FMC Orders Hamburg Sud to Pay $10M for Retaliating Against Shipper
The Federal Maritime Commission’s Chief Administrative Law Judge filed an order yesterday ordering Hamburg Sud to pay one of the largest judgments awarded as a violation of the Shipping Act and the actions of carriers during the pandemic. The FMC sided with a Florida-based e-commerce home goods retailer ordering the subsidiary of Maersk to pay nearly $10 million for having retaliated against the shipper in a refusal to deal violation of the Shipping Act of 1984.
“This case raises novel legal issues about refusal to deal claims, retaliation claims, and calculation of reparations. In addition, the parties disagree about many of the factual allegations. The parties heavily litigated this proceeding, with multiple motions to compel evidence filed. Indeed, both parties allege that the other party violated discovery requirements,” writes Judge Erin Wirth in the 64-page order.
The case started in December 2021 as a rather simple complaint from OJ Commerce of Miami, Florida against both Hamburg Sudamerikanische and its U.S. operation Hamburg Sud North America. The shipper highlighted that it had been in a long-term freight contract with Hamburg Sud running from June 2020 to May 2021 with an agreed minimum volume of 400 TEU (200 containers). They alleged the carrier had failed to transport 30 containers under the contract as well as wrongfully billed nearly $41,000 in demurrage charges against 13 containers. The original complaint cites over $100,000 in economic damages.
The court dismissed in August 2022 claims related to unreasonable business practices. Further, Hamburg Sud refunded in full the amount of the demurrage charges resolving that portion of the claim. However, OJ Commerce in February 2022 amended its complaint adding allegations of retaliation and refusal to deal.
The shipper asserted that it had sent a letter to Hamburg Sud threatening to file an FMC complaint while the company was involved in negotiations about its next year’s freight contract. OJ Commerce contends that on May 4, 2021, “out of the blue and with no prior notice,” Hamburg Sud notified it that there would be no service contract renewal under any terms, but instead that they would “work case by case” with the shipping using spot market rates.
The judge notes that the FMC case law is clear that an ocean carrier does not have a duty to grant a contract to every potential customer. However, the FMC has made it clear that it prohibits carriers from shutting out a customer when there are no legitimate transportation-related factors and from retaliating against shippers.
It was an extensive case argued by both sides, but the judge finds that April 2021 communications showed that Hamburg Sud chose to “disengage” due to the “litigation risk” posed by the shipper. Judge Wirth writes in the order, “The evidence establishes that Hamburg’s executive knew that his executive decision violated the Shipping Act.” She says that the facts support the finding that the violation was “knowing and willful.”
There were extensive arguments to establish the level of the penalties with the shipper calling for over $100 million in damages. The judge uses a measurement of just under $23,000 per container to arrive at actual damages along with the trade routes and 2020-21 contact volumes to set the actual injury at over $4.9 million. FMC regulations permit the maximum awarded to be no more than twice the actual injury and the judge allows that setting the final amount at $9.84 million.
The companies report that they are reviewing the judgment as the order was only served yesterday, June 7. While the events took place during the pandemic and the surge in volumes, they pre-date the passage of the reform act. The FMC reports that it has seen an increase in complaints since the passage of the reforms as carriers continue to file complaints about fees as well as failures under shipping contacts to provide the volumes. This case, however, was unique in that it related to retaliation and failure to deal as opposed to the other issues which had been resolved.