[Federal Register Volume 64, Number 75 (Tuesday, April 20, 1999)]
[Notices]
[Pages 19360-19362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9856]


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FEDERAL MARITIME COMMISSION

[Docket No. 99-05]


Anera and Its Members-Opting Out of Service Contracts; Order To 
Show Cause

    On September 21, 1998, the Commission instituted Fact Finding 
Investigation No. 23--Ocean Common Carrier Practices in the Trans-
Pacific Trades, for the purpose of conducting an inquiry into 
allegations that ocean common carriers in the eastbound Transpacific 
trades have engaged in activities in violation of the Shipping Act of 
1984 (``1984 Act''), 46 U.S.C. app. 1701, et seq. 28 S.R.R. 445 (1998). 
The alleged violations included various forms of refusals to provide 
space for cargo during the 1998 peak holiday shipping season unless the 
shipper agreed to significantly increased rates or charges, and the 
widespread practice of allocating space on the basis of revenue or 
profit to be achieved by the carrier. The Commission's Order of 
Investigation (``Order'') delegated authority to the Investigative 
Officer to hold hearings, and to issue subpoenas for the attendance of 
witnesses and the production of documents.
    As directed in the Order, the Investigative Officer issued a report 
and recommendations to the Commission on January 5, 1999. Included in 
that report were information and evidence concerning a practice engaged 
in by the Asia North America Eastbound Rate Agreement (``ANERA'') and 
its members referred to as ``opting out'' of conference service 
contracts. This term is used to describe a method of participation in 
ANERA contracts whereby a participating carrier may charge a rate other 
than that agreed to by the shipper in the contract. Thus, the ``opting 
out'' carrier agrees to carry cargo under the contract, but ``opts 
out'' of the contract rates. As discussed below, the rates

[[Page 19361]]

charged by the ``opting out'' carrier may be the tariff rates found in 
ANERA's tariff applicable to that particular carrier (i.e., the rate 
may be a common tariff rate or an independent action rate). However, 
the cargo carried under those higher tariff rates would count toward 
the minimum quantity set forth in the contract and, conversely, the 
conference's exposure to liquidated damages for failure to make 
sufficient space available under the contract could be diminished by 
offers from the ``opting out'' carrier to carry cargo at tariff rates.
    This device is new to ANERA contracts in 1998-1999, and has been 
used primarily by Sea-Land Service, Inc. (``Sea-Land''), according to 
evidence developed in the fact finding investigation. Commission 
records reflect that Sea-Land ``opted out'' of at least 183 ANERA 
service contracts which were still in effect as of March 29, 1999.\1\ 
As space became tight during the 1998 peak shipping season, Sea-Land 
appears to have utilized this device extensively to obtain greater 
revenue from contract shippers which could not find space on other 
carriers. A review of active ANERA service contracts in the 
Commission's files as of March 29, 1999, also indicates that the 
following additional carriers ``opted out'' of ANERA service contracts: 
A.P. Moller-Maersk Line (13 contracts); American President Lines, Ltd. 
(3 contracts); Hapag-Lloyd Container Line GmbH (8 contracts); Kawaski 
Kisen Kaisha, Ltd. (12 contracts); Mitsui O.S.K. Lines, Ltd. (1 
contract); and P&O Nedlloyd Ltd./B.V. (1 contract). Appendix A hereto 
is a list of 198 active ANERA service contracts as of March 29, 1999, 
from which one or more of the above-named carriers ``opted out.''
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    \1\ Sea-Land produced statistics in the fact finding 
investigation indicating a total of 215 service contracts from which 
that carrier had ``opted out'' as of October 31, 1998. Apparently, 
some of those contracts are no longer in effect.
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    One contract shipper which was charged tariff rates during peak 
season complained to ANERA that Sea-Land had charged an excessive rate 
and sought a refund of the difference between the rate charged and the 
contract rate. ANERA replied that Sea-land had charged the correct rate 
under the terms of the contract, explaining:

    All ANERA carriers can carry cargo under your contract and all 
must charge the contract rates except for Sea-Land, which must 
charge the general tariff rate at the time of shipment. Sea-Land 
liftings shall be counted towards the MQC [Minimum Quantity of 
Cargo] in your contract, although the rate is different than other 
carriers.

