By Land and By Sea
By Land and By Sea
S3.E23 - FMC's Final Rule Defining Unreasonable Refusal to Deal or Negotiate w/r/t Vessel Space Accommodations
*** Programming Note: No new shows until Sept 27 ***
Topic of the Week (8/2/24):
The Federal Maritime Commission just dropped another Final Rule - Defining Unreasonable Refusal to Deal or Negotiate... let's break it down
https://www.regulations.gov/document/FMC-2023-0010-0060
The Maritime Professorᵀᴹ presents By Land and By Sea Podcast - an attorney breaking down the week in supply chain
with Lauren Beagen (Founder of The Maritime Professorᵀᴹ and Squall Strategiesᵀᴹ)
Let's dive in...
1 - Inventory of the FMC Rulemakings
2 – INTERNATIONAL LONGSHOREMENS ASSOCIATION and UNITED STATES MARITIME ALLIANCE LIMITED Negotiations Update - no new news?
JOC.com:
https://www.joc.com/article/nervous-us-shippers-have-few-options-face-port-strike-threat_20240801.html
3 – United States Trade Representative announced they are continuing to review the public comments for, simply put, crane tariffs (Sec 301 tariffs w/r/t China actions)
https://www.ustr.gov/about-us/policy-offices/press-office/press-releases/2024/july/office-us-trade-representative-continues-review-public-comments-proposed-modifications-china-301
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no-transcript. When you see me coming, make some room. Everywhere I go, I'm in the spotlight. This is a good night. I'm living bold. This is what it looks like On the tips and ends of the world. The Federal Maritime Commission dropped another rule this time it was the final rule on defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations. It's a tricky rule and I think it might find itself with some challenges as it's kind of entered into the larger wild wild west, but not only and I say that not only because we're in this post-Chevron world, but there's a few requirements that leave me with some questions. So let's dive into it. What does it say? What am I a little bit concerned about? Let's talk it out, all right. Hi, welcome to, by Land and by Sea, an attorney breaking down the weekend supply chain presented by the Maritime Professor. Me. I'm Lauren Began, founder of the Maritime Professor and Squall Strategies, and I'm your favorite maritime attorney. Join me every week as we walk through both ocean transport and surface transport topics in the wild world of supply chain. As always, the guidance here is general and for educational purposes only. It should not be construed to be legal advice and there is no attorney-client privilege created by this video or this podcast. If you need an attorney, contact an attorney. So before we get into the discussion of the day, let's go through my top three stories of the week. All right, story number one we always do it. We're checking in on the rulemakings. We are just ticking off this list left and right. So we've been watching for gosh over two years now, since Osborne 2022, the Ocean Shivering Reform Act of 2022. Since Congress told the FMC to undertake some rulemakings, we've been watching the top three. It was billing practices of detention and demurrage. As we know, that went into effect May 28th. And then now we have the second one we've been watching the defining unreasonable refusal to deal and negotiate with respect to vessels-based accommodations provided by an ocean common carrier. The rule dropped. We're going to talk about it in a minute. And then the third rule that we're still waiting on. We're still waiting on is this defining unfair or unjustly discriminatory methods. Now, remember this got folded in. Though the FMC said this is, for the large part, folded into this unreasonable refusal to deal and negotiate. So, while we're waiting on standalone language, it is folded into this unreasonable if we still negotiate. So, while we're waiting on standalone language. It is folded into this unreasonable if we still negotiate. So might satisfy it, but we'll talk more about that as we dive further into the unreasonable if we still negotiate. Final rule but as it stands, as a standalone rulemaking, we don't have it in a separate category on regulationsgov. But, like I said, the FMC has said that they folded it in. We'll talk about it.
Speaker 1:And then the last thing that we've been keeping an eye on is the Maritime Transportation Data Initiative. They had the RFI Request for Information number two close up. That was what was it mid-June? So that's the roundup. That's what we've been watching. So I mean, maybe we can take the list off of our things that we're watching. We're still going to be talking about this unreasonable deal and negotiate for a while. I think I want to break it down. It is such a nuanced rule, but today we're going to be covering it kind of from a larger spectrum and also I'm going to be diving into a few different things that I want to highlight, but we only have so much time, so we're going to be covering this over a few episodes. All right.
Speaker 1:Story number two, checking in on the ILA, the International Longshoremen's Association. As far as news coverage is concerned, it doesn't look like a lot has been happening yet since the kind of mid to end of July reporting of the stalled dispute or the excuse me, the stalled conversations on the master contract. So just this week JOC, through Mark Zaccone, he was reporting that the master contracts talks remain stalled due to the dispute that the ILA has with the APM, with APM terminals, over automation project at its port of Mobile container terminal. So that was previously reported. Right, that was kind of the mid-July news. The rest of that article it's really actually interesting. You should go check it out. But it talks about the inopportune situation of kind of no great options for Gulf Coast and East Coast shippers who haven't already made just-in-case options for the shipment of their goods, just in case the ILA-USMX discussions do stall out. The ILA, like we've reported previously, has said that strikes are on the table if September 30th comes and goes and the contract expires and there's no new master contract or kind of discussion resolution. So we're going to be watching this. Now that we're in August I still think September 30th is like a world away, but we're getting closer right, we're getting in that last eight weeks of needing to close up this contract negotiation. So I've previously said I'm not too worried about it. Let's not get overdramatic. I'm still kind of in that I'm starting to focus on it a little bit more. I guess I would say We'll see where it goes. I think everybody wants a resolution here, but we'll see. But no real news on this recently. It still stands, as far as I can tell, that things are stalled. All right.
