Just as non-vessel-operating common carriers got their first chance to offer customers contracts with confidential rates, the new Federal Maritime Commission NVO "service arrangement" rule has taken a turn back into the legal jungle.
Two groups representing shippers associations have petitioned the FMC to reconsider its NVO "service arrangement" rule, and halt any contracting that has taken place. They also asked the U.S. Court of Appeals for the District of Columbia to review the rule.
The worst-case scenario is that NVOs with contracts in hand may find them nullified by the FMC or the court, but the rule is also getting strong support from the NVOs and trade groups that urged the commission to pass it. Nor is the FMC likely to back down. Attorneys said the shippers associations do not oppose the idea of NVO contracts, but they are angry at being excluded by a portion of the rule that prohibits contracts between NVOs, or between NVOs and associations with NVO members.
"By this restriction, the commission has deprived small NVOS and their shippers associations of the benefits of this rule. They don't have the volume or mass of shipments to deal directly with vessel operators," said Alan F. Wohlstetter, who represents the International Shippers' Association, a group of household-goods shippers. "If the shipper is an NVOCC, then he can't do this. We're saying it is wrong and discriminatory to have transportation rates, terms and conditions vary with the identification of the shipper."
Wohlstetter argued that the FMC lacked the authority to exempt NVOs from the 1984 Shipping Act's requirement to maintain tariffs. He said the FMC also exceeded its authority under the Administrative Procedure Act. The court of appeals, which has jurisdiction over federal agencies, can overturn the rule if it determines that the FMC acted in an arbitrary and capricious manner.
"We support the process and the FMC's basic decision, but we sure don't want to see shippers associations taken out of the loop," said Ronald Cobert, general counsel for the American Institute of Shippers' Associations. He said it doesn't make sense that the commission would prohibit NVOs from working in concert, because rules for co-loading containers have been on the books for years. "Twenty years ago, the FMC told us shippers associations could and should have NVOs as members. Now they're basically backpedaling and to an extent taking away a position they had for many years."
Shippers associations exist to negotiate ocean service contract on behalf of their members. Their worst fear is losing shipper-members by having them picked off by NVOs that can offer better terms.
When the FMC proposed its rule last October, it said that allowing two NVOs to enter a service agreement could give them antitrust immunity, which is still the sole province of vessel operators. Commission attorneys cited court precedents to back up their assertion. Critics said the cases the FMC cited had no bearing on NVOs.
"The rule did not allow this because under judicial precedent, it would have provided antitrust immunity to concerted NVOCC activity, and would thus have reduced competition in the industry. This result would be contrary to the commission's statutory exemption authority," said Amy Larson, FMC general counsel. "The two petitions do not appear to present any new information or circumstances that could justify reconsideration of the commission's rule.
Larson said that when the commission approved the rule, it said it would continue to monitor it, and see if there were ways to accommodate or address concerns of shippers associations.
A coalition of NVOs and trade groups has lined up in support of the commission. The group is composed of UPS, BAX Global, FedEx, C.H. Robinson Worldwide, BDP International, the National Industrial Transportation League and the Transportation Intermediaries Association. After they filed individual petitions with the FMC in 2003 and 2004, several members of the group worked out a compromise that became the basis for the FMC's rule.
The shippers association attorneys said that the FMC's problem with NVOs contracting with NVOs could be solved without scrapping the entire rule. Wohlstetter said that any service agreement could certify that it did not restrict competition.