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[Federal Register Volume 77, Number 45 (Wednesday, March 7, 2012)]
[Rules and Regulations]
[Pages 13508-13510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5461]

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FEDERAL MARITIME COMMISSION

46 CFR Parts 530 and 531

[Docket No. 11-17]
RIN 3072-AC47

Certainty of Terms of Service Contracts and NVOCC Service 
Arrangements

AGENCY: Federal Maritime Commission.

ACTION: Final rule.

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SUMMARY: The Federal Maritime Commission amends its rules regarding 
certainty of terms of service contracts and non-vessel-operating common 
carrier service arrangements. The rule provides common carriers and 
shippers with certainty and flexibility by facilitating their use of 
long-term contracts that adjust based upon an index reflecting changes 
in market conditions.

DATES: The Final Rule is effective March 7, 2012.

FOR FURTHER INFORMATION CONTACT: Karen V. Gregory, Secretary, Federal 
Maritime Commission, 800 North Capitol Street NW., Washington, DC 
20573-0001, Phone: (202) 523-5725.

SUPPLEMENTARY INFORMATION:

Background

    By Notice of Proposed Rulemaking (NPR) published on October 13, 
2011, 76 FR 63581, the Federal Maritime Commission (FMC or Commission) 
proposed to amend its rules for terms of service contracts and Non-
Vessel-Operating Common Carrier service arrangements (NSA). The NPR was 
intended to remove uncertainty in the use of freight rate or other 
indices in service contracts and NSAs, while also assisting common 
carriers and shippers in pursuing stability and flexibility through 
long-term contracts.
    The Commission found that an increasing number of service contracts 
filed with the Commission reference indices. The ocean freight rates in 
those service contracts adjust in increments based upon the changes in 
the referenced index levels or their annual or quarterly averages. The 
Commission believes that this trend has started to appear because 
carriers and shippers in the ocean transportation industry are seeking 
stability through long-term contracts, while trying to preserve 
flexibility to adjust contract rates reflecting changes in market 
conditions.
    The Commission's current regulation with respect to terms of 
service contracts and NSAs require that the terms, if they are not 
explicitly contained in the contracts, must be ``contained in a 
publication widely available to the public and well known within the 
industry.'' 46 CFR 530.8(c)(2), 531.6(c)(2). The Commission has 
received inquiries from the industry as to whether certain freight rate 
indices meet the Commission's requirement. For example, until August 
2011, the Transpacific Stabilization Agreement (TSA) index was not 
available to the public, even though some service contracts referenced 
the TSA index before its publication. In addition, although many index 
publishers' current index levels are available to the public mostly 
without charge, access to their historical data often requires payment 
of subscription fees that can reach up to several thousand dollars per 
year.
    While the Commission began to consider whether the service 
contracts referencing indices comport with its regulation, the 
Commission also sought to revise its regulations so that they are not 
unnecessarily burdensome and do not impede innovation and flexibility 
in commercial arrangements between common carriers and shippers.
    The final rule would facilitate references to indices in service 
contracts and NSAs so that contracting parties can pursue long-term 
contracts with rates that adjust through an agreed and ascertainable 
manner.

[[Page 13509]]

