[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





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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.''
---------------------------------------------------------------------------

    \2\ C.A. Shea supports the comments made by Kemper and ``other 
sureties'' as to the proposed bond language.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.)

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

    Trade Name, If Any

----------------------------------------------------------------------
Corporate Principal

----------------------------------------------------------------------
State of Incorporation

    Trade Name, If Any

----------------------------------------------------------------------
Business Address

----------------------------------------------------------------------
By

----------------------------------------------------------------------
Title

(Affix Corporate Seal)

----------------------------------------------------------------------
Corporate Surety

----------------------------------------------------------------------
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 ____________________, 
__________.
----------------------------------------------------------------------
Signature of Official signing on behalf of Insurer
----------------------------------------------------------------------
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.

----------------------------------------------------------------------
(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).

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

----------------------------------------------------------------------
Individual Principal or Partner

----------------------------------------------------------------------
Business Address

    Trade Name, if Any

----------------------------------------------------------------------
Corporate Principal

----------------------------------------------------------------------
Place of Incorporation

    Trade Name, if Any

----------------------------------------------------------------------
Business Address (Affix Corporate Seal)

----------------------------------------------------------------------
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