Ocean Common Carrier and Marine Terminal Operator Agreements Subject to the Shipping Act of 1984

Federal RegisterDec 15, 1998

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FEDERAL MARITIME COMMISSION

46 CFR Parts 535 and 572

[Docket No. 98-26]

Ocean Common Carrier and Marine Terminal Operator Agreements

Subject to the Shipping Act of 1984

AGENCY: Federal Maritime Commission.

ACTION: Proposed rule.

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SUMMARY: The Federal Maritime Commission proposes to amend its

regulations governing agreements among ocean common carriers and marine

terminal operators to reflect changes made to the Shipping Act of 1984

by the recently enacted Ocean Shipping Reform Act of 1998, Pub. L. 105-

258. In accordance with that Act, the Commission is proposing to

establish new rules for ocean carrier agreements regarding carriers'

service contracts with shippers, amend the scope of marine terminal

agreements subject to the Act, establish rules for agreements on

freight forwarder compensation, reduce the mandatory notice period for

carriers' independent action on tariff rates, and make other conforming

changes. The Commission is also proposing to delete much of its format

requirements for filed agreements, clarify the definition of ``ocean

common carrier'', and make other technical amendments to the filing

rules for clarity and administrative efficiency.

DATES: Comments due January 14, 1999.

ADDRESS: Send comments (original and fifteen copies) to: Joseph C.

Polking, Secretary, Federal Maritime Commission, 800 North Capitol

Street, NW, Room 1046, Washington, DC 20573-0001.

FOR FURTHER INFORMATION CONTACT:

Thomas Panebianco, General Counsel, Federal Maritime Commission, 800

North Capitol Street, NW, Washington, DC 20573-0001 (202) 523-5740

Austin L. Schmitt, Director, Bureau of Economics and Agreement

Analysis, Federal Maritime Commission, 800 North Capitol Street, NW.,

Washington, DC 20573-0001 (202) 523-5787

SUPPLEMENTARY INFORMATION:

Background

On October 14, 1998, the Ocean Shipping Reform Act, Pub. L. 105-

258, 112 Stat. 1902, (``OSRA'') was signed into law. That law makes

several changes to the Federal Maritime Commission's (``FMC'' or

``Commission'') authorities and responsibilities under the Shipping Act

of 1984, 46 U.S.C. app. 1701 et seq. (``1984 Act''). In particular, in

an effort to foster competition and other aims, Congress made a number

of changes regarding the treatment of agreements between and among

vessel-operating common carriers and marine terminal operators, which

are subject to Commission oversight. Section 203 of

[[Page 69035]]

OSRA requires that ``[n]ot later than March 1, 1999, the Federal

Maritime Commission shall prescribe final regulations to implement the

changes made by this Act.''

On November 13, 1998 the President signed the Coast Guard

Authorization Act of 1998, 1999 and 2000, Pub. L. 105-383, 112 Stat.

3411 (November 13, 1998). That Act also included amendments to the

Shipping Act of 1984. Accordingly, the Commission now proposes to

update its agreement-related regulations to conform with these new

laws. The Commission is also proposing to amend its rules to eliminate

certain unnecessary formal requirements and make other clarifications

and changes.

OSRA Changes to FMC Agreement Oversight

The most notable feature made to the 1984 Act by OSRA involves

ocean carrier agreements and service contracting. Specifically, OSRA

amends section 5 of the 1984 Act to provide that ocean common carrier

agreements may not prohibit or restrict members from negotiating

service contracts with one or more shippers, and may not require

members to disclose the terms and conditions of a service contract or a

negotiation on a service contract. In its report on OSRA, the Senate

Commerce, Science, and Transportation Committee stated that ``the right

of individual and independent service contracts is the most important

change made by the bill''; the change was made ``to foster intra-

agreement competition, promote efficiencies, modernize ocean shipping

arrangements, and encourage individual shippers and carriers to develop

economic partnerships that better suit their business needs.'' S. Rep.

No. 2, 105th Cong., 1st Sess. 16-17 (1997). Under the new law, ocean

common carrier agreements are prohibited from adopting mandatory rules

or requirements affecting a member's right to negotiate and enter into

service contracts. OSRA does provide, however, that an agreement may

issue voluntary guidelines relating to the terms and procedures of

members' service contracts, if they state that members are not required

to follow the guidelines. Agreement guidelines are required to be

submitted confidentially to the FMC.

Other notable changes in OSRA include reducing the notice period

for independent action on tariff rates and service items from ten

calendar days to five, and establishing that the right of independent

action applies to all rates and charges fixed by a conference. In

addition, OSRA (while it eliminates many of the Act's prohibitions on

discriminatory treatment) adds new sections 10(c) (7) and (8) applying

to service contract carriage, barring carrier groups from subjecting

shippers' associations or ocean transportation intermediaries to unjust

discrimination or unreasonable prejudice or disadvantage based on their

status as associations or intermediaries. This section shows Congress's

recognition that these ``middlemen'' are an important part of the

market's competitive structure and are worthy of special protections.

The standards in section 16 for granting exemptions from

requirements of the Act also have been liberalized. Maintaining

effective FMC regulation and averting unjust discrimination are no

longer part of the analysis. The Commission now must establish only

that an exemption will ``not result in substantial reduction in

competition or be detrimental to commerce.'' \1\

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\1\ While the grant of particular exemptions under the new

standard is beyond the scope of this proposed rule, the Commission

will entertain comments on whether any classes of agreements would

be appropriate for full or qualified exemption under the new test.

Such comments, if meritorious, may form the basis for future

proceedings.

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The new law also rectifies ambiguity that arose in the wake of the

1995 repeal of the Shipping Act, 1916 (which applied to domestic

waterborne commerce; see Pub. L. 104-88, 109 Stat. 803) as to the scope

of the Commission's authority over marine terminal operations involving

domestic commerce. OSRA changes the definition of ``marine terminal

operator'' (formerly section 3(15), now 3(14)) to make clear that it

applies to the furnishing of terminal facilities not just in connection

with ``common carriers'' (i.e., wholly international commerce), but

also in connection with ``a common carrier and a water carrier subject

to subchapter II of chapter 135 of title 49, United States Code.'' Put

another way, the definition of marine terminal operator (and thus, our

jurisdiction) now extends to terminal operations involving both

international and domestic waterborne commerce, but not to terminal

operations involving solely domestic transport.

