Licensing, Financial Responsibility Requirements, and General Duties for Ocean Transportation Intermediaries

FEDERAL MARITIME COMMISSION

46 CFR Parts 510, 515, and 583

[Docket No. 98-28]

Licensing, Financial Responsibility Requirements, and General

Duties for Ocean Transportation Intermediaries

AGENCY: Federal Maritime Commission.

ACTION: Final rule and interim final rule.

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SUMMARY: The Federal Maritime Commission adds new regulations

establishing licensing and financial responsibility requirements for

ocean transportation intermediaries in accordance with the Shipping Act

of 1984, as modified by the Ocean Shipping Reform Act of 1998 and

section 424 of the Coast Guard Authorization Act of 1998. As part of

this rule, we are adopting as an interim final rule a provision that

allows foreign non-vessel-operating common carriers the opportunity to

seek a license under the licensing requirements of this part.

DATES: This rule is effective May 1, 1999.

Submit comments on the interim final rule on or before March 23,

1999.

ADDRESS: Address comments concerning the interim final rule to: Bryant

L. VanBrakle, Secretary, Federal Maritime Commission, 800 North Capitol

Street, N.W., Washington, D.C. 20573-0001.

FOR FURTHER INFORMATION CONTACT:

Austin L. Schmitt, Director, Bureau of Tariffs, Certification and

Licensing, Federal Maritime Commission, 800 North Capitol Street, N.W.,

Washington, D.C. 20573-0001, (202) 523-5796

Thomas Panebianco, General Counsel, Federal Maritime Commission, 800

North Capitol St., N.W., Washington, D.C. 20573-0001, (202) 523-5740

SUPPLEMENTARY INFORMATION: On December 22, 1998, the Federal Maritime

Commission (``FMC'' or ``Commission'') published a proposed rule to add

new regulations at 46 CFR part 515 to implement changes made by the

Ocean Shipping Reform Act of 1998 (``OSRA''), Pub. L. 105-258, 112

Stat. 1902, to the Shipping Act of 1984 (``1984 Act''), 46 U.S.C. app.

Sec. 1701 et seq., relating to ocean freight forwarders and non-vessel-

operating common carriers (``NVOCCs''). 63 FR 70710-70727, December 22,

1998. In addition, the Commission removes existing parts 510 and 583.

Finally, under the Commission's restructuring of its rules, the new

part 515 will be included in subchapter B of chapter IV, 46 CFR.

The Commission received 28 comments on this proceeding from U.S.

Traffic Service; Cargo Brokers International, Inc. (``Cargo Brokers'');

Council of European and Japanese National Shipowners'' Associations

(``CENSA''); Effective Tariff Management Corporation (``ETM'');

EuroAmerica Group Inc.; DITTO; North American Van Lines, Inc. t/a North

American International (``NAI''); D.J. Powers Co., Inc.; Ocean World

Lines, Inc. (``OWL''); Kemper Insurance Companies; New York/New Jersey

Foreign Freight Forwarders and Brokers Association (``NY/NJFFFBA'');

American Surety Association and Intercargo Insurance Company (``ASA/

Intercargo''); National Industrial Transportation League (``NITL'');

Ocean Carrier Working Group Agreement (``OCWG''); International

Association of NVOCCs (``IANVOCC''); Airborne Express; 1

National Customs Brokers & Forwarders Association of America, Inc.

(``NCBFAA''); Worldlink Logistics, Inc. and Worldlink International,

Inc. (collectively ``Worldlink''); Charter Container Line; Yellow

Corporation on behalf of its subsidiary YCS; American International

Freight Association and Transportation Intermediaries Association

(``AIFA/TIA''); Distribution-Publications, Inc. (``DPI''); British

Association of Removers; National Association of Transportation

Intermediaries (``NATI''); C.A. Shea & Company, Inc.; Glad Freight

Int'l Inc.; Direct Container Line, Inc. (``DCL''); and American

President Lines, Ltd. and APL Co., Pte Ltd. (``APL'').

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\1\ Airborne Express adopts in full the comments of the IANVOCC

and, therefore, will not be referenced further.

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Licensing Requirements

OSRA applies the requirements of section 19 of the 1984 Act to all

``ocean transportation intermediaries'' (``OTIs'') in the United

States. An OTI means an ocean freight forwarder or an NVOCC as those

terms are defined by the 1984 Act. OSRA requires that all OTIs in the

United States be licensed by the Commission. The legislative history of

OSRA directs the Commission to determine ``when foreign-based entities

conducting business in the United States are to be considered persons

in the United States'' for purposes of the licensing requirements of

section 19 of the 1984 Act. S. Rep. No. 105-61, 105th Cong., 1st Sess.,

at 31 (1997) (``Report'').

The proposed rule offered for comment two alternative definitions

of ``in the United States'' for purposes of the licensing requirements

of this part. The Commission received 17 comments addressing this

issue. D.J. Powers, Yellow, NY/NJFFFBA, NCBFAA, and OWL support the

first option presented by the Commission, which would require that

foreign-based OTIs use only licensed OTIs in the United States. D.J.

Powers notes that it seldom encounters an agent who ``simply processes

bills of lading'' and does not perform at least some sales activities

if not more. Yellow maintains that this alternative is the most fair

and equitable, and it will level the playing field and increase

competition, which is ``unquestionably the primary goal'' of OSRA. OWL

suggests licensing all OTIs and then equalizing the bond amounts of

foreign and U.S. entities. NY/NJFFFBA states that under this

alternative, foreign-based OTIs should not have to secure a higher

amount of financial responsibility because their agents will also be

licensed and bonded and further that no data support the higher amounts

of financial responsibility. NCBFAA maintains that this approach is too

narrow but at least gives recognition to the ``in the United States''

language.

Charter, DPI, NITL, AIFA/TIA, NATI, and APL support the second,

less restrictive definition of ``in the United States.'' Charter

asserts that it would be logical to draw the distinction in the

licensing requirement based on physical presence in the United States

since Congress contemplated that some OTIs would not be licensed. DPI

favors this approach because the first option would be too expensive

and many foreign OTIs use agents in the United States who are not OTIs

themselves. NITL supports this alternative because it appears to

establish a more reasonable boundary to the scope of the licensing

requirement and would be more consistent with the deregulatory purposes

of OSRA. Similarly, AIFA/TIA believes that this option is more in line

with Congressional intent, but supports Sec. 515.21(a)(4), which holds

foreign-based OTIs responsible for the acts or omissions of their

agents. In contrast, DPI does not support Sec. 515.21(a)(4) because it

imposes too much regulation over NVOCCs operating outside the United

States. NATI maintains that the first approach is restrictive and would

unnecessarily prohibit existing business arrangements from continuing.

APL also suggests that the Commission give foreign OTIs with minimal

contacts in the United States the option of becoming licensed, so that

they can perform their own services in the United States and reduce

costs and increase quality control. In addition, APL asserts that some

foreign OTIs may find the higher amount of financial

[[Page 11157]]

responsibility too high and would rather be licensed and furnish the

lesser financial responsibility required of those OTIs in the United

States.

CENSA and ASA/Intercargo support either option. In the event the

Commission adopts option two, ASA/Intercargo suggests that the

Commission provide guidance to the public as to what constitutes

``minimal'' services as opposed to a ``full spectrum'' of OTI services.

The Commission is reluctant to set forth a rigid standard for when an

entity is operating as a freight forwarder or an NVOCC, particularly in

light of the innovations and technological advances made in the

industry. Therefore, we refer to our discussion of this issue in the

Notice of Proposed Rulemaking, 63 Fed. Reg. at 70710 (1998), especially

pertaining to In Re: The Impact of Modern Technology on the Customs and

Practices of the Freight Forwarding Industry--Petition for Rulemaking:

Order Denying Petition for Rulemaking or Declaratory Order, 28 S.R.R.

418 (1998), and Activities, Filing Practices and Carrier Status of

Containerships, Inc., 9 F.M.C. 56 (1965).

DCL urges the Commission to reconsider the third alternative which

it rejected at its meeting of December 9, 1998, which would have

licensed any OTI providing services to or from the United States

through an agent physically present in the United States. DCL believes

that all NVOCCs, whether foreign or domestic, should be licensed, and

maintains that nothing in the legislative history precludes this

approach. Rather, DCL asserts that the Commission's overvaluation of

the significance of the ``in the United States'' limitation should give

way to the interpretation that allows the greatest fairness to those

entities competing with unlicensed NVOCCs. In addition, DCL argues,

this approach would strengthen the Commission's enforcement

capabilities with respect to foreign entities who elude Commission

regulation. Similarly, Glad Freight supports licensing foreign freight

forwarders to lead to better enforcement.

IANVOCC and Worldlink also support the definition the Commission

rejected, maintaining that Congress intended that only ``certain''

foreign OTIs would not be licensed, and therefore, some foreign OTIs

would be licensed. Congress could have limited the licensing

requirements as it has for freight forwarders, to NVOCCs engaged only

in the U.S. export trade, but did not; thus, IANVOCC and Worldlink

argue that Congress intended the ``in the United States'' phrase to

encompass foreign-based NVOCCs that participate in the U.S. foreign

commerce. Moreover, they assert that Congress gave the Commission broad

discretion to rely on its experience and expertise to determine what it

means to be ``in the United States'' in regulating the NVOCC industry.

Both suggest a modified definition of ``in the United States''

combining both alternatives. Worldlink submits that without a broad

definition of ``in the United States,'' ``unscrupulous, unlicensed

foreign NVOCCs could continually disrupt shipping markets by engaging

in misdescription or rebate schemes'' and, therefore, proposes the

following definition to provide the broadest possible licensing

coverage:

For purposes of this part, a person is considered to be ``in the

United States'' if such person is incorporated in, resident in, or

established under the laws of the United States, or otherwise

maintains a physical presence in the United States. Such indicia of

physical presence may include, but are not limited to, whether the

person holds a taxpayer identification number, holds or is legally

required to obtain a state or local business license, or maintains a

mailing address in the United States. Only persons licensed under

this part may furnish or contract to furnish ocean transportation

intermediary services in the United States on behalf of an

unlicensed ocean transportation intermediary.

IANVOCC believes that the licensing requirement should be broad

enough to cover all NVOCCs, whether based in the United States or

foreign countries, that provide a significant amount of ocean

transportation services in the United States, and it proposes the same

definition suggested by Worldlink. IANVOCC also suggests defining ``in

the United States'' to coincide with the jurisdictional reach of United

States courts as follows:

For purposes of this part, a person is considered to be ``in the

United States'' if such person is resident in or incorporated or

established under the laws of the United States or would be subject

to jurisdiction in the courts of the United States for any of its

ocean transportation intermediary activities in United States

commerce.

In addition, IANVOCC notes that if the Commission is concerned about

unfairly reaching certain foreign-based NVOCCs who have only minimal

contacts in the United States, it could limit the definition in the

following manner:

Provided that any person handling only occasional or an

insubstantial volume of shipments in United States trades as an

ocean transportation intermediary shall not be considered to be ``in

the United States'' for licensing purposes.

EuroAmerica, DITTO, and ETM object to the requirement that NVOCCs

be licensed at all, because it represents an increased regulatory

burden. However, the requirement that OTIs be licensed is statutorily

imposed and cannot be waived by the Commission. In a similar vein, NATI

objects to the definition of ``shipper'' in proposed Sec. 515.2(s) and

prefers the previous definition. However, this definition is statutory

and cannot be changed. This section has been redesignated as

Sec. 515.2(t).

The Commission adopts the first proposed definition of what is

considered to be ``in the United States'' for the licensing

requirements of this part. Thus, after the first two sentences,

Sec. 515.3 is revised to read:

For purposes of this part, a person is considered to be ``in the

United States'' if such person is resident in, or incorporated or

established under, the laws of the United States. Only persons

licensed under this part may furnish or contract to furnish ocean

transportation intermediary services in the United States on behalf

of an unlicensed ocean transportation intermediary.

The Commission agrees with the comments that this approach is the most

fair and equitable. We believe it is a good step towards leveling the

playing field between OTIs in the United States who are within the

Commission's jurisdictional reach and those who are outside of that

reach. Moreover, this definition will increase competition, consistent

with the intent of OSRA.

The Commission believes that this alternative provides foreign

NVOCCs greater flexibility by presenting them with two options. First,

a foreign NVOCC could use an independently licensed agent in the United

States, in which event the agent would establish its own financial

responsibility and the foreign NVOCC would be required to secure the

higher amount of financial responsibility applicable to unlicensed OTIs

pursuant to Sec. 515.21(a)(3). Alternatively, a foreign NVOCC could

choose to set up its operations in this country for licensing purposes

in accordance with Sec. 515.3 and establish financial responsibility

applicable to OTIs in the United States. This alternative accommodates

the suggestion of some commenters that foreign NVOCCs be permitted to

seek to become licensed under this part.

The Commission intends that the appropriate instrument of financial

responsibility is available to pay off on claims or judgments against

an OTI. Under current practice, the instrument of financial

responsibility is obtained in the name of the entity issuing the bill

of lading and publishing the tariff. Thus, the licensee must be the

entity on the bill of lading, tariff and instrument of financial

responsibility in order to ensure that the financial responsibility

[[Page 11158]]

covers the shipments handled on the bill of lading. For example, ``ABC

Freight Hong Kong'' handles shipments from the Far East inbound to the

United States, and wants to obtain a license, and thus establish a

lower amount of financial responsibility. Therefore, it sets up an

unincorporated office that is resident in the United States (see

Sec. 515.3). We would not consider this unincorporated office to be a

separate branch office subject to additional licensing and financial

responsibility requirements of this part. However, in the event that

the licensee seeks to establish other branch offices in addition to its

primary United States office, those other offices would be subject to

the licensing and financial responsibility requirements applicable to

separately incorporated and unincorporated branch offices.

We have limited the option of a foreign entity becoming licensed

under this part to NVOCCs, and not freight forwarders, because an

``ocean freight forwarder'' is defined in Sec. 515.2(o)(1) as a person

who dispatches shipments ``from the United States.'' Moreover, a

freight forwarder has a fiduciary relationship with its customer, and a

foreign freight forwarder, by its very nature, would be performing

services for its customers in a foreign country beyond the reach of the

Commission. Because this alternative to allow foreign NVOCCs to seek to

become licensed under this part was not included in the proposed rule,

interested parties will have the opportunity to comment on it, although

it will go into effect as an interim final rule.

Section 515.11 provides that to be eligible for an OTI license, an

applicant must possess the necessary experience, that is, that its

qualifying individual has three years' experience in providing OTI

activities in the United States and the necessary character to render

ocean transportation intermediary services. This provision had been

applicable only to freight forwarders under 46 CFR Sec. 510.11. To

effectuate the alternative outlined above to allow foreign NVOCCs the

opportunity to become licensed under this part, we have amended

Sec. 515.11(a)(1) by adding the following provision:

Foreign NVOCCs seeking to be licensed under this part must

demonstrate that the qualifying individual has a minimum 3 years'

experience in ocean transportation intermediary activities and the

necessary character to render ocean transportation intermediary

services.

This revision removes the ``in the United States'' restriction on the

experience requirement, which we believe will better assist those

foreign NVOCCs who seek to obtain a license under this part. We also

seek comment on this modification because it was not included in the

proposed rule. However, it will go into effect as an interim final

rule.

NCBFAA supports applying the licensing requirements in Sec. 515.11

to all OTIs, including those only operating as NVOCCs. NCBFAA notes

that this requirement is ``one of the Commission's time proven methods

for making sure that entities providing OTI services are qualified by

character and experience to conduct business in the United States.''

NCBFAA further requests that the Commission specifically affirm the

principle that a qualifying individual is permitted to be a corporate

officer of more than a single company. Proposed Sec. 515.11(c), which

was modeled after 46 CFR Sec. 510.11(c), provides that ``the qualifying

individual of one active licensee shall not also be designated

contemporaneously as the qualifying individual of an applicant for

another ocean transportation intermediary license.'' Thus, as proposed,

an individual could be a qualifying individual for an unincorporated,

and therefore unlicensed, branch office, but separate licensees would

not be permitted to have the same qualifying individual simultaneously.

