TSA Carriers Unilaterally Raise Shipping Rates Despite Already Existing Contracts with Shippers – Can They do This?

Effective January 15, 2010, Hanjin, a major container shipping line, and some of the other members of the Transpacific Stabilization Agreement (TSA) implemented an “emergency revenue program” as a method of recovering what it calls, “interim revenue.”
 
The associated Emergency Revenue Charges (ERC), which will expire upon the execution of new contracts later this year, are as follows:

- US$320 per 20-foot container (TEU)
- US$400 per standard 40-foot container (FEU)
- US$450 per high-cube FEU; and
- US$505 per 45-foot container

Naturally, this action prompted concern by shippers as to the raised costs of doing business since with the rate increase, it is considerably more expensive.

To rewind, TSA is self-described on its website as “a research and discussion forum of major ocean container shipping lines that carry cargo from Asia to ports and inland points in the U.S. TSA member carriers are authorized under the applicable shipping laws of U.S. and Asian governments to:

- Meet, exchange market information and jointly conduct market research
- Represent carrier interests in consultations with government regulatory bodies and with designated shipper organizations
- Develop voluntary, non-binding guidelines for rates and charges
- Discuss ways members can manage costs and improve efficiency
- Establish common terms of service and standards for certain documentation, information systems development and other activities in the public interest, also on a voluntary, non-binding basis.”

As a side note, just because TSA focuses on routes from Asia to the U.S., most of the members also have shipping routes throughout many other parts of the world, and have not applied the ERCs across all routes globally.

The Federal Maritime Commission (FMC) is the U.S. government agency that oversees ocean commerce. It is well known for its role in regulating the tariff rates vessels charge for transporting cargo and for its enforcement of the rules regarding the filing of tariffs and addressing other rate issues.

It is responsible for setting the rules and regulations of the players involved as well, including the operators of vessels (e.g., cargo ships), and what are known as “ocean transportation intermediaries”, which are commonly referred to as “NVOCCs” or "NVOs" i.e., non-vessel operating common carriers (which appear to the layperson as a vessel operating carrier in that they organize the transportation of cargo, and typically issue their own bill of lading, only they don't actually have their own vessels), and licensed freight forwarders.

The FMC is further responsible for enforcing these rules and regulations and is responsive to parties affected by the actions of any of these players.

Naturally, a unilateral rate hike covering only certain shipping routes has caused those affected by the increase to question its legality given that already existing contracts governing rates are already in place.

I therefore, recently spoke with the FMC to investigate whether, from its perspective, the Emergency Revenue Charges were permissible.
 
I was personally told that it is okay for groups, like TSA, to come together and agree upon rates and surcharges, and that unless people directly affected by the increase came to the FMC and asked it to investigate, it would not take an in-depth look into the matter and moreover, there was not otherwise, much else it could do.
 
The FMC explained that given current economic conditions, carriers are making less money now than they had been prior to the economic downturn. Due to a reduction in "traffic" in 2009, which was considerable, in order to keep their market shares, carriers kept reducing prices.  The FMC had already recognized that at the end of 2008, there had already been a tremendous drop in rates and that vessels still remained below previous levels.  Now, since carriers need increased revenue, over the last 3 to 4 months, various carriers have announced increased rates.
 
Essentially, the FMC appeared to be sympathetic to carriers and even went so far as to say that if an increase appeared to be an “unreasonable transportation cost” then it could assess it, however, I was told that it would be difficult for the FMC to make a finding that the ERC was unreasonable, and that it would be tough for FMC to sustain a court case that it’s unreasonable. 

Given FMCs role historically in rate regulation, I was surprised at the “hands off” approach it appeared to be taking. Sympathetic to carriers? Really? And at who's expense?

Are rate increases only specific to certain shipping lanes legal?

Questions/comments? Post below or email me at clark.deanna@gmail.com