census “. . . as well as the reporting obligations that the carriers

may ‘voluntarily’ take on pursuant to their ‘voluntary guidelines’.” 

10. In the absence of public filing of service contract rates and terms, has your company

been able to adequately identify the range of ocean shipping rates relevant to your business

from alternative information sources? If so, what sources? If not, what has been the effect

on your business?

Many carriers pointed out that the absence of public filing has made identifying the range of

ocean shipping rates much more difficult and uncertain. Several carriers also acknowledged that

in speaking to a variety of customers and monitoring market conditions, they are able to

adequately identify ranges of rates. They also noted that with the lack of public filing, and the

resultant uncertainty of rates, the focus in contracting has shifted from rates to service issues,

requiring greater emphasis on the contract negotiation process. A few carriers stated that the lack

of public filing contributed to the deterioration of rates in some trades. MOL noted that it can

benchmark requested rates against already existing rates of similar moves within its organization.

P&O Nedlloyd’s view was that the inability to benchmark rates has not resulted in any significant

advantage or disadvantage for carriers or shippers.

Shippers noted that they use a combination of resources in negotiating their rates: NVOCCs,

transshipment carriers, direct carriers, trade journals, shipper publications, and Internet sites.

NVOCCs’ responses varied, with some reporting no problem identifying rates, and others noting

the need to make more phone calls. Several other NVOCCs reported that they are unable to

identify rates. 
64

11. Has your company sought to negotiate specific confidentiality measures in the

contracts you have signed since OSRA took effect? If so, were you able to negotiate what

you consider adequate confidentiality measures (including pre-negotiation confidentiality

agreements, if sought)? Please explain. 

Most of the responding carriers indicated that they include a standard confidentiality clause in

their service contracts. Of the carrier respondents that do not, the vast majority stated that they

have successfully negotiated confidentiality measures that were agreeable to both the shipper and

carrier. Some carriers noted that often the confidentiality measures in their contracts are initiated

and encouraged by their customers. COSCO explained that early on in the life of OSRA, shipperproposed confidentiality clauses were one-sided, but that it had been able to negotiate reciprocal

confidentiality commitments in all those cases.

Shippers generally reported that confidentiality agreements are adequate. Some stated that the

standard confidentiality agreement is sufficient, thereby making the pre-negotiation

confidentiality agreement unnecessary. Others have made it a standard practice to have all

contracts covered by a pre-negotiation confidentiality agreement(s). NVOCCs generally reported

that they have not sought to negotiate specific confidentiality measures in their contracts since

OSRA took effect.

12. Please estimate the percentage of the service contracts that your company signs that

(a) include a confidentiality clause or (b) are covered by a pre-negotiation confidentiality

agreement. Was the inclusion of such clauses or pre-negotiation agreement, if any,

generally made at your company’s request or by the other party?

Carrier use of service contract confidentiality clauses was on opposite sides of the spectrum,

with eleven carriers indicating that most or all of their contracts contained confidentiality clauses,

while seven carriers indicated very little usage of such clauses (less than 13 percent of contracts). 

A final carrier indicated that 20-25 percent of its contracts contained confidentiality clauses. 

While most carriers said that their contracts were not subject to a pre-negotiation

confidentiality agreement, other carriers noted: (1) that they do use such agreements in all or a

portion of their contracts; (2) that such agreements were not practical and they had received few

requests for them; (3) that the use of such agreements is diminishing; and (4) that they enter into

a number of pre-negotiation agreements with larger shippers.

Shipper responses to this question were received from US Shippers Association (“USSA”),

Toysa, Gemini, DuPont, and International Transportation Group of ATOFINA Chemicals, Inc.

(“ATOFINA Chemicals”). Both USSA and ATOFINA Chemicals reported that while all of their

contracts include confidentiality clauses, neither used pre-negotiation agreements. Although

Toysa, Gemini, and DuPont did not (in their respective responses) provide a separate percentage

for (a) the degree to which their contracts contain confidentiality clauses and (b) the degree to

which their contracts are covered by a pre-negotiation agreement, they each reported that such

clauses and agreements were used “100%” of the time.
65

13. In your company’s experience to date, has breach of service contract confidentiality

been a problem? If so, please explain how you dealt with such breaches. 

Breach of service contract confidentiality has not been a problem for the vast majority of all

respondents. K Line suspected that breaches of confidentiality do occur from time to time, but

opined that it is very difficult to verify those instances. APL noted that it takes steps, as a

preventative measure in some situations, to reduce the number of participants in negotiations.

Two carriers emphasized that by using one carrier’s offer as leverage in rate “shopping,”

customers may undermine contract confidentiality. 

Agreement Activity/Voluntary Guidelines

14. In your company’s experience, have the rate and/or surcharge activities of discussion

agreements (or conferences), under OSRA, generated either significant problems or

benefits for your business? Please explain your response and indicate the trade lane(s) to

which it applies. 

Carriers largely agreed that discussion agreements have provided benefits including: the

exchange of information, a common or unified approach on commercial and regulatory issues,

and a forum for discussion of rates and trade conditions. Carrier comments maintained that

discussion agreements tend to stabilize the commercial trade environment, while noting that

supply and demand for cargo still control the market. They further indicated that voluntary

service contract guidelines help make the negotiation of rates easier, and provide benchmark

rates that can be tailored in order to accommodate their customer relationships. The World

Shipping Council (“WSC”) submitted that discussion agreements reduce commercial uncertainty

and promote further capital investment. It stated that the ultimate benefits to the shipping public

are increased rate and service stability, along with continued adequate levels of investment in

vessels, equipment, facilities, and communication systems to meet the rapidly growing demand

for ocean carriage and related logistics services. P&O Nedlloyd and other carriers noted that

there is a greater willingness for carriers to participate in discussion agreements because they are

voluntary and non-binding. K Line stated that discussion agreements have had little impact on

its business, while Wallenius noted that these arrangements provide a useful buffer against

destructive rate competition.

A number of shippers and OTIs voiced concerns that discussion agreements have presented

problems to their businesses. Representative comments claimed that discussion agreements:

• Undermine the development of one-on-one relationships between carriers and shippers.

• Obstruct the free market principle of supply and demand and have become very hostile to

exporters.

• Limit or eliminate competition on price and capacity by combining conference members and

independent operators in any particular trade.
66

• Are used only to increase freight rates, limit capacity, and create obstacles to multi-year

contracts.

• Stifle free-market pricing and contract negotiations, contrary to the spirit of OSRA and

confidential contracting. 

Many shippers and OTIs were particularly concerned over the actions of the TSA. LTD

Shippers Association (“LTD Shippers”) stated that the level of price and surcharge increases in

the transpacific eastbound trade was due to TSA, which used strong shipping volumes to obscure

real price and contract initiatives by all contracting parties. 

15. In your experience, has liner shipping consolidation via acquisition, merger, or the

formation of operational alliances affected prices and/or service? If so, in what ways and

resulting in what benefits or problems?

Carriers generally commented that these consolidations provide increased and improved

services at lower costs and better asset management. Some carriers noted that consolidations

have resulted in an escalation in global contracting, and allow carriers to achieve a global

presence with limited service through alliances. Many shippers, NVOCCs, freight forwarders,

and related groups were concerned that consolidation has, in fact, resulted in overall reduced

service levels. 

