On February 18, 2010, by a vote of 3 to 1 the Federal Maritime Commission has voted to initiate a proposed Rulemaking Proceeding that would permit Licensed NVOCCs to opt out of having to file Tariff rates they charge for transporting cargo.  Instead each Licensed NVOCC would be permitted to institute a rate quote system in which the NVOCC would negotiate rates with each customer and then create a written memorialized record of the agreed upon rate quote.  In the motion instructing the FMC staff to prepare the proposed Rulemaking Proceeding, the Commission specified that the exemption and implementing regulations should include certain provisions and restrictions which we have outlined below.  Please keep in mind that this is only the first stage.  Once the proposed rules are written and accepted by the Commission, all interested parties will be invited to file comments to add, amend or revise the proposed rules.  We strongly recommend that every NVOCC monitor this proceeding closely and comment extensively if they believe the regulations need to be clarified or amended.  No NVOCC should assume that another party will ask the Commission to make the new regulations more favorable to their own operations.  Each NVOCC should view this as an occasion to influence the Commission’s final decision as there will not be another opportunity like this again.

The approved motion to prepare the proposed Rulemaking Proceeding contains the following instructions:

1. The Commission specifically instructed the FMC staff to construct the proposed new exemption and implementing regulations in such a way as to make it clear that the new regulations are voluntary not compulsory.  NVOCCs would still be free to publish their rates under the currently effective Tariff filing regulations if they wish.  This would mean that each NVOCC will have three options to ensure compliance with the rate filing requirements of the Shipping Act: 1) publish rates in an on-line web based Tariff as done now, 2) publish rates in a NVOCC Service Arrangement (Service Contract), or 3) memorialize rates in a formal rate quote system under the proposed new exemption and regulations.

2. The Commission’s instructions clearly state that this exemption and new regulations apply ONLY to Licensed NVOCCs.  Since the term “Licensed” is clearly defined in existing regulations, it would appear that foreign based NVOCCs who do not possess a license would be barred from being able to take advantage of this exemption.  RateWave hopes that this will be fully clarified when the initial exemption and implementing rules are published.

3. Additionally the Commission’s instructions to their staff make it clear that this exemption and the new regulations are limited to rates ONLY.  Any NVOCC opting into this exemption will still be required to file a Rules Tariff that complies in all respects with the current Shipping Act and FMC Tariff Publishing regulations.  Please note that this apparently means the exemption will NOT apply to the publication of surcharges or additional charges within the memorialized rate quotes.  It other words, such surcharges and additional charges will need to be published in a Rule format within the Carrier’s Rules Tariff, subject to all current Shipping Act and FMC Tariff posting requirements (including the requirement to file increases on 30 days).  We are not certain as to how this would work if the NVOCC wishes to use this exemption to quote rates that are subject to surcharges that are different than the NVOCC’s standard Tariff surcharges.  This would appear to indicate that rates subject to special surcharges would have to be quoted as a lump sum inclusive of all such charges.  In effect, RateWave believes that this may mean that if a NVOCC invoices surcharges or other additional charges as separate line items on a rated Bill of Lading or freight invoice, those surcharges will have to be published in a Tariff Rule and cannot be simply listed as a separate line item in a memorialized rate quote.  This issue will need to be clarified in the final rules.

4.  Finally, the Commission has instructed their staff to make clear that the exemption and new regulations will specifically allow NVOCCs to provide new or amended rate quotes to Shippers without regard to the 30 day notice requirement when increasing or canceling rates since they have instructed them to exempt such rate quotes from Section 8(d) of the Act.

Once the new exemption and implementing regulations go into effect, any NVOCC who decides to avail  themselves of this new exemption will need to comply with all the implementing regulations governing the exemption in order to insure relief from the Sections of the Shipping Act requiring the filing of, and adherence to, Tariff rates.  The Commission has instructed their staff to write the new regulations to include the following provisions:

1. The NVOCC must publish in a “prominent place within the Rules Tariff that the NVOCC has chosen to operate under the exemption and opt out of publishing tariff rates.”  RateWave believes this can be easily accomplished by publishing a notice on the “Table of Contents” page of the Rules Tariff of any NVOCC who has opted to use this new exemption.   We would hope that the new regulations will make clear if by opting into the exemption, the NVOCC is then prohibited from filing regular Tariff rates.  In other words will this be an all or nothing decision?  Will each NVOCC be free to utilize the rate filing exemption for some shippers and then utilize regular Tariff filed rates for others?  Can a NVOCC use the exemption for its FCL business, but still utilize the Tariff rate system for its LCL business?  Or could the NVOCC decide that in some smaller trades it would make more sense to utilize the tariff filed rates system while for the bulk of its business they could utilize the new exemption rate quoting system?  These are questions that we hope will be clarified after the comment period.

