Amended rules for service contracts and NVOCC service arrangements

To reduce regulatory costs associated with ocean shipping, The Federal Maritime Commission (FMC) has formed a Regulatory Reform Task Force. Its job is to identify outdated rules relating to service contracts and NVOCC service agreements, and revise them to better meet the realities of today. This article covers some of the new changes you can expect.

The Federal Maritime Commission (FMC) is revising rules pertaining to service contracts and non-vessel operating common carrier service agreements, in an effort to reduce regulatory costs for ocean shipping. This is part of an ongoing review that began under the Obama administration. A new Regulatory Reform Task Force will begin working to identify burdensome, unnecessary, and outdated directives, and recommend how they should be remedied.

A number of regulatory requirements have already been eliminated to better fit today’s commercial practices. According to Chairman Michael Khouri, they had become obstacles to efficient ocean transportation arrangements, added unnecessary costs and served no regulatory purpose. Most Commissioners support President Trump’s Executive Order on Reducing Regulatory Costs.

• On 6 March 2017 the FMC voted to drop a rule requiring that container lines report amendments to service contracts before they go into effect. FMC Commissioner Rebecca Dye said “the vote was in spirit of President Trump’s Executive Order on Reducing Regulation and Controlling Regulatory Costs, and an important first step toward eliminating unnecessary regulatory compliance costs from our international supply chain.” This change will give American exporters and importers increased commercial flexibly in freight transportation.
• The definition of “effective date” will now mean “the date upon which a service contract amendment is scheduled to go into effect by the parties, provided it’s no more than 30 days prior to the amendment’s filing with the Commission.”
• Sequential service contract amendments can be filed with the FMC within 30 days of the effective date of an agreement between shipper and carrier. The FMC believes that allowing changes to service contracts upon agreement by the parties — rather than delaying implementation until the contract is filed with the FMC — will benefit shippers, carriers and the maritime industry supply chain.
• Up to 30 days are allowed for filling NVOCC Service Arrangement Agreements with the FMC after their effective date, and the time to correct technical transmission errors increases from 48 hours to 30 days. Today, carriers typically do not discover electronic errors until after the initial 48-hour period has passed, as these types of mistakes are generally data entry errors on the SERVCON upload screen.
• The period for filing a service contract correction request also increases from 45 days to 180 days, as administrative or clerical errors may not be detected within 45 days after cargo is tendered for transportation.

The rule changes were broadly supported by the World Shipping Council, the trade organization for major liner companies, and the National Customs Brokers and Forwarders Association of America. Shippers strongly support the 30-day rule, but urged caution when it came to deregulation in other areas, such as transitioning from NVOCC service contracts to NVOCC negotiated rate arrangements. UPS strongly opposed any attempts to phase out NVOCC service agreements, as has been suggested by Commissioner Rebecca Dye. According to the company, doing so “would do damage to larger volume NVOCCs that have built their core service arrangements around the NSA format.”

The final rule amending requirements for Service Contracts and NVOCC Service Arrangements was published on 29 March 2017 and became effective on Friday 5 May 2017. The final rule in Docket No. 16-05 is available on the Commission’s website and was published in the Federal Register on Tuesday April 4, 2017.