Contrary to WSC’s assertion that vessel-sharing agreements and space charters improve

service to shippers, several commenters reported service failures due to the inability of carriers to

guarantee and control space under space-chartering/vessel-sharing arrangements. In fact,

NCBFAA, in response to question 4 concerning changes to the content of service contracts,

noted that they have seen clauses in contracts that remove carrier space guarantees when space is

chartered on a vessel under the control of another carrier. Orion commented that service levels

are at their lowest due to the concentration of carriers. 

Less clear, however, is the commenters’ assessment of the overall effect of consolidations on

rates. While Zim-American Israeli Shipping Co., Inc. (“Zim”) noted that the improved services

and lower operating costs afforded by consolidations appear to result in lower prices to shippers,

other carriers believed that rates and prices have not been affected. P&O Nedlloyd noted that

consolidations, mergers, and alliances are more beneficial from an expense standpoint than a

revenue generation standpoint. The WSC contended that carrier consolidation has not generated

the high industry concentration ratios that could lead to negative effects on rates and service, and

that global alliances appear to have offset some of the pressure to consolidate. Orion claimed that

“mega carriers are most abusive, insensitive and generally inaccessible to small clients.” Shapiro,

on the other hand, noted that consolidation has brought prices down so low in many cases that

carriers cannot afford to provide the service that the marketplace demands. Toysa offered yet

another view, stating that consolidation has had no effect on prices. ATOFINA Chemicals

observed that initially with carrier consolidations, freight rates go down in an effort to gain

market share, but once established, move back up. 
67

DuPont commented that “[g]enerally alliances and mergers result in problems early on as

they try to merge different organizations, but long term we believe we will see stronger carriers. 

Operational alliances generally result in quicker improved services. The big question is whether

long term these will lead to monopolistic behaviour.”

16. (A) For VOCCs: Have (a) discussion agreements, (b) global alliances, and

(c) space/sharing agreements led to more efficient use of carrier assets? Produced other

benefits? Any problems? Please explain for each category.

Carriers agreed that discussion agreements are beneficial to their operations. WSC

commented that the information exchange from discussion agreements “is an important

agreement activity that helps member lines improve business planning, encourage better capacity

utilization, and develop rational pricing policies as well as strengthening business confidence.”

Wallenius pointed out that such agreements can assist carriers in making decisions about

commercial policy and investment in trade infrastructure. Hamburg Süd noted that “discussion

agreements have led to a better understanding of pricing and surcharge ranges, market conditions

and port regulations at non-U.S. ports.” 

There was also a consensus among carriers of the operational efficiencies associated with

alliances and space/sharing agreements. P&O Nedlloyd believed that alliances and space

chartering are extremely beneficial because they promote efficient use of assets and offer

shippers better service from more carriers who are competing with one another. P&O Nedlloyd

stated that it can offer 20 sailings per week to North America because of its participation in

carrier alliances. Wallenius commented that global alliances can be an effective way to share

costs of providing efficient and competitive service, while minimizing the investment risk of

trade imbalances or downturns. It also noted that space-chartering/vessel-sharing agreements

enable carriers to expand service without added vessel deployment, which also results in

environmental benefits. 

16. (B) For shippers, shippers’ associations, freight forwarders, and NVOCCs: In your

company’s experience to date, what benefits or problems, if any, have (a) discussion

agreements, (b) global alliances (c) space sharing/chartering agreements produced? Please

explain your response for each category with as much specificity as possible.

Several shippers commented that discussion agreements are detrimental to service contract

negotiations because carriers thereby exchange information, and diminish the confidentiality their

service contracts call for. NCBFAA commented that it is difficult to see how shippers and OTIs

could benefit from discussion agreements, and cited as an example the establishment of a $100

fee for handling paper Shipper Export Declarations that it believed would never have occurred if

such arrangements did not exist. DuPont reported that discussion agreements have had no impact

on its company, while Australian Peak Shippers Association commented that such discussion

agreements are only used to increase freight rates and limit capacity. The National Industrial

Transportation League (“NIT League”) stated that shippers remain cautious over the operation of

discussion agreements, and urged the Commission to continually monitor them.
68

Several shipper groups noted that global alliances and space-chartering/vessel-sharing

agreements have improved services, created efficiencies, and lowered costs.

Shapiro added that VOCCs often have difficulty in preventing cargo from being “rolled” to

subsequent vessel sailings because they are not the vessel operator or their space allocation has

been met.

17. How has the use of OSRA’s authority for VOCCs to agree upon voluntary service

contract guidelines affected your company’s business, if at all? Please explain.

Carriers generally submitted that voluntary guidelines were not restrictive to individual

carriers and that they help promote market stability and avoid destructive rate competition.

Rather than being used as a rate-setting mechanism, APL asserted that voluntary guidelines are

more relevant to market structure because they may serve to dampen market volatility. Many

carriers reported that the guidelines have been useful in establishing benchmark rates and other

terms that the parties may use in contract negotiations. MOL remarked that negotiations within a

framework created by voluntary guidelines make it less likely that either a carrier or shipper will

insist upon or agree to service contract terms that are seriously out of line with market conditions.

TSA added that its discussion agreement cannot and does not alter the basic supply and demand

factors prevailing in the market, noting that benchmarks reflect the conditions of the market.

Conferences and discussion agreements generally reported that there appears to be significant

deviation from guidelines and that they are unaware of shipper complaints involving voluntary

service contract guidelines. Australia-New Zealand Direct Line (“ANZDL”) believed that

allowing lines to enter into independent confidential contracts that may vary considerably from

the voluntary guidelines has put increased bargaining power into the hands of their customers,

and enables each carrier to make decisions based on its own business requirements as opposed to

a conference requirement. ANZDL stated that OSRA’s provision for “voluntary guidelines” has

resulted in a significant decline in its revenues since May 1999. Crowley stated that, “. . . the

ability of carriers to adopt voluntary service contract guidelines has helped somewhat in avoiding

disruptive and destabilizing rate and service offerings. Because they are voluntary and

compliance cannot be monitored, however, their impact on any particular service contract is

doubtful.”

While NIT League submitted that it has not received any complaints from its members that a

discussion agreement member has refused to negotiate on service contract terms, some shippers

are very concerned that voluntary guidelines are not truly voluntary and may interfere with

individual carriers’ pricing and negotiating behavior. The South Florida NVOCC - NAOCC

Association, Inc. (“South Florida Association”) noted that its members do not believe that

voluntary guidelines have been significantly better than the prior system because carriers

traditionally have either “cheated” on their conference obligations or abided by them, whichever

was in their interest. NY/NJ Forwarder Group claimed that its membership has been subject to
1According to the NY/NJ Forwarder Group, several discussion agreements in South America established

NVOCC benchmark rates in voluntary guid elines that were adhered to for m ost of the shipping season. It reported that

NVOCCs in the transpac ific trades were subject to TSA-agreed to voluntary price and service conditions and that TSA

indirectly implemen ted surchar ges applica ble to the who le shipping commun ity active in the transpacific inbound trades.

With regard to the transatlantic, it stated that an equipment repositioning surcharge that was imposed by TAC A and nonconference lines on or about the same day in October 1999, has been rolled into the base ocean freight rates offered to

shippers. 

69

discriminatory actions by discussion agreements before and after OSRA, citing specific examples

involving guidelines.1

Shippers’ Associations, Intermediaries and Port Trucking Issues

18. How has OSRA affected shippers’ associations (if at all) with respect to membership

growth, consolidation among associations, and the development of new activities or

membership services?

