[Federal Register Volume 64, Number 44 (Monday, March 8, 1999)]
[Rules and Regulations]
[Pages 11156-11183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5263]
[[Page 11155]]
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Part III
Federal Maritime Commission
_______________________________________________________________________
46 CFR Part 510 et al.
Licensing, Financial Responsibility Requirements, and General Duties
for Ocean Transportation Intermediaries; Final and Interim Final Rule
Federal Register / Vol. 64, No. 44 / Monday, March 8, 1999 / Rules
and Regulations
[[Page 11156]]
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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.
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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.
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\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.
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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.
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\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.
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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 must also send to the ocean
transportation intermediary, or group or association of ocean
transportation intermediaries which provide financial coverage for the
financial responsibilities of a member ocean transportation
intermediary, by registered mail, return receipt requested, at its
address published in its tariff, a copy of each document served upon
the Secretary, and shall attest to that mailing at the time service is
made upon the Secretary.
(c) Service of administrative process, other than subpoenas, may be
effected upon the legal agent by mailing a copy of the document to be
served by certified or registered mail, return receipt requested.
Administrative subpoenas shall be served in accordance with
Sec. 502.134 of this chapter.
(d) Designations of resident agent under paragraphs (a) and (b) of
this section and provisions relating to service of process under
paragraph (c) of this section shall be published in the ocean
transportation intermediary's tariff, when required, in accordance with
part 520 of this chapter.
(e) Every ocean transportation intermediary using a group or
association of ocean transportation intermediaries to cover its
financial responsibility requirement under Sec. 515.21(b) shall publish
the name and address of the group or association's resident agent for
receipt of judicial and administrative process, including subpoenas, in
its tariff, when required, in accordance with part 520 of this chapter.
Sec. 515.25 Filing of proof of financial responsibility.
(a) Filing of proof of financial responsibility. Upon notification
by the Commission by certified U.S. mail or other method reasonably
calculated to provide actual notice that the applicant has been
approved for licensing, the applicant shall file with the Director of
the Commission's Bureau of Tariffs, Certification and Licensing, proof
of financial responsibility in the form and amount prescribed in
Sec. 515.21. No tariff shall be published until a license is issued, if
applicable, and proof of financial responsibility is provided. No
license will be issued until the Commission is in receipt of valid
proof of financial responsibility from the applicant. If more than six
(6) months elapse between issuance of the notification of qualification
and receipt of the proof of financial responsibility, the Commission
may, at its discretion, undertake a supplementary investigation to
determine the applicant's continued qualification, for which a fee is
required under Sec. 515.5(b)(3). Should the applicant not file the
requisite proof of financial responsibility within two (2) years of
notification, the Commission will consider the application to be
invalid.
(b) Branch offices. New proof of financial responsibility, or a
rider to the existing proof of financial responsibility, increasing the
amount of the financial responsibility in accordance with
Sec. 515.21(a)(4), shall be filed with the Commission prior to the date
the licensee commences operation of any branch office. Failure to
adhere to this requirement may result in revocation of the license.
Sec. 515.26 Termination of financial responsibility.
No license shall remain in effect unless valid proof of financial
responsibility is maintained on file with the Commission. Upon receipt
of notice of termination of such financial responsibility, the
Commission shall notify the concerned licensee by certified U.S. mail
or other method reasonably calculated to provide actual notice, at its
last known address, that the Commission shall, without hearing or other
proceeding, revoke the license as of the termination date of the
financial responsibility, unless the licensee shall have submitted
valid replacement proof of financial responsibility before such
termination date. Replacement financial responsibility must bear an
effective date no later than the termination date of the expiring
financial responsibility.
Sec. 515.27 Proof of compliance.
(a) No common carrier may transport cargo for the account of a
shipper known by the carrier to be an NVOCC unless the carrier has
determined that
[[Page 11178]]
the NVOCC has a tariff and financial responsibility as required by
sections 8 and 19 of the Act.
(b) A common carrier can obtain proof of an NVOCC's compliance with
the tariff and financial responsibility requirements by:
(1) Reviewing a copy of the tariff published by the NVOCC and in
effect under part 520 of this chapter;
(2) Consulting the Commission to verify that the NVOCC has filed
evidence of its financial responsibility; or
(3) Any other appropriate procedure, provided that such procedure
is set forth in the carrier's tariff.
(c) A common carrier that has employed the procedure prescribed in
either paragraphs (b)(1) or (b)(2) of this section shall be deemed to
have met its obligations under section 10(b)(11) of the Act, unless the
common carrier knew that such NVOCC was not in compliance with the
tariff and financial responsibility requirements.
(d) The Commission will publish at its website, www.fmc.gov, a list
of the locations of all carrier and conference tariffs, and a list of
ocean transportation intermediaries who have furnished the Commission
with evidence of financial responsibility, current as of the last date
on which the list is updated. The Commission will update this list on a
periodic basis.
Appendix A to Subpart C--Ocean Transportation Intermediary (OTI) Bond
Form [Form 48]
Form FMC-48
Federal Maritime Commission
Ocean Transportation Intermediary (OTI) Bond (Section 19,
Shipping Act of 1984, as amended by the Ocean Shipping Reform Act of
1998 and the Coast Guard Authorization Act of 1998)
____________________[indicate whether NVOCC or Freight Forwarder],
as Principal (hereinafter ``Principal''), and ____________________,
as Surety (hereinafter ``Surety'') are held and firmly bound unto
the United States of America in the sum of $____________________ for
the payment of which sum we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally.
