Criticism is piling up on the Federal Maritime Commission’s attempt to define exactly what a reasonable reason is for ocean carrier companies to refuse to haul U.S. farm commodity exports to their destinations overseas.
The practice by carriers to refuse to take on agricultural cargo at U.S. ports and send empty containers back to countries like China ramped up during the pandemic to the point where U.S. farmers were driven to desperation as they lost foreign customers. Reps. Dusty Johnson, R-S.D., and John Garamendi, D-Calif., said the situation was a primary motivator for writing the Ocean Shipping Reform Act, or OSRA.
Now, that bill is law and the FMC is implementing it, but the agency must first go through the process of writing regulations. One of those will dictate when it is unreasonable for an ocean carrier to refuse to take on containers full of cotton, oranges, apples, beef, pork, almonds, wine, hay and other ag commodities.
It’s generally accepted that vessel-operating common carriers, or VOCCs, won’t always be able to load some containers, but the FMC’s proposed rule (Definition of Unreasonable Refusal to Deal or Negotiate with Respect to Vessel Space Accommodations Provided by an Ocean Common Carrier) would make it far too easy for those companies to slam the doors on U.S. farm exports, according to several farm and transportation groups.
The Agriculture Transportation Coalition says it has been pleased with FMC’s implementation so far of OSRA, but that stopped with the latest notice of proposed rulemaking.
“Unfortunately, the current (FMC proposal) is an exception to this otherwise positive trend,” the coalition said in comments to the commission. “The proposed rule misses the congressionally stated intent and purposes of (OSRA) by a wide margin.”
The primary source of criticism from the coalition and others is that the FMC is proposing to allow the carrier's concern for making a profit to be a reasonable reason to refuse to accommodate ag shippers.
“By including carriers’ pursuit of ‘profitability’ … as a reasonable basis upon which to refrain from accepting and carrying export cargo, the (proposed rule) provides carriers a loophole large enough to sail a … ship through — with room to spare,” the coalition said. “It suggests a greater interest in promoting ocean carriers’ profitability than in supporting the growth and development of US exporters.”
The North American Meat Institute and the Meat Import Council of America said in their comments to FMC that the agency needs more assurances that carriers won’t continue to shun shipments.
While NAMI and MICA say they are pleased that the FMC has set up a “framework that would require ocean carriers to justify the reasonableness of their refusal to deal,” the groups fear the FMC will allow too much weight be given to “reasonable business decisions.”
Ag groups aren’t the only parties concerned that the FMC is allowing carrier profits and business decisions to play too large a role in deciding what is reasonable or unreasonable.
Rep. Dusty Johnson, R-S.D.“I appreciate the FMC’s assertion it will handle unreasonable refusals on a case-by-case basis, but I have concerns that the ruling is too broad and favors ocean carriers,” OSRA sponsor Johnson said in a statement provided to Agri-Pulse. “Under the guise of reasonable refusal, the FMC rule states that ocean carriers do not have a duty to grant a contract to every party. Of course this is true, but given the incredibly limited options shippers are faced with, I am concerned chalking up refusal as a ‘business decision’ will be abused by ocean carriers.”
Johnson, together with Rep. Garamendi, produced the first version of OSRA. The House overwhelmingly passed their bill, but it was the later Senate version authored by Sens. John Thune, S.D., and Amy Klobuchar, D-Minn., that was eventually approved by the full Congress and signed into law by President Joe Biden.
Unlike the Senate bill, the House bill was more prescriptive in preventing unreasonable denials of service by VOCCs and did not require rule-making by the FMC.
The Johnson-Garamendi version of OSRA, which was quietly preferred by U.S. ag groups, stated VOCCs could not “unreasonably decline export cargo bookings if such cargo can be loaded safely and timely, as determined by the Commandant of the Coast Guard, and carried on a vessel scheduled for the immediate destination of such cargo.”
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But the law in place now does and the FMC proposal does not reflect what lawmakers were intending, Johnson said.
“Sending containers back to Asia empty may at times be the better business decision, but it’s the wrong decision for American exporters,” he said. “I think the FMC should tailor this rule to be in line with congressional intent.”
The two meat industry groups stress that the emphasis should be on favoring the flow of trade, not the profits of the ocean carriers.
“We believe the FMC needs to take an active role in determining what is in the public’s interest versus the private interest of the common carrier, which in our view is what Congress intended in the Ocean Shipping Reform Act of 2022,” the groups said.
“Over the past few years, shippers have borne the brunt of ocean carrier decisions to unreasonably bypass U.S. ports and refuse or cancel bookings, often with little or no warning. In many instances, meat and poultry shippers have been forced to discard product whose shelf life has expired or downgrade higher-value products to lower-value products due to the unpredictability injected into their supply chains resulting from these substandard ocean carrier practices.”
The FMC, in its proposal, says “commercial convenience alone is not a reasonable basis for a common carrier's refusal to deal or negotiate,” but also notes that the agency’s decisions will need to be made on a case-by-case basis on what is reasonable.
That’s not acceptable to the International Dairy Foods Association.
The IDFA stressed that the FMC’s proposal, despite its title, doesn’t truly define an unreasonable refusal to deal. Instead, IDFA notes that “every situation is case- and fact-specific and subject to an analysis of several listed factors, as well as potentially other factors that are not listed but which the Commission could find relevant.”
The International Fresh Produce Association narrowed its focus to a specific section of the FMC’s proposed rule: “An ocean common carrier may be viewed as having acted reasonably in exercising its business discretion to proceed with a certain arrangement over another by taking into account such factors as profitability and compatibility with its business development strategy.”
IFPA proposed to eliminate that provision because it gives VOCCs “a reason to refuse the transport of any goods, including produce, simply because it does not align with their interests — which can vary, and be changed at a moment’s notice simply to maximize profit, while ignoring public good.”
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