More than 60 ocean carriers have been ordered by the Federal Maritime Commission to furnish detailed information about the practice of marine terminal operators on the lower Mississippi River entering into exclusive arrangements for tug services to be performed for vessels calling at their facilities. Responses to this Section 15 Order are due by October 5, 2000, and will be used to determine whether these exclusive arrangements are within the Commission's jurisdiction and, if so, whether any further action by the Commission is warranted. The FMC has jurisdiction, under section 3(15) of the Shipping Act of 1984, over marine terminal operators that serve common carriers operating in foreign commerce of the USA.

Recently, the FMC has received informal complaints alleging that many dry bulk terminals along the lower Mississippi River have entered into exclusive tug arrangements, and, as a result, costs to vessel operators have increased and tug company competition in the dry bulk trades has been stifled. Comments filed on behalf of organizations representing vessel operators, stevedores, ship brokers and agents, and the River Parishes Company, Inc. (RIVCO), allege that 17 of the 41 dry bulk terminals along the lower Mississippi have entered into exclusive tug arrangements, and that those 17 terminals serve 89% of the total dry bulk vessel calls on that part of the river.

Under the exclusive arrangements, a terminal operator apparently contracts with a particular tug company to provide all tug services for vessels calling at that operator's facilities. The terminal operator pays the tug company under their arrangement, and the vessel operator pays the terminal for tug services, allegedly at a higher rate. Thus, these terminal operators appear to be enjoying a profit from tug services, and the exclusive arrangements are said to result in a lack of choice and increase in costs for vessel operators. Because shippers often select the terminal for dry bulk shipments, vessel operators cannot simply avoid the affected terminals. In addition, RIVCO, a small tug company, claims it is foreclosed from assisting vessels that call at the terminals with exclusive tug contracts because RIVCO is unable to serve any one terminal operator's entire dry bulk business.

This is not the first complaint received by the FMC about the practice of exclusive arrangements for tug services by marine terminal operators. In 1996 the Commission opened a docketed proceeding, Docket No. 96-06, in response to a complaint by RIVCO in which it alleged Ormet Primary Aluminum Corporation violated the Shipping Act by granting an exclusive contract to Bisso Towboat Company for tugboat services at the Burnside Terminal in Baton Rouge, Louisiana. RIVCO claimed to have been damaged by Ormet's action in choosing one tug company to serve all vessels calling at Burnside, and sought a cease and desist order against Ormet and money damages for its alleged loss of business. The FMC issued an Initial Decision finding jurisdiction over Ormet, but also found that RIVCO failed to prove Ormet had violated the Shipping Act. After further consideration this proceeding was dismissed in February 1999

In its new Section 15 Order the FMC also revealed it has received comments from Cargill, Inc., a leading marine terminal operator on the lower Mississippi River. While acknowledging that the cost to vessel operators for tug services has increased, Cargill disputes the allegations that the exclusive arrangements at its terminals have stifled competition, and claims that the arrangements will increase efficiency and safety. Cargill argues that its exclusive arrangements are reasonable under the Ormet ruling and that this is merely a commercial issue, and not an appropriate one for Commission investigation.

Based upon all of these informal submissions, the Commission believes that there is sufficient suggestion of harm caused by the proliferation of exclusive tug arrangements along the lower Mississippi River to merit a new investigation into these practices. Among other issues, the FMC must gather evidence as to whether the terminal operators that have entered into these exclusive arrangements provide terminal facilities in connection with common carriers and, thus, are subject to its jurisdiction under the Shipping Act of 1984. The Section 15 Order requires the respondents to provide detailed information, including amounts paid for tug services for each vessel call at marine terminals on the lower Mississippi River for the period July 1, 1999 through June 30, 2000. Answers to the Section 15 Order must be submitted to the FMC in writing and under oath by October 5, 2000.

Docket 99-20: Gstaad, Inc. Settles with FMC for $150,000:   Admits Ship Act Violations

In a recently approved settlement agreement, Gstaad, Inc., an NVOCC based in Miami, FL, surrendered its OTI license and paid the FMC the sum of USD 150,000. Gstaad admitted violating the Shipping Acts, agreed to agreed to cancel its NVOCC bond and tariffs, and agreed to terminate all activities in ocean transportation. This settlement enabled the FMC to conclude Docket 99-20 without engaging in further litigation.

In Docket 99-20 the FMC Bureau of Enforcement alleged it had evidence that showed Gstaad violated Section 10(a)(1) of the Shipping Act of 1984 by receiving unlawful rebate payments on hundreds of shipments during 1997 and 1998. Gstaad was also alleged to have misused its service contracts thereby allowing other shippers to obtain less than applicable transportation rates, for which it received additional compensation from shippers and rebates from carriers.

In the settlement Gstaad admitted it knowingly and willfully obtained transportation for less than the applicable tariff or service contract rates from ocean carriers on shipments to South America through the device or means of receiving unlawful rebates and other freight rate concessions. Gstaad also admitted it knowingly and willfully allowed other shippers to make shipments under Gstaad service contracts, and thereby to obtain lower than applicable service contract rates, even though Gstaad performed no transportation function nor assumed any NVOCC obligation with respect to those shipments.

The Shipping Acts provide a penalty for these violations of US$ 27,500 per shipment, therefore, Gstaad avoided a potentially much larger penalty by entering into this settlement agreement. The settlement agreement forever bars the commencement or institution by the Commission of any civil penalty assessment proceeding or other claim for the recovery of civil penalties against Gstaad for the violations admitted in this settlement.

Docket 00-10: Universal Logistic Forwarding Co., Ltd.: Possible Shipping Act Violations

An Order of Investigation has been served by the FMC on Universal Logistic Forwarding Co., Ltd. (Universal); an NVOCC based in Taipei, Taiwan. According to FMC Docket 99-10, Universal is alleged to have obtained or attempted to obtain ocean transportation at less than the applicable rates through accessing a service contract to which it was not a signatory or affiliate. These violations are alleged to have occurred on at least 22 shipments during the time period May 9 through July 3, 1998.

Docket 99-10 also alleges that on at least 23 shipments during the same time period, Universal did not charge the rates set forth in its tariff. In Docket 00-10 the FMC will attempt to determine if Universal violated the Shipping Acts. In the event violations of sections 10(a)(1) or section 10(b)(1) of the Shipping Act are found, the FMC will determine if civil penalties should be assessed against Universal and, if so, the amount of penalties to be assessed, and decide if Universal's tariff should be suspended.

Volume 4   Number 8      September 5, 2000