Speaker 1:Story number three we discussed ship-to-shore cranes a few weeks ago and just this week there were some new developments from the United States Trade Representative's Office. So USTR, the United States Trade Representative's Office, so USTR Namely, they decided to continue. They announced that they intend to continue reviewing the comments they received. Remember I was talking that they had an open comment period on Section 301 tariffs that they were proposing on the ship to shore. They were supposed to go into effect August 1. Last week they said that they would be continuing to review the comments that they received and that they have paused the August 1. Last week they said that they would be continuing to review the comments that they received and that they have paused the August 1st effective date of those ship-to-shore tariffs. So again, let's overview of what we're talking about here right? So this is the proposed modifications and machinery exclusions process in the Section 301 investigation.
Speaker 1:China's acts, policies and practices relating to technology transfer, intellectual property and innovation. This was the proposed tariff on ship-to-shore cranes, and the proposal was an increase from a current 0% tariff to a 25% tariff. Now, the way that it was being read from some of the industry was that on August 1st, if the crane didn't arrive on the shores, even if it was previously purchased or previously ordered or kind of budgeted for. Essentially was the issue, if it wasn't here on the shores of the US by August 1st, then it was going to be subject to a 25% tariff, which is I mean we're talking these cranes can be in the millions of dollar range. So 25% on top of that is a hefty additional unexpected cost. So that was partly why certainly the American Association of Port Authorities was getting in on this and saying look, this is going to be a major impact and potentially debilitating. So that was some of the discussion around it.
Speaker 1:This is what these Section 301 tariffs were. These were related to Trump era tariffs. These were those China tariffs that happened. What was it? I mean last, last administration, and now they're undergoing their four year review so it was four years ago Right by USTR saying that in their findings that the Section 301 actions have been effective in encouraging China to take steps toward eliminating some of its technology transfer-related acts, policies and practices, but that China had not eliminated many of its actual technical transfer related, which continue to impose a burden or restriction on the US commerce.
Speaker 1:Economic analysis generally found that the duties have had small negative effect on US aggregate economic welfare, positive impacts on US production in the 10 sectors most directly affected by the duties and minimal impacts on economy-wide prices and employment. So kind of saying, look, these tariffs haven't been terrible and maybe in some respects they're pushing forward the way that they were intended. And this is from the current USTR report on this where they also continue to say economic analysis, including the principal US government analysis published by the US International Trade Commission, generally found that Section 301 tariffs have contributed to reducing US imports of goods from China and increasing imports from alternate sources. So it said, based on those findings, the USTR recommended to the president that Section 301 tariffs on covered products be maintained and then they went on to expand it potentially on these ship to shore, they say, to further encourage China to eliminate the acts, policies and practices at issue and to counteract the burden or restriction of these acts, policies and practices. The trade representative shall modify the actions taken in the investigation to increase Section 301 ad valorem rates on duty for certain specified products of China. Part of the public comments included a request for comments on the scope of the product description to cover ship-to-shore cranes under subheading 8426.19.00, and then in parentheses said transporter cranes, gantry cranes and bridge cranes. So that's where this became an interesting discussion for ports and terminals, mtos and terminals. Right, that last part was the one that I wanted people to pay attention to and I previously brought this up. So what's the update?
Speaker 1:July 30th, so just this week Office of the USTR said in an announcement they were continuing to review public comments for proposed modification to China 301 actions. So on May 28th I'm just going to read off the announcement, it's a brief one On May 28, 2024, ustr proposed certain modifications of the actions in the Section 301 investigation of China's acts, policies and practices related to technology transfers, transfer, intellectual property and innovation. In response to the May 28th notice, ustr received more than 1,100 comments from the public. That's great, by the way, everybody Good job submitting comments, because I always say this is the way that you can talk to these agencies, this is the way that you can have your voice be heard. Take advantage of open comment period. All right, continuing on.
Speaker 1:In consultation with the Section 301 Committee, ustr continues to review all comments and expects its final determination will now be issued in August 2024. So they're saying, look, it was previously probably supposed to go into effect August 1, but now they're saying, look, the final determination probably won't be issued until they said August 2024. So this month sometime. It continues on to say USTR expects that the modification slated for 2024 will take effect approximately two weeks after it makes the final determination public. So they're saying, look, we're going to finish up these comments within the month, right, within August 2024, which is the month we're in now. This was released just on the 30th, so they were saying within the next month. And they're saying two weeks after they make that final determination is when it will take effect. So while it's given notice for an August 1st, start from this May 28th notice, which is a good amount of time, right, that's June and July. Now they're saying you're going to get two weeks after it makes its final determination.
Speaker 1:I don't know how to read of that. Really, I don't know if they're going to rest on the 60 days plus two weeks, saying if they keep this tariff, that well, you had plenty of time. Look, you had two months plus two weeks or if they're going to potentially repeal this thought of 25% tariff on these ship-to-shore cranes and potentially others. I'm not sure. I'm not sure how this is going to go, but I think that's interesting. I'm just kind of noting the things that I think are interesting here. But the good news is the thing that I love to see is the US USTR and really any agency is taking extra time here. But they're they're really kind of considering the impact and the comments that came in. They they're saying, look, we're still getting through these comments, we're still determining what we're going to be doing and in consultation with the section 301 committee that's how they're they're continuing to look at all of this. So I think, because this was such an impact, I like that they're continuing to look at it. So that's it. It's on pause right now but expect some more information sometime in the months, which is interesting, right, because August is usually the month that DC takes off, and I say that because the Hill kind of does that. But I mean it's it's the heat of summer, it's a hot month for for Washington DC, but we'll I'll continue to watch it. All right, so let's get into the meat and potatoes of the day. We got a lot to cover.