Whereas, Principal operates as an OTI in the waterborne foreign
commerce of the United States in accordance with the Shipping Act of
1984, as amended by the Ocean Shipping Reform Act of 1998 and the
Coast Guard Authorization Act of 1998 (``1984 Act''), 46 U.S.C. app
1702, and, if necessary, has a valid tariff published pursuant to 46
CFR part 515 and 520, and pursuant to section 19 of the 1984 Act,
files this bond with the Commission;
Now, Therefore, The condition of this obligation is that the
penalty amount of this bond shall be available to pay any judgment
or any settlement made pursuant to a claim under 46 CFR
Sec. 515.23(b) for damages against the Principal arising from the
Principal's transportation-related activities or order for
reparations issued pursuant to section 11 of the 1984 Act, 46 U.S.C.
app. 1710, or any penalty assessed against the Principal pursuant to
section 13 of the 1984 Act, 46 U.S.C. app. 1712.
This bond shall inure to the benefit of any and all persons who
have obtained a judgment or a settlement made pursuant to a claim
under 46 CFR Sec. 515.23(b) for damages against the Principal
arising from its transportation-related activities or order of
reparation issued pursuant to section 11 of the 1984 Act, and to the
benefit of the Federal Maritime Commission for any penalty assessed
against the Principal pursuant to section 13 of the 1984 Act.
However, the bond shall not apply to shipments of used household
goods and personal effects for the account of the Department of
Defense or the account of federal civilian executive agencies
shipping under the International Household Goods Program
administered by the General Services Administration.
The liability of the Surety shall not be discharged by any
payment or succession of payments hereunder, unless and until such
payment or payments shall aggregate the penalty of this bond, and in
no event shall the Surety's total obligation hereunder exceed said
penalty regardless of the number of claims or claimants.
This bond is effective the ______ day of ____________________,
__________ and shall continue in effect until discharged or
terminated as herein provided. The Principal or the Surety may at
any time terminate this bond by written notice to the Federal
Maritime Commission at its office in Washington, DC. Such
termination shall become effective thirty (30) days after receipt of
said notice by the Commission. The Surety shall not be liable for
any transportation-related activities of the Principal after the
expiration of the 30-day period but such termination shall not
affect the liability of the Principal and Surety for any event
occurring prior to the date when said termination becomes effective.
The Surety consents to be sued directly in respect of any bona
fide claim owed by Principal for damages, reparations or penalties
arising from the transportation-related activities under the 1984
Act of Principal in the event that such legal liability has not been
discharged by the Principal or Surety after a claimant has obtained
a final judgment (after appeal, if any) against the Principal from a
United States Federal or State Court of competent jurisdiction and
has complied with the procedures for collecting on such a judgment
pursuant to 46 CFR Sec. 515.23(b), the Federal Maritime Commission,
or where all parties and claimants otherwise mutually consent, from
a foreign court, or where such claimant has become entitled to
payment of a specified sum by virtue of a compromise settlement
agreement made with the Principal and/or Surety pursuant to 46 CFR
Sec. 515.23(b), whereby, upon payment of the agreed sum, the Surety
is to be fully, irrevocably and unconditionally discharged from all
further liability to such claimant; provided, however, that Surety's
total obligation hereunder shall not exceed the amount set forth in
46 CFR Sec. 515.21, as applicable.
The underwriting Surety will promptly notify the Director,
Bureau of Tariffs, Certification and Licensing, Federal Maritime
Commission, Washington, DC 20573, of any claim(s) against this bond.
Signed and sealed this ______ day of ____________________,
__________.
(Please type name of signer under each signature.)
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Individual Principal or Partner
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Business Address
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Individual Principal or Partner
----------------------------------------------------------------------
Business Address
----------------------------------------------------------------------
Individual Principal or Partner
----------------------------------------------------------------------
Business Address
Trade Name, If Any
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Corporate Principal
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State of Incorporation
Trade Name, If Any
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Business Address
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By
----------------------------------------------------------------------
Title
(Affix Corporate Seal)
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Corporate Surety
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Business Address
----------------------------------------------------------------------
By
----------------------------------------------------------------------
Title
(Affix Corporate Seal)
Appendix B to Subpart C--Ocean Transportation Intermediary (OTI)
Insurance Form [Form 67]
Form FMC-67
Federal Maritime Commission
Ocean Transportation Intermediary (OTI) Insurance
Form Furnished as Evidence of Financial Responsibility
Under 46 U.S.C. app. 1718
This is to certify, that the (Name of Insurance Company),
(hereinafter ``Insurer'') of (Home Office Address of Company) has
issued to (OTI or Group or Association of OTIs [indicate whether
NVOCC(s) or Freight Forwarder(s)]) (hereinafter ``Insured'') of
(Address of OTI or Group or Association of OTIs) a policy or
policies of insurance for purposes of complying with the provisions
of 46 U.S.C. app. 1718 and the rules and regulations, as amended, of
the Federal Maritime Commission, which provide
[[Page 11179]]
compensation for damages, reparations or penalties arising from the
transportation-related activities of Insured, and made pursuant to
the Shipping Act of 1984, as amended by the Ocean Shipping Reform
Act of 1998 and the Coast Guard Authorization Act of 1998 (``1984
Act'').
