June 9, 2021
Chairman Daniel Maffei
Federal Maritime Commission
800 North Capitol Street NW
Washington, DC 20573
RE: Request for FMC to Address Unfair Carrier Practices
Dear Chairman Maffei:
On behalf of the freight forwarding industry of Florida, we are writing to bring to the attention of the Federal Maritime Commission (“FMC”) certain practices of common carriers that we believe warrant FMC intervention. The freight forwarding and consolidation industry has historically been a rewarding business where small and medium-sized Ocean Transportation Intermediaries (“OTIs”) provided a much-needed personalized service to shippers both in the US and abroad. This allowed both domestic and foreign shippers to focus on their core business and allow their chosen OTI to economically meet the regulatory requirements associated with logistics and international transportation. OTIs worked with carriers to negotiate rates and to make sure that the carrier provides the service that is in the best financial interest of their client.
In essence, this has fomented a shipping environment consistent with the FMC’s commitment to fulfill its statutory and constructive role for the US economy in facilitating freight mobility in the international ocean supply chain, while averting unreasonable, unfair or discriminatory practices under the Shipping Act of 1984. Further, Section 1709 of the Act (46 U.S.C. §1709(b)), “Prohibited acts,” seeks to regulate the common carriers in a uniform manner. The law seeks to prohibit excluding, preventing or reducing competition, to give an undue or unreasonable preference or advantage or impose any undue or unreasonable prejudice or disadvantage for service pursuant to a tariff.
In the current market landscape, ocean carriers continue to consolidate through strategic mergers and acquisitions on an unprecedented scale and thus become bigger, more powerful, and exceedingly influential. The consolidation of ocean cargo carriers, especially in the trade lanes with China, has contributed to record high freight rates for American shipping companies. In addition to buying out smaller carriers, they are also taking over the niche freight forwarding market, offering traditional “freight forwarding” services directly to domestic or foreign shippers.
We have received accounts from many of our members stating that the carriers frequently obtain customer information through their OTI client and then engage in direct competition, in contravention to the Shipping Act. Examples are outlined in the Appendix to this letter. Carriers increasingly are sharing vessels and diminishing the shipping routes to destinations that once had various carrier options available to consignees, thereby restricting the availability of competitive offerings. The carriers are aware of these shipping route limitations and are becoming more bureaucratic and inflexible with OTIs. Many times, they refuse to acknowledge legitimate disputes and therefore put the smaller OTI in difficult financial situations (i.e., the OTI must continue to ship with the same carrier due to the lack of options). The negative economic impact is real for both OTIs and shippers alike.
The OTI has the option of filing a dispute through the Consumer Affairs & Dispute Resolution Services (CADRS) of the FMC but often find themselves frustrated at the lack of authoritative influence the office can provide. Although the freight forwarding industry appreciates that the FMC offers this dispute resolution service, the fact that participation is voluntary leaves CADRS’ hands tied when one party will not negotiate. We find that this office primarily serves as a facilitator of information between the two parties, but one party (the carrier) clearly has the upper hand. The lack of enforcement mechanisms dilutes the effectiveness of this vehicle for dispute resolution.
The FMC has been observing contentious and statutorily prohibited practices caused by the carriers lately, as noted by the recent fact findings that the Commissioners initiated. Unfortunately, these fact findings are taking years to complete and have rarely resulted in any fines, new regulations, or overall enforcement.
As the representative of several hundred OTIs within the Florida freight forwarding industry, FCBF asks that the FMC further investigate the carrier community’s compliance with all regulatory vehicles, including the Shipping Act of 1984, in this unprecedented era of consolidation. Specifically, FCBF asks FMC to grant more authority to CADRS with the creation of a proposed regulatory rulemaking and/or providing more authority with the Bureau of Enforcement so that the freight forwarding industry can be better protected against unjust, unreasonable, and unfair practices from carriers.
We appreciate your willingness to work with the industry to ensure maritime trade occurs in an efficient and fair manner.
Cc Michelle Fajardo, 1st Vice President; Chair of Freight Forwarding Committee
Deborah Stern, Esq., Legal Counsel
Below we outline cases where FCBF Member companies have been directly impacted by inappropriate service offerings from carriers which exclude, prevent or reduce competition for OTIs, customs brokers and even importers. These challenges to the integrity and credibility of our industry are, in our opinion, in direct violation of the protocols and statutes governing maritime trade in the United States. In these examples, we have removed all identifying details from the organizations involved, but should the Commission wish to discuss further, we can provide those details.
A regional carrier has been attempting to lure freight forwarders’ clients for years, even asking for direct contract signatures and omitting the freight forwarder from the communication. This act, in addition to being in violation of the Shipping Act of 1984, undermines the credibility of licensed freight forwarders as intermediaries between shippers and services, often resulting in higher risk and rates for shippers as well as unfair competition and challenges to the value proposition of a freight forwarder.
Recently, a major carrier launched its own LCL offering, allowing shippers to directly book less-than-container load cargo, circumventing the freight forwarder completely. This same carrier also absorbed a sister company’s freight forwarding business in September of 2020, positioning itself with an unfair advantage in the marketplace through consolidation and direct offering.
This same carrier just announced last week a continued focus on growth through mergers and acquisitions–a clear signal that the lines with asset-based companies—carriers that acquire OTIs and other service providers–like this one will become blurrier.
Another carrier has included customs brokerage services and fees in their service contract offering to foreign shippers, in addition to both international and domestic transportation. They are convincing shippers to change their terms from EXW or FOB to DDP in order to bypass independent US freight forwarders and customs brokers, as well as domestic distributor-importers, by offering lower fees for end-to-end service.