LTD Shippers, USSA, Gemini, the National Unaffiliated Shippers’ Association, and the

North Atlantic Alliance Association, Inc. (“NAAA”) said OSRA stimulated interest or growth in

membership. Toysa, however, indicated that OSRA slowed membership growth of shippers’

associations due to carriers’ soliciting individual association members to sign their own service

contracts. 

All three OTI respondents to this question believed that OSRA encouraged the development

of shippers’ associations. They claimed generally that to remain competitive with larger shippers,

small and medium-sized companies must pool cargo to increase their negotiating power.

Contship Containerlines Limited (“Contship”) and the Americana Carriers (Lykes Lines

Limited, LLC and Mexican Line Limited, LLC) noticed an increased growth in the number of

shippers’ associations as well as increased membership within existing associations. Nippon

Yusen Kaisha Line (“NYK”) and Crowley indicated a growth in membership in shippers’

associations. These carriers believe shippers’ associations allow members to have greater

bargaining power and thereby obtain better deals. Hamburg Süd, Hanjin Shipping (“Hanjin”) and

K Line believe OSRA did not affect or had only a minimal effect on shippers’ associations.

Conference respondents also indicated that OSRA had minimal or no adverse impact on

shippers’ associations. Many carriers noted that OSRA did not change the manner in which they

deal with shippers’ associations.

19. For shippers’ associations and NVOCCs: In the period since OSRA took effect (since

May 1, 1999) has your business grown, declined, or remained largely unchanged? If it has

grown or declined, please indicate the percentage change in volumes shipped. Has OSRA

contributed to that change? Please explain. 

Gemini reported that membership and member business grew and diversified “since the

enactment of OSRA.” LTD Shippers credited growth to an increase in contracts with individual
70

lines rather than contracts with a conference. Shapiro and NCBFAA did credit OSRA with

fostering a competitive environment which contributed to their firms’ growth, brought about by

activities such as one-on-one contract negotiations. Dryvit Systems, Inc. (“Dryvit”), USSA and

NAAA mentioned no overall change in their level of business.

Trans-Service Line, Orion, and Maher responded that their business grew, though not as a

result of OSRA. Rather, in their view, market conditions, currency valuation, and internal

company policies such as the focus on developing value-added services were the major factors of

this growth. 

On the other hand, Globe.Com Lines, LLC (“Globe.Com”) and Westwind International

indicated that their NVOCC business under-performed, while their firms’ other business sectors,

such as brokerage and air freight forwarding, grew. 

20. For NVOCCs: What effects, if any, have the statutory provisions of OSRA, and the

commercial environment in which they apply, had on your operations as an NVOCC

(including your offering of any value-added services) and/or your clients? Please support

your response with as much detail as possible and explain which provisions (or factors)

have had the most significant impact on your operations.

Westwind International and Roadway Express, Inc., found more negative impact than

positive with the implementation of OSRA. NCBFAA, NAAA, South Florida Association, and

NY/NJ Forwarder Group stated that the negative impact is due primarily to two statutory

provisions: the licensing requirement for NVOCCs and the continuation of a public tariff

requirement. In addition, NAAA, NCBFAA, and South Florida Association saw OSRA as

increasing the regulatory burden of NVOCCs since NVOCCs in the US now are required to be

licensed in addition to being bonded. They also believe NVOCCs are disadvantaged in

competition with VOCCs because they cannot sign confidential service contracts with their

shipper customers, while VOCCs can conduct virtually all of their business under confidential

service contracts. Orion, A.N. Deringer, Inc. (“Deringer”), Maher, and the American

International Freight Association & Transportation Intermediaries Association (“TIA”) viewed

the requirement for publicly available tariffs as unnecessary, and the cost to maintain tariff

systems as burdensome and without benefit to the shipping public. NAAA and NY/NJ Forwarder

Group asked the Commission to examine the implementation of the Interstate Commerce

Commission Termination Act of 1995 and to determine whether flexibility in tariff enforcement

and an exemption for NVOCCs could be employed under OSRA. 

NY/NJ Forwarder Group, TIA, NCBFAA, and the South Florida Association noted that the

tariff publication and licensing requirements appear to have resulted in an increased level of

enforcement activity directed at NVOCCs by the Commission. They were concerned that more

significant market-distorting practices, such as carrier behavior as a result of antitrust immunity,

are not being investigated more by the Commission. Furthermore, TIA, NY/NJ Forwarder Group

and NAAA stated that the air freight industry does not have a tariff filing/publication

requirement, which consequently offers more flexibility in meeting customer needs.
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21. For VOCCs: For the last calendar year, approximately what percentage (by TEUs

carried) of your total cargo carried in the US trades (total import and export) was NVOCC

cargo? Approximately what percentage of that NVOCC cargo was full-container-load

cargo (offered but not consolidated by an NVOCC), and what percentage was less-thancontainer-load cargo that the NVOCC had consolidated? To the extent that the answers

may vary significantly by trade lane, please explain.

The percentages varied by trade lane for many carriers. Fourteen of the 16 carrier respondents

provided specific percentages for either certain trades or overall movements. The overall

movement percentages with two exceptions were at or below 35 percent. Most of the

percentages were in the 15-35 percent range; while one major carrier was as low as 7 percent,

two other operators were well over 50 percent. For those carriers who responded, the

overwhelming majority of NVOCC cargo was full-container-load cargo rather than less-thancontainer-load cargo.

22. For VOCCs: Has there been a change (increase or decrease) in the percentage of

NVOCC cargo carried by your line since OSRA took effect, as compared with pre-OSRA

NVOCC carriage? If so, what was the change and was it a result of OSRA’s

implementation or other factors? Please explain.

Most carrier respondents reported an increase in NVOCC cargo carried since OSRA became

effective. Zim and Wallenius attributed the increase to the ability of NVOCCs to negotiate oneto-one confidential service contracts, including multi-trade and global contracts. APL, Zim and

Hanjin believed that their entry or expansion into new markets or internal marketing changes,

rather than OSRA, explained the increases. 

Yang Ming stated that it lost NVOCC cargo to previous conference members because of

service contract confidentiality, i.e., because agreement members now tend to offer confidential,

individual service contracts (subject to confidentiality provisions) rather than conference service

contracts, there is less opportunity to collectively share shipper account information and/or

participate in joint/conference service contracts. Evergreen, Hamburg Süd, Orient Overseas

Container Line Limited (“OOCL”), Contship, and Crowley noted that there was no significant

change in their NVOCC cargo after OSRA came into effect. 

23. What impact, if any, has the implementation of OSRA had on the port trucking

industry?

The vast majority of respondents did not answer this question. Of those who did, several

respondents believe that there was no impact, while others voiced their uncertainty on the matter.

The Teamsters contended that OSRA negatively affected the port trucking industry. Specifically,

the Teamsters alleged that discussion agreements and voluntary guidelines have had a negative

impact on truckers’ salaries. A major concern raised by the Teamsters is port drivers’ lack of

leverage in dealing with carriers who have antitrust immunity. The Teamsters asked the

Commission to conduct a comprehensive investigation into carrier rate-setting practices under
72

the discussion agreement umbrella, with the goal of leveling the playing field for port drivers and

the inland transport sector of the industry. 