    ANERA document No. 106690. The contract to which this 
correspondence refers, SC No. 7490/98, lists all of the ANERA carriers 
as participants. Article 6 of that contract, and its essential terms 
publication sets forth the contract rates. Note 3 to Article 6, which 
appears to be ``boilerplate'' language in ANERA contracts containing an 
``opt out'' clause, states:
    The following participating carrier(s) has opted out of the 
following Contract rates pursuant to Rule 101.H of the ET tariff:

Line: Sea-Land Service Inc.
Commodity: All
Port Pair: All

    Pursuant to Rule 101.H, certain shipments at the tariff rates 
applicable to the above carrier and port pair(s) may apply under this 
Contract. (Emphasis supplied)
    Rule 101.H of ANERA's Essential Terms tariff is as follows:

    H. Any participating carrier may opt out of any of the rates in 
this Contract. Notice of any such opt-out shall be given prior to 
the effective date of this Contract and shall be shown in Appendix A 
hereto. The participating carrier may revoke the opt-out at any time 
during the term of this Contract by written notice to ANERA and the 
Shipper, after which it would be fully a party to the Contract for 
the remainder of its term and may not opt out further. Cargo carried 
by such participating carrier during any opt out period shall count 
toward the Quantity Commitments of this Contract, provided that the 
rate shall be the governing tariff rate (either common or I/A) 
applicable to that participating carrier at time of shipment, and 
provided further that such cargo may count under the Contract only 
if the applicable tariff rate is higher than the corresponding rate 
set forth in Appendix A of this Contract. All rules, extra charges, 
and other terms and conditions of the Contract shall apply per the 
Contract.

    Section 8(c) of the Shipping Act of 1984 (``1984 Act'') requires 
that an ocean common carrier file with the Commission and make 
available to the general public in tariff format, a concise statement 
of the essential terms of a service contract, including the line-haul 
rate. The Commission's rules at 46 CFR 514.17(c)(2) provide that 
essential terms may not ``(i) [b]e uncertain, vague or ambiguous; or 
(ii) [c]ontain any provision permitting modification by the parties 
other than in full compliance with this part.'' The essential terms 
quoted above appear to be uncertain, vague and ambiguous in that 
neither the shipper nor the Commission nor the public knows which rates 
will apply to any particular shipment. In addition, the rate can be 
modified by the conference, or by the individual carrier, at any time, 
without the shipper's consent. Thus, the ``opt out'' provisions found 
in the ANERA contracts listed in Appendix A to this order appear to be 
in violation of section 8(c) of the 1984 Act and the Commission's 
regulations.
    Section 10(d)(1) of the 1984 Act states that, ``No common carrier * 
* * may fail to establish, observe and enforce just and reasonable 
regulations and practices relating to or connected with receiving * * * 
or delivering property.'' The practices of ANERA and its members in 
agreeing upon and implementing ``opt out'' provisions in 1998-1999 
service contracts appear to be unjust and unreasonable in that ``opting 
out'' carriers refuse to accept bookings, and, thus, to receive, 
transport, or deliver cargo, under the rate for which a shipper has 
bargained in a service contract. Moreover, this refusal by ``opting 
out'' carriers may result in a shipper being penalized for failure to 
meet its minimum cargo requirements under the contract if it chooses 
not to ship at higher rates with an ``opting out'' carrier.\2\ 
Therefore, these practices appear to violate section 10(d)(1) of the 
1984 Act.
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    \2\ Rule 107(A) of ANERA's Essential Terms tariff appears to 
provide the shipper with the freedom to choose the participating 
carrier who will transport the shipper's cargo during the duration 
of the service contract. However, space on any specific vessel is 
not guaranteed to the shipper. Therefore, according to Rule 107(B), 
if the shipper ``is unable to secure space on any particular vessel 
of a participating carrier, [s[hipper agrees to contact all of the 
other participating carriers successively until appropriate 
substitute space has been found.'' Under these contractual 
conditions, if the only participating carrier that is able to 
provide space to the shipper is also one that has ``opted out'' of 
the service contract rates, then the shipper may be faced with the 
unattractive choice of either paying the higher tariff rates for the 
transportation of its cargo, or of breaching the contract by failing 
to meet its Minimum Quantity Commitment, thereby exposing itself to 
liability and penalties in the form of liquidated damages, as 
specified in Article 9 of the contract.
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    Now, therefore, it is ordered That pursuant to section 11 of the 
Shipping Act of 1984, 46 U.S.C. app. 1710, ANERA and its members are 
directed to show cause why they should not be found to have violated 
section 8(c) of the Shipping Act of 1984 by failing to file with the 
Commission and make available to the general public in tariff format, a 
concise statement of the essential terms, including the line haul rate, 
of at least 198 service contracts in which one or more members have 
``opted out.''
    It is further ordered That ANERA and its members are directed to 
show cause why they should not be found in violation of Commission 
rules at 46 CFR 514.17(c)(2) for filing essential terms for at least 
198 service contracts that are uncertain, vague and ambiguous and/or

