Like a vessel pulling away from the dock, a movement to allow ocean consolidators—known as non-vessel operating common carriers, or NVOCCs—to sign service contracts is picking up steam.

In the past few months, several companies that have NVOCC operations, including United Parcel Service, C.H. Robinson, BAX Global, and Ocean World Lines Inc., as well as the National Customs Brokers & Forwarders Association of America (NCBFAA) have asked the Federal Maritime Commission (FMC) to break a long-standing rule that forces NVOCCs to use publicly posted tariffs. According to the consolidators, that restriction often prevents them from being competitive with vessel-operating ocean carriers.

United Parcel Service was the first to make a move. Like the other companies that later filed petitions, UPS saw that the economic environment surrounding ocean shipping and the NVOCCs' role in the marketplace was changing, but the regulations were not. "We're petitioning the FMC to allow us to have parity with the ocean carriers," says Michael Gargaro, vice president, global ocean freight services with UPS Supply Chain Solutions. "We looked at our business and discussed what obstacles are preventing us from succeeding in our efforts to win new business in an integrated logistics environment. And we identified this as the number one obstacle."

The NCBFAA already was in the process of creating its own petition when UPS filed its document, says Edward D. Greenberg, the association's counsel. The other filers' petitions were submitted very shortly after, he notes. "It's something that's been stewing for a bit—the idea that something needed to be done for the NVOCC community," Greenberg says. "It just happened that as one was in the process of being filed, everybody else was thinking about how they would like to do business."

The movement to address the competitive restrictions on NVOCCs has received the blessing of the National Industrial Transportation League (NITL), which filed comments with the FMC last month. The League's comments pointed out that just as the business climate in ocean shipping has changed, the rules governing NVOCCs and contracts must change as well. "Probably the most dramatic change has been the shift from common carriage to contract carriage," NITL's filing noted. "When given the choice, shippers overwhelmingly choose to contract with their partner carrier as opposed to shipping under public tariff rates." The document goes on to state that between 1999 and 2001—the two years following passage of the Ocean Shipping Reform Act (OSRA)—the number of service contracts filed with the federal commission increased by 200 percent.

Additionally, the League noted, there has been an upswing in the number of large logistics companies that are offering NVOCC services. In past years, smaller consolidators were the norm.

C. H. Robinson is one company that exemplifies the changing role and face of the ocean freight consolidation industry. "The reason everyone is elevating this issue is because when [OSRA] originally went into effect, the NVOCC community was portrayed as a fragmented, mom-and-pop industry," says Vice President Joel Mulvehill. "But [now] there are a lot of big players, a lot of significant investment—not just by us but by our competitors as well—in managing the supply chain."

There is, not surprisingly, opposition from the ocean carriers, who sit on the other side of the fence. The World Shipping Council (WSC), comprising a number of vessel-owning carriers, has also considered the petitions and filed its own critical comments.

Like NITL, the council pointed out that more and more large transportation companies are offering NVOCC services these days. But WSC contends that the ocean consolidation industry has suffered no ill effects as a result of the provisions in OSRA. For example, WSC offered data showing that the number of registered NVOCCs and ocean freight forwarders in the United States has grown from 2,600 in the days before OSRA to 2,955 as of June 2003. "There is no evidence that the current regulatory structure has impaired NVOCCs' growth, services, or ability to be profitable," the Council wrote.

That increase in the number of companies offering ocean consolidation services suggests that the level of competition also has increased. But competition could increase even more, say proponents of NVOCC contracting, if the field were leveled for all players. "This is a benefit to small shippers that do utilize NVOCCs, mostly so they can consolidate cargo to leverage prices, similar to larger shippers that can bring bigger volumes," says Peter Gatti, NITL's executive vice president.

Contracts should be available as a business tool for shippers, whether their service providers operate their own ships or not, Gatti says. "Service contracts are now the predominant way that business is conducted. From the standpoint of volume, a good case can be made that this is something that can be opened up, with the only parameters being that companies are asset-based to protect the users who do business with them," he says.

The term "asset-based" has become something of a sticking point in the debate. When OSRA was introduced, it was widely accepted that "asset-based" meant that an organization owned and operated ships. But that definition may no longer be valid, and the law should recognize that other types of facilities and equipment constitute relevant assets, Gatti believes. Should, for example, a large, multifaceted transportation and logistics company such as UPS be considered to be without assets simply because it doesn't own any ships?

Times have changed, and the Federal Maritime Commission should exercise its authority to modify its interpretation of OSRA accordingly, Gatti says. "Congress understood that the law is not a static document, and it did designate the [FMC] to implement the law. In doing so, it provided specific abilities for the commission to react to changes that occur in the industry."

Whatever action the commission takes will affect not only pricing for ocean shipping services, but also the way shippers conduct business with consolidators and freight forwarders. Now, say Gatti and the petitioners, it's up to the FMC to decide whether to use those powers to level the playing field—and to what extent.

News Capsule