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August 28 2023

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54 Journal of Commerce | A ugust 28, 2023 www.joc.com Trading Places Peter Tirschwell Unequal and opposite reaction be in any free market economy," OOCL said in comments submitted to the agency. The fact that several shipper groups supported the change indi- cates a shift away from traditional concerns shippers had about carriers not being profi table and, therefore, at risk of consolidation. While the defi nition of "unrea- sonable" will be applied on a case-by- case basis, at issue are the principles the FMC will use in adjudicating complaints brought by shippers who have been refused vessel space to move their goods. Profi tability is just one of many justifi cations carriers could cite refus- ing cargo space. A carrier might refuse a booking from a shipper that is con- sistently late paying its bills or fre- quently fails to deliver booked cargo, or it might refuse to carry certain cargoes out of principle. CMA CGM, for example, stated in mid-2022 it would no longer carry plastic waste to protect the environment. "FMC regulation should not require companies to set aside their corporate values," CMA CGM said, referring to its decision not to carry plastic waste. In its comments, OOCL cited past scenarios in which it declined to carry certain cargoes, asking the FMC if those would result in a viola- tion. Among those are when it can't guarantee onward movement to a fi nal destination following an over- seas transshipment or when space has been reserved for shippers with whom it has a contract. It raised the possibility that car- riers could be penalized for rolling cargo due to carrier overbooking, a relatively common practice to counter cargo no-shows. In the past, those activities would have been seen as normal carrier activity. Under the proposed rule, the FMC will need to consider on a case-by-case basis if those justifi cations are, in its estimation, reasonable. JOC email: peter.tirschwell@spglobal.com principle of whether a private busi- ness can be forced by law to o er its services at a loss. Many believe the government has no such right. But that hasn't prevented the FMC from proposing to downplay business considerations a carrier could cite when refusing to o er ves- sel space to a customer. Can a carrier, for example, decline to accept cargo if the freight rate for an agricul- tural commodity out of the Upper Midwest moving to Asia is $300 to $500 per container, yet to pick up the cargo the carrier must reposition a container from Chicago and then ship it by rail to the West Coast at a cost of $2,500 or more, not counting the roughly $500 cost to lift the box onto the ship? The proposed rule is not clear on that point. But between its initial notice of proposed rulemaking last September to implement the "unrea- sonable refusal to deal" language, and the amended rule published June 14, the FMC dropped "business factors" as a consideration. That was a change that some viewed as an indication of the polit- ical retribution sought against car- riers for the windfall profi ts earned during the pandemic, despite the outsized role of factors outside carri- ers' control, such as port congestion, in creating the conditions that led to the historically tight market and record freight rates. "Business factors will always be part of any consideration and should IN THE AFTERMATH of the perfect storm that was the COVID-19 pan- demic, when ocean container ser- vice quality plummeted as rates blew past previous all-time highs, yielding ocean carriers fortunes beyond their wildest imaginations, the reaction is now o cially under way. And just as the excesses of the pandemic market defi ed logic, so too does the response, or at least some aspects of it. Case in point: how reg- ulators plan to implement the prohi- bition against "unreasonable refusal to deal or negotiate with respect to vessel space accommodations" by ocean carriers codifi ed within US shipping law last year. The question boils down to the defi nition of "unreasonable," and given that Congress provided little insight into what that means in prac- tice, it's up to the US Federal Maritime Commission (FMC) to answer that question through rulemaking man- dated by the Ocean Shipping Reform Act of 2022, signed into law last June. For container carriers, their right to refuse unprofi table business — provided they have vessel space and equipment available — could be on the line. What the FMC is proposing shows how far the pendulum of power has swung in favor of shippers seeking to hold carriers accountable for practices that occurred during the pandemic but were rarely seen prior to that period. Based on a published proposed FMC regulation, it is not clear, for example, that an ocean carrier can refuse to o er vessel space to a ship- per even if it would be forced to move that cargo at a loss. That possibility raises issues that go beyond the legislation to a more fundamental Many believe the government has no right to force a private business to o er its services at a loss. Shutterstock.com

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