Speaker 1:The FMC released their final rule on the definition the definition of unreasonable if it's a deal to negotiate with respect to vessel space accommodations provided by an ocean common carrier. They to vessel space accommodations provided by an Ocean Common carrier. They released that on July 23rd 2024. The final rule is effective in 60 days, 60 days from publication in the Federal Register. So the final rule on this will be effective September 23rd 2024.
Speaker 1:So remember the Federal Register. They might announce the rule, but the official announcement is the Federal Register. I always kind of like to say the Federal Register is like the federal government's classified ad section. So they have to announce it there and it can't just instantly go up. It has to be part of their, their full system. So usually it takes a couple of days, a day or two. So it was published on July 23rd in the Federal Register.
Speaker 1:So 60 days from publication in the Federal Register, which puts us at September 23rd, the FMC actually noted in their announcement that the requirements for Ocean Common Carriers to file a documented export policy with the commission are delayed. That's pending approval of the collection of information by the OMB, the Office of Management and Budget. We saw this on those requirements that were in the detention to merge rulemaking. Remember, anytime you're asking the public to submit feedback or submit something, usually it has to go through the collection of information and reviewed by the Office of Management and Budget. So once OMB approves that, then the commission will then be able to publish the effective date of those requirements. But it's got to be approved by OMB, all right. So what's the rule? Right? The FMC was charged by the Ocean Shipping Reform Act of 2022.
Speaker 1:So OSRA 22, which was from Congress, which makes this statutory, which means that when we're talking about kind of a post-Chevron repeal world, this is something that's coming direct from Congress and I only kind of point that out. We're not going to get into the nuances of that. But what did Osra say? They told the FMC to initiate a rulemaking defining unreasonable refusal to deal or negotiate with respect to vessel space under Section 411004A10. That's of title 46. So 46 USC 41104A10. They were also directed to undertake this in consultation with the commandant of the Coast Guard. They mentioned it a little bit in the intro but obviously it's not a major piece of this rule. But I'm just interested to see if there's like a little bit more information about like how those conversations went, if any of that's public, kind of what the commandant said and I only say that because it's a little bit tangential to what the Coast Guard does this unreasonable refusal to deal or negotiate. But just an interesting point. All right, getting back to it, so this is supposed to define right.
Speaker 1:Congress told FMC to define 41104A10, which said what does that rule say? It says this is current law, not something Osra created. This is current law under the Shipping Act. So A is in general a common carrier, either alone or in conjunction with any other person, directly or indirectly shall not. And then it lists out a whole bunch of things that they're not allowed to do.
Speaker 1:And number 10 says unreasonably refuse to deal or negotiate, including with respect to vessel space accommodations provided by an ocean common carrier. I mean, that's the title of the rule. So unreasonably refuse to deal or negotiate. That's why it's so important to notice and that's why I kept hearkening on this rule that the FMC just released is not the unreasonable refusal to deal and negotiate. It's defining what is unreasonably refusing to deal and negotiate, which is why this rule is so important, also why the FMC was so careful here, and we're going to break this down for a very long time on all the nuances that I see of this and I think that this is going to be really interesting to watch as it's incorporated into the ecosystem of the supply chain and if it has any challenges, it wouldn't be surprising if there were a few challenges, particularly on the documented export strategy or documented export policy, but we're going to talk about that in a minute. So I keep going tangential. Let's keep this simple.
Speaker 1:The FMC also expanded this rule, so it was A10, but it also expanded this rule to a three, where it says you know, a said in general, a common carrier, either alone or in conjunction with any other person, directly or indirectly, shall not. So a common carrier shall not unreasonably refuse cargo space accommodations when available or resort or resort to other unfair, unjustly discriminatory methods. So the 10 says unreasonably refuse to deal or negotiate. Three says unreasonably refuse cargo space accommodations when available or resort to other unfair, unjustly discriminatory methods. And that second part is kind of that third rulemaking that we were waiting for right, defining unfair, unjustly discriminatory methods. And that's where the FMC is really kind of saying, look, we folded it in here. It was kind of a delineation between A10 and A3, oversimplification, but yeah, that's partly where they're folding it in.
Speaker 1:So I want to read from the it's almost the last section right before they get into the text of the rule, where the FMC in the full discussion, so they release the rule, right. I think it's like 30 pages or so. They have all this preamble, they have all this discussion and then at the very end, right before they get into the rule text, it says summary of final rule and changes from SNPRM, which is the supplemental notice of proposed rulemaking. So a little bit of the rulemaking history here. Remember they released their notice of proposed rulemaking as prompted by Ocean Shipping Reform Act of 2022, and then they opened it back up for comments again and they called that the supplemental notice of proposed rulemaking. So usually it goes NPRM to potentially final rule.
Speaker 1:Sometimes we see that there's an advanced notice of proposed rulemaking, the ANPRM. That's something that we saw with the detention to merge rule. Here we saw it go from notice of proposed rulemaking. So they kind of released some text they were throwing around and then they further refined it but then wanted more feedback with a supplemental notice of proposed rulemaking. Chairman Maffei at the time said look, it's more important to get this right than get this fast. I keep repeating that because I thought that that was a very important thing for him to say and that he also said this is a very tricky rule. This has some nuances and some impacts that they want to make sure that they get it right. All right.
