Companies Slam FMC Plans to Overhaul OTI Regulations

Source: JOC

Companies Slam FMC Plans to Overhaul OTI Regulations

Companies are pushing back against Federal Maritime Commission proposals to require ocean transportation intermediaries to post larger bonds, renew licenses every two years, and give priority to shippers’ and consignees’ claims.

Nearly all of the approximately 90 public comments submitted on the FMC proposals found something to criticize. Forwarders, non-vessel-operating common carriers and trade associations said the proposals would raise costs needlessly.

“The proposed regulation is simply stunning in its breadth and scope and accomplishes nothing but increasing costs and burdens on an industry that struggles to compete,” wrote Daniel T. Petrosini, president of Edison, N.J.-based NVO President Container Lines and forwarder Alpha International.

The FMC voted 3-2 in May to move forward with the proposed changes, which would be the most extensive overhaul of OTI regulations since the 1990s. Commissioners Rebecca Dye and Michael Khouri voted no.

The commission majority cited an FMC investigation that found problems with intermediaries specializing in international movements of household goods. Many industry commenters urged the FMC to focus on bad actors in the household goods segment, and to avoid broad changes that could create new issues.

Concerns about intermediaries’ practices in the household goods market “cannot and should not be used to justify sweeping reforms of OTIs that do not operate primarily in that trade,” the National Industrial Transportation League said.

Instead of applying a “scalpel” to a narrow problem, “the commission is wielding a machete to impose unnecessary and burdensome regulations on a much broader industry that in many cases is unrelated to the movement of household goods,” said Peter Friedmann, representing the Pacific Coast Council of Customs Brokers and Freight Forwarders Association.

“Why change the bonding requirements for 5,900 licensed and registered OTIs because of the bad behavior of one or two companies?” asked Timothy J. Cummings, president of North American Logistics Inc. of Barrington, Ill.

The FMC proposed boosting financial-responsibility requirements to $75,000 from the current $50,000 for forwarders, to $100,000 from $75,000 for domestic NVOs, and to $200,000 from $150,000 for foreign-based NVOs.

Bonds or insurance levels would have to be restored to the required amount within 60 days after paying a claim from the instrument. A new three-tiered system would give priority to shippers’ and consignees’ claims over those of carriers, ports, terminals and others.

Large NVOs, such as Shipco, supported the higher bonds. Most intermediaries objected to the increases, saying the increased requirements for financial responsibility would raise costs without protecting customers.

“Even these relatively minor increases would have a significant effect on smaller companies and potential applicants for licenses, thus creating artificial interference with market forces,” said FIATA, the International Federation of Freight Forwarders Associations.

Most intermediaries objected to the proposal that they be required to renew their licenses every two years. They noted that intermediaries already must advise the FMC of any changes to their corporate structure, officers, directors, or office locations, and said the commission lacks the staff to process the license renewals.

As an alternative to relicensing every two years, many intermediaries suggested that the FMC allow companies to provide annual certifications that their information on file is correct.

The World Shipping Council, representing container ship lines, objected to the proposed three-tier system for priority on claims paid from intermediaries’ bonds or insurance. The WSC said the proposal would give unfair advantage to shippers and consignees.

With the possible exception of individual household goods shippers, shippers and consignees dealing with NVOs tend to be sophisticated businesses that know their partners and insure their cargoes against damage and loss, the WSC said.

Miami-based Seafreight Line said the proposed priority system for claims “incorrectly assumes that shippers and consignees are a small disadvantaged group that needs special protection.” In reality, the company said, many large shippers “are much more substantial financially than regional carriers such as Seafreight, which would have to take a back seat to their claims.”

The Surety & Fidelity Association of America said the proposed three-tier priority system could force a surety to “act as a referee” in deciding which competing claims under a bond should be paid first. Such provisions would increase a surety’s risk and result in tighter underwriting standards and reduced availability of bonds.

The WSC also opposed the FMC’s proposal to require vessel operators to check an NVO’s registration and licensing status before doing business with the intermediary. The WSC said that if the FMC imposes such a requirement, it should use its Web site to advise whether an NVO is in compliance.

Yet another part of the FMC’s proposal would require Intermediaries to include license or registration numbers on all advertisements and communications. UPS said such a rule would be costly and burdensome, and would be unlikely to deter unlicensed or unregistered entities from representing themselves as intermediaries.