A corresponding change is made in section 4(b) of the 1984 Act,

which specifies the types of agreements subject to the Act. The amended

Shipping Act thus will apply to agreements among terminal operators to

discuss, fix or regulate rates or services applicable to both

international and domestic commerce. However, agreements involving

terminal operators to ``engage in exclusive, preferential, or

cooperative working arrangements'' will only be subject to the Act ``to

the extent such agreements involve ocean transportation in the foreign

commerce of the United States.''

While OSRA made no changes to the general economic standard for

evaluating agreements in section 6(g) of the Act, the legislative

history explains that evolving market conditions require the Commission

to take a more vigorous and forward-looking approach to enforcing the

general standard. The Committee stated, in part:

* * * [I]nternational liner shipping is becoming a more

concentrated industry. The Committee is concerned that trade-wide

agreements established by the potential oligopoly of mega-carriers

and global strategic alliances, composed of fewer and more

homogeneous members than are today's agreements, may effectively

dominate the major U.S. trade lanes in the near future.

The section contemplates the use of reasoned projections and

forward-looking analyses by the agency, based on its substantial

industry expertise. It appears that the FMC thus far has given the

section a restrictive reading, suggesting that an injunction cannot

be won without direct evidence of actual commercial harm suffered by

shippers as a result of agreement activity. While evidence of

shipper harm may indeed be relevant in certain cases, a blanket

requirement for such evidence is not consistent with the text of the

statute, and would undermine the agency's ability to take necessary

preventive action. Indeed, the Committee directs the agency not to

allow the disruption of ocean borne commerce while it seeks to

quantify such disruption for evidentiary purposes.

S. Rep. No. 2, 105th Cong., 1st Sess. 8-9 (1997).

The Committee also set forth a detailed analytical approach to the

section, developed in cooperation with the Commission and other

interested parties. While no specific changes on the Commission's rules

appear to be warranted to implement these policies, the Commission will

be tailoring and refining its agreement analysis to conform with the

Committee's admonitions.

The Proposed Rule

The proposed rule redesignates the Commission's agreement rules,

formerly 46 CFR part 572, as part 535, and makes changes to its

authority citations to reflect ISRA's passage. References in the

following discussion will be to the redesignated part number.

The following discussion first covers the three groups of proposed

rule amendments that require a degree of detailed explanation: (1)

changes regarding service contracts; (2) changes in agreement form; and

(3) a revised definition of ocean common carrier.

[[Page 69036]]

Following those three matters is a discussion of the remainder of the

proposed changes, in the order they appear in the rule.

Proposed Amendments Regarding Service Contracts

A new policy statement is added in Sec. 535.103 to reflect the

Act's new limits on carrier agreements affecting service contracts. The

definitions of ``service contract'' and ``shipper'' in Sec. 535.104

(cc) and (dd) are changed to reflect changes in the Act. Also, to

conform with OSRA, the former reference to regulating and prohibiting

service contracts in the list of agreements subject to the Act

(Sec. 535.201(7)) is changed to ``discuss and agree to any matter

related to service contracts.''

Section 535.802 is entirely new. It reflects the new provisions in

section 5(c) (1) and (2) of the Act barring carriers from collectively

agreeing to prohibitions or restrictions on service contract

negotiations, or requirements for disclosure of contract terms or

negotiations. It makes clear that these prohibitions in section 5(c)

(1) and (2) apply whether or not the carriers' agreed-upon

prohibitions, restrictions, or requirements are legally enforceable or

backed by sanctions or penalties.

While OSRA bars carrier groups from establishing binding rules for

contracts, it allows them to adopt voluntary guidelines to guide

members in their contract dealings with shippers. Section 535.802(c)

reflects the Act's new section 5(c)(3) barring carriers from

collectively adopting mandatory rules or requirements for contracts.

Section 535.802 (d)-(g) addresses the use of voluntary service contract

guidelines. The term ``voluntary guidelines'' is defined to clarify

that it applies to the terms of service contracts and the procedures

carriers follow in their dealing with shipper customers, and not to

procedures for carriers' discussions or decision making among

themselves, which would effectively restrict independent service

contracting. The rule also makes clear that use of such guidelines must

be wholly at the option of the individual carrier.

Section 535.802(f) states that voluntary guidelines may not include

procedures whereby carriers agree to disclose service contract terms or

negotiations, pre-clear proposed service contracts, submit to

compliance checks or are subject to sanctions for non-compliance. Such

``guidelines'' would be inconsistent with the voluntariness requirement

in the statute, the Act's prohibition on disclosure requirements and

agreement restrictions on service contracting, and would undermine

Congress' intent to eliminate collective control of service

contracting.

A new Sec. 535.802(h) is added in recognition that, inasmuch as the

Act allows multi-carrier agreements, carriers must agree among

themselves on procedures for entering into and administering such

contracts. Such procedures must be reflected in the carriers' filed

agreement.

Another new section, Sec. 535.803, is added reflecting the new

statutes' mandate that carriers may not agree to limit freight

forwarder compensation to less than 1.25 percent of charges, and must

be allowed to take independent action on freight forwarder compensation

on not more than five days' notice.

Proposed Changes Regarding Form of Agreements

The Commission at this time also is proposing to eliminate many of

the form and manner requirements for agreements set forth in Subpart D.

While Congress did not address this matter directly in OSRA, both the

law and the legislative history make it clear that Congress intended

that the industry be afforded more administrative flexibility to

respond to the marketplace. For example, OSRA provides carriers

substantially more flexibility in structuring tariffs. Also, in its

discussion of agreements, the Commerce Committee Report emphasized

``prompt agreement review, minimal government intervention, and

continued flexibility in structuring agreements.'' In light of these

factors it does not seem appropriate to continue the requirement that

carriers structure their agreements to accord with a highly structured,

tariff-type form.

Therefore, Sec. 535.402(a) is amended to remove paper size and

margin requirements, and clarify that agreements in other languages

must include a translation. The title page requirement in

Sec. 535.402(b) is modified slightly. In addition, a revised

Sec. 535.402(d) clarifies that agreements are signed by each individual

contracting party or its designated agent, as opposed to a single

official or agent of the group as a whole, ensuring that filed

agreements comport with general statute of frauds principles and

indicate on their face the assent of each individual party. Another

amendment to section 535.402(d), permitting faxed or photocopied

signatures, will minimize any administrative delay.

