[Federal Register Volume 63, Number 82 (Wednesday, April 29, 1998)]
[Notices]
[Pages 23466-23468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11359]


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FEDERAL MARITIME COMMISSION

[Docket No. 98-06]


Sea-Land Service Inc. Possible Violations of Sections 10(b)(1), 
10(b)(4) and 19(d) of the Shipping Act of 1984; Order of Investigation 
and Hearing

    Sea-Land Service Inc. (``Sea-Land'') is a vessel-operating common 
carrier with offices at 6000 Carnegie Boulevard, Charlotte, North 
Carolina. Sea-Land provides regular liner services, inter alia, between 
the United States West Coast ports and points and ports and points in 
the Far East and currently operates as many as 21 containerships in its 
Transpacific services. Further shipping services are furnished by Sea-
Land worldwide both directly and through participation in reciprocal

[[Page 23467]]

space charter agreements with Maersk, P&O Nedlloyd and others. As 
relevant herein, Sea-Land operates as a member of the Transpacific 
Westbound Rate Agreement (``TWRA''), and participates in the tarrifs 
and service contracts established by that conference.
    Through interviews and on-site examinations of shipping records 
maintained by World Pacific Container (USA) Inc. (``World Pacific'') 
and other non-vessel-operating common carriers (``NVOCCs'') providing 
services in the outbound trades from the U.S. West Coast to the Far 
East, it appears that World Pacific and competing NVOCCs in the Los 
Angeles area were actively engaged in equipment substitution 
malpractices on shipments transported by Sea-Land. Due in substantial 
part to the actions of its Los Angles sales representatives, Sea-Land 
has been substantially implicated in the subject malpractices with 
respect to cargoes destined for the Far East during 1997 and 
thereafter.
    Shipment records of World Pacific and other NVOCCs reflects the 
near-routine abuse of the TWRA equipment substitution rules as a means 
by which Sea-Land apparently furnishes an NVOCC with a larger container 
while still assessing the per-container rates normally applied only to 
a container of smaller capacity. The NVOCC then loads the container 
beyond the cubic capacity of the container initially requested, and 
obtains the financial benefits of paying the freight rate applicable to 
the smaller box. The above equipment substitution malpractices occur 
both in conjunction with, and independent of, shipments on which the 
commodity has been misdescribed.
    It is alleged that representatives of Sea-Land solicited cargo on 
the basis that the carrier would substitute 40-foot container equipment 
for 20-foot container equipment in order to secure the patronage of 
World Pacific and other NVOCCs as shipper clients of Sea-Land. Key to 
this rate malpractice is the understanding that the NVOCC would be 
required to misdeclare the cubit measurement of the shipment. In 
practice, World Pacific and other NVOCCs would meet this requirement by 
routinely declaring the cargo measurements at 25 cubic meters 
(``CBM''), equivalent to the maximum capacity utilization of a 20-foot 
container under TWRA rules. Cargo weights, however, were generally 
correctly declared and shown on the master bill of lading, thus 
indicating a significant variance between the loading characteristics 
of the cargo as declared, and the actual commodity and cubic 
measurements of the goods physically loaded within the substituted 
container.
    In addition, it appears that Sea-Land subsequently made payment of 
freight forwarder compensation on many of these same NVOCC shipments, 
with such compensation being paid to ITL Shipping Co. (``ITL 
Shipping'') as the forwarder on behalf of World Pacific. ITL Shipping 
did not then possess a valid ocean freight forwarder's license, its 
license having been revoked effective March 27, 1997.\1\ If further 
appears that ITL Shipping had not provided any certification to Sea-
Land claiming entitlement to forwarder compensation upon World 
Pacific's shipments, nor had ITL Shipping in fact performed services of 
any kind with respect to securing the cargo or preparing the 
documentation thereon. Sea-Land allegedly issued forwarder compensation 
checks automatically to any party shown in the forwarder box of the 
master bill of lading, without regard to specific requirements for the 
submission to or receipt by Sea-Land of the forwarder's certification. 
It is further alleged that Sea-Land had reason to know that no 
forwarder compensation was payable in any event inasmuch as all details 
of booking the shipment or preparing or processing the ocean bill of 
lading were conducted by Sea-Land directly with the NVOCC shipper. In 
additional instances, it appears that forwarder compensation payments 
were made by Sea-Land to other forwarders in circumstances in which 
such forwarders did not perform the requisite forwarding services or 
were otherwise known to be related to the shipper NVOCC.
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    \1\ Order of Revocation, Ocean Freight Forwarder License No. 
3102, Kyung H. (Harry) Oh d/b/a ITL Shipping Company, served April 
1, 1997.
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    It is well-established law that a carrier is charged with a 
responsibility of reasonably diligent inquiry and exercise of care to 
ensure its compliance with the shipping statutes. Prince Line v. 
American Paper Exports Inc., 55 F.2d 1053 (2d Cir., 1932). In the case 
of the subject instances of equipment substitution, it is clear that 
Sea-Land agreed to furnish a larger container and to apply the 
equipment substitution rule to the freight rate advantage of the 
involved NVOCC, with no apparent regard for the NVOCC's subsequent 
misdeclaration and abuse of the equipment substitution rule. A 
carrier's persistent failure, moreover, to inform or attempt to inform 
itself of any false billings through those normal business resources 
available to the carrier such as weighing or measuring, inquiries of 
shippers or importers, reference to those ``marks and numbers'' shown 
on the bills of lading or other means, may reflect that carrier's 
attempt to keep itself in ignorance of the false billings concerned. 
Rates From Japan to United States, 2 USMC 426, 434 (1940); Rates From 
United States to Philippine Islands, 2 USMC 535, 542 (1941).
    Section 10(b)(1) of the 1984 Act, 46 U.S.C. app. Sec. 1709(b)(1), 
prohibits a common carrier from charging, collecting or receiving 
greater, less or different compensation for the transportation of 
property than the rates and charges set forth in its tariff. Section 
10(b)(4) of the 1984 Act, 46 U.S.C. app. Sec. 1709(b)(4), prohibits any 
common carrier from allowing any person by means of false billings, 
false classification, false weighing, false report of weight, false 
measurement, or by any other unjust or unfair device or means, to 
obtain ocean transportation for property at less than the rates or 
charges that would otherwise be applicable. Section 19(d) of the 1984 
Act, 46 U.S.C. app. Sec. 1718(d), provides that a carrier may 
compensate an ocean freight forwarder only when it has received 
certification that such forwarder possesses a valid license and that 
specified services relating to securing the shipment and preparing the 
documentation thereon have been performed by the forwarder. Under 
section 13 of the 1984 Act, 46 U.S.C. app. Sec. 1712, a person is 
subject to a civil penalty of not more than $25,000 for each violation 
knowingly and willfully committed, and not more than $5,000 for other 
violations.\2\ Section 13 further provides that a common carrier's 
tariffs may be suspended for violations of sections 10(b)(1) or 
10(b)(4) for a period not to exceed one year.
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    \2\ These penalties are increased 10 percent for any violations 
occurring after November 7, 1996. See, Inflation Adjustment of Civil 
Penalties, 61 Fed. Reg. 52704 (October 8, 1996).
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    Now therefore, it is ordered, That pursuant to sections 10, 11, 13 
and 19 of the 1984 Act, 46 U.S.C. app. Secs. 1709, 1710, 1712 and 1718, 
an investigation is instituted to determine:
    (1) Whether Sea-Land violated section 10(b)(1) of the 1984 Act by 
charging, demanding, collecting or receiving less or different 
compensation for the transportation of property than the rates and 
charges shown in its tariffs or service contracts;
    (2) Whether Sea-Land violated section 10(b)(4) of the 1984 Act by 
allowing certain NVOCCs to obtain transportation at less than the rates 
and charges otherwise applicable by an unjust or unfair device or 
means;
    (3) Whether Sea-Land violated section 19(d) of the 1984 Act by 
compensating

