Definition of Unreasonable Refusal To Deal or Negotiate With Respect to Vessel Space Accommodations Provided by an Ocean Common Carrier

<RULE> FEDERAL MARITIME COMMISSION <CFR>46 CFR Part 542</CFR> <DEPDOC>[Docket No. FMC-2023-0010]</DEPDOC> <RIN>RIN 3072-AC92</RIN> <SUBJECT>Definition of Unreasonable Refusal To Deal or Negotiate With Respect to Vessel Space Accommodations Provided by an Ocean Common Carrier</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Maritime Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Federal Maritime Commission (FMC or Commission) is issuing regulations to implement the Ocean Shipping Reform Act of 2022's prohibition against unreasonable refusals of cargo space accommodations when available and unreasonable refusals to deal or negotiate with respect to vessel space accommodations by ocean common carriers. This final rule adopts with changes the supplemental notice of proposed rulemaking published on June 14, 2023. This rule establishes the necessary elements for the FMC to apply Federal law with respect to refusals of cargo space accommodations when available. It also establishes the necessary elements for the FMC to apply Federal law with respect to refusals of vessel space accommodations. This rule applies to complaints brought before the FMC by a private party, as well as enforcement cases brought by the Commission. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective on September 23, 2024, except for instruction 2 adding § 542.1(j), and instruction 3 adding § 542.99, which are delayed. The Commission will publish a document in the <E T="04">Federal Register</E> announcing the effective date of those amendments. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> To view background documents or comments received, you may use the Federal eRulemaking Portal at <E T="03">www.regulations.gov</E> under Docket No. FMC-2023-0010. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> David Eng, Secretary; Phone: (202) 523-5725; Email: <E T="03">secretary@fmc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Procedural History</HD> The Ocean Shipping Reform Act of 2022 (OSRA 2022), Public Law 117-146, was enacted on June 16, 2022. OSRA 2022 amended various statutory provisions contained in part A of subtitle IV of title 46, United States Code. OSRA 2022 made clear that the categorical refusal by an ocean common carrier, alone or in conjunction with another person, directly or indirectly, to accommodate U.S. exports, without demonstrating that the refusal is reasonable, is a violation of the Shipping Act. By definition, not all refusals will necessarily be a violation. Whether a refusal to deal or a refusal to negotiate falls within the scope of section 41104(a)(10), or a refusal of cargo space accommodations falls within the scope of section 41104(a)(3), depends upon the particular circumstances of a given case. Section 7(d) of OSRA 2022 requires the Commission, in consultation with the United States Coast Guard, to initiate and complete a rulemaking to define the phrase “unreasonable refusal to deal or negotiate with respect to vessel space accommodations” provided by an ocean common carrier to work in conjunction with 46 U.S.C. 41104(a)(10). In response to this requirement, on September 21, 2022, the FMC issued a notice of proposed rulemaking (NPRM) that proposed adding a new part 542 under title 46 of the Code of Federal Regulations (CFR), which would work in conjunction with 46 U.S.C. 41104(a)(10). <SU>1</SU> <FTREF/> The proposal considered the common carriage roots of 46 U.S.C. 41104(a)(10), as well as the overall competition basis of the Commission's authority. <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>  87 FR 57674. </FTNT> <FTNT> <SU>2</SU>  87 FR 57674, 57676. </FTNT> On June 14, 2023, after reviewing the comments received in response to the NPRM, the Commission issued a revised and expanded supplemental notice of proposed rulemaking (SNPRM). In addition to addressing OSRA 2022's amendment to 46 U.S.C. 41104(a)(10), the SNPRM also addressed OSRA 2022's amendment to 46 U.S.C. 41104(a)(3), which prohibits a common carrier from unreasonably refusing cargo space accommodations when available. The restrictions that 46 U.S.C. 41104 (a)(3) and (a)(10) impose on ocean common carriers are distinct but closely related. Both provisions address refusals by ocean common carriers to accommodate shippers' attempts to secure overseas transportation for their cargo. The distinction between the conduct covered by these two provisions is timing, more specifically whether the refusal occurred while the parties were still negotiating and attempting to reach a deal on service terms and conditions (negotiation stage), or after a deal was reached (execution stage). If the refusal occurred at the execution stage, after the parties reached a deal or mutually agreed on service terms and conditions, then 46 U.S.C. 41104(a)(3) applies. If the refusal occurred at