By Land and By Sea
By Land and By Sea
S4.E3 - Petition Filed against FMC's Final Rule on Unreasonable Refusal to Deal or Negotiate w/r/t/ Vessel Space Accommodations
Topic of the Week (10/11/24):
A petition has been filed against the FMC's Final Rule on Unreasonable Refusal to Deal or Negotiate - let's talk about it.
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- FMC Rulemaking Roundup
2 - FMC Press Release: Prohibition on Retaliation Against Shippers, Ocean Transportation Intermediaries, and Motor Carriers
https://www.fmc.gov/articles/prohibition-on-retaliation-against-shippers-ocean-transportation-intermediaries-and-motor-carriers/
3 – FMC's welcome two new ALJ's on detail to the FMC
https://www.fmc.gov/articles/fmc-adding-two-administrative-law-judges-on-temporary-basis/
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** 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 podcast. If you need an attorney, contact an attorney. **
#ByLandAndBySea
I got soul coming through, flying free skies are blue. All the waves it makes a room. I got soul coming through, won't stop feel the beat. And on top of the world, free skies. A few weeks ago, we discussed the Federal Maritime Commission's new final rule on defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations. Weeks ago, we discussed the Federal Maritime Commission's new final rule on defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations and at the time I said I would be surprised if it didn't find itself facing a challenge. Well folks, it has been challenged and I'm sorry I missed it last week, but let's talk about it.
Speaker 1:Hi, welcome to, by Land and by Sea, an attorney breaking down the weakened 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 considered 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 as we often do, we're just checking in on the rulemakings.
Speaker 1:Today, obviously, the main topic is the rulemaking, but let's check in on all of them just to make sure that we're all on the same page. So, as we know, the billing practices of detention to merge went into effect on May 28. There is still an outstanding petition on this as well, but as far as we know, the billing practices of detention to merge is in effect. The FMC has said so and there it is. So I've been hearing some different stories about the implementation and I guess the the how it's going in the in the wild out there, how this the implementation of this rule and how it's been working. But I'm interested to hear more. Certainly, if you have some thoughts on this rule, put them in the chat, let's. Let's hear if you like it. If you don't like it, obviously don't release any personal information or specific information. This is not an attorney-client privilege relationship from this podcast, but I'm just interested. Do you like the rule as it's been kind of in the wild now for about oh gosh, about six months, almost six months.
Speaker 1:I'm interested to hear your perception on that, as we're going to be talking about today defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations provided by an ocean common carrier. This rule closed July 2023, and it was released this year, this summer, actually as a final rule, and so it was set to go into effect September 23rd. That's what it did. It went into effect. We're going to talk about that a little bit more, though, because it finds itself up against a petition. The last rule of the three that, under the OSRA 22 that the FMC had to undertake, was the defining unfair or unjustly discriminatory methods. Now this one we're still waiting on standalone language. The FMC has said that they included some of this in that unreasonable refusal to negotiate language. We certainly saw that, but they've also mentioned at a few of their hearings that they were still intending to have this be a standalone rule. If we're going to see this as a standalone, or if they fully felt complete with their assessment through their unreasonable physical deal and negotiate rule, but this one, we haven't seen a standalone rulemaking on it. I know that it was being or at least that they were saying it was being independently reviewed and kind of assessed, independent of this unreasonable physical deal and negotiate. It certainly got folded in but still waiting to see if they were going to release this separately.
Speaker 1:We've also been watching the Maritime Transportation Data Initiative this is the MTDI initiative out of Commissioner Carl Benzel's office. We talked to him a little bit about this when we did that interview, remember over the summer with Commissioner Benzel, this one. He's mentioned that there might be another request for information coming out. Remember they had an RFI number two come out. There's been talk, especially with the National Shipper Advisory Advisory Committee, the NSAC. He mentioned that they were hoping to bring about an RFI number three or potentially they were considering it. So still watching for that.
Speaker 1:All right, story number two. So the FMC continues. All right, story number two. So the FMC continues to be active in its messaging to the shipping community and released a press release on October 8th. Now, this press release was interesting because, as we talked about last week, they had some preemptive announcements saying basically all of the statutes and regulations were still in effect leading up to the port strike. This one, notably, came after the port strike concluded. So this press release was made on October 8th. The title was Prohibition on Retaliation Against Shippers, ocean Transportation Intermediaries and Motor Carriers. So of course, right, they're reinforcing that there is a prohibition on retaliation against shippers, otis and motor carriers.
