Congress Amends the U.S. Shipping Act, Broadening FMC Regulatory Authority

by Holland & Knight LLP

Holland & Knight LLP

[co-author: Hwajeong Kim]


  • The Federal Maritime Commission Authorization Act of 2017 was signed into law by President Donald Trump on Dec. 4, 2018, marking the first substantive revision to the U.S. Shipping Act, 46 U.S.C. § 40101 et seq. (the Shipping Act) since 1998 and providing several of the most significant changes to the Shipping Act since 1984.
  • The substantive changes to the Shipping Act primarily address antitrust issues related to recent consolidation in the maritime industry and the emergence of ocean carrier alliances.
  • The amended Shipping Act signals an important development for the maritime industry in the U.S. It is aimed at preserving competition in U.S. trades and assuring future capital investment in maritime and transportation infrastructure, the vital link in supply chains across the U.S. and the world.

President Donald Trump, with bipartisan support, signed into law the Federal Maritime Commission Authorization Act of 2017 (the Act) on Dec. 4, 2018, as part of the Frank LoBiondo Coast Guard Authorization Act of 2018 (S. 140). The Act represents the first substantive revision to the U.S. Shipping Act, 46 U.S.C. § 40101 et seq. (the Shipping Act) since 1998, and includes several of the most significant changes to the Shipping Act since 1984. The principal changes to the Shipping Act primarily address antitrust issues related to recent consolidation in the maritime industry and the emergence of ocean carrier alliances. These changes are expected to help protect marine terminal service providers as well as other U.S. marine equipment and services providers, and to preserve investment in domestic shore-side maritime infrastructure.

History of the Shipping Act

Enacted in 1916, the Shipping Act confers authority upon the Federal Maritime Commission (FMC) to regulate maritime commerce in the U.S. The Shipping Act regulates common carriers (both non-vessel and vessel operating) and marine terminal operators (MTOs) and affords limited antitrust protections to filed agreements among regulated parties. In 1984, the Shipping Act was revised to eliminate a longstanding requirement for affirmative FMC approval of agreements and the requirement for carriers to file tariffs with the FMC. Pursuant to the 1984 amendment, parties may file agreements with the FMC, which become effective 45 days after filing unless, in the interim, the agency obtains injunctive relief in court to block the agreement. Carriers now publish tariffs, rather than filing them with the FMC.

The last amendment to the Shipping Act occurred in 1998 as the Ocean Shipping Reform Act of 1998, following a five-year study of the effect of the Shipping Act on maritime trade and commerce. The 1998 amendment allowed carriers and shippers to enter confidential rate agreements providing discounted rates in exchange for cargo volume commitments. In 2005, the FMC issued a regulatory ruling extending authority to non-vessel operating common carriers (NVOCCs) to enter such confidential rate agreements with shippers.

After the 1998 amendment, the maritime industry experienced significant and widespread consolidation. In addition to carrier mergers and acquisitions concentrating the bulk of containership capacity in U.S. trades to fewer than a dozen large carriers, the formation of vessel carrier alliances caused further substantial consolidation. Currently, there are three major carrier alliances representing 80 percent of all container trade. Within the alliances, there has been further consolidation, e.g., the creation of Ocean Network Express (ONE) by the merger of Japanese carriers.

In 2017, Congress began serious efforts to review and amend the Shipping Act to address these changes to the maritime industry, all of which have affected U.S. infrastructure investment. The legislative efforts represent the first step toward bolstering the U.S. maritime industry.

Significant Revisions to the Shipping Act

The newly enacted Federal Maritime Commission Authorization Act of 2017 amends key sections of the Shipping Act, particularly in the areas of 1) competition regulation and remedies for violations of the Shipping Act's antitrust provisions, 2) ocean transportation intermediary (OTI) licensure requirements and 3) adjustments to filing requirements. Each of these topics is discussed in further detail below:

1. Regulation of Competition in Ocean Carriage

The Act amends multiple sections in the Shipping Act with the design of prohibiting anti-competitive behavior that would have a material adverse effect on U.S.-based maritime infrastructure and marine services and equipment providers. Section 703 requires the FMC to conduct "an analysis of the impacts on competition for the purchase of certain covered services by alliances of ocean common carriers" on an annual basis. This statutory mandate is intended to promote active FMC oversight of the ocean carrier alliances to ensure that U.S.-based infrastructure interests are not unfairly disadvantaged. Section 704 focuses upon alliances' impact on "certain covered services ... with respect to a vessel":

(A) the berthing or bunkering of the vessel;

(B) the loading or unloading of cargo to or from the vessel to or from a point on a wharf or terminal;

(C) the positioning, removal, or replacement of buoys related to the movement of the vessel; and

(D) ... towing vessel services provided to such a vessel.

The definition of "certain covered services" is noteworthy given that it generally covers those services that ocean carrier alliance members procure at U.S. marine terminals. Section 709 utilizes this term in prohibiting ocean carriers from negotiating for "certain covered services" with MTOs in violation of antitrust laws or in a manner inconsistent with the purposes of the Shipping Act. The Act prohibits ocean carriers from engaging in excessively anti-competitive strategies when collectively negotiating with terminal service providers. This provision is designed to protect MTOs by avoiding a situation where MTOs and other service providers are forced to negotiate with the carriers acting collectively with such a concentration of bargaining power that rates are pressured to unsustainable levels, which may impair future investment in U.S. maritime terminal and port infrastructure.

