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OTI CORNER
OTI CUSTOMS ISSUES. NVOCC CUSTODIAL BONDS
07/07
At least one surety company has been suggesting that NVOCCs no longer assume the cost and risk of obtaining type 2 Custodial bonds. The reason: the ocean carriers have assumed this responsibility on
their bonds to the inland port for NVOCC traffic. During the period when Automated Manifest System regulations were initially being implemented cargo accumulated at the piers due to confusion as to
who could obtain and process Type 2 custodial bonds. Certain NVOCCs, if they have negotiated their own favorable inland rates, may have a commercial basis for purchasing ocean transportation to
the pier only, and then providing its own inter-modal housebill to the inland port. These NVOCCs may want to continue to utilize their own Type 2 custodial bond, and then utilize either bonded or
non-bonded carriers for the inland move. NVOCCs continuing to obtain Type 2 Custodial bonds might be a risk worth considering.
OTI CUSTOMS ISSUES continued. THE PROPERTY BROKER SOLUTION
07/07
Insurance companies are using a recent court case as the basis for requiring Customs brokers, which they insure, to obtain Property Broker authority from the Federal Motor Carrier Safety
Administration. These Customs brokers generally arrange motor carrier deliveries as part of services offered, and mark up inland freight. Customs brokers which do not have Property Broker
authority, and who do not properly implement this authority by clearly describing and documenting their agent role under these circumstances, have potential exposure as carriers in cargo loss and
damage claims as well as in personal injury cases. The Carmack Amendment exposes all carriers in the transportation chain. As a consequence, at least one insurance company is requiring Property
Broker status before insuring Customs brokers which arrange inland freight in the United States.
OTI BEST PRACTICES. THE CREDIT APPLICATION
07/07
Courts have consistently held
that carriers may create enforceable general liens in credit applications where a shipper party knowingly executes such an agreement. This would contractually allow a carrier to hold
This
Month’s Alerts: (continued) cargo for antecedent debt related to cargo already delivered. Many ocean carriers already utilize this language. NVOCCs may use similar language.
FMC ISSUES.
OCEAN CARRIER B/L DEFINITION OF MERCHANT AND DEMURRAGE
07/07
Certain ocean carriers include broad sweeping definitions of
“merchant” in carriers’ bill of lading terms and conditions, which sometimes result in Customs brokers, and other peripheral persons to a bill of lading transaction being included in various claims, including those for demurrage, ocean freight and other charges. Sometimes, the claims stem from nothing else than being identified as a ‘Notify Party”, a designation not uncommon for Customs brokers on the bill of lading. We believe that the FMC staff is reviewing this broad language approach pursuant to its authority under 46 USC § 10 (d) (1) which requires that carrier practices be “just and reasonable” in connection with the “receiving, handling, storing, or delivering” of property. We also believe that this is currently a topic of concern being reviewed by the National Customs Brokers and Forwarders Association of America.
KEY PHONE NOS. , E-MAIL ADDRESSESS, and WEB-SITES FOR YOUR
RECORDS (updated monthly)
07/07
Federal Maritime Commission: www.fmc.gov It contains pertinent regulations, office locations, OTI lists, up to-date matters on the FMC docket, as well as
other useful information.
Bureau of Industry and Security: www.bxa.doc.gov The U.S. Department of Commerce, Bureau of Industry and Security (BIS) web site provides access to a number of services
including: regulatory guidance and access, seminars/training, and policy announcements.
Export Administration Regulations: http://www.bis.doc.gov/policiesandregulations/index.htm#ear This is a
link to U.S. Dept. of Commerce export regulations.
Office of Foreign Asset Control: http://www.ustreas.gov/offices/enforcement/ofac/
The Office of Foreign Assets Control of the U.S. Dept. of the Treasury administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers based on U.S. foreign policy and national security goals.
CHINA (MOC) WARNS
OCEAN CARRIERS: ACCEPT CARGO ONLY FROM REGISTERED NVOCCs
07/07
MOC NOTICES.
On June 14 and June 19, 2007, the MOC issued Notices to ocean carriers that they must immediately stop doing business with non-MOC licensed NVOCCs. Significant penalties will be imposed for ocean carriers that violate this regulation. The carrier members of the Trans-Pacific Stabilization Agreement have been counseled to take serious steps in policing this rule. NVOCCs can expect rough going on the high seas in the U.S.-China trade lanes.
NVOCC CONFUSION.
Some NVOCCs have complained to the Federal Maritime Commission that there are certain compliance issues in play that could bring major disruption to the U.S.-China trade lanes. These are:
- The basic MOC requirement is that U.S. NVOCCs must pay a
800,000 RMB cash deposit, and a 200,000 RMB cash deposit for each branch operated in China;
- U.S. NVOCCs who are late coming to registration are being
told different things than those who registered in 2004, 2005, 2006, especially with regard to the branch office deposit requirements; the earlier registrants did not have to make deposits for
each branch office;
- Similarly, U.S. NVOCCs who registered earlier have been
given the ability to work in the cross trades (non-U.S. lanes) without having to comply with the general RIMT requirements;
- Some U.S. NVOCCs obtained the Optional PRC Rider (increased
the $75,000 bond to $96,000) that the MOC previously agreed would satisfy the PRC requirement.
- Some NVOCCs, even with the larger bond amounts, are now
facing the following problems:
a)
the MOC may request that these NVOs deposit the 800,000 RMB, and 200,000 RMB per China branch anyway;
b)
the MOC may limit these NVOs to the U.S.-China trade lanes unless they provide the above deposits.
- There is also some confusion about whether an NVOCC can
circumvent these problems by employing a Class A forwarder as their Chinese agent.
U.S. OFFICIAL REACTION.
FMC, State Department, MARAD officials, and industry representatives, including this editor, met yesterday (July 19th) to review the above issues, and to seek a coordinated effort through the State Department to seek clarification from the MOC on these issues. The emphasis will be to seek a consistent, fair approach to implementation of these regulations so that the NVOCC, VOCC, and U.S. shipping communities are not unfairly prejudiced. It could be that the net result, as an alternative to the Chinese deposits, will be the insistence by the U.S. that the Chinese give proper deference to U.S. law and the MOC’s prior agreement to accept these bonds. In that case, NVOCCs will be seeking to obtain the appropriate increases of their bonds pursuant to Docket 04-02 in greater numbers. The FMC advised that currently only 68 NVOCCs have obtained these China bonds.
WHAT TO DO?
If you wish to be kept informed on this topic, drop us an e-mail. If you desire to provide additional information to the Federal Maritime Commission to include in these dialogues, you may contact the Federal Maritime Commission directly, or you can lets us know and we will provide some guidance on how to provide this information. If you are denied access to space by ocean carriers in the U.S.-China trades, and need some assistance, also contact us.
OTI Demurrage Defenses:
05/07
Over the last few
years, and again recently, ocean carriers’ CFOs comb their files for additional revenue streams. Not infrequently the carriers come across open items for demurrage and other related charges which
have been generated on their operations systems but have never been billed, never mind collected. These sums sometimes can get into the tens of thousands of dollars, and sometimes more. Recently we
became aware of one such carrier seeking six figure payments of demurrage charges which went back to 2000. Invoices were sent, but the OTI had never seen these before, nor had these charges been
logged into their accounting system at all. There was no record at all of these charges.
What defenses are available to the OTI who is receiving invoices for demurrage
from many years before?
Laches (“Too Old”) Defense.
05/07
Courts have consistently held
that legal action to collect demurrage and other shipping-related charges which are commenced more than three (3) years after the claim arose gives rise to a laches defense. Most courts will treat this as a statue of limitations defense claiming the statue of limitations in the Shipping Act of 1998, as amended, applies, as analogous, and apply the three year limitations of that statue for demurrage and related claims. If the carrier brings such an untimely lawsuit it has the additional burden of proving that the time lapse is not unreasonable, and that it does not prejudice the OTI. In most cases, the carrier cannot claim or prove those elements and the court will dismiss the lawsuit. The Courts apply the same principles for demurrage in
Puerto Rico, with the exception that in the U.S./Puerto Rico trades, the Interstate Termination Act applies and, therefore, the time in which a lawsuit must be brought is eighteen (18)
months.
