June 17, 2022

Ocean Shipping Reform Act Signed Into Law

On June 16, 2022, President Biden signed into law the Ocean Shipping Reform Act (OSRA), bipartisan legislation aimed at providing relief to U.S. importers, exporters, freight carriers, port operators and other companies experiencing sharp spikes in shipping costs and supply chain disruptions since the beginning of the COVID-19 pandemic.

A focal point of the legislation is to curb rising demurrage and detention (D&D) charges imposed on importers and exporters, which have soared, globally, at unprecedented rates over the last year, negatively impacting companies of all sizes.

Background

As early as 2014, U.S. importers, exporters and transportation intermediaries have publicly advocated for enhanced restrictions on the ability of ocean carriers and marine terminal operators (MTOs) to impose D&D charges resulting from circumstances that are unforeseeable and/or beyond their control (e.g., port/terminal congestion and labor shortages).

These complaints led to the establishment of multiple fact-finding investigations initiated by the Federal Maritime Commission (FMC), and resulted in the FMC’s issuance in May 2020 of an Interpretive Rule on Demurrage and Detention that provided guidance on what constitutes “unjust and unreasonable” D&D practices under the Shipping Act of 1984 (Public Law 98-237).

Since the issuance of the May 2020 guidelines, however, numerous countries (including the U.S.) have experienced a surge in demand for durable goods and other unique challenges that have contributed to shipping delays, port congestion and increases in D&D charges.

D&D Relief

As part of OSRA — which the Senate passed unanimously on March 31, 2022, and the House by a vote of 369-42 on June 13, 2022 — common carriers are required to certify, subject to penalty, that D&D charges comply with federal regulations. In addition to the certification, OSRA requires all invoices to include detailed information each time a common carrier imposes D&D fees, including, but not limited to, (1) the applicable D&D rule on which the daily rate is based; (2) the applicable rate or rates per the applicable rule; (3) the total amount due; (4) the contact information for questions or requests for mitigation of fees; and (5) a statement that the common carrier’s performance did not cause or contribute to the underlying invoiced charges. OSRA provides that if the carrier fails to include the required information in each invoice, the obligation to pay D&D charges is nullified.

OSRA also requires the FMC to establish new rules to clarify reasonable rules and practices related to the assessment of D&D charges to address the issues identified in the May 2020 guidance. The FMC must initiate this rulemaking not later than 45 days from enactment and issue a final rule not later than one year after enactment.

To facilitate enforcement, OSRA also includes a provision allowing individuals to submit information to the FMC concerning complaints about charges assessed by a common carrier. Upon receipt of the submission, the FMC is charged with conducting a prompt investigation, during which the common carrier will bear the burden of establishing the reasonableness of any D&D charges assessed to avoid the FMC’s imposition of a refund order and/or civil penalty.

Other Provisions

Aside from addressing D&D charges, OSRA includes a host of provisions intended to limit “unfair or unjustly discriminatory” industry behavior and enhancing public input and information sharing mechanisms. Such measures include:

  • Additional FMC Rulemaking: Within 60 days and 30 days of enactment, respectively, the FMC must initiate rulemaking aimed at defining what constitutes “unfair or unjustly discriminatory methods” and “unreasonable refusal to deal or negotiate with respect to vessel space.”
  • Retaliation Prohibition: OSRA expressly prohibits a common carrier, marine terminal operator or an ocean transportation intermediary from retaliating against a shipper, a motor carrier or an agent of such shipper or carrier. “Retaliation” is described as “refusing, or threatening to refuse, an otherwise-available cargo space accommodation” or “resort[ing] to any other unfair or unjustly discriminatory action” for the reason that the party retaliated against “patronized another carrier”, filed a complaint” or “any other reason.”
  • Shipping Exchange Registry: OSRA authorizes the creation of shipping exchange registries that would allow for private shipping exchanges to operate in the United States under FMC regulation. The exchanges would provide certain services to ocean carriers and shippers, including the mediation of contract disputes.
  • Public Disclosure: OSRA requires the FMC to publish on its website: (1) all findings of false D&D invoice information by common carriers, along with all penalties imposed or assessed against common carrier, listed by each common carrier (to be updated annually); and (2) a quarterly report describing the total import and export tonnage and the total loaded and empty 20-foot equivalent units per vessel (making port in the United States, including any territory or possession of the United States) operated by each ocean common carrier.
  • Public Comments: OSRA requires the FMC to facilitate, on its website, the submission of comments, complaints, concerns, reports of noncompliance, requests for investigation and requests for alternative dispute resolution.
  • Consumer Affairs Office: The bill requires the FMC to establish and maintain an Office of Consumer Affairs and Dispute Resolution Services to provide non-adjudicative ombuds assistance, mediation, facilitation, and arbitration to resolve challenges and disputes involving cargo shipments, household good shipments and cruises subject to FMC’s jurisdiction.

For More Information

If you have any questions about OSRA and/or its upcoming implementation, please contact any member of the Faegre Drinker Customs and International Trade Team for further details.

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