Source: https://www.federalregister.gov/documents/2017/11/30/2017-25718/amendments-to-regulations-governing-nvocc-negotiated-rate-arrangements-and-nvocc-service
Timestamp: 2018-10-22 05:54:10
Document Index: 85637326

Matched Legal Cases: ['art 531', 'art 532', 'art 530', 'art 531', 'art 531', 'art 531', 'art 530', 'art 531', 'arts 530', 'art 531', 'art 532', 'art 532']

A Proposed Rule by the Federal Maritime Commission on 11/30/2017
56781-56789 (9 pages)
III. The Commission's Proposed Rule
https://www.federalregister.gov/d/2017-25718 https://www.federalregister.gov/d/2017-25718
Petitions for review of the Commission's finding of no significant impact (FONSI) under NEPA must be submitted on or before December 11, 2017.
Instructions: For detailed instructions on submitting comments, including requesting confidential treatment of comments, and additional information on the rulemaking process, see the Public Participation heading of the Supplementary Information section of this document. Note that all comments received will be posted without change to the Commission's Web site, unless the commenter has requested confidential treatment.
Docket: For access to the docket to read background documents or comments received, go to the Commission's Electronic Reading Room at: http://www.fmc.gov/​17-10, or to the Docket Activity Library at 800 North Capitol Street NW., Washington, DC 20573, between 9:00 a.m. to 5:00 p.m., Monday through Friday, except Federal holidays. Telephone: (202) 523-5725.
The Commission proposes to amend its rules at 46 CFR part 531 governing NVOCC Service Arrangements to remove the NSA filing and publication requirements. The Commission also proposes to amend its rules at 46 CFR part 532 to permit NRAs to be modified at any time. In addition, an NVOCC may provide for the shipper's acceptance of the NRA by booking a shipment thereunder, subject to the NVOCC incorporating a prominent written notice to such effect in each NRA or amendment.
In 2003, NCBFAA filed a petition to seek exemption from some of the tariff requirements of the Shipping Act of 1984. See Docket No. P5-03, Petition of the National Customs Brokers and Forwarders Association of America. Inc. for Limited Exemption of Certain Tariff Requirements of the Shipping Act of 1984. In response, the Commission issued a notice of proposed rulemaking (NPRM) in which it determined that it had the statutory authority to exempt NVOCCs from the provisions of the Shipping Act, subject to certain conditions. 69 FR 63981, 63985. (Nov. 3, 2004). The Commission distinguished itself from other agencies who, pursuant to the findings in Maislin Industries, U.S. Inc. v. Primary Steel, Inc., 497 U.S. 116, 126 (1990) and MCI Telecommunications Corp. v. American Tel. & Tel. Co., 512 U.S. 218 (1994) had lacked exemption authority. 69 FR at 63985. The Commission determined that in order to ensure there was no substantial reduction in competition among NVOCCs, the exemption had to be available to all NVOCCs compliant with both section 19 of the Shipping Act and the conditions of the exemption. Id. The Commission proposed that “the exemption be conditioned on the same statutory and regulatory requirements and protections applicable to VOCCs' service contracts: Namely, filing of executed agreements; publication of essential terms of those agreements; and confidential treatment, similar to that set forth in 46 CFR part 530.” 69 FR at 63986. The Commission also proposed the required publication of the essential terms of all NSAs in automated systems and the confidential filing of the text of those NSAs with the Commission. 69 FR at 63987. The Commission further proposed “making applicable to carriage under an NSA, those provisions of the Shipping Act that would be applicable to service contracts.” Id. The Commission's final rule provided a limited exemption, Non-Vessel Operating Service Arrangements (“NSAs”), similar to service contracts, with required filing and publication requirements. (46 CFR part 531) Non-Vessel Operating Service Arrangements, 69 FR 75850 (Dec. 20, 2004). To “ensure that the exemption as proposed [would] not result in a substantial reduction in competition,” the Commission limited the exemption to individual NVOCCs acting in their capacity as carriers. 69 FR at 75851. The Commission also decided to allow affiliated NVOCCs to jointly offer NSAs. 69 FR at 75852.
