[Federal Register Volume 59, Number 216 (Wednesday, November 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27756]


[[Page Unknown]]

[Federal Register: November 9, 1994]


=======================================================================
-----------------------------------------------------------------------

FEDERAL MARITIME COMMISSION

46 CFR Parts 514, 580 and 581

[Docket Nos. 93-22 and 94-26]

 

Coloading Practices by Non-Vessel-Operating Common Carriers; 
Shipper Affiliate Access to Service Contracts and Inquiry into 
Statutory Basis for Coloading Practices and Possible Section 16 
Exemption for Coloading

AGENCY: Federal Maritime Commission.

ACTION: Notice of inquiry.

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

SUMMARY: The Proposed Rule in Docket No. 93-22, which would modify and 
clarify the Federal Maritime Commission's coloading regulations, is 
held in abeyance, pending an inquiry to explore whether existing 
coloading practices are consistent with statutory requirements, and, if 
not, whether an exemption proceeding should be initiated. The purpose 
of the Inquiry is to serve notice that the Commission has preliminarily 
determined that coloading practices appear to contravene the tariff 
filing requirements, and to provide another opportunity to the 
interested public to comment on whether, absent an exemption under 
section 16 of the 1984 Act, a statutory basis for such practices 
exists. The Inquiry also solicits comments on whether the Commission 
should initiate a proceeding under section 16 to exempt some aspect of 
coloading activity from otherwise applicable requirements if no other 
statutory basis for coloading exists.

DATES: Comments due on or before December 27, 1994.

ADDRESSES: Send Comments (original and 20 copies) to: Joseph C. 
Polking, Secretary, Federal Maritime Commission, 800 North Capitol 
Street NW., Washington, DC 20573, (202) 523-5725.