Comments

    The Commission received five public comments responding to the NPR. 
The comments were submitted by TSA, Westbound Transpacific 
Stabilization Agreement (WTSA), World Shipping Counsel (WSC), carrier 
parties to the World Liner Data Agreement (WLDA), and TSC Container 
Freight (TSC).\1\ TSA, WTSA, WSC, and TSC support the Commission's 
proposed change. Although not explicitly stated, WLDA does not oppose 
the proposed change.
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    \1\ The Commission determined to accept TSC's late-filed 
comment.
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    TSA and WTSA support ``the Commission's effort to expand 
flexibility in service contracting and welcome[s] the Commission's 
support of the option to use rate indices.'' TSA and WTSA believe that 
the ability to reference a price index in service contracts will not 
only enable the parties to a service contract to allocate risks, but 
also relieve the parties of the administrative burden of preparing and 
filing numerous contract amendments in response to changes in market 
conditions. Eliminating contentious negotiations over numerous contract 
amendments may help improve relations between shippers and carriers. 
TSA and WTSA stated that the Commission's rule change ``may also 
contribute to greater stability and predictability in ocean freight 
rates, a benefit consistently sought by carriers and shippers alike,'' 
and welcome and applaud the Commission's clarification of its 
regulations for service contracts and NSAs. Stating that the parties 
should be able to refer to the index of their choosing, TSA and WTSA 
indicated that the Commission's regulation should promote maximum 
flexibility, including by not favoring or promoting any particular 
index.
    Responding to the Commission's request for comments on the means to 
ensure that the referenced indices are readily available to the 
Commission, TSA and WTSA recommend that the Commission require such 
indices to be made available to the Commission by the carrier party to 
the contract within thirty (30) days of a written request by the 
Commission. TSA and WTSA stated that such a requirement, which is based 
on the Commission's existing requirement at 46 CFR 530.15,\2\ would 
provide the Commission with adequate assurance that it would have 
access to such indices.
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    \2\ Section 530.15(c) of the Commission's regulation provides 
that every carrier or agreement shall, upon written request of the 
FMC's Director, Bureau of Enforcement, any Area Representative or 
the Director, Bureau of Economics and Agreements Analysis [now BTA], 
submit copies of requested original service contracts or their 
associated records within thirty (30) days of the date of the 
request.
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    Finally, with respect to the Commission's concerns about how to 
reduce any impediments to small shippers having the option of index-
linked contracts, TSA and WTSA stated that they are not aware of any 
impediments to a small shipper using such an index in a service 
contract with a carrier, although their experience with such index-
linked contracts is still relatively limited.
    WSC supports the proposed changes. WSC stated that the change will 
facilitate flexibility and freedom of contract by carriers and 
shippers. Regarding the Commission's question about how to ensure that 
the information referenced in service contracts is readily available to 
the Commission, WSC suggests that the Commission require in the 
regulations that either the carrier or the shipper provide the rate 
index information upon request by the Commission.
    WLDA has contracted with Container Trade Statistics Ltd. (CTS) to 
aggregate and publish certain data, and through CTS publishes a price 
index for containerized dry and reefer cargo. WLDA argues that the 
Commission's NPR created a misperception by identifying four freight 
rate indices by name, but not the CTS index. WLDA submitted its 
comments to correct a possible misperception that it would not be 
lawful to use the CTS index in service contracts, or that the CTS index 
or other data published by CTS are somewhat less reliable or valuable 
than the named indices. WLDA asks that the Commission include in the 
supplementary information of the final rule a statement that the CTS 
rate index is compliant with the revised regulation.
    TSC supports index linked contracts because they will ``provide 
more contracting options for shippers large and small.''

Discussion

    Contrary to WLDA's comments, the NPR named four indices only as 
examples of freight indices referenced in service contracts that had 
been submitted to the Commission at the time of the publication of the 
NPR. The Commission, however, did not intend to imply that those were 
the only freight indices or that it had any concerns regarding the CTS 
index. The proposed change was to facilitate, not to limit or impede, 
long-term contracts between shippers and carriers, while ensuring their 
compliance with the Shipping Act. As long as the referenced terms 
comply with the revised regulations, the shippers and carriers are free 
to use not only any freight indices, but also other indices such as the 
Bureau of Labor Statistics's Consumer Price Index that was already 
referred to in certain service contracts.
    With respect to the question about possible methods to ensure that 
the information referred to in service contracts is readily available 
to the Commission, the Commission adopts TSA's and WTSA's suggestions. 
As some index publishers require annual payment of up to several 
thousand dollars for historical data, requiring small shippers to 
provide that data to the Commission may impede their utilization of 
long-term contracts. Further, many small shippers may enter into a 
service contract only once a year, whereas common carriers may enter 
into service contracts with numerous shippers. Requiring those small 
shippers to provide the historical data appears to be not only 
prohibitive, but also unfair because the substantial annual 
subscription fee may disproportionately negate the benefit of long-term 
contracts with respect to those small shippers. Therefore, the 
Commission adopts TSA's and WTSA's recommendations that associated 
records of such indices, including any historical data used to adjust 
contract rates, must be made available to the Commission by the carrier 
party to the contract within thirty (30) days of a written request by 
the Commission.
    TSA and WTSA stated that they are not aware of any impediment to a 
small shipper using a freight index in a service contract with a 
carrier who is willing to do so. By requiring carrier parties to 
service contracts to provide the ``associated records,'' the final rule 
will further minimize possible impediments to small shippers in 
entering into long-term contracts.
    Finally, as already proposed in the NPR, this final rule also makes 
the same change to the rule for NSAs, which are NVOCCs' contracts with 
their shippers and analogous to ocean common carriers' service 
contracts with their shippers.

Regulatory Findings

    The Regulatory Flexibility Act (RFA) allows the head of an agency 
after a threshold analysis, in lieu of preparing an analysis required 
by 5 U.S.C. 603 and 604, to certify that ``the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' 5 U.S.C. 605(b). Such certification may be 
published in the Federal Register either at the time of publication of 
notice of proposed rulemaking or at the time of publication of the 
final rule. Id.