Anti-Dumping Case Filed: Steel Nails from China and the UAE.
05/07
An Anti-Dumping Petition was filed on May 29, 2007 relating to the importation of that commodity from those countries before the International Trade Administration of the U.S. Department of
Commerce and the U.S. International Trade Commission.
Key Web Link For More Details.
http://info.usitc.gov/sec/dockets.nsf
OTI USE OF UNLICENSED AGENTS
08/06
In the past,
the FMC’s Bureau of Enforcement has succeeded in collecting fines from OTIs who rely on unlicensed parties as agents. One OTI paid $100,000 to settle such allegations.
Recently the FMC’s
General Counsel issued an opinion stating that if the OTI had a proper principal-agency relationship with its unlicensed agents, that was acceptable. Of course, that is the opinion of General Counsel
and not the Commission as a whole, so this very same OTI has filed a petition seeking a declaratory order asking the Commission to issue a decision resolving the conflicting opinions between
Enforcement and General Counsel. Comments are due October 3. For more details, check our website’s OTI corner.
OTI Petition for Declaratory Order Filed with FMC
Would Allow for OTIs to Act Through Unlicensed Agents
In the U.S.
An OTI, who previously paid the FMC a negotiated penalty of $100,000 to settle allegations that it allowed the use of
its license by unlicensed companies, has filed a Petition which would, if granted, allow it lawfully to do just that.
What triggered the filing is the FMC’s Office of General Counsel
issued an opinion letter, dated January 26, 2006, to another OTI wherein it concluded that an OTI could allow unlicensed agents to perform OTI activities without a license provided that a genuine
principal/agency relationship was established. The agency relationship would be based upon the express authority the OTI gives its agents to provide specified services. Further, the agents would be
contractually bound to conduct business on behalf of the principal (licensed OTI) within parameters set forth by the OTI, and the agent would remain under the control of the OTI. Therefore, the
relationship would be principally judged on the sufficiency of the agreement between the OTI and the agent, and how that agreement is actually implemented.
The basis for the Petition is that
in its letter, the Office of General Counsel also warned that its opinion was the opinion of General Counsel only and did not bind the Commission. Therefore, any OTI following the Opinion letter
would still be acting at its own peril. In other words, the Commission itself, notwithstanding General Counsel’s Opinion letter, might still decide that OTI activities can only be performed by
licensed OTIs or their licensed and bonded branch offices, and bona fide employees. Therefore, OTIs following the Opinion Letter might still face hefty penalties. These facts are the ideal ones for a
Petition for a Declaratory Order, since the Commission, if it upholds General Counsel’s Opinion, would issue a binding Order, thereby removing all risk for an OTI acting through disclosed,
unlicensed, unbonded agents.
To view a copy of the Petition,  . Comments on the Petition are due from the shipping public no later
than October 3, 2006. If you have any questions or comments, feel free to contact Carlos Rodriguez at rodriguez@Rodriguez O’Donnellgw.com or 202-973-2999.
DHS GUMS UP AES REGS.
DHS has informed Census that it will not sign off on the proposed regulations to make AES mandatory for all exports because it wants
substantial changes. One such change is not altogether surprising. It focuses on security and involves the elimination of post-departure
filing, or perhaps substantial changes in eligibility for any new participants, at least that companies not be automatically grandfathered into the program.
Of serious concern is the second proposal. DHS wants Census to allow the sharing of confidential export data with foreign governments.
DHS has been under pressure to provide more shipment data to those countries which are partnering in various security programs. Census
believes any such change would undermine its statutory obligation to safeguard business confidential information.
Given the lack of international rules about confidentiality, it is easy to
see why American industry is squarely opposed to this idea. What happens if the data is used to solicit bribes? What about if it is
disclosed to the competition? Can the right to such data be cut off if a recipient country is found to have improperly or illegally shared it?
Does local law protect business confidential information or allow its disclosure under their version of our Freedom of Information Act?
FORWARDERS BEWARE!
In other editions of our newsletter and elsewhere, we have shared the attitude of BIS towards freight forwarders - they are the last line of
defense! If you want to hear it directly from BIS, visit our website - at the OTI corner - and read the text of a letter signed by Michael D.
Turner, Director, Office of Export Enforcement. It was sent to "numerous" forwarders, but if you were not one of the lucky ones, take note.
BIS Warns Forwarders
 for a printable version
Reprinted from Northrop Grumman's Ex/Im Compliance Daily Update ("The Daily Bugle") dated November 1, 2005. Editor's Note: The
following letter is being distributed to numerous U.S. freight forwarders by Michael D. Turner, Director, Office of Export Enforcement, Bureau of Information & Security, Department of
Commerce, and is reprinted with Mr. Turner's permission.
To Members of the International Forwarding Community
Dear International Forwarder:
The President has identified opposing the proliferation of Weapons of Mass Destruction (WMD) as one of the highest priorities in the war
against terror. As members of the international forwarding community, you play a key role in ensuring the security of the global
supply chain, stemming the flow of illegal exports, and helping prevent WMD goods and technologies from falling into the hands of terrorists and proliferators.
I am writing to discuss how the Bureau of Industry and Security (BIS), Office of Export Enforcement (OEE) can work together with you in
these efforts. In this letter, I will discuss OEE's export enforcement mission, how you can meet the forwarding community's export
compliance responsibilities, tips for mitigating illegal export risks, and working together with OEE to prevent, detect, and deter export violations.
The OEE Mission
OEE's mission is to keep the most sensitive goods out of the most dangerous hands. Our focus is on the most significant international
threats facing U.S. national and homeland security, foreign policy, and economic interests: the proliferation of WMD, international
terrorism and State sponsors of terror, and diversions of U.S. dual-use goods and technologies to unauthorized military end-uses. OEE
accomplishes its mission through preventative and investigative enforcement activities designed to (1) educate U.S. manufacturers,
exporters, and shippers on export control requirements; (2) facilitate voluntary compliance; and (3) disrupt illicit proliferation networks
through the interdiction of illegal export shipments and the prosecution and penalization of willful export violators. Outreach and
partnership with the private sector are crucial to our efforts to prevent, detect, and deter illegal exports.
Responsibilities of the Forwarding Community
The Export Administration Regulations (EAR) place legal responsibility on all persons who have information, authority or functions relevant to carrying out export transactions subject to the
EAR. Primary responsibility for compliance with the EAR falls on the "principal parties in interest" (PPI) in a transaction. Generally, the
PPIs in an export transaction are the U.S. seller and the foreign buyer.
Forwarding agents may have compliance responsibilities under the
EAR even when their actions are dependent upon information or instructions given by those who use their services. However, hiring a forwarding or other agent to perform various tasks does not
necessarily relieve a party of its compliance responsibilities.
Agents are responsible for the representations they make in filing
export data. Moreover, no person, including agents, may proceed with any transaction knowing that a violation has occurred, is about to
occur or is intended to occur in connection with it. It is the agent's responsibility to understand its obligations.
Agents, especially those acting as the "exporter," should understand the "Know Your Customer" Guidance and Red Flags found in
Supplement No. 1 to part 732 of the EAR. Agents and exporters should decide whether there are red flags, inquire about them, and
ensure that suspicious circumstances are not ignored. Failure to do so could constitute a violation of the EAR.
Both the agent and the PPI who has hired it are responsible for the
correctness of each entry made when filing export data. Good faith reliance on information obtained from the PPI can help protect an
agent, but the careless use of pre-printed "No License Required" forms or unsupported entries can subject an agent to penalties.
Agents should also avoid making commodity classifications for which they lack technical expertise, and should obtain support documentation for Export Control Classification Numbers (ECCNs)
and other material.
