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Signals™ Headlines - August 6, 2003

FMC Collects US$ 700,000 in Penalties: 11 Compromise Agreements Signed

Vern W. Hill, Director of the Bureau of Enforcement of the US Federal Maritime Commission, has announced eleven compromise agreements
recovering civil penalties in an aggregate amount of US$700,000. The agreements were reached by the FMC with an ocean carrier
(Tropical Shipping), a passenger-vessel operator, (Glacier Bay Cruises) and nine ocean transportation intermediaries
(OTIs) acting both as non-vessel-operating common carriers (NVOCCs) and freight forwarders. These penalties were due to alleged
violations of the Shipping Act and/or FMC regulations. Five of the OTIs involved were alleged to have operated without valid
licenses, surety bonds or tariffs. Unlawful access to service contracts prompted several of these investigations. Details are
provided in FMC’s news release
NR 03-05
of July 9, 2003.

UPS Petitions FMC for Service Contract Authority: Petition P3-03

United Parcel Service, Inc. (UPS) has petitioned the Federal Maritime Commission, pursuant to Section 16 of the Shipping Act,
for an exemption from the Shipping Act to permit it to negotiate, enter into and perform service contracts. This is a controversial
petition which is sure to draw the attention of the Commission, the ocean transportation industry, and perhaps even the US Congress.
The FMC has designated this as Petition P3-03 and requested public

The Shipping Act of 1984 granted the authority to enter into service contracts only to Ocean Common Carriers who operate vessels
that call regularly at US ports. Non-Vessel Operating Common Carriers (NVOCCs), who do not operate vessels, are required by the
Section 8 of the Act to publish freight rates and charges in tariffs that confirm with FMC regulations. NVOCCs may enter into
service contracts with ocean carriers to purchase transportation services, but are not permitted to offer similar contracts to
their shipper clients. The Ocean Shipping Reform Act (OSRA) of 1998 did not alter these fundamental transportation regulations,
but Petition P3-03 asks the FMC to do so now. Nothing in recent history suggests the FMC would be willing to grant an exemption
of this magnitude, but Petition P3-03 will require it to acknowledge and comment on this important issue, and issue a decision
one way or the other.

UPS Ocean Freight Services, Inc., a subsidiary company, is currently licensed by the FMC as an Ocean Transportation Intermediary doing business as an NVOCC. According to Petition P3-03 UPS Ocean currently moves approximately 300,000 TEUS of ocean freight annually. Its parent company is the world’s largest package delivery company, and operates a fast growing logistics business serving some 200 countries worldwide. UPS, with 2002 corporate revenues of US$ 31.3 billion, operates 88,000 trucks and other vehicles, and 581 aircraft, but it does not operate any ocean vessels.

The UPS petition asks the FMC to recognize the changes in the ocean freight industry since the enactment of OSRA, and the growth of integrated logistics services. It reviews the recent industry trend whereby ocean carriers with OTI subsidiaries or affiliates, such as Maersk-Sealand and Maersk Logistics, provide their shipper clients comprehensive supply chain management services. According to UPS, “large Ocean Carriers that own or control OTIs have a significant advantage over UPS because of their ability to offer confidential service contracts to their shipper customers through the Carrier entity in their corporate group.” UPS is unable to do likewise because it does not own or control an ocean carrier.

Comments in reply to Petition P3-03 should be directed to the FMC Secretary by 22Aug2003, and should also be sent to the attorney representing UPS, Holland & Knight LLP. Copies of the petition are available via email: secretary@fmc.gov

Sinotrans Petitions FMC for Exemption from Tariff Regulations: Petition P2-03

The FMC Secretary has announced the filing of Petition P2-03 by Sinotrans Container Lines Co., Ltd. for a limited exemption from the tariff publishing requirements of Section 9 of the Shipping Act. Sinotrans seeks an exemption so that it can lawfully reduce tariff rates to meet or exceed the published rates of competing carriers on one day’s notice. Sinotrans is a classified by the Shipping Act as a controlled carrier because its operating assets are government controlled. Section 9 of the Shipping Act subjects controlled carriers to more stringent tariff regulations, including a 30 day notice requirement for all changes to tariff rules or rates. This regulation does not apply to service contracts. Public comments on Petition P2-03 are requested be filed with the FMC Secretary, email: secretary@fmc.gov by 08Aug2003.

A similar petition filed by China Ocean Shipping Company (COSCO) was approved by the FMC in March 1998 for transportation between the USA and countries other than China. Sinotrans wants the same exemption granted to COSCO. China Shipping Container Lines Co., Ltd. made a similar request to the FMC earlier this year in its Petition P1-03 These petitions will be evaluated by the FMC, and this evaluation will also involve Docket 98-14, the Commission’s on-going investigation into restrictions on the operations and licensing of non-Chinese carriers and OTIs in China.

Commission Issues Final Rule in Docket 03-03: Service Contract Filing Corrections Allowed

The Federal Maritime Commission has issued a final rule to amend its regulations on the electronic filing of service contracts for ocean transportation. FMC Docket No. 03-03 adds a provision that permits persons authorized to transmit electronically service contract filings to correct within 48 hours an original service contract filing or an amendment that is defective due to electronic transmission errors. This revision to FMC regulations allows a “corrected transmission” of the original service contract or amendment submission to be designated as such and filed in the Commission’s SERVCON electronic service contract filing system. SERVCON system will be modified by to accept corrected service contracts re-submitted by the filing party, and will require corrections to be highlighted. This rule will be effective 08Sep2003, and will amend FMC regulations published in the US Code of Federal Regulations No. 46, Part 530.

Hudson Shipping (HK) Ltd. Ordered to Pay FMC US$ 7,900,000: Docket No. 02-06

Hudson Shipping (Hong Kong) Ltd. d/b/a Hudson Express Lines has been ordered by the Federal Maritime Commission to pay a civil penalty of US$ 7,900,000. Hudson has also been ordered to cease and desist from operating as an NVOCC serving the USA. According to the FMC Docket No. 02-06 Hudson violated the Shipping Act by misuse of service contracts with several ocean carriers, and by operating as an NVOCC without a valid bond for over six months.

The initial decision in this proceeding was issued by FMC Administrative Law Judge Michael A. Rosas on July 10, 2003. According to Docket No. 02-06, Hudson entered into service contracts with ocean carriers that did not include any affiliated shippers or NVOCCs, and which explicitly prohibited Hudson from permitting assignment or co-loading under the contracts. Hudson violated Section 10(a)(1) of the Shipping Act by permitting other NVOCCs to use these service contracts in order to obtain transportation for their shipments at rates less than those that should have been applicable. This was accomplished through a scheme whereby Hudson deceived the ocean common carriers as to the true identity of the shipper. Hudson received compensation from the NVOCCs for each instance, and it avoided the payment of liquidated damages for failure to ship the minimum quantity required under one of the service contracts involved.

The civil penalty of US$7,900,000 in this case was based on $22,500 for each of 120 violations of section 10(a)(1) and $25,000 for each of 208 days (September 4, 2002 to March 31, 2003) that Hudson continued to operate as an OTI/ NVOCC without a surety bond in violation of section 19(b)(1) of the 1984 Act. These penalties are close to the maximum allowed by law.

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