As a condition to offering NRAs, NVOCCs were required to provide their rules tariffs to the public free of charge. 76 FR at 11358. The Commission also determined not to allow for amendment of an NRA after receipt of the cargo by the carrier or its agent. Id. Consistent with the Petition's focus upon negotiated rates only, the Commission determined not to permit NRAs to include non-rate economic terms, such as rate methodology, credit and payment terms, forum selection or arbitration clauses, or minimum quantities. 76 FR at 11355.
The World Shipping Counsel, while not opposing the Petition, urged even-handed regulatory relief with respect to VOCCs as well. WSC cites prior requests that VOCCs have made for changes to the Commission's regulations governing service contract amendment filings. WSC's comments were supported by Crowley.
On August 2, 2016, the Commission granted NCBFAA's petition to “initiate a rulemaking with respect to the revisions discussed in the petition.” However, because the Commission was in the process of a separate rulemaking to amend portions of part 531 related to NSAs (Docket No. 16-05, Service Contracts and NVOCC Service Arrangements), the Commission delayed initiating the requested rulemaking until after the rulemaking in Docket No. 16-05 was concluded.
Mainfreight, ABS, Powell, Mohawk, and John S. James support the elimination of 46 CFR part 531. Mainfreight states that granting the petition “would eliminate a regulatory burden that, over time, has come to represent a significant hurdle to the profitability and sustainability of the NVOCC business model.” Mainfreight at 1.[1] ABS states that the petition “clearly reflects how shippers negotiate and contract with NVOCC's today and it will greatly simplify the process and make it easier for NVOCC's [sic] and shippers to cooperate and eliminate burdensome and not needed requirements and associated costs.” ABS at 1. Powell believes that NRAs and NSAs are “two imperfect methods for memorializing NVOCC rates,” and supports the petition's argument to eliminate the NSA exemption. Powell at 1. John S. James Co. likewise supports the petition from the NCBFAA to eliminate NSAs and expand the use of NRAs. James at 1.
UPS urges that NSAs be preserved regardless of any changes to the NRA regulations to improve flexibility of the latter. UPS at 4. UPS states that “NSAs Start Printed Page 56784are the only method by which larger-volume NVOCCs can maintain an equal playing field with the Vessel Operating Common Carriers (VOCCs),” id. at 3, pointing out that “many NSAs are longer term, multi-year large volume contracts between NVOCCs and their shipper customers, often including multiple affiliated companies as additional shippers or consignees, [and] often covering global trade lanes.” Id. at 2. Whereas NRAs “may not be the most suitable format for certain types of transactions.” id., UPS believes that preservation of NSAs allows pricing and service benefits “for shippers of all sizes, bringing the benefits of the Commission's [NSA] exemption to the marketplace.” Id. UPS urges the Commission to allow the continued use of NSAs for “those NVOCCs that are now successfully using them, and for the benefit of their shippers.” Id. at 2.
The World Shipping Council urges that the issues raised by the NCBFAA Petition “are most logically and equitably considered alongside requests that vessel operating common carriers have made for changes to the Commission's regulations governing service contract amendment filing.” WSC, at 1. WSC thus proposes that service contract amendments be permitted to be filed within 90 days of the filing of the underlying commercial agreement. Id. at 9. WSC asserts that the NCBFAA Petition provides an opportunity for the Commission to address changes to its NRA and NSA regulations at the same time that it considers changes to its VOCC service contract amendment filing regulations. Id. at 8. Crowley supports WSC's comments, and states that the Commission should “initiate a rulemaking proceeding which would amend the FMC's regulations to permit amendments to service contracts and NSAs to be filed within a specified period of time after the parties agree on the amendment.” Crowley, at 5.