Agents should also be thoroughly familiar with the ten General Prohibitions set forth in Part 736 of the EAR; and with the violations
outlined in Part 764 of the EAR. Engaging in prohibited conduct or committing the violations set out in the EAR may subject violators to
significant penalties - up to 10 years imprisonment and fines of $250,000 for individuals and $500,000 for companies, upon criminal conviction; and penalties of up to $11,000 per violation for
administrative offenses.
Mitigating the Risk
As noted above, forwarders may be subject to criminal prosecution
and/or administrative penalties for violations of the EAR. BIS has not hesitated to hold forwarders liable for participating in illegal transactions. For example, in 2003, DSV Samson Transport was
sentenced to 5 years corporate probation, a $250,000 criminal fine, and a $399,000 administrative penalty for forwarding over 30 illegal
shipments to listed entities in India. These violations were committed after DSV had received repeated warnings from OEE that such exports constituted violations of the EAR.
This case, and many others involving forwarders, demonstrate the need for forwarders to know their customers and be aware of suspicious circumstances and Red Flags that may be present in an
export transaction. When presented with Red Flags, forwarders have an obligation to inquire about the facts of the transaction, evaluate all
of the information after inquiry and refrain from engaging in the transaction. These steps help protect not only the forwarder but also the forwarder's client, who may be unknowingly engaging in a
prohibited transaction.
Forwarders can take steps to mitigate their own and their clients' risk of liability by establishing a compliance program that scrutinizes
export transactions, checks the parties to transactions against BIS's Denied Persons List (firms and individuals whose export privileges
have been denied based on prior export violations), the Entity List (organizations identified by BIS as engaging in activities related to the
proliferation of weapons of mass destruction), and the Unverified List (firms for which BIS was unable to complete an end-use check), as
well as other lists maintained by the State Department and Treasury Department's Office of Foreign Assets Control. Forwarders should
also familiarize themselves with the types of activities to avoid in suspicious transactions as described in the BIS publication, "Don't
Let This Happen To You," which can be found at the BIS website.
Parties who believe they may have committed a violation of the EAR
are encouraged to submit a Voluntary Self Disclosure (VSD) to OEE. VSDs are an important indicator of a party's desire to bring their
export activities into full compliance, and also may provide important information to OEE helping to identify foreign proliferation networks.
Parties submitting VSDs may be eligible for significant reductions in administrative penalties. Procedures for filing VSDs may be found in Section 764.5 of the EAR.
Working with OEE
Forwarders are uniquely placed to identify suspicious transactions and Red Flags. While it is important to protect yourselves and your
clients from engaging in transactions that might constitute violations, it is equally important that OEE be able to fulfill its mission of
preventing our most sensitive goods and technologies from falling into the hands of WMD proliferators and terrorists. Prompt notification by
forwarders to OEE of suspicious transactions, and assistance to OEE Special Agents in gathering the evidence necessary to disrupt
illicit proliferation networks and bring export violators to justice are important steps in helping us achieve these goals.
OEE welcomes the opportunity to work with you, the members of the
international forwarding community, to help ensure compliance with U.S. export requirements and to keep the most sensitive goods out of
the most dangerous hands. I encourage you to contact your local OEE office to explore opportunities to work together to ensure the safety and security of our great Nation.
Thank you for your assistance in helping keep America safe.
Sincerely,
Michael D. Turner
Director
Office of Export Enforcement
(202) 482-1208, ext. 3
mturner@bis.doc.gov
BIS Export Enforcement: Keeping the most sensitive goods out of the most dangerous hands.
To Report Export Violations: 1-800-424-2980 or www.bis.doc.gov
Reprinted from Northrop Grumman's Ex/Im Compliance Daily
Update ("The Daily Bugle") dated November 1, 2005. Editor's Note: The following letter is being distributed to numerous U.S.
freight forwarders by Michael D. Turner, Director, Office of Export Enforcement, Bureau of Information & Security, Department of Commerce, and is reprinted with Mr. Turner's permission.
for a printable version
To Members of the International Forwarding Community
Dear International Forwarder:
The President has identified opposing the proliferation of Weapons of Mass Destruction (WMD) as one of the highest priorities in the war
against terror. As members of the international forwarding community, you play a key role in ensuring the security of the global
supply chain, stemming the flow of illegal exports, and helping prevent WMD goods and technologies from falling into the hands of terrorists and proliferators.
I am writing to discuss how the Bureau of Industry and Security (BIS), Office of Export Enforcement (OEE) can work together with you in
these efforts. In this letter, I will discuss OEE's export enforcement mission, how you can meet the forwarding community's export
compliance responsibilities, tips for mitigating illegal export risks, and working together with OEE to prevent, detect, and deter export violations.
The OEE Mission
OEE's mission is to keep the most sensitive goods out of the most dangerous hands. Our focus is on the most significant international
threats facing U.S. national and homeland security, foreign policy, and economic interests: the proliferation of WMD, international
terrorism and State sponsors of terror, and diversions of U.S. dual-use goods and technologies to unauthorized military end-uses. OEE
accomplishes its mission through preventative and investigative enforcement activities designed to (1) educate U.S. manufacturers,
exporters, and shippers on export control requirements; (2) facilitate voluntary compliance; and (3) disrupt illicit proliferation networks
through the interdiction of illegal export shipments and the prosecution and penalization of willful export violators. Outreach and
partnership with the private sector are crucial to our efforts to prevent, detect, and deter illegal exports.
Responsibilities of the Forwarding Community
The Export Administration Regulations (EAR) place legal responsibility on all persons who have information, authority or functions relevant to carrying out export transactions subject to the
EAR. Primary responsibility for compliance with the EAR falls on the "principal parties in interest" (PPI) in a transaction. Generally, the
PPIs in an export transaction are the U.S. seller and the foreign buyer.
Forwarding agents may have compliance responsibilities under the
EAR even when their actions are dependent upon information or instructions given by those who use their services. However, hiring a forwarding or other agent to perform various tasks does not
necessarily relieve a party of its compliance responsibilities.
Agents are responsible for the representations they make in filing
export data. Moreover, no person, including agents, may proceed with any transaction knowing that a violation has occurred, is about to
occur or is intended to occur in connection with it. It is the agent's responsibility to understand its obligations.
Agents, especially those acting as the "exporter," should understand the "Know Your Customer" Guidance and Red Flags found in
Supplement No. 1 to part 732 of the EAR. Agents and exporters should decide whether there are red flags, inquire about them, and
ensure that suspicious circumstances are not ignored. Failure to do so could constitute a violation of the EAR.
Both the agent and the PPI who has hired it are responsible for the
correctness of each entry made when filing export data. Good faith reliance on information obtained from the PPI can help protect an
agent, but the careless use of pre-printed "No License Required" forms or unsupported entries can subject an agent to penalties.
Agents should also avoid making commodity classifications for which they lack technical expertise, and should obtain support documentation for Export Control Classification Numbers (ECCNs)
and other material.
Agents should also be thoroughly familiar with the ten General Prohibitions set forth in Part 736 of the EAR; and with the violations
outlined in Part 764 of the EAR. Engaging in prohibited conduct or committing the violations set out in the EAR may subject violators to
significant penalties - up to 10 years imprisonment and fines of $250,000 for individuals and $500,000 for companies, upon criminal conviction; and penalties of up to $11,000 per violation for
administrative offenses.
Mitigating the Risk
As noted above, forwarders may be subject to criminal prosecution
and/or administrative penalties for violations of the EAR. BIS has not hesitated to hold forwarders liable for participating in illegal transactions. For example, in 2003, DSV Samson Transport was
sentenced to 5 years corporate probation, a $250,000 criminal fine, and a $399,000 administrative penalty for forwarding over 30 illegal
shipments to listed entities in India. These violations were committed after DSV had received repeated warnings from OEE that such exports constituted violations of the EAR.