Whereas, the Insured is or may become an OTI subject to the 1984
Act, 46 U.S.C. app. 1701 et seq., and the rules and regulations of
the Federal Maritime Commission, or is or may become a group or
association of OTIs, and desires to establish financial
responsibility in accordance with section 19 of the 1984 Act, files
with the Commission this Insurance Form as evidence of its financial
responsibility and evidence of a financial rating for the Insurer of
Class V or higher under the Financial Size Categories of A.M. Best &
Company or equivalent from an acceptable international rating
organization on such organization's letterhead or designated form,
or, in the case of insurance provided by Underwriters at Lloyd's,
documentation verifying membership in Lloyd's, or, in the case of
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.
Whereas, the Insurance is written to assure compliance by the
Insured with section 19 of the 1984 Act, 46 U.S.C. app. 1718, and
the rules and regulations of the Federal Maritime Commission
relating to evidence of financial responsibility for OTIs, this
Insurance shall be available to pay any judgment obtained or any
settlement made pursuant to a claim under 46 CFR Sec. 515.23(b) for
damages against the Insured arising from the Insured's
transportation-related activities under the 1984 Act, or order for
reparations issued pursuant to section 11 of the 1984 Act, 46 U.S.C.
app. 1710, or any penalty assessed against the Insured pursuant to
section 13 of the 1984 Act, 46 U.S.C. app. 1712; provided, however,
that Insurer's obligation for a group or association of OTIs shall
extend only to such damages, reparations or penalties described
herein as are not covered by another insurance policy, guaranty or
surety bond held by the OTI(s) against which a claim or final
judgment has been brought and that Insurer's total obligation
hereunder shall not exceed the amount per OTI set forth in 46 CFR
Sec. 515.21 or the amount per group or association of OTIs set forth
in 46 CFR Sec. 515.21 in aggregate.
Whereas, the Insurer certifies that it has sufficient and
acceptable assets located in the United States to cover all
liabilities of Insured herein described, this Insurance shall inure
to the benefit of any and all persons who have a bona fide claim
against the Insured pursuant to 46 CFR Sec. 515.23(b) arising from
its transportation-related activities under the 1984 Act, or order
of reparation issued pursuant to section 11 of the 1984 Act, and to
the benefit of the Federal Maritime Commission for any penalty
assessed against the Insured pursuant to section 13 of the 1984 Act.
The Insurer consents to be sued directly in respect of any bona
fide claim owed by Insured for damages, reparations or penalties
arising from the transportation-related activities under the 1984
Act, of Insured in the event that such legal liability has not been
discharged by the Insured or Insurer after a claimant has obtained a
final judgment (after appeal, if any) against the Insured from a
United States Federal or State Court of competent jurisdiction and
has complied with the procedures for collecting on such a judgment
pursuant to 46 CFR Sec. 515.23(b), the Federal Maritime Commission,
or where all parties and claimants otherwise mutually consent, from
a foreign court, or where such claimant has become entitled to
payment of a specified sum by virtue of a compromise settlement
agreement made with the Insured and/or Insurer pursuant to 46 CFR
Sec. 515.23(b), whereby, upon payment of the agreed sum, the Insurer
is to be fully, irrevocably and unconditionally discharged from all
further liability to such claimant; provided, however, that
Insurer's total obligation hereunder shall not exceed the amount per
OTI set forth in 46 CFR Sec. 515.21 or the amount per group or
association of OTIs set forth in 46 CFR Sec. 515.21.
The liability of the Insurer shall not be discharged by any
payment or succession of payments hereunder, unless and until such
payment or payments shall aggregate the penalty of the Insurance in
the amount per member OTI set forth in 46 CFR Sec. 515.21 or the
amount per group or association of OTIs set forth in 46 CFR
Sec. 515.21, regardless of the financial responsibility or lack
thereof, or the solvency or bankruptcy, of Insured.
The insurance evidenced by this undertaking shall be applicable
only in relation to incidents occurring on or after the effective
date and before the date termination of this undertaking becomes
effective. The effective date of this undertaking shall be ______
day of ____________________, __________, and shall continue in
effect until discharged or terminated as herein provided. The
Insured or the Insurer may at any time terminate the Insurance by
filing a notice in writing with the Federal Maritime Commission at
its office in Washington, D.C. Such termination shall become
effective thirty (30) days after receipt of said notice by the
Commission. The Insurer shall not be liable for any transportation-
related activities under the 1984 Act of the Insured after the
expiration of the 30-day period but such termination shall not
affect the liability of the Insured and Insurer for such activities
occurring prior to the date when said termination becomes effective.
Insurer or Insured shall immediately give notice to the Federal
Maritime Commission of all lawsuits filed, judgments rendered, and
payments made under the insurance policy.
(Name of Agent) ____________________ domiciled in the United
States, with offices located in the United States, at
____________________ is hereby designated as the Insurer's agent for
service of process for the purposes of enforcing the Insurance
certified to herein.
If more than one insurer joins in executing this document, that
action constitutes joint and several liability on the part of the
insurers.