Speaker 1:So this summary of the final rule and changes from the SNPRM. It says this final rule describes how the commission will consider private party adjudications and agency initiated enforcement cases in which violations of 46 USC 41104. So this is the A3 and A10 are alleged relating to unreasonable refusal to deal excuse me, unreasonable refusal to provide cargo space accommodations and or refusals to deal by ocean common carriers. It considers the common carriage roots of the Shipping Act as well as the overall competition basis of the commission's authority. Future cases that allege violations of A3 or A10, I'm just going to shorten that will be factually driven and determined on a case-by-case basis. So they're saying look, no matter what, these are case-by-case, but it says the framework established by this final rule is taken from commission precedent on refusal to deal cases generally and on suggestions offered by commenters on the NPRM and SNPRM. So they're saying look all the case law that we have, the precedent that's out there. We brought that in, but then we also wanted to really understand the commenters and the suggestions offered there. You can read more about that in the preamble. That's the part that we're going to be covering as we continue to look at this rule Today. I really wanted to kind of keep it overview with a few little pieces that I'm diving into. So, continuing on in this section, this rule ensures that shippers can readily discern when a carrier has acted outside the bounds of reasonableness and know what type of claim an A3 or an A10, to bring before the commission. So it continues on to say so.
Speaker 1:This is where this is going to become section 542 of the CFR. So CFR is the Code of Federal Regulations. That's where the FMC. So there's statute, which is US Code, which is USC, 46, usc, and then this is where it turns into the regulatory FMC-created rules based on that statutory authority that was given to them in the code, in the statute. Very simple, but very simple, oversimplified explanation. But just so that you kind of understand the difference between the two. What are all these numbers? Cfr is something that the FMC has created. Usc well, not always, but for the sections that we're talking about. The CFR that the FMC is relating to, this part 542, that's an FMC-created rulemaking USC for this section of the code. This USC, that's something Congress created and so Congress gives the authority to the FMC through the code and then the FMC takes that, turns it into a rulemaking and puts it as a CFR Oversimplification. But just so you kind of understand the difference there. And those are regs. So statutes are the USC, regs are the CFR. See, you guys can all pass the bar now, just kidding, this is an oversimplification, but just so you know. I mean that's a big thing, all right. So section 542.1A purpose so this is still part of that overview, discussion of summary that the FMC is providing.
Speaker 1:So while 46 USC 41104 applies generally to both VOCCs and NVOCCs, they're saying this rule only applies to VOCCs. So they continue the specific prohibition in 46 USC 41104 A10, so that's A10, that is the subject of this rule applies only to VOCCs because ocean common carrier is defined as a vessel operating common carrier in the Shipping Act, although section 41104A3,. So this A3 applies to both VOCCs and NVOCCs. This rule, so this rule that the FMC is talking about today, this defining unreasonable refusal to deal and negotiate, only applies to VOCCs. To mirror the scope of the affected population, of the affected population, of the NPRM, the Notice of Proposal Making. Importantly, however, this rule does not limit the application of A3 or the rest of 46 US CA 10 to VOCCs. Rather, nvoccs remain legally liable under A3 and A10 for violations of the Shipping Act.
Speaker 1:So what is that saying? They're saying look our definitions and the things that we're putting out in this CFR, this rule that's being released is saying that these only apply to VOCCs. But the statute that this is all based on, that A3 and A10, that still applies to everybody, it always applied to. The FMC is saying look right, today the things that we've focused on are just VOCCs, the Vessel Operating Common Carriers. So they're saying not the NVOCCs in this rulemaking, but that doesn't take away the application of that statute as it applies to NVOCCs. So a little bit of a nuance. It gets a little complicated, but continuing on.
Speaker 1:Similarly, section 4.1.1.0.4 applies generally to row-row, roll-on roll-off cargo, bulk cargo and containerized cargo. This rule, however, only applies to containerized cargo because the issues arising from container availability during the pandemic were not present, or at least not present to the same extent, for row-row or bulk cargo vessels. While this rule is limited to containerized cargo, it does not, so they kind of repeat this again. It does not preclude refusal to deal claims arising in the context of row-row cargo or bulk cargo. Fmc has amended section 542.1a to clarify that the rule is limited in scope to containerized cargo. So they're saying same thing, right? This is VOCC and this is containerized cargo. That does not mean that this is eliminating any of the duties, excuse me, this is not eliminating any of the application of that statute to roworo or Bulk or any of the other potentially liable sections of the industry. This is just saying look, all we're talking about here in this defining unreasonable refusal to negotiate is containerized cargo and VOCCs.
Speaker 1:I'm only pausing because anytime you need to be that clear means any that specific. I'm just wondering if that is fodder for a challenge, right, and I don't know. I don't know, we'll see. I anticipate because this is so nuanced that there will probably be a challenge to it, but I think that that might be one thing that that people might go after is like well, why is it NVOCC, why is it VO and not NVO and um, trying to kind of drill down on that and and whether that's the right call. Um, but that's what the FMC saying, that's what they did. They, they were rooting it in Um, as far as I can understand, I'm going to have to be diving into this more because, right, as far as I can understand, I'm going to have to be diving into this more because, right, this is all nuance, but for right now, as far as I can understand, they were saying that Congress told them to do that. So I'm going to dive into that section a little bit more just to make sure that I'm fully understanding that correctly. But yeah, so that's what they said.
Speaker 1:Vos and containerized cargo. Ok, so what does the rule say? That's what I really want to hit today. What does the rule say? That's what I really wanted to hit today. What does the rule actually say? I'm going to let you read it for yourself for the most part, but I'm going to highlight some areas here.