[[Page 13510]]

    This Final Rule is intended to enhance the flexibility of regulated 
entities concluding contractual relationships subject to the Shipping 
Act and the Commission's regulations. There are two types of regulated 
entities that this Final Rule may affect: vessel-operating common 
carriers (VOCCs) and non-vessel-operating common carriers (NVOCCs). The 
Commission currently has on file registrations (Form FMC-1) for 294 
VOCCs. VOCCs are generally not small entities, as defined by North 
American Industry Classification System's size standards identified by 
Small Business Administration. 13 CFR 121.201. While some are large, 
multi-national corporations, most NVOCCs licensed by the Commission 
have fewer than 500 employees and are therefore small entities. There 
are currently 4,652 NVOCCs licensed by or registered with the 
Commission.
    The Commission believes that there are approximately 46,962 
effective service contracts on file with the Commission between May 1, 
2011 through February 9, 2012. Of those, the Commission has identified 
62 service contracts referencing indices, approximately 0.13% of the 
total, that would become subject to the Final Rule. Complying with the 
Final Rule with respect to 0.13% of the total service contracts would 
not appear to result in a ``significant economic impact'' on VOCCs. 
Specifically, only VOCCs whose service contracts refer to indices will 
be subject to the requirements of 46 CFR 530.8(c)(3) of the Final Rule, 
and based upon the number of contracts currently on file with the 
Commission, that number is very small.
    Nor will this Final Rule have a ``significant economic impact'' on 
NVOCCs. The rule simply provides parties to service contracts and NSAs 
more freedom and flexibility in their commercial arrangements and will 
not adversely affect small NVOCCs. Unlike VOCC service contracts, there 
are no NSAs currently on file with the Commission that reference 
indices, and, therefore, no NSAs would be impacted by the Final Rule.
    In view of the above, the Chairman of the Commission hereby 
certifies, pursuant to 46 U.S.C. 605(b) of the Regulatory Flexibility 
Act that the rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities.
    This rule is not a ``major rule'' under 5 U.S.C. 804(2).
    As VOCC parties to service contracts and NVOCC parties to NSAs are 
already required to provide ``associated records'' to the Commission 
pursuant to the Commission's regulations at 46 CFR 530.15(c) and 
531.12(b), this Final Rule does not impose any new recordkeeping or 
reporting requirements on VOCCs or NVOCCs that would be ``collection of 
information'' requiring approval under the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq.

List of Subjects in 46 CFR Parts 530 and 531

    Freight, Maritime carriers, Reporting and recordkeeping 
requirements.

    For the reasons stated in the supplementary information, the 
Federal Maritime Commission amends 46 CFR parts 530 and 531 as follows.

PART 530--SERVICE CONTRACTS

0
1. The authority citation for part 530 continues to read as follows:

    Authority:  5 U.S.C. 553; 46 U.S.C. 305, 40301-40306, 40501-
40503, 41307.

0
2. Revise Sec.  530.8(c) to read as follows:

Sec.  530.8  Service Contracts.

* * * * *
    (c) Certainty of terms. The terms described in paragraph (b) of 
this section may not:
    (1) Be uncertain, vague or ambiguous; or
    (2) Make reference to terms not explicitly contained in the service 
contract itself unless those terms are readily available to the parties 
and the Commission.
    (3) Pursuant to Sec.  530.15(c), the carrier party to the service 
contract must, upon written request by the Commission, provide the 
Commission with the associated records of the referenced terms. For the 
purpose of paragraph (c)(2) of this section, the referenced terms will 
be deemed readily available to the Commission if the carrier party to 
the service contract provides the Commission with the associated 
records of the terms within thirty (30) days of the Commission's 
written request.
* * * * *

PART 531--NVOCC SERVICE ARRANGEMENTS

0
3. The authority citation for Part 531 continues to read as follows:

    Authority: 46 U.S.C. 40103.

0
4. Revise Sec.  531.6(c) to read as follows:

Sec.  531.6  NVOCC Service Arrangements.

* * * * *
    (c) Certainty of terms. The terms described in paragraph (b) of 
this section may not:
    (1) Be uncertain, vague or ambiguous; or
    (2) Make reference to terms not explicitly contained in the NSA 
itself unless those terms are readily available to the parties and the 
Commission. Reference may not be made to a tariff of a common carrier 
other than the NVOCC acting as carrier party to the NSA.
    (3) Pursuant to Sec.  531.12(b), the carrier party to the NSA must, 
upon written request by the Commission, provide the Commission with the 
associated records of the referenced terms. For the purpose of 
paragraph (c)(2) of this section, the referenced terms will be deemed 
readily available to the Commission if the carrier party to the NSA 
provides the Commission with the associated records of the terms within 
thirty (30) days of the Commission's written request.
* * * * *

    By the Commission.
Karen V. Gregory,
Secretary.
[FR Doc. 2012-5461 Filed 3-6-12; 8:45 am]
BILLING CODE 6730-01-P
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