United States: FMC Issues Final Rule Amending OTI Regulations

Last Updated: November 16 2015
Article by Ashley W. Craig, Elizabeth K. Lowe and Wes Sudduth

On Tuesday, November 3, 2015, the Federal Maritime Commission (FMC) issued a Final Rule in FMC Docket 13-05, amending regulations at 46 C.F.R. Part 515 that govern Ocean Transportation Intermediaries (OTIs), including ocean freight forwarders and non-vessel-operating common carriers (NVOCCs). The Final Rule was published today in the Federal Register (80 Fed. Reg. 68,722 (Federal Maritime Commission, Nov. 5, 2015)). The Final Rule follows from the Commission's vote last month in favor of the amended regulations. The Rule will become effective December 9 of this year, with the exception of certain license renewal provisions that will not go into effect until December 9, 2016.

The most paradigm-shifting change is the introduction of licensure renewal requirements. While the FMC grants currently OTIs licenses without an expiration date, under the new rules at § 515.14(c) the Commission will grant new OTIs licenses that expire three years after issuance. OTIs will have to renew their licenses after every three-year period by applying online no later than 60 days prior to the renewal date of the license. License applications and renewal forms must be submitted through the electronic online portal on the FMC website. There will be no fee for the renewal process.

Existing OTI license holders will have their current licenses phased out over the next three years, and likewise will need to apply online to renew their licenses. The Commission expects to issue a notice on its website of the schedule by which currently licensed OTIs will need to complete the renewal process. For new and existing OTI license holders alike, these new renewal requirements are not effective until December 9, 2016, one year following the effective date of the final rule.

In addition to the license renewal requirements, the Final Rule amends, adds and deletes a number of other provisions in the OTI regulations. A chart summarizing some of the key regulatory changes, and their practical significance for OTIs, is below:

Citation

Prior Rule

New Rule

Impact

§ 515.2 (h) and (k)

Definition of "freight forwarding services" and "non-vessel-operating common carrier services"

Updates the definitions to add reference to electronic export filings and other current practices

These modifications bring these definitions in line with current terminology and practices.

formerly § 515.2 (n)

Definition of "ocean freight broker"

Removes the term from the regulations as obsolete

Current agreements between a common carrier and ocean freight broker will need to be modified or updated to reflect this deletion.

§ 515.2 (r)

No prior definition

Defines the term "[R]egistered non-vessel-operating common carrier" as a non-U.S. NVOCC that does not become licensed as an NVOCC but registers with the FMC, publishes a tariff, and posts a bond or other surety

This codifies the Commission's current understanding and requirements regarding registered NVOCCs.

§ 515.3

Requirement that separately incorporated branch offices of a licensed OTI obtain licenses

No longer requires separately incorporated branch offices to obtain a license

This reduces the regulatory burden for OTIs with separately incorporated branch offices.

§ 515.3

No prior rule

Requires registered NVOCCs to use a licensed OTI as their agent in the United States

This reflects the Commission's requirements noted in the Foreign NVOCC Registration/Renewal Form (FMC-65).

§ 515.4(b)

Requirement that OTIs maintain an additional $10,000 financial responsibility instrument for each unincorporated branch office

No longer obliges OTIs to maintain additional financial responsibility for unincorporated branch offices

This should reduce the bond premiums paid by OTIs with unincorporated branch offices. These OTIs can reduce their relevant bond amounts to $50,000 (for freight forwarders) and $75,000 (for NVOCCs).

§ 515.4(b)

Rule that agents who act on behalf of and in the name of a licensed OTI need not be licensed

No change with regard to use of agent; however, the Final Rule does note that the licensee is "fully responsible" for the actions of its agents

It was anticipated that this provision may change to require licensed OTIs to use only other licensed entities as agents, but the Final Rule does not adopt this provision.

§ 515.11(a)(2)

"Character" requirement for OTI license eligibility

Specifies the information relevant to the Commission's determination whether an applicant has the "necessary character," including violations of any shipping or statutes relating to the import, export, or transport of merchandise in international trade laws; operating without a license; state and federal criminal violations; bankruptcies, tax liens, and judicial or administrative judgments

This provides greater detail about potential issues that OTIs should consider when completing their license applications and renewals. In particular, the Commission can now consider export control and sanction violations in reviewing an OTI's character for application purposes.

§ 515.17

Hearing procedures governing denial, revocation, or suspension of OTI licenses

Outlines the appeals process for OTIs facing the denial, revocation, or suspension of licenses. OTI applicants or licensees must submit information and documents in support of the OTI license.

This clarifies the appeals process for new and renewing OTI licensees.

§ 515.20 (formerly § 515.18)

Material changes in organization for existing licensees

Clarifies the "material changes" that OTIs must report include changes in business address; criminal indictments or convictions of key individuals; bankruptcies filed by or naming key individuals; changes of five percent or more of the common equity ownership or control; or changes of partners, members of managers of a LLC or one or more branch offices.

This may increase the number of changes that an existing licensee must report to the Commission.

§ 515.31(g)

General duties of OTI licensees and their agents in responding to Commission inquiries

Obliges OTIs to make all records and books of account available to the FMC, and to require their agents to disclose records relating to the OTI principals' activities

OTIs must ensure that their agents are willing and able to respond to Commission requests.

The approval of the amended regulations by the Commission last month, and the issuance of the Final Rule this week, finalizes a rulemaking process that has been ongoing for a number of years. On May 31, 2013, as Venable noted at the time, the FMC published an Advanced Notice of Proposed Rulemaking regarding OTIs in the Federal Register (78 Fed. Reg. 32,946 (Federal Maritime Commission May 31, 2013)), and engaged in a notice-and-comment period. The FMC subsequently included the changes in a Notice of Proposed Rulemaking in October of 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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