Steve Block, Foster Pepper PLLC, USA

NVOCCs must require original bill of lading for delivery, and failure to do so is an FMC-actionable Shipping Act violation.

Yes, a non-vessel operating common carrier (NVOCC), standing in the shoes for most legal purposes as a carrier of record, still must require a consignee or notify party to present an original bill of lading before it can properly release cargo shipped pursuant to its bills of lading. That’s the way the system has worked for centuries, with bills of lading serving, among many other things, as cargo’s documentary alter ego. Whoever properly holds the paper gets the goods.

But in what is at least arguably a deviation from the environment deregulation in the late 1990s created, the U.S. Federal Maritime Commission (FMC), with the blessing of the U.S. Court of Appeals for the Second Circuit, has assumed jurisdiction over a shipper’s claim that its NVOCC didn’t fulfill this requirement. Shipper Bimsha International claimed that Chief Cargo Services, which issued bills of lading for three containers of ocean cargo that apparently were delivered into the wrong hands, had violated the Shipping Act of 1984 by its “practice” of releasing freight without first requiring the stated notify party to produce the original, endorsed bill of lading. Bimsha wanted to recover some two hundred grand in lost cargo value plus its costs and attorneys’ fees, and took the matter to an FMC administrative law judge (ALJ), the FMC Commissioners themselves, and finally the Second Circuit.

Chief Cargo contended that this isn’t the sort of dispute FMC should take jurisdiction over, contractual disputes like this being reserved for the courts. But Bimsha’s complaint specifically alleged violation of §10(d)(1) of the Shipping Act, which provides that an NVOCC “may not fail to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing or delivering property.” An allegation of a Shipping Act violation is enough to confer FMC jurisdiction (the Second Circuit agreed).

Chief Cargo then argued that three instances of alleged wrongdoing don’t constitute a “practice” of the comprehensive sort the Shipping Act intends FMC to redress. FMC disagreed. Distinguishing some earlier decisions holding that a single failure was insufficient to establish a Shipping Act violation, FMC determined that a claim could indeed arise “when an NVOCC fails to fulfill an obligation through an act or failure to act.” Chief Cargo’s failure to comply with its own stated practices (the NVOCC had represented to Bimsha that it would require production of the original bill of lading) was sufficient.

Affirming the FMC’s cease and desist order to Chief Cargo, the Second Circuit reviewed but largely deferred to the agency’s conclusions, going through a nice little explanation of the deference doctrine courts apply when scrutinizing the acts of government agencies. Interpretation and enforcement of the Shipping Act is FMC’s primary business, and judges are not better situated for the job than are specialized agency personnel. The court of appeals also noted that three instances of disregard of shipping documentation requirements, with the direct knowledge and participation of Chief Cargo’s president, “indicat[ed] that the failures were not the product of isolated negligence by an errant employee but, rather, a practice.” Thus, FMC’s cease and desist order was upheld. For failure to support its damages claim with evidence, however, Bimsha’s request for reparations and costs was denied.

While FMC’s and the court’s logic makes sense, a decision like this raises questions as to the boundaries between discrimination, overreaching and other regulatory disputes the Shipping Act clearly is intended to address, and garden variety cargo claims. One of deregulation’s major aims was to reduce government oversight and involvement in the vastly complex dealings between parties involved in ocean shipping. If disgruntled shippers can get FMC’s attention for a cargo claim worth a couple hundred grand, and decide their odds are better with the agency simply by alleging Shipping Act violations than with COGSA in a federal court, then FMC’s resources to tackle the economic and regulatory issues its current mandate is designed for may become challenged.

Ref: Chief Cargo Services, Inc. v. Federal Maritime Commission, United States of America, 2014 WL 4922152 (2nd Cir. 2014); FMC opinion, available on the FMC’s website at