April 2, 2002 Volume 6, Number 4 Oakland, California

SIGNALS™ provides detailed information on the regulations and activities of the US Federal Maritime Commission (FMC), and related developments in the ocean freight industry. For past issues, please consult our index.

FMC Finds Sea-Land Service Liable for Shipping Act Violations

Sea-Land Service, Inc. has been found liable for hundreds of serious violations of the Shipping Act. According to FMC Docket 98-06 between 1996 and 1998 Sea-Land violated Section 10 of the Shipping Act on 149 shipments by deliberately undercharging nine different NVOCCs based in the Los Angeles area for shipments to the Far East. Additionally, Sea-Land has been found liable for violations of Section 19 of the Act on 435 shipments by paying freight forwarder compensation to ocean forwarders who did not perform forwarding services. On some of these shipments compensation was paid to an unlicensed forwarder, and on 170 of these shipments Sea-Land knew the forwarder had a beneficial interest in the shipment.

In a preliminary ruling on this matter, FMC’s Administrative Law Judge, Fredrick M. Dolan, Jr., ruled the FMC’s Bureau of Enforcement has proven that Sea-Land "recklessly disregarded" the Shipping Act. Judge Dolan directed Sea-Land’s representatives to confer with the Bureau of Enforcement and the FMC’s in-house mediator to negotiate a settlement agreement which will include the payment of a penalty. Sea-Land's business operations in the foreign trades of the United States were sold to A.P. Moller-Maersk Line in late 1999. Should these negotiations fail to achieve a settlement, the Shipping Act requires the FMC to impose a penalty $30,000 per violation because these were "knowing and willful" violations of the Act.

The complete text of the liability ruling in Docket 98-06 is available at the FMC’s web site. This 91 page ruling provides a detailed summary and narrative of the five year investigation conducted by the FMC in this matter. It includes an analysis of the evidence uncovered by FMC’s Los Angeles Area Representative, Mr. Oliver Clark, which shows how Sea-Land solicited the patronage of World Pacific Container (U.S.A.) Inc. and eight other NVOCCs by furnishing 40’ or 45’ containers while charging 20’ rates. Sea-Land engaged in a deliberate scheme that allowed these NVOCCs to load these containers beyond the capacity allowed by the Transpacific Westbound Rate Agreement (TWRA) under its equipment substitution rules. The ruling shows Sea-Land violated Section 10(b)(1) of the Shipping Act by charging less than its applicable tariff rates for 149 shipments. Additionally, these shipments were also violations of Section 10(b)(4) of the Act because Sea-Land allowed selected shippers to obtain transportation at less than applicable rates by an unjust or unfair device.

In its summary of the violations involving the payment of freight forwarder compensation the FMC gathered evidence of compensation paid by Sea-Land to ITL Shipping Co. (FMC No. 3102) on 265 shipments where Sea-Land knew ITL did not perform the forwarding services required by the Shipping Act to qualify for the payment of compensation, viz: cargo booking and the preparation of bills of lading or similar shipping documents. Many of these shipments took place after ITL’s forwarding license was revoked on April 1, 1997. On an additional 170 shipments Sea-Land paid compensation to a licensed forwarder, General Air Freight Consolidators, Inc. (General Air) who did not perform forwarding services, and who had a beneficial interest in the shipments. General Air (FMC No. 3375) and its sister company, General Ocean Freight Container Line, Inc., an NVOCC, were both owned and operated by the same person at the same address, and shared the same trade name. The FMC obtained evidence included Sea-Land’s forwarder compensation checks to General Air which showed the check deposit stamp of the NVOCC shipper, General Ocean. On all 435 shipments Sea-Land’s records showed that it knew the NVOCCs were booking the shipments, not the forwarders, and it knew it was communicating with the NVOCCs, and not the forwarders in the preparation and processing of Sea-Land bills of lading for the shipments.