2. If an NVOCC opts into the exemption, the NVOCC’s filed Rules Tariff must be made available to all parties free of charge.  This would mean the Rules Tariff would be available to all Shippers, VOCCs and competing NVOCCs as well as the FMC staff without any restriction as to time or usage.  The Commission has stated that possibly in lieu of free access to its Rule Tariff, the NVOCC would be required to provide a complete copy of the Rules Tariff with each new or amended written memorialized rate quote or proposal.  Once again we suspect that this will be an all or nothing provision: either the Tariff is available free of charge to all, or the entire Tariff must be sent with each and every rate quote provided to every Shipper.

3. If an NVOCC opts into the exemption, every unpublished rate quote/arrangement must be agreed to and then “memorialized” in writing.  Such written memorialization must include the rate applicable for each shipment and be in writing and in effect by the date the cargo is received by the NVOCC or its agent (including the date the cargo is received by any inland originating carrier).  Since the exemption will include an exemption from the requirement to file increases on 30 days notice, RateWave would assume that every time the NVOCC and the Shipper agree to a new rate, a rate reduction or a rate increase to an existing unpublished rate quote, a new written memorialized rate arrangement/quote must be prepared and sent to the Shipper and whomever will be maintaining the rate quote document as required by paragraph 4 below.  Further, we believe that in order to protect its interests, each NVOCC that opts into this exemption should design some method to insure that it can prove the written rate memorialized arrangement/quote has been actually received by the Shipper.  Without such proof, a Shipper could demand that the amount of an increase (such as a General Rate Increase) be refunded, since he “did not receive any written notice of the increase.”  Finally each written memorialization of the rate agreed to and sent to a Shipper must include either a copy of the entire Rules Tariff or must include a prominent notice within the quote of the existence and location of the NVOCC’s Rule Tariff.

      The proposed new implementing Rules will also request commentators to: a) specify what elements and additional terms should be required to be in the written memorialization, b) whether such condition should include the definition of a “rate” which must be consistent with 46 CFR 520.2 (which now reads: Rate means a price stated in a tariff for providing a specified level of transportation service for a stated cargo quantity, from origin to destination, on and after a stated effective date or within a defined time frame.) and c) whether the unpublished rate memorialization quote should be required to contain a “safe harbor” status statement that will “afford the presumption that the corresponding shipment is not subject to the Tariff rate publication requirement.”

4. Finally, if an NVOCC opts into the exemption, the new implementing regulations will require that the NVOCC must keep every unpublished rate written memorialized arrangement/quote and associated communications for a minimum of 5 years.  Such records would also be subject to the OTI records availability requirement found in 46 CFR 515.31(g).

This new exemption and implementing regulations could significantly affect how an NVOCC will conduct business as well as saving NVOCCs Tariff publishing costs.  We believe every NVOCC will need to seriously think through exactly how they need to modify their business practices to comply with this exemption once the final regulations go into effect.  Additionally, once again we are recommending that when the initial proposed rules are released, every NVOCC review them carefully and then provide comments directly to the FMC on issues they believe need to be clarified or addressed.  If the FMC does not hear about a particular NVOCC’s concern, they will assume the regulations are clear and concise on that issue and do not need to be amended or altered, leaving issues that could seriously impact how a NVOCC is able to utilize this new exemption unresolved or worse, forcing the NVOCC to completely restructure their business practices.  We have already mentioned a number of concerns and areas that we believe need to be addressed above.  RateWave will be providing comments to the FMC requesting clarification on these and other issues that may arise, but we would hope that no NVOCC will simply assume another party will address their individual issues.

Please be assured that RateWave will notify all our Clients the moment the proposed Rulemaking  exempting NVOCCs from posting rate filings in their on-line web Tariffs are issued by the FMC and we will provide a direct link to the proposed new regulations through our web site.  In the meantime please keep in mind that all current Tariff publishing requirements remain in effect and we believe the FMC’s Bureau of Enforcement will be monitoring the situation to insure that no NVOCC “jumps the gun” by deciding to ignore rate filings immediately.

As always please feel free to contact us to discuss any issues or questions you may have.

The views and opinions expressed in this notice are the property of RateWave Tariff Services, Inc. and its management.  They are not for citation, quotation or reproduction without the express permission of the authors.