Supreme Court’s ‘Chevron’ decision expands window to challenge FMC rulemaking  

The Supreme Court's late June ruling weakening the power of federal agencies gives ocean carriers a more favorable landscape to challenge imminent and future rulemaking from the Federal Maritime Commission (FMC).

The high court's overruling of the so-called Chevron doctrine — in place for 40 years — means federal agencies, from the Federal Motor Carrier Administration to the Maritime Administration, can no longer rely on their own interpretation of their powers when the law is fuzzy.

That puts a bigger bullseye on proposed FMC rulemaking that aims to determine when it's unreasonable for ocean carriers to refuse to deal or negotiate with respect to vessel space. The passage of the Ocean Shipping Reform Act of 2022 (OSRA-22) was a direct Congressional response to complaints from agriculture exporters, and to a lesser extent importers, that ocean carriers refused to accept their cargoes during record US port congestion in 2021 and 2022.

But the shipping industry disagrees on how much leeway FMC has in meeting the law that was rushed through Congress and shoved onto the agency with limited guidance from its authors. How the FMC will ultimately seek to meet the OSRA requirement will be revealed when the agency releases its finalized rulemaking, which could be any day now.

In its latest draft, released last summer, ocean carriers seized on language requiring an export policy, saying the agency didn't have the authority from the US Shipping Act to require it. The FMC, responding in the Federal Register, said requiring ocean carriers to detail an export strategy isn't intended to be an indicator of unreasonableness, but "provide carriers with the opportunity to document that their actions align with a documented export policy."

On whether business factors should be considered when assessing the reasonableness of a carrier's refusal to negotiate, the Agriculture Transportation Coalition (AgTC) warned that doing so would offer carriers a "loophole" to their common carrier responsibilities. Ocean carriers have defended their decision to prioritize higher-paying imports over exports during port congestion, saying such moves are needed to improve the circulatory flow of ships and containers.

Changing the landscape

In the past, the courts would have deferred to FMC's interpretation of its authority under the Shipping Act if it was challenged in court. The Supreme Court decision has changed the environment, widening the window for challenges to the imminent and future rulemaking.

A week after the Supreme Court's 6-3 decision, a US appeals court gave the FMC a taste of the pushback that's likely ahead, sharply rebuking a recent agency ruling against Evergreen Shipping Line over detention charges. Carl Bentzel was the lone dissenter out of the five commissioners, arguing after the December ruling that Evergreen rightly charged drayage provider TCW for detention since the closure of the Port of Savannah during the Memorial Day weekend in 2020 was well-publicized.

The District of Columbia Court of Appeals was blistering in its criticism of the FMC ruling, which the commissioners took up to underscore after an FMC hearing examiner had already ruled against Evergreen in the agency's rough equivalent of small claims court.

The FMC "failed to consider relevant factors owing to its myopic focus on the incentive principle," which broadly states storage fees should incentivize cargo flow. The FMC didn't give a "reasoned explanation" for part of its decision and then applied its own incentive principle "in defiance of common sense to reach an illogical result," the court said.

Following the order to review the decision, the FMC is now drafting a response, according to one person familiar with the matter. One workaround would be for the agency to clarify that it was unreasonable to charge detention, along with demurrage, when there was an unknown stoppage of the availability of a shipper or consignee to return equipment or pick up cargo, respectively.

The FMC's expected response to the appeals court decision can still be challenged, and the recent Supreme Court decision affecting "Chevron" only heightens the likelihood of more court challenges ahead.

For carriers, it's a ray of hope after years of helplessly watching their power in Washington shift toward shippers.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.