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 
(``Commission'') initiated Docket No. 93-22, Coloading Practices by 
Non-Vessel-Operating Common Carriers; Shipper Affiliate Access to 
Service Contracts, for the purpose of addressing the practice of non-
vessel-operating common carriers (``NVOCCs'') of rating combined or 
consolidated cargoes under privately arranged rates rather than the 
rates in their tariffs. In its Notice of Proposed Rulemaking (``NPR'' 
or ``Proposed Rule''), the Commission noted that its current rules 
governing this practice, known as coloading, which were promulgated in 
1985, have been variously interpreted by the NVOCC industry, due in 
part to apparent ambiguities in the rule's definitions and attendant 
enumeration of responsibilities of coloading NVOCCs.
    Accordingly, the Commission proposed to revise the definition of 
consolidated cargo shipments which qualify to be rated off-tariff as 
coload cargo.
    In the NPR, the Commission expressed its concern about diverse 
interpretations of and ambiguities in its coloading rules as reflected 
in coloading activity since 1985. The Commission also noted that a 
larger volume of NVOCC-carried cargo was being rated as coload cargo 
than was anticipated when the coload regulations were crafted, possibly 
resulting in an inordinate percentage of NVOCC shipments being rated 
irrespective of the NVOCCs' tariff rates. With coloading being used as 
a device to gain access to other NVOCCs' service contracts, the 
Commission noted that consolidated cargoes being deemed coload cargo by 
some NVOCCs now include multiple full containerloads (``FCLs''), not 
just the small, less-than-containerload (``LCL'') shipments that 
constituted the objective of the Commission's current coloading rule. 
The Commission was also concerned that there was too wide a variety of 
interpretations of the regulatory responsibilities of coloading NVOCCs, 
with some NVOCCs assiduously adhering to the regulations and others 
adopting practices based on looser interpretations of those somewhat 
ambiguous rules.
    The NPR sought comment on:
    1. A proposal to redefine the term ``coloading'' to mean the 
combining of cargo pursuant to the rates, charges and terms of an 
agreement (vis-a-vis a tariff), which agreement must be in writing and 
made available to the Commission;
    2. An alternative proposal limiting coloading to LCL cargo;
    3. A proposal to prohibit coloaded cargo from being carried under a 
service contract; and
    4. A proposal to define an ``affiliate'' having access to service 
contracts.
    The Commission also sought comment on:
    5. Whether to restrict applicability of time-volume rates to 
coloaded cargo; and
    6. Whether to proscribe coloading altogether.
    The Proposed Rule generated 58 comments. Conferences of vessel-
operating common carriers (``VOCCs''), and some larger NVOCCs, 
generally supported the Proposed Rule, but urged that the Commission go 
further and ban coloading altogether. Some of these entities argued 
that the Shipping Act of 1984, 46 U.S.C. app. 1701 et seq. (``1984 
Act''), provided no basis either for coloading or for unaffiliated 
NVOCCs jointly having access to service contracts other than through 
the statutorily sanctioned mechanism of a shippers' association, 46 
U.S.C. app. 1702(24).
    Most of the comments, however, were from smaller to mid-sized 
NVOCCs, who opposed the Proposed Rule. With few exceptions, these 
parties did not address the legal ramifications of the Proposed Rule, 
but instead focused on what they believed to be the practical impact of 
the proposal on their operations. The NVOCC community's comments 
collectively conveyed the prevalence of coloading, estimated as 40% or 
more of NVOCC carryings by one commenter, and characterized coloading 
practices as highly beneficial to the many smaller NVOCCs who rely on 
coloading to remain competitive.
    The threshold question remains, however, whether the very concept 
of coloading is, or can be made, consistent with the 1984 Act. Section 
8(a)(1) of the Act, 46 U.S.C. app. 1707(a)(1), states: ``[E]ach common 
carrier and conference shall file with the Commission, and keep open to 
public inspection, tariffs showing all its rates, charges, 
classifications, rules, and practices * * * .'' Both NVOCCs and VOCCs 
are defined in the 1984 Act as ``common carriers.'' 46 U.S.C. app. 1702 
(17), (18). By defining NVOCCs as common carriers, Congress quite 
intentionally determined to subject them to the tariff-filing 
provisions of section 8. The Senate Commerce Committee Report advised 
that ``all `common carriers,' including both vessel operators and non-
vessel operators,'' would have to publish tariffs under the bill. S. 
Rep. No. 3, 98th Cong., 1st Sess. 30 (1983). That NVOCCs file tariffs 
under the 1984 Act is not an accidental by-product of a complicated 
regulatory regime; it is a deliberate statutory mandate to which the 
Commission, in implementing that statute, must adhere.
    In 1990, Congress reiterated its intention that NVOCCs file tariffs 
when it enacted the Non-Vessel-Operating Common Carrier Amendments of 
1990 (``1990 Amendments''), section 710 of Pub. L. No. 101-595. The 
1990 Amendments were based upon the principle of NVOCC tariff filing 
and were devised in part to secure NVOCC compliance with section 8 of 
the 1984 Act.
    Thus, the current statutory scheme not only includes provisions for 
NVOCC tariff filing, but has used that principle as the premise for 
other statutory proscriptions and obligations. Meanwhile, the 1984 Act 
makes no special provision for, or even acknowledgement of, 
consolidators and coloading. The Commission rejects the arguments of 
some NVOCCs that this is a signal that Congress intended coloading 
activity to remain unfettered by regulation or excused from the general 
statutory scheme. The law on its face effectively mandates that an 
NVOCC include in its tariff all rates and charges. Those would include 
not only those charged the underlying shipper, but also any rate 
charged another NVOCC, whatever its arrangement with that NVOCC may be. 
An NVOCC is given no express statutory authority to charge off-tariff 
rates or make private arrangements for the transportation of cargo in 
its capacity as a common carrier.
    The Commission therefore makes the preliminary determination that 
the off-tariff rating of cargo by NVOCCs under the rubric of coloading 
contravenes the tariff-filing requirement of section 8 of the 1984 
Act.\1\ If that is the case, there would appear to be no present 
statutory basis for either the Proposed Rule on coloading or the 
Commission's existing coloading rules as well.
---------------------------------------------------------------------------

    \1\Another concern of the Commission, raised in the NPR, is that 
Congress established the shippers' association mechanism as the 
means by which unaffiliated shippers may jointly access service 
contracts. The NPR also expressed the view that the 1984 Act 
contemplates that service contract rates are available only to the 
shipper signatory to the contract. These issues were adequately 
addressed by the commenters on the Proposed Rule. Further comment on 
the statutory basis for coloading activity is therefore solicited 
only as it relates to the issue of section 8's tariff filing 
requirement.
---------------------------------------------------------------------------