Speaker 1:But, right, the background here. This is obviously connected or it felt like it was connected to the post interim agreement of the US Maritime Alliance and the ILA and perhaps part of the immediate cleanup happening post-strike. Right. So the language of the alert. It said in light of the significant supply chain challenges currently facing the freight delivery system. Right, that was the supply chain challenges. Was the port strike? Right?
Speaker 1:The FMC now emphasizes that retaliation against a shipper, oti or motor carrier for questioning common carrier or MTO, invoicing, surcharges or other practices, or making a complaint and or providing information to the agency, is a serious violation of the law that carries significant penalties. So they're saying look, if you retaliate there and they're making this very clear, that they are saying this to the common carriers and the MTOs if you retaliate against a shipper, oti or motor carrier for questioning an invoice, surcharge or other practice, or making a complaint, they're saying that's a serious violation of the law and carries significant penalties. The announcement continues on. The FMC will actively pursue any allegation of retaliatory conduct and will offer and will hold offending parties fully accountable. So this is interesting because it really is of course right. Retaliation is something that I think is clearly. A prohibition of retaliation is like a of course right.
Speaker 1:But the fact that the FMC is leaning in with such strong language here they certainly have had strong messaging toward ocean carriers recently right With the not so thinly veiled messaging about the Gemini cooperation, saying we're still watching you, even though they didn't file an injunction against it. They said we, we're still concerned, we're still watching you. And then now this saying we are definitely watching you, make sure that you are not retaliating against shippers, otis and motor carriers. I mean it almost feels accusatory and I know that the messaging really is trying to be preventative perhaps, and perhaps saying again, we're watching you. I don't think that they're necessarily accusing this of happening, but they're saying look, it's been alleged in the past and we want to make sure that it doesn't happen going forward. All of this to say it's a very active messaging, right.
Speaker 1:I think that the FMC, where previous years may have been a little bit more neutral in its messaging, this, feels a little more active. This feels like don't worry, shippers, we're watching for you. This is a little bit of a dangerous place, I think, for the FMC to continue to move into, because they are neutral, right, I mean their overall mission is for the benefit of the US importer, exporter and consumer and so arguably right, that's kind of the shipper's side of it. But also, I mean they're flag neutral. They are an independent regulatory agency. They're supposed to be reviewing violations of the Shipping Act and kind of staying in that neutral competition place. And I think that it's important that they remain seen as a fair, neutral. And I only say that because I don't think that they've moved over into unfair, non-neutral yet, but the messaging is just getting aggressive. And so something to watch, something I've noticed. Maybe they're not going into the wrong side of things yet, but it's just something to watch and something that I've been noticing.
Speaker 1:So, continuing on, in the alert here it says the commission calls attention to the rule on demurrage and detention billing, which went into effect on May 28th 2024, that requires common carriers and MTO, when invoicing for demurrage or detention, to provide invoices that contain sufficient information to enable the billed party to readily identify a contact to whom they may direct questions or concerns related to the invoice and understand the process to request fee mitigation, refund or waiver. Invoices that do not contain this information need not be paid and the FMC will vigorously investigate any allegations of retaliation connected to the right of parties' invoice for demergent detention charges to raise questions or concerns with common carriers or MTOs. So they're pointing out that invoices have to contain sufficient information to enable the build party to readily identify a contact to whom they may. The billed party is receiving an invoice and they can't, through sufficient information, figure out who to contact or how to go forward with a fee mitigation request for fee mitigation, refund or waiver, and the FMC is saying you don't have to pay it. Invoices that do not contain this information need not be paid. Like I always stop here when we talk about this, make sure, make absolutely sure, that you don't have to pay before you start not paying invoices.
Speaker 1:None of this is legal advice. Certainly, and I just caution not paying. They say need not be paid in the announcement and I think that that's I. I would be I'm cautious with that language right? I think that it provides an opportunity for later for you to say oh, this invoice didn't need to be paid and so it certainly provides justification for, if you're corrected through the ultimate process, um, getting paid back, and certainly it's easier to get a waiver than it is payback perhaps.