Tariff Use, Access, and Accuracy

24. In the last 6 months, has your company tried to access carrier (VOCC and/or NVOCC)

tariffs, or MTO schedules? If so, which kind (VOCC, NVOCC, or MTO), for what

purposes, and what was your experience? If not, why not?

Almost all carriers reported accessing carrier tariffs in the last six months to check rates,

rules, and accessorial charges. Access to VOCC tariffs was more frequent than access to NVOCC

tariffs. APL and Hamburg Süd noted the limited need to access other carriers’ tariffs because of

the amount of cargo moving under service contracts. Hapag-Lloyd reported that it had not

accessed carrier tariffs in the last six months because tariffs are not relevant to its decisionmaking. Crowley, Evergreen, MOL, OOCL, Zim and NYK stated that access to tariffs was

considered generally satisfactory. Crowley and NYK reported that access to NVOCC tariffs was

somewhat less satisfactory. P&O Nedlloyd and Maersk Sealand stated that successful rate

inquiries often require research by a relatively knowledgeable staff member. 

ATOFINA Chemicals and DuPont reported that they had not accessed carrier tariffs, but had

instead requested rates and rate-related tariff information directly from the carrier. ATOFINA

Chemicals, however, noted that carriers have not provided requested assistance on rate-related

information “that may be hidden in their tariffs.” LTD Shippers reported that it was able to

readily and easily access VOCC web-site tariffs, and that those sites are more informative than

information available in “pre-OSRA” and “pre-Internet days.” NAAA reported that it, as well as

its NVOCC members, accessed carrier tariffs on an almost daily basis to obtain surcharges,

accessorial charges, and other provisions pertaining to the rates in the service contracts. It

reported that typically the required information was published where expected in the tariff. USSA

reported accessing both VOCC and NVOCC tariffs and MTO schedules to look for general

market information and to gain an understanding of the tariffs, but acknowledged spending little

time on the published tariff data. Dryvit indicated that Internet access to carrier tariffs is

complicated and cumbersome for the casual user and rules are difficult to find.

OTIs had varied responses to this question. Several OTIs reported accessing tariffs to obtain

inland rates. Shapiro noted that its ability to access inland rates increased its efficiency and

competitiveness, allowing it to quote rates more quickly and more effectively. NCBFAA reported

some of their members accessed VOCC tariffs without any particular difficulty. Deringer

believes that the tariff publication requirement should be eliminated. It further advised that

anyone requiring a rate quote can call a carrier directly to get a rate without going through access

to a published tariff. Maher & Globe.Com found both the carrier and NVOCC tariffs of other

carriers difficult to navigate, or had difficulty finding the bottom line because of all of the

accessorial charges. The South Florida Association reported that their members found no utility

in accessing tariffs because OSRA encouraged widespread use of service contracts, making

tariffs meaningless. NY/NJ Forwarder Group commented that it had little-to-moderate difficulty

in accessing either VOCC or NVOCC tariffs, but added that enforcement of carrier tariffs under
73

OSRA was inconsistent with OSRA’s stated purpose of encouraging a more market-driven

approach to international liner shipping. This association would like the FMC to modify

substantially its publication requirements for common carrier tariffs and its enforcement actions

targeted at the NVOCC community. 

25. Are the VOCC and NVOCC tariffs in which you are interested, if any, currently

accessible to you at what you consider a reasonable cost? Please explain and support with

specific examples if possible.

The majority of carriers found that the tariffs in which they were interested were available

either at a reasonable cost or for no access fee at all. Additionally, arrangements often were

available with the tariff vendor to access other carriers’ tariffs at a competitive market price.

COSCO wished to see the wide range of access costs more standardized; Crowley generally

found NVOCC tariffs more difficult to access than VOCC tariffs, and sometimes subject to

excessive fees; Hanjin thought more carriers should charge for access to improve the technical

problems in their tariff database management systems; and P&O Nedlloyd has limited interest in

accessing tariff information in general, and especially avoids accessing tariffs where a fee is

required. Israel Trade Conference commented that the cost of accessing some carrier tariffs was

prohibitive. The Middle East Discussion Agreement said that its members had generally been

able to access one another’s tariffs as well as the rate levels in NVOCC tariffs at little or no cost.

Crowley and Wallenius specifically commented that some NVOCC access fees were excessive,

and NYK and P&O Nedlloyd stated that some companies assessed access charges that they were

unwilling to pay.

ATOFINA Chemicals checked prices for certain tariffs and, based on three hours of access

time per month, cited costs ranging from a low of $50 to a high of $164 per month. The shipper

noted that the $50-per-month cost would have provided access only to a bill-of-lading tariff, and

that one tariff service gave no indication of how to sign up for tariff access or what the costs

would be. NAAA did not encounter any access fees for tariffs published by any of the carriers

with which the association had service contracts. USSA found that many VOCC and NVOCC 

tariffs seemed to be accessible at no cost, but also found that some tariff sites charged

prohibitively high rates for access to tariff data. 

Globe.Com found that costs varied widely, from free to an initialization fee as high as $2,000

plus additional annual fees. Orion found carrier tariffs to be accessible with little or no cost, but

generally of little value. Shapiro noted that certain carrier tariffs only required access to the

Internet and that those costs were already counted as a cost of doing business. NY/NJ Forwarder

Group commented that, despite the general accessibility of tariffs, some carrier and conference

tariffs were not readily accessible even when the required access payment had been made.

NCBFAA also said that a number of its members found the process very difficult and confusing,

particularly in ascertaining bottom-line rates. However, according to NCBFAA, the cost and

difficulty does not appear to be a significant issue; its members do not have a need to access

tariffs. 
74

26. Do VOCC and NVOCC tariffs that you have accessed in the last 6 months, if any,

provide accurate and useful information? Please explain and support with specific

examples if possible.

Many carriers stated that tariffs provided or appeared to provide accurate information.

However, several carriers reported that tariffs were of limited use because the meaningful rate

details were in confidential service contracts. Maersk Sealand found accuracy to be a function of

the user-friendliness of the tariff site’s retrieval system. Some carriers deemed tariff information

useful, particularly for trade accessorial charges, surcharges, and the terms and conditions of

carriage. Hanjin noted that the time and effort required to retrieve the information from an

individual tariff limited the usefulness of that information, and Maersk Sealand noted that the

more specific a tariff site’s retrieval system was to the particular requirements of a particular

carrier, the less user-friendly and useful the tariff information would be. The WSC commented

that tariffs remained an important pricing tool for niche trades, reefer and seasonal commodities,

benchmark rates, and spot market rates.

NAAA found that tariff information was generally accurate and at times useful, but

frequently found that changes/additions made to the rules section of a tariff became effective on

less than the required 30 days statutory notice and believed such non-compliance was typical

under OSRA. USSA, acknowledging limited experience to judge the accuracy and usefulness of

the tariffs it had accessed, found it difficult to be sure that certain movements were covered under

the searched items. USSA also believed that a commodity index providing a list of products

shipped would be helpful, and added that it also would be helpful if the tariff data showed the

“bottom-line” rate first in the summary tables without requiring calculations on each value.

Orion stated it had no occasion to access tariff information. Deringer found tariffs to be too

cumbersome to provide accurate and useful information in a service contract-driven market.

Several OTIs found carrier tariffs to be extremely useful for determining inland rates and

incorporating those rates in their quotes. Several other OTIs believed that they had been able to

obtain reasonably accurate tariff information even though they did not believe tariff information

to be relevant in the current environment.

