[Federal Register Volume 77, Number 45 (Wednesday, March 7, 2012)]
[Rules and Regulations]
[Pages 13508-13510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5461]
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FEDERAL MARITIME COMMISSION
46 CFR Parts 530 and 531
[Docket No. 11-17]
RIN 3072-AC47
Certainty of Terms of Service Contracts and NVOCC Service
Arrangements
AGENCY: Federal Maritime Commission.
ACTION: Final rule.
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SUMMARY: The Federal Maritime Commission amends its rules regarding
certainty of terms of service contracts and non-vessel-operating common
carrier service arrangements. The rule provides common carriers and
shippers with certainty and flexibility by facilitating their use of
long-term contracts that adjust based upon an index reflecting changes
in market conditions.
DATES: The Final Rule is effective March 7, 2012.
FOR FURTHER INFORMATION CONTACT: Karen V. Gregory, Secretary, Federal
Maritime Commission, 800 North Capitol Street NW., Washington, DC
20573-0001, Phone: (202) 523-5725.
SUPPLEMENTARY INFORMATION:
Background
By Notice of Proposed Rulemaking (NPR) published on October 13,
2011, 76 FR 63581, the Federal Maritime Commission (FMC or Commission)
proposed to amend its rules for terms of service contracts and Non-
Vessel-Operating Common Carrier service arrangements (NSA). The NPR was
intended to remove uncertainty in the use of freight rate or other
indices in service contracts and NSAs, while also assisting common
carriers and shippers in pursuing stability and flexibility through
long-term contracts.
The Commission found that an increasing number of service contracts
filed with the Commission reference indices. The ocean freight rates in
those service contracts adjust in increments based upon the changes in
the referenced index levels or their annual or quarterly averages. The
Commission believes that this trend has started to appear because
carriers and shippers in the ocean transportation industry are seeking
stability through long-term contracts, while trying to preserve
flexibility to adjust contract rates reflecting changes in market
conditions.
The Commission's current regulation with respect to terms of
service contracts and NSAs require that the terms, if they are not
explicitly contained in the contracts, must be ``contained in a
publication widely available to the public and well known within the
industry.'' 46 CFR 530.8(c)(2), 531.6(c)(2). The Commission has
received inquiries from the industry as to whether certain freight rate
indices meet the Commission's requirement. For example, until August
2011, the Transpacific Stabilization Agreement (TSA) index was not
available to the public, even though some service contracts referenced
the TSA index before its publication. In addition, although many index
publishers' current index levels are available to the public mostly
without charge, access to their historical data often requires payment
of subscription fees that can reach up to several thousand dollars per
year.
While the Commission began to consider whether the service
contracts referencing indices comport with its regulation, the
Commission also sought to revise its regulations so that they are not
unnecessarily burdensome and do not impede innovation and flexibility
in commercial arrangements between common carriers and shippers.
The final rule would facilitate references to indices in service
contracts and NSAs so that contracting parties can pursue long-term
contracts with rates that adjust through an agreed and ascertainable
manner.
[[Page 13509]]
Comments
The Commission received five public comments responding to the NPR.
The comments were submitted by TSA, Westbound Transpacific
Stabilization Agreement (WTSA), World Shipping Counsel (WSC), carrier
parties to the World Liner Data Agreement (WLDA), and TSC Container
Freight (TSC).\1\ TSA, WTSA, WSC, and TSC support the Commission's
proposed change. Although not explicitly stated, WLDA does not oppose
the proposed change.
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\1\ The Commission determined to accept TSC's late-filed
comment.
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TSA and WTSA support ``the Commission's effort to expand
flexibility in service contracting and welcome[s] the Commission's
support of the option to use rate indices.'' TSA and WTSA believe that
the ability to reference a price index in service contracts will not
only enable the parties to a service contract to allocate risks, but
also relieve the parties of the administrative burden of preparing and
filing numerous contract amendments in response to changes in market
conditions. Eliminating contentious negotiations over numerous contract
amendments may help improve relations between shippers and carriers.
TSA and WTSA stated that the Commission's rule change ``may also
contribute to greater stability and predictability in ocean freight
rates, a benefit consistently sought by carriers and shippers alike,''
and welcome and applaud the Commission's clarification of its
regulations for service contracts and NSAs. Stating that the parties
should be able to refer to the index of their choosing, TSA and WTSA
indicated that the Commission's regulation should promote maximum
flexibility, including by not favoring or promoting any particular
index.