The Insurer will promptly notify the Director, Bureau of
Tariffs, Certification and Licensing, Federal Maritime Commission,
Washington, D.C. 20573, of any claim(s) against the Insurance.
Signed and sealed this __________ day of ____________________,
__________.
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Signature of Official signing on behalf of Insurer
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Type Name and Title of signer
This Insurance Form has been filed with the Federal Maritime
Commission.
Appendix C to Subpart C--Ocean Transportation Intermediary (OTI)
Guaranty Form [Form 68]
Form FMC-68
Federal Maritime Commission
Guaranty in Respect of Ocean Transportation Intermediary (OTI)
Liability for Damages, Reparations or Penalties Arising from
Transportation-Related Activities Under the Shipping Act of 1984, as
amended by the Ocean Shipping Reform Act of 1998 and the Coast Guard
Authorization Act of 1998
1. Whereas ______________________________________ (Name of
Applicant [indicate whether NVOCC or Freight Forwarder])
(hereinafter ``Applicant'') is or may become an Ocean Transportation
Intermediary (``OTI'') subject to the Shipping Act of 1984, as
amended by the Ocean Shipping Reform Act of 1998 and the Coast Guard
Authorization Act of 1998 (``1984 Act''), 46 U.S.C. app. 1701 et
seq., and the rules and regulations of the Federal Maritime
Commission (``FMC''), or is or may become a group or association of
OTIs, and desires to establish its financial responsibility in
accordance with section 19 of the 1984 Act, then, provided that the
FMC shall have accepted, as sufficient for that purpose, the
Applicant's application, supported by evidence of a financial rating
for the Guarantor of Class V or higher under the Financial Size
Categories of A.M. Best & Company or equivalent from an acceptable
international rating organization on such rating organization's
letterhead or designated form, or, in the case of Guaranty provided
by Underwriters at Lloyd's, documentation verifying membership in
Lloyd's, or, in the case of 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 undersigned Guarantor certifies 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 OTI as specified under the 1984 Act.
2. Now, Therefore, The condition of this obligation is that the
penalty amount of this Guaranty shall be available to pay any
judgment obtained or any settlement made pursuant to a claim under
46 CFR Sec. 515.23(b) for damages against the Applicant arising from
the Applicant's transportation-related activities or order for
reparations issued pursuant to section 11 of the 1984 Act, 46 U.S.C.
app. 1710, or any penalty assessed against the Principal pursuant to
section 13 of the 1984 Act, 46 U.S.C. app. 1712.
[[Page 11180]]
3. The undersigned Guarantor hereby consents to be sued directly
in respect of any bona fide claim owed by Applicant for damages,
reparations or penalties arising from Applicant's transportation-
related activities under the 1984 Act, in the event that such legal
liability has not been discharged by the Applicant after any such
claimant has obtained a final judgment (after appeal, if any)
against the Applicant from a United States Federal or State Court of
competent jurisdiction and has complied with the procedures for
collecting on such a judgment pursuant to 46 CFR Sec. 515.23(b), the
FMC, or where all parties and claimants otherwise mutually consent,
from a foreign court, or where such claimant has become entitled to
payment of a specified sum by virtue of a compromise settlement
agreement made with the Applicant and/or Guarantor pursuant to 46
CFR Sec. 515.23(b), whereby, upon payment of the agreed sum, the
Guarantor is to be fully, irrevocably and unconditionally discharged
from all further liability to such claimant. In the case of a
guaranty covering the liability of a group or association of OTIs,
Guarantor's obligation extends only to such damages, reparations or
penalties described herein as are not covered by another insurance
policy, guaranty or surety bond held by the OTI(s) against which a
claim or final judgment has been brought.
4. The Guarantor's liability under this Guaranty in respect to
any claimant shall not exceed the amount of the guaranty; and the
aggregate amount of the Guarantor's liability under this Guaranty
shall not exceed the amount per OTI set forth in 46 CFR Sec. 515.21
or the amount per group or association of OTIs set forth in 46 CFR
Sec. 515.21 in aggregate.
5. The Guarantor's liability under this Guaranty shall attach
only in respect of such activities giving rise to a cause of action
against the Applicant, in respect of any of its transportation-
related activities under the 1984 Act, occurring after the Guaranty
has become effective, and before the expiration date of this
Guaranty, which shall be the date thirty (30) days after the date of
receipt by FMC of notice in writing that either Applicant or the
Guarantor has elected to terminate this Guaranty. The Guarantor and/
or Applicant specifically agree to file such written notice of
cancellation.
6. Guarantor shall not be liable for payments of any of the
damages, reparations or penalties hereinbefore described which arise
as the result of any transportation-related activities of Applicant
after the cancellation of the Guaranty, as herein provided, but such
cancellation shall not affect the liability of the Guarantor for the
payment of any such damages, reparations or penalties prior to the
date such cancellation becomes effective.
7. Guarantor shall pay, subject to the limit of the amount per
OTI set forth in 46 CFR Sec. 515.21, directly to a claimant any sum
or sums which Guarantor, in good faith, determines that the
Applicant has failed to pay and would be held legally liable by
reason of Applicant's transportation-related activities, or its
legal responsibilities under the 1984 Act and the rules and
regulations of the FMC, made by Applicant while this agreement is in
effect, regardless of the financial responsibility or lack thereof,
or the solvency or bankruptcy, of Applicant.
