GKG Law Principal Ed Greenberg and Associate Kristine Little submitted the below comments to the Federal Maritime Commission (FMC) on behalf of the National Customs Brokers and Forwarders Association of America (NCBFAA) in response to the agency’s Notice of Inquiry (NOI) that was looking into the propriety of steamship line billing practices. In a growing number of instances, carriers have been dunning customs brokers and ocean forwarders for freight charges and demurrage/detention bills even though the brokers or forwarders are not actually a party to the contract of carriage. The carriers have justified these practices by broadly defining the term “merchant” to include anyone who provides services to the shipper, consignee or beneficial cargo owner. These comments explain why that practice is unreasonable and violates the Shipping Act, and requests that the FMC issue a specific rule prohibiting any continued conduct of this nature.
Re: Docket No. 20-16 — Notice of Inquiry; Vessel-Operating Common Carrier Definition and Application of the Term ‘‘Merchant’’ in Bills of Lading
Dear Secretary Dickon:
The National Customs Brokers and Forwarders Association of America (“NCBFAA” or “Association”), submits these comments in response to the Federal Maritime Commission’s (“FMC” or “Commission”) notice of inquiry (“NOI”) published in this docket on October 14, 2020 (84 Fed Reg. 65042).
The NCBFAA, together with its over 1,000 members and 28 regional associations, is the national trade association representing the interest of freight forwarders, NVOCCs and customs brokers in the ocean shipping industry. The NCBFAA’s members are involved in the transportation and/or logistical arrangements for approximately 90% of the cargo that moves into and out of the United States by ocean. Accordingly, the NCBFAA’s members are directly affected by the billing practices of vessel operating common carriers (“VOCC”).
The NCBFAA appreciates the opportunity to provide comments and the Commission’s efforts to ensure that VOCC billing practices align with contractual responsibilities and are reasonable under 46 U.S.C. § 41102(c). In the FMC’s investigation of demurrage and detention practices of vessel operators in Docket No. 19-05, Interpretive Rule on Demurrage and Detention Under the Shipping Act, several parties raised concerns regarding the propriety of how the VOCCs’ bills of lading define the term “merchant.” As those definitions generally include third parties such as “anyone acting on behalf of the shipper or consignee,” the comments included complaints about having been dunned for these charges even if their only role was to act as an ocean forwarder or customs broker. In this NOI, the Commission is seeking additional comments as to whether VOCCs are inappropriately assessing charges on third parties who have not directly contracted with the VOCC or assented to be bound by the contract of carriage.
As a matter of principal, it is well established that holding non-contracting parties liable for unpaid charges goes against general contract law principles. Case law establishes that a party cannot enforce a contract against another party who has not agreed to be bound by its terms and conditions. See, e.g., UP v. Ametex, Inc., 104 F.3d 558 (3rd Cir. 1997). Yet, certain VOCCs appear at times to be holding non-contracting parties—who have no interest in the cargo, are acting only as agent of the beneficial cargo owners (“BCO”) and/or typically appear on the bills of lading only as a Notify Party or Forwarding Agent—liable for unpaid charges.
The NCBFAA’s understanding is that many, if not most, VOCC bills of lading define the term “merchant” to include “anyone acting on behalf” of the shipper, consignee or anyone with a beneficial interest in the cargo. To be clear, the NCBFAA is not disputing a VOCC’s right to seek payment for charges from persons that have a contractual relationship with the VOCC and are listed as the shipper and/or consignee on the VOCC’s master bill of lading (“MBL”). Moreover, to the extent a third party has an interest in the goods, the NCBFAA acknowledges that applying the definition of merchant to those third parties may be defensible and appropriate.
The NCBFAA believes, however, that to the extent the term “merchant” is applied to non-contracting parties that have no beneficial interest in cargo in an attempt to collect charges, this would be an unreasonable practice in violation of section 10(d)(1) of the Shipping Act of 1984 (“Shipping Act”) (46 U.S.C. § 41102(c)). Yet recent actions by VOCCs indicate that they have expanded the definition of the term “merchant” to mean any entity involved in the shipment, e.g. customs brokers, forwarders or any party listed as the Notify Party on the MBL.