Some commenters claim that the NSA exemption benefits few NVOCCs, citing the low volume of filed NSAs and higher costs and filing formalities attendant to NSAs. However, UPS' description of NSAs as comprising “multi-year large-volume contracts” with its shipper customers, containing “hundreds or even a thousand or more individual rates” establishes a compelling factual parallel between the content of NSA and service contracts first anticipated by the Commission in creating an exemption for NSAs. Indeed, the exemption was expressly “conditioned on the same statutory and regulatory requirements and protections applicable to VOCCs' service contracts: Namely, filing of executed agreements; publication of essential terms of those agreements; and confidential treatment, similar to that set forth in 46 CFR part 530.” 69 FR at 63986.
Like service contracts, NSAs can contain non-rate economic terms, such as rate methodology, credit and payment terms, forum selection or arbitration clauses, or minimum quantities, which delineate the contractual terms and conditions binding both the carrier and shipper signatories. These latter provisions were excluded from application in NRAs. 76 FR at 11355. Indeed, in the Commission's 2011 Final Rule as to NRAs, a number of commenters therein insisted upon the need for a rate-based NRA exemption notwithstanding the ability of NVOCCs to contractually enter into NSAs. These concerns were premised largely upon the perspectives of their customers, shippers who “do not want or need to engage in a formal contract process.” 76 FR at 11353.[2] This outlook continues to hold sway today. See, e.g. DJR comments, at 1 (“We will limit our comments to the NRA filing as we have never been able to secure a NSA from one of our clients. They rejected the idea stating that they did not want to be committed to a long term contract should our service levels fail to meet their requirements.”) Other commenters likewise have shared the view that the contractual formalities of NSAs are deemed too time consuming and burdensome, Serra at 1; Vanguard at 2; Powell at 1; and that “[c]hasing down signatures on amendments” had proven problematic. Mohawk at 2.
Consistent with recent Executive Orders,[3] the Commission's mission is best fulfilled by recognizing and facilitating the further development of emerging business models, including the more contractually complex and service-oriented NSAs. Whereas NSA contracts bear service provisions and terms more equivalent to VOCC service contracts, that differentiation (from NRAs) was at the heart of creating an exemption for a rate-based vehicle for NVOCC shippers, whom the Petitioner previously described as “most of whom are LCL shippers,” [4] “who do not want to sign formal written contracts,” id. at 9, or just do not like the formality of NSAs, id. The Commission perceives little value, therefore, in mandating a narrowing of NVOCCs' choices for contracting with their customers, when it appears that substantial volumes of cargo are now moving successfully under the NSA contract model. UPS, at 2. Rather, where those contracting models may be substantially improved without compromising carrier duties or conditions intended for the protection of the shipper, the Commission has been unafraid to consider further loosening of the restrictions or limitations previously established upon an exemption. The Commission is persuaded that it can do so here by removing unnecessary or burdensome regulatory impediments upon the further development of NSAs, without eliminating the NSA provisions in part 531 in their entirety.
In doing so, the Commission also re-affirms its intention, first stated in Docket No. 10-03, that NRAs should facilitate a new business model conducive to those NVOCCs who could not then, and cannot now, utilize NSAs. While some NVOCCs may wish to issue a NSA to obtain a volume commitment from their shipper customer, many small and medium enterprises continue to work on a quotation basis, without need to engage in a formal contract process. 76 FR at 11353. See also DJR at 1; NYNJFF&BA at 3 (NSAs are not “practical particularly for our smaller members when moving lower or less Start Printed Page 56785frequent freight volumes.”) For such NVOCCs, and their customers, NRAs continue to provide a lower cost, competitive niche in today's commercial marketplace, made possible by a Commission-issued exemption from the otherwise-applicable requirements of the Shipping Act.