8. Applicant or Guarantor shall immediately give written notice
to the FMC of all lawsuits filed, judgments rendered, and payments
made under the Guaranty.
9. Applicant and Guarantor agree to handle the processing and
adjudication of claims by claimants under the Guaranty established
herein in the United States, unless by mutual consent of all parties
and claimants another country is agreed upon. Guarantor agrees to
appoint an agent for service of process in the United States.
10. This Guaranty shall be governed by the laws in the State of
__ to the extent not inconsistent with the rules and regulations of
the FMC.
11. This Guaranty is effective the day of ______
,____________________ ,__________ 12:01 a.m., standard time at the
address of the Guarantor as stated herein and shall continue in
force until terminated as herein provided.
12. The Guarantor hereby designates as the Guarantor's legal
agent for service of process domiciled in the United States
____________________, with offices located in the United States at
____________________ , for the purposes of enforcing the Guaranty
described herein.
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(Place and Date of Execution)
----------------------------------------------------------------------
(Type Name of Guarantor)
----------------------------------------------------------------------
(Type Address of Guarantor)
By
----------------------------------------------------------------------
(Signature and Title)
Appendix D to Subpart C--Ocean Transportation Intermediary (OTI) Group
Bond Form [FMC-69]
Form FMC-69
Federal Maritime Commission
Ocean Transportation Intermediary (OTI) Group Supplemental
Coverage Bond Form (Section 19, Shipping Act of 1984, as amended by
the Ocean Shipping Reform Act of 1998 and the Coast Guard
Authorization Act of 1998)
____________________[indicate whether NVOCC or Freight
Forwarder], as Principal (hereinafter ``Principal''), and
________________________________________ as Surety (hereinafter
``Surety'') are held and firmly bound unto the United States of
America in the sum of $__________________________ for the payment of
which sum we bind ourselves, our heirs, executors, administrators,
successors and assigns, jointly and severally.
Whereas, (Principal) ____________________ operates as a group or
association of OTIs in the waterborne foreign commerce of the United
States and pursuant to section 19 of the Shipping Act of 1984, as
amended by the Ocean Shipping Reform Act of 1998 and the Coast Guard
Authorization Act of 1998 (``1984 Act''), files this bond with the
Federal Maritime Commission;
Now, therefore, the conditions of this obligation are that the
penalty amount of this bond shall be available to pay any judgment
obtained or any settlement made pursuant to a claim under 46 CFR
Sec. 515.23(b) against the OTIs enumerated in Appendix A of this
bond for damages arising from any or all of the identified OTIs'
transportation-related activities under the 1984 Act, 46 U.S.C. app.
1701 et seq., or order for reparations issued pursuant to section 11
of the 1984 Act, 46 U.S.C. app. 1710, or any penalty assessed
pursuant to section 13 of the 1984 Act, 46 U.S.C. app. 1712, that
are not covered by the identified OTIs' individual insurance
policy(ies), guaranty(ies) or surety bond(s).
This bond shall inure to the benefit of any and all persons who
have obtained a judgment or made a settlement pursuant to a claim
under 46 CFR Sec. 515.23(b) for damages against any or all of the
OTIs identified in Appendix A not covered by said OTIs' insurance
policy(ies), guaranty(ies) or surety bond(s) arising from said OTIs'
transportation-related activities under the 1984 Act, or order for
reparation issued pursuant to section 11 of the 1984 Act, and to the
benefit of the Federal Maritime Commission for any penalty assessed
against said OTIs pursuant to section 13 of the 1984 Act. However,
the bond shall not apply to shipments of used household goods and
personal effects for the account of the Department of Defense or the
account of federal civilian executive agencies shipping under the
International Household Goods Program administered by the General
Services Administration.
The Surety consents to be sued directly in respect of any bona
fide claim owed by any or all of the OTIs identified in Appendix A
for damages, reparations or penalties arising from the
transportation-related activities under the 1984 Act of the OTIs in
the event that such legal liability has not been discharged by the
OTIs or Surety after a claimant has obtained a final judgment (after
appeal, if any) against the OTIs from a United States Federal or
State Court of competent jurisdiction and has complied with the
procedures for collecting on such a judgment pursuant to 46 CFR
Sec. 515.23(b), the Federal Maritime Commission, or where all
parties and claimants otherwise mutually consent, from a foreign
court, or where such claimant has become entitled to payment of a
specified sum by virtue of a compromise settlement agreement made
with the OTIs and/or Surety pursuant to 46 CFR Sec. 515.23(b),
whereby, upon payment of the agreed sum, the Surety is to be fully,
irrevocably and unconditionally discharged from all further
liability to such claimant.
The liability of the Surety shall not be discharged by any
payment or succession of payments hereunder, unless and until such
payment or payments shall aggregate the penalty of this bond, and in
no event shall the Surety's total obligation hereunder exceed the
amount per member OTI set forth in 46 CFR Sec. 515.21 identified in
Appendix A, or the amount per group or association of OTIs set forth
in 46 CFR Sec. 515.21, regardless of the number of OTIs, claims or
claimants.
This bond is effective the ______ day of ____________________,
__________, and shall continue in effect until discharged or
terminated as herein provided. The Principal
[[Page 11181]]
or the Surety may at any time terminate this bond by written notice
to the Federal Maritime Commission at its office in Washington, DC.
