FMC Requests Comments on Proposal to Modify Confidential Contracting Rules

3 min

On April 28, the Federal Maritime Commission (FMC) issued a notice of filing and request for comments regarding a petition filed by the National Customs Brokers & Forwarders Association of America (NCBFAA). The NCBFAA's petition requests that the FMC initiate a rule making to revise the NVOCC Negotiated Rate Arrangement (NRA) regulations. As regulated entities, NVOCCs are limited in the types and forms of agreements that they can make with their customers to provide ocean transportation services in the U.S. foreign commerce. The NCBFAA petition could substantially affect NVOCCs' ability to negotiate confidentially with their customers by expanding the scope and utility of NRAs and could have a consequential effect on Non-Vessel Operating Common Carrier (NVOCC) Service Arrangements (NSAs). The proposed modifications, if ultimately adopted, would remove costly and burdensome regulatory requirements that NVOCCs currently bear.

As a result, in part, of prior petitions submitted by NCBFAA, the FMC authorized NVOCCs to enter into NRAs and NSAs with their customers pursuant to the Commission's exemption authority under the Shipping Act of 1984, as amended. Unlike tariffs, NSAs and NRAs provide some measure of flexibility through arms-length negotiation and are treated confidentially; however, the FMC requires NVOCCs to satisfy certain conditions before utilizing NSAs and NRAs and has placed restrictions on these non-tariff options that limit their utility. For instance, every NSA must contain statutorily specified terms and are not effective unless the agreement is filed with the FMC and the essential terms of the NSA are published in the NVOCC's tariff. NRAs, on the other hand, are not filed with the FMC and are not subject to essential term publication requirements; however, NRAs cannot be amended and cannot include non-rate economic terms such as credit and payment terms, minimum quantities, volume incentives or forum selection/arbitration clauses.

The NCBFAA's petition asks the FMC to remove or reduce the strict procedural requirements set forth in these rules by allowing for NRAs to include non-rate economic terms and to be amended upon mutual agreement of the parties. NCBFAA acknowledges that this expansion of the scope and utility of NRAs may negate the need for NSAs. As in its previous petitions, the NCBFAA argues that these parallel options and their corresponding procedural requirements "create unnecessary confusion and add expenses that hinder efficiency." NCBFAA contends that the adoption of a single melded standard would better serve affected parties. To that end, the NCBFAA proposes a new rule allowing NRAs to be amended by the contracting parties at any time and to include economic terms beyond rates, and to eliminate the NSAs' filing and publication requirements or the NSA exemption entirely.

The Commission's decision to provide public notice of the petition for rulemaking and request public comments on the petition marks the Commission's serious interest in reexamining the efficacy of the NSA and NRA exemptions. Federal agencies can and do deny similar requests without public comment periods. Whether the FMC may ultimately amend the current rules, either as suggested or in alternative forms, is unclear. However, if the FMC proceeds with the rulemaking, there could be significant changes in how U.S. and foreign-based NVOCCs conduct business.

We are closely monitoring this process. Those interested in submitting comments, which will be accepted by the FMC until June 8, 2015, or in understanding the implications of the proposed rule on their business operations can contact Venable's International Trade Group for further information and assistance.