INTERNATIONAL TRANSPORTATION

SHIPPING ISSUES

AIRLINE PROBLEMS?
09/07
Just as we have started hearing about staggering fines being imposed for alleged trade violations, now comes news that British Airways and Korean Air Lines will each pay $300 million to settle criminal charges of price fixing, especially related to fuel, security and war-risk premiums. Lufthansa AG and Virgin Atlantic are under investigation as well, but chose to enter the Justice Dept’s Corporate Leniency Program, meaning they may be able to avoid criminal charges, but will likely still be forced to pay hefty fines.

The Justice Dept. has issued subpoenas to 13 well-known large and medium size air freight consolidators. As this case plays itself out, the interesting question is will the refunds which seem likely to follow go to the consolidators, or will they eventually be paid to their customers?

CARMACK CASE SETTLED
04/07
Intermodal transportation is today’s norm so it may come as a surprise that it remains unclear which law applies when goods are damaged or lost during the ground transport leg of a through bill of lading. Some federal circuits rely on COGSA, while others look to the Carmack Amendment. The differences are significant. COGSA allows a one (1) year statute of limitations. Carmack’s is two (2) years. COGSA has a federally mandated $500 per package limit of liability. Carmack’s is the result of the carrier’s contract.

The shipping community hoped the Altadis case would finally settle the matter. Altadis USA, Inc. v Sea Star Line, LLC involved a claim arising from the loss of cigars being transported from Puerto Rico to Jacksonville. The vessel took the shipment from Puerto Rico to Tampa. The trucker picked up the load in Tampa and was transporting it to Jacksonville. The goods disappeared during the night while the truck was parked.

The U.S. Supreme Court agreed to hear the case, but it settled, so your success with such claims still turns on the district in which the case is filed and the quality of your carrier’s contract of carriage.

BOX STANDARDS GROUP
06/06
General Electric, Siemens, JP Morgan Chase, GreenLine Systems, Mitsubishi and Unisys have formed the International Container Security Organisation which expects to set standards for container security devices and how they communicate with outside data sources. For more details check www.containersecurity.org.

CONFIDENTIALITY GONE?
01/06
One of the obligations the U.S. agreed to under the WTO's Framework for Security and Trade Facilitation is the sharing of shipment data with other signatory countries. While most companies have by now become comfortable with the sharing of a certain amount of manifest data (at least those who have not claimed confidentiality), one of the major concerns of industry in the coming year is just how business confidential information will be shielded from disclosure under this new arrangement?

While the American federal agencies are under strong legal obligations to keep a company's proprietary information confidential, the rules are quite different elsewhere. How will this be resolved?

CARGO DECISION LOGICAL -
11/04

The U.S. Supreme Court recently held Himalaya clauses in bills of lading issued by the carrier and nvocc) governed damages caused while cargo was in the possession of the railroad. If properly worded, a Himalaya clause extends the B/L terms to cover those who handle and transport the cargo from origin to destination. While vessel operators have long included Himalaya clauses in their bills of lading, the practice is not as widespread with nvoccs. Is it time to update your B/L provisions?

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.
 

ENFORCEMENT OF PORT SECURITY?
06/04

The July 1st deadline for port security to be in place is rapidly approaching and neither DHS nor the Coast Guard has yet made clear what will happen to vessels which arrive from ports which do not have approved port security plans in place.

Just what is your company doing to avoid dealing with carriers who call such ports?
 

Customs Update: Pulse of the industry
(Published in The JOURNAL of COMMERCE April 28, 2004 )
 to view document in printable format

In last month's column, the proposal was made that forwarders be allowed to X-ray cargo as a means to expedite release upon arrival in the United States. By a resounding 3-to-1 margin, the answer was no! This month, we want to find out how you feel about infrastructure improvements.

In a February article, Bill Mongelluzzo discussed a proposal by California Assemblyman Alan Lowenthal that deals with port congestion in California. The idea is to charge a premium fee for goods picked up during normal business hours. The theory behind the bill is that if it cost less to pick up cargo during off hours, that would lessen congestion on California's freeways -- a goal with which everyone in the region agrees.

Obviously the federal government has neither the will nor the ability to seriously deal with badly needed infrastructure improvements such as dredging, access roads, rail connections, and the like, much less expansion and repaving of highways. Even if Congress could make a firm decision today, it would take years for the full impact to be felt. Unless something is done in the near future, capacity will outstrip infrastructure. If that occurs, how will ports and transport companies respond? What will be the reaction of consumers when the latest hot toy for the Christmas season can't get to the shelves in time?

The American Highway Users Alliance (AHUA) released a report recently which is of interest. While the report covered traffic clogs the AHUA calls bottlenecks, clearly the focus was rush-hour commuters. Finding the worst bottleneck to be the Ventura Freeway interchange with the San Diego Freeway (something those of us living in Southern California knew instinctively), the study found that modest investments in infrastructure result in large savings. The report cited the example of a $293 million project to reconstruct a major interchange in Albuquerque. The net result was that annual hours of delay dropped from 16 million in 1997 to 1.1 million in 2002.