Such termination shall become effective thirty (30) days after
receipt of said notice by the Commission. The Surety shall not be
liable for any transportation-related activities of the OTIs
identified in Appendix A as covered by the Principal after the
expiration of the 30-day period, but such termination shall not
affect the liability of the Principal and Surety for any
transportation-related activities occurring prior to the date when
said termination becomes effective.
The Principal or financial responsibility provider will promptly
notify the underwriting Surety and the Director, Bureau of Tariffs,
Certification and Licensing, Federal Maritime Commission,
Washington, DC 20573, of any additions, deletions or changes to the
OTIs enumerated in Appendix A. In the event of additions to Appendix
A, coverage will be effective upon receipt of such notice, in
writing, by the Commission at its office in Washington, DC. In the
event of deletions to Appendix A, termination of coverage for such
OTI(s) shall become effective 30 days after receipt of written
notice by the Commission. Neither the Principal nor the Surety shall
be liable for any transportation-related activities of the OTI(s)
deleted from Appendix A after the expiration of the 30-day period,
but such termination shall not affect the liability of the Principal
and Surety for any transportation-related activities of said OTI(s)
occurring prior to the date when said termination becomes effective.
The underwriting Surety will promptly notify the Director,
Bureau of Tariffs, Certification and Licensing, Federal Maritime
Commission, Washington, DC 20573, of any claim(s) against this bond.
Signed and sealed this ______ day of ____________________,
__________,
(Please type name of signer under each signature).
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Individual Principal or Partner
----------------------------------------------------------------------
Business Address
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Individual Principal or Partner
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Business Address
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Individual Principal or Partner
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Business Address
Trade Name, if Any
----------------------------------------------------------------------
Corporate Principal
----------------------------------------------------------------------
Place of Incorporation
Trade Name, if Any
----------------------------------------------------------------------
Business Address (Affix Corporate Seal)
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By
----------------------------------------------------------------------
Title
----------------------------------------------------------------------
Principal's Agent for Service of Process (Required if Principal is
not a U.S. Corporation)
----------------------------------------------------------------------
Agent's Address
----------------------------------------------------------------------
Corporate Surety
----------------------------------------------------------------------
Business Address (Affix Corporate Seal)
----------------------------------------------------------------------
By
----------------------------------------------------------------------
Title
Subpart D--Duties and Responsibilities of Ocean Transportation
Intermediaries; Reports to Commission
Sec. 515.31 General duties.
(a) License; name and number. Each licensee shall carry on its
business only under the name in which its license is issued and only
under its license number as assigned by the Commission. When the
licensee's name appears on shipping documents, its Commission license
number shall also be included.
(b) Stationery and billing forms. The name and license number of
each licensee shall be permanently imprinted on the licensee's office
stationery and billing forms. The Commission may temporarily waive this
requirement for good cause shown if the licensee rubber stamps or types
its name and Commission license number on all papers and invoices
concerned with any ocean transportation intermediary transaction.
(c) Use of license by others; prohibition. No licensee shall permit
its license or name to be used by any person who is not a bona fide
individual employee of the licensee. Unincorporated branch offices of
the licensee may use the license number and name of the licensee if
such branch offices:
(1) have been reported to the Commission in writing; and
(2) are covered by increased financial responsibility in accordance
with Sec. 515.21(a)(4).
(d) Arrangements with ocean transportation intermediaries whose
licenses have been revoked. Unless prior written approval from the
Commission has been obtained, no licensee shall, directly or
indirectly:
(1) Agree to perform ocean transportation intermediary services on
shipments as an associate, correspondent, officer, employee, agent, or
sub-agent of any person whose license has been revoked or suspended
pursuant to Sec. 515.16;
(2) Assist in the furtherance of any ocean transportation
intermediary business of such person;
(3) Share forwarding fees or freight compensation with any such
person; or
(4) Permit any such person, directly or indirectly, to participate,
through ownership or otherwise, in the control or direction of the
ocean transportation intermediary business of the licensee.
(e) False or fraudulent claims, false information. No licensee
shall prepare or file or assist in the preparation or filing of any
claim, affidavit, letter of indemnity, or other paper or document
concerning an ocean transportation intermediary transaction which it
has reason to believe is false or fraudulent, nor shall any such
licensee knowingly impart to a principal, shipper, common carrier or
other person, false information relative to any ocean transportation
intermediary transaction.
(f) Errors and omissions of the principal or shipper. A licensee
who has reason to believe that its principal or shipper has not, with
respect to a shipment to be handled by such licensee, complied with the
laws of the United States, or has made any error or misrepresentation
in, or omission from, any export declaration, bill of lading,
affidavit, or other document which the principal or shipper executes in
connection with such shipment, shall advise its principal or shipper
promptly of the suspected noncompliance, error, misrepresentation or
omission, and shall decline to participate in any transaction involving
such document until the matter is properly and lawfully resolved.
(g) Response to requests of Commission. Upon the request of any
authorized representative of the Commission, a licensee shall make
available promptly for inspection or reproduction all records and books
of account in connection with its ocean transportation intermediary
business, and shall respond promptly to any lawful inquiries by such
representative.
(h) Express written authority. No licensee shall endorse or
negotiate any draft, check, or warrant drawn to the order of its
principal or shipper without the express written authority of such
principal or shipper.
