FMC: Power, Enforcement and – Your Risk

Tara Leiter, Blank Rome LLP (taken from 2Q edition of Maritime Professional)
Tuesday, May 22, 2012
Tara Leiter, Blank Rome LLP

Don’t Risk an Expensive Run-in with the U.S. Federal Maritime Commission.


For the first time in years, the U.S. Federal Maritime Commission (“FMC”) has a full complement of five Commissioners and a renewed commitment to enforce the Shipping Act of 1984 (as amended, the “Shipping Act”).  As a maritime lawyer representing clients before the FMC, I am often asked, “What is the FMC, what does it do, and why should I care?” The FMC is ramping up its efforts to find and penalize those who violate the Shipping Act, so it is a good idea to have at least a basic knowledge of the enforcement power of the FMC and how it can affect your business.


  • The FMC and What It Does

The FMC is the regulatory agency responsible for administering and enforcing the Shipping Act, the Controlled Carrier Act (“CCA”), and the Foreign Shipping Practices Act (“FSPA”). The FMC’s jurisdiction extends to all vessel operating common carriers (“VOCCs”), non-vessel operating common carriers (“NVOCCs”), freight forwarders, and marine terminal operators (“MTOs”) operating in the U.S. foreign commerce. This article only briefly discusses the CCA and FSPA as the Shipping Act is the most commonly cited statute by the FMC in its enforcement actions. 

In short, the CCA allows the FMC to ensure that a controlled carrier’s rates are not unjustly and unreasonably below market, which could disrupt trade or harm privately-owned carriers. A controlled carrier is one that is owned or controlled by a government as opposed to an individual or privately or publicly held company. The FSPA authorizes the FMC to investigate the treatment of U.S. carriers by foreign governments.  If the FMC determines that U.S. carriers are subject to certain discriminatory practices in a foreign country, but the carriers of that foreign country are not subject to the same discriminatory practices in the United States, the FSPA allows the FMC to issue sanctions against the carriers of the discriminating foreign country.

The primary statute administered and enforced by the FMC is the Shipping Act, which regulates, amongst other things, common carriage in the foreign commerce of the United States. The principal purposes of the Shipping Act are (i) to protect shippers from “unfair or unreasonable” discrimination by carriers, (ii) to protect shippers from disreputable or unqualified NVOCCs and freight forwarders, and (iii) to enable carriers and MTOs to enter into agreements between or among themselves that might otherwise run afoul of the U.S. anti-trust laws provided that they are not substantially anti-competitive. 

The Shipping Act accomplishes the first purpose by requiring that VOCCs publish a tariff setting forth their rates, charges and terms of service and file with the FMC any privately negotiated “service contracts” they enter into with their shipper customers. The Shipping Act then requires that carriers charge either the applicable tariff rate or the rate contained in a service contract filed with the FMC. The Shipping Act’s second purpose is accomplished by requiring NVOCCs and freight forwarders, depending on their location, to either register with or be licensed by the FMC, demonstrate their qualifications, and arrange financial security (usually in the form of a surety bond). The third purpose is accomplished by requiring that all carrier agreements be filed with the FMC for review to determine if the agreement is “substantially anti-competitive.”  After reviewing the filed agreement, if the FMC finds that the agreement is substantially anti-competitive, it can seek to enjoin operations under that agreement. If the FMC does not seek to enjoin operation under the agreement on the grounds that the agreement is substantially anti-competitive and the agreement becomes effective, the parties are granted anti-trust immunity with respect to activities authorized by the agreement.


  • Why You Should Care

The available monetary penalties for violations of the Shipping Act can be significant. In addition to monetary penalties, the FMC has the ability to revoke trading privileges if it determines such action is necessary to protect the shipping public from fraud and unfair practices. Although revocation of trading privileges is an available option, the FMC usually resorts to monetary penalties. If the FMC determines that a violation has been committed unknowingly, the penalty can be up to $8,000 per violation. In most cases, each bill of lading constitutes a separate offense.  If the FMC determines that the violation was committed knowingly and willfully, that penalty increases to $40,000 per violation. Take a minute to consider the magnitude of these potential penalties. For example, if a carrier was to unintentionally commit a single type of violation during the term of a service contract for 2,000 TEUs with each TEU carried on a separate bill of lading, the potential penalties would total $16,000,000 (i.e. $8,000 x 2,000 bills of lading). If each of the violations in our example were committed knowingly and willfully (such as deliberately mis-rating cargo), the potential penalties skyrocket to $80,000,000.
These extreme penalties would be very difficult for the FMC to collect, so it is understandable that the FMC rarely seeks to impose the maximum penalty allowable under the Shipping Act. In fact, the FMC and the alleged violator almost always enter into what is known as a “compromise agreement.” Once the FMC’s Bureau of Enforcement completes its investigation, it will often negotiate a settlement with the alleged violator. Typically, the alleged violator agrees to pay a mitigated penalty, one that is far less than the maximum statutory penalty, in exchange for a release from further action by the FMC with respect to any alleged violations uncovered during the FMC’s investigation. No admission of guilt is made on the part of the alleged violator in exchange for the penalty mitigation. While the mitigated penalties are far less than the allowable penalties under the Shipping Act, they are still steep enough to encourage the alleged violator to change its suspect practices.

With the FMC’s stepped up monitoring and enforcement programs, Shipping Act violators may find themselves paying hefty penalties. Just two months ago, the FMC entered into compromise agreements with eight NVOCCs and related companies for total of $490,000 in penalties.  Three of the NVOCCs paid a combined total of $235,000. While the FMC appears to be currently focused on NVOCCs, there have been significant penalties assessed against vessel operators, including a $1.2 million civil penalty against a major carrier in 2011. In the announcement made by the FMC in connection with this penalty, the FMC’s Chairman said, “These penalties should serve as a reminder… If you’re violating the law, sooner or later, we will find you, and the consequences can be serious.”

Tara Leiter, an Associate at Blank Rome LLP, concentrates her practice in the areas of public and private maritime law, admiralty law, environmental law, and port security matters for international and domestic clients. She is a member of the Maritime Law Association, WISTA and the Maritime Administrative Bar Association.

(This article taken from the Second Quarter 2012 print edition of Maritime Professional magazine)

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