The disappearance of the service contract in maritime transport and
The email below recently received by the author paints the picture we see a thousand times over in the current shipping market on Asia’s inbound / outbound trade routes, highlighting the serious disconnect currently between ocean carriers and shippers on these US trade routes. :
We see examples where a tariff has been agreed and the cargo has been handed over to the carrier. In many cases, the freight is rolled up and remains at the originating terminal for an additional 1-2-3 weeks. When the cargo finally sails, the carrier advises that the tariff has increased and if the higher tariff is not accepted, the cargo will not move – keep in mind that this is after the cargo has entered. the carrier.
Below is an example of (shipper) with (name of shipping carrier deleted). (The shipper) is concerned about filing a formal complaint with the FMC or the carriers because they are concerned that there will be unintended repercussions. So he asks us if we can check with you if you have an example of a previous lawsuit or something that they could provide to their clients when these situations arise.
Let me know and thanks for your help.
The disappearance of service contracts
The above is what we see repeatedly from actual cargo owner shippers and non-vessel operating common carriers (NVOCCs) as shippers. It appears that the service contract has shrunk as a serious legally binding document, and its regulatory status appears to be losing ground due to shippers’ reluctance to seek legal regulatory remedies. There is an inherent apprehension of shippers in this situation given a real fear of retaliation in a very fragile supply chain currently led by rolled freight, equipment shortages, spot markets (as noted above) and port congestion. The cash pricing circumstances are such that they could theoretically be handled as part of a service contract. For example, in the context of rolled freight, a reasonable ceiling rate could be agreed in advance in the service contract in the event of cumulative problems with rolled cargo in different ports. However, there are usually no such conditions in service contracts. I have the impression that the alternative to the auction, which gives rise to
high freight rates, is more financially attractive than negotiating a reasonable ceiling rate to create a stable shipping environment.
The resurgence of ocean wanderers
The above and following are not provided as a critique of the Federal Maritime Commission (FMC), but rather as an observation of the current state of affairs which we are sure is already perfectly clear to the FMC. Perhaps the situation calls for a more vigorous investigation into these issues, but on the other hand, in this time when stocks are still very low, the demands of shippers have very immediate demands, which creates the need to resolve these issues. problems immediately, even if it means paying exaggerated prices for their resolution. It appears that shipping carriers act more like tramp vessels which are specifically excluded from the jurisdiction of the Merchant Shipping Act 1998, as amended (the Merchant Shipping Act). Shipping carriers seek freight on the basis of tariff incentives rather than regular (offered) stopovers at negotiated price levels, although, as ocean carriers as defined in the Merchant Shipping Act, they must strive to provide services at fixed prices to the very ports where they then cancel departures, even after receiving goods to be shipped from those ports. The Merchant Shipping Act requires that failure to transport at the applicable tariffs, once the cargo is offered and accepted by the shipping carrier, would result in a violation of the Merchant Shipping Act, but as simple as it sounds , this has not been tested so far.
The other salient trait of the ocean tramp ship operator that is visible in common ocean carriers right now is the refusal to load agricultural export goods from the United States to Asia. The so-called “common carriers” sea carriers are more motivated to quickly position gaps for inbound trade in Asia, where the most bidders are present, than to serve exports to the Asian market. The laws and regulations of the Merchant Shipping Act are clearly not intended for tramp operations, but that appears to be where we are now with so-called ocean tramp-type “sea carrier” operations. The traditional maritime carriers, which benefit from all the advantages of the law on the merchant marine by obtaining an antitrust immunity which allows collaborations with their competitors in the framework of anticompetitive alliances, are now cracking down on these regulations of the law on the merchant navy by seeking the tariff advantages of ocean tramp operators, while continuing to enjoy the antitrust advantages of shipping carriers under the Merchant Shipping Act.
As a direct result of these new revenue streams, strong financial results prevailed, reflecting a very successful shipping year for most of the so-called joint shipping carriers. On the shippers’ side, there are no corresponding short-term solutions on the horizon. These carriers have now discovered the lucrative common ocean carrier / ocean tramp hybrid and will not let go easily. We still believe, however, that the CMF and the Merchant Shipping Act, perhaps the latter with some significant changes related to defining the limits of ocean carriers from ocean wanderers, and other reforms, could still be the way. towards a more viable playground for all parties.
At present, there are real issues for the shipper segment of this industry for which there are only traditional CME remedies, either through complaints in federal courts, perhaps even class actions, or with the FMC or, hopefully, in accordance with formal FMC investigations, which may bring much needed attention to these pressing issues of national concern. However, in terms of more permanent solutions, serious amendments to the Merchant Shipping Act should be sought taking into account US shippers (importers / exporters) and the US economy as a whole.
Carlos Rodriguez is a Washington DC-based partner with the law firm Husch Blackwell LLP. He leads the company’s Supply Chain Logistics team.