(i) Accounting to principal or shipper. Each licensee shall account
to its principal(s) or shipper(s) for overpayments, adjustments of
charges, reductions in rates, insurance refunds, insurance monies
received for claims, proceeds of C.O.D. shipments, drafts, letters of
credit, and any other sums due such principal(s) or shipper(s).
Sec. 515.32 Freight forwarder duties.
(a) Notice of shipper affiliation. When a licensed freight
forwarder is a shipper or seller of goods in international
[[Page 11182]]
commerce or affiliated with such an entity, the licensed freight
forwarder shall have the option of:
(1) Identifying itself as such and/or, where applicable, listing
its affiliates on its office stationery and billing forms, or
(2) Including the following notice on such items:
This company is a shipper or seller of goods in international
commerce or is affiliated with such an entity. Upon request, a
general statement of its business activities and those of its
affiliates, along with a written list of the names of such
affiliates, will be provided.
(b) Arrangements with unauthorized persons. No licensed freight
forwarder shall enter into an agreement or other arrangement (excluding
sales agency arrangements not prohibited by law or this part) with an
unlicensed person that bestows any fee, compensation, or other benefit
upon the unlicensed person. When a licensed freight forwarder is
employed to perform forwarding services by the agent of the person
responsible for paying for such services, the licensed freight
forwarder shall also transmit a copy of its invoice for services
rendered to the person paying those charges.
(c) Information provided to the principal. No licensed freight
forwarder shall withhold any information concerning a forwarding
transaction from its principal, and each licensed freight forwarder
shall comply with the laws of the United States and shall exercise due
diligence to assure that all information provided to its principal or
provided in any export declaration, bill of lading, affidavit, or other
document which the licensed freight forwarder executes in connection
with a shipment is accurate.
(d) Invoices; documents available upon request. Upon the request of
its principal(s), each licensed freight forwarder shall provide a
complete breakout of its charges and a true copy of any underlying
document or bill of charges pertaining to the licensed freight
forwarder's invoice. The following notice shall appear on each invoice
to a principal:
Upon request, we shall provide a detailed breakout of the
components of all charges assessed and a true copy of each pertinent
document relating to these charges.
Sec. 515.33 Records required to be kept.
Each licensed freight forwarder shall maintain in an orderly and
systematic manner, and keep current and correct, all records and books
of account in connection with its forwarding business. These records
must be kept in the United States in such manner as to enable
authorized Commission personnel to readily determine the licensed
freight forwarder's cash position, accounts receivable and accounts
payable. The licensed freight forwarder may maintain these records in
either paper or electronic form, which shall be readily available in
usable form to the Commission; the electronically maintained records
shall be no less accessible than if they were maintained in paper form.
These recordkeeping requirements are independent of the retention
requirements of other federal agencies. The licensed freight forwarder
must maintain the following records for a period of five years:
(a) General financial data. A current running account of all
receipts and disbursements, accounts receivable and payable, and daily
cash balances, supported by appropriate books of account, bank deposit
slips, canceled checks, and monthly reconciliation of bank statements.
(b) Types of services by shipment. A separate file shall be
maintained for each shipment. Each file shall include a copy of each
document prepared, processed, or obtained by the licensee, including
each invoice for any service arranged by the licensee and performed by
others, with respect to such shipment.
(c) Receipts and disbursements by shipment. A record of all sums
received and/or disbursed by the licensee for services rendered and
out-of-pocket expenses advanced in connection with each shipment,
including specific dates and amounts.
(d) Special contracts. A true copy, or if oral, a true and complete
memorandum, of every special arrangement or contract between a licensed
freight forwarder and a principal, or modification or cancellation
thereof. Bona fide shippers shall also have access to such records upon
reasonable request.
Sec. 515.34 Regulated Persons Index.
The Regulated Persons Index is a database containing the names,
addresses, phone/fax numbers and financial responsibility information,
where applicable, of Commission-regulated entities. The database may be
purchased for $84 by contacting Bureau of Tariffs, Certification and
Licensing, Federal Maritime Commission, Washington, DC 20573. Contact
information is listed on the Commission's website at www.fmc.gov.
Subpart E--Freight Forwarding Fees and Compensation
Sec. 515.41 Forwarder and principal; fees.
(a) Compensation or fee sharing. No licensed freight forwarder
shall share, directly or indirectly, any compensation or freight
forwarding fee with a shipper, consignee, seller, or purchaser, or an
agent, affiliate, or employee thereof; nor with any person advancing
the purchase price of the property or guaranteeing payment therefor;
nor with any person having a beneficial interest in the shipment.
(b) Receipt for cargo. Each receipt for cargo issued by a licensed
freight forwarder shall be clearly identified as ``Receipt for Cargo''
and be readily distinguishable from a bill of lading.
(c) Special contracts. To the extent that special arrangements or
contracts are entered into by a licensed freight forwarder, the
forwarder shall not deny equal terms to other shippers similarly
situated.
(d) Reduced forwarding fees. No licensed freight forwarder shall
render, or offer to render, any freight forwarding service free of
charge or at a reduced fee in consideration of receiving compensation
from a common carrier or for any other reason. Exception: A licensed
freight forwarder may perform freight forwarding services for
recognized relief agencies or charitable organizations, which are
designated as such in the tariff of the common carrier, free of charge
or at reduced fees.