The yearly race for highway dollars is again before Congress and languishes during the squabbling which inevitably occurs in an election year. Lowenthal's bill deems the hours of 8:00 a.m. to 5:00 p.m. Monday through Friday as regular business hours. Its stated intention is to push the big companies to move their goods during off-hours. The Assemblyman has also said he introduced this bill as a means to push the private sector to a solution. So, the first question is, should the private sector be responsible for reducing traffic congestion?

Assuming you agree with that premise, how would this work? Clearly the big shippers can revise their operations to allow receipt of cargo on weekends and at night, but what about the little guy? As things stand, he doesn't even have enough buying clout to insure that his order is properly filled, can he really be expected to receive cargo at night? The likely answer is no which means the burden of storing the cargo will fall on the truckers, who are already overworked and, some would say, underpaid. So the second question becomes, is it realistic to expect truckers to provide this service? If so, how much more would you be willing to pay for safe overnight storage of your cargo?

The Lowenthal proposal gives tax credits to those companies which ship at night and on weekends. If one assumes this is a proper way to proceed, wouldn't it make more sense to find a way to not put smaller companies at the competitive disadvantage the increased costs will cause? That brings us our third survey question this month: Should off-hours pick-up only kick in for shippers of a certain size?

Finally, Mr. Mongelluzzo's article discussed targeted user fees. Our final survey question: Would you agree to the imposition of a modest user fee to deal with the congestion problem if there was a way to insure that user fee was collected, administered and dispensed locally?

I look forward to your responses.

SPECIAL BILL HELD UP
11/03
What had been promised as the fix to the 24 hour rule computer mess has been delayed. Originally announced to be in place by December 6, the so-called Special Bill, designed to allow nvoccs to transmit inbound manifest information which would be matched against master bill of lading data transmitted by steamship lines and then allow vessel operators to handle arrival and in-bond transport, has been delayed because Customs is not satisfied with the results of the testing conducted to date. While Customs has said it is working on system fixes, no new effective date has been announced.

Responses to Special Bill Discussion Points by Carriers and NVOCCs
 to download document in PDF format

MORE NVOCC FMC PETITIONS
9/03
 
Late last week, C.H. Robinson Worldwide, Inc. filed a Petition requesting that the Federal Maritime Commission exempt it from the current shipping laws not allowing NVOCCs to enter into confidential service contracts with their shippers. In its petition, Robinson requests the FMC consider: a) whether the NVOCC adds value to the ocean transaction; and b) whether the NVOCC is financially fit. Robinson was listed in 2002 in Fortune Magazine's Fortune 500, and in the Most Admired Companies list. It is the only non-asset-based transportation company on the Fortune 500. Robinson's filing follows a similar one by UPS last month in which UPS argued it was a company with substantial assets and that factor should be the one on which the FMC relies in granting it an exemption.

A third petition was filed by Ocean World Line urging that the FMC allow NVOCCs to rely on a 1949-origin "special contracts" provision as the foundation for regulatory change which permits certain rate offerings to be withheld from publication. The fourth petition was filed by BAX Global urging that the operative criteria be: a) the NVOCC has substantial assets; b) it is publicly traded or tied to an ocean common carrier; c) offers multimodal logistics; d) and has a track record of historical FMC compliance; plus e) that these requests all be considered through formal rule making.

CUSTOMS ISSUES ADVANCE MANIFEST REGS.
7/03

In the July 23, 2003 Federal Register, Customs will publish its final advance manifest regulations. The new system will be built relying on existing or expected computer capability, so AES will be used for outbound while Vessel, Air and Rail AMS will be used for inbound, with Truck AMS to be relied upon once built.

The applicable time frames for imports are:  Ocean - 24 hours; effective by October 21, 2003. Air - 4 hours unless being shipped from North America (Canada, Mexico, Central America, South America (north of the equator only) plus the Caribbean and Bermuda and then wheels up governs; mandatory by October 21, 2003 unless extended for reasons such as training, programming changes or time needed to certify participants. Rail - no later than 2 hours prior to arrival; exempt is cargo moving between two U.S. domestic points which transits either Canada or Mexico; mandatory 90 days from the date each port becomes operational. For Truck which does not become automated until ACE is up and running, Customs opted to rely on existing programs, specifically FAST (30 minutes prior to arrival) and PAPS and ABI in-bond (1 hour prior to arrival); with CAFES and BRASS the entry will serve as the manifest so these program remain paper driven and will be phased out over time; effective 90 days from the date Customs publishes notification that an approved data interchange system is operational and must be used.

Outbound time frames are: Vessel - no later than 24 hours prior to departure; Air - no later than 2 hours prior to scheduled departure, Truck and Express Consignment Couriers - no later than 1 hour prior to border arrival; Rail - no later than 4 hours prior to the engine being attached to the train to go foreign.

Option 4 remains with revisions, Census' exemptions re SED filing also will be honored.
 