[[Page 19362]]

can be modified at any time without the shipper's consent.
    It is further ordered That ANERA and its members are directed to 
show cause why they should not be found in violation of section 
10(d)(1) of the 1984 Act for failure to establish, observe and enforce 
just and reasonable regulations and practices relating to or connected 
with receiving or delivering property under service contracts 
containing ``opt out'' clauses.
    It is further ordered That this proceeding is limited to the 
submission of affidavits of fact and memoranda of law.
    It is further ordered That any person having an interest and 
desiring to intervene in this proceeding shall file a petition for 
leave to intervene in accordance with Rule 72 of the Commission's Rules 
of Practice and Procedure, 46 CFR 502.72. Such petition shall be 
accompanied by the petitioner's memorandum of law and affidavits of 
fact, if any, and shall be filed no later than the day fixed below;
    It is further ordered That ANERA and its members as set forth in 
Appendix B hereto are named as Respondents in this proceeding. 
Affidavits of fact and memoranda of law shall be filed by Respondents 
and any intervenors in support of Respondents no later than May 14, 
1999.
    It is further ordered That the Commission's Bureau of Enforcement 
is made a party to this proceeding;
    It is further ordered That reply affidavits and memoranda of law 
shall be filed by the Bureau of Enforcement and any intervenors in 
opposition to Respondents no later than June 3, 1999.
    It is further ordered That rebuttal affidavits and memoranda of law 
shall be filed by Respondents and intervenors in support no later than 
June 18, 1999.
    It is further ordered That;
    (a) Should any party believe that an evidentiary hearing is 
required, that party must submit a request for such hearing, together 
with a statement setting forth in detail the facts to be proved, the 
relevance of those facts to the issues in this proceeding, a 
description of the evidence which would be adduced, and why such 
evidence cannot be submitted by affidavit;
    (b) Should any party believe that an oral argument is required, 
that party must submit a request specifying the reasons therefore and 
why argument by memorandum is inadequate to present the party's case; 
and
    (c) Any request for evidentiary hearing or oral argument shall be 
filed no later than June 18, 1999.
    It is further ordered That, if violations are found by the 
Commission, such violations be referred to an Administrative Law Judge 
for assessment of civil penalties as appropriate, under section 13 of 
the Shipping Act of 1984, 46 U.S.C. app. 1712.
    It is further ordered That notice of this Order to Show Cause be 
published in the Federal Register, and that a copy thereof be served by 
express delivery upon Respondents;
    It is further ordered That all documents submitted by any party of 
record in this proceeding shall be filed in accordance with Rule 118 of 
the Commission's Rules of Practice and Procedure, 46 CFR 502.118, as 
well as being mailed directly to all parties of record;
    Finally, it is ordered That pursuant to the terms of Rule 61 of the 
Commission's Rules of Practice and Procedure, 46 CFR 502.61, the final 
decision of the Commission in this proceeding shall be issued by 
September 1, 1999.