Speaker 1:But the bigger picture here and this isn't legal advice, but the bigger picture here is, if you're not paying an invoice, just be really careful, because you want to make sure that you are correct, because if you're not paying that invoice it might affect your other shipments. You don't want to find yourself in a delinquency state and perhaps that might go to the retaliatory side of things. All of these things are kind of yet to be seen, but my point here is just make sure you're absolutely sure before you don't pay invoices. I really suggest that you contact an attorney in these situations so that you don't accidentally maybe make things worse. But again, not legal advice If you need an attorney, contact an attorney.
Speaker 1:But it's interesting because I think that this is an interesting announcement out of the FMC. Certainly they're concerned about the ability to challenge fees, surcharges, detention merge, right. They're saying this is part of the D&D rule. So this is as related to D&D invoices. But just interesting and the way that they messaged it. I mean that's why I'm here, right To kind of break this down and chat through it. We don't have the FMC on the line to ask them what did you mean when you said all this? But that's why I'm here just trying to give you my take on how I read it. But it's also one of those. Of course they would say right, of course they would make an announcement saying prohibition on retaliation. It's just the way that they said. It is a little bit more targeted, and certainly pointing out the right to challenge is an interesting thing. So, yeah, we'll just we'll keep watching that. All right. Story. Number three Last story is also from the Federal Maritime Commission, and this is just another kind of a.
Speaker 1:This happened and I wanted to bring it to your attention. They announced on that same day, october 8th, that they would be adding two administrative law judges on a temporary basis, so they've secured a temporary detail of Judge Richard Ambrose. He's an administrative law judge of the US Department of Health and Human Services Office of the Medicare Hearings and Appeals, but he's recently been detailed to the US Small Business Administration's Office of Hearing and Appeals since 2022. So he should provide some interesting perspective. I think that their caseload is quite large, and so they certainly need the extra assistance. They're also bringing on a second ALJ. It's Judge Mary Hervey. She served as a supervisory administrative law judge and also served more than two decades as a trial attorney for the Department of Justice's tax division. So also I can imagine that makes her really good at diving into details and certainly not afraid of numbers, which, if we are going to be having more invoice challenges, as the previous announcement may suggest, perhaps her experience with the tax division will well suit her for that. So these are the administrative law judges and so they're kind of the first stop for formal filings at the FMC. Right that goes to the ALJ and that's where we find these initial decisions and then ultimately final decision if allowed to go through or not, sua sponte reviewed by the FMC. We've talked a little bit about that kind of administrative procedure of the FMC and how kind of cases go through, but that's where they come in the administrative law judges.
Speaker 1:The announcement actually continues on to say that the commission has experienced a significant increase of cases filed with its Office of Administrative Law Judges, many involving disputes emanating from the pandemic era supply chain disruption. Adding two additional judges will permit the Office of Administrative Law Judge to ensure timely adjudication of the record number of pending proceedings. As you know, cases take a long time. They certainly take a long time at the FMC, as we've talked about many times. They have a very limited number of employees. In general right, they are probably right around the well. They teeter anywhere from 130 to 150, 160, I think, is what they're trying to get up to. 150, 160, that's not many people to be regulating, to be the independent regulatory agency for global ocean shipping as it relates to the US. So really, really interesting that they're including two additional administrative law judges. Hopefully that can help them scoot through their docketed cases a little faster. I mean, they're only getting more complicated as the FMC has gained more attention. They certainly have gained more awareness over the ability to file with the FMC for these cases that pertain to violations of the Shipping Act. Now I think that that will be an interesting piece to see the jurisdictional issues that come through from here as well.
Speaker 1:So let's get into the meat and potatoes of the day. We don't have a ton to cover here, but I did want to bring up. So, as we know, the FMC released their final rule on the definition of unreasonable refusal to negotiate with respect to vessel space accommodations provided by an ocean common carrier. They released that on July 23rd. Earlier this summer. The final rule, as we know, went into effect September 23rd. That was 60 days from publication in the Federal Register and I wasn't sure. But I thought when we first started talking about this after it was released in July, that I was expecting a petition and I hadn't seen one, because I really, you know, there was a lot going on the past few weeks. I would have expected the FMC to have announced that a petition had been filed, but also, I guess I'm not surprised that they didn't either. But yeah, it was filed in the Court of Appeals for the DC Circuit.