OPEN LETTER  By Carlos Rodriguez
To:  Ocean carriers, NVOCCs, and logistics companies
Re:  Another paradigm shift in the shipping industry?
(Published in Americah Shipper, Vol. 45, No. 7, July 2003)

Excuse the buzzword, but Carlos Rodriguez, general counsel for the NVOCC-Government Affairs Council, says ocean carriers, non-vessel-operating common carriers and logistics companies are facing another paradigm shift in the shipping industry. Frequently fractured by disparate issues, these three sides have a shared interest in modifying laws and regulations that impede their common business objectives, he said.

 

Wondering about the latest developments between Customs and
the NVOCC community regarding AMS?
05/03

 

FMC Fines – Can They be Avoided?
Originally published in Avalon Risk Management's Quest in May 2003.

Given the enforcement climate at the FMC, it appears that the FMC is not backing down on informal and formal investigations against NVOs and freight forwarders. The most common Shipping Act violations involve: unlawful access to service contracts, NVOs not adhering to their tariff rates, unlawful rebates, forwarders receiving compensation from ocean carriers where the forwarder provided no services, operating without a tariff and a bond, and commodity misdescription. In order to prevent an FMC investigation of NVO's and forwarder’s activities, the following recommendations are provided:

1. When accessing a service contract, always ensure that you are the proper NVOCC to enter into that service contract.

2. Always ensure that your agents, affiliates or other partners are listed in the service contract.

3. If the service contract agent, affiliate or other partner issues their house bill of lading, ensure that they are licensed tariffed and bonded or a registered, tariffed and bonded with the FMC.

3. Ensure that the NVOCC has charged its tariff rates.

4. Confirm that as an OTI freight forwarder, you can justify receiving compensation by providing some backups or proof that you or your company performed forwarding functions, and written certification is provided to the carrier.

5. Consult a specialized attorney before providing documents or making statements to any government investigator.

6. Never allow a carrier to provide you with a service contract number without that carrier confirming in writing that you are now a party to that service contract and you are provided a copy of the contract.

7. Always be realistic with your commitments in a service contract. Unreasonable MQC commitments can lead to liquidated damages.

The AMS Problem
5/03

As everyone well knows, implementation of the AMS regulations resulted in a litany of severe operational problems. These problems arose from the implementation of the AMS regulations, and in particular were underscored with the difficulties arising from an AMS filing NVO having to arrive a vessel, cut ITs, arrange for the release of cargo from the pier, direct cargo to G.O. status, arrange Permits to Transfer and so forth. These issues were further compounded by the co-loading situation. As everyone knows, this has led to serious delays, demurrage issues, and other major problems. Some members are even opting to decertify from AMS until the problems are fixed.

Option 1.
On April 18, Customs presented to a Working Task Group comprised of VOCCs, NVOCCs, and key technical Customs staff, a proposal which they have termed "the Special Bill" proposal, which is a good faith attempt to find a solution to these problems. This so-called Option 1 is intended to permit NVOCCs to do their own cargo manifest filings through AMS. Without getting into too much detail at this point, the procedure would treat the NVOCC HBL data being filed via AMS in a special way, essentially by no longer showing it as the master BL. By doing so, once the cargo manifest data has been appropriately filed by the NVOCC and reviewed by Customs, and if there are no "hold" or "do not load" messages generated, the NVOCC filing would be treated as closed and all further actions required (such as the shipment arrivals, ITs, clearances, G.O., and PTTs) would again become the responsibility of the vessel operator to the full extent of its bill of lading obligations.

Expanded Option 1.
While some are calling an alternate proposal as Option 2, in reality it appears to us to be an expansion of Option 1 in that it accomplishes all that is contained in Option 1, but gives the NVO the additional option to assume responsibilities with regard to post discharge activities. For example, under this expanded option, an NVOCC may elect to participate in the PMIB (Paperless Master In-Bond Program) which some NVOCCs find desirable with regard to controlling their shipment flow, or, in the alternative, a NVOCC could elect to have the ocean carrier perform these tasks as Option 1 provides. The expanded version is being supported by a number of prominent and what some would consider large NVOCCs, as well as other smaller NVOCCs who are technically competent, and want to preserve competitive advantages they feel they have gained. One company is even proposing a further refinement which addresses co-load issues directly. The objectives of Option 1, the Special Bill proposal, such as delegating the arrival of vessel function to the ocean carrier, are also included in the Expanded Option 1 proposal. The big difference is that the NVOCC has further options not available in Option 1.

 Since choosing between these options may be difficult to conceptualize, we have a link below to a chart which graphically shows the differences between the two approaches, and the current status. Notwithstanding that this chart was prepared by NVOCCs which are supporters of Expanded Option 1, it is extremely helpful in understanding the issues. 

Recommendation.
This is an issue which will resurface at the next Working Task Group meeting scheduled for the week of May 19th in Washington. It is important that Customs hear a united front through those participating in that meeting. We strongly suggest that you send a communication to Ms. Maurine Cecil (maurinec@shipamerican.com), the Chairperson for the NVOCC Committee of the NCBFFA expressing your company's choice on this important issue. Please send us a copy as well to rodriguez@Rodriguez O’Donnellgw.com.