This case, and many others involving forwarders, demonstrate the need for forwarders to know their customers and be aware of suspicious circumstances and Red Flags that may be present in an
export transaction. When presented with Red Flags, forwarders have an obligation to inquire about the facts of the transaction, evaluate all
of the information after inquiry and refrain from engaging in the transaction. These steps help protect not only the forwarder but also the forwarder's client, who may be unknowingly engaging in a
prohibited transaction.
Forwarders can take steps to mitigate their own and their clients' risk of liability by establishing a compliance program that scrutinizes
export transactions, checks the parties to transactions against BIS's Denied Persons List (firms and individuals whose export privileges
have been denied based on prior export violations), the Entity List (organizations identified by BIS as engaging in activities related to the
proliferation of weapons of mass destruction), and the Unverified List (firms for which BIS was unable to complete an end-use check), as
well as other lists maintained by the State Department and Treasury Department's Office of Foreign Assets Control. Forwarders should
also familiarize themselves with the types of activities to avoid in suspicious transactions as described in the BIS publication, "Don't
Let This Happen To You," which can be found at the BIS website.
Parties who believe they may have committed a violation of the EAR
are encouraged to submit a Voluntary Self Disclosure (VSD) to OEE. VSDs are an important indicator of a party's desire to bring their
export activities into full compliance, and also may provide important information to OEE helping to identify foreign proliferation networks.
Parties submitting VSDs may be eligible for significant reductions in administrative penalties. Procedures for filing VSDs may be found in Section 764.5 of the EAR.
Working with OEE
Forwarders are uniquely placed to identify suspicious transactions and Red Flags. While it is important to protect yourselves and your
clients from engaging in transactions that might constitute violations, it is equally important that OEE be able to fulfill its mission of
preventing our most sensitive goods and technologies from falling into the hands of WMD proliferators and terrorists. Prompt notification by
forwarders to OEE of suspicious transactions, and assistance to OEE Special Agents in gathering the evidence necessary to disrupt
illicit proliferation networks and bring export violators to justice are important steps in helping us achieve these goals.
OEE welcomes the opportunity to work with you, the members of the
international forwarding community, to help ensure compliance with U.S. export requirements and to keep the most sensitive goods out of
the most dangerous hands. I encourage you to contact your local OEE office to explore opportunities to work together to ensure the safety and security of our great Nation.
Thank you for your assistance in helping keep America safe.
Sincerely,
Michael D. Turner
Director
Office of Export Enforcement
(202) 482-1208, ext. 3
mturner@bis.doc.gov
BIS Export Enforcement: Keeping the most sensitive goods out of the most dangerous hands.
To Report Export Violations: 1-800-424-2980 or www.bis.doc.gov
COMPLIANCE PROGRAMS
09/05
BIS has made it know that it is looking at freight forwarders as the "last line of defense" regarding exports, meaning, it is up to them to
assure customer exports are compliant. As such, knowing the rules and regulations has become even more critical. Therefore, attendance
at a BIS program tailored for forwarders would seem advisable. One such program is scheduled for Sunnyvale, CA on November 8, 2005 and a second in Costa Mesa, CA on November 9, 2005. For more
details check the BIS website - www.bis.doc.gov
STATE DEPT. CHANGES RULES
08/05
Without notice, the Dept. of State has changed policy so that freight forwarders may no longer obtain ITAR licenses under their own names
to facilitate customer exports. In recently rejecting one license application, State took the position the applicant must be the "seller"
of the defense article. What this may force foreign buyers (on whose behalf the forwarders most often act) to do is work through their Washington, D.C. based embassies to obtain the needed licenses.
What this action also does is raise the question of why would State want to decrease the security information it has about parties by eliminating its last line of defense - the forwarder?
Another unannounced change is the rejection of many license applications due to the expansion of the definition of what constitutes brokering and when registration is required.
DOT ANNOUNCES ARREST
08/05
On August 10th, DOT announced the arrest of a Florida man charged in an eight-count indictment with conspiracy to transport and smuggle
property by air containing HazMat from the U.S. to the Bahamas. The Iridium-192 was allegedly not properly identified on either the export or
import documents. Further, neither the individual nor his company is licensed, trained, or certified to handle or transport radioactive HazMat.
DEEMED EXPORTS AND FREIGHT FORWARDERS
08/05
As BIS looks at further tightening the rule by virtue of basing the deemed export determination on a foreign national's country of birth,
the question has to asked - what are freight forwarders and other service providers doing to make sure they themselves do not run afoul
of the deemed export rule? If your customer's goods are subject to an export license, how do you make sure your non-American citizen staff
members do not have access to the very information which triggers the need for the customer to obtain an export license?
Want to increase your compliance even further? Check out the DDTC
posting about compliance guidelines at:
http://www.pmdtc.org/compliance.htm
FORWARDERS ARE KEY
08/05
Anyone who thinks U.S. export authorities are not watching the actions of freight forwarders and other transportation intermediaries should keep in mind the recent testimony of an OEE agent in a
criminal trial. When asked who is responsible for the accuracy of the SED, the agent responded: "The freight forwarder. The exporter... [T]hey are both equally responsible. "
It is the norm for OEE agents to refer to freight forwarders as their "last line of defense."
FOR IMMEDIATE RELEASE:
In a major policy shift, the State Department's Directorate of Defense Trade Controls has abruptly halted the long-standing practice under
which freight forwarders and other transportation providers were able to obtain export licenses in their own name to facilitate their customers' exports of ITAR commodities. The change could have an
immediate adverse impact on U.S. exports of military technology and hardware throughout the world. DDTC's action was taken without
notice and apparently without input from the affected U.S. forwarding community.
In a telephone interview, Carlos Rodriguez explained that DDTC
returned without action an export license application submitted by a client of his law firm, because, DDTC wrote:
Applicant must be the entity who is selling the defense article to the
designated recipient foreign company, thus making an "export" as defined by ITAR, Section 120.17.
Mr. Rodriguez emphasized that ITAR, Section 120.17 merely defines
the term "export." It says nothing concerning the identity of the entity which can "make" the export.
Rodriguez explained that DDTC only issues licenses to companies
that it has already approved to make exports. This registration process is time-consuming and requires the applicant to pay heavy fees. It is intended to assure that licenses are only granted to
qualified applicants.
Telephone conversations with DDTC have confirmed that this is intended to be the new policy that DDTC will apply to all freight
forwarder applicants. DDTC's new position means that DDTC is now denying licenses to freight forwarders, even though they are registered.
Rodriguez pointed out that this action was taken without notice to the parties most affected - the freight forwarders. Application guidelines
issued as recently as July 31, 2005 contain no mention of this new policy. In Rodriguez' opinion, DDTC's action is not just unfair, but it
rises to the level of an arbitrary and capricious violation of the registered freight forwarders' due process rights. Since the licenses are being denied across the board solely on the basis of the
applicant's identity as a member of the class of freight forwarders, DDTC's action has the effect of revoking not merely a license, but the
freight forwarders very possibility of ever obtaining a license without notice and without hearing, which he explained is in direct violation of
the U.S. Administrative Procedure Act [46 U.S.C. 558]. Rodriguez also pointed out that there may be significant congressional reaction from DDTC's action, because many of the nation's largest defense
contractors have come to rely extensively on freight forwarders' licensing to simplify and accelerate their DoD export programs.
FMC MEETING TODAY ON
NVO NSAs
AUGUST 3, 2005
THE FMC ANNOUNCED:
A Notice of Proposed Rule-Making will be issued on Friday, August
5, 2005 which alters the definition of “shipper” in the current NSA rules so that NVOs may offer NSAs to other NVOs, or Shipper Associations of NVOs. (The current rules prohibit this).
NOTE: The proposed rules should be carefully reviewed to ensure that current “co-load” rules
and practices between NVOs are not disturbed.