The Commission recognizes NCBFAA's position that many OTIs are

relatively small companies which provide forwarding and NVOCC services

through separate corporate entities, and affirms that a person may be a

qualifying individual for more than one company. To that end, we have

added in the final rule a qualifying phrase at the end of the above

referenced sentence of Sec. 515.11(c) that states ``except for a

separately incorporated branch office.'' Thus, separately incorporated

branch offices will be permitted to have the same qualifying

individuals for licensing requirements.

NCBFAA, OWL and NY/NJFFFBA urge that existing licensees be able to

keep their current license numbers, both because of the additional cost

involved in printing new stationery with a new number, as well as

because many forwarders are justifiably proud of their long period of

service in the industry and of being amongst the Commission's first

licensees. The Commission recognizes these reasons and will ensure that

existing licensees keep their current license numbers. The Commission

will issue new licenses which indicate whether an entity is operating

as a freight forwarder, as an NVOCC, or both, as requested by several

commenters, and will maintain the current license numbers for existing

licensees. Because the Commission will be inundated with license

applications on May 1, 1999, all licensees will have 90 days from the

date of receipt of the new license to comply with the requirements of

Sec. 515.31(b) of this part, if applicable. Similarly, existing freight

forwarders will not be required to pay an additional license fee, a

concern raised by Glad Freight and NCBFAA.

U.S. Traffic Service argues that OTIs who perform services

exclusively for affiliated carriers should not have to be licensed and

instead proposes that these entities establish financial responsibility

similar to unincorporated branch offices. Worldlink also opposes

Sec. 515.3 (existing 46 CFR Sec. 510.3), which requires that separately

incorporated branch offices be licensed, arguing that it assumes that

the branch offices will be outside of the control of the licensee.

However, the Commission declines to adopt these suggestions. As many of

the commenters have noted, and as we considered with reference to the

qualifying individual issue discussed above, many entities choose to

become separately incorporated for a variety of business or tax

reasons. If separate incorporations were allowed to post financial

responsibility at a lower amount in conjunction with another entity,

the separate incorporation would, in effect, be limiting its liability

to $10,000. It would be more difficult for a claimant to pierce the

corporate veil and attempt to go after the assets of the ``parent.''

This problem does not occur with the unincorporated branch offices,

because in that scenario, the unincorporated branch office is, by

definition, established by, maintained by, or under the control of the

licensee.

The Commission proposed that any NVOCC with a tariff and evidence

of its financial responsibility in effect as of the date of publication

of the proposed rule in the Federal Register, December 22, 1998, would

be permitted to continue operating without the requisite three years'

experience and character requirement. DITTO and DPI criticize this date

as being unfair to those NVOCCs who had complied with Commission

regulations for becoming an NVOCC, but had not yet completed the

process. DPI provided a list of entities who were either waiting the

thirty days for their tariffs to become effective or had filed evidence

of financial responsibility with the Commission but had not yet filed a

tariff. DITTO and DPI suggested cut-off dates of January 30 and

February 7, 1999, respectively. The Commission originally proposed the

December 22, 1998 date because it seemed the least

[[Page 11159]]

arbitrary of any given date and had a nexus to the rulemaking process.

However, in view of the comments, any NVOCC with a tariff and financial

responsibility in effect as of April 30, 1999 (the final day prior to

the effectiveness of the OSRA amendments) will be permitted to continue

operating without the requisite three years' experience and character

requirement; provided, however, that no individual may act as a

qualifying individual for another company without the necessary

experience. In addition, all NVOCCs must submit applications for a

license by May 1, 1999.

Exemption From Licensing Requirement

The Commission proposed to exempt from its licensing requirements

any person which exclusively transports used household goods and

personal effects for the account of the Department of Defense (``DOD'')

or under the International Household Goods Program administered by the

General Services Administration (``GSA''). No comments were received on

this proposal, and accordingly, Sec. 515.4(e) will go into effect as

proposed.

Financial Responsibility Requirements

The Commission proposed to define transportation-related

activities, proposed Sec. 515.2(v), to include all of the freight

forwarding activities in proposed Sec. 515.2(i), as well as other

enumerated activities, including some specified in the Report. Kemper,

ASA/Intercargo, APL, D.J. Powers, Charter, Yellow, DPI, NY/NJFFFBA,

IANVOCC, NCBFAA, NATI, Worldlink and OWL commented on the proposed

definition.

At the outset, many commenters complained that the definition blurs

the distinction between freight forwarders and NVOCCs. NY/NJFFFBA notes

that by combining freight forwarder services with NVOCC services, the

Commission has ignored Congressional intent to keep these entities

separate. To that end, OWL proposes that the Commission promulgate a

new section for ``NVOCC services'' that parallels the ``freight

forwarder services'' section.

The majority of commenters complain that the proposed definition

was a list of damages rather than activities engaged in by OTIs. In

particular, the commenters object to including loss or conversion of

cargo (even though that item was in the Report), cargo damage and delay

of shipment in any definition. Kemper and ASA/Intercargo point out that

these items conflict with the Carriage of Goods by Sea Act (``COGSA''),

46 U.S.C. app. Secs. 1300-1315, and assert that if the Commission

adopts the definition as proposed, it must clarify that the definition

does not deprive OTIs and financial responsibility providers of their

right to assert defenses and limitations of liability consistent with

COGSA and common law.

ASA/Intercargo states that holding NVOCCs liable for ``breach of

fiduciary responsibility'' imputes to NVOCCs a duty where one does not

exist. Moreover, ASA/Intercargo, NY/NJFFFBA and OWL assert that

``service contract obligations of an NVOCC, as a shipper'' must be

removed from the list. Although the Report specifies that a bond or

other instrument of financial responsibility covers an NVOCC's service

contract obligations, the commenters contend that at the time the

Report was drafted NVOCCs would have been allowed to enter service

contracts as carriers, and, therefore, the Report has been superceded

and that language is no longer binding.

The commenters offer varied suggestions as to what would be a

viable definition of ``transportation-related activities,'' ranging

from a minimalist approach to an exclusive, limited list. NATI proposes

that the definition be removed entirely and instead maintains that what

constitutes transportation-related activities should be determined on a

case-by-case basis. IANVOCC asserts that the proposed definition is

both too narrow, in that it tries to capture each potential claimant,

and too broad, by defining causes of action which may not exist under

statutory or common law. Instead, IANVOCC recommends that the

Commission adopt a more flexible approach and focus on the necessary

and customary activities performed by NVOCCs in the course of providing

transportation services to their customers. Such an approach, IANVOCC

avers, would better accommodate the evolving nature of NVOCC activities

in the future.

Yellow and Worldlink also suggest a definition which is broad

enough to cover all activities performed by OTIs, but which cannot be

construed to cover matters beyond the OTI's control:

Any activity performed by an ocean transportation intermediary

that is necessary or customary in the provision of transportation

services to customers.

Similarly, NCBFAA favors a general statement that informs parties that

the instrument of financial responsibility is available to satisfy

judgments for a broad range of transportation-related liabilities, not

just those resulting from a violation of the Shipping Act. In the

alternative, NCBFAA suggests a caveat be added to the proposed list

indicating that the list is intended to limit future disputes between

claimants and financial responsibility providers but is not a finding

that OTIs are obligated to perform the listed services.

Charter suggests the following items should be included in a

definition: leasing containers, contracting for space on vessels,

entering into arrangements with origin or destination agents, and

engaging truckers, consolidators or warehouses. APL states that

``payment of ocean freight charges'' should be removed from the

proposed definition because it is too restrictive and does not

recognize the range of services that OTIs provide, and should be

replaced with ``payment of port-to-port or multimodal transportation

charges.''

On the other end of the spectrum, D.J. Powers wants a limited

definition of what constitutes ``transportation-related activities.''

Similarly, Kemper argues that the Commission was directed to issue a

definition to ``restrict coverage under the bond'' and fails to do so

with the qualifying statement that the definition ``includes but is not

limited to'' the enumerated activities. As such, Kemper offers the

following definition of NVOCC services:

Non-vessel-operating common carrier services refers to the

provision of carriage by water of cargo between the United States

and a foreign country for compensation without operating the vessels

by which the transportation is provided, which may include but are

not limited to the following:

(1) the purchase of transportation services from a VOCC and

offering such services for resale to the NVOCC's shipper-customers;

(2) the remitting of lawful compensation to ocean freight

forwarders;

(3) the arrangement of inland transportation and the payment of

inland freight charges for through transportation movements as

defined by the Act;

(4) the assumption of responsibility for the safe transportation

of cargo shipments by reasonable dispatch;

(5) the issuance of bills of lading or equivalent documents;

and/or

(6) the entering of affreightment agreements with underlying

shippers.

ASA/Intercargo proposes a similar definition of non-vessel-

operating common carrier services:

(1) assuming responsibility for the safe transportation of cargo

shipments by reasonable dispatch;

(2) purchasing transportation services from a VOCC and offering

such services for resale to other persons;

(3) entering into affreightment agreements with underlying

shippers;

(4) issuing bills of lading or equivalent documents;

(5) arranging for inland transportation and paying for inland

freight charges on through transportation movements as defined by

the Act; or

[[Page 11160]]

(6) paying lawful compensation to ocean freight forwarders.

Both Kemper and ASA/Intercargo suggest that the Commission adopt

the proposed definition of NVOCC services, or a modified version, and

then define transportation-related activities as including, but not

limited to, the freight forwarding services in Sec. 515.2(i), and

limited to the enumerated NVOCC services.

ASA/Intercargo, Kemper and D.J. Powers are the only commenters that

advocate a restrictive definition. Indeed, Kemper argues that the

Commission ``was directed to issue a definition to restrict coverage

under the bond to the transportation-related activities arising out of

an OTI's responsibility as an ocean carrier; namely providing ocean

transportation services.'' Further, Kemper asserts that ``[b]y not

including an exclusive list of ``transportation-related activities''

that are covered by the surety bond, the very point of having a

definition of ``transportation-related activities'' is moot and

ineffective in avoiding unnecessary litigation over what is

``transportation-related.'''

The Commission finds the comments very helpful. The Commission is

aware that although they are subsumed under the umbrella of ``ocean

transportation intermediaries,'' the individual definitions of ``ocean

freight forwarder'' and ``NVOCC,'' and in fact the distinctive

activities performed by the individual entities, remain intact from the

1984 Act. Therefore, the Commission adopts a definition of ``NVOCC

services'' and a revised definition of ``transportation-related

activities'' culled from the commenters' suggestions.

The definition of non-vessel-operating common carrier services, at

Sec. 515.2(l), will be as follows:

Non-vessel-operating common carrier services refers to the

provision of transportation by water of cargo between the United

States and a foreign country for compensation without operating the

vessels by which the transportation is provided, and may include,

but are not limited to, the following:

(1) Purchasing transportation services from a VOCC and offering

such services for resale to other persons;

(2) Payment of port-to-port or multimodal transportation

charges;

(3) Entering into affreightment agreements with underlying

shippers;

(4) Issuing bills of lading or equivalent documents;

(5) Arranging for inland transportation and paying for inland

freight charges on through transportation movements;

(6) Paying lawful compensation to ocean freight forwarders;

(7) Leasing containers; or

(8) Entering into arrangements with origin or destination

agents.

The definition of transportation-related activities, redesignated

Sec. 515.2(w), will be revised to read as follows:

Transportation-related activities which are covered by the

financial responsibility obtained pursuant to this part include, to

the extent involved in the foreign commerce of the United States,

any activity performed by an ocean transportation intermediary that

is necessary or customary in the provision of transportation

services to a customer, but are not limited to the following:

(1) For an ocean transportation intermediary operating as a

freight forwarder, the freight forwarding services enumerated in

Sec. 515.2(i), and

(2) For an ocean transportation intermediary operating as a non-

vessel-operating common carrier, the non-vessel-operating common

carrier services enumerated in Sec. 515.2(l).

The Commission does not, however, agree that it was directed to

formulate a restrictive definition. Rather, the Report simply directs

the Commission to define transportation-related activities and gives as

examples a few items that are covered by the financial responsibility,

including liabilities from service contract obligations, judgments and

claims resulting from loss or conversion of cargo, negligence or

complicity of the bonded entity, and nonperformance of services. In

particular, we do not adopt the position advocated by ASA/Intercargo,

NY/NJFFFBA, and OWL that ``service contract obligations of an NVOCC, as

a shipper'' should not be covered by an OTI's financial responsibility.

In fact, courts have recognized that damages arising from service

contract obligations are covered by an OTI's financial responsibility

and Congress did not intend to change this. See P & O Containers v.

American Motorists Ins. Co., No. CV-96-5828, 1997 U.S. Dist. LEXIS 5522

(C.D. Cal. April 15, 1997), and P & O Containers, Ltd. v. American

Motorists Ins. Co., 96 Civ. 8244(JFK), 1998 WL 146229 (S.D.N.Y. March

25, 1998). Moreover, the revised definitions should satisfy the

commenters' concerns that the proposed definition conflicted with

COGSA.

The point of defining what is considered ``transportation-related

activities'' is to ensure that the instrument of financial

responsibility is used to pay for claims arising out of an OTI's

transportation-related activities. To that end, in the supplementary

information to the Notice of Proposed Rulemaking in this proceeding,

the Commission reaffirmed this principle stating that ``someone who

operates as an OTI also provides non-OTI services, those services would

not be covered by the bond, surety or other insurance.'' 63 FR at

70711. Further, we stated that prior to paying a judgment, ``the

financial responsibility provider may inquire into the subject matter

of the judgment to ensure that it is for damages covered by the

instrument of financial responsibility--i.e. that it arises from

transportation-related activities.'' Id. We embrace the approach

advocated by IANVOCC that too narrow a definition ``does not allow for

future growth and dynamism of the NVOCC industry * * * the activities

they perform as NVOCCs will evolve, which could lead to new types of

claims which should be, but are not, covered by this [proposed]

definition.''

In a similar vein, ASA/Intercargo objects to the Commission's use

of the phrase ``transportation-related liabilities'' in Secs. 515.22(b)

and (c). In view of the changes to the definition of ``transportation-

related activities,'' we amend the language in Secs. 515.22(b) and (c)

to read ``damages arising from transportation-related activities.''

Claims Against an OTI's Financial Responsibility

The Commission has also proposed, at Sec. 515.23, new procedures

for pursuing claims against the bond, insurance or other surety of an

OTI. Any party may seek an order for reparation at the Commission

pursuant to sections 11 or 14 of the 1984 Act, in which event the bond,

insurance or other surety shall be available to pay. Alternatively,

where a claimant seeks relief in an appropriate court, the claimant

shall attempt to resolve its claim with the financial responsibility

provider prior to seeking payment on any judgment it has obtained or

will obtain.

The bulk of the comments received on this issue are from ASA/

Intercargo and Kemper. At the outset, ASA/Intercargo asserts that the

supplementary information pertaining to the financial responsibility of

OTIs is incomplete and inconsistent with the Congressional intent of

OSRA because the Senate Report on which it relies was written prior to

the final version of OSRA. The supplementary information states that

the financial responsibility shall be available to pay for damages

suffered by ocean common carriers, shippers and others injured by the

OTI. ASA/Intercargo wants the Commission to qualify ``others'' by

adding ``who employed the services of the OTI.'' Leaving ``others''

undefined, ASA/Intercargo maintains, would subject the surety to any

claim, whether or not that party had privity of contract or any

[[Page 11161]]

relationship to the cargo movement. The Commission declines to limit

``others'' as sought. The language about which ASA/Intercargo complains

is taken directly from the Report and we find no support for such a

limitation. Rather, we note that during the legislative process, the

objective as to what is covered by the financial responsibility

obtained under this part has remained consistent.

Section 515.23(b) sets forth an alternative claim procedure which

provides that upon a claimant's notification of its claim to the

financial responsibility provider, the financial responsibility

provider and claimant can settle the claim with the OTI's consent, or,

if the OTI fails to respond to the notice of the claim within 45 days,

the financial responsibility provider and claimant can settle the claim

on their own. If, however, the parties fail to reach agreement within

ninety (90) days, then the bond, insurance or other surety shall be

available to pay any judgment for damages to the extent they arise from

the transportation-related activities of the OTI.