CLICK HERE:  Option 2 vs. Current 24 Hour Rule

Customs Issuing Penalties to NVOCCS
5/03

Now that nvoccs are being treated as carriers in AMS, they are being penalized when shipments get released without Customs examinations. What is not clear is whether the nvocc actually has liability since often it does not operate or control the facility where the cargo was erroneously released.

NVOCCs need to be sure they have proper procedures to track the release of their shipments but should also have proper indemnity agreements in place with their vendors.  Of course, nvoccs should have recourse in the event of manifest discrepancies as well.
 

Customs Update:  Manifest Rules are Changing - Again
(Published May 8, 2003 -The Journal of Commerce Online)
CLICK HERE for a printable version of this article

The requirement for ocean advance manifest information took effect on December 2, 2002. Allowing a transition period, Customs did not begin to enforce the new rules until February 2, 2003 and made clear at the time that it was first going to focus on cargo descriptions. In recent public fora, senior Customs officials have stated approximately 150,000 bills of lading have been reviewed but only about 140 no-load orders have been issued. Customs has also admitted that the new advance manifest rules have led to between six and 12 seizures of arms, war materiel and similar non-drug contraband.

Effective May 4, 2003, individual ports became responsible for identifying, selecting and initiating no-load orders whenever invalid cargo descriptions are used. Any shipments so designated will be referred to Customs Headquarters for coordination and prior approval. Any questions about what constitutes acceptable cargo descriptions can be answered by reading the Frequently Asked Questions section on Customs' Web site.

With this expanded focus, Customs expects to convince the carriers/NVOCCs to input cargo descriptions in that field only and not in other fields like the marks and numbers. While in the long run, penalties may be issued, before any such action is taken, Customs headquarters will require a minimum of three (3) documented informed compliance notifications (warnings) be sent to the carrier/NVOCC in question.

Consignee info under scrutiny

Further expanding its focus to additional important fields, effective May 15, 2003, Customs will begin taking enforcement action when egregious consignee name and address violations occur, i.e., if the name and address are not proper, such sloppiness could also lead to no-load orders. Examples of egregious names would be leaving the field blank, or using "To Order" or "Order of Shipper" without corresponding information in the shipper field and notify party boxes. Other examples are incomplete addresses (such as no street address) or invalid/fictitious addresses.

Also effective May 15, 2003, ports will be authorized to issue monetary penalties for Freight Remaining on Board (FROB) with invalid cargo descriptions or cargo which fails to comply with the 24-hour advance notice requirement. Carriers/NVOCCs could be subject to monetary penalties and/or bond breaches on a per vessel arrival or per bill of lading basis. The initial penalty/bond breach likely will start at $5,000 for the first violation and $10,000 for any subsequent violations. If there are multiple NVOCCs in violation of the requirements, a case may be initiated against each one separately.

While the U.S. continues its advance manifest efforts, Canada has just announced that it, too, will enact a 24-hour rule which will be implemented by April 2004.

As of April 2003, the following are AMS certified: 149 ocean carriers, 618 NVOCCS, 62 service centers, 18 port authorities, 16 secondary notify parties, and 26 software vendors. Another 782 letters of intent have been filed with Customs.

Efforts to speed cargo

In an effort to resolve some of the remaining issues having to do with why freight takes so long to move, Customs is encouraging the bill of lading number be issued at time of booking. Programming has been updated so that NVOCCs are now able to state the master bill of lading in their AMS transmissions. Finally, Customs has also made clear that all amendments to manifest must be made 24 hours prior to loading, with three exceptions: 1) a change in seal number; 2) a change in vessel name and/or voyage number, and 3) when the carrier drops the last port of loading. Customs wants amendments made even after loading so that information is correct upon arrival but, of course, any post-loading amendments could lead to penalties.

While the adversary relationship between carriers and NVOCCs continues but is perhaps a bit toned down, Customs is holding meetings with all sectors of the industry. Currently, there seem to be two quite different ideas about how to speed things up even more. One group of NVOCCs is urging Customs to change things around so the NVOCC transmits manifest information only and all other functions are performed, as was traditionally done, by the vessel operators. The other NVOCC group argues for more flexibility. Their position is NVOCCs should be able to perform whatever functions they deem beneficial for their customers. If that means the NVOCC only handles manifest transmission, that's fine, but if the NVOCC wants to handle everything, Customs should program the AMS system to allow for full service. Which side will be more persuasive remains to be seen. Stay tuned for more details!

FMC Holding Seminars
4/03

The Federal Maritime Commission is holding informational seminars throughout the country which will focus on the regulatory obligations of providers and users of ocean liner shipping services. For more details, visit the FMC website at www.fmc.gov.

Force Majeure Is Still An Issue 
2/03

In our November 2002 newsletter, we commented about the problems being faced by importers and exporters arising out of the then pending labor dispute at West Coast ports. [The resulting contract has since been ratified.]

We hear that most of the backlog has been cleared up, but the question remains - who is responsible for the tremendous delays and costs which resulted? Now that companies are able to total their expenditures and lost orders, we are seeing a renewed interest in trying to counter the reliance of the carriers on force majeure.