Further, a Notice of Inquiry will be issued by August 15, 2005
soliciting industry comments on the question of whether two or more NVOs may jointly offer NSAs to shippers in the same way that ocean
carriers are able to do so in the conference system without the benefit of anti-trust immunity?
NOTE: This NOI is backed by some NVOs with overseas affiliates
that are registered NVOs so that the U.S. licensed NVO can jointly offer NSAs to shippers with their overseas affiliates. The issue of joint
rate making (two or more NVOs agreeing on rates) will be also reviewed by the FMC in an anti-trust context.
NVOCC SERVICE ARRANGEMENTS
GO INTO EFFECT JANUARY 19, 2005
At a special meeting on December 14, 2004, the Federal Maritime
Commission (FMC) adopted its proposed rules that will allow non-vessel operating common carriers (NVO) to enter into confidential
service arrangements (“NSAs”) with their customers effective January 19, 2005. The new FMC rules in summary provide the following:
The Rules:
a) NVOs may enter into confidential NSAs with their
customers---i.e., the current prohibition will be lifted;
b) NVOs are required to confidentially submit these NSAs electronically to the FMC after registering for this process; the
registration process is company/individual specific;
c) NVOs are also now required to publish the essential terms
of their NSAs in a public tariff format; essential terms do not include the identity the shipper, nor the rates and charges.
Next Steps.
The marketplace phenomena will definitely occur, regardless of how
particular NVOs feel about NSAs. Someone’s opportunity will be someone else’s loss. Customer relationships will be key and the key
to success will be to a) recognize that NSAs will shortly be a fact of life; b) IT solutions may be able to streamline the process; and c) in
our opinion, it will be best to lead the parade rather than to sit on the sidelines watching it go by. What is certain is that marketplace
change will occur, and individual NVOs will be forced to either commit to embracing these new approaches or face possible losses through
contractual cargo shifts to their competitors. Therefore, in order to stay competitive NVOs should immediately undertake the following:
a) Register with the FMC by mail at the Bureau of Trade
Analysis, 800 North Capitol St., Washington D.C. 20573, or by fax: 202-523-5867. The FMC will provide a user identification and password for the electronic filing of the confidential NSAs
through the FMC SERCON system.
b) Prepare Essential Terms templates which must be published in the NVOs tariff (these do not include the
identification of the shipper, nor the rates and charges that have been negotiated).
c) Prepare NSA language to utilize with the NVO shipper customers.
For more details or assistance with this process feel free to contact
Carlos Rodriguez (direct no. 202-973-2999; e-mail: rodriguze@Rodriguez O’Donnellgw.com) or Eddie Edwards (direct no. 202-973-2991; e-mail: eedwards@Rodriguez O’Donnellgw.com) or the Rodriguez O’Donnell lawyers with which you have contact. (Chicago: 773-314-5000.
to download document in PDF format
Department of Transportation’s Regulations regarding the
Transportation of Hazardous Materials: 3PL Contract Issues
Statement of Inquiry
The memo reviews the U.S. Hazardous Materials Regulations (“HMR”)
and contemplates a contractual relationship between a 3PL and a shipper customer (hereinafter “shipper”) whereby the customer ships
goods that may require handling as HAZMAT goods. The relationship contemplated between the parties is one generally referred to as a
“pick and pack” activity. This type of activity traditionally includes the receiving of goods from the shipper or its suppliers at the 3PL facility.
It further involves stocking these goods, picking and packing same when appropriate orders are received, and finally attending to all the
formalities effecting the distribution or shipment of these goods to various locations, domestically and abroad; usually including boxing
and/or packaging of goods, marking them appropriately, and labeling as may be required. Lastly, 3PLs, in various functions, prepare shipping and other documentation as required by the HMR. During
this process, the 3PL exercises almost complete control and dominion over these goods, but continually interacts with the shipper,
either electronically or through other means, advising the shipper of the status of these goods, and simultaneously receiving instructions and direction from the shipper.
Title 49 of the Department of Transportation’s (“DOT”) Regulations
contain the governing provisions pertaining to the transportation of hazardous materials. The Hazardous Materials Regulations (“HMR”)
focus on the functions involved in the transportation of hazardous materials and assign responsibilities and obligations to the entity(ies)
performing given functions related to that transportation. In the 3PL environment described above, while the shipper is clearly a
responsible party pursuant to the HMR, the 3PL is likely to also fill the role of shipper (a person who “offers” goods to be transported) as
well as a HAZMAT employer. The term “shipper” in the HMR is not specifically defined. It relies more on the term “offerors” of HAZMAT
for transportation. The likelihood is that regulatory authorities would impose “shipper” obligations not only on the “true” shipper, but also
companies such as 3PLs that “offer” HAZMAT cargo for transportation. In any case, since a 3PL is clearly acting as an agent of the shipper, the shipper can be expected to attempt to allocate as
much of the risk to the 3PL as the contractual dynamic would allow. Therefore, a 3PL should be sensitive to the specific HAZMAT
responsibilities as an “offeror” of HAZMAT transport, as well as those assigned to it by the shipper in its contractual relationship. Obviously,
the 3PL must be constantly aware of the potential liability ramifications (civil and penalty risks) which flow from the shipper-3PL relationship. Lastly, the 3PL should be aware that it also has HMR
responsibilities independent of its relationship with its shipper customer as a HAZMAT employer.
Therefore, it is not surprising that a shipper will attempt to
contractually allocate as much of the HAZMAT risk to the 3PL as possible. The corollary should be that the 3PL should also attempt to
contractually modify that risk by taking reasonable negotiation tactics in dealing with its shipper-customer. The discussion below should be
helpful in that regard. As noted above, the principal-agent relationship between a 3PL and its customer is governed by the contract between
the parties. Therefore, this is a likely area for an agent to address liability concerns. Following is a summary of the salient HAZMAT
functions in a 3PL relationship, their requirements under the HMR, and our suggestions for addressing the attendant liability issues in the contracting context.
1. Training and Testing
Training is a fundamental requirement for compliance with the HMR.
Under the HMR, a HAZMAT employee must receive appropriate training before he or she performs any of the functions subject to the HMR. See 49 C.F.R. § 172.709. Initial and recurrent
function-specific training is required. Id. The responsibility for ensuring that each HAZMAT employee is properly trained is placed on the HAZMAT employer. Id. Furthermore, the HAZMAT employer is
responsible for overall compliance with the HMR training and testing requirements and is required to create and retain records relating to a HAZMAT employee’s training and testing. Id.
Recommendation: Since HAZMAT employees are employed by
both the 3PL and the shipper, it would be prudent for the 3PL to demand a representation from the shipper that the shipper has trained
and tested employees, and that these representations are identified by the shipper with specificity. This provides to the 3PL the ability to
state to the shipper that it has relied upon these representations, and if these turn out to be erroneous, false, or otherwise in error, it
creates a defense in the event of a HAZMAT issue. The 3PL has to rely on HAZMAT information from the shipper, and, therefore, that information should be forthcoming from qualified individuals.
2. Classification and Identification of Hazardous Materials
The regulation specifies that the shipper “shall class and describe the
hazardous material in accordance” with the HMR. See 49 C.F.R. § 173.22(a)(1). There are specific procedures and criteria for
determining hazard class, and the proper shipping names for HAZMAT. Some materials are so hazardous that they may not be shipped at all. Some must be subjected to a review and approval
processes; some are prohibited by certain modes of transport and not by others. There is clear risk at this very basic stage of the HAZMAT
transaction that could result in huge liabilities to the shipper and the 3PL.
Recommendation: At the beginning of the 3PL/shipper relationship,
we can assume that the party most familiar with the goods to be handled, packed, and shipped is the shipper. It would, therefore, be prudent to require language in the agreement between the parties
which obligates the shipper to initially provide a list of all classifications, or divisions on goods that they ship, and a clear
description of goods that have been submitted for review and approval. The shipper must communicate to the 3PL if the goods have more than one hazard class or divisions, as defined by the HMR. The
shipper should also have the initial responsibility to provide the 3PL all the needed information with regard to its goods and their classification
within the Precedence of Hazard Table of the HMR. At this stage, the shipper should also pass on to the 3PL all issues relating to classification and identification which the shipper has experienced
with the relevant authorities.