WSC cites the need for “even-handed regulatory relief” with respect to VOCCs as well. WSC, at 9. While the WSC does not oppose most issues in the petition, WSC does oppose eliminating the filing requirement for NVOCCs because it would create a disparity between NVOCCs and VOCCs. WSC asserts that the NCBFAA Petition provides an opportunity to consider changes to the VOCC service contract amendment filing regulations at the same time the Commission addresses Petitioner's request for changes to the NRA and NSA regulations. Id. at 8. Specifically, WSC cites prior requests that VOCCs have made for changes to the Commission's regulations permitting contract amendments to be filed subsequent to the execution of such contract amendments. WSC's comments were supported by Crowley.
As noted, the Commission previously approved initiating a separate rulemaking to amend portions of parts 530 and 531 related to service contracts and NSAs, Docket No. 16-05, Service Contracts and NVOCC Service Arrangements. In granting the NCBFAA Petition, the Commission delayed initiating the requested rulemaking until after the rulemaking in Docket No. 16-05 was concluded. A final rule in Docket 16-05 was published on April 4, 2017. 82 FR 16288. The relief granted by the Commission in Docket 16-05 allows amendments to service contracts, including multiple service contract amendments, to become effective during a 30-day period prior to being filed with the Commission. The Commission therefore has substantially met WSC's specific request for regulatory relief for VOCCs. Any further relief to VOCCs for service contracts may be undertaken by the Commission after it has had an opportunity to analyze the impact of the 30-day filing period on VOCC operations and shipper feedback.[5]
The Commission proposes to exempt NSAs from both the SERVCON filing requirement and also the requirement that the NVOCC publish, in tariff format, the essential terms of any NSA. See 46 CFR 531.9. The essential terms requirement for NSAs currently mirrors those provisions set forth for VOCC service contracts, 46 CFR 530.12, while recognizing that the VOCCs' statutory obligation of disclosure to labor organizations for work covered by a collective bargaining agreement extended solely to service contracts, not NSAs. See 46 U.S.C. 40502 and 46 CFR 530.7. Inasmuch as most NVOCCs are not subject to collective bargaining agreements with shoreside labor unions, the Commission solicits public comments why the essential terms publication requirement should not now be removed as an unnecessary burden upon the use of NSAs. Shippers, who were identified by the Commission as the beneficiaries of essential terms in the original 2003 NSA rulemaking, have not since commented on the continuing utility of essential terms publications, and thus maintaining the essential terms publication requirement appears to provide little regulatory benefit.[6]
In removing the NSA filing and essential terms publication requirements, the Commission seeks to preserve the NVOCC's current range of pricing and contracting choices, while eliminating the filing and publication costs currently associated with NSAs. According to the commenters, this regulatory relief is likely to make NSAs a more attractive pricing and contracting tool and thereby encourage increased use of NSAs. The Commission is mindful that NSAs, comprising both Start Printed Page 56786rate and service provisions, may remain impractical for smaller NVOCCs or shippers moving lower or less frequent freight volumes. It has been shown, however, that substantial volumes of cargo are already moving under this contract model, and that the NVOCC members of Petitioner NCBFAA would prefer the flexibility of including both service and rate-related items in their contract offerings if relieved of the filing and publication burdens of same. Appropriate regulatory relief thus will allow parties to increase the use and reliance upon NSAs as a means to more efficiently engage in the movement of U.S. import and export cargo, while continuing to protect NSA shippers from potential financial harm for non-performance.
Mainfreight, ABS, Mohawk, GLS, DJR, NYNJFFF&BA, NITL, CaroTrans, Vanguard, Serra, Powell, and BDG support the NCBFAA petitioner's request to allow modification of NRAs, at any time, upon mutual agreement. DJR states that, under current NRA requirements, either “the NVOCC faces the serious loss of revenue and potentially being put out of business by issuing long period NRAs, or the NVOCC issues 1 day or 1 week NRAs which increases the NVOCCs' operational expense and floods the shipper with constantly changing pricing.” DJR at 2-3. NYNJFFF&BA also supports the NCBFAA recommendation that NRAs be allowed to be amended at any time after the receipt of cargo. NYNJFFF&BA states “if NRAs can be amended in conjunction with the shipper's agreement the NRA will become more directly responsive to competitive market conditions and business practices prevalent in the current marketplace.” NYNJFF&BA, at 3.