The ordering and pagination requirements in Secs. 535.402(e) and

403 are almost entirely removed. Only those requirements necessary to

the processing and oversight of the agreement are retained. Thus,

agreements must either include or be accompanied by a table of

contents, and by information such as contact names, addresses, and

specific geographic scope involved. Of course, in deleting the form

requirements, the Commission is in no way indicating that particular

agreement provisions are no longer required to be filed; indeed, the

completeness requirement of Sec. 535.407 is unchanged. Rather, it is

the Commission's intent that parties be free to draft their

arrangements to best suit their commercial objectives.

Section 535.404 is revised to delete the requirement that

conference-specific agreement language be ordered in a particular

fashion. However, the content requirements, which track section 5 of

the 1984 Act's provisions, are largely retained.

The agreement modification section, Sec. 535.405, is simplified.

The Commission wishes the amendment process to be as expedient and

practical as possible. Therefore, it is continuing the customary

practice of allowing changes to exist language to be made through the

submission of ``revised pages,'' with accompanying market-up pages

submitted for illustration purposes. Also, the elimination of the form

requirements implicitly provides carriers more flexibility to amend

their understandings by filing additional agreement pages or sections.

Mandatory republication is eliminated, replaced with a new

Sec. 535.405(e), providing that the Commission may mandate

republication when it is deemed necessary to maintain the clarity of an

agreement. In addition, the waiting period exemption for miscellaneous

amendments, set forth in Sec. 535.309, is amended to remove specific

form requirements.

Proposed Revised Definition of Ocean Common Carrier

An amended definition of ``ocean common carrier'' is proposed to

resolve uncertainty generated by the 1984 Act's definition, which is

simply ``a vessel-operating common carrier.'' At issue is part of the

regulatory dividing line between ocean common carriers and non-vessel-

operating common carriers (``NVOCCs''). The distinction, which was

first codified in 1984, has significant implications for the regulatory

scheme, inasmuch as the 1984 Act afforded ocean carriers, but not

NVOCCs, antitrust immunity and other rights and responsibilities under

the 1984 Act. The need for clarity in this area is continued by OSRA,

which continues to differentiate between vessel-operating and non-

vessel

[[Page 69037]]

operating lines with regard to service contracting and other areas.

At first glance, it is difficult to see the ambiguity in the phrase

``vessel-operating.'' However, the Commission staff has encountered a

number of complex or debatable administrative issues regarding where

and when vessels are operated, and what types of vessels are involved.

The staff has long taken a position (albeit an uncodified one) in its

dealings with the industry that an ``ocean common carrier'' is a common

carrier that, in providing a common carrier service, operates a vessel

calling at a U.S. port. If a carrier is an ocean common carrier in one

trade, it has been reasoned, it is an ocean common carrier for all

trades. For example, if a carrier operates vessels from the U.S. East

Coast to northern Europe, it has the legal ``status'' of ocean common

carrier to enter into space charter agreements for any U.S.-foreign

trade.

The proposed definition would codify the staff's approach. It would

continue the practice of determining status on a multi-trade basis

(i.e., an ocean common carrier in one trade has that status in all

trades). Any interpretation of the statute requiring status

determinations to be made on a trade-by-trade basis would be

administratively impractical and likely would prompt less than

efficient redeployment of vessels in the U.S. trades for purely legal

purposes.

The proposed definition would also clarify the issue whether

companies that operate vessels only outside the U.S.--i.e., if they

have no vessel operations to U.S. ports--can be deemed ``ocean common

carriers.'' While the staff's view has been negative, the lack of

precedent or formal guidance on this issue warrants that the issue now

be resolved by the Commission after an opportunity for interested

parties to be heard.

It appears that the legislative intent of the 1984 Act was to view

vessel operators as those whose vessels call at U.S. ports and to

classify all other common carriers in U.S. commerce as non-vessel-

operating common carriers. For example, in its report on the 1984 Act,

the Senate Commerce, Science, and Transportation Committee observed:

The Committee strongly believes that it is in our national

interest to permit cooperation among carriers serving our foreign

trades to permit efficient and reliable service * * *. Our carriers

need; a stable, predictable, and profitable trade with a rate of

return that warrants reinvestment and a commitment to serve the

trade; greater security in investment * * *.

S. Rep. No. 3, 98th Cong., 1st Sess. 9 (1983). Accordingly, we do not

believe that Congress intended to provide special privileges or

protections to carriers that have not made the financial commitment to

providing vessel service to the United States.

A definition of ocean common carrier that encompassed companies

that operate vessels only in foreign-to-foreign trades would

substantially broaden the scope of antitrust immunity potentially to

include a number of small operators whose wholly foreign vessel

operations would be difficult for the Commission to monitor or verify.

Such a finding would remove such companies from the scope of the Act's

NVOCC bonding requirements, even though they have no vessels or assets

in the United States that can be attached to satisfy a Commission or

U.S. court judgment; it would remove them from OSRA's licensing

requirements as well. Such an approach would also seem to contravene

the longstanding judicial policy of narrowly construing antitrust

exemptions. See, e.g., Federal Maritime Commission v. Seatrain Lines,

Inc., 411 U.S. 726, 733 (1973). In addition, from the text of the Act

it appears likely that when Congress used the unadorned term ``vessel''

in the definition of ocean common carrier, it was referring to the

vessels specified in the definition of common carrier, i.e., those that

operate on the high seas or Great Lakes between the United States and a

foreign country.

The proposed definition would continue the policy that the vessels

in question must be used in a common carrier service. If an NVOCC

operates tankers, tramps, or cruise ships wholly apart from its common

carrier service, it does not secure ocean common carrier status from

those vessel operations.

Other Proposed Changes

Redesignated Sec. 535.102 is amended to reflect that marine

terminal agreements are no longer limited to solely international

commerce.

The definition of ``common carrier'' in Sec. 535.104(f) is amended

to reflect changes made in the 1984 Act by section 424(d) of the Coast

Guard Authorization Act. That act inserted a qualified exception in the

definition for certain vessels carrying perishable agricultural

commodities.

