FMC reverses policy on unlicensed ocean intermediaries

In a move that could have a wide-ranging impact on the operational flexibility and security of the global supply chain, the Federal Maritime Commission (FMC) will permit government-licensed U.S.-based third-party logistics service providers to use unlicensed agents to perform ocean logistics services for them.

The FMC's policy reversal, which took effect in early November, opens the door for U.S.-licensed "ocean transportation intermediaries," a term that encompasses a raft of freight forwarders and non-vessel operating common carriers, to engage companies without U.S. licenses to act on the licensed company's behalf. The one stipulation is that the unlicensed company must disclose that it is rendering services on behalf of its licensed partner and not under its own name.

A Nov. 6 decision by the U.S. Court of Appeals for the District of Columbia Circuit overturned agency regulations barring a licensed intermediary from conducting business with an unlicensed firm. The FMC maintained that it was following a congressional mandate in a 1984 law deregulating the U.S. shipping industry that the agency protect the public from unknown, unqualified, and unscrupulous agents acting as intermediaries.

However, the appellate court, siding with U.S.-licensed agent Landstar Express America that filed suit to invalidate the FMC law, ruled against the agency on jurisdictional grounds, saying the FMC regulation exceeded the agency's statutory powers.

The court found that the 1984 law's definition of an "ocean transportation intermediary" includes only those entities that are held out to the public as providing the services of an intermediary. Because an unlicensed agent would only provide services on behalf of a licensed third party and would not hold itself out to the public as providing an intermediary's services, the FMC lacked the authority to extend its licensing requirements to those agents, the court found.

The court also said that enough legal safeguards were in place to shield the public from the actions of an unscrupulous agent because the identity of the licensed intermediary who the agent was working for would be disclosed.

The FMC has decided not to challenge the ruling and will either rewrite its regulations to conform to the court's edict or seek a legislative remedy from Congress.

The ruling is a blow to the FMC and to the U.S. Bureau of Customs and Border Protection (CBP), which in a post-9/11 world has striven for greater visibility of the companies responsible for moving goods to and from the United States. CBP and the U.S. Department of Homeland Security, which oversees CBP, "may now be on the outside looking in," says Ashley Craig, an attorney for the Washington, D.C.-based law firm of Venable LLP, which has been closely monitoring the case. CBP had opposed changes to the FMC regulation.

The ruling may also open carriers, third parties, and shippers up to greater liability and security risk because the field of potential shipping agents includes many who are unknown to U.S. authorities, Craig says.

At the same time, the ruling may give the entire supply chain greater flexibility to conduct commerce. Third parties can expand their coverage and service capabilities through new agency relationships, while shippers could benefit from increased service options, Craig says.

Craig says the major shipping trade groups such as the National Industrial Transportation League, the World Shipping Council, and the National Customs Brokers & Forwarders Association of America have "remained silent" on the case and its potential impact.