Speaker 1:So, definitions, section 542.1, definition of unreasonable refusal. Excuse me, it just rolls off the tongue that it's hard to stop once you keep going. So definition of unreasonable refusal of cargo space accommodations when available, and unreasonable refusal to deal and negotiate with respect to vessel space provided by an ocean common carrier. So it's refusal of cargo space, unreasonable refusal of cargo space when available and unreasonable refusal to deal and negotiate with respect to vessel space. All right. So the purpose this is the actual text that will be going into effect September 23rd, barring any pauses. So this part establishes the elements and definitions necessary for the FMC to apply 46 USC A3. I'm just going to shorten it A3, with respect to refusals of cargo space accommodations when available for containerized cargo, and to apply A10 with respect to refusals of vessel space accommodations provided by an ocean common carrier with respect to containerusals of vessel space accommodations provided by an ocean common carrier with respect to containerized cargo. Again, those were shortened, I'm just saying A3 and A10, but it's the 46 USC 41104. This part applies to complaints brought before the commission by a private party and enforcement cases brought by the commission. So then it goes into the definitions and this is the part that I really, for the past few months years I guess have been saying pay attention to the definitions. The whole thing is important, but pay attention to the definitions because that's where it feels to me the rubber meets the road. Right're proposing, or not even proposing, what will be the final rule, barring any, any pauses or, like I said, anything else.
Speaker 1:Blank sailing means a sailing skipping one or more specific ports while still traversing the rest of the scheduled route, or the entire sailing. Being canceled means space which has been negotiated for or confirmed aboard the vessel of an ocean common carrier for laden containers being imported to or exported from the United States. Cargo space accommodations includes the services necessary to access and load or unload cargo from a vessel calling at a US port. Documented export policy means a written report produced by an ocean common carrier that details the ocean common carrier's practices and procedures for US outbound services. This part is the part that is going to be very interesting to see how this is kind of stomached by the overall supply chain ecosystem and certainly by the Ocean Common Carriers that are going to be responsible for this documented export policy.
Speaker 1:Okay, continuing on. Sweeper vessel means a vessel exclusively designated to load and move empty containers from a US port for the purpose of transporting them to another designated location. Transportation factors means factors that encompass the vessel operation considerations underlying an ocean common carrier's ability to accommodate laden cargo for import or export, which can include but are not limited to vessel safety and stability, weather-related scheduling considerations and other factors related to vessel operation outside of the vessel operator's control and not reasonably foreseeable Transportation factors. I guess this is maybe where Coast Guard could have some impact in the discussion. Some of these things are kind of related to Coast Guard, but I'm going to look into that part too. All right, continuing on with the definitions unreasonable, this is the one that I just want to do to focus on and I want to stop and say under definitions it says for the purposes of this section, and I think that that's important because I'm not. I'd have to go back and check to see if that was included, but I always just get nervous anytime reasonableness or unreasonableness gets defined in broad sense. So at least this says for the purposes of this section. So it kind of limits unreasonableness to this section, this 542. But anyway, so unreasonable means ocean common carrier conduct that unduly restricts the ability of shippers to meaningfully access ocean carriage services from that ocean common carrier. Continuing it on vessel space accommodations means space available aboard a vessel of an ocean common carrier for laden containers being imported to or exported from the United States. Vessel space accommodations also includes the services necessary to book or access vessel space accommodations. So those are the definitions that are written into this final rule.
Speaker 1:The rule continues part C. Subpart C is elements for claims. The following elements are necessary to establish a successful private party or enforcement claim under 46, again shortened the USC. So this is A3. So this is the elements necessary to establish a successful private party or enforcement claim under A3 with respect to refusals of cargo space accommodations when available. So there's three here. One, the respondent must be an ocean common carrier as defined in 46 USC 4-0-1-0-2. Two, the respondent refuses or refused cargo space accommodations when available. And three, the ocean common carrier's conduct is unreasonable. I mean those all for the most part right, make sense. They're kind of based on the language, but it says must be an ocean common carrier, must refuse or refuse cargo space accommodations when available. And ocean common carrier's conduct was unreasonable. Right, because the whole thing is unreasonably. Refusal of cargo space accommodations when available. The next part non-binding considerations when evaluating unreasonable conduct. So it's interesting they said non-binding considerations when evaluating unreasonable conduct. So it's interesting, they said non-binding considerations, but they're kind of giving this glimpse of like. Here are the things that we're going to be looking at when a claim comes in based on unreasonable conduct. This is in the final rule. It says this is subsection D non-binding considerations when evaluating unreasonable conduct.
Speaker 1:In evaluating the reasonableness of an ocean common carrier's refusal to provide cargo space accommodations, the commission may consider the following factors. So three factors here Whether the ocean common carrier followed a documented export policy that enables the timely sorry, there's four factors here Whether the ocean common carrier followed a documented export policy that enables the timely and efficient movement of export cargo. So whether they're following a documented export policy. Two, whether the Ocean Common Carrier made a good faith effort to mitigate the impact of a refusal. So were they trying to mitigate the impact of that refusal? Three, whether the refusal was based on legitimate transportation factors, which is previously defined. And then four, any other relevant factors of conduct. So those were the kind of three major things. And then there's the catch-all that the FMC has said look, when we're evaluating this, these are three of the things that we're going to be looking at Non-binding examples of unreasonable conduct. So D was non-binding considerations when evaluating E is non-binding.
Speaker 1:Examples of unreasonable conduct. The following are examples of conduct, kinds of conduct that may be considered unreasonable under A3 when linked to a refusal to provide cargo space accommodations. One blank sailings or schedule changes with no advanced notice or with insufficient advanced notice. I'm going to stop there again. That first one. An example of unreasonable conduct when linked to a refusal to provide cargo space accommodations, blank sailings or schedule changes with no advance notice or with insufficient advance notice. That's going to be interesting. No notice or insufficient advance notice, because they don't really say what sufficient advance notice is, but they're just saying look, this is an example of something non-binding that we're going to be reviewing.
