Decoding OSRA – Section 3. Service Contracts
What exactly does the Ocean Shipping Reform Act of 2022 (OSRA) say and do? This blog series goes through it section by section, so you can see exactly what our lawmakers changed in the U.S. Code dealing with shipping.
We’ll give you the OSRA text; the text of the U.S. Code, usually in Title 46, before and after its amendments; and consider what those changes mean for U.S. importers and exporters.
Previously covered in this series:
Obviously, that means today we’re covering Section 3 of OSRA. Let’s see exactly what it says and changes…
Section 3 of OSRA makes a significant change to the “Service contracts” portion of U.S. shipping law in Title 46.
There are technically three changes it makes, but they work together for a single addition to the law.
The first two changes are grammatical, changing punctuation and the usage of the coordinating conjunction “and”. The third change adds text to the end of the section that allows the Federal Maritime Commission (FMC) to add more contract terms to the filing requirements for agreements between common ocean carriers and shippers than are already listed in this portion of shipping law.
Section 3 Text
SEC. 3. SERVICE CONTRACTS. Section 40502(c) of title 46, United States Code, is amended-- (1) in paragraph (7), by striking ``; and'' and inserting a semicolon; (2) in paragraph (8), by striking the period and inserting ``; and''; and (3) by adding at the end the following: ``(9) any other essential terms that the Federal Maritime Commission determines necessary or appropriate through a rulemaking process.''.
Portion of Title 46 Section 3 Amends
§40502. Service contracts (a) In General.—An individual ocean common carrier or an agreement between or among ocean common carriers may enter into a service contract with one or more shippers subject to the requirements of this part. (b) Filing Requirements.— (1) In general.—Each service contract entered into under this section by an individual ocean common carrier or an agreement shall be filed confidentially with the Federal Maritime Commission. (2) Exceptions.—Paragraph (1) does not apply to contracts regarding bulk cargo, forest products, recycled metal scrap, new assembled motor vehicles, waste paper, or paper waste. (c) Essential Terms.—Each service contract shall include— (1) the origin and destination port ranges; (2) the origin and destination geographic areas in the case of through intermodal movements; (3) the commodities involved; (4) the minimum volume or portion; (5) the line-haul rate; (6) the duration; (7) service commitments; and (8) the liquidated damages for nonperformance, if any. (d) Publication of Certain Terms.—When a service contract is filed confidentially with the Commission, a concise statement of the essential terms specified in paragraphs (1), (3), (4), and (6) of subsection (c) shall be published and made available to the general public in tariff format. (e) Disclosure of Certain Terms.— (1) Definitions.—In this subsection, the terms “dock area” and “within the port area” have the same meaning and scope as in the applicable collective bargaining agreement between the requesting labor organization and the carrier. (2) Disclosure.—An ocean common carrier that is a party to or is otherwise subject to a collective bargaining agreement with a labor organization shall, in response to a written request by the labor organization, state whether it is responsible for the following work at a dock area or within a port area in the United States with respect to cargo transportation under a service contract: (A) The movement of the shipper's cargo on a dock area or within the port area or to or from railroad cars on a dock area or within the port area. (B) The assignment of intraport carriage of the shipper's cargo between areas on a dock or within the port area. (C) The assignment of the carriage of the shipper's cargo between a container yard on a dock area or within the port area and a rail yard adjacent to the container yard. (D) The assignment of container freight station work and container maintenance and repair work performed at a dock area or within the port area. (3) Within reasonable time.—The common carrier shall provide the information described in paragraph (2) to the requesting labor organization within a reasonable period of time. (4) Existence of collective bargaining agreement.—This subsection does not require the disclosure of information by an ocean common carrier unless there exists an applicable and otherwise lawful collective bargaining agreement pertaining to that carrier. A disclosure by an ocean common carrier may not be deemed an admission or an agreement that any work is covered by a collective bargaining agreement. A dispute about whether any work is covered by a collective bargaining agreement and the responsibility of an ocean common carrier under a collective bargaining agreement shall be resolved solely in accordance with the dispute resolution procedures contained in the collective bargaining agreement and the National Labor Relations Act (29 U.S.C. 151 et seq.), and without reference to this subsection. (5) Effect under other laws.—This subsection does not affect the lawfulness or unlawfulness under this part or any other Federal or State law of any collective bargaining agreement or element thereof, including any element that constitutes an essential term of a service contract. (f) Remedy for Breach.—Unless the parties agree otherwise, the exclusive remedy for a breach of a service contract is an action in an appropriate court. The contract dispute resolution forum may not be controlled by or in any way affiliated with a controlled carrier or by the government that owns or controls the carrier.
Paragraph 7 of this section will now read “service commitments;” instead of “service commitments; and”.
§40502 of Title 46 is essentially a list of filing requirements for service contracts between ocean carriers and shippers. Because Section 3 of OSRA adds something to the list, Paragraph 7 will no longer be the penultimate item, as it was before. Thus, the “and” is removed.
Paragraph 8 used to read, “the liquidated damages for nonperformance, if any.” Now it shall read, “the liquidated damages for nonperformance, if any; and”.
Paragraph 8 used to be the last item on the list. This small grammatical change goes with the last, signifying 8 is now the second to last item on the list.
3rd & Final Change
Here’s where we get to the significant change in Title 46 and the reason the two above grammatical changes were made. Section 3 of OSRA adds the following item to the end of the contract terms filing requirements list:
“(9) any other essential terms that the Federal Maritime Commission determines necessary or appropriate through a rulemaking process.”
A rather vague and open-ended item is added to the end of the filing requirements for service contracts between ocean carriers and shippers. Ultimately, the FMC could add an unlimited number of contract terms required for filing carrier/shipper agreements.
Anything the FMC decides is “necessary or appropriate” could be added to the list of terms. That’s wide open authority granted to the FMC on what service contracts must include. The only limitation to this new authority is that the FMC decides what these “essential terms” are through “a rulemaking process.” However, that rulemaking process is not defined. It could be one the FMC already has in place or a new one it makes up on the spot for all the law change specifies.
No oversight or limitation is given to the FMC when it comes to adding new term requirements to ocean shipping service contracts. The FMC appears to be the final authority on the matter without any checks or balances.
Section 3 deals with ocean shipping contracts, specifically the contract terms required when filing them with the FMC.
It gives the FMC a blank check of adding new term requirements for ocean shipping service contracts; however, it does not give the FMC the ability to remove requirements already on the list. Perhaps, however, commissioners could find a way to remove items if they added items that specified they could be in place of previously required items. That’s rather speculative, would possibly be controversial and challengeable, and there’s no reason to think commissioners would want to remove any previously required items from the list.
We shall see over time what additional requirements the FMC makes. There are no time limitations, so the list of required contract terms could grow and grow over the years. On the other hand, the FMC could choose not to add add new required terms if its commissioners don’t deem any new terms to be necessary or appropriate.
Possible repercussions of this change could include increased complexity and cost (in such things as lawyer billable hours) when creating service contracts. If the essential terms required really grow, this could add legislative red tape to the ocean shipping industry or new possible sticking points in contract negotiations between carriers and shippers. Maybe there will be more clarity added to contracts with new requirements the FMC comes up with. Who knows?
Ultimately, repercussions will be completely dependent upon what the FMC does, or doesn’t do, in terms of adding terms.
It is notable that the first real legislative change in OSRA is increasing the authority and power of the FMC.
If you have any thoughts on this section of OSRA that I didn’t cover, please share them..
Stay tuned for when Decoding OSRA continues, examining Section 4…