Time for a Sea Change

Time for a Sea Change

Copyright 2003, Traffic World, Inc.

Three large logistics companies and a politically savvy trade group are circling the Federal Maritime Commission and there''s a good chance that more will join the pack. The four have laid down a challenge that the FMC can''t ignore. They have petitioned the agency to exempt them from portions of the Ocean Shipping Reform Act, arguing that OSRA has put them at a competitive disadvantage with vessel operators in the ocean transportation business.

The law gives the FMC the authority to grant exemptions, if they benefit the marketplace. United Parcel Service, BAX Global, Ocean World Lines and the National Customs Brokers and Forwarders Association of America have taken different tacks to make their cases, but together they chip away at the wall that separates the lawful business practices of ocean carriers and nonvessel-operating common carriers.

"The volume of filings will give you some sense that this is an issue of immense interest and importance to the NVO community," said Leonard Fleisig, the attorney who represents OWL. "Can the FMC allow vessel-operating companies to operate in a 21st century marketplace and NVOs in the 19th century? If they are comfortable with that, they should say so."

It is too early to predict what the commission will do, but its options are finite. Commissioners may grant the NVO petitions. They may deny all petitions, saying Congress did not give them the authority to make such when it passed OSRA. Or the FMC may take a middle course, proposing alternatives that will give NVOs some relief. One way or another, the industry won''t be the same.

Some NVOs expect the commission to turn them down and plan to take their case to Congress. If lawmakers re-open OSRA to allow NVO service contracts, or eliminate tariff-filing, will the changes stop there? Or could Congress also abolish carriers'' antitrust immunity? No antitrust immunity could mean no FMC, since many believe that the FMC''s main purpose is to keep carriers from abusing the privilege.

A critical question: How much latitude did Congress give the FMC to make exemptions to the law which took effect in 1999? Section 10 of the shipping act includes the NVO list of thou-shalt-nots. NVOs may not provide service that is "not in accordance with the rates, charges, classifications, rules and practices contained in a tariff," unless they are exempted under Section 16 of the law.

Richard Gluck, an attorney who advised congressional staff on OSRA, said the cross-reference in Section 10 to Section 16 was deliberately added as a way to emphasize the fact that the commission had the authority to exempt NVOs from tariff-filing requirements. In 1991, Gluck represented some 20 NVOs that petitioned the commission to exempt them from the tariff-filing requirement. They ultimately lost their case on a 2-2 vote.

Why has it taken this long for NVOs to seek relief from OSRA? The NCBFAA has had its petition in the works for nearly as long as the law has been in effect, but members bided their time until they saw new commissioners take their seats on the FMC, commissioners who may be sympathetic to their case. UPS, BAX and OWL are members of the NVO Government Affairs Conference, which organized to work for regulatory relief. Earlier this year, United Parcel Service announced that it no longer wanted to wait for the NVO-GAC to take action, and it would pursue its own petition. Once UPS was on the FMC docket, it didn''t take long for OWL and BAX to follow suit. OWL filed its petition last month; BAX attorneys planned to file theirs last week

Timing is not the only reason for the feeding frenzy by NVOs seeking to loosen OSRA''s restrictions. The marketplace itself is fundamentally changing. All three commercial petitioners have NVO units that provide the ocean legs of end-to-end logistics service. They are large companies with revenue running into the hundreds of millions, not the mom-and-pop NVOs of yesteryear.

The shipper has become more sophisticated, Fleisig said. "The shipper public doesn''t need babysitting by the commission anymore."

If the marketplace is changing, can the commission change with the times? Until now, the majority of the commission has stuck closely to a narrow path that Congress laid out in OSRA, to the aggravation of those who clamor for more flexibility. Advocates of more flexibility and innovation at the FMC argue that OSRA is not carved in stone, and there are tantalizing bits of legislative history that indicate some members of Congress wanted even bolder reforms for ocean shipping. Early versions of the OSRA bill would have eliminated tariff filing altogether, and phased the FMC out of existence.

The exemptions that UPS, BAX, OWL and the NCBFAA are seeking will move the FMC onto a new course to an unseen destination. OSRA is not the bold statement for deregulation that the Staggers Act was for the Interstate Commerce Commission, but the maritime industry will be looking to the FMC to provide something that hasn''t been seen in recent years: bold leadership.