Reed Smith lawyers Han Deng, Alice Colarossi and Katherine Stavis informs that the Federal Maritime Commission (“FMC”) is now soliciting comments from the public in line with the Administrative Procedure Act, a cornerstone of the American legal system that requires transparency in the regulatory rulemaking process.
On September 21, 2022, the Federal Maritime Commission (“FMC”) published a Notice of Proposed Rulemaking with respect to the meaning of “unreasonable” refusal by ocean carriers to provide vessel space accommodations to shippers under new shipping legislation. The FMC is now soliciting comments from the public in line with the Administrative Procedure Act, a cornerstone of the American legal system that requires transparency in the regulatory rulemaking process. Carriers and shippers alike should take advantage of this opportunity to share their input before the agency finalizes its decision.
Amendments to the Ocean Shipping Reform Act of 2022
The rulemaking is related to the Ocean Shipping Reform Act of 2022 (“OSRA”) which was signed into law on June 16, 2022. OSRA made subtle but impactful changes to the language surrounding unfair practices by common carriers. Previously, 46 USC 41104 provided that a common carrier “may not […] retaliate against a shipper by refusing, or threatening to refuse, cargo space accommodations when available, or resort to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, or has filed a complaint, or for any other reason,” nor may a carrier “unreasonably refuse to deal or negotiate.” OSRA amended the statutory language to provide that a common carrier “shall not unreasonably refuse cargo space accommodations when available, or resort to other unfair or unjustly discriminatory methods.” Additionally, a carrier may not “unreasonably refuse to deal or negotiate, including with respect to vessel space accommodations provided by an ocean carrier.”
The latter is the focus of the Federal Maritime Commission’s (FMC) proposed rulemaking. When it passed the law, Congress called on the FMC to initiate a rulemaking defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations. The FMC has six months from the time that the law was enacted to complete its rulemaking.
Case-by-case analysis and factors to be considered
In its notice of proposed rulemaking, the FMC summarized its caselaw on unreasonable refusal to deal or negotiate by suggesting that “reasonableness” should be judged on a case-by-case basis, and that in general “a just and reasonable practice is one otherwise lawful but not excessive and suited to the end.” Rather than relying on this caselaw definition for reasonableness, the FMC has proposed a number of “factors” to be considered in any given case.
- The first factor is “[w]hether the ocean common carrier follows a documented export strategy that enables the efficient movement of export cargo.” This factor relates to complaints that common carriers have refused to provide services for US exports, which tend to be less profitable than U.S. imports. The FMC now expects that “[o]cean common carriers operating in the U.S. trade should have a documented export strategy that enables the efficient movement of export cargo.” The FMC “presumes that every ocean carrier operating in the U.S. market will have the ability to transport exports in addition to imports until further information is provided. In other words, an ocean carrier may not categorically exclude U.S. exports from a backhaul trip without showing how this action is reasonable.”
- The second factor that the FMC may consider is “[w]hether the ocean common carrier engaged in good-faith negotiations, and made business decisions that were subsequently applied in a fair and consistent manner.” This requires the shipper to make good faith attempts at negotiation, which is “something more than one communication with no response or reply. The party must prove an actual refusal to even entertain the proposal or to engage in good faith discussions.” An ocean common carrier’s refusal is only a violation if the refusal is “unreasonable.”
- The third factor is “the existence of legitimate transportation factors,” defined as “factors that encompass the genuine operational considerations underlying an ocean common carrier’s practical ability to accommodate laden cargo for import or export, which can include, without limitation, vessel safety and stability, scheduling considerations, and the effect of blank sailings.” This factor is related to the FMC’s previous rulings on unreasonable refusal to deal or negotiate, in which the FMC “has previously found reasonable those decisions that are connected to a legitimate business decision or motivated by legitimate transportation factors.”
Finally, FMC may consider “[a]ny other factors the Commission deems relevant,” providing it with significant leeway to make decisions on a case-by-case basis. In any given case, OSRA has shifted the initial burden of proof to the carrier to show that any refusal was in fact reasonable. Although OSRA shifts the initial burden of proof, the FMC clarified in its notice of proposed rulemaking that ultimately the burden remains with the complainant to show that a refusal was unreasonable.
Compliance certificates for common carriers may become mandatory
The FMC explained that a common carrier should be able to meet its burden of proof by providing a compliance certificate signed by a U.S.-based compliance officer, and that it is considering making such a certification mandatory. The certification should provide a justification that is “directly relevant and specific to the case at hand,” including documentation of the carrier’s decision in a specific matter, the good faith consideration of an entity’s proposal or request to negotiate, and the specific criteria considered by the carrier to reach its decision. “Certification in this context means that an appropriate U.S.-based representative of the ocean common carrier attests that the decision and supporting evidence is correct and complete. An appropriate representative can include the ocean common carrier’s U.S.-based compliance officer.” It remains to be seen how a shipper could attack such a certification.
FMC is soliciting public feedback
Comments to the proposed rulemaking can be emailed to [email protected], with the words “Docket No. 22–24, Definition of Unreasonable Refusal to Deal or Negotiate” in the subject line. Comments should be attached to the email as a Microsoft Word or text-searchable PDF document, and only non-confidential and public versions of confidential comments should be submitted by email. Visit the Commission’s Electronic Reading Room to view public comments received.
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