10 Key Points in New NVOCC Tariff Regulations

10 Key Points in New NVOCC Tariff Regulations

The Federal Maritime Commission’s new rules on NVOCC Negotiated Rate Arrangements, which will become effective on April 18, establish a new pricing option for licensed NVOCCs that is sure to be popular. An NRA is an agreement between an NVOCC and a shipper for one or more shipments of a specific cargo quantity over a designated period of time. NRAs must be effectuated by an agreement between the NVOCC and the shipper (including other NVOCCs) and may cover affiliates of the shipper. The NRA must be agreed before the NVOCC receives any shipments under the NRA.

Each NRA stands on its own, and can be valid for any time period agreed to by the NVOCC and shipper. NRAs will not be required to be filed with the FMC. The NVOCC will be required to retain the documents that make up an NRA for a period of five years after completion of each shipment under the NRA.

When an NVOCC enters into an NRA with its shipper customer, the NVOCC is exempted from the requirement of publishing rates in its rate tariff for the shipments moving under the NRA. This will eliminate many of the inconveniences and constraints in publishing and maintaining tariff rates and may provide cost savings; however, the FMC will require NVOCCs to satisfy several conditions set forth in this new rule.

Here is a quick do and don’t list for NVOCCs who want to utilize the new NRA option.

1. Do read and make sure you fully understand the new regulations. The FMC’s final rule is 42 pages, but most of this is background and commentary. The new regulations are just four short pages at the end of the rule. They will become part of the Code of Federal Regulations (CFR), Title 46, Part 532. The new regulations define the elements required in each NRA, and specify the recordkeeping and FMC audit requirements. Also, one paragraph is added to the existing tariff regulations (46 CFR Part 520) to create the “exemption” NVOCCs will rely upon when they move shipments under NRAs instead of tariff rates.

2. Do amend or instruct your tariff publisher to amend your tariff rules on or after April 18, 2011 to officially “invoke the exemption” and thereby authorize your company to begin utilizing NRAs.

3. Do amend the formats you have used in the past for rate quotations to include details required by the FMC to qualify as a valid NRA, including the legal name of the shipper, its office address, the quantity of cargo to be shipped, the freight rate, service to be provided and the validity dates of the rates. The NRA also must direct shippers to the Web site where the tariff rules governing the NRA are maintained. The NRA can provide an all-inclusive rate, or it can be subject to surcharges in its governing rules tariff as of the effective date of the NRA; but be careful because subsequent changes to surcharges cannot lawfully be applied to an existing NRA.

4. Do be sure to get shipper’s acceptance in writing for each NRA. The name and title of the person accepting the NRA for the shipper is required. Ideally, each NRA must be constituted with an offer by the NVOCC and an acceptance by the shipper.

5. Do establish procedures to ensure your company complies with the FMC’s recordkeeping and audit requirements for NRAs. The FMC requires retention of the “original NRAs and all associated records, including written communications, in an organized, readily accessible or retrievable manner for 5 years from the completion date of performance of the NRA.” This can be done in-house, or you can utilize a third party.

6. Do establish procedures to assure that bills of lading or equivalent shipping documents are annotated to show that the shipment is moving under an NRA. You may wish to sequentially number NRAs, a process that may help with recordkeeping, B/L annotation and accuracy in invoicing.

7. Don’t amend an NRA after the shipper has accepted it and cargo is received at origin by the NVOCC or the initial carrier in a through intermodal shipment. The regulations explicitly prohibit amendments to NRAs. An NRA is a binding agreement. For this key reason we believe most NRAs will be valid for short time periods and for limited cargo volumes.

8. Don't forget, once you start using NRAs, failure to comply with the new FMC regulations is a violation of the Shipping Act. NVOCCs can be penalized severely for willful violations of the Shipping Act and/or regulations issued pursuant thereto.

9. Don’t cancel your current FMC tariff if you use NRAs instead of tariff rates. The FMC regulations require users of NRAs to maintain their rules tariff and to make such tariffs accessible to shippers free of charge.

10. Don’t forget, you still have the option to enter into arrangements with your shipper clients that can be amended, and can provide for volume discounts, general rate increases, floating surcharges and other options not permitted in NRAs. These are called NVOCC Service Arrangements, or NSAs. The FMC authorized these in 2005. The regulations governing the use of these are not changed.

James Devine is an FMC practitioner and president of Distribution Publications Inc. in Oakland, Calif. Contact him at jdevine@dpiusa.com