After two years of agriculture exporters enduring “ocean carriers’ systematic neglect of exports in favor of higher value import cargo,” Agriculture Secretary Tom Vilsack is offering key changes to the Federal Maritime Commission’s (FMC) proposed rulemaking to define an unreasonable refusal to negotiate or deal with respect to vessel space accommodations.
While USDA believes the rulemaking “is one step toward righting an unfair situation,” Vilsack recently sent a letter to several FMC officials, offering the following key changes to improve the proposal: (1) broaden the definition of an unreasonable refusal to negotiate or deal; (2) significantly narrow the guidance on reasonable refusals; (3) and encourage specific actions by carriers to guard against unreasonable refusals.
According to Vilsack, agricultural shippers over the past two years have continually dealt with broken export contracts, canceled bookings, inadequate receiving windows, and shortages of empty containers and other equipment. These issues, he noted, reduced prices paid to producers, compromised bottom lines for ag companies, and damaged U.S. agriculture’s standing with global customers.
After repeatedly alerting USDA, shipper and producer groups raised their concerns in comments to the FMC. Those concerns are reflected in Vilsack’s recommendations.
Regarding broadening the definition of an unreasonable refusal to negotiate or deal, USDA believes FMC’s rulemaking should “explicitly detail” what constitutes an unreasonable refusal. A more useful definition, Vilsack wrote, would name actions, such as cancellations without sufficient notice, perpetual re-bookings, failure to provide necessary equipment (e.g., containers and chassis), and other “effective refusals.”
Vilsack further pressed the FMC to excuse only a few exceptional circumstances for a carrier to refuse a deal, “but common carriers should be required to do everything they can to work with the shipper before refusing to deal.”
In the proposed rule, “the broadness of the language around reasonableness leaves USDA wondering whether any refusals to negotiate or deal would be considered unreasonable,” Vilsack wrote. “The inclusion of broad concepts such as ‘profitability’ and ‘compatibility with its business development strategy’ are particularly concerning, and the existence of legitimate transportation factors alone should not immunize a practice, especially in the face of a pattern of problematic practices.”
USDA is urging FMC to narrow its language on reasonableness, clarify that the existence of multiple factors will not absolve problematic practices and focus more on illuminating actions it would consider to be unreasonable.
Vilsack recommended FMC encourage specific actions by carriers to guard against unreasonable refusal. While USDA appreciates the rule’s preamble statement that “situations where an ocean common carrier categorically excludes U.S. exports from its backhaul trips” have a “rebuttable presumption of unreasonableness,” FMC should make it clear and explicit in the rule, he wrote.
USDA further supports requirements on carriers to document and ensure the reasonableness of their practices, including requirements to maintain and comply with documented export strategies, written policies and procedures relating to negotiations and dealings, and certifications by U.S.-based compliance officers affirming and documenting the reasonableness of specific decisions.
Beyond the issue at hand, Vilsack expressed the need for FMC to promote competition in the industry and to consider the carrier consolidation and alliances that has occurred in recent years.
Currently, three global companies, made up entirely of foreign companies, control almost all of ocean freight shipping. They have formed global alliances that now control 80% of global container ship capacity and control 95% of the critical East-West trade lines.