The definition of ``conference agreement,'' in redesignated

Sec. 535.104(g) is changed to clarify that the term (and the rule

sections that apply it, such as the mandatory independent action

requirements) extends only to ocean common carrier conferences, and not

to marine terminal conferences, which are defined elsewhere in this

part. The definition is also changed to eliminate two seemingly

superfluous elements that do not appear to correspond with the

statutory text: (1) the requirement that, to be a conference, carriers

must agree to collective administrative affairs, and (2) the statement

that carriers may have a common tariff and must participate in some

tariff. The definition is also amended to reflect that an agreement may

offer agreement service contracts without being designated a

conference.

The definition of ``effective agreement'' in redesignated

Sec. 535.104(j) is changed to remove references to the Shipping Act,

1916, and the definition of ``information form'' in paragraph (m) is

amended to clarify that it extends to some types of agreement

modifications. ``Marine terminal operator'' is redefined in paragraph

(q) to accord with the new definition in OSRA, as discussed above, and

the definition of NVOCC is removed, as it no longer appears in this

part.

OSRA's changes regarding jurisdiction over marine terminal

operators are also reflected in redesignated Sec. 535.201, the list of

agreements subject to the Act. Also in that section, the reference to

cooperative working agreements with non-vessel-operating common

carriers, which the Commission has always found to be irreconcilable

with the service contract requirements of the Act, is deleted in

accordance with OSRA. Also, references to NVOCC and freight forwarder

agreements are removed from the non-subject agreements section,

redesignated Sec. 535.202 (f) and (g).

The exemption provisions in redesignated Sec. 535.301 are changed

to comport with the new law's more liberal standard. The exemption

procedures are being moved to a general (i.e., not agreements-specific)

exemption section in the Commission's Rules of Practice and Procedure.

In the marine terminal agreements exemption, redesignated

Sec. 535.307, the definition of ``marine terminal conference'' in

paragraph (b) is amended to reflect that such agreements do not have to

involve solely international commerce. Also, the extraneous references

to collective administrative affairs and tariff filing are removed (as

with the definition of ``conference agreement'' in redesignated

Sec. 535.104(g)). In the marine terminal services exemption in

redesignated Sec. 535.310, a definition of marine terminal services is

incorporated in paragraph (a), and paragraph (a)(2), which excepts

previously filed agreements from the exemption, is removed.

Redesignated Sec. 535.501(a) is amended, and a new Sec. 535.503(b)

[[Page 69038]]

added to make clear that agreement modifications that expand the

geographic scope or change the class designation of the underlying

agreement must be accompanied by an appropriate information form. Also,

redesignated Sec. 535.706(c)(1) is amended to accord with OSRA's

changed tariff requirements.

The mandatory provisions for independent action for conferences in

redesignated Sec. 535.801 are changed to reflect that shortened notice

period, from ten to five days. Also, the rules are amended to reflect

the statutory change that conferences must allow independent action on

all rates and service items, not just those required to be included in

tariffs. That is, if a conference fixes a rate on a commodity exempt

from tariff publication, for example, waste paper, it must allow

members to take independent action on the waste paper rates. If the

conference publishes a waste paper rate in its tariff (it does not have

to, but it can do so voluntarily), then it must publish the member's IA

waste paper rates as well. Section 535.801(i), a transitional provision

that applied to the 90-day period immediately after the IA rules were

adopted, is deleted.

The Commission is also proposing to add a new reporting requirement

to Appendices A, C and D, to effectively implement OSRA's new

prohibitions in section 10(c)(7-8), discussed above, barring

discrimination against ocean transportation intermediaries and

shippers' associations based on status. The amendment would require

each member of an agreement to provide summary statistics on its

service contract activities, by class of shipper. The report would be

required for both the benchmark information form filed with Class A/B

agreements, and for the ongoing quarterly monitoring reports filed for

Class A and B agreements. It is incumbent upon the Commission to

actively monitor these practices, as violations of the new 10(c)(7-8)

may well go undiscovered by affected parties, given the new

confidentiality of service contracts.

The reporting, recordkeeping and disclosure requirements contained

in this proposed rule have been submitted to the Office of Management

and Budget (OMB). This proposed regulation reduces the overall public

burden of collection of information by 4.57%. The proposed regulation

would reduce the average personhours per response from 43.3 to 41.3.

These estimates include, as applicable, the time needed to review

instructions, develop, acquire, install, and utilize technology and

systems for the purposes of collecting, validating, and verifying

information, processing and maintaining information, and disclosing and

providing information; adjust the existing ways to comply with any

previously applicable instructions and requirements; train personnel to

respond to a collection of information, search existing data sources,

gathering and maintain the data needed, and complete and review the

collection of information; and transmit or otherwise disclose the

information.

Send comments regarding the burden estimates to the Office of

Information and Regulatory Affairs, Office of Management and Budget,

Attention Desk Officer for the Federal Maritime Commission, New

Executive Office Building, 725 17th Street, NW, Washington, DC 20503

within 30 days of publication in the Federal Register.

The FMC would also like to solicit comments to: (a) evaluate

whether the proposed collection of information is necessary for the

proper performance of the functions of the agency, including whether

the information will have practical utility; (b) evaluate the accuracy

of the Commission's burden estimates for the proposed collection of

information; (c) enhance the quality, utility, and clarity of the

information to be collected; and (d) minimize the burden of the

collections of information on respondents, including through the use of

automated collection techniques or other forms of information

technology. Comments submitted in response to this proposed rulemaking

will be summarized and/or included in the final rule and will become a

matter of public record.

The Chairman certifies, pursuant to section 605 of the Regulatory

Flexibility Act, 5 U.S.C. 605, that the proposed rules will not, if

promulgated, have a significant impact on a substantial number of small

entities. The affected universe of parties is limited to ocean common

carriers, passenger vessel operators, and marine terminal operators.

The Commission has determined that these entities do not come under the

programs and policies mandated by the Small Business Regulatory

Enforcement Fairness Act as they typically exceed the threshold figures

for number of employees and/or annual receipts to qualify as a small

entity under Small Business Administration Guidelines.

List of Subjects in 46 CFR Parts 535 and 572

Administrative practice and procedure, Maritime carriers, Reporting

and recordkeeping requirements.