Speaker 1:Number two vessel capacity limitations not justified by legitimate transportation factors. Again, that was defined above. Three failing to alert or notify shippers with confirmed bookings of any other changes to the sailing that will affect when their cargo arrives at its destination port. So these are just examples. These are things that they're saying they're going to be taking into consideration and examples of the kinds of conduct that may be considered unreasonable. Four is scheduling insufficient time for cargo tendering or vessel loading so that cargo is constructively refused, so not outright refused, but if there isn't time for cargo tendering or vessel loading, that it then is in turn constructively refused. That's interesting. Number five providing inaccurate or unreliable vessel information Also interesting. It feels like they're trying to clean up some of the shipper complaints that have been percolating over the past few years, complaints that have been percolating over the past few years and these are non-binding examples of unreasonable conduct that the FMC has put in this final rule. This will be in the CFR.
Speaker 1:Number six the de facto, absolute or systematic exclusion of exports in providing cargo space accommodations. So they're saying the de facto, the absolute or the systemic exclusion of exports in providing cargo space accommodations. So they're saying the de facto, the absolute or the systemic exclusion of exports in providing cargo space accommodations. They're saying outright refusal, basically right, all right. So, continuing on elements for claims, the following elements are necessary to establish a successful private party or enforcement claim under A-10. So those were all for A-3.
Speaker 1:Now we're into A-10 with respect to refusals of vessel space accommodations provided by an ocean common carrier. So it says these are three the respondent must be an ocean common carrier, the respondent refuses or refuse to deal or negotiate with respect to vessel space accommodations and the ocean common carrier's conduct is unreasonable. They're basically just outlining the rule as it is. Non-binding considerations when evaluating unreasonable conduct, right? So again, this is for A10. The last one was A3. This is A10.
Speaker 1:In evaluating the reasonableness of an ocean common carrier's refusal to deal or negotiate with respect to vessel space accommodations, the commission may consider the following factors. Number one whether the ocean common carrier followed a documented export policy that enables the timely and efficient movement of export cargo. So again, this documented export policy. Number two whether the ocean common carrier engaged in good faith negotiations. That'll be interesting to see how good faith negotiations is kind of ultimately molded. Whether the refusal was based on legitimate transportation factors, again previously defined, and any other relevant factors or conduct. Now here's where it gets interesting again, right.
Speaker 1:Non-binding examples of unreasonable conduct Non-binding. The following are examples of the kinds of conduct that may be considered unreasonable under 46A10 when linked to a refusal to deal or negotiate. So number one there's only two here. Number one quoting rates that are so far above current market rates that they cannot be considered a good faith offer or an attempted engaging in good faith negotiations. So like you can't, essentially what they're saying is you can't price it out so high that that it's they're saying. It would be then in temp not good faith, then in turn being non good faith. So that was the first non-binding example of unreasonable conduct for A10. The second is the de facto, absolute or systematic exclusion of exports in providing vessel space accommodation. So the just general exclusion, or de facto or absolute, all right. So that was A10.
Speaker 1:The use of sweeper vessels is also listed here. So part I ocean common carriers are not precluded from using sweeper vessels previously designated for that purpose to reposition empty containers. And that's what sweeper vessels really do, right, they're moving around the empty containers so that they can. But there was some feedback from the industry. I guess I would say there were some vessels that might have been doing too much sweeping, or I don't want to go too far into that. But so sweeper vessels became a problem, or at least something that was worthy of a discussion or something that Congress deemed important to be included in some of this discussion. And I say I guess I'd say that it was Congress that said it. Like I said, it was more kind of the industry talking about the sweeper vessels enough that the FMC included it here, right? So use the sweeper vessels.
Speaker 1:Ocean common carriers are not precluded from using sweeper vessels previously designated for that purpose to reposition empty containers. However and here's where the FMC weighs in However, the designation of a vessel as a sweeper vessel is subject to commission review to determine whether the designation results in an unreasonable refusal of ocean carriage services. So this is kind of a tough one, right, because it's like sweeper vessels are really part of an operational side of things. But now the FMC is saying the designation of a vessel as a sweeper vessel is subject to commission review, as whether that designation results in an a determination of a business thing. It ultimately puts a lot of emphasis on how the FMC is going to come down on this, and I think that that's important because this is putting a lot of. We're going to have to see how the FMC starts to handle these things in order to really have clear guidance on where it's going right.
Speaker 1:All right, so that's subpart A is the sweeper vessels. That's going to be something that I'm going to dive into further because I think that that's going to be interesting. Is this intersection between operational and business decisions Granted right? Intersection between operational and business decisions Granted right, like if you're using sweeper vessels so much so that it's now an unreasonable refusal of ocean common carriage services, saying oh no, that was a sweeper vessel, when really you're just trying to cover it. I mean, maybe that's where their thinking is like it's only going to be in these extreme situations. But when you start to move into that gray area, that's where it gets a little bit. To move into that gray area, that's where it gets a little bit, I'll say, concerning right and that's where you really want. I mean, they've said these are all going to be case by case, but that's where you really want some clarity. And this isn't giving a ton of clarity on that. But it's saying look, it's something that we're going to be considering.
