Why Ocean Carriers are Butting Heads with the FMC
Ocean carriers aren’t happy with proposed Ocean Shipping Reform Act of 2022 rule changes that would modify what could be considered “unreasonable” behavior in turning away cargo.
The Federal Maritime Commission (FMC) put forth multiple revisions to the Act, including requiring carriers to file an annual export policy with the agency. This would force them to submit detailed pricing strategies and service offerings. Carriers want this provision removed.
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“Creating this export policy would only add costs and unnecessary regulation,” said Douglas Morgante, vice president of government relations, Maersk Agency USA, in a letter to the FMC.
Rival Hapag-Lloyd, the world’s fifth-biggest ocean freight carrier, shared concerns about revealing intricate details of its business strategies.
“In the global market, companies must safeguard their trade secrets, market research, pricing structures, and supply chain information to maintain their edge over competitors,” the Hamburg, Germany-based carrier said. “If any of this critical information becomes publicly accessible, it may be exploited by rival companies, leading to a loss of competitive advantage and potential market share erosion.”
Three “unreasonable conduct scenarios” were highlighted in the rule changes, including: quoting wildly expensive rates that don’t qualify as a serious negotiation; categorically or systematically excluding exports in providing vessel space accommodations; and—the third and vaguest—any other interactions or communications with the shipper or other conduct the Commission finds unreasonable.
These scenarios aim to prevent carriers from unfairly refusing to give customers vessel space, or engaging in price gouging behavior.
“The attempts to define unreasonableness are vague, subjective and are likely to result in a flood of FMC litigation if adopted in their current form,” Morgante said.
John McCown, the container shipping industry veteran who compiles the McCown Report newsletter, a monthly report of container volume at the top 10 U.S. ports, suggested the FMC create a “clearinghouse” website storing detailed historical information on aggregate container shipping prices so that market participants can use the data to make their own decisions.
“This information is already available monthly around 30 days after the end of each month for a fee. Because of that fact, the carriers can’t argue that it is confidential,” McCown told Sourcing Journal. “However, to have this same information readily available for free to shippers and the public at large seems like an appropriate goal. It would go a long way towards reducing opacity and defining actual market pricing levels and trends.”
McCown stressed that the terminology defining unreasonable conduct, like “quoting rates that are so far above current market” is part of the current problem, because it’s too vague and does little to address root issues like opaque pricing.
“The sunlight of transparency cures many ailments,” McCown said. “There simply shouldn’t be as wide a range of views on actual market pricing for shipments that have already occurred.”
The proposed change comes after the FMC fined Hamburg Süd $9.8 million for refusing to fulfill shipping contract obligations with Florida-based furniture retailer OJ Commerce. In that case, the agency found that the ocean carrier violated the “refusal to deal” provision of the Shipping Act of 1984.
Throughout the Covid-19 pandemic, shippers heavily criticized carriers that rejected certain business in favor of higher paying shipments, a problem the FMC has tried to address over the past year.
The FMC’s powers were expanded in June last year after the OSRA signing, which helps the commission promote competition in the ocean shipping market, and investigate complaints related to carrier detention and demurrage charges.
However, one industry insider believes the price problem usually works out “over time.”
“I wouldn’t expect the FMC to take too much additional action, because over time, it all balances out,” Christian Roeloffs, CEO and co-founder of container logistics platform Container XChange, told Sourcing Journal. “It’s the market that makes the prices, and as long as that’s the case, I don’t think that a competitive authority should intervene too much and try to steer prices or capacity.”
The agency also seeks to address supply chain bottlenecks at the Ports of Los Angeles and Long Beach and the Port of New York and New Jersey. It plans to reform container collection and return practices currently used by ocean carriers and marine terminal operators at each gateway.
The agency would require carriers and operators to coordinate information providing shippers with an electronic notice that a container is available for pickup. And while containers must be returned to the terminal of original pickup, which helps those grabbing a new load, truckers must have the option to return empty containers to another location to facilitate double moves.
In rare cases, where it is not possible for a trucker to return a container to the terminal where they originally picked it up, notices to truckers of the new container receiving terminal must occur no later than 12 p.m. the previous day.