Therefore, for the reasons set forth above, Title 46, Code of

Federal Regulations, is proposed to be amended as follows:

PART 572--AGREEMENTS BY OCEAN COMMON CARRIERS AND OTHER PERSONS

SUBJECT TO THE SHIPPING ACT OF 1984

1. The authority citation for part 572 is revised to read as

follows:

Authority: 5 U.S.C. 553; 46 U.S.C. app. 1701-1707, 1709-1710,

1712 and 1714-1717; Pub. L. 104-88, 109 Stat. 803, (49 U.S.C. 101

note).

2. Redesignate part 572 as part 535 of subchapter B, chapter IV of

46 CFR.

3. Revise redesignated Sec. 535.101 to read as follows:

Sec. 535.101 Authority.

The rules in this part are issued pursuant to the authority of

section 4 of the Administrative Procedure Act (5 U.S.C. 553), sections

2, 3, 4, 5, 6, 7, 8, 10, 11, 13, 15, 16, 17 and 19 of the Shipping Act

of 1984 (``the Act''), and the Ocean Shipping Reform Act of 1998, Pub.

L. 104-88, 109 Stat. 803.

4. Amend redesignated section 535.102 to remove the parenthetical

phrase ``(to the extent the agreements involve ocean transportation in

the foreign commerce of the United States)''.

5. Amend redesignated section 535.103 to add paragraph (h) to read

as follows:

Sec. 535.103 Policies.

* * * * *

(h) In order to promote competitive and efficient transportation

and a greater reliance on the marketplace, the Act places limits on

carriers' agreements regarding service contracts. Carriers may not

enter into an agreement to prohibit or restrict members from engaging

in contract negotiations, may not require members to disclose service

contract negotiations or terms and conditions (other than those

required to be published), and may not adopt mandatory rules or

requirements affecting the right of an agreement member or agreement

members to negotiate and enter into contracts. However, agreement

members may adopt voluntary guidelines covering the terms and

procedures of members' contracts.

6. Amend redesignated Sec. 535.104 as follows: paragraphs (f), (g),

(j), (m) and (q) are revised, paragraph (u) is removed, paragraph (v)

is redesignated (u) and revised, paragraphs (w), (x), (y),(z), (aa),

(bb) and (cc) are redesignated (v), (w), (x), (y), (z), (aa) and (bb),

paragraph (dd) is redesignated (cc) and revised, paragraph (ee) is

[[Page 69039]]

redesignated (dd) and revised, paragraphs (ff), (gg), (hh), (ii), (jj),

and (kk) are redesignated (ee), (ff), (gg), (hh), (ii) and (jj), as

follows:

Sec. 535.104 Definitions.

* * * * *

(f) Common carrier means a person holding itself out to the general

public to provide transportation by water of passengers or cargo

between the United States and a foreign country for compensation that:

(1) Assumes responsibility for the transportation from the port or

point of receipt to the port or point of destination; and

(2) Utilizes, for all or part of that transportation, a vessel

operating on the high seas or the Great Lakes between a port in the

United States and a port in a foreign country, except that the term

does not include a common carrier engaged in ocean transportation by

ferry boat, ocean tramp, or chemical parcel tanker, or by a vessel when

primarily engaged in the carriage of perishable agricultural

commodities:

(i) If the common carrier and the owner of those commodities are

wholly owned, directly or indirectly, by a person primarily engaged in

the marketing and distribution of those commodities and

(ii) Only with respect to those commodities.

(g) Conference agreement means an agreement between or among two or

more ocean common carriers which provides for the fixing of and

adherence to uniform tariff rates, charges, practices and conditions of

service relating to the receipt, carriage, handling and/or delivery of

passengers or cargo for all members. The term does not include joint

service, pooling, sailing, space charter, or transshipment agreements.

* * * * *

(j) Effective agreement means an agreement effective under the Act.

* * * * *

(m) Information form means the form containing economic information

which must accompany the filing of certain kinds of agreements and

agreement modifications.

* * * * *

(q) Marine terminal operator means a person engaged in the United

States in the business of furnishing wharfage, dock, warehouse, or

other terminal facilities in connection with a common carrier, or in

connection with a common carrier and a water carrier subject to

subchapter II of chapter 135 of Title 49 U.S.C. This term does not

include shippers or consignees who exclusively furnish marine terminal

facilities or services in connection with tendering or receiving

proprietary cargo from a common carrier or water carrier.

* * * * *

(u) Ocean common carrier means a common carrier that operates, for

all or part of its common carrier service, a vessel on the high seas or

the Great Lakes between a port in the United States and a port in a

foreign country, except that the term does not include a common carrier

engaged in ocean transportation by ferry boat, ocean tramp, or chemical

parcel-tanker.

* * * * *

(cc) Service contract means a written contract, other than a bill

of lading or a receipt, between one or more shippers and an individual

ocean common carrier or an agreement between or among ocean common

carriers in which the shipper or shippers make a commitment to provide

a certain volume or portion of cargo over a fixed time period, and the

ocean common carrier or the agreement commits to a certain rate or rate

schedule and a defined service level--such as assured space, transit

time, port rotation, or similar service features. The contract may also

specify provisions in the event of nonperformance on the part of any

party.

(dd) Shipper means:

(1) A cargo owner;

(2) The person for whose account the ocean transportation is

provided;

(3) The person to whom delivery is to be made;

(4) A shippers' association; or

(5) A non-vessel-operating common carrier (i.e., a common carrier

that does not operate the vessels by which the ocean transportation is

provided and is a shipper in its relationship with an ocean common

carrier) that accepts responsibility for payment of all charges

applicable under the tariff or service contract.

* * * * *

7. Amend redesignated Sec. 535.201 to revise paragraphs (a)(5),

(a)(6), (a)(7) and (b) to read as follows:

Sec. 535.201 Subject agreements.

(a) * * *

(5) Engage in exclusive, preferential, or cooperative working

arrangements among themselves or with one or more marine terminal

operators;

(6) Control, regulate, or prevent competition in international

ocean transportation; or

(7) Discuss and agree on any matter related to service contracts.

(b) Marine terminal operator agreements. This part applies to

agreements among marine terminal operators and among one or more marine

terminal operators and one or more ocean carriers to:

(1) Discuss, fix, or regulate rates or other conditions of service;

(2) Engage in exclusive, preferential, or cooperative working

arrangements, to the extent that such agreements involve ocean

transportation in the foreign commerce of the United States.