27. Are the service contracts that your company has signed, if any, linked to tariffs? If so,

please describe the nature of such links and explain briefly their purpose.

 Carriers indicated that they linked all or most of their service contracts to their tariffs to

simplify the contracts and shorten the contracting process by applying rules of general

applicability from a single, readily accessible location where the standard terms and conditions

can be specified in full detail. Carriers also indicated that they have linked their service contracts

to their tariffs for trade accessorial charges so that the charges for volatile cost items, such as

bunker fuel, can float with the market. 

ATOFINA Chemicals said that its contracts were linked to carrier tariffs by the contract

provision that subjected the contract to the “rules, terms, conditions, charges and surcharges set

forth in carriers’ governing tariffs and in effect at time of shipment.” Several shippers’

associations said that their contracts were linked to carrier tariffs for the governing rules; LTD
75

Shippers indicated that this link resulted in more flexible contract delivery terms and a greater

range of prices for the individual members of the association. DuPont noted that, as an exception

to general practice, a few of its time-volume rate arrangements were linked to carrier tariffs.

USSA advised that it tried to minimize any linkage from its service contracts to the carrier tariffs

because it viewed such links as a unilateral opportunity for the carrier to increase rates. The

desire for bottom-line service contract freight charges was a major issue of this association, citing

its members’ need for quick, accurate rates in advance to quote competitively for their export

sales. This association believed that links to tariffs complicated service contracts, caused

documentation errors, increased the difficulty of auditing and correcting invoices, and added to

the time and administrative burden on short-staffed shipper distribution departments.

28. For shippers, shippers’ associations, and NVOCCs: If your service contracts are linked

to VOCC tariffs, do you have adequate access to those tariffs? If not, please explain.

Shippers had a variety of comments on this question. Several shippers reported that Internet

access to tariffs varied from carrier to carrier; some tariffs were complicated and cumbersome for

the casual user and rules were difficult to find. NCBFAA commented that its members had

adequate access but noted that it was difficult to tell in advance what effect any tariff might have

on a given contract. Additionally, several shippers commented that they did not have adequate

access to linked carrier tariffs because each of their carriers employed a different tariff publisher,

and none of their carriers provided information or guidance about how to use the particular tariff

publisher’s services. NAAA indicated that its members sometimes were unable to easily verify

references to the tariff item that provided for a GRI or increase in accessorials, such as equipment

imbalance, bunker, and other surcharges. On the other hand, LTD Shippers reported having ready

and easy access to linked tariffs. 

Several OTIs noted that access to carrier tariffs linked to service contracts varied from carrier

to carrier, but generally was adequate. Orion saw little need to access the tariff unless a dispute

had arisen. Many OTIs reasoned that their service contracts were linked to carrier tariffs because

tariffs were the basis for a service contract; therefore, they must incorporate the pertinent tariff

and governing rules provisions. OTIs added that generally this practice might be beneficial when

service contracts are linked to non-rate provisions, but consider it unfair and inappropriate when

they are linked to rate or rate increases without the consent of the shipper. The South Florida

Association thought that carriers were abusing antitrust immunity because they would not

negotiate the removal of boilerplate language linking service contracts to tariffs. Orion observed

that carriers are free to include provisions in a contract that are unique to the contract. Several

OTIs reported that VOCCs can use their knowledge of NVOCC tariff levels to raise their service

contract rates. This enables VOCCs to squeeze the profit margins of NVOCCs and unfairly raise

the costs of services to the NVOCCs’ customers. Shapiro stated that the service contracts it

signed as a member of a national shippers’ association were often linked to the carrier tariffs for

the determination of the inland freight rates, both in the US and overseas. Several NVOCCs said

that their service contracts were not linked to tariffs.
76

29. In general, have you found it (a) easier, (b) about the same, or (c) more difficult to

access carrier (NVOCC and VOCC) tariffs, and MTO schedules since OSRA, than prior to

OSRA? Please explain.

APL, Crowley and Hanjin responded that it was easier to access carrier tariffs since OSRA,

with APL stating that access through the Internet was far superior to the historical use and

expense of tariff watching services. Crowley found it easier to access VOCC tariffs, but more

difficult to access NVOCC tariffs. Hanjin found access to tariffs over the Internet easier, but

retrieval of tariff information more difficult due to the inadequacy of the database search tools at

the web-sites. 

Evergreen and Maersk Sealand found the ease of access to carrier tariffs to be about the same

as before OSRA, although there was more variation from carrier to carrier. Four other carriers

indicated that it was more difficult to access carrier tariffs since OSRA. Reasons mentioned for

this difficulty were the need to consult more than one web-site and database system, various site

navigation rules, and access fees. 

Several shippers found it more difficult to access carrier tariffs since OSRA due to access

fees and the need to be familiar with the web-sites of several different tariff publishers. Dryvit

said that Internet access to carrier tariffs was very complicated and cumbersome for the casual

user, and that rules were difficult to find. Several other shippers, however, reported finding it

easier to access carrier tariffs since OSRA; LTD Shippers attributed this to the combination of

the Commission’s regulations implementing OSRA and the dynamics of the Internet. NAAA

claimed that in most cases carrier tariffs continued in the pre-OSRA format, thereby facilitating

the search for information in the tariff. However, this shipper also found that the information in

carrier tariffs was becoming more ambiguous in the post-OSRA environment and that service

contracts were less precise when referencing the governing tariff. As an example, NAAA

contended that service contracts frequently referred to rules in the tariff that had been deleted and

to tariffs that had expired and been replaced; carriers often failed to change the base ports in the

respective tariff scope even months after they had discontinued a vessel-sharing agreement for

the particular trade lane; and service contracts used new names for certain charges that were in

fact the same charges that already were included in the contract. As a remedy, NAAA “believes

that the Commission should recognize the congressional intent of OSRA, which is to shift from a

highly regulated environment to a more market-driven shipping environment. Thus, the

Association requests that the Commission consider relaxing the current regulatory requirements

for common carrier tariff publication, especially as it applies to the NVOCC community.”

Several OTIs found access to carrier tariffs to be about the same as before OSRA. Shapiro

said that it was easier since many carriers provided ready access through the Internet. On the

other hand, NY/NJ Forwarder Group indicated that its membership reported access to carrier

tariffs to be generally more difficult because of the failure of the FMC to set any standard for

accessibility. The association believed that the present situation did not provide for meaningful

use of tariffs by the NVOCC community or the shipping public.
77

30. What impact, if any, has the implementation of OSRA had on potentially unfair

foreign shipping-related practices (for example, pricing practices, business restrictions,

foreign laws)? Are there any identifiable areas of continuing concern?

A large majority of commenters reported that OSRA has had no impact on potentially unfair

shipping-related practices. However, P&O Nedlloyd noted that the deregulatory aspects of OSRA

provide arguments against efforts by foreign governments (e.g., the Shanghai Shipping

Exchange) to increase regulatory activity. Wallenius added that the Commission’s authority

under the 1984 Act and OSRA regarding unfair shipping-related practices may deter foreign

governments from adopting laws or regulations that might be viewed as detrimental to US

commerce. Zim believes that it is beneficial for the FMC to have the authority to intervene when

certain foreign governments establish controls, taxes, or regulations that are applied in a

discriminatory manner against non-national carriers. 

