FMC Orders MSC to Justify Fees as Reform Act Enforcement Increases
The U.S.’s Federal Maritime Commission continues to put bite into the Shipping Reform Act passed in 2022 which sought to crack down on the fees and unreasonable business practices of the major ocean carriers. A small complaint by a shipper is spotlighting the enforcement efforts under the act with the FMC issuing a “show cause” order against Mediterranean Shipping Company (MSC) for congestion fees that were charged to the shipper in July 2022.
New provisions in the reform act require the FMC to promptly investigate charges assesses by common carriers for compliance with the act and the policies defined by the commission. One of the elements of the reforms empowered the FMC to investigate any conduct, fee, or charges that it believes violate the act. Fees, most commonly Demurrage and Detention (D&D) drew stiff criticism from the shipping community and spurred on passage of the reforms which were signed into law in June 2022. Since then, the FMC reports it has received over 200 filings including 70 that were referred for investigation. In the last six months of 2022, the FMC estimated carriers were required to refund more than $700,000 in fees.
The latest case stems from a complaint filed by SOFi Paper Products, a Florida-based company that sells paper products for home and business use. The small company, which started by making paper straws, asked MSC to justify a $1,000 “congestion surcharge” that was billed on a July 2022 invoice. When the company did not receive a response from MSC it turned to the FMC.
On February 3, the FMC issued the “show cause” order to MSC giving the shipping giant 25 days to respond and provide a justification for the charge. “The respondent’s failure to show the reasonableness of the charge or provide justification for the charge demonstrates that the charge may constitute an unreasonable action or practice,” the order says under the Shipping Act.
In addition to being able to order the shipping giant to refund the small amount of the fee, the FMC under the Shipping Act is also authorized to issue civil penalties. Many of the complaints coming under the enforcement of the act have been larger but this small claim shows the full scope of the efforts.
The FMC had forecast that the act was likely to unleash a wave of new complaints against the carriers and has been working to build the new investigative and enforcement structures required by the legislative reforms. Indeed, many carriers have been the subject of complaints, including MSC. The company has been involved in a high-profile case from a Pennsylvania furniture company that even before the reform act’s passage contended in a complaint to the FMC that the carrier had denied services under its long-term freight contract forcing the furniture company to pay inflated prices in the spot market to complete its shipments.
MSC has responded to the complaint from the furniture company saying it was a failure to communicate and that it never received the requests. An FMC administrative judge found the carrier in default on a technicality for not supplying information during discovery which MSC contends it was legally unable to do under Swiss law. MSC has appealed the technical default judgment to the FMC saying the case needs to be heard on its merits.
The FMC continues to define other key elements of the reforms including the policies addressing carriers' business practices and unreasonable refusal to deal. The commission recently said it would extend the comment period to address important questions raised during the rulemaking on this key piece of the legislation.