8. Amend redesignated Sec. 535.202 to revise paragraphs (d) and (e)

and to remove paragraphs (f) and (g) to read as follows:

Sec. 535.202 Non-subject agreements.

* * * * *

(d) Any agreement among common carriers to establish, operate, or

maintain a marine terminal in the United States; and

(e) Any agreement among marine terminal operators which exclusively

and solely involves transportation in the interstate commerce of the

United States.

9. Amend Sec. 535.301 to revise paragraphs (a) and (c), to remove

paragraphs (d) and (e), and to redesignate paragraph (f) as paragraph

(d) and revise it to read as follows:

Sec. 535.301 Exemption procedures.

(a) Authority. The Commission, upon application or its own motion,

may by order or rule exempt for the future any class of agreements

between persons subject to the Act from any requirement of the Act if

it finds that the exemption will not result in substantial reduction in

competition or be detrimental to commerce.

* * * * *

conform to the general filing requirements for exemptions set forth at

Sec. 502.67 of this title.

(d) Retention of agreement by parties. Any agreement which has been

exempted by the Commission pursuant to section 16 of the Act shall be

retained by the parties and shall be available upon request by the

Bureau of Economics and Agreement Analysis for inspection during the

term of the agreement and for a period of three years after its

termination.

10. Amend redesignated Sec. 535.307 to revise paragraph (b) to read

as follows:

Sec. 535.307 Marine terminal agreements--exemption.

* * * * *

(b) Marine terminal conference agreement means an agreement between

or among two or more marine terminal operators and/or ocean common

carriers for the conduct or facilitation of marine

[[Page 69040]]

terminal operations which provides for the fixing of and adherence to

uniform maritime terminal rates, charges, practices and conditions of

service relating to the receipt, handling, and/or delivery of

passengers or cargo for all members.

* * * * *

11. Amend redesignated Sec. 535.309 to revise paragraphs (a)(2)(i),

(a)(2)(ii), and (a)(2)(iii) to read as follows:

Sec. 535.309. Miscellaneous modifications to agreements--exemptions.

(a) * * *

(2) Any modification to the following:

(i) Parties to the agreement (limited to conference agreements,

voluntary ratemaking agreements having no other anticompetitive

authority (e.g., pooling authority or capacity reduction authority),

and discussion agreements among passenger vessel operating common

carriers which are open to all ocean common carriers operating

passenger vessels of a class defined in the agreements and which do not

contain ratemaking, pooling, joint service, sailing or space chartering

authority.

(ii) Officials of the agreement and delegations of authority.

(iii) Neutral body policing (limited to the description of neutral

body authority and procedures related thereto).

* * * * *

12. Amend redesignated Sec. 535.310 by revising paragraph (a) to

read as follows:

Sec. 535.310 Marine terminal services agreements--exemptions.

(a) Marine terminal services agreement means an agreement,

contract, understanding, arrangement or association, written or oral

(including any modification, cancellation or appendix) between a marine

terminal operator and an ocean common carrier that applies to marine

terminal services, including checking; dockage; free time; handling;

heavy lift; loading and unloading; terminal storage; usage; wharfage;

and wharf demurrage and including any marine terminal facilities which

may be provided incidentally to such marine terminal services) that are

provided to and paid for by an ocean common carrier. The term ``marine

terminal services agreement'' does not include any agreement which

conveys to the involved carrier any rights to operate any marine

terminal facility by means of a lease, license, permit, assignment,

land rental, or similar other arrangement for the use of marine

terminal facilities or property.

* * * * *

13. Amend redesignated Sec. 535.402 to revise paragraphs (a), (b)

introductory text, (d) and (e) and remove paragraphs (f) and (g) to

read as follows:

Sec. 535.402 Form of agreements.

* * * * *

(a) Agreements shall be clearly and legibly written. Agreements in

a language other than English shall be accompanied by an English

translation.

(b) Every agreement shall include or be accompanied by a title page

indicating:

* * * * *

(d) Each agreement and/or modification filed will be signed in the

original by an official or authorized representative of each of the

parties and shall indicate the typewritten full name of the signing

party and his or her position, including organizational affiliation.

Faxed or photocopied signatures will be accepted if replaced with an

original signature as soon as practicable before the effective date.

(e) Every agreement shall include or be accompanied by a Table of

Contents providing for the location of all agreement provisions.

14. Revise redesignated Sec. 535.403 to read as follows:

Sec. 535.403 Agreement provisions.

If the following information (necessary for the expeditious

processing of the agreement filing) does not appear fully in the text

of the agreement, it shall be indicated in an attachment or appendix to

the agreement, or on the title page:

(a) Details regarding parties. Indicate the full legal name of each

party, including any FMC-assigned agreement number associated with that

name; and the address of its principal office (to the exclusion of the

address of any agent or representative not an employee of the

participating carrier or association).

(b) Geographic scope of the agreement. State the ports or port

ranges to which the agreement applies and any inland points or areas to

which it also applies with respect to the exercise of the collective

activities contemplated and authorized in the agreement.

Specify, by organizational title, the administrative and executive

officials determined by the parties to the agreement to be responsible

for designated affairs of the agreement and the respective duties and

authorities delegated to those officials. At a minimum, specify:

(1) The officials with authority to file agreements and agreement

modifications and to submit associated supporting materials or with

authority to delegate such authority; and

(2) A statement as to any designated U.S. representative of the

agreement required by this chapter.

15. Revise redesignated Sec. 535.404 to read as follows:

Sec. 535.404 Organization of conference and interconference

agreements.

(a) Each conference agreement shall include the following:

(1) Neutral body policing. State that, at the request of any

member, the conference shall engage the services of an independent

neutral body to fully police the obligations of the conference and its

members. Include a description of any such neutral body authority and

procedures related thereto.

(2) Prohibited acts. State affirmatively that the conference shall

not engage in conduct prohibited by section 10(c)(1) or 10(c)(3) of the

Act.

(3) Consultation: Shippers' requests and complaints. Specify the

procedures for consultation with shippers and for handling shippers'

requests and complaints.

(4) Independent action. Include provisions for independent action

in accordance with Sec. 535.801 of this part.

(b) (1) Each agreement between carriers not members of the same

conference must provide the right of independent action for each

carrier.