Speaker 1:All right, so part K, shifting the burden of production. In accordance with applicable laws, the following standard applies the initial burden of production to establish a prima facie case of a violation of this part is with the complainant or with the Commission's Bureau of Enforcement, investigations and Compliance. And then, once a complaint a complainant sets forth a prima facie case of its violation, the burden shifts was the NPRM where this was um, perhaps the ocean carrier had to had to initially come up with why it was, why it was not unreasonable. Now they're saying, look, the initial burden. You have to say, um, the complainant has to say, look, why are you saying this is unreasonable? And then, kind of appropriately, so. Then the burden then would shift to the Ocean Common Carrier to justify why it was reasonable. They don't have to say it right off the bat. They're saying, look, here's why I think it's unreasonable with the complaint. And then the Ocean Common Carrier says and here's why I think it was actually reasonable. And then it continues on. The ultimate burden of persuading the commission always remains with the complainant or with the commission's Bureau of Enforcement, investigations and Compliance.
Speaker 1:Ok, so this next part is still delayed. This is where OMB has to weigh in on it. This has to do with the documented export strategy. So this of this collection of information, right. So this is subpart J under part five. For two, point one J documented exports policy. Part 542.1J documented exports policy.
Speaker 1:Ocean common carriers must file with the Federal Maritime Commission a documented export policy that enables the timely and efficient movement of export cargo. This is where, potentially, there could be an argument of this is beyond what Congress was directing them to do, right? We kind of talked about that section where they said define unreasonable. If he's dealing with this back-to-bustle space accommodations, at least in that little part. It doesn't necessarily talk about documented export policy. It may in other areas, and this is where I want to dive into this further. But I think this documented export policy is ripe for conversation and what I mean by that is I wouldn't be surprised if this potentially because it feels like a bolder action. This is potentially where there might be some petitions or some complaint filings against documented export policy, because in the comments that were filed with the notice and comment period the kind of conversation back and forth the comments that were filed was saying look, this is probably going too far, okay.
Speaker 1:So J says documented export policy and then L says each ocean common carrier must submit a documented export policy to the commission once per calendar year and include, in a manner prescribed by the Commission, pricing strategies, services offered, strategies for equipment provision and descriptions of markets served. Updates may be submitted more than once per year if the Ocean Common Carrier chooses to do so. Other topics a documented export policy should also address, if applicable, include the effect of blank sailings or other scheduled disruptions on the Ocean Common Carrier's ability to accept shipments, the Ocean Common Carrier's rules and practices for the designation and use of sweeper vessels. And three, the alternative remedies or assistance the Ocean Common Carrier would make available to a shipper to whom it refused vessel space accommodations. So the documented export policy required to be followed by this part must be submitted to the Director of BTA, the Bureau of Trade Analysis at the FMC, through export policy at fmcgov.
Speaker 1:Continuing on, it says the documented export policies filed in accordance with this section shall not be circulated outside of the FMC. These documents and the information contained therein shall not be publicly disclosed, disclosable in whole or in part, including in response to requests under the Freedom of Information Act. The information may, however, be disclosed to the extent that it is relevant to an administrative or judicial action or proceeding, or to either House of Congress or a duly authorized committee or subcommittee of Congress. So this documented export policy is one that I wanted to highlight what the FMC said in the preamble about, because I think that it's important to get their take Right and I'm going to be diving into this further and kind of looking back at the historical NPRM and SNPRM.
Speaker 1:But in this final rule, the preamble, under subpart J of the preamble, which actually is section 542.1, subpart J of the rule is this documented export policy. It says the commission amended 542.1 j to state that the ocean common carrier must file the document with the commission, not that the ocean common carrier must follow the document. It's kind of an interesting thing for them to say, right, that they must file the document with the commission but that they don't have to follow the document. This change aligns with the commission's intent to whether the that whether the ocean common carrier followed a documented export policy as a non-binding consideration that the commission may consider in determining whether unreasonable conduct has occurred. So they're saying look, you have to provide this baseline document but you don't have to follow it. But if you don't follow it, we're going to be bringing it into consideration. Non-binding considerations we're going to be looking at to see if what you said you did and what you actually did was a departure and became an unreasonable conduct. I don't know, I'm going to have to read more into this. My gut reaction is this feels a little stifling of the competition. I guess I'm really interested to see how this one kind of comes into society, our collective supply chain society.
Speaker 1:So, continuing on this preamble discussion, in addition to using documented export policies to determine whether an ocean common carrier's conduct is in a specific matter aligns with their general policies and thus whether the ocean common carrier's conduct is in a specific matter aligns with their general policies and thus whether the ocean common carrier actor acted reasonably. The policies will be used by the commission to monitor the industry for the unreasonable and like when they're just totally being ignored, because I think that's the history here is that during the COVID congestion years, there were some carriers that just popped up out of nowhere. They were hopping in on the $20,000 rates for the Asia to West Coast, but then they were turning around, not taking empties, not taking exports, and just leaving, sometimes only taking empties right and not taking the exports, and so that was a problem, because they were categorically denying exports, saying nope, don't have time, we're just getting out of here, we don't want to deal with the exports, we're just turning around. We're all about this cargo movement from Asia to the West Coast. As I understand it, that has, for the most part, part resolved, and so I've heard from the industry that this might be trying to solve a problem that doesn't really exist anymore. But that doesn't mean that it won't again, and I think that's what the intention of continuing on this activity is is that maybe it will in the future, and so let's wrangle it now. This is just. There's a lot of discussion. I think that's going to be really interesting here, but this documented export policy I'm going to be following with with a lot of interest, so I also think the NVOCCs versus VOCCs is an interesting one as well. We're going to be covering a bunch of this stuff through multiple episodes, but I just want to point out that the FMC kind of takes painstakingly, explains the scope of that rule and then addresses it in the preamble discussion where it says there are two types of common carriers vessel operating common carriers and non-vessel operating common carriers.