Crowley feared “that OSRA may foster unfair pricing (dumping) by foreign carriers, which in

some cases have involved quoting through rates below their inland costs to secure service

contracts.” Further, Crowley added that it is concerned with certain government restrictions

relating to US trade with Central America and Caribbean countries.

31. Has the growth of e-commerce offerings (including, but not limited to, on-line space

auctions) created any regulatory concerns for your company? If so, please explain.

Most commenters reported no regulatory concerns with the growth of e-commerce. Although

there was concern in the initial start-up stages of the e-commerce offerings regarding spot

shipment pricing and services advertised on ad-hoc auction forums, this concern apparently has

faded as the on-line space auctions have dwindled over the last year. Maersk Sealand participates

in a broad range of e-commerce activities and Hyundai Merchant Marine Co., Ltd. (“Hyundai”)

performs Internet-based Electronic Data Interchange and cargo tracing, but regulatory issues have

not emerged. Commenters indicated that several neutral and multi-carrier portals have been

developed. The LTD Shippers noted that e-commerce activities should be reviewed to identify

whether the FMC has authority over these transactions before problems arise. 

32. In your experience, has the burden of regulation faced by your company been reduced,

increased, or been unaffected by the implementation of OSRA? Please explain and give

relevant examples where possible.

Most carriers reported that their regulatory burden had been reduced because of the abolition

of the formal requirements associated with the ATFI System, notwithstanding that publishing

tariff rates, rules, terms, and essential terms electronically has costs associated with it. Some

carriers commented that the conference system used to negotiate and handle the administrative

costs of service contracting, and that individual carriers now have taken over these functions with

a resultant increase in the costs of administering service contracts. 
78

Shippers generally reported that the regulatory burden that they now face has been relatively

unaffected. USSA added, however, that the disappearance of the old conferences has had a

positive impact on it.

Several NVOCCs indicated that they were dissatisfied with the burden of regulation under

OSRA, primarily citing the cumbersome burden of tariff filing. These NVOCCs contended that

the increased use of service contracts has resulted in an increased burden for them since they

must file a myriad of rates and amendments in their tariffs relating to various billing rates and

other amendments that they have negotiated with the carriers. Moreover, they noted that OSRA

requires NVOCCs to become licensed, subjecting them to increased scrutiny by the FMC’s

Bureau of Enforcement. Additionally, NVOCCs believe that they are less competitive with ocean

carriers because VOCCs conduct virtually all of their business under confidential service

contracts, an option not available to NVOCCs under OSRA. However, NVOCCs believe that

being able to enter into confidential service contracts as shippers with carriers has increased their

bargaining flexibility.

33. Are there any OSRA-related regulatory issues that you believe should be considered

for future Commission review?

The Commission received a wide range of responses to this question, addressing a variety of

subjects both OSRA-related and not. Shippers predominantly reported that the anti-competitive

effects of discussion agreements should be examined, while a majority of carriers reported that

monitoring report guidelines should be streamlined. NVOCCs recommended that the

Commission eliminate their tariff publication requirement. 

Carriers reported that several Commission requirements should be reviewed and changed, the

most important of which are the reporting requirements for discussion agreements. Carriers

believed that these reporting requirements are time-consuming and arduous and that the reports

should be simplified. Several carriers agreed that the FMC should streamline its procedures for

the filing of operational type agreements, as filing creates unnecessary burdens and delays service

enhancements in the trade. NYK commented that it would be beneficial to eliminate the

requirement to publish service contract essential terms because the FMC receives the entire

contract, and because the public does not appear to make use of this information. Another carrier

suggested discontinuing confidential service contract filing altogether. 

Many shippers contend that discussion agreements are used to increase freight rates and limit

capacity, and therefore should be reviewed. ATOFINA Chemicals commented that flexibility,

efficiency, and reliance on market forces are difficult to attain when carriers are agreeing on rate

levels and service. Several other shippers commented that the Commission should review

voluntary service contract guidelines to examine whether they are in fact “voluntary.” A number

of shippers commented that the FMC should standardize the publishing of tariffs to make them

more accessible, accurate, and understandable. Additionally, some shippers believe that

accessorials and surcharges are used as revenue enhancers and that the FMC should limit their

use. 

OTIs stressed that no useful purpose exists for publishing tariffs and that the FMC should

eliminate its tariff publishing requirement. NCBFAA commented that the FMC should
79

reconsider the issue of whether a forwarder can act as a shipper, contending that if a forwarder

signs a service contract, it does so at the risk of prosecution. NCBFAA believes that this is

unreasonable and inappropriate. 

Several other miscellaneous OSRA regulatory issues were addressed in the NOI responses. In

connection with these issues, commenters suggested that the FMC investigate the following:

• Foreign freight forwarders operating without licenses;

• Auction dot-coms and e-commerce to see how they fit within OSRA;

• Ocean freight forwarder compensation; and

• The compatibility of OSRA and other US shipping statutes with the laws of our trading

partners.

34. Overall, has the net impact of OSRA on your company been positive or negative?

(Circle the most accurate description.) Please explain briefly.

Although responses to this question vary widely, of the 38 responses received, the majority

(22) believed that the effect of OSRA had so far been somewhat to very positive. 

Nine companies reported that, overall, the net impact of OSRA has been very positive for

their companies. Confidential service contracting was viewed favorably by carriers and shippers.

As one shipper reported, it is much easier to work with an individual carrier as opposed to a

group of carriers. Further, commenters noted that OSRA has improved the speed of the contract

negotiation process, simplified the business process, allowed for tailor-made service contracts,

increased flexibility in doing business, improved partnering between carriers and shippers, and

allowed meaningful commitments to shippers. 

Thirteen companies reported that the net impact of OSRA has been somewhat positive for

them. These respondents generally listed the same reasons as those cited in the very positive

category, e.g., the ease in working with an individual carrier as opposed to a group of carriers, the

ability to enter into long-term partnerships, and the ability to tailor contracts. Hanjin commented

that OSRA has allowed unrelated shippers to get together and form an association that could

potentially reap benefits similar to what large shippers enjoy. Evergreen reported the positive

effects of the elimination of “me-too” clauses and the addition of confidentiality clauses in

service contracts. NCBFAA agreed that OSRA has somewhat positive benefits for the industry,

but added that the Commission needs to do more to help assure that small shippers and OTIs

realize the benefits of the legislation.

Nine firms reported that the impact of OSRA on their firms has been neutral. Hyundai

commented that it was just too soon to tell what, if any, impact OSRA has had on its firm. An

NVOCC commented that OSRA does little to help NVOCCs. Hamburg Süd reported that the

value of process streamlining has been offset by more elaborate contract “clausing,” and added

that there is a lingering concern over OSRA’s negative impact on rates.
80

Three firms stated that the effects of OSRA are somewhat negative for them. Orion

commented that OSRA does not serve the public interest, while another NVOCC reported that

OSRA does not benefit NVOCCs. ATOFINA Chemicals stated that it had anticipated developing

long-term relationships with carriers. It noted that carriers initially were receptive, but this

willingness decreased as the conferences it dealt with regained their footing.

Three carriers and one shipper reported that the net impact of OSRA has been very negative

for their firms. The carriers reported that freight rates have deteriorated between 30 to 35 percent

over the last 2 years, with profound negative effects on revenue. Moreover, they contend that

unreasonable market-rate erosion caused by excessive rate shopping and leveraging has had a

significant impact on bottom-line results and the ability of carriers to invest in enhanced services.