(2) Each interconference agreement must provide the right of

independent action for each conference and specify the procedures

therefor.

16. Amend redesignated Sec. 535.405 by revising paragraphs (a),

(b), (c), (d) and (e), and removing paragraphs (f) and (g) to read as

follows:

Sec. 535.405 Modification of agreements.

* * * * *

(a) Agreement modifications shall be: filed in accordance with the

provisions of Sec. 535.401 and in the format specified in Sec. 535.402.

(b) Agreement modifications shall be made by reprinting the entire

page on which the matter being changed is published (``revised

pages''). Revised pages shall indicate the consecutive denomination of

the revision (e.g., ``1st Revised Page 7''). Additional material may be

published on a new original page. New pages inserted between existing

pages shall be numbered with an appropriate suffix (e.g., a page

inserted between page 7 and page 8 shall be numbered 7a, 7.1, or

similarly).

modification shall be accompanied by a page, submitted for illustrative

purposes only, indicating the language being modified

[[Page 69041]]

in the following manner (unless such marks are apparent on the face of

the agreement):

(1) Language being deleted or superseded shall be struck through;

and,

(2) New and initial or replacement language shall immediately

follow the language being superseded and be underlined.

(d) If a modification requires the relocation of the provisions of

the agreement, such modification shall be accompanied by a revised

Table of Contents page which shall report the new location of the

agreement's provisions.

(e) When deemed necessary to ensure the clarity of an agreement,

the Commission may require parties to republish their entire agreement,

incorporating such modifications as have been made. No Information Form

requirements apply to the filing of a republished agreement.

17. Revise redesignated Sec. 535.501(a) to read as follows:

Sec. 535.501 General requirements.

(a) Certain agreement filings must be accompanied with an

Information Form setting forth information and data on the filing

parties' prior cargo carryings, revenue results and port service

patterns.

* * * * *

18. Amend redesignated Sec. 535.502 by revising paragraphs (a)(1),

(a)(3), (a)(4), (a)(5), (b)(1), and (b)(2) to read as follows:

Sec. 535.502 Subject agreements.

* * * * *

(a) * * *

(1) A rate agreement as defined in Sec. 535.104(aa);

(2) * * *

(3) A pooling agreement as defined in Sec. 535.104(x);

(4) An agreement authorizing discussion or exchange of data on

vessel-operating costs as defined in Sec. 535.104(jj); or

(5) An agreement authorizing regulation or discussion of service

contracts as defined in Sec. 535.104(cc).

(b) * * *

(1) A sailing agreement as defined in Sec. 535.104(bb); or

(2) A space charter agreement as defined in Sec. 535.104(gg).

19. Amend redesignated Sec. 535.503 by redesignating the text as

one paragraph (a) and by adding new paragraph (b) to read as follows:

Sec. 535.503 Information form for Class A/B agreements.

(a) * * *

(b) Modifications to Class A/B agreements that expand the

geographic scope of the agreement or modifications to Class C

agreements that change the class of the agreement from C to A/B must be

accompanied by an Information Form for Class A/B agreements.

20. Amend redesignated Sec. 535.706 by revising paragraph (c)(1) to

read as follows:

Sec. 535.706 Filing of minutes---including shippers' requests and

complaints, and consultations.

* * * * *

(1) Rates that, if adopted, would be required to be published in

the pertinent tariff except that this exemption does not apply to

discussions limited to general rate policy, general rate changes, the

opening or closing of rates, or service or time/volume contracts; or

* * * * *

21. Amend Subpart H--Conference Agreements by revising the title to

read as follows:

Subpart H--Mandatory and Prohibited Provisions

22. Amend redesignated Sec. 535.801 by: revising paragraphs (a),

(b)(1), (d), (e), the final sentence of paragraph (f)(1), and (f)(2);

removing paragraph (i); and redesignating paragraphs (j) as (i) and (k)

as (j), to read as follows:

Sec. 535.801 Independent action.

(a) Each conference agreement shall specify the independent action

(``IA'') procedures of the conference, which shall provide that any

conference member may take independent action on any rate or service

item upon not more than 5 calendar days' notice to the conference and

shall otherwise be in conformance with section 5(b)(8) of the Act.

(b)(1) Each conference agreement that provides for a period of

notice for independent action shall establish a fixed or maximum period

of notice to the conference. A conference agreement shall not require

or permit a conference member to give more than 5 calendar days' notice

to the conference, except that in the case of a new or increased rate

the notice period shall conform to the tariff publication requirements

of this chapter.

* * * * *

(d) A conference agreement shall not require a member who proposes

independent action to attend a conference meeting, to submit any

further information other than that necessary to accomplish the

publication of the independent tariff item, or to comply with any other

procedure for the purpose of explaining, justifying, or compromising

the proposed independent action.

(e) A conference agreement shall specify that any new rate or

service item proposed by a member under independent action (except for

exempt commodities not published in the conference tariff) shall be

included by the conference in its tariff for use by that member

effective no later than 5 calendar days after receipt of the notice and

by any other member that notifies the conference that it elects to

adopt the independent rate or service item on or after its effective

date.

(f)(1) * * * Additionally, if a party to an agreement chooses to

take on an IA of another party, but alters it, such action is

considered a new IA and must be published pursuant to the IA

publication and notice provisions of the applicable agreement.

(2) An IA TVR published by a member of a ratemaking agreement may

be adopted by another member of the agreement, provided that the

adopting member takes on the original IA TVR in its entirety without

change to any aspect of the original rate offering (except beginning

and ending dates in the time period) (i.e., a separate TVR with a

separate volume of cargo but for the same duration). Any subsequent IA

TVR offering which results in a change in any aspect of the original IA

TVR, other than the name of the offering carrier or the beginning date

of the adopting IA TVR, is a new independent action and shall be

processed in accordance with the provisions of the applicable

agreement. The adoption procedures discussed above do not authorize the

participation by an adopting carrier in the cargo volume of the

originating carrier's IA TVR. Member lines may publish and participate

in joint IA TVRs, if permitted to do so under the terms of their

agreement; however, no carrier may participate in an IA TVR already

published by another carrier.

* * * * *

23. Revise redesignated Sec. 535.802 to read as follows:

Sec. 535.802 Service contracts.