Speaker 1:Section 41104 applies generally to both VOCCs and NVOCCs. However, this rule only applies to VOCCs. This is from the scope of the rule in the preamble. We talked about it in the summary. I'm not going to go too far into it today, but I just want to really highlight that again, where they are making a specific mention that this defining rule final rule is only for VOCCs and it's only for the containerized cargo rule. Final rule is only for VOCCs and it's only for the containerized cargo. So they do pull in and I think that this is important to mention application of the rule to NVOCCs. They pull in in the preamble through some of these issues, some of the comments and the specific quotes from some of the comments, and so they say the issue.
Speaker 1:World Shipping Council argued that 46 USC 41104A3, so that's A3, applies to all common carriers, including NVOCCs, and that to exempt NVOCCs from application of the Shipping Act, the Commission would need to first provide an opportunity for a hearing in accordance with 46 USC 401103. World Shipping Council further argued that the Commission creates a competitive advantage for NVOCCs by exempting them from liability under 46 USC 41104 A3. So that's A3. While at the same time creating a situation that is detrimental to commerce by denying the NVOCC's customer a meaningful remedy for an NVOCC's violation of A3. And I'm shortening these right A3. World Shipping Council stated that this would violate 486 USC 40103A's standard, that the commission may only grant an exemption if it finds that the exemption would not result in a substantial reduction in competition or be detrimental to commerce.
Speaker 1:World Shipping Council also asserted that it is important to include NVOCCs within the scope of the rule as a practical matter as well as a legal matter, because NVOCCs control cargo space accommodations. World Shipping Council argued that NVOCCs, like VOCCs, can face situations in which the space available to them is exceeded by customer demand or is limited by safety, weight stability or other operational factors. And that's where the Coast Guard piece comes in right those transportation factors, safety, weight stability. World Shipping Council said that in such a situation, the NBOCC will have to decide which of its customers' containers are booked on that vessel and which are not. So that's all the FMC kind of highlighting the comments, and then they continue this last little section.
Speaker 1:By contrast, the National Customs Broker and Forwarders Association of America, ncbfaa, commented the rules exclusions of NVOCCs. Fmc's response World Shipping Council is correct that 46 USC A3 applies to both VOCCs and NVOCCs. They say the FMC says this rule, however, only applies to VOCCs. The NPRM was limited to the OSBRA 2022 amendments to 46 USC A-10, which is statutorily limited in scope to VOCCs, because the Shipping Act defines an ocean common carrier as a vessel operating common carrier. So they're saying, because Congress only told them to go for A-10, even though they're expanding it into A3, they kept it limited in the A10 discussion of that ocean common carrier. So they continue on.
Speaker 1:This is the FMC's kind of response to that comment. The SNPRM, the Supplemental Notice of Proposal making it here to this exclusion, despite the expansion of the proposal to also address A3, to mirror the scope of the affected population of the NPRM. So they're saying, look, the FMC kept it, or the A3, they kept it tight on VOCC to mirror the affected population of the notice of proposed roaming. The limitation in scope of this rule, the VOCCs, however, does not in any way limit the scope of A3. And VOCCs are legally liable under A3 for unreasonably refusing cargo space accommodations. And they're saying, look, we discussed that. So that's their explanation. For even though it's limited to VOCCs, the rules where they do are still applicable outside of the VOCCs that are just covered in this rule.
Speaker 1:And I, like I said at the beginning, if you have to get that specific with the explanation, I think that that's fodder for a larger conversation which potentially could be a filing of some sort of a challenge to this. But I don't know, we'll see. This is, I mean, fresh off the presses. It's only been out for what? Two weeks, now a week. So this will be really interesting to see kind of what the trade press, how it digests it.
Speaker 1:I think that it's really important for the supply chain society to pay attention to this one, because there are some potentially larger than normal gray areas where the FMC really gets to decide the nuances. They say case-by-case basis, but we don't really have a lot of. We do have precedent, but in these specific areas I think that it's creating a new world and so, anytime you don't really have a lot of guidance other than these non-binding examples I mean the FMC. This was always going to be tricky and they said that from the get-go. I think that it remains a tricky thing. So we'll see.
Speaker 1:I, I, you know it's a. It's a start, um, it's a start of the conversation. This is the final rule. It's going to be going into effect in September. Um, we have 60 days from when it was released, so we'll see what happens over the next less than 60 days Now. Um, as always though I can't say this enough the guidance here is general, for educational purposes. It should not be construed to be legal advice directly related to your matter. The discussion is general, educational purposes only. If you need an attorney, contact an attorney, but if you have specific legal questions, feel free to reach out to me at. Let Me Legal Companies Call Strategies Otherwise. For the non-legal questions, the e-learning and the general industry information and insights. Come find me at the Maritime Professor.
Speaker 1:A little bit of a programming note.
Speaker 1:We are going to be taking a summer break, which we normally do, which we usually do earlier than now that it's August 2nd. We're going to be returning September 27th, so we'll see you in just over a month. But if you like these videos, let me know, comment, like and share. If you want to listen to these episodes on demand or if you missed any previous episodes, or if in the next month or so you miss me, go find by Land and by Sea on wherever you get your podcasts. If you prefer to see the video, they live on my YouTube page by Land and by Sea, presented by the Maritime Professor and, while you're at it, check out the website Maritime Professor. So until next week. Actually, I should take that back until September 27th. This is Lauren Began, maritime Professor, and you've just listened to by Land and by Sea. When we come back, we're going to dive further into this. We're probably going to have a lot more digestion of this rule into the industry and we'll be able to talk a lot more about it. See you next time.