[Federal Register Volume 59, Number 22 (Wednesday, February 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2326]


[[Page Unknown]]

[Federal Register: February 2, 1994]


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FEDERAL MARITIME COMMISSION

46 CFR Parts 514 and 581

[Docket No. 92-31]

 

Service Contracts

AGENCY: Federal Maritime Commission.

ACTION: Proposed rule; withdrawal.

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SUMMARY: The Federal Maritime Commission is discontinuing this 
rulemaking proceeding. An analysis of the comments received reveals no 
need for the Rule as proposed. The Commission will continue to address 
specific situations on an ad hoc basis.

DATES: This action is effective February 2, 1994.

FOR FURTHER INFORMATION CONTACT:
Robert D. Bourgoin, General Counsel, Federal Maritime Commission, 800 
North Capitol Street, NW., Washington, DC 20573, (202) 523-5740.

SUPPLEMENTARY INFORMATION: The Federal Maritime Commission (``FMC'' or 
``Commission'') initiated this proceeding by an Advance Notice of 
Proposed Rulemaking (``ANPR''), published in the Federal Register on 
June 8, 1992, 57 FR 24220. Following comments on the ANPR, the 
Commission published a Notice of Proposed Rulemaking (``Proposed Rule'' 
or ``NPR'') in the Federal Register on November 3, 1992, 57 FR 49665. 
The NPR stated that the Commission was proposing to amend the 
definition of the term ``shippers' association,''\1\ contained in its 
service contract and Automated Tariff Filing and Information System 
(``ATFI'') rules, to indicate that a group of shippers would be 
considered a shippers' association if it met certain requirements. In 
addition, the proposed definition further clarified the terms 
``consolidates'' and ``nonprofit basis'' as used in the subject 
definition.
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    \1\Section 3(24) of the Shipping Act of 1984 (``1984 Act''), 46 
U.S.C. app. 1702(24), defines a shippers' association as:
    ``* * * a group of shippers that consolidates or distributes 
freight on a nonprofit basis for the members of the group in order 
to secure carload, truckload, or other volume rates or service 
contracts.''
    The Commission's present service contract and ATFI regulations 
simply restate the statutory definition. 46 CFR 514.2, 581.1(r).
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    The Commission received 15 comments in response to the NPR.
    Commenters supporting the Proposed Rule are:
    (1) Conagra, Inc.;
    (2) Household Goods Forwarders Association of America, Inc. 
(``HHGFAA'');
    (3) Society of the Plastics Industry, Inc. (``SPI'');
    (4) Cone Mills Corporation (``Cone''); and
    (5) United States Department of Justice (``DOJ'').
    Commenters supporting the Proposed Rule, but suggesting 
clarifications are:
    (1) American Institute for Shippers' Associations, Inc. (``AISA'');
    (2) Fashion Accessories Shippers' Association, Inc. (``FASA'');
    (3) National Industrial Transportation League (``NITL''); and
    (4) American Import Shippers Association (``Import S.A.'').
    Commenters opposed to the Proposed Rule are:
    (1) Transpacific Westbound Rate Agreement (``TWRA'');
    (2) Trans-Pacific Freight Conference of Japan and Japan-Atlantic 
and Gulf Freight Conference (``Japan Conferences'');
    (3) a group of nine conferences of ocean common carriers (``Nine 
Conferences'');\2\
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    \2\The eight conferences originally submitting comments are: 
Asia North America Eastbound Rate Agreement; ``8900'' Lines; Israel 
Trade Conference; South Europe/USA Freight Conference; United States 
Atlantic and Gulf Ports/Eastern Mediterranean North African Freight 
Conference; United States/Southern Africa Conference; United States/
East Africa Conference; and U.S. Atlantic and Gulf/Western 
Mediterranean Rate Agreement. After the comment period closed, the 
U.S. Atlantic & Gulf/Australia-New Zealand Conference joined in 
these comments.
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    (4) Hanjin Shipping Co., Ltd. (``Hanjin'');
    (5) a group of 14 South/Central American and Caribbean Conferences 
(``South American/Caribbean Conferences'');\3\ and
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    \3\Venezuelan American Maritime Association; Atlantic and Gulf/
West Coast South American Conference; United States/Central America 
Liner Association; Central America Discussion Agreement; United 
States Atlantic & Gulf/Hispaniola Steamship Freight Association; 
Hispaniola Discussion Agreement; United States Atlantic Gulf/
Southeastern Caribbean Steamship Freight Association; Southeastern 
Caribbean Discussion Agreement; Jamaica Discussion Agreement; United 
States/Panama Freight Association; PANAM Discussion Agreement; 
Puerto Rico/Caribbean Discussion Agreement; Caribbean and Central 
American Discussion Agreement; and Inter-American Freight 
Conference.
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    (6) Fritz Companies, Inc. (``Fritz'').

