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U.S. ag exporters are celebrating a ruling from a federal appeals court that blocked an effort to redefine when shipping carriers are unfairly refusing services to would-be exporters.
The decision, they say, could help protect the agricultural industry’s access to vital shipping services, particularly in periods of supply chain turmoil, but the legal fight is also indicative of a bigger shift at a shipping regulator that bodes well for agriculture.
During the COVID-19 pandemic, ocean carriers left billions of dollars of U.S. ag exports stranded because it was more profitable to send containers back to China empty to collect more lucrative Chinese exports, than send them to the interior of the country and fill them with lower-value agricultural exports.
In the wake of that episode, in 2022, lawmakers sought to prevent a reoccurrence by passing an updated Ocean Shipping Reform Act. The bill empowered the Federal Maritime Commission (FMC) to issue new regulations defining when a carrier is engaging in an “unreasonable refusal to deal or negotiate with respect to vessel space accommodations.”
That rule came in July 2024; The FMC said that while unreasonable refusals should be considered on a case-by-case basis, there are several factors that the FMC will consider in weighing whether a carrier has erred – including whether it had followed a policy to enable the “timely and efficient movement” of exports or if the carrier had engaged in “good faith” negotiations.
The FMC provided an example in the rule where a carrier provides a price quote “so far above current market rates they cannot be considered a good faith offer.” Such a situation could constitute an effective denial of service, it noted.
The World Shipping Council, a trade group representing the international carriers, challenged the rule in the courts, arguing the FMC has neither the statutory authority to consider prices in evaluating whether negotiations were undertaken in good faith, nor the ability to compel the carrier to submit a documented export policy.
At the end of March, the U.S. Court of Appeals for the District of Columbia Circuit rejected the council’s arguments and sided with the FMC.
Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), which represents agricultural importers and exporters, wrote to the FMC commissioners last week in the wake of the ruling.
In the letter, shared with Agri-Pulse, Friedmann praises the regulatory body for “furthering congressional intent” to help ensure U.S. agriculture remains competitive in global markets.
Peter Friedmann (AgTC photo)“Agriculture exporters are grateful,” he concluded.
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The World Shipping Council declined to make anyone available to interview for this story. Joe Kramek, president and CEO, said through a spokesperson that the appeals court ruling “provides the liner shipping industry with clarity on the factors, such as business factors, the commission must consider in reviewing Refusal to Deal cases.’’
A deterrence only
The ruling provides an additional financial incentive for shipping carriers to ensure agriculture exporters can access shipping services, but Serena Tang, maritime attorney at Husch Blackwell, cautioned in an email to Agri-Pulse that it is not a panacea.
The legal precedent reinforced by the D.C. Circuit, she said, only provides an avenue for legal recourse after a shipper has been unreasonably denied the service and cannot force carriers’ hand during a crisis.
“The FMC has recently shown that it’s willing to hold carriers to task for Shipping Act violations so there are some teeth behind holding. But also there are limits,” she noted, adding that “carriers still retain significant market power during disruptions." Accordingly, shippers with low-value, time-sensitive cargo, like many U.S. agricultural commodities, will still “lack leverage in the moment.”
Further, she said, both the court and the FMC were careful to avoid mentioning any specific details on the scale of a price hike that could qualify as an unreasonable denial of service, leaving the onus on the shipper to argue the quote they received was an effective denial.
“Shippers still bear the burden of demonstrating, with evidence from the relevant market and negotiation context, that a quoted rate functioned as a constructive refusal to deal rather than a reflection of legitimate commercial conditions,” Tang said.
A sea change
Friedmann told Agri-Pulse in an interview that the rule and subsequent legal fight, however, are indicative of a bigger pivot by the FMC to consider a broader set of objectives in its rulemaking.
Serena Tang (LinkedIn photo)Since the 1980s, when the Shipping Act overhauled regulation and afforded the industry new protections and antitrust immunity, the FMC has been repeatedly challenged in courts by shipping carriers with deep pockets and adept lawyers.
What emerged, Friedmann said, was a regulatory body that seemed reluctant to challenge carrier activities. But in recent years, particularly since the pandemic, the commission has been more inclined to prioritize shippers in its regulatory efforts, in part because lawmakers have grown more concerned about moving their constituents' commodities swiftly and efficiently to ensure the U.S. remains competitive in global markets.
With the latest ruling, “the FMC commissioners and attorneys see they can successfully win challenges and lawsuits, on behalf of U.S. agriculture and other exporters and importers," Friedmann said in a follow-up email.
Tang agreed that the FMC has adopted a regulatory posture that is more favorable to shippers since the pandemic.
“The shipping disruptions of 2020 and 2021 exposed the vulnerability of the U.S. supply chain and the precarious position of agricultural exporters facing opaque pricing, sudden surcharges, and take‑it‑or‑leave‑it carrier practices,” she said. “Those disruptions brought ocean shipping into the national spotlight.”
The FMC and the courts continue to protect carriers’ rights to make business and operational decisions, Tang said. But the commission is more willing to scrutinize whether those decisions are applied consistently, transparently, and in good faith, especially where market power limits shippers’ practical alternatives.”
Friedmann described a recent visit to the FMC office, which he said was adorned with several models of historical ships.
“I mentioned to the Chairman [Laura] DiBella, ‘Wouldn’t it be fun to get rid of those, replace them with big bags of soybeans, stacks of corn, stuff like that,' just to remind everybody who they're working for."