Speaker 1:So what's going on here? What's the petition? So on September 13th, right 10 days before that rule was set to go into effect, the World Shipping Council filed a petition for review. Now this is the same group, right World Shipping Council, that filed a petition against the detention to merge rule and I think that it's a good. I mean petitions are good, I think, in general because they're helping to fine tune some of the points of some of these rules and certainly in a post-Chevron deference world, because Chevron deference was overturned, the agency is seen with less automatic deference. And I say automatic, cautiously, right, and this is kind of a. We're not going to get into the legal specifics here, but previously Chevron deference gave a lot of deference to the agency. Now the court kind of retains that deference to factor in the agency and it all has to go down. It all goes back to congressional intent and that sort of thing. But all that to say that petitions, I think, hold a little more weight now because the court will be looking at them through a kind of more interested lens. So yeah, so this petition, as the, as you know, the petition against the detention demurrage rule, is ongoing. This petition is now ongoing and getting started really really, because it was only initiated about a month ago.
Speaker 1:The petitioner, the World Shipping Council, challenged the final rule on the grounds that it exceeded the FMC's authority under the Shipping Act and that it is arbitrary, capricious, an abuse of discretion and otherwise not in accordance with the law. And so the petitioner, the World Shipping Council, said that they respectfully petitioned the court for an order vacating the final rule. So that doesn't tell us a whole lot on the specific reasons. When the D and D petition came out, the world shipping council put a little announcement on their own website. I didn't look too far, but I didn't see it in their announcements that they had anything to say about this petition. Necessarily not to say that it's not there, um, but I just haven't seen anything on that. But in the briefing schedule on the docket for this case, this petition it said that the World Shipping Council has to provide a statement of issues to be raised by October 16th, and so we'll likely know more, hopefully next week.
Speaker 1:So let's recap what's in the rule again, right? Why did I think that the FMC was likely to see this challenged as a petition? Well, they were charged to do this by the Ocean Shipping Reform Act of 2022. They were told to initiate a rulemaking defining unreasonable if we were to deal or negotiate with respect to vessel space under section 4-1104A10 of Title 46. So that was A10. They were supposed to be defining a common carrier, either alone or in conjunction with any other person, directly or indirectly, shall not and here's 10, unreasonasonably refuse cargo space accommodations when available or resort to any other unfair or unjust or discriminatory methods. And this is where we get that folded in. Of the third rulemaking requirement under OSRA 22. Of the third rulemaking requirement under OSRA 22.
Speaker 1:So the final rule describes how the commission and this is kind of a summary of what they said in their intro right of the final rule announcement the final rule describes how the commission will consider private party adjudications and agency-initiated enforcement cases in which violations are raised relating to these two sections right, unreasonable refusal to provide cargo space accommodations and or refusals to deal by ocean common carriers. In the summary they say it considers the common carriage roots of the Shipping Act as well as the overall competition basis of the Commission's authority. So they kind of go back to intent of the Shipping Act and they looked at the competition basis for the authority. They said that they looked at future cases. Well, they said in part of the summary, future cases that allege violations of A3 or A10 will be factually driven and determined on a case-by-case basis. But they also said the framework established by this final rule is taken from commission precedent on refusal to deal cases generally and on suggestions offered by commenters in the notice of proposed Rulemaking, the NPRM or the Supplemental Notice of Proposed Rulemaking. Remember this was open twice for comments, for notice and comment period. They continue on to say this rule ensures that shippers can readily discern when a carrier has acted outside the bounds of reasonableness and know what type of claim under A3 or A10 to bring before the commission.
Speaker 1:It's that last part that I think is problematic. They included non-binding examples of conduct and while it may not be prohibited, it's the actual examples, right? These non-binding examples that raised an eyebrow for me and it's just too a little familiar. So, like I said, I expected a petition on this. So here's the non-binding examples of unreasonable conduct Under A3, it was blank sailings or scheduled changes with no advance notice or with insufficient advance notice. It was vessel capacity limitations not justified by legitimate transportation factors. It was 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. Scheduling insufficient time for cargo tendering or vessel loading so that cargo is constructively refused. Providing inaccurate or unreliable vessel information or the de facto, absolute or systemic exclusion of exports and providing cargo space accommodations. The non-binding examples of unreasonable conduct for A-10 refusal to deal or is one quoting rates that are so far above current market rates they cannot be considered a good faith offer or an attempt at engaging in good faith negotiations or the de facto, absolute, systemic exclusion of exports and providing vessel space accommodations.