Positions of the Commenters

A. Comments Supporting the Proposed Rule

    Cone supports the Proposed Rule because it believes it will enable 
Cone to move cargo to emerging countries where its volume alone is not 
sufficient to justify a service contract. Conagra likewise believes 
that the Proposed Rule will make it possible for shippers with 
complementary traffic to present a carrier with a more attractive 
traffic profile than each could present separately. It contends that to 
the extent such traffic can be handled more efficiently, the carrier's 
handling costs will be reduced. Conagra suggests that concerns about 
the lawfulness of the proposal are without merit and that it raises no 
valid antitrust concerns.
    HHGFAA notes that presently, non-vessel-operating common carriers 
(``NVOCCs'') can combine their cargo to achieve containerload rates. It 
perceives no reason why these arrangements between NVOCCs should not 
serve as a basis for negotiating service contracts without the 
administrative burden and expense of establishing a formal shippers' 
association. Allegedly, an agreement containing terms set forth in the 
Proposed Rule would meet the 1984 Act's definition of a shippers' 
association.
    SPI notes that there is no requirement in the 1984 Act that 
shippers form a separate corporate entity to operate as a shippers' 
association and that the Commission has not required shippers' 
associations to be structured in any particular manner. It views the 
Proposed Rule as presenting shippers with a variety of options in 
forming shippers' associations, which it argues would be consistent 
with the policies of the 1984 Act.
    DOJ contends that the Proposed Rule simply reflects past Commission 
policy, and that it is a reasonable interpretation of legislative 
intent that is well within the Commission's rulemaking discretion. DOJ 
believes that the Proposed Rule is likely to promote efficiency. It 
suggests that regulatory impediments may be discouraging the formation 
of shippers' associations, noting that only one percent of service 
contracts are with shippers' associations. DOJ advises that the 
Proposed Rule will not create substantial antitrust risks for either 
carriers or shippers. As for carriers, DOJ notes that their statutory 
antitrust immunity is determined by compliance with the terms of the 
1984 Act and it would not be diminished if shippers were in violation 
of the law. DOJ explains that the formation and operation of a 
shippers' association ordinarily creates no antitrust concerns.