How much did your company lose? If you wonder whether it is worth pursuing, consult with maritime counsel. While most bills of lading have an arbitration clause in them which requires bringing suit at a specified location, action before the FMC is less cumbersome and often takes less time than traditional arbitration or litigation. 

West Coast Labor Problems Over?
12/02

While the ILWU and PMA have negotiated a contract which is still going through the approval process, the labor unrest situation may not be totally resolved. One of the concessions made by the PMA was to transfer planning jobs to the jurisdiction of the ILWU. Non-union employees at Stevedoring Services of America have filed a complaint with the National Labor Relations Board seeking an injunction which would bar SSA from eliminating their jobs. At issue are planning jobs often performed electronically and are significant because they involve not waterfront planning, but container yard and rail work. Under the new contract, it is understood the ILWU will have jurisdiction over all planning positions at all terminals.

If the effort is successful, employers will have a tough time transferring all planning jobs to ILWU jurisdiction because they may not be able to discharge existing employees.

Happy Holidays and Best Wishes for the New Year

From all of us at Rodriguez O'Donnell
in Chicago, Houston, New York and Washington, D.C.
 

What To Do About Force Majeure?
11/02

As the West Coast port congestion problem persists, some vessel operators continue to flip-flop as to whether or not they will rely on force majeure as the means to allow them to pass through the costs of dealing with the results of the West Coast labor dispute. Force majeure traces its history to the early days of the maritime industry and was designed to excuse performance by a carrier in the event that acts occurred beyond the carrier’s control, e.g. wars, hurricanes, strikes and the like. The Carriage of Goods by the Sea Act, at 46 U.S.C. §1304(2)(j), continues the tradition. Having said that, the question on everyone’s mind is whether the carriers really can succeed with their efforts since it is the carriers who are the members of the Pacific Maritime Administration (PMA), and the PMA is the group which locked out the longshoremen. The PMA alleges the lockout was caused by a work slowdown by the ILWU. Whatever the cause or by whom, no one from either the carrier’s side or the ILWU’s side seems to have made much of an attempt to mitigate the damages caused to shippers/consignees or considered their own actions in attempting to levy significant additional charges against forwarders, NVOCCs, and proprietary shippers.

Many cargo owners have talked about the possibility of a class action lawsuit. Given the fact that most service contracts include a requirement for arbitration, the likelihood of a class action lawsuit succeeding is small. Nonetheless, there may be something which can be done - an action before the Federal Maritime Commission seeking a curb of unfair trade practices by the steamship lines. We are exploring this sort of class action with the FMC with no guarantee that relief will be provided. However, it is certainly worth pursing the effort on behalf of cargo owners and intermediaries because the FMC is likely the quickest avenue, if there is going to be relief. For more information, contact  Henry P. Gonzalez

TSA Working on Known Air Shipper Database
10/02

In the context of air shipments, forwarders are required to certify shippers as known before cargo may ship. There is, however, a problem with the criteria in that a shipper is known to that forwarder based strictly on the fact that a minimum number of shipments have been handled for that account by the forwarder and his familiarity with the shipper’s operation. A reputable well-known company is considered an unknown shipper simply because the forwarder has no previous experience with that company. However, all of that may change in the near future as the Transportation Security Administration is working to create a global database of known air-cargo shippers which is intended to be electronically available to forwarders and carriers. TSA is urging carriers and forwarders who wish to participate to electronically submit their lists of known shippers.


CSI Expands
10/02

The Container Security Initiative’s latest member country is Japan which has now agreed that U.S. Customs officers may be stationed at Tokyo, Nagoya, Kobe and Yokohama on a pilot basis to oversee the security of containers being shipped to the U.S. The locations where Japanese Customs officials will be posted in the U.S. to oversee exports to Japan has not yet been decided.

Japan joins Canada, the Netherlands, Belgium, Germany, France, Singapore and Hong Kong as members of CSI.


C-TPAT Membership Grows
10/02

According to figures recently released by U.S. Customs, membership in C-TPAT has grown to 472 importers, 41 sea carriers, 3 air carriers, 1 rail carrier and 68 brokers, as of this edition of our newsletter. Membership was opened to brokers, forwarders and consolidators on August 26, 2002. The program is expected to open to truckers soon, the last major segment of the supply chain not currently eligible for membership.


Port Congestion Continues
10/02

Even before the breakdown in negotiations between the ILWU and PMA, congestion at the Ports of Los Angeles and Long Beach was causing delays of between two (2) and five (5) days on average to deliver cargo. There is so much freight stacked up at some terminals that portions are being closed down until some of the traffic can be processed. Sea carriers have extended peak season surcharges to the end of November, many truckers are assessing stand-by charges and there is a tremendous shortage of chassis.

Importers are advised to reconsider their promised delivery/cut-off dates. Look for things to get worse before the parties iron out a new longshore contract.

LONGSHORE CONTRACT TALKS BREAKDOWN
09/02

Contract renewal talks between the PMA and ILWU have broken down. The ILWU walked away from the talks this weekend and refused to extend the contract any further. The existing contract expired on July 1st and was extended for set periods of time by agreement of the parties. As there is now no contract, it is expected the longshore workers will conduct a slowdown of operations which could be seen as calling the bluff of the PMA. In the past, the PMA has said if the workers cause a slowdown, they will be locked out!