(a) Carriers may not agree among themselves (whether on an

enforceable basis or otherwise) to prohibit or restrict themselves from

engaging in negotiations for service contracts with one or more

shippers, and may not adopt any policy, practice, or procedures that

have the effect of prohibiting or restricting such negotiations.

(b) Carriers may not agree among themselves (whether on an

enforceable basis or otherwise) to require

[[Page 69042]]

themselves to disclose a negotiation on a service contract, or the

terms and conditions of a service contract, other than those terms or

conditions required by the Act to be published, and may not adopt any

policy, practice, or procedures that have the effect of requiring such

disclosures.

affecting their rights to negotiate or enter into service contracts.

(d) Carriers may adopt voluntary guidelines for service contracts.

Voluntary guidelines are non-binding policies, outlines, directions or

models for:

(1) the contract terms a carrier or carriers may include in the

texts of their individual contracts; or

(2) the procedures that a carrier or carriers may follow in

negotiating, modifying, or terminating contracts with shipper

customers.

(e) Carriers may consult voluntary guidelines as guidance for

negotiating and considering service contracts. Whether voluntary

guidelines are utilized shall be wholly at the option of the

negotiating carrier. Voluntary guidelines must state explicitly the

right of members of the agreement not to follow these guidelines.

(f) Voluntary guidelines may not include commitments, policies, or

procedures for: auditing by or reporting to agreement officials or

other carriers regarding compliance with guideline terms or procedures;

notification or pre-clearance of negotiations or proposed service

contract terms with other carriers or agreement officials; or

imposition or acceptance of any liability or sanction whatsoever for

non-compliance with guideline terms.

(g) Voluntary guidelines shall be submitted to the Director, Bureau

of Economics and Agreement Analysis, Federal Maritime Commission,

Washington, DC 20573. Use of voluntary guidelines prior to their

submission is prohibited. Voluntary guidelines shall be kept

confidential in accordance with section 535.608 of this part.

(h) Carriers may adopt procedures for discussing, voting on, and

administering agreement-wide or multi-carrier service contracts (and

negotiations therefor). Such provisions shall be included in the

parties' agreement filing with the Commission.

24. Amend Subpart H--Mandatory and Prohibited Provisions by adding

new Sec. 535.803 to read as follows:

Sec. 535.803 Ocean freight forwarder compensation.

No conference or group of two or more ocean common carriers may

(a) deny to any member of such conference or group the right, upon

notice of not more than 5 calendar days, to take independent action on

any level of compensation paid to an ocean freight forwarder; or

(b) agree to limit the payment of compensation to an ocean freight

forwarder to less than 1.25 percent of the aggregate of all rates and

charges applicable under the tariff assessed against the cargo on which

the forwarding services are provided.

25. Amend Part IX of Appendix A to Part 535--Federal Maritime

Commission Information Form for Certain Agreements by or among Ocean

Common Carriers, by redesignating it as Part X.

26. Amend Appendix A to Part 535 by adding new Part IX to read as

follows:

Part IX

For each agreement member line that served all or any part of the

geographic area covered by the entire agreement during all or any part

of the most recent 12-month period for which complete data are

available, state the total number of service contract requests

received, the total number adopted, and the total number denied. Of the

total number of service contract requests received, adopted and denied,

state how many were for Beneficial Cargo Owners, how many were for

Ocean Transportation Intermediaries (formerly NVOCCs), how many were

for Shippers' Associations, and how many were for any other shipper

designation. The information should be provided in the format below:

Time Period

[Same as that used in responding to Part V]

----------------------------------------------------------------------------------------------------------------

Carrier A

--------------------------------------------------------------------------

Requested Adopted Denied

----------------------------------------------------------------------------------------------------------------

Beneficial Cargo Owner...............

Ocean Transportation Intermediary

(formerly NVOCCs).

Shippers' Association................

Other*...............................

--------------------------------------------------------------------------

Total...........................

----------------------------------------------------------------------------------------------------------------

* Identify type

----------------------------------------------------------------------------------------------------------------

Carrier B

--------------------------------------------------------------------------

Requested Adopted Denied

----------------------------------------------------------------------------------------------------------------

Beneficial Cargo Owner...............

Ocean Transportation Intermediary

(formerly NVOCCs).

Shippers' Association................

Other*...............................

--------------------------------------------------------------------------

Total............................

----------------------------------------------------------------------------------------------------------------

* Identify type

27. Amend Appendix C to Part 535--Monitoring Report for Class A

Agreements Between or Among Ocean Common Carriers FORM, by

redesignating Part X as Part XI.

[[Page 69043]]

28. Amend Appendix C to Part 535--Monitoring Report for Class A

Agreements Between or Among Ocean Common Carriers FORM, by adding new

Part X to read as follows:

Part X

For each agreement member line, state the total number of service

contract requests received, the total number adopted, and the total

number denied during the calendar quarter. Of the total number of

service contract requests received, adopted and denied during the

calendar quarter, state how many were for Beneficial Cargo Owners, how

many were for Ocean Transportation Intermediaries (formerly NVOCCs),

how many were for Shippers' Associations, and how many were for any

other shipper designation. The information should be provided in the

format below:

Calendar Quarter

----------------------------------------------------------------------------------------------------------------

Carrier A

--------------------------------------------------------------------------

Requested Adopted Denied

----------------------------------------------------------------------------------------------------------------

Beneficial Cargo Owner...............

Ocean Transportation Intermediary

(formerly NVOCCs).

Shippers' Association................

Other*...............................

--------------------------------------------------------------------------

Total............................

----------------------------------------------------------------------------------------------------------------

* Identify type

----------------------------------------------------------------------------------------------------------------

Carrier B

--------------------------------------------------------------------------

Requested Adopted Denied

----------------------------------------------------------------------------------------------------------------

Beneficial Cargo Owner...............

Ocean Transportation Intermediary

(formerly NVOCCs).

Shippers' Association................

Other*...............................

--------------------------------------------------------------------------

Total............................

----------------------------------------------------------------------------------------------------------------

* Identify type

29. Amend Appendix D to Part 535--Monitoring Report for Class B

Agreements Between or Among Ocean Common Carriers [FORM], by

redesignating Part VI as Part VII.

30. Amend Appendix D to Part 535--Monitoring Report for Class B

Agreements Between or Among Ocean Common Carriers [FORM], by adding new

Part VI to read as follows:

Part VI