Speaker 1:Here that talks about using sweeper vessels. So ocean common carriers are not precluded from using sweeper vessels previously designated for that purpose to reposition empty containers, because that's what sweeper vessels do they reposition empty containers. 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 here's some of the problems that I see right, and we'll see how this all plays out. But the FMC doesn't get into rates, right? They're not supposed to be getting into specific rates or certainly not supposed to be setting rates, and I don't think that they are. But they are saying they will determine if a rate is unreasonable and I think a benefit of this petition will be having the FMC further define the delineation point rate right, the difference between defining whether a rate is reasonable or unreasonable, but not getting into the business of setting rates. It's a fine point and certainly there's a difference. But I'd like to hear that specific difference and I think it warrants a challenge to make sure that the precision is being applied. You know there's another part of this rule.
Speaker 1:The documented export policy requires an export policy to be filed with the FMC. It says ocean common carriers must file with the FMC a documented export policy that enables the timely and efficient movement of export cargo. 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, the effect of blank sailings or other scheduled disruptions on the ocean common carrier's ability to accept shipments.
Speaker 1:The ocean common carrier's rules and practices for the designation and use of sweeper vessels. I'm not going to go through all of these, but I mean already you can tell that these are very operationally based right, and so I think that this also warrants a challenged discussion. And they certainly talked about it as they announced this rule, and Chairman Maffei said that this was a particularly difficult rule because it was important to get it right, not get it fast right, and they were supposed to have this out within six months of ASRA 22. Unfortunately, they weren't able to get it out then, but Chairman Dan Maffei said it was more important to get it right than get it fast. And I think that they took their time because as they dove into this defining unreasonable, physical, to negotiate, it's that defining reasonable or unreasonable. That was really a nuanced conversation. Also, the sweeper vessels right, sure, extreme examples are going to be easy to spot, but this is operational at its core and perhaps this is a new area that the FMC is kind of entering into. I, you know, I I don't know, we'll see.
Speaker 1:I don't think that they want to necessarily get into, don't think that they want to necessarily get into mandating operational level movements, but on the other hand, they really want to try to capture the unreasonable action right, the providing a base so that they can go after when it becomes so egregious or, so you know, wild, that of course it's unreasonable and I think that's what they're trying to capture here. They're trying to figure out how can we capture this unreasonable refusal to deal or negotiate because somebody is claiming sweeper vessel when it really wasn't a sweeper vessel. How do they capture that? But the problem is when they start to get into the specific delineation right, the maneuver between when you're getting into setting rates for reasonable or unreasonable, versus operational stuff, versus just the wildly, as anybody probably looking at it would think oh gosh, well, that's unreasonable. That's, I think, what they're really trying to capture here and I think that it's fine that it's challenged. I think that it's good that it's challenged because this is going to need to be precise, and so I'm interested to see what the FMC comes back with. I think they obviously had a headstart by making sure that they had a very thorough discussion in their final rule, and that's why they had the two comment periods to make sure that they had support for whichever way they wanted to go from the industry and also industry input. They wanted to know that they were on the right track. But this is going to be interesting, not unexpected that we're here.
Speaker 1:I was so surprised that I couldn't find a petition. I should have just gone straight to the DC Circuit on that, and there it is. So, as always, the guidance here is general for educational purposes. It should not be legal advice directly related to your matter. You need an attorney, contact an attorney, but if you do have specific legal questions, feel free to reach out to me at my legal company, squall Strategies. Otherwise, for the non-legal questions e-learning and industry information and insights. Come find me at the Maritime Professor. 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, check out the podcast by Landon by Sea. If you prefer to see the video, they live on my YouTube page by Landon by Sea, presented by the Maritime Professor. And, while you're at it, check out the website, the Maritime Professor. So until next week, this is Lauren Began, the Maritime Professor, and you've just listened to by Landon by Sea. See you next time.