The PMA is quoted as saying the union has not been responsive to needs regarding modernization and technology. There are reports the two sides have also had problems finding a middle ground regarding health benefits and technology related job reductions.

WAYBILL LIMIT OF LIABILITY INAPPLICABLE
11/01

A decision from the New South Wales Supreme Court (Australia) found the FIATA air waybill limit of liability (also part of the internationally accepted Warsaw Convention) of US$20 per kilo did not cover the situation of a truck dropping cargo off the back due to poor strapping even though the trucker was affiliated with the freight forwarder whose waybill was intended to transport the cargo. The cargo was en route to a bonded warehouse. The forwarder argued the term “Airport” as used in the Warsaw Convention provided coverage even though the cargo was not physically on airport grounds. The court rejected that argument finding the cargo was being handled outside the dimensions of Melbourne airport.

The trucker also argued the terms of the waybill provided that even if the Warsaw Convention did not apply, the carrier’s liability could nonetheless be limited to US$20 per kilo. The court found this argument, too, did not apply because the term air carriage did not apply to truck movement to a bonded warehouse.

GREATER PORT EFFICIENCY SOUGHT
01/01

Even though the Ports of Los Angeles and Long Beach move more cargo than just about any other ports, the speed and efficiency of that movement often leaves much to be desired coastwide. Seeking greater emphasis to upgrading the speed and efficiency of the regional ports but also trying to address the congestion and unreliability problems which seem wide spread, a new coalition has been formed. Called the West Coast Waterfront Coalition, its mission is to facilitate communication among and between members of the supply chain plus help opinion leaders understand the need for technology improvements at the ports. For more information, see www.portmod.org/. The West Coast longshore contract is up for renewal later this year. One of the key issues for negotiation between the PMA and the ILWU is the expanded use of technology.

FEDERAL COURT UPHOLDS MIAMI EXPORT INSPECTION FEE
01/01

while the harbor maintenance fee was found unconstitutional as a tax on exports, the Court of Appeals for the Federal Circuit has ruled that a Dade County vehicle inspection fee is valid. The matter arose because Customs was allowed to place a trailer on port property to use for outbound vehicle inspections. The port began charging to recoup its costs and Auto Cargo, Inc. sued saying that, although the fee was characterized as a user fee, it was really nothing more than a ruse to raise taxes. In the end, the court may have been influenced by the modest amount involved ($7.50) but nonetheless held that it was reasonably related to the port services provided "[a]s long as those who use the Port are required to pay the inspection fee, there is a reasonable nexus between those who pay the fee and Dade County."

JUST WHEN MAY A CARRIER LIMIT ITS LIABILITY
3/00

The typical limitation of liability language appears on the bill of lading or air waybill, but what happens when the shipper does not see either? Such was the situation in Read-Rite Corp and American Homes Assurance Company v. Burlington Air Express Ltd., et al, 9th Cir. C.A., D.C. No. CF 97-03113-Cw/BZ. The goods were to move by air out of London (Heathrow) airport but ended up trucked to the continent before being air freighted from Luxembourg to San Francisco. The shipment was damaged en route. Does the Warsaw Convention limit of liability for air shipments govern? The court said no because the damage occurred other than in conjunction with the transportation of the goods by air. The court therefore turned to federal common law and the Airline Deregulation Act to find there is a limit of liability in the contract itself, the air waybills involved. Even though the shipper never actually saw those air waybills, its agent (Burlington) prepared one which was deemed notice to the shipper. Burlington also saw the master waybill. As a result, the shipper was deemed to have knowledge of that waybill, too. The court also found the shipper had purchased a separate insurance policy which constituted, in the court's eyes, notice of the limitation of liability on both waybills.

SHIPPING ACT CONFIDENTIALITY PROVIDES PROBLEM
11/99

Importers are reminded that if their cost of goods includes freight, carriers are relying on the Ocean Shipping Reform Act of 1999 in declining to provide customs brokers with the actual prepaid freight amount. As a result, importers in this situation should make sure that their commercial deal obligates their supplier to state the actual freight cost. Customs has repeatedly stated that only the actual amount of freight may be deducted and, if it cannot be determine, duty should be paid on a value which includes the freight. The alternative is to purchase on an F.O.B. or exworks term of sale which provides the additional benefit of controlling freight costs.

SHIPPING REFORM HAS UNINTENDED SIDE EFFECT
8/99

With the advent of confidentiality in ocean shipments, many importers are having trouble determining the amount of ocean freight included in the cost of their goods. This fact has presented a problem in calculating dutiable value. If an importer purchases goods on terms of sale which include prepaid freight, the only way he can safely deduct the freight charges is to be able to document the amounts involved. However, shippers are now reluctant to provide those numbers. In the past, bills of lading were rated so the importer would know what to deduct. However, when the Ocean Shipping Reform Act took effect last May, rate confidentiality was allowed so often bills of lading are no longer rated, ostensibly out of concern that others could learn freight rates and use them to their competitive advantage. As a result, if the importer guesses at the amount of freight included, he runs the risk of being penalized by Customs for not being able to support his declaration. If he guesses high, he pays too little duty. If he guesses low, he pays too much. In other words, an importer cannot exercise reasonable care by guessing.

