FMC Issued $3M in Fines Against Ocean Carriers
The Federal Maritime Commission’s expanded powers have led to more penalties for ocean carriers.
The FMC, which investigates excessive charges and contract breaches by ocean carriers, resolved 36 cases in the 12 months through September, almost triple the number of two years earlier, according to data reported by the Financial Times.
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Civil penalties and reached settlements totaled almost $3 million in the period, up from barely $100 three years earlier.
The $2.89 million in penalties mostly comes from two fines totaling $2.65 million. These were paid to the U.S. government by global container carriers Ocean Network Express (ONE) and Wan Hai to settle allegations of unreasonable charging practices for, as an example, applying a fee when companies return empty containers.
Part of the FMC’s job is to ensure U.S. exporters get a fair shake from ocean carriers. Under the Ocean Shipping Reform Act, carriers are required to prove the accuracy of late fees, or detention and demurrage, with the proper citations on a shipper’s invoice of information justifying the charge.
The legislation was a born from the shipper backlash during the Covid-19 pandemic when they claims that carriers were sticking them with steep detention and demurrage fees. Some shippers also accused the ocean liners of refusing to fulfill their contracts.
In the case of the latter, the FMC ruled in June that Maersk-owned ocean liner Hamburg Süd owed furniture retailer OJ Commerce $9.8 million for breaching cargo service agreements. This fine wasn’t included in the recent FMC data, as it was a private case brought by the plaintiff to the commission. Bankrupt Bed Bath & Beyond currently has not one, but two complaints with the FMC against Orient Overseas Container Line Limited and Yang Ming.
During the pandemic, shippers and lawmakers alike took umbrage with the massive profits the ocean carriers reaped as freight rates skyrocketed to all-time highs in 2021 and 2022. These criticisms went all the way up to President Joe Biden. During the 2022 State of the Union address, he told the nation how foreign-owned container shipping companies were “overcharging American businesses and consumers.”
The FMC has since opened a fast-track route for businesses to report illegal charges by email, and has collected 394 complaints in the 14 months since July last year.
Approximately $1.7 million in fees or surcharges have been voluntarily waived or refunded by common carriers since last July 2022 through the filing of charge complaints. Commission staff expects to add a rule in 2024 creating a permanent charge complaint process.
With an expanding number of cases, the regulator has to catch up by growing headcount. According to FMC chair Daniel Maffei, employees now number 135, and increase from 110 but less than the eventual target of 160. The FMC has completed 43 investigations into reports of erroneous charges, while 101 cases have been resolved by the shipping companies involved.
As expected, some ocean carriers aren’t happy with the FMC’s shifting role, including the commission’s recently revised proposal which would change what could be considered “unreasonable” behavior in turning away cargo. One of the possible changes would require carriers to file an annual export policy with the agency, which would force them to submit detailed pricing strategies and service offerings.
Some container ship companies are concerned that the FMC will act as a pricing regulator, particularly since the proposal said to consider factors such as when carriers quote rates “that are so far above current market rates they cannot be considered a real offer or an attempt at engaging in good faith negotiations.”
“The commission has no authority to regulate prices,” said the World Shipping Council (WSC), a trade association that represents 90 percent of the world’s ocean carriers. “There is no scenario under which an agency that does not have authority to regulate rates can permissibly use rate levels as a measure of reasonableness, and that legal reality is the end of the matter.”
It hasn’t been all gloom and doom for the ocean carriers since OSRA went into effect. Earlier this month, the FMC dismissed a major case against Mediterranean Shipping Co. (MSC), the world’s largest container shipping company, which would have had a significant impact on future hearings on the agency’s authority.
The case was brought by Sofi Paper Products, which received a congestion surcharge of $1,000, but claimed MSC could not justify it. In a four-to-one ruling, the FMC ruled that the fee did not amount to an unreasonable detention and demurrage charge.
