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2018: What Is on the Horizon for Ocean/Air Intermediaries?

By Carlos Rodriguez, Partner
Husch Blackwell LLP

On the Federal Maritime Commission (“FMC”) side, there are two developments expected early in 2018. One has to do with deregulation of Negotiated Rate Arrangements (“NRAs”) and NVOCC Service Arrangements (“NSAs”) for NVOCCS pursuant to Docket No. 17-10, and the other with hearings scheduled to review information and data raised in FMC Petition P4-16 by the Coalition for Fair Port Practices related to issues resulting in detention, demurrage, and per diem charges which have been deemed as unfair when they occur during situations or events which are not attributable to the shipping public. Lastly, we think it is relevant, even at this early stage so close to the holiday season, to note that the e-commerce explosion will continue in full force and will in the natural course of events bring intermediaries more into the 3PL space in the delivery of fulfillment services.

The future of e-commerce. The extended and most recent seasonal experiences dictate that this is an area that intermediaries cannot easily overlook. The numbers are too compelling, and the phenomena involves the large scale movement, storage and distribution of cargo across international borders and domestically, which is the traditional arena for the forwarder, NVOCC, Customs Broker, IAC and other intermediary entities. These numbers should not be overlooked:

  • Per the U.S. Department of Commerce, U.S. purchasers buy at the pace of $1.2 billion a day online;
  • This number has doubled in the last five years;
  • It is projected to double again in the next five (we think that this projection may be too conservative);
  • During this last (2017) Black Friday/Thanksgiving Day $7.9 billion worth of goods were sold via e-commerce;
  • Alibaba Global “Singles Day” Sales (2017), which is a day selected by them for special sales events, reached $25 billion in e-commerce sales for that day;
  • The Industry has forecast $107.4 billion in holiday sales for online orders this year, making 2017 the first to reach the $100 billion mark.

The value of these numbers is not just the raw dollar data, but rather the fact that these numbers represent the movement of substantial quantities of cargo which normally would be handled through more traditional channels which are now moving and being handled through a growing number of fulfillment centers. These fulfillment centers here and abroad are being developed not only by Amazon and large multi-national logistics companies, but also by smaller mid-sized companies, many of which are providing 3PL services that previously were being handled by ocean and air intermediaries. There are also a lot of 3PL newcomers to the field specializing as fulfillment center providers which do not come from the forwarder/broker ranks. The last mile delivery functions are also becoming more and more varied, creative and competitive. This new environment puts a large premium on efficiencies and cost-consciousness. Our firm, which traditionally provided services to the larger intermediaries in this arena, is now also providing these same services to many mid-sized and smaller entities who are also now engaging in this relatively new field of fulfillment services. IT companies are also fast developing software platforms which address the integration of order and inventory management, shipping delivery platforms and customer transparency, all important components for fulfillment service centers.

In any case, keep an eye on developments in this arena so that your company can take appropriate steps in this competitive area which is only growing. 

FMC Deregulation: NVOCC NRAs and NSAs/Docket No. 17-10. The FMC is getting closer to effecting the following changes to NRAs and NSAs:

1) That NSAs be continued as a basic agreement between NVOCCS and their customers for more comprehensive longer termed ocean transport agreements with provisions similar to those included in ocean carrier service contracts, with two basic differences:

  1. that the NSAs and amendments not be filed with the Commission as they are now required in order to take effect; and
  2. that the Essential Terms no longer be required to be published in an Essential Terms tariff.

2) That NRAs terms be allowed to include:

  1. that Shippers accept NRA quotes without a writing as it is now required by regulation; Shippers will be able to now accept NRA terms by merely booking/tendering cargo after an agreement is reached on the quotations made by the NVOCC;
  2. that NRAs would be now amended when commercial factors change by agreement of the parties without having to terminate them and initiating new ones; and
  3. that additional services and other terms be allowed in NRAs to expand their service scope with respect to “non-rate economic terms” (this last qualification appears to still have some regulatory tone to it);

This acceptance of an NRA via a booking and the amendment of same are major departures from prior regulatory positions taken by the Commission staff, and are welcomed.  

Next Steps: The Commission has proposed a Notice of Proposed Rule Making (“NPRM”) for issuance and publication of these regulation changes in the Federal Register. Acting Chairman Khouri also directed that the NPRM be amended to allow for supplementary information and has solicited additional  public comments on whether, as requested by various petitioners, the Commission should expand the NRA exemption in order to allow inclusion in NRA’s of “non-rate economic terms.” Final comments are due Jan. 29, 2018. We expect that these new regulations will be in place by the Spring. 

FMC Petition P4-16 by the Coalition for Fair Port Practices. The FMC published a notice identifying 26 individuals scheduled to testify as witnesses on one of six different panels at next month’s hearing exploring issues related to detention, demurrage, and per diem charges raised in a petition filed by the Coalition for Fair Port Practices (Petition P4-16). The following witnesses for the Intermediary Panel have been named by the FMC:      

  • Richard J. Roche, Vice President of International Transportation, Mohawk Global Logistics, and NVOCC Sub-Committee Chairman at NCBFAA
  • Charles Riley, Chairman, Board of Governors, New York New Jersey Foreign Freight Forwarders and Brokers Association, Inc. (NYNJFFFBA), and Vice President, Steer Company
  • Jeanette Gioia, Vice President Exports, NYNJFFFBA, and President, Serra International, Inc.
  • Cameron W. Roberts, Esq., representing Roberts & Kehagiaras LLP and the Foreign Trade Association
  • Joseph T. Quinn, President, Sefco Export Management Company, Inc.

These are important hearings to the extent that in the recent past we have seen the application of demurrage, detention and per diem charges applied in circumstances wherein the shipping public had no involvement with the causes which gave rise to these charges such as labor actions, weather conditions, chassis dislocations and other such phenomena not under the control of the shipping public.

Carlos Rodriguez is a partner at Husch Blackwell LLP in Washington, D.C. He concentrates his practice on international and domestic transportation law, admiralty, regulatory maritime law, international commercial transactional law, transportation litigation and export licensing and compliance matters. He is also involved with transport and security issues involving the U.S. Customs and Border Protection and the Transportation Security Administration. He is transportation counsel to the New York/ New Jersey Foreign Freight Forwarders and Brokers Association. Mr. Rodriguez can be reached at (202) 378-2365 or via email at

 

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