OSRA UPDATE
6/99

On April 29, 1999, the Federal Maritime Commission published a final rule clarifying that a foreign nvocc may become licensed under the Ocean
Shipping Reform Act by establishing an office resident in the U.S. Freight forwarders are not similarly impacted because, by definition, a forwarder renders export services from the U.S. In other words, within an office in the U.S. a forwarder could not meet its responsibilities to its customers. The FMC also clarified that all nvoccs which are properly bonded and tariffed by April 30, 1999 will become ocean transportation intermediaries (OTI). If it is determined an OTI is not properly qualified, license revocation proceedings will be undertaken by the FMC.

OCEAN SHIPPING REFORM ACT
5/99

Wondering about  some of the important changes under OSRA for forwarders, nvoccs and shippers? Visit our website for an article which summarizes some of those revisions.

OCEAN SHIPPING REFORM ACT
4/99

For forwarders and nvoccs, the big changes are as follows:

1) the two capacities have been merged to one - ocean transportation intermediary (OTI), a term which is to be used to define either set of services;

2) All OTIs must be licensed;

3) The services subject to license are those associated with the transportation of cargo to or from the United States;

4) The distinction between a forwarder and an nvocc is maintained. While no single factor makes the difference, the one mentioned as associated with being an nvocc is whether or not the service provider holds himself out as carrying the goods;

5) As the key is providing services to and from the United States, the new regulations offer two different definitions:
     a) if the company or individual "is resident in or incorporated or established under
         the laws of the United States" or
     b) if the company or individual "is incorporated in, resident in, or established under
         the laws of the United States, or otherwise maintains a physical presence in the U.S.;"

6) Under the first definition, if an unlicensed foreign based OTI uses a U.S. based agent, the U.S. agent has to be licensed. In some instances, the U.S. agent is a document handler and so does not qualify as an OTI. In those cases, the foreign based OTI must itself become licensed, change US agents to a licensed party or the U.S. agent must become licensed;

7) Under the second definition, only freight forwarders and nvoccs as currently defined would have to be licensed;

8) To be licensed, the OTI must have three (3) years of experience providing the requisite services. All freight forwarders who are currently licensed and file the necessary bond by May 1, 1999 will retain their licenses. NVOCCs must submit a license application and file their proof of financial responsibility before the May 1, 1999 deadline. If they do so and have a valid tariff and proof of financial responsibility timely on file, they will be provisionally licensed until the FMC completes processing their license application;

9) Any nvocc without the necessary experience may continue operating after May 1,1999. However, the OTI license application must be filed no later than April 30, 1999 and the person supporting the nvocc application may not act as a qualifying individual for another OTI until he or she obtains the necessary three (3) years of experience.

10) The OTI bond is available to pay any "judgment for damages arising out of an NVOCC's activities as an ocean common carrier providing ocean transportation services." A company may offer both nvocc and other services. The other services, however, need not be covered by the nvocc bond.

11) There are new claims procedures and time limits.

12) There are also new financial responsibility levels:
       a) For OTIs operating as freight forwarders -  the new bond amount is $50,000;
       b) For OTIs operating as nvoccs - the bond amount is $75,000;
       c) For unlicensed foreign based entities - $150,000;
       d) For groups or associations - $300,000;
       f) For each additional unincorporated branch office - $10,000;

13) Tariffs will no longer be filed with the FMC but must be made available on the Internet. Carriers will be able to contact the FMC to verify an nvocc has the appropriate financial responsibility on file. The FMC may publish a list of the locations of all carrier and conference tariffs as well as the OTIs;

14) The cost to process an application for a license is $778 and $362 for an amendment;

15) When the OTI is employed to perform services on behalf of the agent of the party responsible to pay for the services, a copy of the OTI's invoice must be transmitted to the party paying his invoice;

16) Licensees are prohibited from preparing, filing or assisting in the preparation or filing of any documents the OTI has reason to believe are false or fraudulent;

17) Any OTI who has reason to believe its shipper or principal has made false statements, errors or misrepresentations is obligated to notify his shipper or principal of that belief and must decline to participate in any transaction involving that document until the matter is properly resolved;

18) An OTI must have express authority to endorse or negotiate any draft, check or warrant drawn to the shipper or principal's order and must also account to its shipper or principal regarding any overpayments, adjustments to charges, reductions in rates, insurance refunds, COD proceeds, drafts, letters of credit or any other sums due to the principal or shipper; and

19) Freight forwarders are allowed to provide in-plant placements but may not fee split or reduce fees. Freight forwarders must be identified as the shipper's agent.

