In a move to regulate the shipping industry, the Federal Maritime Commission (FMC) has introduced a new rule designed to enforce the Ocean Shipping Reform Act of 2022. This regulation targets the issue of ocean carriers refusing to provide cargo space to U.S. exporters without a valid reason. Effective from September 23, 2024, the rule seeks to establish clear guidelines that distinguish between refusal during the negotiation phase and the execution phase of shipping agreements.
The need for such a rule arose from persistent complaints by U.S. exporters, particularly small and medium-sized businesses, who have faced challenges in securing vessel space to ship their products overseas. The imbalance in the trade lanes, notably between the U.S. and major markets like Asia and Europe, has exacerbated these issues. Historically, carriers have prioritized more lucrative import cargo over exports, leaving exporters scrambling for space or facing last-minute cancellations that disrupt their supply chains.
The FMC’s final rule sets forth the criteria for what constitutes an “unreasonable refusal” by ocean carriers. It mandates that carriers must provide a justified reason for any refusal to accommodate cargo space, and failure to do so could result in enforcement actions by the FMC. The rule specifically addresses refusals that occur both before and after a service agreement is reached, providing a framework for shippers to bring complaints against carriers.
A key aspect of the rule is its focus on vessel-operating common carriers (VOCCs), which are directly responsible for operating the ships that transport goods. Non-vessel-operating common carriers (NVOCCs), although also subject to the rule, are considered separately given their role as intermediaries rather than direct operators of shipping vessels.
The rule also introduces the requirement for carriers to file annual export policies with the FMC. These policies must outline their practices and procedures for accommodating U.S. exports, which is intended to bring greater transparency and accountability to their operations. This aspect of the rule has raised concerns among carriers about the potential exposure of competitive strategies, but the FMC insists that these measures are necessary to ensure fair treatment of exporters.
The rule includes provisions to handle disruptions such as blank sailings—when scheduled vessel calls are canceled. The FMC has clarified that even in such scenarios, carriers are expected to take reasonable steps to accommodate contracted cargo space or provide alternative solutions.
The background of this regulatory change is rooted in the longstanding U.S. trade deficit and the logistical challenges that have intensified during the COVID-19 pandemic. With import volumes significantly outweighing exports, carriers have often found it economically advantageous to prioritize empty container repositioning over carrying export cargo. This has led to a critical shortage of available vessel space for U.S. exporters, a situation the FMC aims to rectify through this rule.
Industry Reactions and Claims Against the FMC
While the FMC has positioned this rule as a necessary step towards fairer practices, it has not been without controversy. Some industry stakeholders have accused the FMC of using this rule as a backdoor method to regulate shipping prices. These claims were strongly refuted by the FMC.
In an article by FreightWaves, the FMC was quoted as stating, “The rule does not authorize the Commission to regulate prices.” Instead, the FMC clarified that the rule is intended to address unreasonable refusals of cargo space and not to set or control rates. The regulation aims to ensure that carriers cannot unjustly deny service to exporters, thereby promoting a more competitive and balanced shipping environment.
The FreightWaves article highlights that carriers have expressed concerns about the annual export policy filings, arguing that it could lead to the disclosure of sensitive commercial information. Carriers fear that this requirement might expose their trade secrets and strategic business practices, potentially impacting their competitive edge in the market. Despite these concerns, the FMC has maintained that the transparency brought by these filings is crucial for monitoring and enforcing fair practices.
The new rule represents a comprehensive effort to address the systemic issues affecting U.S. exporters by ensuring that ocean carriers adhere to fair and reasonable practices in providing cargo space accommodations. By doing so, the FMC hopes to promote a more balanced and efficient ocean transportation system that supports the growth of U.S. exports.