The Association is aware of a number of instances in which various VOCCs have utilized the “anyone acting on behalf of this Person” language to dun customs brokers and ocean forwarders for demurrage, detention and other charges. Indeed, VOCCs have used this or similar language to hold non-contracting parties jointly and severally liable for charges.
For example, one of our members—who acted only as a customs broker—reported receiving a bill from the VOCC for approximately $65,000 on door deliveries because the importer BCO (or the trucker engaged by the VOCC) refused to pay the detention (per diem) charges. The VOCC took the position that due to the age of the invoices, these bills were the responsibility of the customs broker and stated that their refusal to pay the charges would be reported to various credit agencies. Comments filed in this docket by Welke Customs Brokers USA, Inc. (“Welke”) describe a similar situation. There Welke was acting as the customs broker on behalf of the importer of record, they had no relationship or contractual agreement with MSC. Despite this, MSC demanded payment from Welke for outstanding charges and opened an account in their name without their consent. MSC insisted that the outstanding charges were their responsibility and threatened legal action. The dispute went on for months and was only resolved when Welke collected monies from the shipper and remitted payment to MSC.
Moreover, this is not an issue that is limited to demurrage and detention charges. One of our members, who again was only acting as a customs broker, and presumably the notify party on a bill of lading to which it was not actually a party, was dunned by a VOCC for the costs of restowage of cargo when the container that arrived at a U.S. port was overweight. The VOCC billed them for various services associated with that overweight situation asserting that they were a responsible party under the bill of lading.
To aggravate the situation, some VOCCs go so far in their collection practices to threaten or actually impose a “No Business Hold” on parties that challenge the carrier’s imposition of these charges. For customs brokers this means that all imports handled by the broker are essentially frozen—including shipments where no outstanding charges are due, thereby, adversely affecting the broker’s business simply because a customer listed the broker as a Notify Party. In some instances, the broker elects to pay the charges rather than fight with the carrier, even if they have no means of recovering those charges for which they are not legally responsible from any other party.
Section 41102(c), formerly Section 10(d)(1) of the Shipping Act, provides that a regulated entity “may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.” The Association recognizes that for an entity to be found in violation of § 41102(c), the entity must engage in the unjust or unreasonable practice on a “normal, customary, and continuous basis.” See Docket 18-06, Interpretive Rule, Shipping Act of 1984, (December 17, 2018) (83 Fed. Reg. 64478). However, as the VOCCs appear to have uniformly adopted this wording of the merchant definition and are on numerous occasions unreasonably applying it against parties with whom they have no contractual right to do so, the test recently enunciated in this Interpretative Rule has been satisfied.
In Docket No. 19-05, the FMC explained that one of its goals was to “emphasize the importance of ocean carriers and marine terminal operator bills aligning with contractual responsibilities.” 85 Fed. Reg.29662. At that time, the Commission declined to address whether a VOCC billing an inappropriate party was an unreasonable practice and concluded that this was better addressed on a case-by-case basis. We respectfully suggest that it is time to revisit at least this limited issue. In the Association’s view, the current misuse of the VOCC’s ability to unilaterally establish adhesion bill of lading provisions, buttressed by their unilaterally promulgated rules tariffs, demonstrate the need for the Commission to put a stop to this unreasonable practice of dunning parties for transactions on which they have no contractual relationship simply because of their economic leverage.
In summary, the NCBFAA believes that the Commission should issue a rule or specific guidance stating that the use and definition of the term “merchant” should be consistently and reasonably applied to parties either directly named in the specific contract of carriage or that have a demonstrable beneficial interest in the cargo. Without guidance to the contrary, this growing problem will fester and legitimize VOCCs to continue to improperly assess demurrage, detention and other charges against inappropriate third parties just because they may have the economic leverage to coerce brokers, forwarders or other third parties to pay.
The NCBFAA appreciates the opportunity to submit these comments to this NOI.
Respectfully Submitted,
Edward D. Greenberg
Kristine O. Little
Attorneys for THE NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION OF AMERICA, INC.
