In the last year or so, it has become clearly evident to us that ocean carriers are treating European and other forwarders differently than how they deal with U.S. forwarders, creating a distinctly competitive disadvantage for U.S. ocean forwarders, NVOCCs and Customs brokers. The bottom line activity is that ocean carriers are creating beneficial sell rates to “forwarders”, usually in ocean carriers’ tariffs, for use exclusively by European forwarders located in certain locations in Europe and elsewhere (not the U.S.). We are using the term “forwarders” here in the U.S. sense. But for our narrative here, the European forwarder, located in Europe and other locations, will dispatch cargo from Europe based on lump sum rates formulated from the sell rates offered to them by the ocean carriers, but will not hold out as NVOCCs, nor issue house bills of lading. Many of these forwarders are neither licensed nor registered with the FMC as NVOCCs. In fact, U.S. forwarders under the current definition of “forwarders” could similarly issue lump sum rates under the current FMC regulations for export transport from the U.S. Unfortunately, the ocean carriers, probably sensitive to U.S. regulatory structures do not provide U.S. forwarders similarly competitive rate structures for exports from the U.S. or for inbound traffic controlled by U.S. consignees. But also, more egregiously, if a U.S. forwarder, who also may be an NVOCC/Customs broker, controls import cargo to be shipped to the U.S. on a “collect” basis, the U.S. Ocean Transportation Intermediary (“OTI”) may have to “purchase” a favorable rate from the unlicensed, unregistered forwarder in Europe who does have the benefit of the competitive rate, even though it may not be a licensed or registered NVOCC. The question: Is this legal? After discussing this with FMC officials, the answer is, “Probably.”
Everything we have described above has regulatory risk as follows, but as will be seen, this risk can be easily mitigated or it disappears altogether:
- Even if the European forwarder is not a licensed or registered FMC NVOCC, it can legitimately argue that it is merely acting as a “freight forwarder” per the U.S. definition of “freight forwarder” and that the FMC, therefore, does not have jurisdiction over it since it only has jurisdiction over U.S. domiciled forwarders. The European freight forwarder would argue it does not act as an NVOCC in that it does not hold out as such, and does not issue a bill of lading. It is merely acting as a “forwarder” in the U.S. sense of the term by dispatching cargo from Europe (or elsewhere) to the U.S. In fact, U.S. forwarders could do the same pursuant to current regulations, but, as noted, ocean carriers have shied away from this practice in the U.S.
- The ocean carrier has a more precarious, but not particularly dangerous regulatory position. Notwithstanding that there is an FMC prohibition for a common carrier to provide transport to unlicensed/unregistered intermediaries which act as NVOCCs, the carrier would likely maintain that the European forwarder is not acting as an NVOCC since it does not hold out as either a common carrier, nor does it issue its house bill of lading, and would be acting much like a U.S. forwarder. It is not likely that the FMC would challenge this in the sense that it would have a tough time in asserting jurisdiction over a European forwarder with no presence in the U.S.
- To minimize FMC regulatory risk, it would be prudent for the common carriers (VOCCs and NVOCCs), accepting such rates/cargo from European or other non-U.S. based freight forwarders, to carefully structure these transactions so that the master bill of lading indicates appropriate relationships between shippers, consignees, and the ocean carrier. Additionally, in the case of the U.S. NVOCC (that is arranging this transaction with the European forwarder), which may also be acting as a Customs broker in the U.S. for consignee customers who control the freight (usually “collect” shipments), the NVOCC must also take care in the structuring of pricing (preferably via Negotiated Rate Arrangements) (“NRAs”), invoicing the charges to its import customer, and the structuring of its housebill of lading.
We, over the last couple of years, have been monitoring these practices and requesting and obtaining input from Federal Maritime Commission staff in order to insure that these transactions are properly papered etc.
Therefore, the salient features of the U.S. forwarder are that it does not act as a common carrier—i.e., it does not act as a non-vessel operating common carrier (“NVOCC”). It does not hold out to provide ocean transportation as a common carrier, and it does not issue its own house bills of lading. The development of the NVOCC mechanism over the years in the U.S. has pretty much become the process by which U.S. intermediaries in the U.S. trade lanes negotiate rates with ocean carriers and by which they structure transport rates to their shipper customers. In Europe, obviously, NVOCCs also follow the U.S. model, but the difference is that ocean carriers still provide rate structures to forwarders which are not necessarily FMC licensed or registered with the FMC, and we have noticed an increase of this type of pricing structure.
European forwarders are now aggressively selling rate structures, not only to shippers, but also to U.S. NVOCCs. The U.S. NVOCCs are those who generally control consignee “collect” cargo in the U.S. either as NVOCCs or sometimes as Customs brokers, but who do not have competitive enough rates directly with the relevant ocean carriers. To underscore that this practice is institutionalized commercially by ocean carriers, we have reviewed ocean carrier tariff rate sheets applicable in the U.S. trade lanes which are specified exclusively for “forwarders” in specific locations in Europe, without reference as to whether or not they are FMC licensed or registered NVOCCs. The tariff rate pages which contain these rates are even designated as “service contracts”, but obviously, the FMC service contract procedures are not followed since there are no filings, and the rates are applicable to “forwarders.” And lastly, the European forwarders are not acting as NVOCCs in that they are not holding out as such and do not issue housebills, but yet are controlling the pricing mechanisms of these transactions with the blessing of the ocean common carriers.
Conclusion. In the U.S. there is long legal precedent in some important U.S. jurisdictions that when a forwarder is negotiating rates for its customers, and when an ocean common carrier looks to payment from the U.S. forwarder, that the actual shipper is excused from double payment if it has paid the forwarder and the forwarder has failed to turn over freight monies to the ocean carrier. It is factually implicit in these strings of historical court holdings that an ocean common carrier, for commercial reasons, did historically in the U.S. negotiate rates with forwarders and expected payments from those forwarders. However, for whatever reasons, which we suspect are principally regulatory, this commercial practice of forwarders being offered rates by ocean carriers has pretty much ceased in the U.S. but is alive and well in Europe and elsewhere. (By the way, the commercial/legal/regulatory risks of a forwarder are minimal when compared with those of an NVOCC, acting as a common carrier. If the objective is rate margins only, these are currently being effectively obtained by European forwarders.) These forwarder practices merit some review in the U.S. with the objective of encouraging their use in the U.S. As noted, U.S. NVOCCs which are selling transport to U.S. importers and arranging transportation with the above described European forwarders should at this time be cautious as to how these transactions are structured so as to ensure compliance with current U.S. shipping laws and regulations.
 I have noted this phenomenon in Sri Lanka as well, which probably means it is more widespread than surmised—i.e., the sell rates are offered to forwarders who are neither licensed nor registered with the Federal Maritime Commission but do offer lump sum rates to shippers in the U.S. trade lanes, but do not hold out nor issue house bills of lading as ocean carriers.