OCWG argues that the Commission has proposed procedural

requirements which unduly interfere with the ability of carriers and

others to recover damages they have incurred. OCWG asserts that there

is nothing in OSRA or its legislative history which requires a party to

take additional steps prior to executing a judgement it has lawfully

obtained, but rather avers that Congress was concerned that sureties be

given adequate notice before they were required to pay on a claim

against an OTI. Indeed, by interfering with a final judgment, proposed

Sec. 515.23(b) is said to be unconstitutional under the ``vested rights

doctrine.'' OCWG proposes to revise Sec. 515.23(b) as follows:

If a party does not file a complaint with the Commission

pursuant to section 11 of the Act, but otherwise seeks to pursue a

claim against an ocean transportation intermediary bond, insurance

or other surety for damages arising from its transportation related

activities, it may commence suit before a court of competent

jurisdiction, naming as parties both the financial responsibility

provider and the ocean transportation intermediary.

In contrast, NCBFAA believes Sec. 515.23 is a positive change, but

recommends that regardless of whether a party intends to pursue a claim

with the Commission or a court of law, it should first be required to

make a demand directly with the OTI. Similarly, NATI supports the

possibility of a settlement between the claimant and the financial

responsibility provider, but wants to ensure that valid notification is

established to prevent any abuse where notice is not received by the

surety. DITTO complains that 90 days is an insufficient amount of time

in which to properly research and process a claim.

Similarly, ASA/Intercargo and Kemper contend that while the

Commission may not have the ability to restrict a claimant's judicial

access, it has the duty and the authority to require a claimant to

notify both the OTI and the surety upon the filing of a complaint

against an OTI. ASA/Intercargo insists that the rules must provide for

timely notice of claims, timely submission of information necessary to

evaluate a claim, and notice of any request to enter a judgment. Kemper

argues that a claimant must first seek to settle a claim and objects to

the proviso in Sec. 515.23(b) that prior to seeking payment on a

judgment the claimant shall seek to resolve its claim with the

financial responsibility provider. Kemper argues that this language

negates the intent of OSRA, which Kemper asserts is to require that the

parties seek to settle a claim before obtaining a judgment.

The Commission does not have the authority to limit or prevent a

claimant from seeking judicial access prior to pursuing a settlement

with the financial responsibility provider, particularly where such

restrictions could prevent claimants from filing their actions within a

statute of limitations. However, under the express language of section

19(b)(2)(C) of OSRA, the Commission may require the claimant to seek a

settlement with the financial responsibility provider prior to

enforcing any judgment it has obtained or will obtain against the OTI;

the statute provides that the financial responsibility provider has a

``reasonable period of time'' within which to resolve the claim.

Moreover, even if the Commission were to require in its rules that

a claimant make a demand on the OTI and financial responsibility

provider prior to seeking relief in an appropriate court, or notify the

financial responsibility provider when such a lawsuit is initiated, the

Commission could not provide for any recourse if the claimant failed to

comply. The Commission cannot nullify a valid court judgment. Moreover,

imposing such an onerous burden on claimants would defeat the purpose

of the legislation. As the sureties frequently point out, the purpose

of establishing an alternative claim procedure is to protect the

interests of the claimants, OTIs and the financial responsibility

providers; this objective would not be served by removing the

availability of the financial responsibility from claimants who are

unfamiliar with the instant Commission regulations at the time they

seek judicial recourse. The approach we have proposed accomplishes this

goal in a balanced manner by ensuring that financial responsibility

providers have a reasonable period of time within which to engage in a

limited review of a judgment, regardless of when it was obtained,

before being obligated to make payment. Moreover, this procedure does

not add extra steps as OCWG argues, but rather just provides the

financial responsibility provider sufficient time within which to

review a judgment for scope and finality.

ASA/Intercargo and Kemper argue that section 19(b)(2)(C) of OSRA

was intended to protect sureties against improperly entered default

judgments. They also argue that Congress did not restrict the sureties'

ability to contest default judgments and assert that ``as a matter of

suretyship law, sureties have the right to deny claims based on

judgments which are void, to review a claim for fraud or collusion, and

in the case of default judgments, to inquire into the merits of the

judgment to determine whether it was proper.'' Further, they state that

making a default judgment absolutely binding on a surety represents a

change in existing suretyship law. As a consequence, ASA/Intercargo

wants an express recognition in the rules that the sureties retain

their right to refuse to pay an invalid judgment, suggesting a

modification which indicates the Commission is not restricting a

surety's common law rights to review, inquire into the merits, or deny

coverage of a claim. Alternatively, Kemper suggests a modification to

the rule requiring sureties to pay only if a claim was contested and

its validity determined on the merits.

The Commission declines to adopt these suggestions, as to do so

would vitiate the intent of OSRA. The legislation is not limited to

providing relief to claimants only where judgments are contested; many

claims against foreign, defunct, or unscrupulous NVOCCs are in fact

uncontested. We expect that financial responsibility providers will

take these factors into account during the underwriting process.

Similarly, OSRA's reliance on court judgments as determinative does not

envision that a financial responsibility provider's obligations may be

averted should the financial responsibility provider decide to proclaim

a judgment invalid. OSRA's only caveat on the financial responsibility

provider's requirement to pay is in section 19(b)(3)--that the

[[Page 11162]]

damages claimed arise from the OTI's transportation-related activities.

Moreover, Sec. 67(c) of the Restatement (Third) of Suretyship and

Guaranty, upon which ASA/Intercargo and Kemper rely, is not definitive

as to this issue. Although the comment to that section states

the probative significance of a judgment obtained by confession,

default, or the like is much less than that of a judgment after

trial on the merits. * * * Thus, a judgment against the principal

obligor obtained by default, confession or the like does not create

a presumption in favor of the principal obligor's liability in the

subsequent action by the obligee against the secondary obligor;

rather such a judgment is evidence only of its rendition,

Restatement (Third) of Suretyship and Guaranty Sec. 67, cmt. c (1996),

the analysis further explains that

Cases vary widely on this point. Some hold that a default

judgment is conclusive as to the liability of the secondary obligor.

(citation omitted). Others hold that a default judgment is prima

facie evidence of the secondary obligor's liability. (citation

omitted). Still others hold a default judgment is inadmissible

against the secondary obligor. (citation omitted).

Restatement (Third) of Suretyship and Guaranty Sec. 67, cmt. c,

reporter's note c (1996). Because suretyship law does not guarantee to

sureties the right to deny or limit liability in cases of a default

judgment, we decline to adopt such an approach here as advocated by the

sureties, especially where the statute suggests no such approach.

Proposed Sec. 515.23(b) provides that the financial responsibility

provider shall pay a judgment for damages obtained in an appropriate

court ordinarily within ten (10) days. Both ASA/Intercargo and Kemper

want this rule to clearly state that payment need not occur until after

a final judgment. In addition, both commenters assert that 10 days is

insufficient time to review a judgment and suggest thirty (30) days as

more appropriate. Moreover, both object to the provision that payment

shall be made ``without inquiring into the validity of the claim.''

Both argue that the Report language stating ``the surety company would

be expected to pay the judgment from the bond funds, without requiring

further evidence of bills of lading or other documentation going to the

validity, rather than the subject matter of the claim,'' is no longer

valid because OSRA was amended to account for the sureties' interests

after the Report was written, and thus this language violates the

mandate of section 19(b)(2)(C). Further, they contend that this

language does not recognize the sureties' right to refuse payment for

void judgments. In particular, both argue that the Commission cannot

require a surety to seek to vacate a void judgment in order to deny

liability under its bond. ASA/Intercargo points out that sureties are

not ordinarily parties to cases against OTIs and do not necessarily

have the right to seek to vacate a judgment in such an action.

Section 515.23(b) provides 90 days during which time the financial

responsibility provider may review a claim and attempt to reach a

settlement with the claimant, regardless of whether the claimant has

sought or will seek a court judgment; this procedure applies in either

event. (See OSRA sections 19(b)(2)(B) and (C)). Payment of damages is

due after 90 days. As ASA/Intercargo's suggestion in this regard is

well taken, the Commission has amended this provision to clarify that

payment under section 19(b)(2)(C) need not be made until after a

judgment is final. Under the proposed procedure, the financial

responsibility provider would have at least one hundred (100) days

before it is required to pay any judgment or claim. We believe that

ordinarily this would be sufficient time to research, review and

process a claim. We recognize, however, that occasions may arise in

which the 90-day negotiation period does not produce a settlement, and

a judgment obtained after that period may raise issues not considered

upon review of the original claim. Hence, the Commission amends the

proposed rule to provide that payment must be made within 30, rather

that 10, days of receipt of a final judgment.

Moreover, Sec. 515.23 provides that ordinarily, the financial

responsibility provider shall pay the judgment within 10 (now 30) days.

While the Commission would intend to report occasions of delinquent or

non-complying surety companies to the United States Department of the

Treasury for appropriate action, it recognizes that on occasion,

extraordinary circumstances may exist in which the good faith

processing of a judgment may take more than the prescribed period. To

that end, the Commission had provided ample periods of time in which

the financial responsibility providers may review their rights and

options regarding the judgment and take such action as may be available

to them. We recognize that these options may vary by jurisdiction, and

the Commission does not endeavor to assess the likelihood that a

financial responsibility provider will successfully vacate (or effect a

vacation through an OTI) a judgment where there are issues of service

or other procedural or substantive questions. The Commission's role is

simply to provide a procedure that incorporates adequate time for the

providers to take such action as is available to them. Where, however,

a final judgment stands, the statute clearly provides that the bond,

insurance or other surety ``shall be available to pay any judgment for

damages'' against an OTI arising from its transportation-related

activities (section 19(b)(2)(C))(emphasis added), and that the judgment

``may not be enforced except to the extent that the damages claimed

arise from'' these activities. (Section 19(b)(3)).

Financial responsibility amounts

In proposed Sec. 515.21, the Commission proposes to establish a

range of financial responsibility requirements commensurate with the

scope of the activities conducted by the different OTIs and the past

fitness of OTIs in the performance of intermediary services. Report at

31-32. Thus, OTIs operating as freight forwarders in the United States

would be required to establish financial responsibility in the amount

of $50,000; OTIs operating as NVOCCs in the United States in the amount

of $75,000; and OTIs operating as both freight forwarders and NVOCCs in

the United States would be required to establish financial

responsibility in the amount of $100,000. Unlicensed foreign-based

entities that provide OTI services for transportation to or from the

United States, but are not operating ``in the United States'' as

defined in proposed Sec. 515.3, would be required to establish

financial responsibility in the amount of $150,000. Groups or

associations of OTIs would be able to provide financial responsibility

for their members with the maximum aggregate amount of $3,000,000.

At the outset, the Commission received comments relating to its

proposal that an OTI operating as both freight forwarder and an NVOCC

in the United States could obtain a single instrument of financial

responsibility in the amount of $100,000. AIFA/TIA points out that this

proposal unfairly favors those entities who have combined their freight

forwarder and NVOCC operations into a single company for no apparent

reason. ASA/Intercargo and Kemper submit that while this type of

financial responsibility may reduce the premium for an OTI, it actually

offers no other benefits, but in fact, would be risky for the OTI. For

example, ASA/Intercargo points out that if an NVOCC's coverage were

cancelled, this would also result in cancellation of the freight

forwarder portion of the coverage. In addition,

[[Page 11163]]

ASA/Intercargo contends, without expressly defined limits of coverage,

the Commission would be increasing the penalty amount to $100,000, from

$50,000 for freight forwarders and $75,000 for NVOCCs. Further, ASA/

Intercargo maintains that in the event that competing claims from both

freight forwarders and NVOCCs are made against a bond, the surety would

have difficulty determining how the bond should be divided.

The Commission recognizes the problems presented by its proposal.

We did not intend to create the appearance in favor of OTIs with joint

operations. Nor did we anticipate the potential dual cancellation of

the financial responsibility coverage. As a consequence, in the final

rule we are removing the joint coverage proposal, and instead, OTIs

operating in the United States as both freight forwarders and NVOCCs

will continue to secure separate instruments of financial

responsibility for their distinct operations. Thus, proposed

Sec. 515.21(a)(3) is removed, and proposed Secs. 515.21(a)(4) and

(a)(5) are redesignated as Secs. 515.21(a)(3) and (a)(4). Moreover,

even with respect to individual instruments of financial

responsibility, the financial responsibility providers are now, and

will continue to be, faced with the situation where there are multiple

claims on an OTI's financial responsibility. The providers will

continue to be required to fairly apportion the amount to address the

claims presented.

With respect to the amount of financial responsibility required

under this section, OCWG states that it supports the Commission

proposal increasing the required levels of financial responsibility, in

light of the Commission's recognition that an increasing number of

NVOCCs have gone bankrupt or changed company names to avoid their

responsibilities. Similarly, CENSA believes that the proposed amounts

are consistent with applicable statutory requirements. Yellow supports

the proposed amounts for those OTIs operating in the United States, but

recommends that the amount for foreign OTIs be raised to $250,000, ``to

more accurately reflect the risk involved with these entities.'' Yellow

maintains that foreign entities are generally beyond the reach of U.S.

law, requiring navigation of the ``often protectionist shoals of

foreign laws,'' such that recovery imposes very significant costs not

associated with domestic OTIs.

NCBFAA asserts that the proposed amounts for those OTIs operating

in the United States are too high and could present financial burdens

for smaller companies. Further, NCBFAA does not believe that the higher

amounts will protect the public from unscrupulous operators who then

subject their customers to carriers' lien claims and similar problems.

Conversely, NCBFAA supports a higher amount for foreign, unlicensed

OTIs. Noting that Commission press releases indicating its settlements

with foreign NVOCCs are in multiples of $150,000 and given Commission

experience with these entities, NCBFAA argues that the $150,000

proposed amount is rather modest. Similarly, IANVOCC proposes a minimum

of $300,000, perhaps higher, and further suggests subjecting unlicensed

NVOCCs to a branch office requirement similar to that for U.S.-based

NVOCCs. D.J. Powers also supports the proposed amount for foreign OTIs

and advocates requiring an additional amount per branch office, similar

to the U.S. requirement, or perhaps a per country increase. In

contrast, D.J. Powers finds the proposed amounts applicable to licensed

OTIs too high and opines that the cost would be prohibitive for small

companies. Worldlink believes that the financial responsibility

requirement proposed for unlicensed, foreign OTIs is too low. Arguing

that the Commission should ensure that no legitimate claim against

these entities should go unpaid, Worldlink submits that an amount less

than $1,000,000 would be insufficient.

AIFA/TIA urges the Commission to reconsider the proposed amounts,

arguing that they are not supported by adequate facts or data. AIFA/TIA

contends that ``high bond amounts penalize small companies and create

barriers to entry that limit competition'', and further that some of

these companies ``may have to pledge collateral'' for the increased

amounts. AIFA/TIA notes that these proposed expenses may not have been

budgeted by a number of small companies. OWL also states that the

increased amounts for foreign OTIs are not substantiated. OWL suggests

instead that adopting a broad definition of ``in the United States''

for licensing purposes and equalizing the bond amounts between foreign

and domestic entities is the only way to achieve a proper balance

between the licensing requirements imposed by Congress and the

circumvention of U.S. law enjoyed by foreign companies. Similarly, NY/

NJFFFBA opines that rather than increasing financial responsibility

requirements for foreign OTIs, the Commission should instead adopt the

broader definition of ``in the United States'' to protect the integrity

of the OTI process completely. NY/NJFFFBA further asserts that the

Commission failed to follow its Congressional mandate to determine the

difference in potential for claims against unlicensed and licensed

OTIs, and as such, must justify the difference with historical or other

reliable data before implementing differing amounts of financial

responsibility. The British Association of Removers argues that

imposition of the higher guarantee on foreign NVOCCs is discriminatory

and would be unfair to small volume entities who would have trouble

meeting the requirements.

NITL states that it understands and appreciates the Commission's

concern which would justify the proposed increases, but suggests that

the increases would appear to impose substantial additional costs on

many small business. NITL further notes that while shippers and

carriers are likely to benefit from the increased amounts, they could

restrict new companies from entering the OTI business and cause others

to leave; thus NITL suggests imposing more modest increases.

