COVID-Induced Blank Sailings & Rates Under FMC Scrutiny

The Federal Maritime Commission is placing the highest level of scrutiny on alliance blank sailing announcements in response to recent capacity and rate concerns among forwarders and consolidators. The concerns stem from ocean carriers using blank sailings in their port schedules as a means to shield their vessel-operation costs against erratic container volumes during the COVID-19 pandemic. Under the Shipping Act, ocean container carriers may use blank sailings to reduce capacity in response to low demand. Under section 6(g) of the act, the FMC has an obligation to ensure that the capacity reductions are not unreasonable and do not cause unreasonable increases in transportation costs for shippers. The FMC generally requires notice from the alliances before blank sailings are implemented and no later than 15 days after any such changes are agreed upon. If they are unable to make a timely filing, alliances may request a waiver from the FMC. “If the FMC detects any indication of carrier behavior that may violate section 6(g), we will immediately seek to address these concerns with the carriers directly, and if necessary, the FMC will go to federal court to seek an injunction to enjoin further operation of the alliance agreement,” FMC Chairman Michael Khouri said. Mr. Khouri is hopeful that ocean carrier blank sailings are abating as global COVID-19 restrictions are gradually lifted and American shippers seek to replenish diminished inventories. He said the FMC is already receiving notices from ocean carriers of reinstated sailings in the trans-Pacific and trans-Atlantic. The FMC receives detailed reports that addressed trends in spot rates, longer term service contracts, utilization of equipment, blanked sailings, revenue trends, the policies of individual carriers and global alliances for service changes, and what notice must be provided to the FMC when there are blanked, cancelled, or amended voyages.

The FMC is actively monitoring for any potential effect on freight rates and transportation service levels, using a variety of sources and markers, including the exhaustive information that parties to a carrier agreement must file with the agency.

FMC Operations Not Affected by Covid Pandemic

Mr. Khouri also reported that the FMC has remained fully open and operational due to advance planning and preparation amid the coronavirus pandemic. FMC employees have maximum flexibility to work remotely while every bureau and office of the commission is fully engaged and available by email or telephone, he related. He said the FMC has remained vigilant in its responsibility to ensure competition within the U.S. ocean container shipping trades. He assured ocean freight forwarder and consolidator members that the FMC remains attentive to their regulatory and competitive concerns involving ocean container shipping.

Commissioners Sola & Dye Brief DHS on FMC Response

The FMC also gave the Department of Homeland Security a briefing regarding the FMC's response to COVID-19, including the investigations conducted to examine the impacts to the passenger cruise industry and the intermodal freight delivery system.

The briefing was conducted on Sept. 10 by Commissioners Louis E. Sola and Rebecca F. Dye and was attended by DHS Acting Secretary Chad F. Wolf as well as representatives from Congressional offices, state and local government, port authorities, the travel and hospitality industries, longshore labor, and trade associations. Mr. Wolf also serves on the White House Coronavirus Taskforce. Commissioners Dye and Sola had a similar meeting back in July with the Acting Under Secretary for Policy for the Department of Transportation Joel Szabat.

FMC Seeks Public Comment While Examining Carrier Billing Practices

The public has until November 6, 2020, to comment on the allegations that Vessel Operating Common Carriers (VOCCs) may be attempting to hold companies financially responsible for transportation services that they did not contract for and may not legally be required to pay.

The Federal Maritime Commission issued a Notice of Inquiry (NOI) on October 7 related to the concerns raised about the billing practices of ocean carriers in the comments filed in Docket No. 19-05, Interpretative Rule on Detention and Demurrage Under the Shipping Act. A number of companies alleged that VOCCs have expansively defined “merchant” in their respective bills of lading to include persons or entities with no beneficial interest in the cargo and who had not consented to be bound by the terms of the underlying bill of lading.

The NOI seeks information related to how VOCCs apply the term “Merchant” in their bills of lading. For example, does the VOCC apply the term “Merchant” in a manner that subjects third parties that are not in a direct mutually agreed business relationship with the VOCC to liability?  The NOI also asks whether ocean carriers have sought to enforce the definition of “Merchant” against third parties that have not consented to be bound by, or otherwise accepted, the terms of the bill of lading.

At the same time, the FMC's Bureau of Enforcement will seek specific information from certain container shipping lines serving the United States foreign trades.

FMC Chairman Michael Khouri said, “We encourage ocean container stakeholders to share their experiences with bills of lading that contain these described “Merchant” clauses. Without public comment and involvement, it is difficult for the Commission to address alleged commercial abuse in this area.”

Company Pays $85,000 Penalty for Transporting Property at Lower Rates

The Federal Maritime Commission ordered American Freight Logistics, Inc., to pay $85,000 in compromise of all civil penalties for knowingly and willfully obtaining ocean transportation for property at less than the rates and charges that would otherwise be applicable by the device or means of improperly utilizing rates limited to certain "named accounts" in MSC service contracts nos. 16-286TPC, 17-237TPC, and 18-399TPC. AFL, a licensed OTI based in City of Industry, Calif., entered into a compromise agreement with the FMC in April 2019.