    By the Commission.
Bryant L. VanBrakle,
Secretary.

              Appendix A.--ANERA Service Contracts in Which One or More Members Have ``Opted out''
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                                            Total number
             Name of carrier                  of ``OPT              Service contracts with ``OPT outs''
                                               outs''
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Sea-Land Service, Inc....................             183  7135, 7143, 7190, 7218, 7231, 7256, 7257, 7258, 7259,
                                                            7260, 7261, 7262, 7263, 7266, 7267, 7270, 7271,
                                                            7272, 7274, 7275, 7277, 7278, 7280, 7282, 7283,
                                                            7284, 7285, 7287, 7288, 7289, 7290, 7292, 7294,
                                                            7295, 7298, 7299, 7300, 7301, 7303, 7306, 7308,
                                                            7309, 7310, 7311, 7312, 7314, 7315, 7317, 7318,
                                                            7319, 7320, 7321, 7322, 7323, 7324, 7325, 7329,
                                                            7331, 7334, 7335, 7336, 7337, 7338, 7339, 7340,
                                                            7341, 7344, 7345, 7347, 7349, 7352, 7354, 7355,
                                                            7357, 7358, 7359, 7362, 7363, 7364, 7365, 7366,
                                                            7367, 7368, 7371, 7372, 7373, 7374, 7376, 7377,
                                                            7378, 7380, 7381, 7382, 7383, 7384, 7385, 7386,
                                                            7388, 7389, 7391, 7393, 7394, 7395, 7396, 7397,
                                                            7398, 7399, 7400, 7402, 7403, 7404, 7405, 7406,
                                                            7409, 7410, 7411, 7412, 7413, 7415, 7418, 7419,
                                                            7421, 7423, 7424, 7427, 7429, 7430, 7431, 7435,
                                                            7436, 7438, 7440, 7442, 7443, 7444, 7445, 7446,
                                                            7448, 7449, 7450, 7451, 7452, 7453, 7455, 7456,
                                                            7457, 7458, 7459, 7460, 7461, 7464, 7466, 7467,
                                                            7468, 7470, 7471, 7472, 7473, 7474, 7477, 7479,
                                                            7480, 7481, 7482, 7485, 7487, 7489, 7490, 7491,
                                                            7492, 7493, 7494, 7495, 7496, 7497, 7500, 7501,
                                                            7502, 7504, 7505, 7510, 7511, 7627.
A.P. Moller-Maersk Line..................              13  6918, 7191, 7229, 7230, 7256, 7274, 7298, 7321, 7340,
                                                            7341, 7368, 7416, 7627.
Kawasaki Kisen Kaisha, Ltd (``K'' Line)..              12  7265, 7277, 7294, 7300, 7308, 7329, 7334, 7368, 7374,
                                                            7415, 7417, 7419.
Hapag-Lloyd Container Linie GmbH.........               8  7368, 7675, 7679, 7682, 7683, 7685, 7686, 7687.
American President Lines Ltd.............               3  7406, 7478, 7679.
P&O Nedlloyd Ltd./B.V....................               1  7334.
Mitsui O.S.K. Lines Ltd..................               1  7368.
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 Source: ATFI Essential Terms Publication as of March 29, 1999.

Appendix B

Members of the Asia North America Eastbound Rate Agreement

APL Co. PTE Ltd. (``APL'')
American President Lines, Ltd. (``APL'')
A.P. Moller-Maersk Line (``Maersk'')
Hapag-Lloyd Container Linie GmbH (``Hapag-Lloyd'')
Kawasaki Kisen Kaisha, Ltd. (``K-Line'')
Mitsui O.S.K. Lines, Ltd. (``MOL'')
Nippon Yusen Kaisha Line (``NYK'')
Orient Overseas Container Line, Ltd. (``OOCL'')
P&O Nedlloyd B.V. (``P&O Nedlloyd'')
P&O Nedlloyd Ltd. (``P&O Nedlloyd'')
Sea-Land Service, Inc. (``Sea-Land'')

[FR Doc. 99-9856 Filed 4-19-99; 8:45 am]
BILLING CODE 6730-01-M