It’s against the Shipping Act, in some circumstances, for carriers to require shippers to use specific chassis providers.
In a decision that came down in February, the Federal Maritime Commission ruled that the Shipping Act prohibits ocean carriers from designating an exclusive chassis provider for its containers, when the carrier is not responsible for moving the container off terminal. In a case brought by the Intermodal Motor Carriers Conference of the American Trucking Associations (IMCC) against the Ocean Carrier Equipment Management Association, Consolidated Chassis Management, and 11 shipping lines (the respondents), the FMC ruled that such a practice is unreasonable and therefore unlawful.
When an ocean carrier provides door-to-door service, the carrier is responsible for transportation between the port and the ultimate destination, including providing the chassis. For port-to-port service, the customer is responsible for arranging transportation between the port and the destination, including paying for the chassis. The ocean carrier is naturally responsible for chassis in the first case, known as “carrier haulage,” or CH, while the shipper or motor carrier is responsible for chassis used in the alternative, “merchant haulage,” or MH.
It makes sense that in the case of CH, ocean carriers can designate chassis providers—and the FMC ruled that such a practice is not unreasonable. But in the case of MH, where the shipper is responsible for delivery of the cargo, designating an exclusive chassis provider, presumably on the rationale that the carrier owns the box, is unreasonable and therefore violates the Shipping Act. The ocean carriers’ behavior was additionally tainted in the IMCC case because they were using MH chassis volumes to negotiate lower CH chassis rates for themselves with intermodal equipment providers (IEPs) but were not passing along the savings to their customers in the case of MH.
Similarities to Earlier Case
This case bears some similarities to the one reported in the AJOT in February, in which an NVOCC, M.E. Dey, brought an action before the FMC last year against the ocean carrier Hapag-Lloyd for unreasonable demurrage and detention fees. The crux of the allegations in that case was that Hapag refused to allow the NVOCC’s trucker to provide its own chassis to move the containers off terminal, following a rail move from Charleston to Nashville, resulting in late charges imposed by the rail carrier, CSX. On March 27, Hapag-Lloyd filed an answer to the complaint, denying a key factual allegation when it stated, “It was the responsibility of M.E. Dey and/or [its motor carrier] New Age to provide chassis for the containers at issue.” The M.E. Dey case is pending before the FMC and is expected to be decided in July 2024.
One thing that ties the two cases together is that in IMCC, the FMC repeatedly referred to its Demurrage and Detention Rule, even though they were not a part of the case, because the rule defines the reasonableness of carrier charges. “The main thrust of the rule is that although demurrage and detention are valid charges when they work, when they do not, there is cause to question their reasonableness,” the commission wrote. To be reasonable, “a regulation or practice must be tailored to meet its intended purpose.” Both in the case of demurrage and detention and in the case of chassis practices, carrier rules must serve “to promote freight fluidity.”
Another similarity is that, in both cases, the respondents argued that the Commission lacked authority to rule—on matters involving intermodal chassis, in the IMCC case, and on rail charges, in the M.E. Dey case. It’s beyond dispute that IEPs and railroads are not regulated entities under the Shipping Act.
In IMCC, the FMC explained that its “jurisdiction does not automatically stop at the port.” Quoting another case, involving the Norfolk Southern Railway, the FMC elaborated: “So long as a bill of lading requires substantial carriage of goods by sea, its purpose is to effectuate maritime commerce—and thus it is a maritime contract. Its character as a maritime contract is not defeated simply because it also provides for some land carriage.”
With that, the FMC dismissed the respondent’s argument of lack of jurisdiction. The same rationale would appear to justify the FMC’s exercise of jurisdiction in the M.E. Dey case.
Chassis Supply
On the substance of the practices in dispute, the respondents in IMCC argued that the contracts with the IEPs were necessary to ensure the supply of chassis, but the FMC found no “evidence demonstrating that MH chassis choice has any negative effect on the supply of chassis.” The FMC also noted that, while the respondents “insist on preserving their right to deny chassis choice,” they “simultaneously assert that a motor carrier can always bring its own chassis.” (The latter point is a contested fact in M.E. Dey.)
This, the Commission concluded, “suggests a lack of actual transportation or functional reasons” for denying the choice of a chassis provider. The respondents “do not sufficiently explain how ocean carrier control over chassis will ensure sufficient and safe supply” of chassis.
Carriers are allowed deference to their legitimate business decisions, the FMC explained, and it’s worth noting, they enjoy some limited antitrust immunity with respect to some collusive practices. But if those decisions do not promote cargo flow, they violate the Shipping Act.
As the M.E. Dey case moves to a conclusion, the commission’s decision will probably not turn on whether the charges imposed by CSX were intended “as financial incentives to promote freight fluidity,” but, rather, on a specific finding of fact: whether or not Hapag-Lloyd prevented the shipper from removing the containers from the rail terminal by failing to approve the use of trucker-owned chassis. If the commission finds that not to be the case, it may find that the shipper was fault, and that its actions and inactions justified the imposition of the late charges.