CaroTrans supports allowing modification of NRAs, as it believes it will improve efficiency and prevent the current “nonsensical” and “inefficient” approach to modification, which entails terminating the current NRA and entering into a new one. CaroTrans at 3. Serra and Powell also support allowing amendment of NRAs after the cargo is received if the shipper and the NVOCC both agree in writing. Serra at 2; Powell at 1-2. NITL supports “allowing a shipper and NVOCC the power to modify an NRA at any time but only to the extent that the modification is based on a mutual written agreement between the parties and, such agreement should not be in the form of the NVOCC's tariff, bill of lading, or other shipping document that is not subject to mutual negotiation.” NITL, at 5.
Due to their smaller cargo volume, recent history has shown, and the commenters' statements support that NRAs tend to be transactional in nature and are generally short term. With their singular focus upon rates, NRAs are more aligned with the “spot market.” [7] This relationship heightens, rather than diminishes, the need for NRAs to respond to an ever-changing marketplace. It appears appropriate, and in keeping with the Commission's commitment to reduce regulatory burden where feasible, to therefore permit NRAs to be extended or amended upon acceptance or agreement by the shipper customer. In initially creating NRAs, the accelerating need for parties to have greater flexibility to more quickly respond to fast-paced market rate fluctuations does not appear to have been fully anticipated. The NVOCC and its customer should not be compelled to create a new NRA in every instance simply because the rules do not currently provide for amendment.
While not expressly included in the NCBFAA Petition, the Commission proposes a further change to enhance the use and competitiveness of NRAs. As noted in the comments of DGR Logistics, the requirement at 46 CFR 532.5(c) that an NRA “be agreed to” by the shipper prior to receipt of cargo by the common carrier or its agent may itself pose logistical and regulatory challenges to the NVOCC. See DGR, at 2. Rather than continuing a persistent practice requiring that shipper acceptance in all cases be memorialized through a formal writing or email, the Commission proposes also to allow NRAs to be more flexibly created, or be amended, upon the shipper's acceptance in the form of a request for booking pursuant to the NRA.[8] This practice more closely corresponds to the manner in which an NVOCC encounters shipper acceptance when responding to a written rate quote under standard tariff rates and rules, i.e. by communicating its agreement solely in terms of instructing the NVOCC to book the cargo for shipment thereunder. To ensure continued protection of the shipper and avoid confusion or potential disputes as to this new means to conclude an NRA, the Commission proposes that each NVOCC that seeks to recognize shipper acceptance of an NRA through the act of booking must incorporate a prominent written notice to that effect on each such NRA or amendment. As this additional NRA methodology is intended to be optional to the NVOCC and its shipper customers, the Commission will not eliminate the requirement that a shipper's agreement to an NRA should otherwise be in writing or by email. The Commission invites public comment on the desirability of permitting NRA acceptance by booking, and whether the Commission should require particular wording in order to more prominently give notice as to the NVOCC's practice with respect to booking.
The Commission recognizes that the majority of businesses affected by these rules qualify as small entities under the guidelines of the Small Business Administration. The rule as to Part 531 (NSAs) poses no economic detriment to small business. In this regard, the rule pertains to an NSA entered into between a NVOCC and a shipper, which is an optional pricing arrangement that benefits the shipping public and relieves NVOCCs from the burden of the statutory tariff filing requirements in 46 U.S.C. 40501. In that the proposed rule would eliminate the requirements that NVOCCs file NSAs with the Commission and publish essential terms of such NSAs, the regulatory burden on NVOCCs utilizing NSAs would be reduced. The rule as to part 532 (NRAs) would establish an optional method for NVOCCs to amend an NRA, and to garner shipper agreement to an NRA or amendment thereto, to be used at the NVOCC's discretion. In that the proposed rule would eliminate the prohibition on amendments to NRAs after an initial shipment is received by the carrier and would permit NVOCCs to more flexibly create and amend such NRAs, the regulatory burden on NVOCCs utilizing NRAs would be reduced.
