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FMC Simplifies Service Contract Amendment Rule
Kinghood International Logistics Inc | Updated: Mar 08, 2017

WASHINGTON — US maritime regulators on Monday unanimously voted to scrap a rule requiring container lines to report amendments to service contracts before they go into effect. It's part of a broader effort by the US Federal Maritime Commission to save beneficial cargo owners, or BCOs, carriers, and non-vessel operating common carriers, or NVOCCs, money, and hassle by simplifying the filing process.

  Following the FMC decision, service contract amendments take effect immediately as long as the carriers or NVOCCs file with the agency up to 30 days after the changes are made. Carriers and NVOs also have additional time to correct technical data transmission errors from 48 hours to 30 days and service contract errors from 45 days to 180 days.

  Although the move is part of an ongoing review of existing rules at the FMC that began under the former Obama administration, it could be the first of many rollbacks “consistent with recent executive orders highlighting the benefits of reducing unnecessary and costly regulations” under US President Donald Trump.

  The removal of the rule had broad support from carriers, big-name shippers, and right- and left-leaning commissioners.

  “Considerable commercial difficulties arise when a service contract rate cannot be applied to a given shipment due to a delay in filing with the commission. More than 550,000 service contract amendments are filed annually with the commission and it poses the largest administrative burden for both carriers and their customers in the supply chain,” said FMC Commissioner William Doyle in a statement.

  The World Shipping Council, which represents roughly 90 percent of global container capacity, proposed the new 30-day rule. The original requirement cost individual carriers $10 million to $15 million every year, according to shipping line executives’ estimates. Carriers claim that, on top of those millions of dollars in costs, the original filing requirement also prohibited shippers and carriers from applying agreed-upon terms immediately and thus do business without disrupting or delaying that business.

  The rulemaking is the first comprehensive review of the commission’s service contract regulations in its section of the legislation since implementing rules pursuant to the 1998 Ocean Shipping Reform Act, and the first substantive revision to NVOCC service arrangements since being introduced in 2005.

  Although bigtime industry players like UPS, Cargill, the Global Shippers Association, and the National Industrial Transportation League have voiced strong support for the change, FMC staff said their own reporting showed lukewarm interest. According to an FMC staff report, large BCOs and NVOCCs relayed that they had not experienced any delays as a result of carriers’ inability to process service contract amendments in a timely manner prior to the movement of their cargo.

  The nuances in shippers’ responses did not stop there. Although the 30-day rule has been met with strong support among shippers who submitted public comments to the commission, those same voices encouraged caution when it came to deregulation in other areas — in particular, transitioning from NVOCC service contracts to NVOCC negotiated rate arrangements.

  UPS said it strongly opposed any attempts to phase out NVOCC service agreements, as has been suggested by Commissioner Rebecca Dye. Doing so “would do damage to larger volume NVOCCs that have built their core service arrangements around the NSA [negotiated service arrangement] format,” the company said.

  NITL added: “The NVOCC community itself is not in full agreement on a number of important matters. The commission has correctly deferred a decision on proposing more fundamental changes in the NVOCC regulatory realm to a future proceeding.”

  It is uncertain how likely the FMC is to heed those warnings, especially under a presidential administration as opposed to regulation as the present one.

  Although part of an ongoing review of rules that began under Obama, it’s the first rulemaking done under Trump and, in the words of multiple commissioners, “in the spirit of President Trump’s executive order on agency deregulation.”

  "I strongly support President Trump’s executive order on reducing regulation and controlling regulatory costs," Dye said in a statement. “In the spirit of the executive order, this final rule is an important first step toward eliminating unnecessary regulatory compliance costs from our international supply chain.”

  “I am committed to continuing to identify rules that are outdated, or impede the efficient operation of business, and eliminating them whenever possible,” said Khouri.


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