Responding to the Commission's request for comments on the means to
ensure that the referenced indices are readily available to the
Commission, TSA and WTSA recommend that the Commission require such
indices to be made available to the Commission by the carrier party to
the contract within thirty (30) days of a written request by the
Commission. TSA and WTSA stated that such a requirement, which is based
on the Commission's existing requirement at 46 CFR 530.15,\2\ would
provide the Commission with adequate assurance that it would have
access to such indices.
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\2\ Section 530.15(c) of the Commission's regulation provides
that every carrier or agreement shall, upon written request of the
FMC's Director, Bureau of Enforcement, any Area Representative or
the Director, Bureau of Economics and Agreements Analysis [now BTA],
submit copies of requested original service contracts or their
associated records within thirty (30) days of the date of the
request.
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Finally, with respect to the Commission's concerns about how to
reduce any impediments to small shippers having the option of index-
linked contracts, TSA and WTSA stated that they are not aware of any
impediments to a small shipper using such an index in a service
contract with a carrier, although their experience with such index-
linked contracts is still relatively limited.
WSC supports the proposed changes. WSC stated that the change will
facilitate flexibility and freedom of contract by carriers and
shippers. Regarding the Commission's question about how to ensure that
the information referenced in service contracts is readily available to
the Commission, WSC suggests that the Commission require in the
regulations that either the carrier or the shipper provide the rate
index information upon request by the Commission.
WLDA has contracted with Container Trade Statistics Ltd. (CTS) to
aggregate and publish certain data, and through CTS publishes a price
index for containerized dry and reefer cargo. WLDA argues that the
Commission's NPR created a misperception by identifying four freight
rate indices by name, but not the CTS index. WLDA submitted its
comments to correct a possible misperception that it would not be
lawful to use the CTS index in service contracts, or that the CTS index
or other data published by CTS are somewhat less reliable or valuable
than the named indices. WLDA asks that the Commission include in the
supplementary information of the final rule a statement that the CTS
rate index is compliant with the revised regulation.
TSC supports index linked contracts because they will ``provide
more contracting options for shippers large and small.''
Discussion
Contrary to WLDA's comments, the NPR named four indices only as
examples of freight indices referenced in service contracts that had
been submitted to the Commission at the time of the publication of the
NPR. The Commission, however, did not intend to imply that those were
the only freight indices or that it had any concerns regarding the CTS
index. The proposed change was to facilitate, not to limit or impede,
long-term contracts between shippers and carriers, while ensuring their
compliance with the Shipping Act. As long as the referenced terms
comply with the revised regulations, the shippers and carriers are free
to use not only any freight indices, but also other indices such as the
Bureau of Labor Statistics's Consumer Price Index that was already
referred to in certain service contracts.
With respect to the question about possible methods to ensure that
the information referred to in service contracts is readily available
to the Commission, the Commission adopts TSA's and WTSA's suggestions.
As some index publishers require annual payment of up to several
thousand dollars for historical data, requiring small shippers to
provide that data to the Commission may impede their utilization of
long-term contracts. Further, many small shippers may enter into a
service contract only once a year, whereas common carriers may enter
into service contracts with numerous shippers. Requiring those small
shippers to provide the historical data appears to be not only
prohibitive, but also unfair because the substantial annual
subscription fee may disproportionately negate the benefit of long-term
contracts with respect to those small shippers. Therefore, the
Commission adopts TSA's and WTSA's recommendations that associated
records of such indices, including any historical data used to adjust
contract rates, must be made available to the Commission by the carrier
party to the contract within thirty (30) days of a written request by
the Commission.
TSA and WTSA stated that they are not aware of any impediment to a
small shipper using a freight index in a service contract with a
carrier who is willing to do so. By requiring carrier parties to
service contracts to provide the ``associated records,'' the final rule
will further minimize possible impediments to small shippers in
entering into long-term contracts.
Finally, as already proposed in the NPR, this final rule also makes
the same change to the rule for NSAs, which are NVOCCs' contracts with
their shippers and analogous to ocean common carriers' service
contracts with their shippers.
Regulatory Findings
The Regulatory Flexibility Act (RFA) allows the head of an agency
after a threshold analysis, in lieu of preparing an analysis required
by 5 U.S.C. 603 and 604, to certify that ``the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). Such certification may be
published in the Federal Register either at the time of publication of
notice of proposed rulemaking or at the time of publication of the
final rule. Id.
