FMC Should Abandon Rate Index Proposal for U.S. Agricultural Exports, Says WSC
The Federal Maritime Commission’s (FMC) proposal to establish a rate index for certain cargoes subject to the Shipping Act would violate the service contract confidentiality provisions of the Act and the commission’s own current regulations, the World Shipping Council (WSC) said. “That fact alone requires that the rate index proposal be abandoned,” the Council said in comments on the commission’s notice of inquiry (NOI) to develop and release container freight rate indices for U.S. agricultural exports based on a sampling of service contracts filed with the FMC.
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There’s also no reason why the FMC “should enter this arena when the government has not done so for any other transportation mode, and there is no explanation of how the proposed index would reduce the rate volatility in market conditions that its proponents contend it is designed to alter,” WSC said. Such a concept would also encounter many practical impediments to its implementation, it said. “For all of these reasons, the Council urges the Commission not to proceed with the creation of a service contract rate index,” it said.
The purpose of an FMC rate index would be to provide transparency of shippers’ rate levels on an ongoing basis, WSC said, “and this purpose is inconsistent with the applicable statute and existing FMC regulations.” The aim of the Ocean Shipping Reform Act (OSRA) was to create a new federal regulatory structure under which contract terms that disclose sensitive business information, especially contract rate information, were to be shielded from public disclosure, it said. “Under this regime, there is no role for the FMC to inform the market of the level of, or changes in, market rates.” That’s not a legitimate function for the FMC., it said. “Aggregating service contract rate data by commodity would not alter this fact. “
The federal government does not create a rate index for rail rates that are transporting the nation’s agricultural exports or any other commodities. The federal government does not create a rate index for trucking rates for the nation’s agricultural exports or other commodities. The federal government does not produce a rate index for inland waterway or international bulk ocean shipping or international air cargo shipping of agricultural exports or any other commodities. Quite aside from the fact that the Shipping Act forbids it, there is no valid basis or reason for the FMC to create a rate index with confidentially filed contracts for ocean common carriage.
If the agency were to create an ocean common carrier rate index, it would need to also create a non-vessel operating common carrier contract rate index, WSC said. Any such FMC rate index could only provide a selected portion of the rates used to transport these commodities. If the agency were to create a rate index based on filed service contracts, it would disclose rates for the covered commodities if they were exported by an ocean common carrier out of a U.S. port, but it would not disclose the rates for the same commodity, being exported by the same shipper or similar shippers out of a Canadian port, Mexican port or out of a U.S. port if moved by a bulk carrier, it said. An FMC rate index would give Canadian exporters, and exporters in other parts of the world, visibility into the rates being charged to U.S. exporters, but not vice versa. “It is not clear to us why this would be in the interests of U.S. exporters.”
(See ITT’s Online Archive 12052324 for a summary of FMC’s notice of inquiry).