Shipping Acts

Thomas Panebianco

Excerpt from the Controlled Carrier Act

(a) ... No controlled carrier subject to this section may maintain rates or charges in its tariffs or service contracts, or charge or assess rates, that are below a level that is just and reasonable, nor may any such carrier establish, maintain, or enforce unjust or unreasonable classifications, rules, or regulations in those tariffs or service contracts.... The Commission may, at any time after notice and hearing, prohibit the publication or use of any rates, charges, classifications, rules, or regulations that the controlled carrier has failed to demonstrate to be just and reasonable.

The shipping statutes include a number of laws affecting commercial ocean shipping in the international trades and the cruise industry. The primary statute is the Shipping Act of 1984, substantially amended in 1998 (P.L. 105-258, 112 Stat.1902), but with prior versions going back to 1916. Most of the general features of the 1916 statute, however, survive today. The federal agency that administers the Shipping Act is the Federal Maritime Commission (FMC).

SHIPPING ACT

The Shipping Act imposes obligations on both carriers (the shipping companies who own and operate cargo ships) and shippers (the importers and exporters whose cargo is carried by the carriers), and sets out basic rules for doing business. For example, shippers may not misrepresent to carriers what their cargo is or how much it weighs. They must accurately describe their cargo so the carrier can charge them the correct rate. Carriers may not unreasonably refuse to deal with any shipper, and are limited in the ways they may treat their shipper-customers differently from one another. The law also sets out how other entities, such as ports, terminal operators, and middlemen (often called "freight forwarders") may do business. The FMC has regulations providing more detailed rules for these businesses to follow.

A major and controversial feature of the Shipping Act is that it gives carriers the right to cooperate with one another in discussing and setting their rates. Ordinarily, this type of behavior would violate U.S. antitrust laws. Congress decided to give carriers limited immunity—that is, to excuse them—from the antitrust laws in 1916. Congress was concerned that if carriers were not permitted to cooperate with each other, "rate wars" would break out, as carriers could lower rates dramatically to drive their competitors out of a trade, and then raise them dramatically once a monopoly was achieved. Congress determined that it was important for both carriers and shippers to have stable rates, and thus allowed carriers to discuss and agree on certain rates and practices. This privilege, however, comes with responsibilities. The FMC reviews and monitors the results of such cooperation and can go to court to stop such arrangements (called "agreements" in the statute) if they are harmful. Many shippers dislike antitrust immunity and want the antitrust laws applied to the carriers. They believe immunity gives carriers an unfair advantage in dealing with their customers and keeps rates artificially high. Carriers point out that every major shipping nation has this feature as part of its laws and argue that the FMC's supervision of their agreements prevents them from abusing the privilege.

A feature of the original shipping act gradually being chipped away is the system of "common carriage": carriers had to provide service to shippers on equal terms, much as a taxi offers transportation to passengers on equal terms. It used to be that carriers had to charge their published rates to all their customers, with no special deals for anyone. Even today carriers must electronically publish"tariffs," that is, their schedules of rates and rules, under a system supervised by the FMC. In 1984 and in 1998, however, Congress increased the flexibility of carriers and shippers to create commercial relationships with each other. Shippers and carriers can now enter secret arrangements, called "service contracts," in which carriers offer special rates to shippers if they provide certain quantities of cargo for the carriers to transport.

CONTROLLED CARRIER ACT

The Controlled Carrier Act (1978) is an important law found in section 9 of the Shipping Act. A controlled carrier is one owned or controlled by a government, as opposed to by private parties. The FMC publishes a list of controlled carriers. Most of the major ones are Chinese companies. The Controlled Carrier Act gives the FMC power to ensure that controlled carriers' rates are not unfairly low, giving them an unfair advantage over privately owned companies.

MERCHANT MARINE ACT

The FMC has a powerful tool in the Merchant Marine Act of 1920; Section 19 gives the FMC the power to take action against the carriers of another nation if that nation has unfair shipping practices which harm the commercial interests of the United States. This law was invoked prominently against Japan in 1997. Sanctions were imposed on Japanese carriers as a way to force the government of Japan to reform port practices the FMC found were unfair to non-Japanese carriers in U.S.-Japan trade.

CRUISE INDUSTRY STATUTE

Public Law 89-777 (1966) addresses the cruise industry. This law makes cruise line operators who board passengers in U.S. ports prove to the FMC that they are financially responsible, usually by posting a bond or surety to cover some or all of the passenger fares that the cruise lines collect in advance of the voyage. If there is a casualty or nonperformance (such as if financial difficulties or weather cause the line to cancel a voyage), and if the line does not have the funds to reimburse passengers, the bond funds can be distributed to the injured or stranded passengers. This statute was enacted after a number of cruise lines went out of business in the 1960s, leaving passengers with useless tickets and no opportunity for refunds. (Information about passenger vessel bonds is available on the FMC web site.)

See also: Merchant Marine Act of 1920.

INTERNET RESOURCES

Federal Maritime Commission. <http://www.fmc.gov>.

U.S. Maritime Administration. <http://www.marad.dot.gov>.

Other Shipping-Related Acts

Thomas Panebianco

The Jones Act (41 Stat.988) is the common name for section 27 of the Merchant Marine Act of 1920. This law requires cargo in the domestic offshore trades—that is, ocean or coastwise trades within the United States—to be carried only on U.S.-built and U.S.-flagged ships with U.S. crews, and is designed to support the U.S. merchant fleet and U.S. labor interests. The Jones Act is administered by the U.S. Maritime Administration, which is part of the U.S. Department of Transportation. Many shippers, however, particularly farmers, protest that the Jones Act increases their transportation costs, because U.S. ships are more expensive to use than foreign ships. Shippers also argue that if they cannot choose a foreign carrier to ship their goods, this lack of choice results in higher payment for transportation.