[Federal Register Volume 76, Number 198 (Thursday, October 13, 2011)]
[Proposed Rules]
[Pages 63581-63582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26418]


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FEDERAL MARITIME COMMISSION

46 CFR Parts 530 and 531

[Docket No. 11-17]
RIN 3072-AC47


Certainty of Terms of Service Contracts and NVOCC Service 
Arrangements

AGENCY: Federal Maritime Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Maritime Commission proposes to amend its rules 
regarding certainty of terms of service contracts and non-vessel-
operating common carrier service arrangements. The proposed rule is 
intended to provide common carriers and their customers with certainty 
and flexibility if they decide to use long-term contracts that adjust 
based on a freight rate index that reflects changes in market 
conditions.

DATES: Comments or suggestions due on or before November 28, 2011.

ADDRESSES: Address all comments concerning this proposed rule to: Karen 
V. Gregory, Secretary, Federal Maritime Commission, 800 North Capitol 
Street, NW., Washington, DC 20573-0001, Phone: (202) 523-5725.

SUPPLEMENTARY INFORMATION: Submit Comments: Submit an original and five 
(5) copies in paper form, and if possible, send a PDF of the document 
by e-mail to [email protected]. Include in the subject line: Docket No. 
11-17, Comments on Certainty of Terms of Service Contracts and NSAs.

Background

    The Federal Maritime Commission (FMC or Commission) has found that 
an increasing number of service contracts filed with the Commission 
reference freight rate indices. These indices include, for example, the 
China Containerized Freight Index (CCFI), the Shanghai Containerized 
Freight Index (SCFI), the Drewry Freight Insight Index, and the 
Transpacific Stabilization Agreement (TSA) Index. The ocean freight 
rates in these negotiated service contracts adjust in increments based 
upon the changes in the referenced index levels or their annual or 
quarterly averages. It appears that some carriers and shippers in the 
ocean transportation industry are seeking stability through long-term 
contracts, while trying to preserve flexibility to adjust contract 
rates reflecting changes in market conditions.
    Questions have arisen, however, whether references to these indices 
in service contracts are consistent with the Commission's current 
regulations. The Commission's regulations with respect to terms of 
service contracts and Non-Vessel-Operating Common Carrier (NVOCC) 
service arrangements (NSAs) state that the terms, if they are not 
explicitly contained in the contracts, must be ``contained in a 
publication widely available to the public and well known within the 
industry.'' 46 CFR 530.8(c)(2), 531.6(c)(2).
    The Commission has received inquiries from the industry as to 
whether certain freight rate indices meet the Commission's standard, 
particularly its ``widely available to the public'' requirement. For 
example, until August 2011, the TSA index was not available to the 
public, even though some service contracts referenced TSA index before 
its publication. In addition, CCFI, SCFI, and Drewry indices make their 
current index levels available to the public without charge, but access 
to their historical data requires payment of subscription fees that can 
reach several thousand dollars per year.
    As the Commission began to consider whether these service contracts 
referencing freight indices comport with its regulation, it decided to 
do a more fundamental assessment of whether the regulation in its 
current form is more restrictive than is necessary to protect the 
shipping public and carry out the purposes of the Shipping Act.
    When adopting the rules for ``[c]ertainty of terms'' of service 
contracts, the Commission recognized that through the Ocean Shipping 
Reform Act of 1998, Congress intended, by lifting the requirements that 
tariffs be filed with the Commission, to allow parties to service 
contracts more freedom and flexibility in their commercial 
arrangements. See 63 FR 71062, 71066 (Dec. 23, 1998). More recently, 
the President has directed federal agencies to review their regulations 
and to reduce burdens and promote flexibility where appropriate. See 
Exec. Order 13563, 76 FR 3821 (Jan. 21, 2011); Exec. Order 13579, 76 FR 
41587 (Jul. 14, 2011).

Proposed Change

    Consistent with Congressional intent and the President's directives 
in Executive Orders 13563 and 13579, the Commission seeks to revise its 
regulations so that they are not unnecessarily burdensome and do not 
impede innovation and flexibility in commercial arrangements, while 
ensuring continued compliance with the Shipping Act's requirements.
    The proposed change would facilitate references to indices in 
service contracts and NSAs so that contracting parties can

[[Page 63582]]

pursue long-term contracts with rates that adjust through an agreed and 
ascertainable manner. The change will also ensure compliance with two 
important Shipping Act requirements. First, the Shipping Act requires 
that a service contract be a ``written contract,'' in which the ocean 
carrier ``commits to a certain rate or rate schedule.'' 46 U.S.C. 
40102(20). In order for a rate or rate schedule to be ``certain'' in a 
valid contract that is the product of a meeting of the minds, the rate 
should be known or easily ascertainable to the contracting parties.
    Second, the Shipping Act requires service contracts to be ``filed'' 
with the Commission. 46 U.S.C. 40502(b). The Commission believes that 
both the language and purpose of the Shipping Act's filing requirement 
would be undermined if contracting parties were permitted to include in 
service contracts references to unfiled terms, in this case important 
rate terms, which are not readily available to the Commission. The 
Commission is especially interested in public comments on the possible 
methods by which contracting parties could ensure that the information 
referred to in service contracts is readily available to the 
Commission. The Commission is also interested in public comments on 
ways to reduce any impediments to small shippers having the option of 
index-linked service contracts.
    The Commission also proposes the same change to the rule for NSAs, 
which are NVOCCs' contracts with their shippers and analogous to ocean 
common carriers' service contracts with their shippers.

Certifications

    The Chairman of the Commission certifies, pursuant to section 
605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., that 
the rule will not, if promulgated, have a significant economic impact 
on a substantial number of small entities. The proposed rule simply 
provides parties to service contracts and NVOCC service arrangements 
more freedom and flexibility in their commercial arrangements and will 
not adversely affect contracting parties.
    This rule is not a ``major rule'' under 5 U.S.C. 804(2).

List of Subjects in 46 CFR Parts 530 and 531

    Freight, Maritime carriers, Reporting and recordkeeping 
requirements.

    For the reasons stated in the supplementary information, the 
Federal Maritime Commission proposes to amend 46 CFR parts 530 and 531 
as follows.

PART 530--SERVICE CONTRACTS

    1. The authority citation for part 530 continues to read as 
follows:

    Authority: 5 U.S.C. 553; 46 U.S.C. 305, 40301-40306, 40501-
40503, 41307.

    2. Revise Sec.  530.8(c)(2) to read as follows:


Sec.  530.8  Service contracts.

* * * * *
    (c) * * *
    (2) Make reference to terms not explicitly contained in the service 
contract itself unless those terms are readily available to the parties 
and the Commission.
* * * * *

PART 531--NVOCC SERVICE ARRANGEMENTS

    3. The authority citation for Part 531 continues to read as 
follows:

    Authority: 46 U.S.C. 40103.

    4. Revise Sec.  531.6(c)(2) to read as follows:


Sec.  531.6  NVOCC Service Arrangements.

* * * * *
    (c) * * *
    (2) Make reference to terms not explicitly contained in the NSA 
itself unless those terms are readily available to the parties and the 
Commission. Reference may not be made to a tariff of a common carrier 
other than the NVOCC acting as carrier party to the NSA.
* * * * *

    By the Commission.
Karen V. Gregory,
Secretary.
[FR Doc. 2011-26418 Filed 10-12-11; 8:45 am]
BILLING CODE 6730-01-P