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FMC Grants NCBFAA Petition on NRAs and NSAs

Last update on June 8, 2018.

FMC Grants NCBFAA Petition   on NRAs and NSAs

Information Provided by NCBFAA

Since the enactment of the Ocean Shipping Reform Act of 1998, the NCBFAA has been urging the FMC to lift archaic, burdensome regulatory barriers on the NVOCC industry. The Association's efforts were pursued through a series of petitions that asked the FMC, among other things, to use its authority to exempt NVOCCs from the obligation to file or publish the rates in tariffs. Consistent with the FMC's exemption statute, the NCBFAA has contended that granting this exemption would not be detrimental to commerce or reduce competition. To the contrary, the Association has been arguing that freeing NVOCCs from the tariff publication requirements would reduce costs and enhance efficiency in the obviously highly competitive NVOCC industry.

To its credit, the FMC has been receptive to the series of petitions the Association filed, but the progress toward the goal has been slow. Initially, the Commission permitted NVOCCs to have NVOCC Service Arrangements (NSAs), so that they could have written contracts with customers that were comparable to service contracts. However, these needed to be formal contracts, filed with the FMC and accompanied by the publication of essential terms publications.

Next, the FMC authorized NVOCCs to enter into Negotiated Rate Arrangements (NRAs), but the scope of those was initially limited. Because of a further petition by the NCBFAA, the NRA exemption became more user friendly, but there were still significant limitations on how they could be used. Chief among the problems was the fact that they could not be amended and that they could only include the actual freight rates, but not other economic terms. As a result, in 2015, the Association filed another petition (this time in Docket P2-15) that again sought FMC approval to lift these types of restrictions; at the same time, the NCBFAA requested that the filing/tariff requirements for NSAs should be removed as unnecessary. The Commission responded by opening its Docket 17-10 and sought comments from the industry.

On June 6, 2018, after reviewing the various rounds of comments filed by the NCBFAA, various members and other trade associations (including the NY-NJ Foreign Freight Forwarders Association, National Industrial Transportation League, and AgOTC), the FMC voted unanimously to approve this groundbreaking relief for NVOCCs and significantly expanded the NRA and NSA exemptions. Although the expanded exemption will not become effective until the agency is able to issue a formal decision (which we expect to be done within a month), the vote by the Commissioners made it very clear that the agency would no longer be content to let early 20th century regulatory theory impede the dynamic nature of the ocean shipping industry.

What does this mean for NVOCCs?

With respect to NSAs, it means that NVOs will no longer be required to file their NSAs or amendments with the Commission. Nor will they be required to publish the so-called essential terms of the NSAs in their tariffs.

As to NRAs, it means several things. First, the prohibition against amending NRAs will be lifted. Accordingly, NVOCCs and their customers will be able to enter into longer term negotiated agreements and be able to amend them at will to be responsive to changes in the ocean shipping marketplace.

Second, there will no longer be a prohibition on including other economic terms in an NRA, so that an NVOCC can agree with its customer on a broad range of issues, including but not limited to:
 Minimum volumes
 Liquidated damages
 Credit
 Service guarantees
 Surcharges and GRIs
 EDI services
 Dispute resolution terms
 Liability for loss and damage
Third, recognizing that it is often difficult for an NVOCC to get a shipper to acknowledge (in writing) its acceptance of the terms of an NRA, the new rule will make it clear that the tender of cargo in response to an NRA will constitute acceptance and the formation of a lawful contract (just as would be the case in non-regulated industries).

It is important to understand the significance of the changes that were voted on by the FMC. While NVOCCs can still publish rate tariffs if they so choose and can still enter into formal NSA contracts with their customers if that is how they prefer to do business, they are now also free to do business with their customers in a virtually deregulated manner. Although an NRA must still be in writing and must be given to customers, that is not surprising and would be a prudent business practice even if rates were totally deregulated. And, the Association and its NEI will schedule a webinar once the new rules become final to explain these changes and what they mean in practical terms.

Additionally, the Association wants to thank its members who got involved in these efforts and continued to push for this relief. Without their support, there would not have been the necessary evidentiary support the FMC needed to go forward. And, of course, the Association also wants to thank Acting Chairman Michael A. Khouri and Commissioner Rebecca F. Dye and Commissioner Daniel B. Maffei, all of whom have been open and willing to consider making regulatory changes to meet the changing environment and to specifically encourage and support the forwarder industry. Obviously, without their support and willingness to take new steps, none of this would have been possible.

As a final note, the discussion at the June 6 FMC meeting was interesting, as one had the opportunity to listen to the exchange between Commission staff and the Commissioners. As part of that, Acting Chairman Khouri specifically recognized the efforts of the NCBFAA in moving this and other initiatives through the agency. If you would like to have a chance to see this, the entire Voting Conference (which also includes a discussion of the agency's view of Agreement records and minutes) can be found on Youtube, by entering OITFMC.

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