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FMC Proposes Modifications to OTI Regulations Respond to Business Concerns

Friday, October 10, 2014
Sandler, Travis & Rosenberg Trade Report

The Federal Maritime Commission is proposing to amend its rules governing the licensing, financial responsibility requirements and duties of ocean transportation intermediaries in an effort to adapt to changing industry conditions, improve regulatory effectiveness, improve transparency, streamline processes and reduce regulatory burdens. FMC Commissioner William Doyle said the proposed rule is “substantially different” than the advance notice of proposed rulemaking issued in May 2013, which reportedly received a largely negative response. Comments on the proposed changes are due no later than Dec. 12.

Proposed Requirements. Highlights of the proposed rule include the following.

- OTIs would have to register and renew their licenses every three years (up from two in the ANPR) and the renewal forms would be entirely online. Licensees would have to renew their licenses 60 days prior to the renewal date. New licenses would have to bear a renewal date on the same day and month as the original issuance, regardless of the date a renewal form is submitted or the date a renewed license is issued. (The FMC is inviting comments on the process that should be used to renew the licenses of the approximately 4,700 OTIs that are currently licensed, which have no renewal dates.)

- Common carriers would have to verify OTI licenses, registrations, tariff publication and financial responsibility provided such verifications could be made at a single location on the FMC’s Web site.

- A new expedited hearing procedure would be established subject to the following provisions: the procedure would not result in summary revocations, terminations or suspensions; a licensee would have to be given notice and a hearing for failure to renew; and appeals to the FMC would remain available for adverse decisions.

- The definition of “person” would be revised to specifically include limited liability companies.

- The definitions of “freight forwarding services” and “non-vessel-operating common carrier services” would be revised to ensure that these services cover preparation of the documents pursuant to which cargo is transported, whether or not they are equivalent to ocean bills of lading.

- A definition of “registered NVOCC” would be added to identify NVOCCs that are located outside of the United States and opt to register rather than obtain a license.

- The term “qualifying individual” is added and defined as an individual who meets the Shipping Act’s experience and character requirements.

- The requirement that only licensed intermediaries in the U.S. may perform OTI services on behalf of an unlicensed OTI (i.e., foreign-based NVOCC) would be replaced with a requirement for registered NVOCCs to use licensed OTIs as agents in the U.S. with respect to OTI services performed in the U.S.

- The regulatory burden associated with procuring and maintaining additional financial responsibility to cover an OTI’s unincorporated branch offices would be removed.

- All license applications and registration forms would have to be filed electronically unless a waiver request to file on paper is granted by the director of the Bureau of Certification and Licensing.

- OTIs would have to pay applicable fees within ten business days of the time of submission of applications and forms.

- The FMC would be able to consider all information relevant to the determination of whether an applicant has the necessary character to render OTI services, including violations of any shipping laws or statutes relating to the import, export or transport of merchandise in international trade; operating as an OTI without a license or registration; state and federal felonies and misdemeanors; voluntary and non-voluntary bankruptcies not discharged; tax liens; court and administrative judgments and proceedings; non-compliance with immigration status requirements; and denial, revocation or suspension of a Transportation Worker Identification Credential or customs broker’s license.

- A new section would establish a process pursuant to which the FMC would close applications in which applicants fail to timely provide information or documents needed for review.

- A new provision would identify changes to a licensee’s organization that would have to be reported to the FMC on an ongoing basis, such as changes in business address; criminal conviction or indictment of the licensee, QI or its officers; and changes of five percent or more in the common equity ownership or voting securities of the OTI.

- A license application will become invalid, and approval rescinded, if the required proof of financial responsibility is not filed within 120 days of notification of license approval. Registrations could be terminated and licenses could be revoked without hearing or other proceeding in the event that the required financial responsibility is terminated.

- All OTIs would have to promptly respond to requests for all records and books of accounts made by authorized FMC representatives, and OTI principals would be responsible for requiring that their agents promptly respond to requests directed to them.

- All OTIs would have to maintain records pertaining to their OTI business in useable form and these records would have to be readily available to the FMC, regardless of whether the records are kept in the U.S. or in foreign locations.

- Electronic certifications by forwarders to carriers that forwarding services have been provided would be authorized. Such electronic certifications would have to identify the shipments for which compensation is made and provide for the forwarder’s confirmation that the services for which forwarder compensation is to be paid have been provided.

FMC Commissioner Rebecca Dye was critical of several of these provisions. Although the FMC states that the proposed license renewal requirement is intended to ensure that information essential to its oversight of OTIs is verified periodically, Dye said that there is “still little additional justification” for this requirement and that the proposal “does not address the industry’s strong objections” to it . She argued that “the livelihoods of hundreds of small businesses may be at risk, not because they willfully failed to comply with the Shipping Act but because they failed to renew their licenses.” Dye pointed out that the proposed rule attempts to establish a new licensing requirement for OTIs that “hold out” or “advertise,” whereas the only licensing requirement for OTIs in the Shipping Act applies to persons who “act” as an OTI. She concluded that the proposed rule “reinforces the appearance that the Commission is more concerned with internal regulatory challenges than with evaluating and responding to actual harm in the marketplace.”

Provisions Dropped from ANPR. The following provisions included in the ANPR have been dropped from the proposed rule.

- financial responsibility increases (the current required levels would remain unchanged)

- new potential qualifications for OTIs and their qualifying individuals

- shortened deadline for replacing a QI after the QI’s death, retirement or resignation (which would remain at 30 days)

- additional bases for revocation or suspension of licenses and termination or suspension of registrations of foreign-based NVOCCs

- proposed tiered claim and claim processing system that would give shippers priority to the proceeds of an OTI’s financial responsibility

- requirement that OTIs restore their financial responsibility to the full required amount within 60 days of a claim being paid against

- requirements for common carriers and marine terminal operators to notify the FMC of their court or other transportation claims against OTIs and for such notifications to be published on the FMC’s Web site

- added documentation requirements for OTIs and agents, including a requirement for agency agreements to be in writing

- provision establishing a rebuttable presumption that an agent acts on its own behalf if it does not include the name and license or registration number of an OTI on documents the agent issues

- requirement for OTIs to include their license and registration numbers in their advertisements and to include the principals’ names and addresses in their advertising

- requirement for OTIs and agents not to include false or misleading information in advertisements

- provision establishing a rebuttable presumption that an entity has performed the services it has advertised

- definition of the term “advertisement”

- fees for renewing OTI licenses and registrations

- requirement for a certificate of good standing to be submitted for renewals

- further consideration of a new NVOCC license category for those operating only in the household goods trade

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