(e) In-plant arrangements. A licensed freight forwarder may place
an employee or employees on the premises of its principal as part of
the services rendered to such principal, provided:
(1) The in-plant forwarder arrangement is reduced to writing in the
manner of a special contract under Sec. 515.33(d), which shall identify
all services provided by either party (whether or not constituting a
freight forwarding service); state the amount of compensation to be
received by either party for such services; set forth all details
concerning the procurement, maintenance or sharing of office
facilities, personnel, furnishings, equipment and supplies; describe
all powers of supervision or oversight of the licensee's employee(s) to
be exercised by the principal; and detail all procedures for the
administration or management of in-plant arrangements between the
parties; and
(2) The arrangement is not an artifice for a payment or other
unlawful benefit to the principal.
[[Page 11183]]
Sec. 515.42 Forwarder and carrier; compensation.
(a) Disclosure of principal. The identity of the shipper must
always be disclosed in the shipper identification box on the bill of
lading. The licensed freight forwarder's name may appear with the name
of the shipper, but the forwarder must be identified as the shipper's
agent.
(b) Certification required for compensation. A common carrier may
pay compensation to a licensed freight forwarder only pursuant to such
common carrier's tariff provisions. Where a common carrier's tariff
provides for the payment of compensation, such compensation shall be
paid on any shipment forwarded on behalf of others where the forwarder
has provided a written certification as prescribed in paragraph (c) of
this section and the shipper has been disclosed on the bill of lading
as provided for in paragraph (a) of this section. The common carrier
shall be entitled to rely on such certification unless it knows that
the certification is incorrect. The common carrier shall retain such
certifications for a period of five (5) years.
(c) Form of certification. Where a licensed freight forwarder is
entitled to compensation, the forwarder shall provide the common
carrier with a signed certification which indicates that the forwarder
has performed the required services that entitle it to compensation.
The required certification may be placed on one copy of the relevant
bill of lading, a summary statement from the forwarder, the forwarder's
compensation invoice, or as an endorsement on the carrier's
compensation check. Each forwarder shall retain evidence in its
shipment files that the forwarder, in fact, has performed the required
services enumerated on the certification. The certification shall read
as follows:
The undersigned hereby certifies that neither it nor any holding
company, subsidiary, affiliate, officer, director, agent or
executive of the undersigned has a beneficial interest in this
shipment; that it is the holder of valid FMC License No., issued by
the Federal Maritime Commission and has performed the following
services:
(1) Engaged, booked, secured, reserved, or contracted directly
with the carrier or its agent for space aboard a vessel or confirmed
the availability of that space; and
(2) Prepared and processed the ocean bill of lading, dock
receipt, or other similar document with respect to the shipment.
(d) Compensation pursuant to tariff provisions. No licensed freight
forwarder, or employee thereof, shall accept compensation from a common
carrier which is different from that specifically provided for in the
carrier's effective tariff(s). No conference or group of common
carriers shall deny in the export commerce of the United States
compensation to an ocean freight forwarder or limit that compensation,
as provided for by section 19(e)(4) of the Act and 46 CFR part 535.
(e) Electronic data interchange. A licensed freight forwarder may
own, operate, or otherwise maintain or supervise an electronic data
interchange-based computer system in its forwarding business; however,
the forwarder must directly perform value-added services as described
in paragraph (c) of this section in order to be entitled to carrier
compensation.
(f) Compensation; services performed by underlying carrier;
exemptions. No licensed freight forwarder shall charge or collect
compensation in the event the underlying common carrier, or its agent,
has, at the request of such forwarder, performed any of the forwarding
services set forth in Sec. 515.2(i), unless such carrier or agent is
also a licensed freight forwarder, or unless no other licensed freight
forwarder is willing and able to perform such services.
(g) Duplicative compensation. A common carrier shall not pay
compensation for the services described in paragraph (c) of this
section more than once on the same shipment.
(h) Non-vessel-operating common carriers; compensation. (1) A
licensee operating as an NVOCC and a freight forwarder, or a person
related thereto, may collect compensation when, and only when, the
following certification is made together with the certification
required under paragraph (c) of this section:
The undersigned certifies that neither it nor any related person
has issued a bill of lading or otherwise undertaken common carrier
responsibility as a non-vessel-operating common carrier for the
ocean transportation of the shipment covered by this bill of lading.
(2) Whenever a person acts in the capacity of an NVOCC as to any
shipment, such person shall not collect compensation, nor shall any
underlying ocean common carrier pay compensation to such person, for
such shipment.
(i) Compensation; beneficial interest. A licensed freight forwarder
may not receive compensation from a common carrier with respect to any
shipment in which the forwarder has a beneficial interest or with
respect to any shipment in which any holding company, subsidiary,
affiliate, officer, director, agent, or executive of such forwarder has
a beneficial interest.
Sec. 515.91 OMB control number assigned pursuant to the Paperwork
Reduction Act.
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. By the Commission.*
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\*\ Commissioner Moran voted nay on Secs. 515.21(a) and
515.41(e)(1).
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Bryant L. VanBrakle,
Secretary.
[FR Doc. 99-5263 Filed 3-5-99; 8:45 am]
BILLING CODE 6730-01-P