All additional goods the shipper transports for which they have not
provided a classification and identification to the 3PL should be specifically identified to the 3PL as they are introduced into the activity. The shipper should always have the initial burden of
classifying and identifying HAZMAT goods to the 3PL since they have the most information and experience with the goods. If the shipper
insists that the 3PL assume these responsibilities, then the shipper should specifically request this in writing from the 3PL on a product
by product basis, relying on a well defined procedure. There should be no ambiguity as to which party has that duty. In other words, the
shipper should clearly have the burden of alerting the 3PL that a particular commodity has not been previously classified or identified in
the HAZMAT context by the shipper and that notice and request should be unequivocal and specific. Further, the procedure for this should be well defined between the parties in advance.
3. Packaging
The regulations are very specific with regard to proper packaging of
HAZMAT goods. Inadequately packed goods may not be offered for transportation or accepted for transport. The HMR specifies performance levels for packaging in certain instances. The regulations
for packaging are complicated and are mode of transportation sensitive. There are also restrictions on packaging certain substances together in the same package. A finding of improper packaging can
lead to hefty penalties, especially if a HAZMAT incident is involved.
Recommendation: It is clear that a 3PL might have packaging
duties imposed by the shipper. However, the packaging material, procedures, and overall knowledge of the product and packaging reside with the shipper. The agreement between the shipper and 3PL
should carefully spell out the duties of each with regard to packaging. The shipper should by agreement make known to the 3PL in writing
any packaging requirements for the shipper’s products that are known to the shipper at the time of entering into the agreement. For
example, if certain packages need to be upright, the shipper should disclose this requirement, and the proper marking should appear on
the packaging. If double packaging is required, this, too, should be specified from the outset. Goods must be identified by the shipper to
the 3PL with specificity as to packing groups as these are described in the Precedence of Hazard Table in the HMR. Any goods not contemplated when entering the relationship should be identified with
regard not only to classification, but also as to packaging requirements. If the shipper intends the 3PL to determine packaging requirements for commodities, this fact should be clearly
communicated to the 3PL in a formal specified manner, as is recommended above in section 2 in dealing with classification and identification requirements.
4. Hazard Communication: (Shipping Papers-Certification,
Package Markings and Labels, Placards and Id. Nos. Outside of Vehicles, and Emergency Response Information)
The HMR require many different communications at various junctures
in the process. Traditional shipping papers such as bills of lading, freight bills, and the like. must contain specific information relating to
the hazardous material, plus any additional indicators warning of handling perils such as “POISON”, or whether the material must be
shipped only on cargo aircraft, etc. The shipping papers must give appropriate information so that other handlers in the chain of transportation become aware timely of placarding or segregation
requirements, and give emergency responders necessary information in responding to an incident. A “shipper’s certification” must be
included, and must be certified only by a person with training in appropriate HMR areas. This is obviously an area that is rife for serious mischief, especially in the circumstance when an incident
has occurred and the information on the shipping papers, or other documentation is incorrect, insufficient, or worse still, non-existent.
Package markings and labels also play an important role in giving notice to intermediate cargo handlers that a given shipment requires
specialized handling, if that is the case. Sufficient notice to the transporter must be evident in the shipping papers or the packaging in
order that the proper placarding is provided for the motor vehicle, freight container, and all others.
Recommendation:
a. Shipping papers.
Since the 3PL has the closest connection to the transportation functions as these were described above (Statement of Inquiry), it is expected the 3PL will prepare these
documents (e.g., bills of lading). These will require at the very least the following: proper shipping name, hazard class, or division number,
identification number, packing group (if any), and total quantity. Obviously, the only one of these facts firmly in the grasp of the 3PL is
the “total quantity”. The agreement with the shipper should tie in the procedures noted above (Section 2—Classification and Identification)
to allocate some of the functions and risk to the underlying shipper to initially provide all the information required in the shipping papers. The
3PL should also require that the shipper provide copies of prior documentation for HAZMAT goods to be handled by any other 3PL.
Also note the shipping papers require a “shipper’s certification”. The
“shipper’s certification” is a statement executed by an HMR trained person certifying that the HAZMAT materials shipped are properly
classified, described, packaged, marked, and labeled, and are in proper condition to be transported. This certification, of course,
carries serious personal and company risks with it. The shipper will naturally opt to have the 3PL provide this certification. Keeping in
mind that to a large degree the representations made in the shipping papers, and elsewhere, are done in reliance on information imparted
by the shipper, the 3PL must have contract language indemnifying and holding itself and its employee harmless in case of error. This
indemnification and hold harmless should apply at least to the extent that any of the information which is imparted by the shipper is insufficient, or information is altogether missing as a result of
representations made by the shipper and relied upon by the 3PL. Air shipments require special certifications, but the principles discussed
above equally apply to all modes of transportation. There are additional issues relating to IATA standards for Cargo Agents, especially now that IATA is preparing to acknowledge Cargo Agents
in 3PL roles as described above ( Statement of Inquiry) as proper parties to execute certifications in the shipping papers.
b. Package markings and labels.
These markings and labels are placed on packages, and are intended to provide information for proper stowing and to prevent incompatible hazardous materials from
being placed in close proximity to each other. The markings and labels on the packages also provide first responders with vital information when shipping papers are not readily available. These are
clearly functions that occur while the cargo is in the control of the 3PL. These warning labels must conform to the HMR in size and
color. Therefore, there is plenty of room for mistakes when performing this function. It is assumed the 3PL is also the party who will be
loading the packages into air or marine containers, so the obligations that flow from these obligations can be significant for the 3PL in
ensuring that incompatible goods are not improperly stowed and/or packed in a transport container.
Again, contractual protections must be attempted by the 3PL. The
first step is to put some obligation on the shipper to provide historical data on the type of markings and labels traditionally used for the
particular HAZMAT goods. Therefore, the 3PL would rely on data and historical experience of the shipper. There should also be operational
mechanisms established whereby the shipper and the 3PL jointly decide on the appropriateness of existing markings and labels for traditional shipments, and for determining these requirements for new
goods to be handled and shipped by the 3PL. If a joint (shipper/3PL) task group is established to address these types of issues, the risk of
liability is minimized through greater controls on the activity, but also there is joint responsibility if anything goes wrong. This might be a way of minimizing risk.
c. Placarding of freight containers, unit load devices,
transport vehicles, or rail cars. Notwithstanding that this equipment is owned and controlled by third parties, the “offeror” has
the obligation to provide the appropriate “outside” placard. Again this is an important activity which cannot be overlooked. We suggest a
joint task group of the shipper and the 3PL as described above in order to ascertain and determine the type of placarding necessary for the types of goods to be handled by the 3PL.
d. Emergency response information and emergency
response telephone. Emergency response information must be provided and should be either provided by the shipper based on past
experience with the goods shipped, or should be jointly determined by the parties (shipper/3PL). More importantly, the emergency response
telephone number should be assigned to a third party with expertise in these functions for the type of goods shipped. Therefore, the
shipper/3PL agreement should spell out how emergency response is to be handled and clarify how the third party is to be chosen.
There should be clear language in the agreement that the 3PL shall
not be responsible for errors of omission or commission committed by this third party. It should also be agreed that the shipper should seek
proper contractual relief from that third party to equal protection to the 3PL since the 3PL could be considered the “offeror” and be exposed to liability independently from the shipper.