Direct Container Line stresses that the Commission did not support

the ``apparent expectation'' that the higher level of financial

responsibility would result in increased enforcement action against

unscrupulous foreign-based entities. Similarly, Charter contends that

the increased amounts will only serve to punish the law-abiding NVOCCs,

benefitting nobody but the insurance companies. Glad Freight also

laments the increased financial responsibility requirements and would

rather see stepped up enforcement to ensure compliance with the

licensing and financial responsibility requirements.

The Commission adopts in the final rule the amounts of financial

responsibility set forth in the proposed rule, with the exception of

the joint $100,000 level previously discussed. We believe that these

amounts are consistent with the obligations undertaken by OTIs and will

better serve the shipping public, whom they are designed to protect and

compensate for damage. Moreover, these amounts are an accurate

reflection of the intent of OSRA to require OTIs to establish financial

responsibility commensurate with the scope of their duties.

In response to comments that these amounts could pose a burden on

small businesses, we believe that the burden of securing additional

financial responsibility, as more fully detailed in the Regulatory

Flexibility Analysis discussed, infra, is outweighed by the benefit to

the shipping public. The

[[Page 11164]]

estimated burden per individual entity is not such that it will

preclude from entering or remaining in the industry, those OTIs who are

capable of satisfying their obligations, which was the goal of the

NVOCC bonding requirement when it originated in 1990. See 136 Cong.

Rec. E2210 (January 28, 1990) (statement of Rep. Jones). Moreover, when

NVOCC bonds were implemented in 1990, Congressman Jones indicated that

the $50,000 level was a starting point, which amount the Commission has

not raised since that time. Id. Additionally, we have set forth

provisions in the interim portion of this rulemaking allowing for the

licensing of foreign NVOCCs, whose financial responsibility would, as a

consequence, be at the lower $75,000 amount. Therefore, Sec. 515.21 is

adopted as proposed, subject to the modification relating to the

$100,000 level discussed earlier.

With respect to branch offices, APL contends that the requirement

that OTIs increase their financial responsibility by $10,000 per

unincorporated branch office is unwarranted and counterintuitive. APL

asserts that there is no logical correlation between the number of

branch offices an OTI maintains and its propensity to default on its

obligations. APL further points out that it has been a frequent critic

of foreign governmental requirements which appear protectionist in

nature. The provisions to which APL objects are carried over from

existing freight forwarder rules. The Commission did not specifically

solicit comment on this issue, and is reluctant to address APL's

suggestion without its having been more fully addressed by industry

commenters. Therefore, because consideration of branch office financial

responsibility obligations is not necessary to the implementation of

OSRA, the existing rules will not be amended in this regard.

ASA/Intercargo proposes amending Sec. 515.21(b), relating to the

amount of financial responsibility required by groups, to read ``In

such cases a group or association must establish financial

responsibility in an amount equal to the lesser of the amount required

by paragraph (a) of this section for each member or $3,000,000 in the

aggregate.'' We adopt this suggestion in order to clarify that groups

with few members may establish an aggregate amount less than

$3,000,000. This should also address DITTO's objection that the

$3,000,000 amount will allow claims to be inflated. This amount refers

to group bonds, the limits of liability under which are the same as if

the financial responsibility were secured individually.

ASA/Intercargo also suggests amending Sec. 515.22(d)(5) as follows:

515.22--Proof of financial responsibility (d)(5)(ii) be for an

amount up to the amount determined in accordance with

Sec. 515.21(b), taking into account a member's individual financial

responsibility coverage already in place. In the event of a claim

against a group bond, the bond must be replenished up to the

original amount of coverage within 30 days of payment of the claim;

and (iii) be in excess of a member's individual financial

responsibility coverage already in place; and

ASA/Intercargo contends that these changes are necessary because

the financial responsibility requirements have already been set forth

in Sec. 515.21. This section contemplates supplemental coverage and the

suggested language clarifies that the supplemental amount allows the

member to aggregate coverage to meet the required limit. Moreover, the

amendment clearly indicates that an individual's primary coverage is

its other financial responsibility already in place and the

supplemental coverage is available after the primary coverage has been

exhausted. The Commission believes ASA/Intercargo's suggestions have

merit and adopts them accordingly. Finally, the Commission adopts ASA/

Intercargo's suggestion that with respect to group bond form FMC-69, it

is more appropriate to use ``Appendix A'' to set forth the maximum

limits of liability for each member OTI and in the aggregate.

Proof of Compliance

Section 10(b)(11) of the 1984 Act prohibits a common carrier from

transporting cargo for an NVOCC unless that common carrier has

determined that the NVOCC has a tariff and financial responsibility. In

order to aid the common carriers in complying with this section, the

Commission proposed in Sec. 515.27(d) to publish at its website a list

of the location of all carrier and conference tariffs and a list of

OTIs who have furnished evidence of financial responsibility. The

Commission specifically requested comments on this issue, and as none

were received, the proposed language is carried forward in the final

rule.

Compliance With Higher Bond Amounts

In accordance with Sec. 515.21, all OTIs will need to provide

increased financial responsibility by May 1, 1999. C.A. Shea, an

insurance broker who currently administers over five hundred (500)

bonds filed with the Commission, and NY/NJFFFBA contend that there is

insufficient time, between March 1, 1999 and May 1, 1999, in which to

obtain underwriting approval to execute increased financial

responsibility in accordance with the new regulations. NY/NJFFFBA

suggests that OTIs be allowed to continue to operate if they provide

the Commission with proof that they have timely applied for the

increased financial responsibility. C.A. Shea requests that the

Commission ``phase in the replacement of the existing bonds over a

period of time, perhaps on renewal, or by special rider to alleviate an

unnecessary burden.''

The Commission is mindful of the expressed concerns, and, thus,

allows OTIs and financial responsibility providers to increase their

financial responsibility effective May 1, 1999, by rider to their

existing instruments of financial responsibility. The rider to the

instrument of financial responsibility shall indicate that the

liability incurred under the instrument of financial responsibility

shall be consistent with OSRA and 46 CFR part 515. The financial

responsibility provider shall file the rider with the Commission by May

1, 1999. Financial responsibility providers shall then issue and file

with the Commission new instruments of financial responsibility as

required by 46 CFR part 515 at the time when the OTIs would ordinarily

renew their instruments of financial responsibility.

Financial Responsibility Forms

Appendices A, B, C and D set forth the financial responsibility

forms FMC-48 (surety bond), FMC-67 (insurance), FMC-68 (guaranty), and

FMC-69 (group surety bond), respectively, to be used by the OTI and

financial responsibility provider in contracting for financial

responsibility. NVOCCs or freight forwarders may use the forms

interchangeably and would choose a specific form according to the type

of financial responsibility they obtain. ASA/Intercargo 2

contends that the Commission should adopt different surety bond forms

for NVOCCs and freight forwarders because they are distinct entities

that are required to obtain different amounts of coverage. As ASA

notes, ``[r]equiring separate bond forms for each OTI activity will

provide the shipping public with concise, clean, and unambiguous forms

that accurately describe the activities that an OTI is performing or

providing.''

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\2\ C.A. Shea supports the comments made by Kemper and ``other

sureties'' as to the proposed bond language.

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

The Commission agrees with ASA/Intercargo's suggestion and revises

all four of the financial responsibility forms to require the OTI to

indicate if it is obtaining the financial responsibility as an NVOCC or

a freight forwarder. None of the proposed forms or the suggested

[[Page 11165]]

surety bond forms proposed by ASA/Intercargo further detail the

activities of the OTI, either as an NVOCC or a freight forwarder. The

proposed forms do indicate that the financial responsibility shall be

available to pay for damages arising from ``transportation-related

activities.'' As the revised definition of ``transportation-related

activities,'' Sec. 515.2(w), clarifies that it applies to the services

of freight forwarders and NVOCCs separately as further defined in

Secs. 515.2(i) and (l) respectively, it is unnecessary to detail these

activities on the financial responsibility forms themselves. Therefore,

it is sufficient to require that the OTI indicate on the form whether

it is an NVOCC or a freight forwarder, and it is unnecessary to create

different financial responsibility forms for NVOCCs and freight

forwarders.

ASA/Intercargo and Kemper further object to the language in the

surety bond form FMC-48 which provides that the surety ``consents to be

sued'' in the event that the OTI or surety has not made payment on a

final judgment. Neither OSRA nor proposed 46 CFR part 515, they argue,

requires that a surety consent to being sued, and the Commission has

not provided any justification for adding this language. Furthermore,

they assert that the current Form FMC-48 does not contain the

``consents to be sued'' language, even though similar language is

contained in the existing insurance and guaranty forms. The Commission,

they contend, cannot add that language to the surety bond form merely

because it is in the insurance and guaranty forms, because ``these

forms of undertaking are different than surety undertakings.'' In

addition, other government agencies' regulations and bond forms, they

aver, do not contain such language. ASA/Intercargo and Kemper further

argue that the ``consents to be sued'' language conflicts with the

United States Department of the Treasury's procedures, under 31 CFR

Secs. 223.18-223.22, for complaining against sureties who fail to honor

their bonds.

While the Commission acknowledges that the relationships and

commitments made by entering a surety agreement are separate and

distinct from those made in insurance and guaranty agreements, ASA/

Intercargo's arguments to remove the ``consents to be sued'' language

from Form FMC-48 are unpersuasive. The language does not alter the

surety's obligations arising under the bond. Simply because the surety,

insurance and guaranty are different types of agreements does not mean

that a claimant who receives a final judgment against an OTI cannot sue

a surety in the event that it fails to honor a valid judgment.

Moreover, removing that language would not prevent a claimant from

doing so. In addition, the Commission is not prevented from adding such

language in this proceeding simply because it had not been in the

earlier bond.

Further, the language does not conflict with the Department of the

Treasury regulations providing procedures for complaining against a

surety who has failed to honor its responsibilities under the bond, as

Kemper and ASA/Intercargo argue. Part 223 of 31 CFR ensures that the

bond companies doing business with the United States government, via

underwriting surety bonds required by federal law, are in good

standing. Sections 223.18-223.22 of 31 CFR specifically provide that a

federal agency, not a private claimant, that is unable to collect on a

bond to its satisfaction may turn the matter over to the Department of

the Treasury by making a ``report'' of the claim. The language in the

bond form would not subvert that process. Therefore, the Commission

declines Kemper and ASA/Intercargo's request to remove the above

paragraph from Form FMC-48.

Kemper further objects to the requirement in Form FMC-48 that the

surety must pay on a final judgment within 10 days. Kemper asserts that

only 10 days after being notified of the claimant's judgment the surety

consents to being sued in almost any state, and, therefore, ``[t]his

language, in addition to being in direct contrast to the regulations

and the Act itself, defeats the purpose of providing for the

regulations an alternate procedure rather than the claimant immediately

seeking judgment.''

Kemper misreads the language as nullifying the procedure set forth

in Sec. 515.23(b), which requires the claimant to attempt to resolve

the claim with the financial responsibility provider within 90 days

prior to seeking payment on a judgment. This conforms with the language

in Form FMC-48, which states that the Surety consents to be sued after

claimant has obtained a final judgment and after claimant has complied

with Sec. 515.23(b). As discussed, supra, the 10 day period, which is

revised to 30 days, is in addition to the 90-day settlement period.

However, to the extent that it may be unclear what the ``within 10 [now

30] days'' language in Form FMC-48 modifies, the Commission revises

FMC-48 to remove that phrase. This modification does not, however,

alter the requirement in Sec. 515.23(b) that the financial

responsibility provider must ordinarily pay the judgment within 30 days

of the final judgment.

Moreover, Kemper's complaint that the surety would consent to being

sued ``in any state'' is irrelevant because where a complaint may be

brought is determined by the particular state's laws of jurisdiction.

The surety must be aware that a court may find it has jurisdiction over

it based on its contacts with that state. Any company, based upon the

reach of its business, takes the risk of being sued in a state that it

may not consider its principal place of business. That is a risk a

company assumes, however, and it must pay the consequences of that

risk, including being sued in another state. The Commission has no

ability to protect a surety from being sued in a particular state and,

therefore, declines to change the rule.

Finally, ASA/Intercargo contends that the language that a surety's

obligation shall not exceed ``the amount per group or association of

OTIs set forth in 46 CFR Sec. 515.21'' in Form FMC-48 should also be

deleted. The inclusion of group or association bond form language, they

argue, is improper because Sec. 515.22(d)(6) provides that Form FMC-69

is the only form a group or association may use in obtaining coverage

under a surety bond (unlike group or association coverage under

insurance or a guaranty). ASA/Intercargo's comment is well-founded,

and, therefore, the Commission revises Form FMC-48 accordingly.

Duties and Responsibilities of OTIs

Proposed Sec. 515.31 set forth the duties of freight forwarders and

NVOCCs to their principal and shipper, respectively, and the Commission

generally. In doing so, the Commission incorporated many of the duties

from 46 CFR Secs. 510.21 and 510.22 that applied to freight forwarders

and applied them to NVOCCs as well, so that all licensees would be

subjected to the same responsibilities. Many commenters objected to

this rationale for applying certain duties to NVOCCs and argued that

many of these duties should not be applied to NVOCCs at all. OCWG,

however, supports Sec. 515.31 in its entirety.

NY/NJFFFBA, Worldlink, OWL, NAI, Charter, and D.J. Powers contend

that freight forwarders and NVOCCs are separate and distinct legal and

commercial entities, regardless of their common designation as OTIs and

the fact that they would both now be licensed by the Commission.

Congress intended for freight forwarders and NVOCCs to continue to be

considered as such, NY/NJFFFBA, OWL, NAI, and

[[Page 11166]]

Charter argue, and, therefore, maintained the separate definitions of

freight forwarders and NVOCCs within the general definition of OTI. As

OWL contends that ``while perhaps recognizing the ``OTI'' as a creature

of statutory construction, it is nothing more than a mere umbrella

under which the legal distinction of both the ``ocean freight

forwarder'' and ``[NVOCC]'' are preserved.'' 3 Furthermore,

IANVOCC and Charter aver that Congress did not mandate that any

additional duties be imposed upon NVOCCs, but rather mandated that the

Commission should avoid overly burdensome regulation.

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

\3\ OWL emphasizes this point by analogizing it to the recent

decision of the European Commission regarding the joint inland rate

setting authority of the Trans-Atlantic Conference Agreement.

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

NY/NJFFFBA, IANVOCC, NAI, Charter, Yellow, and D.J. Powers further

argue that an NVOCC is not an agent who owes a fiduciary duty to its

shipper-principal, like a freight forwarder, but rather the NVOCC is a

principal in its relationship to its shipper-customer.4 As

such, Charter, IANVOCC and NAI contend, the NVOCC is a carrier and has

the same relationship with its shipper as does a vessel-operating

common carrier (``VOCC''). Thus, IANVOCC avers, ``while NVOCCs have a

general duty to act in a law-abiding fashion, they are not subject to

the fiduciary obligations of an agent.'' Charter, IANVOCC, Yellow, and

NAI argue that the application of a freight forwarder's duties and

responsibilities to an NVOCC is therefore inappropriate and would be

harmful to an NVOCC's operations.

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

\4\ NAI, NY/NJFFFBA, and IANVOCC point out the extensive law

regarding the freight forwarder as the agent of its shipper-

principal and its fiduciary duties as such.

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

Proposed Secs. 515.31(a) and (b)

IANVOCC and Worldlink do not oppose Sec. 515.31(a), but contend

that the rule should be revised to require a licensee's number to

appear only once on a shipping document. This would avoid, they argue,

unnecessary duplication in the case when a licensee's name appears as a

consignee, shipper, and notify party on a single document. Charter is

the only commenter who argues that the section should be deleted in its

entirety as it applies to NVOCCs.

Section 515.31(a) remains applicable to NVOCCs, and the Commission

agrees with the commenters that a licensed OTI's license number need

only appear once on a shipping document. Accordingly, Sec. 515.31(a) is

revised to replace the word ``[w]herever'' at the beginning of the

second sentence with the word ``when.'' This revision, however, does

not allow a licensee to provide its license number on only one document

in a single transaction if there are several shipping documents

processed in the course of that transaction. Every document where a

licensee's name appears must also include the licensee's license

number.