the negotiation stage, before the parties reached a deal or mutually agreed on service terms and conditions, then 46 U.S.C. 41104(a)(10) applies. Interpreting these related provisions in a single rulemaking allows the Commission to delineate the types of refusal conduct covered by 46 U.S.C. 41104 (a)(3) and (a)(10) and highlight the differences between them. As discussed in the SNPRM, restricting the rulemaking to refusals to deal or negotiate under 46 U.S.C. 41104(a)(10) would not address the reliability issues that commenters on the NPRM identified as a critical and a driving factor impeding their ability to ship cargo overseas. Shippers impacted by unlawful refusals to accommodate their requests for vessel space accommodations have been able to bring a cause of action against ocean common carriers since the OSRA 2022 amendments took effect immediately in June 2022. They may find it more difficult, however, to plead and prevail on those claims without implementing regulations from the Commission defining the elements and statutory terms. Parties may also find it more difficult to identify and litigate claims for unreasonable refusals under 46 U.S.C. 41104(a)(3) without a clearer indication from the Commission of what conduct is covered by that provision as distinguished from 46 U.S.C. 41104(a)(10). Clearly delineating these distinctions as part of the current rulemaking lessens the time and resources that shippers, carriers, and the Commission will otherwise need to devote to defining these concepts in individual cases. Defining the elements and terms used in 46 U.S.C. 41104(a)(3) as part of this rulemaking is also important because, in practice, it may be difficult to discern whether a carrier's refusal was at the negotiation or execution stage. Additional guidance from the Commission now may help avoid needless disputes over that issue. The Commission acknowledges that it has not previously recognized a temporal distinction between (a)(3) and (a)(10). However, as discussed in the SNPRM, reading the conduct governed by 46 U.S.C. 41104(a)(10) to include the same conduct prohibited by 46 U.S.C. 41104(a)(3), as amended by OSRA 2022, would violate the canon of statutory construction against construing statutes in a manner that renders language superfluous or meaningless. Previously, FMC distinguished (a)(3) from other prohibitions in 41104 based on the shipper's involvement in protected activity. <SU>3</SU> <FTREF/> OSRA 2022, however, removed the protected entity and the protected activity language from (a)(3). <SU>4</SU> <FTREF/> Therefore, there must be some other means of distinguishing the two provisions. <FTNT> <SU>3</SU>   <E T="03">See</E> Federal Maritime Commission, <E T="03">Statement of the Commission on Retaliation</E> (Dec. 28, 2021) (available at <E T="03">https://www2.fmc.gov/readingroom/docs/21-15/21-15_Policy_Retaliation.pdf/</E> ) (“The Commission also acknowledges that § 41104(a)(3) should not be read so expansively that it renders other prohibitions in Chapter 411 of Title 46 superfluous. Section 41104 of Title 46, for instance, only prohibits specific types of unfair or unjustly discriminatory conduct. Section 41104(a)(3) prohibits a common carrier from “resort[ing] to other unfair or unjustly discriminatory methods . . . for any other reason.” The latter does not swallow the other prohibitions, however, because it is not a flat prohibition on all unfair or unjustly discriminatory conduct. A complainant must show that a carrier engaged in prohibited conduct (refusing cargo space accommodations or other unfair or unjustly discriminatory methods), with respect to a protected entity (shipper), because the protected entity engaged in protected activity (patronizing other carriers, filing a complaint, or other activities of the same class.” (internal citations omitted)). </FTNT> <FTNT> <SU>4</SU>  The protected activity language did remain with the prohibition on retaliation, now found at 46 U.S.C. 41102(d). </FTNT> Consistent with section 7(d) of OSRA 2022, the Commission has consulted with the Coast Guard regarding this rulemaking. The Coast Guard offered no objections to the Commission's approach. <HD SOURCE="HD2">B. Scope of the Rule</HD> There are two types of common carriers—vessel-operating common carriers (VOCCs) and non-vessel-operating common carriers (NVOCCs). <SU>5</SU> <FTREF/> Section 41104 applies generally to both VOCCs and NVOCCs; this rule, however, only applies to VOCCs. The specific prohibition in 46 U.S.C. 41104(a)(10) that is the subject of this rule applies only to VOCCs because “ocean common carrier” is defined as a vessel-operating common carrier in the Shipping Act. <SU>6</SU> <FTREF/> Although 46 U.S.C. 41104(a)(3) and 46 U.S.C. 41104(a)(10) apply to both VOCCs and NVOCCs, this rule only applies to VOCCs to mirror the scope of the specific proh ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 199k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━