5. Miscellaneous Considerations
a. The agreement should have a “partnership” tone to it with
regard to achieving compliance with all the relevant requirements, especially where special knowledge and historical experience resides
with the shipper. A joint task group should be considered to solve various problems that may arise in the HAZMAT arena. This could also be helpful in minimizing risk.
b. To the extent the 3PL is to receive HAZMAT materials from
third party suppliers on behalf of the shipper, the shipper should agree to cooperate in getting all pertinent HAZMAT information from that
supplier. This should include not only information about the hazardous material itself, but also with regard to the packaging, and history of HAZMAT infractions.
c. The agreement should include language whereby the shipper
should be completely cooperative in providing information about packaging with regard as to how it meets DOT specifications, United Nation standards, or other packaging authorized by the HMR.
d. There should be language in the contract whereby the shipper
agrees to utilize shipping descriptions that are consistent with proper shipping names, hazard class or division, identification number, and
packaging group as listed in the Hazardous Material Table in the HMR. Package marking should be consistent with the materials descriptions; if not, the shipper must provide assurances of resolving
issues of this type. The shipper should agree to work with the 3PL to bring a non-conforming shipment into compliance.
e. To the extent possible, the 3PL should seek indemnification
and hold harmless language; to the extent possible, the 3PL should also insist the shipper share responsibility; and to the extent possible
the shipper should agree to make third parties responsible (for example a third party assuming emergency response telephone obligations).
We trust the forgoing will at least provide some meaningful guidelines
in structuring an agreement with a shipper of hazardous materials where the 3PL is expected to provide extensive services as described
above. If you have additional questions, feel free to contact the Rodriguez O’DonnellGW attorneys with who you regularly deal.
Washington D.C. - 202-293-3300 Chicago - 773-314-5000
to download document in PDF format
International Transportation and Maritime Law
Ocean/Air Intermediary Updates from the “OTI/IAC Corner”
EMS PROGRAM
7/04
Wondering what you need to accomplish for compliance on the export side? If so, join the Foreign Trade Assn. on August 12, 2004 in Torrance, CA to learn about Export Management Systems and their
benefits to your bottom line. For more details, call the FTA at 323-730-1011.
WHOSE BILL OF LADING GOVERNS?
To the surprise of many, the U.S. Supreme Court has agreed to hear
a case about cargo damage. It involves Norfolk Southern Railroad and ICC. ICC was an Australian nvocc which won the bid to transport machinery for Kirby Engineering in Australia to the General Motors
plant in Huntsville, Alabama.
ICC issued its house bill of lading which incorporated the provisions of the Carriage of Goods by the Sea Act (COGSA). ICC hired Hamburg
Sud to transport the goods and so there was also a master bill of lading issued. Norfolk Southern was hired by Columbus Line (Hamburg Sud's U.S. agent) to move the goods from Savannah to
Huntsville. There was a train wreck which apparently caused $1.5 million in damage to the machinery. Kirby sued Norfolk Southern. The
railroad argued its liability was limited by the Himalaya clause in the master bill of lading. A Himalaya clause extends COGSA's limit of
liability (and other terms) to others in the chain of cargo handling and delivery, but only if the necessary language is contained in the bill of lading terms and conditions.
Applying COGSA's $500 per package limit of liability over 16 packages, results in Norfolk Southern owing only $8,000 (although the trial court award was only $5,000) instead of the full $1.5 million.
The trial court upheld the railroad's position. The appellate court overturned it finding instead the nvocc was the agent of the shipper,
not itself a carrier. For the railroad, the key was it can limit its liability if the terms of the master bill of lading apply, but not if the house bill governs.
The Supreme Court will hear oral argument in October and is expected to rule sometime in 2005. The outcome of the high court's decision could have far reaching implications. For shippers and
consignees the question becomes, whom do you sue if your cargo is damaged? Is the nvocc the carrier or, in acting on behalf of the
shipper, is it merely an agent agreeing to limit the shipper's liability? Can you sue the vessel operator directly even if you have only a
house bill of lading? Buyers and sellers have dealt with dueling purchase order terms and conditions for years, but this is the first time dueling bills of lading have been considered.
A finding by the Supreme Court that an nvocc is acting as an agent vis a vis the shipper would wreak havoc with the current FMC regulatory regime in that the Ocean Shipping Reform Act (OSRA)
clearly designates an nvocc as a carrier, and not the agent of the shipper. That agent role is traditionally one for ocean freight
forwarders who do not issue bills of lading. The regulatory scheme in OSRA would be "turned on its head" if the Court should end up with a
finding/ruling that an nvocc is an agent not a carrier. That is why the Federal Maritime Commission has joined the Department of Justice to
intervene in the pending proceedings with comments to the Court. The FMC would, of course, be concerned, if such a mischievous result were to occur.
NVOCC-GAC and New York/New Jersey Foreign Freight Forwarders and Brokers Association comments re NVOCCs and tariff filing
to download document in PDF format
Do FDA Regulations Require "Forwarders" to Register?
Initial guidance offered by the FDA on October 10, 2003 stated that
FDA had clarified in §1.227(b)(2) of the interim final rule that "forwarders" were required to register. FDA stated: "However,
stationary facilities that serve to assist transporters, such as truck or marine terminals or freight forwarders, are required to register because they hold food."
However, in Q&A 20 issued January 12, 2004, the FDA, in responding to the question of whether "truck terminals" and "freight forwarders"
having food on their premises as part of the shipment process, were required to register, stated an unequivocal, "No". FDA further
explained that "truck terminals and freight forwarders that are part of the transportation network and have possession, custody, or control
of food for the sole purpose of facilitating its transport are not required to be registered with FDA."
In view of the apparent inconsistencies of these statements, FDA was
asked by Rodriguez O’DonnellGW to clarify the issue. The response from FDA: "If the consolidator is doing packing or re-packing, they are
conducting more significant activities than just holding food in the normal course of business as a carrier and would, therefore, be
required to register. In addition, because our rule and guidances do not define a time period after which an establishment falls under the
definition of "holding," whether an establishment has to register depends on its individual circumstances--does it have possession,
custody, or control of food for the sole purpose of transporting it from one location to another (in which case it would not be required to
register), or does it function more like a warehouse (in which it would be required to register)?"
It is our opinion that forwarder/NVOCC/consolidator/IAC operations
that involve receiving food at a facility, unpacking ("unstuffing") it, and re-packing ("stuffing") it into an ocean/air/surface container for further
transport would be required to be registered. Such actions would appear to be more in the area of warehousing in the loosest sense of
that word. However, if all the company does is transport the container, even the FDA now agrees, it need not be registered. For further
questions on this topic, please contact an Rodriguez O’DonnellGW office in your area.
SUPREME COURT CASE TO DECIDE: IS AN NVOCC AN AGENT OR INDEPENDENT CONTRACTOR VIS A VIS A SHIPPER?
The Supreme Court will consider ("granted Certiori") in Norfolk S. Ry. Co. v. James N. Kirby, Pty Ltd., 124 S. Ct. 981 (2004) the issue of
whether a foreign cargo owner ("shipper") who contracted with an NVOCC for a shipment by ocean transport for delivery at an inland
point in the United States by rail is bound by limitations in the NVOs bill of lading, or those in the bill of lading of a U.S. railroad, when
suing the railroad that sub-contracted with the ocean carrier to deliver the goods to destination. The Second, Third, and Ninth Circuit
presume an agency relationship when the governing contract and the surrounding circumstances do not clearly establish the nature of the relationship. The 11th Circuit on the other hand has adopted a
conflicting rule that states that "special particular arrangements" must be demonstrated to indicate that the intermediary is acting as an agent, rather than as an independent contractor.
A holding, and even dicta (Court's conclusions that are not part of the holding, or essential to the holding), could seriously alter the
conventional understanding among shippers, intermediaries, and underlying carriers (ocean, surface) in structuring their relationships, and in covering risk. The decision could disturb traditional
understandings of who bears the risk of potential loss. It would also impact on who needs to insure to protect against that risk. These
issues would particularly impact containerized cargo that moves on through bills issued by intermediaries. Rodriguez O’DonnellGW will
be following this case and reporting appropriately when the Supreme Court issues a decision.