[[Page 23468]]

an ocean freight forwarder whose license was revoked, and without 
requiring the forwarder to provide the necessary certification or 
furnish those services entitling the forwarder to such compensation;
    (4) Whether, in the event violations of sections 10(b)(1), 10(b)(4) 
and 19(d) of the 1984 Act are found, civil penalties should be assessed 
against Sea-Land and, if so, the amount of penalties to be assessed;
    (5) Whether, in the event violations of sections 10(b)(1) and 
10(b)(4) of the 1984 Act are found, the tariff(s) of Sea-Land should be 
suspended;
    (6) Whether, in the event violations are found, an appropriate 
cease and desist order should be issued.
    It is further ordered, That a public hearing be held in this 
proceeding and that this matter be assigned for hearing before an 
Administrative Law Judge of the Commission's Office of Administrative 
Law Judges at a date and place to be hereafter determined by the 
Administrative Law Judge in compliance with Rule 61 of the Commission's 
Rules of Practice and Procedure, 46 CFR 502.61. The hearing shall 
include oral testimony and cross-examination in the discretion of the 
Presiding Administrative Law Judge only after consideration has been 
given by the parties and the Presiding Administrative Law Judge to the 
use of alternative forms of dispute resolution, and upon a proper 
showing that there are genuine issues of material fact that cannot be 
resolved on the basis of sworn statements, affidavits, depositions, or 
other documents or that the nature of the matters in issue is such that 
an oral hearing and cross-examination are necessary for the development 
of an adequate record;
    It is further ordered, That Sea-Land Service Inc. is designated 
Respondent in this proceeding;
    It is further ordered, That the Commission's Bureau of Enforcement 
is designated a party to this proceeding;
    It is further ordered, That notice of this Order be published in 
the Federal Register, and a copy be served on parties of record;
    It is further ordered, That other persons having an interest in 
participating in this proceeding may file petitions for leave to 
intervene in accordance with Rule 72 of the Commission's Rules of 
Practice and Procedure, 46 CFR 502.72;
    It is further ordered, That all further notices, orders, and/or 
decisions issued by or on behalf of the Commission in this proceeding, 
including notice of the time and place of hearing or prehearing 
conference, shall be served on parties of record;
    It is further ordered, That all documents submitted by any party of 
record in this proceeding shall be directed to the Secretary, Federal 
Maritime Commission, Washington, D.C. 20573, in accordance with Rule 
118 of the Commission's Rules of Practice and Procedure, 46 CFR 
502.118, and shall be served on parties of record; and
    It is further ordered, That in accordance with Rule 61 of the 
Commission's Rules of Practice and Procedure, the initial decision of 
the Administrative Law Judge shall be issued by April 26, 1999 and the 
final decision of the Commission shall be issued by August 24, 1999.
Ronald D. Murphy,
Assistant Secretary.
[FR Doc. 98-11359 Filed 4-28-98; 8:45 am]
BILLING CODE 6730-01-M