In light of the challenges faced by U.S. shipping interests, the Ocean Shipping Reform Act of 2022 (“OSRA 2022”) amended various statutory provisions of the Shipping Act of 1984 (“Shipping Act”), including common carrier prohibitions. In particular, one provision of OSRA 2022 prohibits ocean common carriers from “unreasonably refusing to deal or negotiate, including with respect to vessel space accommodations provided by an ocean common carrier.” See 46 U.S.C. § 41104(a)(10). “Ocean common carrier” refers exclusively to vessel-operating common carriers (VOCCs).
Last week, the Federal Maritime Commission (FMC or “the Commission”) notified interested members of the public of its upcoming Notice of Proposed Rulemaking (NPRM). On September 21, 2022, the NPRM was published in the Federal Register and invited interested parties to submit comments to the Commission by October 21, 2022. See 87 Fed. Reg. 57,674 (Sept. 21, 2022). The NPRM defines terms such as “unreasonably,” “refuse to deal or negotiate,” and “vessel space accommodation”; provides guidance to complainants on how to establish a prima facie case of a violation; and sets forth criteria the Commission will consider in evaluating the reasonableness of an ocean common carrier’s refusal to deal or negotiate. These changes will be codified in new Section 542.1 of Title 46 of the Code of Federal Regulations.
Burden of Proving a Violation of 46 USC § 41104(a)(10)
Shipper-complainants or the Commission’s Bureau of Enforcement, Investigations, and Compliance (BEIC) must demonstrate a prima facie case of a violation being made.
Upon such showing, the burden of proof is shifted to the ocean common carrier (i.e., VOCC) to establish that its refusal to deal or negotiate with regard to vessel space was reasonable. However, the ultimate burden of persuasion lies with the Complainant.
Proposed Definitions of Elements
The FMC proposes the following language, defining elements necessary to establish a violation:
- Vessel space accommodations shall generally refer to “space provided aboard a vessel of an ocean common carrier for laden containers being imported to or exported from the United States.”
- Unreasonable refers to “an ocean common carrier’s refusal to deal or negotiate as prohibited under 46 USC § 41104(a)(10)” and in consideration of certain enumerated factors.
- Refusal to deal or negotiate was not defined and per the NPRM must be evaluated on a case-by-case basis. However, the term generally involves a scenario where a party has attempted to engage in good faith negotiations with an ocean common carrier to obtain vessel space accommodations through multiple communications and the ocean common carrier actually refuses to entertain the engagement (e.g., refuses to respond to multiple emails or calls).
Considerations for Determining Reasonableness of an Ocean Common Carrier’s Refusal
The Commission proposes evaluating the reasonableness of a refusal and whether an ocean common carrier’s decision-making practices resulted in a violation of the Shipping Act based on the following factors:
- The ocean common carrier’s documented export strategy, the efficiency of cargo movement pursuant to such strategy, and the ocean common carrier’s adherence to the strategy
- Whether the ocean common carrier engaged in good faith negotiations and made fair and consistent business decisions
- Legitimate transportation factors (e.g., character of the cargo, vessel safety and stability, operational schedules, the adequacy of facilities, effect of blank sailings, scheduling considerations, and other factors related to the characteristics of the cargo/vessel)
- Other factors that the Commission determines as relevant
The NPRM also establishes a rebuttable presumption of unreasonableness when an ocean common carrier categorically excludes U.S. exports from its backhaul trips from the United States. To overcome this presumption, ocean common carriers may provide a certification by a U.S.-based compliance officer that explains the ocean common carrier’s decision in a specific matter, good faith consideration of the proposal or request to negotiate, and specific criteria used to reach the decision.
We continue to monitor developments impacting the maritime trade sector. If you have any questions on how this NPRM or other OSRA 2022-related changes may impact your business, please reach out to Venable’s International Trade and Logistics Group for guidance.