COMMENTARY: The FMC as shipper protection agency

Incoming administration has chance to lift, or leave behind, ocean freight shippers

By: Chris Gillis
Photo: SantiPhotoSS/Shutterstock
   A recent survey by American Shipper has found that more than a third of ocean container shippers feel the U.S. Federal Maritime Commission, which is charged with protecting them from commercial abuses in the international maritime industry, has let them down.
   That should serve as a baseline for President-elect Donald Trump, who campaigned on a promise to promote American business, and now has the opportunity to put some shipper teeth back in the agency.
   In recent years, shippers have endured a string of hardships just as they clawed their way out of one of the worst economic recessions in U.S. history. From congested container terminals and threatened port shutdowns to the more recent transformation of the liner carrier landscape – complete mergers, acquisitions, rejiggered alliances, and a bankruptcy for good measure.
   Similarly, non-vessel-operating common carriers and freight forwarders, which represent the cargo-handling interests of many of the nation’s smaller shippers, have watched their bottom lines shrink as carriers drive down rates to near non-compensatory levels to gather any and all containerized shipments they can for their massive vessel fleets.
   The FMC has advanced statements and reviews regarding these circumstances, but they’re of little comfort to the country’s exporters and importers who feel the tumult of the container shipping industry in their bottom lines.
   According to a Dec. 5-9 American Shipper online survey of the industry, only 14 percent of the 137 respondents believe the FMC represents their interests very well, while 35 percent said it doesn’t represent their interests well at all. Another 40 percent said the FMC represents shipper interests somewhat well. (Of the respondents, 40 percent were freight forwarders/NVOs, 23 percent were shippers, and 13 percent were shipping lines. The remainder of the respondents were other 3PLs, other carriers, consultants, port authorities, or logistics software companies.)
   As Richard A. Lidinsky Jr., former FMC chairman and commissioner, wrote in an October commentary for American Shipper, the FMC’s primary mission, as governed by the Shipping Act, is to ensure that the waterborne commerce by U.S. shippers flows smoothly, and that the various shipping statutes are applied to meet this goal. He recalled the exacting words of FMC General Counsel James L. Pimper, who served from the World War II era until 1975: “Congress called it the Shipping Act for a reason—it is for shippers, not carriers, ports or railroads—so always keep that in mind!”
   “Now over the years many have come to see the various acts and commissions as a tool to screw down rates or ensure carrier profits—neither is proper,” Lidinsky later added. “If applied fairly and properly the act and its various regulations will meet the goal of protecting American shippers, maritime industries and the consumer.”
   So what can the Trump administration do to strengthen the FMC’s role to becoming a stronger shipper protection agency?
   First, careful consideration should be given to who Trump designates to serve as the new FMC chairman in January. A seat on the five-person commission will open in June 2017, and this individual will need to be a Republican to create a 3-2 majority among the commissioners.
   The Trump administration hasn’t hinted yet who it will pick to lead the commission, and may not for some time. However, a businessperson with previous ties to a major U.S. exporter or importer may help put a no-nonsense focus back on shippers at the agency.

Shippers can press the commission to act. They should not fear carrier retribution, but rather challenge carriers and alliances to ensure the entire system is working in American interests

   Internally, the commission could use its current powers to help shippers with new rulemaking that has teeth for cargo detention/demurrage problems such as those which arose during the Los Angeles/Long Beach vessel congestion crisis two years ago. They could also promulgate protective measures for situations like the recent Hanjin bankruptcy, to ensure shippers are not left in the lurch. The vehicle for this action could be the inclusion in the alliance agreement of a contingency pool for that problem, suggested a former FMC commissioner, who asked not to be named.
   In addition, the commission could “review and streamline regulations to make them more flexible for shippers to call out carriers playing games on surcharges, and other practices that take on an aura of never being questioned or changed,” the former commissioner said.
   “Shippers can press the commission to act. They should not fear carrier retribution, but rather challenge carriers and alliances to ensure the entire system is working in American interests,” he added.
FMC Chairman Mario Cordero has been praised by shippers for quietly taking action two years ago to get carriers to back off their congestion surcharges, as well as easing some of their anxieties involving international container weighing regulations earlier this year, Peter Friedmann, executive director of the Agriculture & Commodities Transportation Coalition, said in an interview.
   However, many shippers believe it’s still too difficult to get the FMC to act on their behalf.
   For example, when shippers recently approached the FMC to initiate a rulemaking that would prohibit carriers from assessing penalties against them for missed free time windows that are outside their control or induced by the carriers themselves, the commission told them to file a petition for its consideration.
   “It’s disappointing that the commission cannot self-initiate a rulemaking in a crisis situation without a petition,” Friedmann said. “Other regulatory agencies, like the Federal Trade Commission, Securities and Exchange Commission, and Consumer Products Safety Commission, don’t request a formal petition when they’re alerted to wrongdoing. They investigate. They’re not afraid to take action.”
   The 25-member Coalition for Fair Port Practices filed an in-depth, 209-page petition on Dec. 7, calling for the prohibition of unwarranted carrier surcharges and penalties outside shippers’ control.
   “It is essential that the FMC now understand that its role is to protect the consumers of ocean transportation as the commission has been instructed to do in the Shipping Act itself to promote the growth and development of U.S. exports,” Friedmann said.
   In terms of issues the industry wants the FMC to tackle, more than half of respondents to the recent American Shipper survey indicated rate collusion and detention/demurrage issues were important. Forty-five percent said the FMC should monitor carrier consolidation closely and another 44 percent said the commission should closely watch changing carrier alliances.
   About a third of respondents to the survey believe the incoming Trump administration will tilt the balance of the FMC toward favoring shippers more than carriers, while 11 percent said the balance will shift more toward carriers. Eighteen percent said neither shippers nor carriers will be favored, but more than 37 percent said it’s uncertain how the new administration will impact the FMC.
   Worst case scenario going forward, the Trump administration may question the relevancy of the FMC altogether and set its sights on its elimination, or at minimum erode its significance for the industry by burying it within the bureaucracy of a large department.
   Either way, the new Trump administration ran a campaign based on the message of “change” in Washington, and shippers should press that point as far as the FMC and Congress goes. Besides supporting changes on Capitol Hill, at the agency shippers must be vocal and visibly present so that the new chairman and commissioners understand the true intent of the Shipping Act and give shippers the protections they deserve.