[[Page 13510]]
This Final Rule is intended to enhance the flexibility of regulated
entities concluding contractual relationships subject to the Shipping
Act and the Commission's regulations. There are two types of regulated
entities that this Final Rule may affect: vessel-operating common
carriers (VOCCs) and non-vessel-operating common carriers (NVOCCs). The
Commission currently has on file registrations (Form FMC-1) for 294
VOCCs. VOCCs are generally not small entities, as defined by North
American Industry Classification System's size standards identified by
Small Business Administration. 13 CFR 121.201. While some are large,
multi-national corporations, most NVOCCs licensed by the Commission
have fewer than 500 employees and are therefore small entities. There
are currently 4,652 NVOCCs licensed by or registered with the
Commission.
The Commission believes that there are approximately 46,962
effective service contracts on file with the Commission between May 1,
2011 through February 9, 2012. Of those, the Commission has identified
62 service contracts referencing indices, approximately 0.13% of the
total, that would become subject to the Final Rule. Complying with the
Final Rule with respect to 0.13% of the total service contracts would
not appear to result in a ``significant economic impact'' on VOCCs.
Specifically, only VOCCs whose service contracts refer to indices will
be subject to the requirements of 46 CFR 530.8(c)(3) of the Final Rule,
and based upon the number of contracts currently on file with the
Commission, that number is very small.
Nor will this Final Rule have a ``significant economic impact'' on
NVOCCs. The rule simply provides parties to service contracts and NSAs
more freedom and flexibility in their commercial arrangements and will
not adversely affect small NVOCCs. Unlike VOCC service contracts, there
are no NSAs currently on file with the Commission that reference
indices, and, therefore, no NSAs would be impacted by the Final Rule.
In view of the above, the Chairman of the Commission hereby
certifies, pursuant to 46 U.S.C. 605(b) of the Regulatory Flexibility
Act that the rule will not, if promulgated, have a significant economic
impact on a substantial number of small entities.
This rule is not a ``major rule'' under 5 U.S.C. 804(2).
As VOCC parties to service contracts and NVOCC parties to NSAs are
already required to provide ``associated records'' to the Commission
pursuant to the Commission's regulations at 46 CFR 530.15(c) and
531.12(b), this Final Rule does not impose any new recordkeeping or
reporting requirements on VOCCs or NVOCCs that would be ``collection of
information'' requiring approval under the Paperwork Reduction Act, 44
U.S.C. 3501 et seq.
List of Subjects in 46 CFR Parts 530 and 531
Freight, Maritime carriers, Reporting and recordkeeping
requirements.
For the reasons stated in the supplementary information, the
Federal Maritime Commission amends 46 CFR parts 530 and 531 as follows.
PART 530--SERVICE CONTRACTS
0
1. The authority citation for part 530 continues to read as follows:
Authority: 5 U.S.C. 553; 46 U.S.C. 305, 40301-40306, 40501-
40503, 41307.
0
2. Revise Sec. 530.8(c) to read as follows:
Sec. 530.8 Service Contracts.
* * * * *
(c) Certainty of terms. The terms described in paragraph (b) of
this section may not:
(1) Be uncertain, vague or ambiguous; or
(2) Make reference to terms not explicitly contained in the service
contract itself unless those terms are readily available to the parties
and the Commission.
(3) Pursuant to Sec. 530.15(c), the carrier party to the service
contract must, upon written request by the Commission, provide the
Commission with the associated records of the referenced terms. For the
purpose of paragraph (c)(2) of this section, the referenced terms will
be deemed readily available to the Commission if the carrier party to
the service contract provides the Commission with the associated
records of the terms within thirty (30) days of the Commission's
written request.
* * * * *
PART 531--NVOCC SERVICE ARRANGEMENTS
0
3. The authority citation for Part 531 continues to read as follows:
Authority: 46 U.S.C. 40103.
0
4. Revise Sec. 531.6(c) to read as follows:
Sec. 531.6 NVOCC Service Arrangements.
* * * * *
(c) Certainty of terms. The terms described in paragraph (b) of
this section may not:
(1) Be uncertain, vague or ambiguous; or
(2) Make reference to terms not explicitly contained in the NSA
itself unless those terms are readily available to the parties and the
Commission. Reference may not be made to a tariff of a common carrier
other than the NVOCC acting as carrier party to the NSA.
(3) Pursuant to Sec. 531.12(b), the carrier party to the NSA must,
upon written request by the Commission, provide the Commission with the
associated records of the referenced terms. For the purpose of
paragraph (c)(2) of this section, the referenced terms will be deemed
readily available to the Commission if the carrier party to the NSA
provides the Commission with the associated records of the terms within
thirty (30) days of the Commission's written request.
* * * * *
By the Commission.
Karen V. Gregory,
Secretary.
[FR Doc. 2012-5461 Filed 3-6-12; 8:45 am]
BILLING CODE 6730-01-P