DC Court of Appeals doesn’t like FMC’s rationale for allowing disparate rates.
Marine terminal operators (MTOs) are subject to U.S. Federal Maritime Commission (FMC) regulation in ways similar to ocean carriers and ocean transportation intermediaries. A precept of MTO regulation is that services they offer under their tariffs be uniformly offered and provided to all consumers, much the same way ocean carriers and NVOCCs must adhere to the terms of their tariffs in common carriage. Subject to some qualifications, they also have to treat their customers evenly. The idea is that consumers of ocean transportation services should play on a level field.
APM-Maersk and Maher Terminals are tenants of the Port Authority of New York and New Jersey (the Port). APM-Maersk is an enormous, transnational ocean carrier which, along with its affiliated carriers, is capable of directing large cargo volumes to a port. Maher, on the other hand, is an independent MTO which services third-party carriers and shippers, and has minimal influence on port cargo volumes. Guess who the Port sees as its higher-valued customer.
Back in the late 1990s, the Port negotiated lease deals with both tenants which resulted in APM-Maersk paying substantially less rent per square foot than Maher, based largely on the APM-Maersk’s cargo volume commitments to the Port. Fast forward a decade to 2008, and Maher’s new parent company, Deutsche Bank, determines the unequal lease terms might violate provisions of the Shipping Act at 36 USC §41106(2) which prohibit MTOs from offering an “unreasonable preference” to one of its customers over another. If the Port gave APM-Maersk an unreasonable preference by way of lower rent, then Maher could demand a refund of sums it paid the Port in excess of what APM-Maersk paid.
Maher took its beef to FMC, first for adjudication in an administrative proceeding before an administrative law judge, and then to the FMC’s panel of commissioners (yes, the Shipping Act has a three-year statute of limitations, so the most it could hope to recover is three years’ worth of overpayments). Losing at both levels, it appealed FMC’s dismissal of its claim to the District of Columbia Circuit Court of Appeals, asserting that FMC’s rulings violated statutes and were arbitrary and capricious.
FMC’s rulings state that the Port’s disparate treatment of its two tenants was justified because APM-Maersk had credibly threatened to abandon the port if it didn’t get a break in its lease terms, and was able to make revenue guarantees Maher couldn’t. Also, Maher’s terminal was higher quality than was APM-Maersk’s, thereby justifying higher rent. The court wasn’t satisfied with the explanation, and nixed FMC’s ruling with a remand order directing it to at least explain its conclusions better.
An MTO may offer different pricing to its customers when doing so is justified by “transportation factors.” This term, which predates the Shipping Act in earlier Interstate Commerce Act provisions, isn’t well defined. FMC basically concluded that APM-Maersk’s bargaining position and threat to leave the Port constitute “transportation factors.” However, its logic as to how those points justify the lower rent was, as the court put it with furrowed brow, “hopelessly convoluted,” resulting in “rather lame distinctions we find quite unpersuasive” when compared to earlier FMC rulings which basically say bargaining power doesn’t justify divergent pricing. If FMC was trying to equate “transportation factor” with “reasonable,” then where does it become unreasonable? The court further ruled:
“We understand [FMC] to be saying that the reasons APM-Maersk were given [better] terms somehow necessarily implies that [Maher] should not be given the same terms. But that is a non sequitor. Whatever the reason the port determined to give lower rates to APM-Maersk, it doesn’t at all follow that those same or similar rates should not be offered to [Maher].”
The court concluded by positing that “the underlying problem is competition between ports for a larger share of carrier traffic,” for which “we wonder if there is not a regulatory solution to the problem.” FMC may be able to clarify its rulings by defining terms and stating its underlying rationale as to why the Port was reasonable in offering different lease terms. In its ruling, FMC dismissed Maher’s contention that transportation factors didn’t justify the different rates as an unsupported “legal conclusion,” but didn’t tell us much more about how it included an analysis of any “transportation factors” in reaching its conclusions. Stay tuned. This case could create a significant precedent as to MTO responsibilities under the Shipping Act.
Ref: Maher Terminals, LLC v. Federal Maritime Commission, 2016 WL 1104774 (DC. Cir. 2016).
For additional detail about MTO regulation, see 2000 Legal Lookout article “Marine Terminal Operators: How Deregulation Impacts the Docks,” available at http://www.forwarderlaw.com/library/view.php?article_id=679