FMC: FEDEX SUBMITS PETITION AND SECRETARY MINETTA
ENDORSES CONFIDENTIAL SERVICE CONTRACTS FOR NVOCCS
FedEx has joined UPS, Danzas-DHL, BDP, C.H. Robinson and others to urge the Federal Maritime Commission to grant exemptions
so that they may be exempt from the tariff publishing requirements of the Shipping Act of 1984, as amended, and requests the FMC to
allow it to enter confidential contracts with its customers. In addition to FedEx, Petitions have been submitted by the following companies:
United Parcel Service, BAX-Global, C.H. Robinson, Ocean World Lines, and more recently, Danzas-DHL and BDP International.
Also of special interest, is that the Department of Transportation (as well as the Department of Justice) has submitted comments to the FMC strongly endorsing the pro-competitive aspect of allowing
NVOCCs the ability to enter confidential service contracts with its customers. However, Secretary Minetta at a recent meeting of the Nit
League strongly reiterated its support for confidential service contracts for NVOCCs. This has been interpreted to mean by some that Secretary Minetta's comments are tantamount to Administration
endorsement of these changes.
In view of the overwhelming political support for these Petitions from all quarters, with the exception of the World Shipping Council, an
ocean carrier lobbying group, Rodriguez O’DonnellGW expects that the FMC will take some positive steps on these Petitions.
FMC ISSUES FINAL NVOCC BOND RULES IN CHINESE TRADE
The Federal Maritime Commission has issued final rules pursuant to the Memorandum of Consultations ("MOC") resulting in bi-lateral
maritime transport agreements between the U.S. and the People's Republic of China, agreed, among other things that U.S. NVOCCs not be required to make a cash deposit in a Chinese bank for
approximately $96,000.00, provided that the U.S. NVOs: 1)Was a legal person registered by U.S. authorities (U.S. corporation); 2) had an FMC license (not merely registered as a foreign domiciled
company); and provided evidence of a bond of $96,000. The salient features of the FMC final rules are the following: a) U.S. NVOs,
individually, or in group bonds, would have the option of providing an additional $21,000.00 bond, in lieu of making a $96,000.00 cash
deposit in China with the Ministry of Communication ("the Ministry"), to meet the requirements of the MOC; and b) this rider could be
accessed by the Peoples Republic of China, the Ministry, only for fines and penalties assessed by the Ministry pursuant to the Chinese
regulations. This rider amount would not be available to satisfy other claims from any other source, including the FMC, or private parties.
These rules and procedures will only apply to NVOCCs operating in the U.S. trades to and from China, and will not apply to NVOCCs,
whether U.S. or not, that may be involved in China to non-U.S. trades. Those NVOCCs must adhere to the $96,000.00 cash deposit requirement. As noted before, it appears that the rules are geared to
the smaller and medium-sized U.S. NVOs.
OCEAN AMS WORKING?
02/04
The latest figures released by Customs indicate approximately 12
million bills of lading have been transmitted through Ocean AMS. About 800 resulted no load messages, but only 12 to 18 have involved weapons of mass destruction or other items threatening to U.S.
national security. The rest involved documentation problems.
ADVANCE MANIFESTS RULES KICK IN
02/04
Much of Customs' new advance manifest system is expected to be operational soon. Rail may be mandatory in the spring. By March 8, ocean carriers must join Ocean AMS which is currently operational,
although nvoccs may join at any time. Outbound AMS will be handled through AES and is likely to be mandatory by spring, too. Air AMS is coming soon!
TSA:VOLUNTARY DISCLOSURE DIRECTIVES ISSUED
02/04
The Transportation Security Administration ("TSA") has issued a policy directive that encourages indirect air carriers ("IAC"), as well as
other regulated entities, to enter voluntary disclosure procedures when the IAC discovers violations of TSA regulations. If the conditions
of the voluntary disclosure program are met, the disclosure would not result in any penalties. The policy directive requires that the IAC meet
the following requirements: a) immediate TSA notification of the violation, before TSA has learned about it through other means; b) the
violation was inadvertent; c) the apparent violation does not indicate a reasonable question of
qualification or training on the part of the reporting IAC; d) an
immediate action was taken to terminate the conduct that resulted in the apparent violation; and e) the IAC has developed a corrective
action plan, with a follow-up self inspection to ensure compliance.
Since violations of TSA regulations can result in penalties of $10,000
per violation, it is in the best interest of IACs to ensure that TSA violations are avoided, and when detected, the IAC should consider
the voluntary disclosure route. For further information, contact Carlos Rodriguez, Rodriguez@Rodriguez O’Donnellgw.com, or direct phone: 202-973-2999.
FMC: CHINESE TRADE NVO RULE-MAKING ON BOND REQUIREMENTS
Pursuant to the Memorandum of Consultations ("MOC") resulting in
bi-lateral maritime transport agreements between the U.S. and the People's Republic of China, agreed, among other things that U.S. NVOCCs not be required to make a cash deposit in a Chinese bank
for approximately $96,000.00, provided that the U.S. NVOs: 1)Was a legal person registered by U.S. authorities (U.S. corporation); 2) had an FMC license (not merely registered as a foreign domiciled
company); and provided evidence of a bond of $96,000. Obviously, these terms raise various questions as to how these requirements will
be implemented. The FMC has initiated a rule-making procedure, in response to a Petition by the The National Customs Brokers &
Forwarders Association of America, Inc., ("the National"), to implement bond rules to correspond with the MOC. The salient features of the FMC rule-making are the following: a) U.S. NVOs
would have the option of providing an additional $21,000.00 bond, in lieu of making a $96,000.00 cash deposit in China with the Ministry of
Communication ("the Ministry"), to meet the requirements of the MOC; and b) this rider could be accessed by the Peoples Republic of
China, the Ministry, only for fines and penalties assessed by the Ministry pursuant to the Chinese regulations. This rider amount would not be available to satisfy other claims from any other source,
including the FMC, or private parties.
Without knowing how the rules will ultimately come out, since the last day for comments is February 27, 2004, it appears that these rules
and procedures will only apply to NVOCCs operating in the U.S. trades to and from China, and will not apply to NVOCCs, whether U.S. or not that may be involved in China to non-U.S. trades. Our
guess is that those NVOCCs must adhere to the $96,000.00 cash deposit requirement. It appears that the rules are geared to the smaller and medium-sized U.S. NVOs.
FMC: UPDATE AND SCORECARD ON PENDING NVO PETITIONS
Bax-Global, in recent comments, has urged the Federal Maritime Commission, to take swift action on the pending Petitions from
NVOCCs. The Exemptions generally call for exempting certain NVOCCs from the tariff-publishing requirements of the Shipping Act of 1984, as amended, and requests allowing NVOCCs the ability to
enter confidential contracts with its customers. The Petitions and comments under review were filed by the following companies: United
Parcel Service, Bax-Global, C.H. Robinson, Ocean World Lines, and more recently, Danzas-DHL and BDP International. The National
Customs Brokers & Forwarders Association of America, Inc. ("the National") has filed recent comments endorsing the process and
calling for the Commission to exempt "qualified NVOCCs". In view of the overwhelming support for these Petitions from all quarters, with
the exception of the World Shipping Council, an ocean carrier lobbying group, it is expected that the FMC will take some action on these Petitions. Of particular note is that way over two-hundred
Members of Congress (Senators and Congressmen) are endorsing the changes, mainly in response to UPS's Petition. The Department of Justice, as well as important shipper groups such as the NIT
League, also are endorsing these exemptions. High on the list of probabilities is that the FMC will initiate a rule-making to establish the
criteria that will identify "qualified NVOCCs". It is expected that criteria to qualify NVOCCs will include financial as well as operational
requirements. Most of the Petitions are based on shipper requirements for a broader relationship with its logistics vendors, which are also NVOs, to provide comprehensive supply chain
management services, including ocean transportation, in the context of confidential agreements.
It is expected that the FMC will act on these by this spring.
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