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FMC Issues Proposed Rule on OSRA Refusal to Deal on Vessel Space Accommodations

The Federal Maritime Commission (FMC) announced on Sept. 13, 2022, that it is seeking public comment on a Notice of Proposed Rulemaking (NPRM) addressing what constitutes an unreasonable refusal to deal or negotiate with respect to vessel space accommodations by an ocean common carrier – a statutory prohibition added by the Ocean Shipping Reform Act of 2022 (OSRA).

This NPRM1 is the latest initiative by the FMC to implement OSRA, which requires the FMC to undertake several rulemakings. Interested parties will have 30 days from the date of publication in the Federal Register to submit comments. Because OSRA requires a final rule to be published within six months of OSRA’s enactment – a short regulatory time frame – extensions of the deadline are not anticipated.

Proposed Elements and Definitions
The NPRM and the proposed rule broadly address the proposed elements of the cause of action, provide substantive definitions and guidance on the FMC’s interpretation of refusals and reasonableness, and propose a new burden-shifting mechanism with unique applicability to the new cause of action.

The NPRM proposed the following elements of a prima facie case:
1. the respondent is an ocean common carrier
2. the respondent refuses to deal or negotiate with respect to vessel space
3. the refusal is unreasonable
The NPRM proposes definitions for certain substantive terms, but key proposed definitions appear to be a mix of objective concepts and subjective guidance. The definition of “vessel space accommodations” is used in part to clarify that the prohibition is applicable to both export and import container space.2 The FMC’s effort to define “unreasonable” and “transportation factors” also is noteworthy, given that the terms have had a long history of development in Shipping Act decisions and case-by-case determinations. The resulting proposed definitions combine some objective elements with subjective guidance. “Unreasonable” is defined 1) only to address refusal to deal causes of action, so as to not alter precedent on other unreasonable practices of action, and 2) includes a non-exclusive set of three specific factors the FMC will consider on a) whether the carrier is following a “documented export strategy,” b) whether the carrier: i) engaged in good faith negotiations and ii) “made business decisions that were subsequently applied in a fair and consistent manner,” and c) whether there were “legitimate transportation factors.”

There is much that can be read in, and between, the lines of these definitions. For example, although a “documented export strategy” is not required by the Shipping Act, presumably one would need to have such a strategy to defend an export refusal to deal cause of action. And as to the “legitimate transportation factors,” the proposed rule appears to focus on a subset of such factors pertaining to “genuine operational considerations underlying an ocean common carrier’s practical ability to accommodate laden cargo for import or export.” Ultimately, how commercial considerations will be evaluated is unclear.

Burden-Shifting Mechanism
Finally, the proposed rule would establish a burden-shifting mechanism for the new refusal to deal causes of action. As proposed, after the complainant or the FMC’s Bureau of Enforcement has established a prima facie case that the above three elements have been met, the burden of production would shift to the common carrier, which would be required to establish why its refusal to provide vessel space to a particular complainant was not unreasonable.3 The proposed rule provides that the justification can take the form of a certification from the carrier attesting that “the decision and supporting evidence is correct and complete.” Shifting a burden of production in general has the potential to significantly impact the viability of claims, but the practical impact here of shifting a burden that can be satisfied by a certification is unclear.

Next Steps
The proposed rule will have lasting implications for affected stakeholders, and with the FMC under a statutory deadline, providing timely comments is critical for affected stakeholders. For more information or questions on the NPRM, contact the authors or another member of Holland & Knight’s Maritime Team.
Source: Holland & Knight

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