In today’s global supply chain, chances are that if you’re using it, a truck delivered it. However, many goods moving in the stream of U.S. commerce may well have traveled via ocean before being trucked to their destination. If you are arranging ocean transportation or transporting goods that are also moving via ocean, you need attorneys who understand the entire supply chain, not merely licenses and permits but also operational and commercial practices. At Scopelitis, our ocean transportation practice is here to help you keep goods moving through the entire supply chain.

Ocean Cargo Regulations

The regulatory landscape can be surprisingly complex for clients arranging or wishing to arrange ocean transportation directly. Air and highway transportation are generally deregulated from a commercial perspective while being heavily regulated from a safety perspective. Unlike most other modes of transportation, international ocean transportation to and from the United States remains heavily regulated from a commercial perspective, making it difficult for unlicensed entities to enjoy a “soft entry” into a business practice that may involve the arrangement of ocean transportation.

The Federal Maritime Commission (FMC) requires that any entity in the United States that arranges or even holds itself out as arranging international ocean transportation must be licensed by the FMC as an Ocean Transportation Intermediary (OTI). While non-compliance is rather common, FMC is on record as saying that because it is unlawful for an unlicensed entity to invoice a customer for ocean transportation, the unlicensed entity cannot avoid the licensure requirement by engaging a licensed entity to essentially subcontract performance of ocean transportation services. Rather, according to FMC, ocean transportation must be performed and invoiced in the name of the licensed OTI. These limitations against subcontracting, coupled with high barriers to becoming licensed (including a requirement that the applicant have an officer on staff with at least three years of ocean transportation intermediary experience), can stand as an obstacle for logistics companies that are asked to arrange ocean transportation on a limited “one-off” basis.

Types of Ocean Transportation Intermediaries

For those wishing to be licensed, there are two types of OTI: Ocean Freight Forwarders (OFFs) and Non-Vessel Operating Common Carriers (NVOCCs). Each is subject to its own set of regulations and limitations.

Ocean Freight Forwarders

By regulation, OFFs essentially act as agents of their customers, arranging ocean transportation with NVOCCs and steamship lines in the customer’s name. There is a nuance to OFF operations that can create difficulty with respect to import shipments where the forwarder wishes to operate as an OFF; specifically, by regulation, OFFs only handle exports from the U.S. In addition to regulatory hurdles, OTIs face any number of commercial issues, including the need to negotiate shipper-drafted contracts that do not take into account FMC regulations addressing how OTIs can contract for services, issues arising from disputes between buyers and sellers while goods are “on the water,” demurrage and detention charges caused by events beyond the OTI’s control, and even the difficulty of drafting default terms and conditions for transactions that will involve multiple modes of transportation across multiple countries.

Non-Vessel Operating Common Carriers

NVOCCs, on the other hand, can arrange both imports and exports but are subject to rules regarding how they can contract for services and assess charges. Both NVOCCs and steamship lines are still defined as “common carriers” under federal law. They are still generally subject to rules requiring that all shippers receive the same service levels pursuant to the same rules and charges as published in a tariff and corresponding bill of lading. There are exceptions to these tariff requirements, with some options providing more flexibility than others, but there is limited freedom of contract unless the shipper is willing to commit to tendering the NVOCC a minimum quantity of cargo, which many are not willing to do.

One option a non-OTI logistics provider may want to consider for “one-off” requests for ocean transportation is to work as the “sales agent” for a licensed OTI. This option is not necessarily ideal because the work should be performed and invoiced in the name of the licensed OTI (rather than the unlicensed party that has the direct relationship with the customer), but it can avoid regulatory foot-faults.

Who do the requirements affect?

For entities involved in the arrangement or performance of inland transportation of ocean freight moving to/from the U.S., existing operating authorities (e.g., FMCSA-issued motor carrier, broker, or freight forwarder authority) will generally suffice. However, motor carriers may be required to hold port-specific credentials or participate in the Uniform Intermodal Interchange Agreement (UIIA). Carriers accessing ports and brokers/forwarders arranging drayage moves should be aware of these requirements to avoid delays and operational disruptions. Motor carriers and logistics companies arranging drayage transportation also need to ensure good processes for tracking container free time to minimize potential exposure for demurrage and detention charges related to storage or use of intermodal equipment (or should consider contractual terms and conditions shifting the risk of such charges to customers in appropriate circumstances).

At Scopelitis, we understand that the global supply chain is interconnected and is only as strong as its weakest link. Let us help you build interconnected solutions to keep your customer’s cargo moving.