B. Comments Supporting the Proposed Rule With Modifications

    As it did in its comments on the ANPR, NITL favors permitting two 
or more shippers to enter into a joint service contract, regardless of 
whether they are members of a shippers' association. It believes that 
the Proposed Rule will still inhibit a large number of small and 
medium-sized shippers from accessing joint service contracts. NITL 
claims that two or more shippers would be required to operate as a de 
facto shippers' association in order to access a service contract. NITL 
further suggests that the standard for ``nonprofit basis'' is unclear 
and may also inhibit shippers. Lastly, NITL recommends that the process 
for memorializing the provisions for apportioning liability and 
authorizing the execution of a service contract should be left to the 
contracting parties.
    AISA finds the Proposed Rule helpful in that it clarifies that 
``rate negotiator'' shippers' associations are bona fide shippers' 
associations under the 1984 Act, and that they do not require 
Government review. AISA contends, however, that Proviso (2) of the 
Proposed Rule, which requires that shippers' association agreements 
indicate which parties have the authority to execute a service contract 
on behalf of the combination, inadvertently limits the function of a 
shippers' association to solely that of negotiating and executing 
contracts. AISA further claims that Proviso (3), which requires the 
agreements to indicate whether liability is apportioned among the 
combination members, should be eliminated. AISA is concerned that 
Proviso (3) will foreclose other valid options for addressing 
membership liability and that carriers may use it to impose unilateral 
membership liability contract terms on shippers' associations. Lastly, 
AISA suggests that the clarification of ``consolidates'' be modified to 
include both ``rate negotiator'' and ``full service'' shippers' 
associations.
    FASA contends that the rule should specify a written agreement, and 
that any such agreement should be signed prior to negotiation or 
execution of a service contract. FASA notes that Proviso (3) of the 
Proposed Rule does not require that the agreement include an 
apportionment method but rather indicate only whether liability is 
apportioned. It suggests that this may result in simple ``yes'' or 
``no'' answers. FASA also believes that the phrase ``profit-making 
enterprise'' is misleading and should instead read ``* * * is not 
organized for the purpose of profit.'' Lastly, FASA asserts that NVOCCs 
should not be eligible to form or join shippers' associations.
    Import S.A. likewise believes that the requisite agreement forming 
a shippers' association should be in writing and concluded prior to and 
independent of the execution of any service contract. Import S.A. 
suggests that the term ``nonprofit basis'' could use some 
clarification. It notes that an association organized on a nonprofit 
basis may in fact earn a profit during a particular period. It 
suggests, therefore, that the words ``it simply requires that an 
association itself not be a profit-making enterprise'' be deleted or be 
amended to state ``it simply requires that the association be organized 
on a nonprofit basis.'' Like FASA, Import S.A. also maintains that 
NVOCCs should be prohibited from forming or participating in shippers' 
associations.