Toysa noted that the impact has been very negative for its operations because during the first year

of OSRA, a $900 GRI and new surcharges were implemented by TSA. Toysa added its belief

that as long as carriers have antitrust immunity, OSRA will not foster competition.

35. Are there any other ways in which the implementation of OSRA has affected your

business or industry that have not been addressed in the preceding questions? If so, please

explain.

Several representative comments follow:

• If less emphasis were placed on tariff publishing in the US as is customary in Europe, the

tendency of many OTIs and NVOCCs to circumvent frivolous regulation would come to an

end. (Shapiro)

• OSRA has been a very positive success in moving toward the September 2000 mission

statement of the Federal Maritime Commission. We are concerned, however, that discussion

agreements may erode the stated goal of the mission statement. In the global export arena, a

competitive, market-driven, customer-focused transportation system will ensure that

exporter’s needs are addressed fairly and responsibly. (USSA)

• OSRA allows carriers to negotiate inland agreements with railroads and truckers and the

benefits have not been realized. (Hapag-Lloyd) 

• We believe that in evaluating the effect and impact of OSRA, it is appropriate to evaluate the

Commission’s role in implementing OSRA and in regulating the industry in the post OSRA

environment. This means that the Commission should be engaged in self evaluation and that

it should seek and obtain candid and meaningful reviews of its performance from those

whom it regulates. We also believe that the Commission has done an admirable job in its

implementation of OSRA and its attempts to examine the impact of OSRA. (P&O Nedlloyd)

• Discussion agreements and conferences have been able to maintain price fixing practices.

This is completely against the growth and development of US exports through competitive
81

and efficient ocean transportation by placing greater reliance on the marketplace. (ATOFINA

Chemicals)

• OSRA has given our company increased flexibility in moving our ocean cargo. It has also

enhanced the environment for shipper-carrier relationships, and in many cases, has

strengthened those relationships. (DuPont)
82

APPENDIX II

SERVICE CONTRACT RANDOM

SAMPLE AND SURVEY

With the new statute now in place for two years, the Commission sought to examine pricing

and service behavior by conducting an independent survey of service contracts. Previously, the

Commission surveyed a selected sample of service contracts on a preliminary basis for its Interim

Status Report on OSRA in June 2000. For this study, the Commission conducted a more

comprehensive examination from random samples of service contracts taken from its SERVCON

electronic Service Contract Filing System.

Selection of Contracts

To conduct its survey, the Commission ran two computer-generated random samples of

original service contracts on file in SERVCON from January through November 2000. Each

sample was randomly selected and extracted from the overall sampling population. The

Commission used only original service contracts for its sampling population in order to obtain

complete contracts with all the necessary information. Each random sample contained 500

service contracts, so that 1,000 separate contracts were reviewed. The Commission surveyed

unique or separate service contracts within each sample, i.e., there was no duplication of service

contracts between the two samples.

The raw survey data from the first sample were entered into a unique database for that sample

and then analyzed. Survey data from the second sample were collected in an identical manner

and entered into their own database for analysis. This approach allowed the Commission to

compare the survey results of the two separate random samples. The comparison of survey results

enables some inference as to how well the samples correspond to the overall sampling population

of original service contracts. 

Contract Information Evaluated

The questions or issues addressed in the survey focused on the topic areas of: general

contract information; geographic scope; freight rates and surcharges; and special contract clauses.

Under each topic area, contract data and information were collected in response to specific

survey questions or issues. The data responses were analyzed for each question or issue to

discern and assess any noticeable trends in service contracting since OSRA became effective.

General contract information included such data as the contract number, the identity of the

carrier party (or parties), the contract duration, and the status of the shipper(s). The minimum

quantity or volume commitment of each contract also was collected. All minimum commitments

specified on a container basis were converted to TEUs as a standardized measure for analysis.

Further, the survey addressed whether each contract was negotiated on an individual basis, or an

agreement basis with multiple-carrier participants. The shipper signatory also was examined to

determine whether the contract was entered into by a single-shipper entity, or by multiple non-
83

affiliated shipper parties outside of an association. The survey classified shippers’ associations

and multiple affiliated shipper parties under one signatory as a single-shipper entity.

The origin and destination port ranges and areas within the geographic scope of each contract

also were reviewed. The survey sought to discern each contract’s trade direction to and from the

US. In this regard, a determination was made whether cargo shipments were exclusively in the

inbound (import) direction to the US, exclusively in the outbound (export) direction from the US,

or in both the inbound and outbound directions. Based on the trade scope of each contract, the

survey also divided the contracts into categories of either: (1) a single US trade or geographic

area; (2) multiple US trades or areas; or (3) global. Contracts in the single trade category had

scopes limited to one US trade or geographic area, such as between the US and Germany, or the

US and Asia. Contracts with multiple scopes spanned two or more US trades or areas, such as

between the US and South America, North Europe, and Asia, or US worldwide. Contracts

categorized as global contained foreign-to-foreign trades within their scopes in addition to one or

more US foreign trades, such as from South America, Mexico, and the US to North Europe.

Further, the foreign origins and/or destinations to and from the US were identified for each

contract by general geographic region, e.g., Asia, South America, North Europe, the

Mediterranean, etc.

A number of issues were examined relating to the rate provisions and terms of each contract.

The survey addressed whether the contract rates were completely all-inclusive, defined as freight

rates that include the base freight rate and all other applicable accessorial charges and surcharges.

A related issue focused on whether the contract rate provisions were linked or referenced to a

separate carrier or conference tariff. The contracts also were examined for the inclusion of a

specific clause incorporating any published GRI, or any other provision for the general increase

of freight rates connected to tariff rate increases.

Review of the last topic area, special service contract clauses, focused on specific provisions

of OSRA along with other issues identified as important by shippers and carriers. Of particular

significance, the survey addressed the subject of confidentiality between contracting parties, as

established by OSRA. Confidentiality allows shippers and carriers to restrict the disclosure of

unpublished service contract terms to third parties. The main focus of non-disclosure to third

parties usually relates to the freight rates stated in the contract.

In addressing confidentiality, the survey confined its examination to the actual text of the

contract and did not endeavor to search cross-references to the governing tariffs of carriers or

conferences. While many contracts included generic tariff references, researching the identity and

purpose of these general tariff references was not conducted in this particular survey. The textual

content of the contract was reviewed for any form of confidentiality between the parties as

follows: (1) a specific confidentiality clause; (2) a tariff reference in the service contract

specifically denoting confidentiality; or (3) a plainly discernable designation of confidentiality

(stamped or marked) within the contract. If none of these were found, the survey concluded that

the contract made no mention of, or direct reference to, a confidentiality clause or provision. On

a related issue, the survey addressed whether the contract contained a penalty provision for

breach of confidentiality between the parties.

Special carrier performance standards or service guarantees also were reviewed. The survey

identified special provisions such as those that specifically set delivery or transit times, which
84

also may include quantitative measurements or ratings of the carrier’s service along with

penalties and/or rewards. Equipment guarantees also were noted in the survey.

Another subject of special interest concerned the carrier’s liability for cargo loss or damage.

Contracts were examined to see whether the carrier party was assuming a greater degree of

liability for cargo loss or damage in addition to the standard bill-of-lading provisions. Other

special survey issues focused on whether contracts included such provisions as an official rate

rebate or volume incentive discount, and/or pledges by the carrier to match a lower tariff rate. 