John A. Moran Resigns from the Federal Maritime Commission

Commissioner John A. Moran has submitted his resignation from the Federal Maritime Commission, effective April 15, 2002. Commissioner Moran was appointed by President Clinton, and has served as a Commissioner since October 27, 1998. He is a member of the Republican Party in his home state of Virginia. In a press release FMC Chairman Hal Creel noted that Commissioner Moran came to the Commission just thirteen days after the Ocean Shipping Reform Act of 1998 (OSRA) was signed into law and that Commissioner Moran's experience in congressional and legislative affairs, specifically in the area of maritime transportation policy and legislation, contributed to the Commission's successful implementation of OSRA.

Before serving at the Federal Maritime Commission, Commissioner Moran served as Vice President - Legislative Affairs for the American Waterways Operators. Commissioner Moran also served as Counsel to the Senate Committee on Commerce, Science and Transportation. Commissioner Moran will continue his work on maritime and other transportation matters as part of the government relations and lobbying practice of the Washington, D.C. office of the law firm of Jones Walker.

Commissioner Moran’s resignation closely follows the departure of Commissioner Antony Merck on December 31, 2001. This leaves just three of the Commission’s five chairs filled, all by appointees of President Clinton, viz: current FMC Chairman Hal Creel, and Commissioners Delmond Won and William Brennan. However, President Bush’s recent nomination of Steven Blust to serve as Commissioner and Designate Chairman was sent on March 14, 2002 to the US Senate for confirmation, and Mr. Blust is expected to be confirmed and sworn in as Chairman shortly.

Update of Existing and Addition of New FMC Filing Fees:  Docket 02-05

The Federal Maritime Commission has proposed to revise its existing fees for (1) filing petitions and complaints; (2) various public information services, such as record searches, document copying, and admissions to practice; (3) filing ocean transportation intermediary (OTI) applications; (4) applications for special permission; (5) service contracts; (6) agreements; and (7) passenger vessel performance and casualty certificate applications. These revised fees reflect current costs to the Commission. In addition, the Commission is proposing to add a new fee of $32 for the provision of a database report on effective carrier agreements. Docket 02-05 also makes revisions to the Code of Federal Regulations (CFR) to reflect these fees are related changes.

The FMC’s current fee schedule has been in effect since 1998. The proposed revisions include fee increases reflect increased labor and processing costs, and some fee reductions. The increases are based on cost analysis, and not a fixed percentage. For example, the proposed new application fee for a new OTI license will increase from $778 to $799. The fee for an OTI license amendment application will increase from $362 to $506. Comments on the proposed new fees may be filed with the FMC Secretary, and are due by April 15, 2002.

FMC Seeks Public Comments on New Chinese Shipping Regulations:   Docket 98-14

The Federal Maritime Commission has issued a Notice of Inquiry seeking information and comments from the public concerning the effects of a recently promulgated Decree of the People's Republic of China (PRC) affecting the operations of shipping companies in the U.S. foreign trade with China. The Commission, acting in the context of its existing inquiry into restrictive practices of the PRC affecting shipping in the U.S. trade with China (Docket 98-14), is requesting information that will assist it in evaluating the effects of recent changes in Chinese law. The Decree, entitled "Regulations of the PRC on the International Maritime Transportation," was promulgated by the State Council of the PRC on December 5, 2001, signed by Prime Minister Zhu Rong Ji, published on December 21, 2001, and became effective January 1, 2002. However, at this time there does not appear to be any department established within the Ministry of Communications of the PRC government enforcing the new law.