NY/NJFFFBA, OWL, D.J. Powers, Yellow, and NAI argue that

Sec. 515.31(b)(2), the requirement that an OTI's status as, or

affiliation with, a shipper or seller of goods be identified on its

office stationary and billing forms, should be removed from the rule as

it applies to NVOCCs. Section 515.31(b)(2) was created, NY/NJFFFBA,

OWL, and NAI aver, because freight forwarders are prohibited from

collecting compensation on shipments in which they have a beneficial

interest. They argue, therefore, that this section has no applicability

to an NVOCC, who does not collect carrier compensation. Yellow further

avers that it would have the effect of treating NVOCCs and VOCCs

differently because this duty is not imposed upon VOCCs, and would thus

hinder competition in contravention of the intent of OSRA. Worldlink

and IANVOCC, on the other hand, contend that this section should be

revised so that it is not applicable to NVOCCs unless they are

beneficial owners of cargo, while Charter argues that the entire

Sec. 515.31(b) should be deleted as to NVOCCs.

The Commission agrees that Sec. 515.31(b)(2) is meant to address

the prohibition against the collection of carrier compensation by a

freight forwarder on shipments in which it has a beneficial interest,

as reflected in section 19(d)(4) of the 1984 Act (redesignated as

section 19(e)(3) in OSRA). NVOCCs do not collect carrier compensation

and, therefore, the Commission revises Sec. 515.31(b)(2) accordingly.

The Commission, however, does not agree that Sec. 515.31(b)(1) should

be deleted as it applies to NVOCCs. All licensees, including NVOCCs,

should be required to imprint their license number on their office

stationary and billing forms. It serves to notify the public and

shippers that an OTI is licensed by the Commission. In light of this

change, Sec. 515.31(b)(1) is redesignated as Sec. 515.31(b), and

Sec. 515.31(b)(2) is redesignated as Sec. 515.32(a) of renamed

Sec. 515.32, Freight forwarder duties. Accordingly, proposed

Sec. 515.32, Records required to be kept, will be renumbered as

Sec. 515.33, and proposed Sec. 515.33, Regulated Persons Index, will be

renumbered as Sec. 515.34.

Proposed Sec. 515.31(e)

The first sentence of Sec. 515.31(e) prohibits licensees from

entering any arrangement or agreement with an unlicensed person that

confers any fee, compensation or other benefit upon that unlicensed

person. NY/NJFFFBA, AIFA/TIA, APL, Worldlink, Cargo Brokers, Charter,

D.J. Powers, and Yellow oppose this section as it applies to NVOCCs,

while OWL opposes it as it applies to all OTIs. They argue that this

section, read literally, would allow licensees only to do business with

other licensees, thus preventing a licensee from entering arrangements

with warehouses, truckers, consolidators, container lessors, and others

who are unlicensed but necessary to an NVOCC's operations.

This regulation was originally intended to address the issue of

compensation and fee sharing as it relates to freight forwarders. The

Commission did not intend ``to prohibit forwarders from compensating

bona fide sales agents for services rendered, provided that such

services are restricted to soliciting and obtaining business for the

forwarder and are not otherwise prohibited by law.'' 49 FR 18842, May

3, 1984 (Gen. Order 4, Revised, Docket No. 84-19, Licensing of Ocean

Freight Forwarders). While the Commission believes that this would not

adversely affect NVOCCs from entering arrangements with those

unlicensed persons providing trucking services and the like, it agrees

that the rule is unnecessary as it applies to NVOCCs because they do

not collect carrier compensation or forwarding fees and thus are not

subject to the limitations placed on freight forwarders regarding such

payments.

The second sentence of Sec. 515.31(e) provides that an OTI, when

employed by the agent of the person paying for its services, must

provide a copy of the invoice to both the agent and the person paying

for those services. NY/NJFFFBA and Worldlink also object to this

language as it applies to NVOCCs. This is not applicable to NVOCCs,

they argue, who routinely bill third persons in the course of a

shipment. Further, Worldlink asserts that it would be onerous to

require NVOCCs to ``determine which of their customers are simply

passing through the transportation charges and which are ultimately

responsible for their payment.''

The Commission again recognizes that this regulation was meant to

address freight forwarders and the issues related to fee sharing. As

NVOCC's operations do not encompass these issues, it is

[[Page 11167]]

unnecessary to impose this regulation on them. Therefore, proposed

Sec. 515.31(e) will be removed as it applies to NVOCCs and will be

redesignated as Sec. 515.32(b).

Proposed Sec. 515.31(g) and (k)

NY/NJFFFBA, IANVOCC, AIFA/TIA, OWL, NAI, Charter, D.J. Powers, and

Yellow argue that Sec. 515.31(g), which provides that no licensee shall

withhold information from its principal or shipper concerning an OTI

transaction and that such licensee must use due diligence to assure

that information is accurate, should be removed from the rule as it

applies to NVOCCs. Along with Cargo Brokers, they also aver that

Sec. 515.31(k), which requires that all licensees, upon the request of

their principals or shippers, shall provide a complete breakout of

their charges and any documents pertaining to the invoice, should be

removed as it applies to NVOCCs. APL and Worldlink support these

sections only to the extent that they require licensees to assure the

accuracy of information they provide to their shippers, but contend

that to the extent they prohibit NVOCCs from withholding information

from their shippers or require NVOCCs to provide their shippers a

breakdown of charges, the provisions are too broad.

All of the aforementioned commenters argue that an NVOCC is not an

agent in a fiduciary relationship to its shipper, as is a freight

forwarder, and does not have a duty to impart this information to its

shippers. An NVOCC does not confer this type of information to its

shipper in the general course of business, NY/NJFFFBA and OWL assert,

rather it distributes only a bill of lading which is based on

information received from its shipper or its forwarding agent. NY/

NJFFFBA, IANVOCC, AIFA/TIA, OWL, NAI, Charter, D.J. Powers, Yellow, and

Worldlink further argue that it would be harmful to an NVOCC's business

to disclose all of its information, i.e., pricing strategies, vendor

lists and other proprietary information. It would put NVOCCs at a

competitive disadvantage with VOCCs, they contend, who would still be

allowed to maintain the confidentiality of that information.

Furthermore, they argue such disclosure provisions would nullify

NVOCCs' ability to enter confidential service contracts as shippers

with VOCCs.

The Commission agrees that Secs. 515.31(g) and (k) were originally

created to apply to freight forwarders who, as agents, owe a fiduciary

duty to disclose all pricing information to their shipper-principals.

NVOCCs, in contrast, are in the same position, as carrier-principal, as

VOCCs in relationship to their shippers. Thus, the traditional duties

applicable to freight forwarders regarding pricing information cannot

be automatically applied to NVOCCs because each industry faces a

different competitive environment. As the commenters correctly point

out, disclosing such information would be ``commercial suicide.''

Furthermore, these sections would undermine OSRA's new confidential

service contract environment. Moreover, NVOCCs would still be required

to impart true and accurate information to their shipper-customers

regarding any OTI transaction under proposed Sec. 515.31(f). Deletion

of the duties in Secs. 515.31(g) and (k) as they apply to NVOCCs would,

therefore, not exempt NVOCCs from this obligation. Sections 515.31(g)

and (k) are revised to apply only to freight forwarders and are

redesignated as Secs. 515.32(c) and (d) respectively.

Proposed Secs. 515.31(c), (d), (f), (h), (i), (j), and (l)

Section 515.31(c) prohibits licensed OTIs from permitting their

licenses to be used by persons not employed by the OTI, but provides

that an unincorporated branch office may use its parent's license name

and number if it reports this information to the Commission and it is

covered by the requisite increased financial responsibility. Worldlink

seeks to revise this section to add language that would allow

separately incorporated branch offices that are wholly owned, directly

or indirectly, by the licensee to use the license name and number of

the parent corporation. Charter opposes this section as it applies to

NVOCCs in its entirety. As discussed, supra, regarding Secs. 515.3 and

515.21, separately incorporated branch offices are required to obtain

their own licenses and financial responsibility, and, therefore,

Worldlink's request is denied. This section remains designated as

Sec. 515.31(c).

As to Secs. 515.31(d), (f), (h), (i), (j), Charter is the only

commenter who opposes their application to NVOCCs in their entirety and

argues that they should be removed. IANVOCC and Worldlink contend that

Sec. 515.31(d), which limits the arrangements licensees can make with

OTIs whose licenses have been revoked, is unfair and should be removed

unless the Commission establishes and publishes a list of those persons

on its website. APL supports Secs. 515.31(f) and (h) to the extent that

they prohibit OTIs from providing false information. Both Charter and

NAI assert that Sec. 515.31(l), which requires each licensee to account

to its principal or shipper for various sums due such principal or

shipper due to modifications in monies paid or received, should be

removed as it applies to NVOCCs. Charter argues generally that there is

no factual basis for imposing these freight forwarder regulations on

NVOCCs, and thus they should be deleted or at the very least the

Commission must examine and justify why additional duties should be

applied to NVOCCs. NAI asserts that logic suggests that Sec. 515.31(l)

should be imposed on VOCCs as well, but then argues that neither NVOCCs

nor VOCCs should be subjected to providing a refund to a shipper simply

because they have developed a more cost-effective manner in which to

provide their services.

Sections 515.31(d), (f), (h), (i), (j), and (l) impose duties upon

OTIs that are not freight forwarder specific, unless indicated within a

specific subsection. (See Sec. 515.31(d)(3) (prohibiting a licensee

from sharing forwarding fees or freight compensation with an OTI whose

license has been revoked)). Furthermore, these duties do not rely on

the fiduciary relationship between a freight forwarder as agent and a

shipper as its principal. Therefore, the objection that these duties

are inapplicable to NVOCCs because they are not the agents of their

shippers is inappropriate and, thus, does not justify removing these

sections from the final rule as they apply to NVOCCs. Furthermore, in

regard to Sec. 515.31(d), there is no need for the Commission to

publish a list on its website of those persons whose licenses have been

revoked, because under Sec. 515.16 the Commission sends that

information to the Federal Register quarterly, at the very least, for

publication in paper format and electronic format on the Federal

Register's website at www.nara.gov/fedreg. This method has proven

successful in notifying the public of OTIs whose licenses have been

revoked, thus, the Commission will continue this procedure under the

final rule. In accordance with the other revisions to Sec. 515.31,

Secs. 515.31(f), (h), (i), (j), and (l) will be redesignated as

Secs. 515.31(e), (f), (g), (h), and (i) respectively. Section 515.31(d)

remains designated as such.

Proposed Sec. 515.32

Proposed Sec. 515.32 set forth the recordkeeping requirements of

licensed freight forwarders and NVOCCs, which requires licensees to

maintain all records and books of account in connection with its OTI

business in the United States for a period of five (5) years. NAI and

AIFA/TIA object to this

[[Page 11168]]

requirement as it applies to NVOCCs. IANVOCC also opposes the rule as

it applies to NVOCCs, except for the provision that they be required to

maintain a separate file for each shipment. APL opposes the rule as it

applies to all OTIs, arguing that it is unnecessary for the Commission

to ``micromanage'' these entities.

IANVOCC and NAI point out that an NVOCC is not in a fiduciary

relationship with its shipper like the freight forwarder who handles

funds in trust as agent for its shipper-principal. IANVOCC contends

that ``[a]n NVOCC does not incur expenses on behalf of, or as agent

for, its customers, but rather as principal in the ordinary course of

its commercial operations.'' As such, IANVOCC asserts, the Commission

has no regulatory concern with the financial aspects of the NVOCC's

business. AIFA/TIA further argues that since most NVOCC shipment files

are maintained at the point of origin, which is generally not the

United States, it would almost be an impossibility for NVOCCs to

transport those files to the United States for maintenance.

Yellow, D.J. Powers, Worldlink, and NCBFAA do not object to the

recordkeeping requirement as it applies to NVOCCs. They argue, however,

in conjunction with IANVOCC as the rule applies to freight forwarders,

that the Commission should permit OTIs the option of maintaining their

records in electronic form as an alternative to paper form. NCBFAA also

suggests that the Commission clarify that the recordkeeping

requirements of the rule are independent of other federal agencies that

may have different retention requirements that could be applicable to

OTIs.

As discussed, supra, the NVOCC is not in a fiduciary relationship

with its shipper as is the freight forwarder, thus it is improper to

automatically impose the duties of freight forwarders which are

necessary to their agency relationship with their shippers upon NVOCCs.

The Commission does not need to oversee the financial dealings of

NVOCCs, as IANVOCC argues, and as such revises proposed Sec. 515.32 to

apply only to freight forwarders. The Commission recognizes its own

requirements for and the industry's evolution toward electronic media

and, thus, revises proposed Sec. 515.32 to enable licensed freight

forwarders to maintain their records electronically if they so desire.

The electronic records, however, must be made readily available to the

Commission in a usable form, and it is the licensee's responsibility to

insure that those electronic records are no less accessible than if

they were maintained in paper form. Furthermore, the Commission revises

proposed Sec. 515.32 to incorporate NCBFAA's suggestion to clarify that

the recordkeeping requirements are independent of the retention

requirements of other federal agencies. In accordance with the changes

to proposed Sec. 515.31, Sec. 515.32 will be redesignated as

Sec. 515.33.

In a related issue, D.J. Powers contends that the term ``agent''

should be defined in the rule because it relates to proposed

Secs. 515.31 and 515.32 specifically. The Commission declines to define

the term agent because the term is used in this part to reflect the

large body of agency law. The Commission does not want to

inappropriately alter that definition, thus limiting or conflicting

with the law relied on by the shipping industry in applying these

regulations.

In-Plant Arrangements and Electronic Data Interchange

The Commission codified its decision in In re: The Impact of Modern

Technology on the Customs and Practices of the Freight Forwarding

Industry--Petition for Rulemaking or Declaratory Order, 28 S.R.R. 418

(1998), with regard to in-plant arrangements and electronic data

interchange (``EDI'') in proposed Secs. 515.41(e) and 515.42(e),

respectively. Section 515.41(e) allows a licensed freight forwarder to

place its employee on the premises of its principal as part of a

package of services so long as the arrangement is reduced to writing in

a special contract and it is not an artifice for payment or other

unlawful benefit to the principal. Section 515.42(e) permits a licensed

freight forwarder to own, operate or maintain an EDI-based computer

system in its forwarding business and to collect carrier compensation

if the forwarder performs value-added services.

NCBFAA commends the Commission for officially recognizing the use

of in-plants and EDI and asserts that the rulemaking ``correctly

endorsed the provisions of these services to OTI customers, while

providing a structure that will enable the Commission to ensure that

services are conducted within the constraints of the Shipping Act.''

NY/NJFFFBA supports the in-plant rule as it benefits the forwarding

industry and the shippers they serve; however, it argues that the

written agreement requirement is burdensome, intrusive and in

contravention of the policies of the 1984 Act and OSRA to place ``a

greater reliance on the marketplace.'' The parties should be allowed to

reduce their agreement to writing, it contends, if they need to do so,

but it should not be mandated by the Commission. APL objects to

Sec. 515.41 generally and argues the entire section should be removed.

In deciding whether to recognize the legitimacy of in-plant

arrangements, the Commission carefully weighed the benefits of these

arrangements to freight forwarders with the prohibitions of the 1984

Act and accompanying regulations against compensation and fee sharing.

The Commission agrees with the NCBFAA that Sec. 515.41(e) sufficiently

addresses both of these concerns by allowing freight forwarders to use

in-plants while providing the Commission the ability to determine if

these arrangements are being implemented in accordance with the 1984

Act and the accompanying regulations. We believe Sec. 515.41(e) allows

freight forwarders far more leniency in developing these arrangements

than if the Commission attempted to address every possible permutation

of in-plant arrangements in a rulemaking. Therefore, in order to

determine the parameters of a particular arrangement it is necessary

for the freight forwarders and shippers to reduce the agreement to

writing. Furthermore, NY/NJFFFBA incorrectly argues that the parties

should be able to decide whether they want to reduce their agreement to

writing. An in-plant arrangement is exactly the type of arrangement

envisioned by proposed Sec. 515.32(d) (requiring that copies or

memorandum of all special arrangements or contracts between freight

forwarders and their shipper-principals be maintained by the freight

forwarder). The Commission therefore declines to remove the writing

requirement of Sec. 515.41(e) or Sec. 515.41 in its entirety.