The proposed rule would also permit NRAs to be modified after the receipt of the initial shipment by the carrier, and permit shippers' acceptance of the NRA by booking a shipment thereunder, subject to the NVOCC incorporating a prominent written notice to such effect in each NRA or amendment. No new information collection or reporting requirements are proposed with respect to part 532, NVOCC Negotiated Rate Arrangements, as revised.
Upon completion of an environmental assessment, the Commission has determined that the proposed rule will not constitute a major Federal action significantly affecting the quality of the human environment within the meaning of the National Environmental Policy Act of 1969, 42 U.S.C. 4321 et seq., and that preparation of an environmental impact statement is not required. This FONSI will become final within 10 days of publication of this notice in the Federal Register unless a petition for review is filed by any of the methods described in the ADDRESSES section of the document. The FONSI and environmental assessment are available for inspection at the Commission's Electronic Reading Room at: http://www.fmc.gov/​17-10, and at the Docket Activity Library at 800 North Capitol Street NW., Washington, DC 20573, between 9:00 a.m. to 5:00 p.m., Monday Start Printed Page 56788through Friday, except Federal holidays. Telephone: (202) 523-5725.
Start Printed Page 56789 Authority: 46 U.S.C. 40103.
1. Mainfreight asserts that regulatory relief also is needed to stem a decline in the NVOCC share of the ocean freight business. Id. FMC review of current PIERS data for January 2014 through July 2017 indicates that NVOCC cargo as a share of U.S. ocean trades continues to increase overall, exceeding 50% for all U.S. import trades.
2. See also supporting attachments to NCBFAA's seminal Petition in Docket No. P1-08, including Verified Supporting Statement of Anthony Kozlowski, at 2; Verified Support Statement of Edward M. Piza, at 2; Verified Supporting Statement of Cas Pouderoyen, at 2. As summarized by Ms. Paulette Kolba of Panalpina: We realize and appreciate the ruling allowing NVOCCs to issue NSAs (NVOCC Service Arrangements) to our customers. NSAs, however, have proven to have limited value, especially to the small and medium sized companies who do not want to get involved in signing a legal contract. They are perfectly happy with the written quotation and rarely understand the need for the NSA. The main benefit of NSAs that we see is in being able to customize rates and services to the unique conditions of some customers.
3. See e.g. Executive Order 13771, Reducing Regulation and Controlling Regulatory Costs (Jan. 30, 2017 and Executive Order 13777, Enforcing the Regulatory Reform Agenda (Feb. 24, 2017).
4. NCBFAA Petition in Docket No. P1-08, at 6.
5. While the VOCC commenters to the subject Petition did not expressly request relief from the current service contract filing requirements as to essential terms, the Commission would invite the VOCC community to submit an appropriate request for relief.
6. As noted in the Commission's earlier rulemaking, the most critical elements of both VOCC service contracts and NVOCC NSAs are the important statutory protections provided to shippers that ensure against detriment to commerce. See 69 FR 53969. To ensure consistency with VOCC treatment, the Commission will continue applying to carriage under an NSA, those provisions of the Shipping Act that would be applicable to service contracts which relate to protecting shippers. These include the prohibited acts contained in sections 10(b)(1), (2), (5) and (9), 46 U.S.C. 41104(1), (2), (5) and (9).
7. UPS has described NRAs as “flexible and confidential rate offerings designed to react quickly to a very fluid marketplace”. Comments of UPS in Docket No. 10-03, NVOCC Negotiated Rate Arrangements, at 4.
8. Towards this same result, NCBFAA recently submitted comments in Docket No. 17-04, Regulatory Reform Initiative, requesting changes to the NRA rules to “make it clear that a shipper's tendering or booking of cargo constitutes acceptance of an NRA,” NCBFAA Comments at 12.