The Act provides specific tools and remedies to the FMC and courts to enforce the provisions precluding anticompetitive behavior of regulated entities. Section 710 grants the FMC authority to seek injunctive relief against actions of regulated entities that "substantially lessen competition in the purchasing of certain covered services." Section 710 expands the scope of factors the FMC must consider when seeking injunctive relief to include the aggregate effect of agreements on competition, rather than reviewing the agreements' isolated impacts. In addition, Section 709 preserves the U.S. Department of Justice's (DOJ) authority to prosecute anticompetitive behavior that violates the U.S. antitrust laws. This section confirms that DOJ has a role in the enforcement process.

Section 708 further amends the Shipping Act to restrict anticompetitive actions of common carriers. This section specifically prohibits a common carrier from "continu[ing] to participate simultaneously in a rate discussion agreement and an agreement to share vessels, in the same trade" if the continued participation would likely produce an unreasonable reduction in service or increase in transportation cost.

Finally, the Act requires the U.S. Comptroller General to conduct a study of recent bankruptcies of ocean carriers. This provision flows from the recent bankruptcy of Hanjin Shipping, which saddled MTOs, shippers and suppliers with significant losses ranging from non-payment to lengthy delivery delays and loss or seizure of cargo. The purpose of this amendment to the Shipping Act is aimed at mitigating and understanding bankruptcy risks in the era of carrier alliances through a detailed review of these bankruptcies and their potential effect in the era of substantial carrier capacity concentrations and alliance activities.

2. Ocean Transportation Intermediaries

The Act amends the Shipping Act's provisions regarding OTI licensing requirements. The Shipping Act prohibits a person from acting as an OTI (i.e., as an NVOCC or ocean freight forwarder) unless the person holds a valid license. Section 707 amends the Shipping Act to further specify that a person is not permitted to "advertise, hold oneself out" as an OTI without a valid license. Coupled with recent FMC rulemaking that extends a "registration" requirement to foreign-based NVOCCs handing U.S. inbound trade, these changes give the FMC more comprehensive oversight on OTIs while simultaneously reducing administrative compliance burdens on the industry.

Section 707 exempts certain persons from the Shipping Act's licensing and financial responsibility requirements. The exempted persons include "a person that performs ocean transportation intermediary services" as a "disclosed agent on behalf of an ocean transportation intermediary."

3. MTO Reporting Requirements

Section 705 clarifies the Shipping Act and FMC regulatory requirements upon MTOs to file periodic reports with the FMC to align with what is already required of MTOs and to resolve any existing ambiguity. Additionally, following this amendment, the Shipping Act now provides that "any report, account, record, rate, charge or memorandum required to be filed shall be made under oath if the Commission requires" and "be filed in the form and within the time prescribed by the Commission." The FMC, however, is required to "limit the scope of any filing ordered" when necessary "to fulfill the objective of the order." Section 705 also strengthens the authority of the FMC to investigate persons subject to the agency's regulation by authorizing the FMC to request from "a person, at any time, any additional information the Commission considers necessary" to carry out the purposes of the Shipping Act.

Considerations and Takeaways

The Act is an important development for the maritime industry in the U.S. It is aimed at preserving competition in U.S. trades and assuring future capital investment in maritime and transportation infrastructure, the vital link in supply chains across the U.S. and the world. The Act grants the FMC specific authority to investigate any ocean carrier alliances that engage in anticompetitive action during negotiations with other maritime industry players and contains a number of amendments to the Shipping Act addressing anticompetitive behavior of carriers.

  • The FMC must review the effects of alliances on an annual basis and include this information in its report to Congress.
  • Carrier alliances are prohibited from engaging in collective negotiation that would result in excessive anti-competitive impacts (i.e. unsustainable rates, reductions in capacity).
  • The FMC will consider the aggregate effect of carrier alliance agreements on competition when determining whether to seek injunctive relief against certain activities.
  • Carriers cannot participate in both a rate discussion and vessel sharing agreement operating in the same trade if such participation results in a reduction in service or increase in transportation cost.
  • The DOJ will continue to have authority to prosecute anti-competitive behavior in violation of U.S. antitrust laws.

These provisions are intended to protect U.S.-based MTO infrastructure and other domestic stakeholders (i.e., harbor pilots, tug operators, equipment suppliers, etc.) from being forced to accept pricing from the ocean carriers in concerted action that will threaten their long-term sustainability and impede future investment in infrastructure and technology.

The Act provides a clear mandate from Congress for the FMC to exercise substantial oversight over and review of ocean carrier alliance activity with respect to the use of U.S. infrastructure. The addition of the term "certain covered services" in the U.S. terminal services industries focuses attention on important activities of U.S.-based service providers, which represent U.S. strategic supply chain assets as well as major U.S. employers. The Act protects these service providers by limiting ocean carriers from engaging in excessively anti-competitive strategies when collectively negotiating with terminal service providers.

Finally, the Act protects U.S. maritime interests by requiring the Comptroller General to conduct a study of a "major ocean carrier bankruptcy" for purposes of mitigating the effect of any future bankruptcy event on supply chains in the U.S. This provision has significant implications in light of the 2017 Hanjin Shipping bankruptcy and should bolster maritime commerce response to future such bankruptcies potentially involving alliance member lines. The overall effect of the Act will prove to be significant and should provide strong support to the long-term viability of U.S. maritime commerce.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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