Final Regulatory Flexibility Analysis

(1) A Succinct Statement of the Need for and Objectives of the Rule

The Commission is adding new regulations establishing licensing and

financial responsibility requirements for Ocean Transportation

Intermediaries (``OTIs'') in accordance with the Shipping Act of 1984,

46 U.S.C. app. 1701 et seq., as modified by Public Law 105-258, the

Ocean Shipping Reform Act of 1998 (``OSRA''), and section 424 of Public

Law 105-383, The Coast Guard Authorization Act of 1998.

OSRA amends the Shipping Act of 1984 in several respects relating

to Ocean Freight Forwarders (``OFFs'') and Non-Vessel-Operating Common

Carriers (``NVOCCs''). The Commission proposes new regulations, at 46

CFR part 515, to implement changes effectuated by OSRA.

[[Page 11169]]

OSRA requires that all OTIs in the United States be licensed by the

Commission. Further, all OTIs will be required to establish their

financial responsibility before performing any intermediary services in

the United States. The bond, surety, or other insurance obtained

pursuant to this part shall be available to pay for damages suffered by

ocean common carriers, shippers, and others, arising from the

transportation-related activities of the covered OTIs. S. Rep. No. 105-

61, 105th Cong., 1st Sess., at 31 (1997) (``Report'').

The Report specifically indicates that the bonds, or other

instruments of financial responsibility, are intended to cover

liabilities related to service contract obligations, as well as damages

resulting from loss or conversion of cargo, from the negligence or

complicity of the insured entity, and from nonperformance of services.

At the direction of the Report, the final rule establishes a range of

financial responsibility requirements commensurate with the scope of

the activities conducted by various OTIs and the past fitness of OTIs

in the performance of intermediary duties.

(2) A Summary of the Significant Issues Raised by Public Comments in

Response to the Initial Regulatory Flexibility Analysis, a Summary of

the Agency's Assessment of such Issues and a Statement of any Changes

Made in the Proposed Rule as a Result of such Comments

In the Initial Regulatory Flexibility Analysis (`` IRFA'') appended

to the proposed rule, the Commission invited comments in order to

ensure that every possible aspect of the economic impact on small

businesses would be considered. Specifically, comments were solicited

regarding the effects of the cost of increased collateral and premium

requirements on OTIs in the proposed rule. Several commenters to the

proposed rule, including the National Industrial Transportation League

(at p. 6), the National Customs Brokers & Forwarders Association of

America, Inc. (``NCBFAA'') (at p. 5), and the American International

Freight Association & Transportation Intermediaries Association (at p.

6), commented that the Rulemaking could pose an undue financial burden

on small companies. The Commission clearly recognizes that the

Rulemaking would impose a burden, in varying degrees, on small OFFs and

NVOCCs. However, as discussed in the Supplementary Information to the

final rule, the Commission has incorporated several of the suggestions

in the comments to the proposed rule which will make the final rule

less burdensome, while still complying with the spirit of OSRA. The

Commission believes that the final rule is justified and necessary in

light of the legislative requirement to effect the changes, and because

of the benefit to the shipping public and to carriers gained by

licensing and requiring financial responsibility of all OTIs.

The American Surety Association/Intercargo (at p. 36) and Kemper

Insurance Companies (at p. 16) commented that portions of the proposed

rule duplicated, overlapped, or conflicted with existing Federal rules,

such as the Carriage of Goods by Sea Act (``COGSA'') and Treasury

Department regulations. The Supplementary Information to the final rule

contains a thorough discussion of how the Rulemaking does not conflict

with Treasury Department regulations, or any other relevant Federal,

state, or local government rules. Further, the Supplementary

Information discusses how certain terms contained in the proposed rule

have been amended so as not to conflict with COGSA.

The NCBFAA (at p. 3) commented that the Commission failed to

include an estimate for the costs associated with having a new license

number printed on stationery, shipping documents, and billing forms. As

discussed in the Supplementary Information to the final rule, although

new licenses will be issued to indicate whether operators are acting as

OFFs or NVOCCs, existing OFFs will retain their current license numbers

and will not be required to reprint their business documents.

Other substantive issues that were raised to the proposed rule, but

which were not specifically in response to the IRFA, are thoroughly

addressed in the Supplementary Information to the final rule.

(3) A Description and an Estimate of the Number of Small Businesses to

which the Rule Will Apply or an Explanation of Why No Such Estimate Is

Available

To determine whether a business should be considered a small

entity, the Small Business Administration (``SBA'') has established

regulatory definitions of small businesses (13 CFR Part 121, FR January

31, 1996). Businesses classified in the Standard Industrial

Classification code 4731, including OFFs and NVOCCs, are evaluated by

their annual receipts (gross annual revenues). OFFs and NVOCCs with

less than $18.5 million in annual receipts are considered small

businesses by SBA. The Commission does not have OTI revenue data

readily available, but, in general, is aware that while most OTIs are

small operators, a few OTIs handle the bulk of the intermediary cargo

in the U.S. trades. Without specific OTI revenue data, however, the

Commission assumes that most, if not all, OTIs have revenues of less

than $18.5 million, and are considered to be small businesses.

(4) A Description of the Projected Reporting, Recordkeeping and Other

Compliance Requirements of the Rule, Including an Estimate of the

Classes of Small Entities that Will Be Subject to the Requirement and

the Types of Professional Skills Necessary for the Preparation of the

Report or Record

It is estimated that the final rule will impose, in varying

degrees, a reporting burden on the entire OTI universe. The burden is

calculated on the estimated amount of cost and time necessary to comply

with various requirements of 46 CFR part 515. Calculated below are the

estimated costs resulting from the final rule. Largely because the

final rule contains several substantive changes from the proposed rule,

some of the cost estimates presented below differ from those presented

in the IRFA.

Cost to the Government

The Commission does not anticipate hiring any additional staff to

administer changes occurring from the final rule. The additional burden

to the government, i.e., the Commission, as a result of the final rule

will be absorbed by existing Commission staff.

Cost of Filing Time

The final rule changes the Commission's rules by requiring all

entities to increase their financial responsibility. It also requires

NVOCCs in the United States to be licensed with the FMC, and OFFs also

operating as NVOCCs to acquire a separate FMC license for their NVOCC

activities.

Based on a survey conducted by the Commission, it is estimated that

the average hourly labor cost to file (or amend) an instrument of

financial responsibility, or complete a new (or amended) license

application, is $41. Further, it is estimated to take OFFs who are new

entrants approximately 3.5 hours to obtain an instrument of financial

responsibility and complete a new license application at an average

labor cost to the respondent of $144. This cost takes into account time

to gather information and complete the application form, as well as

time to comply with the requirements of the rules. Since the licensing

application form and financial responsibility procedures will remain

substantively unchanged under the final rule, it is estimated that the

additional labor cost

[[Page 11170]]

of the final rule for each NVOCC in the United States will be $144 in

the first year.

Based on the Commission's survey, it is estimated that each OFF

also operating as an NVOCC would require 1.5 hours per year to amend

its application and its financial responsibility at an average labor

cost to the respondent of $62 in the first year. Further, it would take

each entity operating solely as an OFF, and each foreign-based NVOCC,

0.5 hours of staff time to increase its financial responsibility at an

average labor cost to the respondent of $21 in the first year.

The total additional labor cost of the final rule is expected to

reach $280,000 in the first year. In subsequent years, since all

operating entities will be licensed, and will have increased their

financial responsibility, the total labor cost is expected to decrease

substantially.

Cost of Licensing Fee

The Commission's current user fee for processing a new application

is $778, and $362 for an amendment. The final rule changes the current

requirements by requiring NVOCCs in the United States to file a new

application to become licensed. Further, OFFs also operating as NVOCCs

will be required to amend their licenses. However, since licensing fees

do not change under the final rule, OFFs in the U.S. export trade that

are already required to be licensed with the FMC will not be affected

in this regard. Further, foreign-based NVOCCs are not required to be

licensed under the final rule. The total additional licensing cost to

OTIs to comply with the final rule--specifically, the additional

licensing cost to NVOCCs in the United States and to OFFS also

operating as NVOCCs--is estimated to be $1.3 million.

Cost of Increasing the Financial Responsibility Requirement

The final rule raises the financial responsibility requirement as

follows. The requirement for OFFs operating solely as OFFs in the U.S.

export trade will increase from $30,000 to $50,000, with $10,000 in

additional coverage for each unincorporated branch office. NVOCCs in

the United States will be required to increase their financial

responsibility from $50,000 to $75,000 with $10,000 in additional

coverage for each unincorporated branch office. Foreign-based NVOCCs

will be required to increase their financial responsibility from

$50,000 to $150,000. Entities that operate as both OFFs and NVOCCs are

presently required to have two separate instruments of financial

responsibility, $30,000 covering their OFF activity and $50,000

covering their NVOCC activity. After considering comments objecting to

the proposal to allow these entities to establish a single instrument

of financial responsibility to cover both operations in the amount of

$100,000, the Commission will continue the existing requirements that

entities secure separate financial responsibility for each aspect of

their operations. Entities operating as both OFFs and NVOCCs will also

be required to acquire $10,000 in additional coverage for each

unincorporated branch office.

The final rule also broadens the option for group bonds to include

OFFs as well as NVOCCs, while raising the aggregate group requirement

from $1 million to $3 million. Thus, the amount required will be the

lesser of the amount required for each individual entity or $3 million

aggregate. There are currently three group bonds on file with the

Commission with a total of 166 NVOCC members. By posting a group bond,

it is believed that participants save on premium payments by receiving

a group coverage rate. However, it is difficult to project how many

OFFs would opt for a group bond as a result of the final rule.

Therefore, it is not feasible to forecast the potential cost savings to

the industry of modifying the group bond provision in the final rule.

Instead, the Commission will assume that all OTIs will post bonds at

the higher individual premium rate.

For individual financial responsibility coverage, the Commission

estimates that the premium ranges from $800 to $1,200 per year for

$50,000 in coverage. The Commission employed an average premium cost of

$1,000 per year for $50,000 in financial responsibility coverage to

calculate the cost to OTIs of the proposed increases in coverage. In

addition, the proportion of OFFs to branch offices was applied to

estimate the number of NVOCC unincorporated branch offices.

The Commission estimates that the average cost to all OTIs of the

additional financial responsibility requirements is as follows: OFFs

operating solely as OFFs in the U.S. export trade will pay $897,000

($578 per entity) more per year; OFFs also operating as NVOCCs will pay

$554,000 ($1,078 per entity) more per year; NVOCCs in the United States

will pay $967,000 ($678 per entity) more per year; and foreign-based

NVOCCs will pay $1,252,000 ($2,000 per entity) more per year. The total

first year cost of increased financial responsibility requirements for

all entities under the final rule will be $3.7 million.

In some cases, underwriters may require individual OTIs to provide

collateral in order to secure financial responsibility. Collateral

accounts typically accrue interest at a risk-free rate until they are

claimed or remitted in full to an OTI. However, when considering the

industry as a whole, funds that are set aside as collateral could be

otherwise invested in higher earning assets, such as in an OTI's

business operations, thereby effectively assessing a cost to OTIs.

Calculating the opportunity cost of increased collateral requires

specific data on individual OTI's financial and operating riskiness.

However, the Commission does not have that information available.

In lieu of such information, and in order to ensure that no

substantial economic impact is overlooked, the Commission solicited

comments in the proposed rule concerning the effects of the opportunity

cost of increased collateral and premium requirements on OTIs. None of

the commenters specifically addressed the issue of opportunity cost of

increased collateral requirements. Since commenters did not view this

issue as meriting specific comment, the Commission has concluded that

the opportunity cost issue is not an issue in this proceeding.

Summary of Costs

In the first year of its implementation, the additional burden of

the final rule is expected to average $1,600 for each NVOCC in the

United States, $2,021 for each foreign-based NVOCC, $1,502 for each OFF

also operating as an NVOCC, and $599 for each OFF operating solely as

an OFF in the U.S. export trade. The total additional first year cost

as a result of the final rule is estimated to be $5.3 million.

(5) A Description of the Steps the Agency Has Taken to Minimize the

Significant Economic Impacts on Small Entities Consistent With the

Stated Objectives of Applicable Statutes, Including a Statement of the

Factual, Policy and Legal Reasons for Selecting the Alternative Adopted

in the Final Rule, and the Reasons for Rejecting Each of the Other

Significant Alternatives

Upon a review of the comments regarding the proposed rule, the

Commission significantly modified the Rulemaking to alleviate the most

significant concerns of the commenters while complying with the spirit

of OSRA. The modifications to the proposed rule, the reasons for

selecting alternative approaches, and the reasons for rejecting certain

initial proposals, are each thoroughly described in the

[[Page 11171]]

SUPPLEMENTARY INFORMATION to the final rule.

This regulatory action is not a ``major'' rule under 5 U.S.C.

804(2).

The Commission has received OMB approval for this collection of

information pursuant to the Paperwork Reduction Act of 1995, as

amended. In accordance with that Act, agencies are required to display

a currently valid control number. The valid control number for this

collection of information is 3072-0012.

Relevant federal rules that may duplicate, overlap, or conflict with

the new rule.

The Commission is not aware of any other federal rules that

duplicate, overlap, or conflict with the new rule.

List of Subjects

46 CFR Part 510

Freight forwarders, Maritime carriers, Reporting and recordkeeping

requirements, Surety bonds.

46 CFR Part 515

Common carriers, Exports, Freight, Freight forwarders, Maritime

carriers, Reports and recordkeeping requirements, Surety bonds.

46 CFR Part 583

Freight, Maritime carriers, Reporting and recordkeeping

requirements, Surety bonds.

Under the authority of Pub. L. 105-258 and as discussed in the

preamble, the Federal Maritime Commission proposes to remove 46 CFR

part 510 and 46 CFR part 583 and add part 515 to subchapter B, chapter

IV, of 46 CFR as set forth below:

PART 510--[REMOVED]

1. Remove Part 510.

PART 583--[REMOVED]

2. Remove Part 583.

3. Revise the heading of subchapter B to read ``REGULATIONS

AFFECTING OCEAN SHIPPING IN FOREIGN COMMERCE.''

4. Add Part 515 as follows:

PART 515--LICENSING, FINANCIAL RESPONSIBILITY REQUIREMENTS, AND

GENERAL DUTIES FOR OCEAN TRANSPORTATION INTERMEDIARIES

Subpart A--General

Sec.

515.1 Scope.

515.2 Definitions.

515.3 License; when required.

515.4 License; when not required.

515.5 Forms and fees.

Subpart B--Eligibility and Procedure for Licensing

515.11 Basic requirements for licensing; eligibility.

515.12 Application for license.

515.13 Investigation of applicants.

515.14 Issuance and use of license.

515.15 Denial of license.

515.16 Revocation or suspension of license.

515.17 Application after revocation or denial.

515.18 Changes in organization.

Subpart C--Financial Responsibility Requirements; Claims Against Ocean

Transportation Intermediaries

515.21 Financial responsibility requirements.

515.22 Proof of financial responsibility.

515.23 Claims against an ocean transportation intermediary.

515.24 Agent for service of process.

515.25 Filing of proof of financial responsibility.

515.26 Termination of financial responsibility.

515.27 Proof of compliance.

Appendix A to Subpart C--Ocean Transportation Intermediary (OTI)

Bond Form [Form-48]

Appendix B to Subpart C--Ocean Transportation Intermediary (OTI)

Insurance Form [Form-67]

Appendix C to Subpart C--Ocean Transportation Intermediary (OTI)

Guaranty Form [Form-68]

Appendix D to Subpart C--Ocean Transportation Intermediary (OTI)

Group Bond Form [FMC-69]

Subpart D--Duties and Responsibilities of Ocean Transportation

Intermediaries; Reports to Commission

515.31 General duties.

515.32 Freight forwarder duties.

515.33 Records required to be kept.

515.34 Regulated Persons Index.

Subpart E--Freight Forwarding Fees and Compensation

515.41 Forwarder and principal; fees.

515.42 Forwarder and carrier; compensation.

515.91 OMB control number assigned pursuant to the Paperwork

Reduction Act.