Results of Evaluations

Analysis of the data revealed a high degree of consistency between the two samples on most

of the issues examined in the survey. The similarity between the two samples gives added

confidence to the survey results. Both samples included service contracts from over 60 different

individual carriers and 4 agreements. 

The survey showed that since OSRA was implemented, individual service contracts

negotiated on a one-on-one basis between carriers and shippers were clearly preferred over

agreement contracts with multiple carrier participants. In both samples, individual service

contracts between a single carrier and shipper entity accounted for the vast majority, nearly 100

percent. In addition, neither sample contained contracts signed by multiple, non-affiliated

shippers outside of an association. On the issue of shipper status, the division of contracts

between the various types of shippers was consistent between the two samples. Shippers

identified as proprietary owners of the cargo entered into slightly over 70 percent of the contracts,

while those identified as NVOCCs entered into roughly 25 percent. Shippers’ associations were

the smallest group with 2 percent of the contracts. These results generally are consistent with

results previously reported in the Commission’s June 2000 Interim Status Report on OSRA. 

On other general issues, 90 percent of the contracts in both samples were for a duration of 11

months or less -- the overall range in both was from a few days to upwards of 2 years. In

assessing cargo volume commitments, the survey showed that roughly 60 percent of the contracts

in both samples had minimum commitments set at 100 TEUs or less. Between the two samples,

the minimum commitments of contracts were set as low as 1 TEU, and as high as 68,000 TEUs.

The data collected on geographic scope were first analyzed in total, irrespective of geographic

area. The survey revealed that in both samples, over 50 percent of the contracts were exclusively

for the shipment of imports to the US, while upwards of 35 percent were exclusively for exports,

and less than 10 percent included the shipment of imports and exports. In this regard, it should be

noted that the survey only measured the number of contracts in each direction and not the amount

of cargo shipped. Therefore, while the number of contracts favored a certain trade direction over

the other by a certain proportion, no specific conclusions can be drawn regarding the volume of

cargo moved in either trade direction. On the issue of trade scope, the survey indicated in both

samples that the majority of total contracts was confined to a single US trade or geographic area,

while roughly 10 percent spanned multiple US trades or areas, and about 8 percent were global.

Further analyses and observations were made with respect to the various geographic areas.

Contracts which included Asian countries were the most common in both samples. Among these

Asia contracts, the majority were exclusively for the shipment of imports in the US inbound

direction. Additionally, the majority were strictly confined to the single geographic area of Asia.
85

The second most common geographic area in both samples was North Europe. Contracts with

North European countries in the scopes were more evenly divided in terms of trade direction, and

most were strictly confined to the single geographic area of North Europe.

Other geographic areas showed different results. Areas where the trade direction favored

exclusive export contracts outbound from the US included Central America/Caribbean,

Australia/New Zealand, South America, the Mediterranean, and the Middle East. Areas with a

high proportion of global and multi-trade contracts included the Indian Subcontinent, the Middle

East, and Australia/New Zealand.

With respect to freight rates and surcharges, both samples showed that less than 10 percent of

the contract rates were completely all-inclusive, while over 90 percent of the contract rate

provisions were linked to or referenced a separate carrier or conference tariff. In addition,

upwards of 35 percent of contracts in both samples contained a GRI clause or other provisions

for the general increase of freight rates connected to tariff rate increases. 

On confidentiality, an examination of the text of each contract in both samples revealed that

about 35 percent contained either a confidentiality clause, a tariff reference in the contract

denoting confidentiality, or a designation of confidentiality (stamped or marked). This percentage

may be understated in terms of the actual use of confidentiality between contracting parties,

because the review did not expand into a check of cross-references to a specific carrier’s or

agreement’s governing tariff rules that might contain such confidentiality provisions.

Additionally, any informal agreements between the parties, or confidentiality agreed to outside

the terms of the actual contract, were not counted. On a related issue, both samples showed that

only an extremely small number of contracts, around 2 percent, included penalty provisions for

breach of confidentiality. Further, the survey results indicated that, in all cases, less than 10

percent of the contracts contained any of the other special clauses examined (e.g., special carrier

performance standards, equipment guarantees, volume incentive discounts, etc.). 
86

APPENDIX III

OCEAN TRANSPORTATION INTERMEDIARY

STATISTICS

This Appendix presents more detailed information on the number of NVOCCs and ocean

freight forwarders, their financial responsibility amounts, and the nature of bonding coverage. 

Number of OTIs

Prior to the passage of OSRA there were 2,200 NVOCCs, both in and outside the US, 1,700

licensed ocean freight forwarders, and 400 firms that were both NVOCCs and ocean freight

forwarders. Altogether, there were approximately 4,300 OTIs. A year after the effective date of

OSRA, there were 4,175 OTIs: 1,900 NVOCCs (1,300 in the US and 600 outside the US); 1,750

licensed ocean freight forwarders; and 525 firms that were both NVOCCs and ocean freight

forwarders. As of June 30, 2001, there were 4,043 OTIs: 1,878 NVOCCs (1,250 in the US and

628 outside the US); 1,347 ocean freight forwarders; and 818 firms that were both NVOCCs and

ocean freight forwarders (see table below). 

Ocean Transportation Intermediaries

Pre-OSRA One Year After

OSRA

Two Years After

OSRA

NVOCCs 2,200 1,900 1,878

Ocean Freight Forwarders 1,700 1,750 1,347

NVOCC/Ocean Freight Forwarder 400 525 818

Total 4,300 4,175 4,043

Source: Internal FMC data as of June 30, 2001.

Amounts of Financial Responsibility on File with the Commission

Financial protection for the public for damages arising from the transportation-related

activities of NVOCCs has increased since OSRA became effective. Before OSRA, each NVOCC

was required to provide proof of financial responsibility in the amount of $50,000, plus $10,000

for each unincorporated branch office in the US. The total amount of financial responsibility in

place was approximately $130 million collectively for the 2,600 NVOCCs. Because of the

increased amount of financial responsibility now required of NVOCCs (i.e., $75,000 for USbased NVOCCs and $150,000 for non-licensed foreign NVOCCs), along with the requirement

that $10,000 be posted for each unincorporated NVOCC branch office in the US, proof of

financial responsibility for NVOCCs now collectively totals approximately $264 million.
87

Before OSRA went into effect, each ocean freight forwarder was required to provide proof of

financial responsibility in the amount of $30,000, plus $10,000 for each unincorporated branch

office. The total amount of surety bond financial responsibility for ocean freight forwarders at

that time was approximately $85 million. After OSRA became effective, freight forwarders were

required to provide $50,000, plus $10,000 for each unincorporated branch office. The ocean

freight forwarder proof of financial responsibility now collectively totals approximately $129

million. In summary, total consumer protection against losses caused by NVOCCs and ocean

freight forwarders is currently at $393 million. 

Surety Companies

Although Commission regulations permit OTIs to use guaranties and insurance policies as

proof of financial responsibility, all coverage currently is provided by surety bonds. At this time,

approximately 67 surety companies underwrite OTI surety bonds. The top two companies

underwrite approximately 49 percent of the total number of bonds; the top five approximately 72

percent; and the top 10 approximately 87 percent. 

Currently, only one group surety bond is on file with the Commission. The Federation

Internationale des Associations de Transitaires et Assimiles NVOCC bond covers approximately

160 members.