C. Comments Opposing the Proposed Rule

    The Nine Conferences contend that the Proposed Rule expands the 
meaning of ``shippers' association'' beyond the plain meaning of the 
1984 Act and the intent of Congress. They explain that Congress 
explored many ways to balance the power of ocean carriers with the 
interests of small and medium shippers. One approach was antitrust 
immunity for shippers' councils, but this was rejected by the House. 
Another alternative, which arose in the Senate, was the shipper joint 
venture. As described by the None Conferences, this would have 
permitted loose affiliations of shippers, without any central 
organization and operating on their own behalf, to obtain service 
contracts. The conferences suggest that this concept is very similar to 
that advanced by the Proposed Rule. Congress is said to have 
specifically rejected shipper joint ventures and replaced that 
proposal, in Conference Committee, with shippers' associations.
    The Nine Conferences also point out that the definition of 
shippers' association refers to a ``group'' of shippers, and concludes 
that this contemplates an organization or entity separate and apart 
from the members, which performs functions on behalf of members. In 
contrast, they maintain that, under the proposed definition, there is 
no requirement of a group or entity acting on behalf of the members, 
and consolidation of cargo would be in name only. The Nine Conferences 
are of the opinion that under the Proposed Rule, any shipper could 
force negotiations with a carrier simply by joining together with 
another shipper. Allegedly, section 10(b)(13) of the 1984 Act\4\ was 
not intended to extend this far.
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    \4\Section 10(b)(13) states that no common carrier may ``refuse 
to negotiate with a shippers' association.'' 46 U.S.C. app. 
1709(b)(13).
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    The Japan Conferences argue that there is no statutory authority 
for joint service contracts or for substituting a mere shippers' 
agreement for a shippers' association. They contend that the Proposed 
Rule would weaken and undermine existing shippers' associations. They 
submit that Congress, in approving shippers' associations, envisioned 
ongoing, reliable shippers' associations subject to the internal 
discipline of an association. The Japan Conferences believe that it is 
currently easy to join bona fide shippers' associations and 
consequently suggest that there is no need for any liberalization. The 
South American/Caribbean Conferences likewise contend that it is not 
necessary to clarify that multiple shippers may form or operate a 
shippers' association, as shippers of all sizes have been doing so 
since enactment of the 1984 Act.
    Fritz opposes the Proposed Rule because it perceives it as allowing 
combinations of shippers or joint ventures to be treated as shippers' 
associations although they are not. It notes that the definition of 
``shipper'' refers to a person for whose account transportation is 
provided and concludes therefore that a shippers' association must act 
as a single entity. In addition, Fritz expresses concern about the 
possibility that a ``me-too'' shipper will be able to access the rate 
and volume of only one of the combination shippers rather than the 
entire obligation of the combination.
    Hanjin suggests that the stated purpose of the Proposed Rule--to 
permit multiple shippers to enter into joint service contracts--is 
beyond the Commission's authority. Hanjin contends that there would 
essentially be no requirements for the formation of an association and 
that one could be formed by a one or two-sentence agreement. Hanjin 
contends that the proposal would make enforcement of shipper contract 
obligations increasingly burdensome for carriers. Hanjin notes that if 
the agreement among the members allows for the apportionment of 
liability, each shipper in effect has its own minimum volume and the 
carrier has the burden of enforcing portions of a single contract 
against different parties. On the other hand, if a carrier refuses to 
permit apportionment of liability, Hanjin suggests that it may be 
subject to claims of refusing to negotiate.
    TWRA contends that the word ``combination'' is vague and 
substantially more inclusive than ``association,'' a term, it claims, 
has distinct legal meaning and consequences. It states that all 
associations are combinations, but not all combinations are 
associations. TWRA advises that both incorporated and unincorporated 
associations have legal status, obligations, and rights among the 
members and also in relation to third parties. A ``combination'' is 
said to have no legal definition similar to an association and to 
create no definitive similar to an association and to create no 
definitive rights or obligations.
    Noting that the Proposed Rule does not require a written document 
forming a shippers' association, only an ``agreement,'' TWRA takes the 
position that such an association would have no permanence, structure, 
or articles of association to establish control of the association and 
its nonprofit status. In this regard, TWRA points out that the 
definition of ``shippers' association'' is an almost verbatim 
restatement of a term used in the Interstate Commerce Act for many 
years. TWRA advises that the ICC requirements for a shippers' 
association are:
    (1) That there be an association;
    (2) That it consolidate or distribute freight on behalf of its 
members; and
    (3) That it have a formal, continuing structure that shows it is a 
nonprofit association controlled by its members.

Discussion

    Upon review of the comments in this proceeding and a reevaluation 
of the concerns that prompted this proposal, the Commission has 
concluded that no final rule is warranted. The legal objections to the 
Proposed Rule have presented close and difficult questions. These 
questions need not be resolved at this time, however, because there are 
practical and policy concerns that counsel against additional 
regulations affecting service contract negotiations between carriers 
and shippers' associations.
    As indicated in the Report of Commissioner Ming C. Hsu, the 
investigative Officer in Fact Finding Investigation No. 20, Service 
Contract Negotiations with Shippers' Associations and Non-Vessel-
Operating Common Carriers, issued September 21, 1993, the service 
contract system appears to be working reasonably well as a general 
matter. In addition, under the present regulations that merely restate 
the statutory definition of ``shippers' association,'' shippers have 
been able to form shippers' associations without apparent undue 
difficulties. If such an association meets the brief statutory 
definition, it is free to operate unimpeded by any additional 
regulatory requirements. By contrast, it appears that the Proposed Rule 
could create confusion where none presently exists. We note, for 
example, that even some of the supporting comments opposed specific 
provisions of the Proposed Rule on the ground that they might be 
counterproductive or unnecessarily burdensome. Discontinuation of this 
proceeding without imposing regulations will maintain the status quo in 
the area of service contract oversight, while allowing the Commission 
to address specific situations as they arise on an ad hoc basis. We 
are, accordingly, discontinuing this proceeding without issuing a final 
rule.
    Therefore, it is ordered, That this proceeding is discontinued.


    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 94-2326 Filed 2-1-94; 8:45 am]
BILLING CODE 6730-01-M