    Before disposing of Docket No. 93-22 in accordance with these 
conclusions, however, the Commission has determined to provide 
interested parties one final opportunity to offer legal arguments as to 
whether coloading practices are currently consistent with section 8. 
The purpose of this endeavor is to ensure that the Commission has the 
benefit of all possible statutory interpretations on this issue. The 
policy arguments for and against coloading, which were more than 
adequately explored in the comments on the Proposed Rule, should not be 
reiterated in this proceeding.
    If, after consideration of comments received in response to this 
Notice, the Commission remains unpersuaded that there is a present 
statutory basis for coloading, it would be its intention to explore 
whether a section 16 exemption is appropriate by initiating a separate 
proceeding under section 16 of the 1984 Act, 46 U.S.C. app. 1715, 
following this Inquiry. That section provides:

    The Commission, upon application or on its own motion, may by 
order or rule exempt for the future any class of agreements between 
persons subject to this Act or any specified activity of those 
persons from any requirement of this Act if it finds that the 
exemption will not substantially impair effective regulation by the 
Commission, be unjustly discriminatory, result in a substantial 
reduction in competition, or be detrimental to commerce. The 
Commission may attach conditions to any exemption and may, by order, 
revoke any exemption. No order or rule of exemption or revocation of 
exemption may be issued unless opportunity for hearing has been 
afforded interested persons and departments and agencies of the 
United States.

    To this end, the Commission seeks input from interested parties on 
whether a section 16 exemption proceeding should be initiated to 
determine if some form and degree of coloading activity should be 
exempted from the requirements of section 8 or other relevant 
provisions of the 1984 Act. Short of remedial legislation, section 16 
would appear to provide the only possible avenue for excusing coloading 
NVOCCs from the otherwise applicable provisions of the 1984 Act, should 
those provisions be found to preclude existing coloading practices.
    If the Commission initiates a section 16 proceeding, whether an 
exemption is ultimately deemed appropriate for coloading activities 
will depend on several factors. A threshold consideration is the scope 
of coloading activity which is proposed to be exempted. Is relief 
required for LCL coloading only, or also for FCL coloading by NVOCCs? 
How common is the off-tariff rating of FCL cargo as coload cargo? In 
assessing the need and desirability of coloading, the Commission is 
also desirous of ascertaining the extent to which the discount rates 
achieved through coloading inure to the benefit of the underlying 
shippers themselves, in addition to the coloading NVOCCs.
    Many NVOCCs commenting on the Proposed Rule raised the issue of 
certain VOCC space-chartering arrangements, which include off-tariff 
compensation, and which were likened to NVOCC coloading arrangements. 
Accordingly, the Commission seeks views on whether such arrangements by 
VOCCs are inconsistent with the 1984 Act and also whether those 
activities should be addressed in any forthcoming section 16 exemption 
proceeding.
    The major determinant on the appropriateness of a section 16 
exemption would be the applicability of the specific criteria listed in 
that section. Regardless of the fervency with which coloading NVOCCs 
argue that coloading is essential to their operations, no exemption may 
issue if doing so would substantially impair the Commission's 
regulatory responsibilities, result in unjust discrimination (such as 
between shippers, or between carriers), or fail to meet the other 
statutorily imposed criteria. Commenters are therefore urged to 
address, albeit on a preliminary basis, how exemption of the various 
categories of coloading or other activity, discussed supra, would or 
would not meet the section 16 criteria. The Commission emphasizes that 
the reason for this proceeding is to give the interested public the 
opportunity to address these legal issues, and not merely to reiterate 
preferences based on the financial interests of the commenters.
    The preliminary determinations to find coloading practices 
inconsistent with the 1984 Act (absent a formal section 16 exemption) 
and to initiate a separate section 16 exemption proceeding following 
this Inquiry, may be revised, if comments responding to this notice 
persuade the Commission that those determinations are incorrect. The 
scope and breadth of any exemption proceeding to be initiated may also 
be expected to reflect the arguments advanced by commenting parties. 
During the pendency of this proceeding, the Proposed Rule will remain 
in abeyance, and will be reconsidered should a resolution of these 
issues not result from this Inquiry.
    Therefore, it is ordered, That this Notice of Inquiry be published 
in the Federal Register; and
    It is further ordered, That the Proposed Rule in Docket No. 93-22 
is held in abeyance pending further notice.

    By the Commission.
Joseph C. Polking,
Secretary.
[FR Doc. 94-27756 Filed 11-8-94; 8:45 am]
BILLING CODE 6730-01-M