FMC RULING OPENS DOOR TO MISCHIEF

Sometimes the best intended act can lead to unanticipated results.  In the case of informal docket no.  1916(I)   GUMTREEFABRICS, INC. v. EVER-LOGISTICS INTERNATIONAL FORWARDING LIMITED d/b/a EVEROK INTERNATIONAL FORWARDING CO., LTD, the FMC opened the door to conduct which would ordinarily be prohibited.  In that case an importer claimed that cargo was extortionately withheld from delivery to it by a Chinese NVOCC seeking to collect its agent’s debts on other cargo from the importer.  The NVOCC’s agent in the United States had gone bankrupt, leaving the Chinese and with some unpaid obligations.  According to the complaint, fully aware that Gum Tree had already paid the Chinese company’s bankrupt agent what it owed, the Chinese NVOCC nevertheless extortionately withheld other cargo until Gum Tree paid nearly $20,000 of the bankrupt OTI’s debts.

After paying the Chinese again what it had already paid to the bankrupt agent, Gum Tree filed a complaint with the FMC hoping to collect its duplicate payments from the Chinese OTI’s bond.  The Federal Maritime Commission ruled that it had no jurisdiction over the NVOCC’s conduct because the NVOCC used Canadian ports to first discharge the U.S.-bound cargo. In previous rulings the FMC had said that it could not require untariffed or unbonded OTIs using Mexican or Canadian ports to post bonds and tariffs, or obtain other FMC authority to operate between the United States and foreign nations if they avoided U.S. seaports.  But for the first time the agency said that licensed, bonded and tariffed NVOCC can divert cargo to avoid FMC jurisdiction as well.

Now FMC licensing of NVOCCs and the corresponding bonds and tariffs may, in certain circumstances, be reduced to a charade.  All the NVO has to do is divert the cargo via Mexican or Canadian ports.  It can extort or otherwise abuse U.S. shippers without fear of Mexican or Canadian intervention (since the extortion/abuse will be committed in United States), and it can take comfort in the FMC’s position that it has no authority over the NVOCC in those circumstances.  The harmed shipper/consignee cannot invoke the terms of the OTI’s tariff or bond or seek the agency’s assistance as long as the cargo is diverted.

If this ruling is to stand, OTI’s should be required to provide notice to American shippers and consignees when such cargo will not be arriving or departing by sea from a U.S. port and to advise the implications of that fact.  This would help the cargo owner to affirmatively select an OTI which is operating under FMC jurisdiction and has a tariff to abide with a bond at risk.   It would avoid the Gum Tree situation where a shipper unknowingly placed its trust in an OTI which presented only the facade of FMC jurisdiction.  Such a regulation could also strongly encourage the use of U.S. ports in place of cargo diversion to Mexican or Canadian seaports.

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