Many aspects of the new Chinese law are similar to the U.S. Shipping Acts. According to an unofficial translation key provisions of the new "Regulations on International Maritime Transportation" include:

1. Ocean Carrier Registration: a detailed application will be required of each liner carrier which will provide the responsible department of the PRC Ministry of Communications with the carrier’s name, address, business license, details of its ownership and officers, the particulars of its vessels and ports served, bill of lading and tariff. Before a carrier can commence service to Chinese ports, including Hong Kong, or adjust its scheduled service it must file a notice 15 days in advance with the Department.
2. Tariffs: both ocean carriers and NVOCCs will be required to file tariffs with the responsible department in the Ministry of Communications (MOC). The format required for tariff filing will be determined by this MOC Department. Tariff rates will be effective 30 days after proper filing, however, the new law gives the Department the authority to determine when rates are "normal and reasonable."
3. Service Contracts: ocean carriers will be required to file service contracts with the MOC. Service contract rates may be effective 24 hours after filing. It is not clear if contracts will be kept confidential.
4. NVOCCs: each NVOCC operating in China must have corporate status in China, and must register its bill of lading with the MOC Department, and must pay a deposit of RMB 800,000 to be used to discharge potential debts or penalties for non-fulfillment or improper fulfillment of carrier obligations. An additional deposit of RMB 200,000 will be required for each branch office. There does not appear to be any provision for the filing of a surety bond instead of the deposit, however, the law notes that the deposit and interest earned on it will belong to the NVOCC.
5. Agreements: the MOC is authorized to investigate liner conferences and agreements between carriers when these are alleged to impair fair competition. The chief purposes of the new law are to protect fair competition, maintain order in the international transportation markets, and guarantee the legal interests of all parties in international maritime transportation.

For the past four years the FMC has expressed concern with serious restrictions affecting the ability of: U.S. ocean transportation intermediaries, carriers and other providers of transportation services to obtain the necessary licenses and permissions to do business in China; non-Chinese vessel operators to operate or increase the number of their branch offices in China, including restrictions on the geographic area they may serve and the scope of services they may offer; vessel operators and non-vessel operating common carriers to establish rates they charge customers for carriage to and from China without filing or government approval of rate levels and with the confidentiality accorded ocean common carrier service contract rates under U.S. law.

The Notice of Inquiry issued by the FMC in March 2002 seeks to ensure that it has the most accurate information with regard to these issues, so that it may determine whether any current Chinese laws, rules, regulations or practices merit the initiation of a proceeding under section 19 of the Merchant Marine Act, 1920 or the Foreign Shipping Practices Act of 1988. These statues give the FMC the authority to impose a range of measures, including countervailing sanctions, if it determines that 'conditions unfavorable to the trade' between the US and China have been created by the actions of the Chinese government. Interested persons, including shippers, ocean transportation intermediaries, vessel operators and others in the shipping industry, are invited to submit comments the FMC Secretary not later than June 12, 2002. Comments should be submitted to: Bryant L. VanBrakle, Secretary, Federal Maritime Commission, 800 North Capitol Street, NW, Washington, DC, USA 20573-0001 Tel: (202) 523-5725 E-mail: secretary@fmc.gov

The FMC’s inquiry will be assisted by the efforts of the Maritime Administration (MARAD) of the U.S. Department of Transportation. In late March Maritime Administrator William G. Schubert led a delegation of MARAD and State Department officials on a visit to China for bi-lateral discussions with the representatives of China’s Ministry of Communications. The new Chinese regulations on international maritime transportation were discussed during these meetings, however, MARAD has not released any details to the public.

FMC Terminates Licenses of 32 OTi-Freight Forwarders and NVOCCs

The Federal Maritime Commission (FMC) has recently terminated the licenses of 32 Ocean Transportation Intermediaries (OTIs). Licenses were terminated due to failure to maintain valid surety bonds, or surrendered voluntarily. FMC license numbers ending with the letter "F" are issued to OTI-Freight Forwarders; license numbers ending with "N" are for OTI-NVOCCs. These are all US based OTIs, with a home office located in the State indicated in the following table.

Volume 6   Number 4      April, 2002

The information contained herein is obtained from reliable sources. It is subject to change at any time, however, depending on changes in laws and regulations. While we continually attempt to monitor this information, we do not guarantee its accuracy and are not responsible for any damages suffered by any party in reliance on it.