In the wake of the COVID-19 pandemic, the supply chain crisis has evolved into a contentious issue that has captured the attention of both consumers and retail businesses. Specifically, there has been a significant emphasis on challenges related to international ocean transportation. Within the supply chain, ocean container transport plays a crucial role for retailers and consumer brand businesses. However, this aspect of the supply chain is characterized by a complex set of technical jargon, regulations, and fees that are imposed on companies importing and exporting goods to and from the United States, which can be both confusing and challenging.
Having a deep understanding of the major players in the ocean shipping industry is essential for successfully navigating this complex field. Below is a list of some of these players, along with their commonly used acronyms:
- Shippers or beneficial cargo owners (BCOs) are the commonly used terms to refer to retailers and consumer brand businesses involved in the import and export of goods. As the importer of record, a BCO assumes responsibility for the goods upon their arrival at the destination and has ultimate control over them. An importer of record is responsible for complying with the payment of tariffs and complying with Customs rules and regulations.
- Ocean Carriers, also known as vessel operating common carriers (VOCCs), own or charter a fleet of ocean-going vessels. In order to maximize the utilization of their vessels, Ocean Carriers have, in recent years, increasingly formed ocean shipping alliances with one another. It is worth noting that these Ocean Carriers are currently exempt from federal antitrust laws. While large shippers or BCOs can directly engage with Ocean Carriers, others may contract intermediaries for ocean transport services, as explained below.
- Ocean Carriers import or export goods through specially designed marine terminals. Marine terminal operators (MTOs) provide a range of terminal facilities, such as wharfage, docks, and warehouses, to support the operations of Ocean Carriers. The agreement by the MTO to provide services at these facilities is generally contained in lengthy, complex, published tariffs.
- Non vessel operating common carriers (NVOCCs) are intermediaries that contract with both BCOs and VOCCs. Unlike VOCCs, NVOCCs do not operate vessels or own the goods being shipped. Instead, they purchase space from the Ocean Carriers and sell it to BCOs, while also managing the transportation of cargo containers. NVOCCs issue their own bills of lading and are recognized as carriers. Additionally, ocean freight forwarders act as agents for shippers, arranging space for shipments and processing the necessary documents to dispatch them on an Ocean Carrier. Ocean freight forwarders and NVOCCs must both obtain an Ocean Transportation Intermediary (OTI) license from the Federal Maritime Commission (FMC). Although there is overlap between the two, they are distinct forms of intermediaries. In fact, an NVOCC can also function as a freight forwarder.
- Customs brokers play a different role in the supply chain than ocean freight forwarders or NVOCCs. Their primary responsibility is to act as a representative for the importer of record in preparing the necessary documentation to move goods through customs. This includes assistance with customs entry, ensuring the admissibility and correct classification of the products, as well as the payment of duties and taxes. Additionally, customs brokers handle duties, rebates, and drawbacks.
- Third-party logistics (3PL) and fourth-party logistics (4PL) are also important entities in supply chain management. They help to manage and coordinate the movement of goods within the supply chain, and may oversee freight forwarders, trucking companies, and warehouses. 3PL and 4 PL providers may also assist with other supply chain functions such as inventory management, order fulfillment, co-packing, and transportation optimization.
The entities involved in the ocean supply chain fall under the jurisdiction of various regulators. The FMC has jurisdiction over Ocean Carriers, NVOCCs, and Freight Forwarders, with the mission of ensuring a competitive and reliable international ocean transportation supply system. The FMC provides a forum for shippers to obtain relief from ocean shipping practices, investigate complaints and license OTIs. Customs brokers, on the other hand, are regulated and licensed by Customs and Border Protection. Logistics companies providing broker services, non-ocean going freight forwarder services, or other motor carrier services are regulated by the Federal Motor Carrier Safety Administration (FMCSA). Nearly every step along the supply chain is closely monitored and regulated by a federal agency to ensure compliance and maintain the integrity of the supply chain.
Due to federal agency oversight, shippers and BCOs have access to certain avenues for relief. The Ocean Shipping Reform Act (OSRA), which we covered in a series of earlier blog posts, has empowered the FMC to address unreasonable charges imposed by Ocean Carriers, MTOs, NVOCCs, and freight forwarders. The FMC’s activities in this area are continually evolving. For instance, the FMC is now required to investigate complaints about detention and demurrage (D&D) charges imposed by common carriers, determine whether those charges are reasonable, and order refunds if a carrier has assessed unreasonable charges. Critically, the burden of proof regarding the reasonableness of D&D charges has shifted from the invoiced party, often the shipper or BCO, to the carrier. Shippers should be aware that the legal landscape on D&D charges is changing, and they may have more rights and remedies than they did previously.
Shippers should also be aware of the U.S. Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 30701 et seq., which governs contracts for the transportation of goods between foreign and U.S. ports. COGSA outlines the rights and responsibilities of carriers and shippers, but also provides carriers with immunities and can limit their exposure to $500 “per package.” However, the term “per package” is not defined by the Act. As a result, disputes often ensue as to what constitutes a package, with courts often focusing on the relevant bill of lading. As the $500 limitation may not be sufficient to cover damages, it is important for shippers to have the option to opt for higher liability or obtain adequate cargo insurance coverage to mitigate potential losses. Other principles of maritime law may also apply in cargo damage situations, such as the law of general average, in which a vessel owner can recover from cargo owners when the ship carrying the cargo is in danger or peril, makes a sacrifice for the common benefit (such as sacrificing some of the cargo or incurring extraordinary expenses), and successfully avoids the peril.
Managing supply chains and logistics are an ongoing challenge for retailers and consumer brands. As shippers engage in ocean transportation, it is crucial for them to understand the responsibilities of all parties involved in the supply chain and stay informed about evolving regulations. It is equally important for shippers to recognize the risks associated with contracting for the carriage of goods, and understand that nuanced maritime laws may apply. Tariffs and bills of lading may contain carrier friendly language that can harm shippers and their cargo, such as unreasonable and unexpected D&D charges, limitations on liability, or other unfavorable provisions.