Tariff filing abolished -

1) Tariff rates need no longer be filed with the FMC. However, service contracts must be confidentially filed and contain essential terms: origin and destination ports, commodities involved, minimum volumes or portions and duration;

2) Non-conference carriers are allowed to enter into service contracts as may unrelated multiple shippers without being members of shippers' associations;

3) Service contracts with nvoccs are subject to the OTI financial responsibility requirements;

4) Carriers are prohibited from subjecting shippers' associations or OTIs to "unjust discrimination or unreasonable prejudice or disadvantage based upon their status;" and

5) Carriers no longer file their tariffs with the FMC but must instead publish their tariff rates in private, automated systems. Shippers should be able to used the information to compare rates and assess whether there is discrimination so the database must have search capabilities by text or number. All basic and accessorial rates are to be listed. Increased rates take effect thirty (30) days after publication while no change and rate reductions take effect upon publication. NVOCCs are required to state if they co-load and must so state on their bills of lading.

SIMPLE ERRodriguez O’Donnell CAUSES SIZABLE DAMAGES
1/99

A shipping agent was instructed to carry out pre-shipment inspections on frozen swordfish. The buyer required the shipping agent to warrant that at least five (5) percent of the fish had been tested for mercury content. The laboratory technicians opened the correct number of boxes to meet the percentage requirement. However, the shipping agent forgot to tell the laboratory the samples had to be analyzed separately rather than together as would be normal laboratory practice. Upon arrival in the U.S., the swordfish was found to have too high a mercury content and so was rejected as unfit for human consumption. The importer sued the shipping agent. The insurance company finally paid $412,500 plus $247,727 in legal fees.

INSIST ON THE ORIGINAL BILL OF LADING
1/99

A shipping agent released goods to a consignee upon the consignee’s assurance the original bill of lading was lost. The consignee submitted the usual indemnity agreement. Eventually the shipper informed the agent the consignee had not paid for the goods and the original bill of lading remained with the bank. The agent demanded the return of the shipment. The consignee responded with a copy of his letter to the shipper containing allegations of serious shortages and excessive quantities of plastic and dust in the nickel silver scrap. The bank took the position it only verified the consignee’s signature and did not itself join in the indemnity. It also advised that when it informed the consignee to pay, he disappeared. The shipper filed claim for the loss of his goods which the insurance carrier eventually paid. The moral to this story is do not accept a letter of indemnity unless it is from a bank.

SHIPPING ACT REFORM SIGNED
10/98

Earlier this month, President Clinton signed into law Shipping Act reform legislation. The biggest change for most shippers will come from the fact that service contracts will now be confidential. The rates a specific carrier charges to a given customer will no longer be publically available. As a result, there is concern that carriers will be able to discriminate between shippers, something not possible under the current scheme because all rates are currently public information.

Many small shippers and consolidators (nvoccs) are concerned they will be charged higher non-competitive rates because they will not know what others are being charged. The answer to this concern is expected to be the formation of many more shippers associations which allow groups of shippers to band together and use their buying clout to negotiate more favorable rates from carriers.

CAN THE FMC DO ANYTHING?
9/98

The container and space shortage for goods coming out of Asia is seen as causing what some have called “greed” on the part of the carriers. Complaints are being heard from small shippers and consolidators about subtle pressure allegedly being placed on them to pay more than they feel they should to get containers and move cargo. The Federal Maritime Commission (FMC) has voted to look into the matter on an expedited basis. The FMC has received information suggesting carriers are asking for spot payments to provide empty containers or to stow loaded containers for transport. Companies have advised the FMC they are being required to pay from $300 to $1100 extra for these services which have a variety of names such as container repositioning, slot reservations fee and peak season surcharge, to name a few.

For the FMC, one key is whether any shipper or consolidator is willing to go on record about what is supposedly going on. Representatives from many of these companies perceive that to do so will result in retaliation, i.e. the loss of containers or space allocations. From the FMC point of view, the question is whether the carrier is allowed to assess the charge. A carrier may do so as long as the charge is provided for in its tariff or service contract. Also to be investigated is whether carriers are discriminating between shippers by only asking small shippers or consolidators to bear these costs. For consolidators who do pay these charges, they, too, must make sure they can pass the charges on to their customers by having a comparable provision in their tariffs. Other forms of subtle pressure have been reported to the FMC such as recommendations for the renegotiation of existing service contracts to provide for higher rates. It is also rumored that goods are being misdescribed so as to be subject to higher freight rates.

The FMC is still in the process of formulating how it will investigate this situation.

SHIPPING REFORM
4/97

As part of Republican attempts to balance the budget, efforts have been underway to eliminate the Federal Maritime Commission (FMC). The theory is the agency is no longer needed and what few functions are worthwhile retaining can easily be transferred to the Surface Transportation Board (STB)[the successor to the Interstate Commerce Commission]. Efforts at reform failed last year. However, those efforts have taken on new vigor in the current session of Congress. In early May, the Senate Commerce, Science and Transportation Committee will meet to approve the text of a reform measure. The Committee is expected to act so that its bill is considered by the full Senate before the May 23rd Congressional recess. The reform bill allows confidential contracting between shippers and individual ocean carriers, but not with groups of carriers. It requires that tariffs be made available through private services and need no longer be filed with the government. Finally, the FMC would be abolished and its surviving responsibilities transferred to the STB