Authority: 5 U.S.C. 553; 31 U.S.C. 9701; 46 U.S.C. app. 1702,

1707, 1709, 1710, 1712, 1714, 1716, and 1718, 21 U.S.C. 862; Pub. L.

105-383, 112 Stat. 3411.

Subpart A--General

Sec. 515.1 Scope.

(a) This part sets forth regulations providing for the licensing as

ocean transportation intermediaries of persons who wish to carry on the

business of providing intermediary services, including the grounds and

procedures for revocation and suspension of licenses. This part also

prescribes the financial responsibility requirements and the duties and

responsibilities of ocean transportation intermediaries, and

regulations concerning practices of ocean transportation intermediaries

with respect to common carriers.

(b) Information obtained under this part is used to determine the

qualifications of ocean transportation intermediaries and their

compliance with shipping statutes and regulations. Failure to follow

the provisions of this part may result in denial, revocation or

suspension of an ocean transportation intermediary license. Persons

operating without the proper license may be subject to civil penalties

not to exceed $5,500 for each such violation unless the violation is

willfully and knowingly committed, in which case the amount of the

civil penalty may not exceed $27,500 for each violation; for other

violations of the provisions of this part, the civil penalties range

from $5,500 to $27,500 for each violation (46 U.S.C. app. 1712). Each

day of a continuing violation shall constitute a separate violation.

Sec. 515.2 Definitions.

The terms used in this part are defined as follows:

(a) Act means the Shipping Act of 1984, as amended by the Ocean

Shipping Reform Act of 1998 and the Coast Guard Authorization Act of

1998.

(b) Beneficial interest includes a lien or interest in or right to

use, enjoy, profit, benefit, or receive any advantage, either

proprietary or financial, from the whole or any part of a shipment of

cargo where such interest arises from the financing of the shipment or

by operation of law, or by agreement, express or implied. The term

``beneficial interest'' shall not include any obligation in favor of an

ocean transportation intermediary arising solely by reason of the

advance of out-of-pocket expenses incurred in dispatching a shipment.

(c) Branch office means any office in the United States established

by or maintained by or under the control of a licensee for the purpose

of rendering intermediary services, which office is located at an

address different from that of the licensee's designated home office.

This term does not include a separately incorporated entity.

(d) Brokerage refers to payment by a common carrier to an ocean

freight broker for the performance of services as specified in

paragraph (n) of this section.

(e) Commission means the Federal Maritime Commission.

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

general public to provide transportation by water of passengers or

cargo between the United

[[Page 11172]]

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, 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) Compensation means payment by a common carrier to a freight

forwarder for the performance of services as specified in

Sec. 515.42(c).

(h) Freight forwarding fee means charges billed by a freight

forwarder to a shipper, consignee, seller, purchaser, or any agent

thereof, for the performance of freight forwarding services.

(i) Freight forwarding services refers to the dispatching of

shipments on behalf of others, in order to facilitate shipment by a

common carrier, which may include, but are not limited to, the

following:

(1) Ordering cargo to port;

(2) Preparing and/or processing export declarations;

(3) Booking, arranging for or confirming cargo space;

(4) Preparing or processing delivery orders or dock receipts;

(5) Preparing and/or processing ocean bills of lading;

(6) Preparing or processing consular documents or arranging for

their certification;

(7) Arranging for warehouse storage;

(8) Arranging for cargo insurance;

(9) Clearing shipments in accordance with United States Government

export regulations;

(10) Preparing and/or sending advance notifications of shipments or

other documents to banks, shippers, or consignees, as required;

(11) Handling freight or other monies advanced by shippers, or

remitting or advancing freight or other monies or credit in connection

with the dispatching of shipments;

(12) Coordinating the movement of shipments from origin to vessel;

and

(13) Giving expert advice to exporters concerning letters of

credit, other documents, licenses or inspections, or on problems

germane to the cargoes' dispatch.

(j) From the United States means oceanborne export commerce from

the United States, its territories, or possessions, to foreign

countries.

(k) Licensee is any person licensed by the Federal Maritime

Commission as an ocean transportation intermediary.

(l) Non-vessel-operating common carrier services refers to the

provision of transportation by water of cargo between the United States

and a foreign country for compensation without operating the vessels by

which the transportation is provided, and may include, but are not

limited to, the following:

(1) Purchasing transportation services from a VOCC and offering

such services for resale to other persons;

(2) Payment of port-to-port or multimodal transportation charges;

(3) Entering into affreightment agreements with underlying

shippers;

(4) Issuing bills of lading or equivalent documents;

(5) Arranging for inland transportation and paying for inland

freight charges on through transportation movements;

(6) Paying lawful compensation to ocean freight forwarders;

(7) Leasing containers; or

(8) Entering into arrangements with origin or destination agents.

(m) Ocean common carrier means a vessel-operating common carrier

(``VOCC'').

(n) Ocean freight broker is an entity which is engaged by a carrier

to secure cargo for such carrier and/or to sell or offer for sale ocean

transportation services and which holds itself out to the public as one

who negotiates between shipper or consignee and carrier for the

purchase, sale, conditions and terms of transportation.

(o) Ocean transportation intermediary means an ocean freight

forwarder or a non-vessel-operating common carrier. For the purposes of

this part, the term

(1) Ocean freight forwarder means a person that--

(i) in the United States, dispatches shipments from the United

States via a common carrier and books or otherwise arranges space for

those shipments on behalf of shippers; and

(ii) processes the documentation or performs related activities

incident to those shipments; and

(2) Non-vessel-operating common carrier (``NVOCC'') means 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.

(p) Person includes individuals, corporations, partnerships and

associations existing under or authorized by the laws of the United

States or of a foreign country.

(q) Principal, except as used in Surety Bond Form FMC-48, and Group

Bond Form FMC-69, refers to the shipper, consignee, seller, or

purchaser of property, and to anyone acting on behalf of such shipper,

consignee, seller, or purchaser of property, who employs the services

of a licensed freight forwarder to facilitate the ocean transportation

of such property.

(r) Reduced forwarding fees means charges to a principal for

forwarding services that are below the licensed freight forwarder's

usual charges for such services.

(s) Shipment means all of the cargo carried under the terms of a

single bill of lading.

(t) 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 that accepts

responsibility for payment of all charges applicable under the tariff

or service contract.

(u) Small shipment refers to a single shipment sent by one

consignor to one consignee on one bill of lading which does not exceed

the underlying common carrier's minimum charge rule.

(v) Special contract is a contract for freight forwarding services

which provides for a periodic lump sum fee.

(w) Transportation-related activities which are covered by the

financial responsibility obtained pursuant to this part include, to the

extent involved in the foreign commerce of the United States, any

activity performed by an ocean transportation intermediary that is

necessary or customary in the provision of transportation services to a

customer, but are not limited to the following:

(1) For an ocean transportation intermediary operating as a Freight

forwarder, the freight forwarding services enumerated in Sec. 515.2(i),

and

(2) For an ocean transportation intermediary operating as a non-

vessel-operating common carrier, the non-vessel-operating common

carriers services enumerated in Sec. 515.2(l).

(x) United States includes the several States, the District of

Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the

Northern

[[Page 11173]]

Marianas, and all other United States territories and possessions.

Sec. 515.3 License; when required.

Except as otherwise provided in this part, no person in the United

States may act as an ocean transportation intermediary unless that

person holds a valid license issued by the Commission. A separate

license is required for each branch office that is separately

incorporated. For purposes of this part, a person is considered to be

``in the United States'' if such person is resident in, or incorporated

or established under, the laws of the United States. Only persons

licensed under this part may furnish or contract to furnish ocean

transportation intermediary services in the United States on behalf of

an unlicensed ocean transportation intermediary.

Sec. 515.4 License; when not required.

A license is not required in the following circumstances:

(a) Shipper. Any person whose primary business is the sale of

merchandise may, without a license, dispatch and perform freight

forwarding services on behalf of its own shipments, or on behalf of

shipments or consolidated shipments of a parent, subsidiary, affiliate,

or associated company. Such person shall not receive compensation from

the common carrier for any services rendered in connection with such

shipments.

(b) Employee or branch office of licensed ocean transportation

intermediary. (1) An individual employee or unincorporated branch

office of a licensed ocean transportation intermediary is not required

to be licensed in order to act solely for such licensee, provided that

such branch offices:

(i) Have been reported to the Commission in writing; and

(ii) Are covered by increased financial responsibility in

accordance with Sec. 515.21(a)(4).

(2) Each licensed ocean transportation intermediary will be held

strictly responsible for the acts or omissions of any of its employees

or agents rendered in connection with the conduct of its business.

(c) Common carrier. A common carrier, or agent thereof, may perform

ocean freight forwarding services without a license only with respect

to cargo carried under such carrier's own bill of lading. Charges for

such forwarding services shall be assessed in conformance with the

carrier's published tariffs.

(d) Ocean freight brokers. An ocean freight broker is not required

to be licensed to perform those services specified in Sec. 515.2(n).

(e) Federal military and civilian household goods. Any person which

exclusively transports used household goods and personal effects for

the account of the Department of Defense, or for the account of the

federal civilian executive agencies shipping under the International

Household Goods Program administered by the General Services

Administration, or both, is not subject to the requirements of subpart

B of this part, but may be subject to other requirements, such as

alternative surety bonding, imposed by the Department of Defense, or

the General Services Administration.

Sec. 515.5 Forms and Fees.

(a) Forms. License form FMC-18 Rev., and financial responsibility

forms FMC-48, FMC-67, FMC-68, FMC-69 may be obtained from the

Commission's website at www.fmc.gov, the Director, Bureau of Tariffs,

Certification and Licensing, Federal Maritime Commission, Washington,

D.C. 20573, or from any of the Commission's area representatives.

(b) Fees. All fees shall be payable by money order, certified

check, cashier's check, or personal check to the ``Federal Maritime

Commission.'' Should a personal check not be honored when presented for

payment, the processing of an application under this section shall be

suspended until the processing fee is paid. In any instance where an

application has been processed in whole or in part, the fee will not be

refunded. Such fees are:

(1) Application for license as required by Sec. 515.12(a): $778;

(2) Application for status change or license transfer as required

by Secs. 515.18(a) and 515.18(b): $362; and

(3) Supplementary investigation as required by Sec. 515.25(a):

$224.

Subpart B--Eligibility and Procedure for Licensing

Sec. 515.11 Basic requirements for licensing; eligibility.

(a) Necessary qualifications. To be eligible for an ocean

transportation intermediary license, the applicant must demonstrate to

the Commission that:

(1) It possesses the necessary experience, that is, its qualifying

individual has a minimum of three (3) years experience in ocean

transportation intermediary activities in the United States, and the

necessary character to render ocean transportation intermediary

services. A foreign NVOCC seeking to be licensed under this part must

demonstrate that its qualifying individual has a minimum 3 years'

experience in ocean transportation intermediary activities, and the

necessary character to render ocean transportation intermediary

services; and

(2) It has obtained and filed with the Commission a valid bond,

proof of insurance, or other surety in conformance with Sec. 515.21.

(3) An NVOCC with a tariff and proof of financial responsibility in

effect as of April 30, 1999, may continue to operate as an NVOCC

without the requisite three years' experience and will be provisionally

licensed while the Commission reviews its application. Such person

designated as the qualifying individual for a provisionally licensed

NVOCC may not act as a qualifying individual for another ocean

transportation intermediary until it has obtained the necessary three

years' experience in ocean transportation intermediary services.

(b) Qualifying individual. The following individuals must qualify

the applicant for a license:

(1) Sole proprietorship. The applicant sole proprietor.

(2) Partnership. At least one of the active managing partners, but

all partners must execute the application.

(3) Corporation. At least one of the active corporate officers.

(c) Affiliates of intermediaries. An independently qualified

applicant may be granted a separate license to carry on the business of

providing ocean transportation intermediary services even though it is

associated with, under common control with, or otherwise related to

another ocean transportation intermediary through stock ownership or

common directors or officers, if such applicant submits: a separate

application and fee, and a valid instrument of financial responsibility

in the form and amount prescribed under Sec. 515.21. The qualifying

individual of one active licensee shall not also be designated

contemporaneously as the qualifying individual of an applicant for

another ocean transportation intermediary license, except for a

separately incorporated branch office.

(d) Common carrier. A common carrier or agent thereof which meets

the requirements of this part may be licensed to dispatch shipments

moving on other than such carrier's own bills of lading subject to the

provisions of Sec. 515.42(g).

Sec. 515.12 Application for license.

(a) Application and forms. Any person who wishes to obtain a

license to operate as an ocean transportation intermediary shall

submit, in duplicate, to the Director of the Commission's

[[Page 11174]]

Bureau of Tariffs, Certification and Licensing, a completed application

Form FMC-18 Rev. (``Application for a License as an Ocean

Transportation Intermediary'') accompanied by the fee required under

Sec. 515.5(b). All applications will be assigned an application number,

and each applicant will be notified of the number assigned to its

application. Notice of filing of such application shall be published in

the Federal Register and shall state the name and address of the

applicant and the name and address of the qualifying individual. If the

applicant is a corporation or partnership, the names of the officers or

partners thereof shall be published.

(b) Rejection. Any application which appears upon its face to be

incomplete or to indicate that the applicant fails to meet the

licensing requirements of the Act, or the Commission's regulations,

shall be returned by certified U.S. mail or other method reasonably

calculated to provide actual notice to the applicant without further

processing, together with an explanation of the reason(s) for

rejection, and the application fee shall be refunded in full. Persons

who have had their applications returned may reapply for a license at

any time thereafter by submitting a new application, together with the

full application fee.

(c) Investigation. Each applicant shall be investigated in

accordance with Sec. 515.13.

(d) Changes in fact. Each applicant and each licensee shall submit

to the Commission, in duplicate, an amended Form FMC-18 Rev. advising

of any changes in the facts submitted in the original application,

within thirty (30) days after such change(s) occur. In the case of an

application for a license, any unreported change may delay the

processing and investigation of the application and may result in

rejection or denial of the application. No fee is required when

reporting changes to an application for initial license under this

section.

Sec. 515.13 Investigation of applicants.

The Commission shall conduct an investigation of the applicant's

qualifications for a license. Such investigations may address:

(a) The accuracy of the information submitted in the application;

(b) The integrity and financial responsibility of the applicant;

(c) The character of the applicant and its qualifying individual;

and

(d) The length and nature of the qualifying individual's experience

in handling ocean transportation intermediary duties.

Sec. 515.14 Issuance and use of license.

(a) Qualification necessary for issuance. The Commission will issue

a license if it determines, as a result of its investigation, that the

applicant possesses the necessary experience and character to render

ocean transportation intermediary services and has filed the required

bond, insurance or other surety.

(b) To whom issued. The Commission will issue a license only in the

name of the applicant, whether the applicant is a sole proprietorship,

a partnership, or a corporation. A license issued to a sole proprietor

doing business under a trade name shall be in the name of the sole

proprietor, indicating the trade name under which the licensee will be

conducting business. Only one license shall be issued to any applicant

regardless of the number of names under which such applicant may be

doing business, and except as otherwise provided in this part, such

license is limited exclusively to use by the named licensee and shall

not be transferred without prior Commission approval to another person.

Sec. 515.15 Denial of license.

If the Commission determines, as a result of its investigation,

that the applicant:

(a) Does not possess the necessary experience or character to

render intermediary services;

(b) Has failed to respond to any lawful inquiry of the Commission;

or

(c) Has made any materially false or misleading statement to the

Commission in connection with its application; then, a letter of intent

to deny the application shall be sent to the applicant by certified

U.S. mail or other method reasonably calculated to provide actual

notice, stating the reason(s) why the Commission intends to deny the

application. If the applicant submits a written request for hearing on

the proposed denial within twenty (20) days after receipt of

notification, such hearing shall be granted by the Commission pursuant

to its Rules of Practice and Procedure contained in part 502 of this

chapter. Otherwise, denial of the application will become effective and

the applicant shall be so notified by certified U.S. mail or other

method reasonably calculated to provide actual notice.

