Navigating the Ocean Shipping Reform Act, Part Three: Litigation and Rough Waters Ahead

March 21, 2023

As the Federal Maritime Commission (FMC) implements the requirements of the new Ocean Shipping Reform Act (OSRA), litigation against ocean common carriers is on the rise. It may not be possible to predict what will happen for beneficial cargo owners (BCOs), ocean common carriers and marine terminal operators in the coming year, as this uptick in litigation continues. But a quick look at recent decisions from the FMC may shed light on how the FMC will treat issues related to OSRA going forward.

The FMC is establishing new guideposts for the industry. For example, in an order denying a joint motion to approve a settlement agreement, an FMC administrative law judge’s discussion of the proposed agreement’s terms is one example of the path the FMC may be taking in light of OSRA’s requirements. There, the ocean common carrier had agreed to pay a civil penalty and to cease collection attempts with respect to detention assessed against the shipments at issue.

In line with the FMC’s interpretive rule on detention and demurrage, the carrier also agreed to: (1) publish contact information and procedures for submitting all disputes or requests for waiver or refund of detention charges; (2) conduct a training of all employees involved in the billing of detention and demurrage or handling detention and demurrage disputes; and (3) communicate with motor carriers about return locations for equipment and to post a list of all authorized container return locations on its website, to be updated daily.

Those provisions, however, did not alleviate the concerns of the administrative law judge, who found the settlement agreement “lack[ed] clarity” and that to “alleviate the burden to the supply chain created by congestion at the ports, it is important that the settlement agreement articulate clear and reasonable terms that motor carriers, beneficial cargo owners, and the public can follow.”

On June 8, 2022, the FMC approved a settlement agreement in an enforcement action between the Bureau of Enforcement and Hapag-Lloyd AG, in which the ocean common carrier agreed to pay a $2 million civil penalty, arising out of alleged violations related to its detention and demurrage practices. FMC Chairman Daniel Maffei said: “To restore full confidence in our ocean freight system, vigorous enforcement of FMC rules is necessary. Specifically, we must ensure powerful ocean carriers obey the Shipping Act when dealing with American importers and exporters. The case that was concluded today is just part of an ongoing effort to investigate any conduct alleged to violate FMC rules — and in particular, the interpretive rule on detention and demurrage charges.”

In another recent high-profile action, a complaint filed against a major ocean common carrier was settled and approved by the administrative law judge. The FMC reversed the initial decision of the administrative law judge, finding the motion to approve the settlement did not address the rules in Subpart W of 46 C.F.R. Part 502, and that “it does not appear that the civil penalty and other terms proposed in the settlement agreement are sufficient to resolve the serious allegations in this case.” Additionally, the FMC did not agree there were sufficient reasons to waive the no-confidentiality requirement of enforcement action settlements, noting the FMC’s interest in “deterring unlawful conduct and otherwise encouraging compliance with the statutes and regulations that it administers.”

The FMC’s role following the enactment of OSRA is to address certain issues in the global supply chain, including by creating greater clarity among industry participants and leveling the playing field among BCOs, ocean common carriers and marine terminals. The FMC’s recent actions indicate that it desires to use its enforcement powers to limit perceived overreach, protect BCOs from a volatile shipping market, alleviate certain stressors on the global supply chain and eliminate obstacles to the resolution of legitimate complaints. 

Navigating the Ocean Shipping Reform Act, Part One: The Overview (February 7, 2023)
Navigating the Ocean Shipping Reform Act, Part Two: New Rules and Big Changes (February 28, 2023)