UPS wants to sign confidential NVO contracts

UPS wants to sign confidential NVO contracts

United Parcel Service on Friday filed a petition seeking the right to sign confidential contracts for its ocean delivery services, a move that strikes at the heart of the 1998 Ocean Shipping Reform Act.

In its petition to the Federal Maritime Commission, which under OSRA has broad authority to review and grant such exemptions, UPS argues that its request for confidential contracting is consistent with the legislative intent of the law.

Under current law, companies that own vessels are permitted to engage in confidential contracting. However, companies like UPS that are classified for the purposes of ocean transport as non-vessel operating common carriers must make their rate structure known through the publication of tariffs.

UPS, which had $31.3 billion in revenues in 2002, argues that given its "large capital base and history of reinvestment in transportation assets, there is no risk of non-performance of service contracts in the manner Congress feared when it withheld authority from" intermediary companies that lacked such resources. In doing so, UPS appeared to be drawing a distinction between asset-intensive transportation companies like itself and the non-asset firms that make up the large majority of NVOCCs. In particular, UPS says it "faces substantial head-to-head competition from Maersk Sealand and its affiliate Maersk Logistics International." UPS also names APL and its logistics arm APL Logistics as another vertically integrated competitor. On the other hand, smaller NVOCCs and forwarders, "which typically do not own or operate transportation assets, are in a very different business than UPS, and in fact are frequently UPS customers themselves," the petition said.

UPS also notes that the competitive landscape in the industry has changed significantly in the five years since OSRA was enacted. In particular, UPS points to the considerable consolidation among the VOCCs (vessel-operating common carriers) and the emergence of VOCCs affiliated with large, well-capitalized companies.

"The exemption will also enable UPS, as a U.S. company, to meet fairly the energetic, well-financed competition now existing from large vertically integrated VOCCs," the petition states.

UPS moves approximately 300,000 TEUs of ocean freight annually.

Underscoring the distinction UPS appeared to make between large asset intensive NVOs and non-asset based firms, the petition was made without, and apparently without the knowledge of, the NVO-Government Affairs Conference, a group of NVOs of which UPS is a member. The NVO-GAC has been making noises recently about trying to seek confidential contracting rights for its members.

The move puts the FMC is a tight spot. If the agency approves the petition, it will probably have to do so at the very least for other similarly situated NVOs including FedEx Corp., DHL-Danzas, Maersk Logistics and APL Logistics. But if it accepts UPS's argument, it would presumably reject petitions from non-asset NVOs. If it rejects the petition, UPS with its considerable clout in Washington could be expected to take the matter to Congress, which in effect would mean re-opening for debate the entire system of ocean regulation in the U.S. That might not be limited to the question of confidential contracting, but could extend to anti-trust immunity for ocean carriers, tariff filing or eventually the very need for the FMC.