Sec. 515.16 Revocation or suspension of license.

(a) Grounds for revocation. Except for the automatic revocation for

termination of proof of financial responsibility under Sec. 515.26, or

as provided in Sec. 515.25(b), a license may be revoked or suspended

after notice and an opportunity for a hearing for any of the following

reasons:

(1) Violation of any provision of the Act, or any other statute or

Commission order or regulation related to carrying on the business of

an ocean transportation intermediary;

(2) Failure to respond to any lawful order or inquiry by the

Commission;

(3) Making a materially false or misleading statement to the

Commission in connection with an application for a license or an

amendment to an existing license;

(4) Where the Commission determines that the licensee is not

qualified to render intermediary services; or

(5) Failure to honor the licensee's financial obligations to the

Commission.

(b) Notice of revocation. The Commission shall publish in the

Federal Register a notice of each revocation.

Sec. 515.17 Application after revocation or denial.

Whenever a license has been revoked or an application has been

denied because the Commission has found the licensee or applicant to be

not qualified to render ocean transportation intermediary services, any

further application within 3 years of the Commission's notice of

revocation or denial, made by such former licensee or applicant or by

another applicant employing the same qualifying individual or

controlled by persons on whose conduct the Commission based its

determination for revocation or denial, shall be reviewed directly by

the Commission.

Sec. 515.18 Changes in organization.

(a) The following changes in an existing licensee's organization

require prior approval of the Commission, and application for such

status change or license transfer shall be made on Form FMC-18 Rev.,

filed in duplicate with the Commission's Bureau of Tariffs,

Certification and Licensing, and accompanied by the fee required under

Sec. 515.5(b)(2):

(1) Transfer of a corporate license to another person;

(2) Change in ownership of a sole proprietorship;

(3) Addition of one or more partners to a licensed partnership;

(4) Any change in the business structure of a licensee from or to a

sole proprietorship, partnership, or corporation, whether or not such

change involves a change in ownership;

(5) Any change in a licensee's name; or

(6) Change in the identity or status of the designated qualifying

individual,

[[Page 11175]]

except as described in paragraphs (b) and (c) of this section.

(b) Operation after death of sole proprietor. In the event the

owner of a licensed sole proprietorship dies, the licensee's executor,

administrator, heir(s), or assign(s) may continue operation of such

proprietorship solely with respect to shipments for which the deceased

sole proprietor had undertaken to act as an ocean transportation

intermediary pursuant to the existing license, if the death is reported

within 30 days to the Commission and to all principals and shippers for

whom services on such shipments are to be rendered. The acceptance or

solicitation of any other shipments is expressly prohibited until a new

license has been issued. Applications for a new license by the

executor, administrator, heir(s), or assign(s) shall be made on Form

FMC-18 Rev., and shall be accompanied by the transfer fee required

under Sec. 515.5(b)(2).

(c) Operation after retirement, resignation, or death of qualifying

individual. When a partnership or corporation has been licensed on the

basis of the qualifications of one or more of the partners or officers

thereof, and such qualifying individual(s) no longer serve in a full-

time, active capacity with the firm, the licensee shall report such

change to the Commission within 30 days. Within the same 30-day period,

the licensee shall furnish to the Commission the name(s) and detailed

intermediary experience of any other active managing partner(s) or

officer(s) who may qualify the licensee. Such qualifying individual(s)

must meet the applicable requirements set forth in Sec. 515.11(a). The

licensee may continue to operate as an ocean transportation

intermediary while the Commission investigates the qualifications of

the newly designated partner or officer.

(d) Incorporation of branch office. In the event a licensee's

validly operating branch office becomes incorporated as a separate

entity, the licensee may continue to operate such office pending

receipt of a separate license, provided that:

(1) The separately incorporated entity applies to the Commission

for its own license within ten (10) days after incorporation, and

(2) While the application is pending, the continued operation of

the office is carried on as a bona fide branch office of the licensee,

under its full control and responsibility, and not as an operation of

the separately incorporated entity.

(e) Acquisition of one or more additional licensees. In the event a

licensee acquires one or more additional licensees, for the purpose of

merger, consolidation, or control, the acquiring licensee shall advise

the Commission of such change within 30 days after such change occurs

by submitting in duplicate, an amended Form FMC-18, Rev. No application

fee is required when reporting this change.

Subpart C--Financial Responsibility Requirements; Claims Against

Ocean Transportation Intermediaries

Sec. 515.21 Financial responsibility requirements.

(a) Form and amount. Except as otherwise provided in this part, no

person may operate as an ocean transportation intermediary unless that

person furnishes a bond, proof of insurance, or other surety in a form

and amount determined by the Commission to insure financial

responsibility. The bond, insurance or other surety covers the

transportation-related activities of an ocean transportation

intermediary only when acting as an ocean transportation intermediary.

(1) Any person operating in the United States as an ocean freight

forwarder as defined by Sec. 515.2(o)(1) shall furnish evidence of

financial responsibility in the amount of $50,000.

(2) Any person operating in the United States as an NVOCC as

defined by Sec. 515.2(o)(2) shall furnish evidence of financial

responsibility in the amount of $75,000.

(3) Any unlicensed foreign-based entity, not operating in the

United States as defined in Sec. 515.3, providing ocean transportation

intermediary services for transportation to or from the United States,

shall furnish evidence of financial responsibility in the amount of

$150,000. Such foreign entity will be held strictly responsible

hereunder for the acts or omissions of its agent in the United States.

(4) The amount of the financial responsibility required to be

furnished by any entity pursuant to paragraphs (a)(1) or (a)(2) of this

section shall be increased by $10,000 for each of the applicant's

unincorporated branch offices.

(b) Group financial responsibility. Where a group or association of

ocean transportation intermediaries accepts liability for an ocean

transportation intermediary's financial responsibility for such ocean

transportation intermediary's transportation-related activities under

the Act, the group or association of ocean transportation

intermediaries must file either a group supplemental coverage bond

form, insurance form or guaranty form, clearly identifying each ocean

transportation intermediary covered, before a covered ocean

transportation intermediary may provide ocean transportation

intermediary services. In such cases a group or association must

establish financial responsibility in an amount equal to the lesser of

the amount required by paragraph (a) of this section for each member or

$3,000,000 in aggregate.

(c) Common trade name. Where more than one person operates under a

common trade name, separate proof of financial responsibility is

required covering each corporation or person separately providing ocean

transportation intermediary services.

(d) Federal military and civilian household goods. Any person which

exclusively transports used household goods and personal effects for

the account of the Department of Defense, or for the account of the

federal civilian executive agencies shipping under the International

Household Goods Program administered by the General Services

Administration, or both, is not subject to the requirements of subpart

C of this part, but may be subject to other requirements, such as

alternative surety bonding, imposed by the Department of Defense, or

the General Services Administration.

Sec. 515.22 Proof of financial responsibility.

Prior to the date it commences furnishing ocean transportation

intermediary services, every ocean transportation intermediary shall

establish its financial responsibility for the purpose of this part by

one of the following methods:

(a) Surety bond, by filing with the Commission a valid bond on Form

FMC-48. Bonds must be issued by a surety company found acceptable by

the Secretary of the Treasury;

(b) Insurance, by filing with the Commission evidence of insurance

on Form FMC-67. The insurance must provide coverage for damages,

reparations or penalties arising from any transportation-related

activities under the Act of the insured ocean transportation

intermediary. This evidence of financial responsibility shall be

accompanied by: in the case of a financial rating, the Insurer's

financial rating on the rating organization's letterhead or designated

form; in the case of insurance provided by Underwriters at Lloyd's,

documentation verifying membership in Lloyd's; and in the case of

insurance provided by surplus lines insurers, documentation verifying

inclusion on a current ``white list'' issued by the Non-Admitted

Insurers' Information Office of the

[[Page 11176]]

National Association of Insurance Commissioners. The Insurer must

certify that it has sufficient and acceptable assets located in the

United States to cover all damages arising from the transportation-

related activities of the insured ocean transportation intermediary as

specified under the Act. The insurance must be placed with:

(1) An Insurer having a financial rating of Class V or higher under

the Financial Size Categories of A.M. Best & Company, or equivalent

from an acceptable international rating organization;

(2) Underwriters at Lloyd's; or

(3) Surplus lines insurers named on a current ``white list'' issued

by the Non-Admitted Insurers' Information Office of the National

Association of Insurance Commissioners; or

(c) Guaranty, by filing with the Commission evidence of guaranty on

Form FMC-68. The guaranty must provide coverage for damages,

reparations or penalties arising from any transportation-related

activities under the Act of the covered ocean transportation

intermediary. This evidence of financial responsibility shall be

accompanied by: in the case of a financial rating, the Guarantor's

financial rating on the rating organization's letterhead or designated

form; in the case of a guaranty provided by Underwriters at Lloyd's,

documentation verifying membership in Lloyd's; and in the case of a

guaranty provided by surplus lines insurers, documentation verifying

inclusion on a current ``white list'' issued by the Non-Admitted

Insurers' Information Office of the National Association of Insurance

Commissioners. The Guarantor must certify that it has sufficient and

acceptable assets located in the United States to cover all damages

arising from the transportation-related activities of the covered ocean

transportation intermediary as specified under the Act. The guaranty

must be placed with:

(1) A Guarantor having a financial rating of Class V or higher

under the Financial Size Categories of A.M. Best & Company, or

equivalent from an acceptable international rating organization;

(2) Underwriters at Lloyd's; or

(3) Surplus lines insurers named on a current ``white list'' issued

by the Non-Admitted Insurers' Information Office of the National

Association of Insurance Commissioners; or

(d) Evidence of financial responsibility of the type provided for

in paragraphs (a), (b) and (c) of this section established through and

filed with the Commission by a group or association of ocean

transportation intermediaries on behalf of its members, subject to the

following conditions and procedures:

(1) Each group or association of ocean transportation

intermediaries shall notify the Commission of its intention to

participate in such a program and furnish documentation as will

demonstrate its authenticity and authority to represent its members,

such as articles of incorporation, bylaws, etc.;

(2) Each group or association of ocean transportation

intermediaries shall provide the Commission with a list certified by

its Chief Executive Officer containing the names of those ocean

transportation intermediaries to which it will provide coverage; the

manner and amount of existing coverage each covered ocean

transportation intermediary has; an indication that the existing

coverage provided each ocean transportation intermediary is provided by

a surety bond issued by a surety company found acceptable to the

Secretary of the Treasury, or by insurance or guaranty issued by a firm

meeting the requirements of paragraphs (b) or (c) of this section with

coverage limits specified above in Sec. 515.21; and the name, address

and facsimile number of each surety, insurer or guarantor providing

coverage pursuant to this section. Each group or association of ocean

transportation intermediaries or its financial responsibility provider

shall notify the Commission within 30 days of any changes to its list;

(3) The group or association shall provide the Commission with a

sample copy of each type of existing financial responsibility coverage

used by member ocean transportation intermediaries;

(4) Each group or association of ocean transportation

intermediaries shall be responsible for ensuring that each member's

financial responsibility coverage allows for claims to be made in the

United States against the Surety, Insurer or Guarantor for any judgment

for damages against the ocean transportation intermediary arising from

its transportation-related activities under the Act, or order for

reparations issued pursuant to section 11 of the Act, or any penalty

assessed against the ocean transportation intermediary pursuant to

section 13 of the Act. Each group or association of ocean

transportation intermediaries shall be responsible for requiring each

member ocean transportation intermediary to provide it with valid proof

of financial responsibility annually;

(5) Where the group or association of ocean transportation

intermediaries determines to secure on behalf of its members other

forms of financial responsibility, as specified by this section, for

damages, reparations or penalties not covered by a member's individual

financial responsibility coverage, such additional coverage must:

(i) Allow claims to be made in the United States directly against

the group or association's Surety, Insurer or Guarantor for damages

against each covered member ocean transportation intermediary arising

from each covered member ocean transportation intermediary's

transportation-related activities under the Act, or order for

reparations issued pursuant to section 11 of the Act, or any penalty

assessed against each covered member ocean transportation intermediary

pursuant to section 13 of the Act; and

(ii) Be for an amount up to the amount determined in accordance

with Sec. 515.21(b), taking into account a member's individual

financial responsibility coverage already in place. In the event of a

claim against a group bond, the bond must be replenished up to the

original amount of coverage within 30 days of payment of the claim; and

(iii) be in excess of a member's individual financial

responsibility coverage already in place; and

(6) The coverage provided by the group or association of ocean

transportation intermediaries on behalf of its members shall be

provided by:

(i) in the case of a surety bond, a surety company found acceptable

to the Secretary of the Treasury and issued by such a surety company on

Form FMC-69; and

(ii) in the case of insurance and guaranty, a firm having a

financial rating of Class V or higher under the Financial Size

Categories of A.M. Best & Company or equivalent from an acceptable

international rating organization, Underwriters at Lloyd's, or surplus

line insurers named on a current ``white list'' issued by the Non-

Admitted Insurers' Information Office of the National Association of

Insurance Commissioners and issued by such firms on Form FMC-67 and

Form FMC-68, respectively.

(e) All forms and documents for establishing financial

responsibility of ocean transportation intermediaries prescribed in

this section shall be submitted to the Director, Bureau of Tariffs,

Certification and Licensing, Federal Maritime Commission, Washington,

DC 20573. Such forms and documents must clearly identify the name;

trade name, if any; and the address of each ocean transportation

intermediary.

[[Page 11177]]

Sec. 515.23 Claims against an ocean transportation intermediary.

The Commission or another party may seek payment from the bond,

insurance, or other surety that is obtained by an ocean transportation

intermediary pursuant to this section.

(a) Payment pursuant to Commission order. If the Commission issues

an order for reparation pursuant to sections 11 or 14 of the Act, or

assesses a penalty pursuant to section 13 of the Act, a bond,

insurance, or other surety shall be available to pay such order or

penalty.

(b) Payment pursuant to a claim. (1) If a party does not file a

complaint with the Commission pursuant to section 11 of the Act, but

otherwise seeks to pursue a claim against an ocean transportation

intermediary bond, insurance or other surety for damages arising from

its transportation-related activities, it shall attempt to resolve its

claim with the financial responsibility provider prior to seeking

payment on any judgment for damages obtained. When a claimant seeks

payment under this section, it simultaneously shall notify both the

financial responsibility provider and the ocean transportation

intermediary of the claim by certified mail, return receipt requested.

The bond, insurance, or other surety may be available to pay such claim

if:

(i) The ocean transportation intermediary consents to payment,

subject to review by the financial responsibility provider; or

(ii) The ocean transportation intermediary fails to respond within

forty-five (45) days from the date of the notice of the claim to

address the validity of the claim, and the financial responsibility

provider deems the claim valid.

(2) If the parties fail to reach an agreement in accordance with

paragraph (b)(1) of this section within ninety (90) days of the date of

the initial notification of the claim, the bond, insurance, or other

surety shall be available to pay any judgment for damages obtained from

an appropriate court. The financial responsibility provider shall pay

such judgment for damages only to the extent they arise from the

transportation-related activities of the ocean transportation

intermediary ordinarily within 30 days, without requiring further

evidence related to the validity of the claim; it may, however, inquire

into the extent to which the judgment for damages arises from the ocean

transportation intermediary's transportation-related activities.

(c) The Federal Maritime Commission shall not serve as depository

or distributor to third parties of bond, guaranty, or insurance funds

in the event of any claim, judgment, or order for reparation.

Sec. 515.24 Agent for service of process.

(a) Every ocean transportation intermediary not located in the

United States and every group or association of ocean transportation

intermediaries not located in the United States which provides

financial coverage for the financial responsibility of a member ocean

transportation intermediary shall designate and maintain a person in

the United States as legal agent for the receipt of judicial and

administrative process, including subpoenas.

(b) If the designated legal agent cannot be served because of

death, disability, or unavailability, the Secretary, Federal Maritime

Commission, will be deemed to be the legal agent for service of

process. Any person serving the Secretary mu

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