FMC sees derivatives market, freight indices as sound rate setting guide

THE US Federal Maritime Commission (FMC) has said it favours proposals to use derivates and freight rate indices as guides to purchasing cargo space by shippers and forwarders.

The FMC has issued a proposed rule that would clarify and ease agency regulation of service contracts and non-vessel owner common carriers (NVOCC) service arrangements.


Today, the terms of such contracts either must be explicitly stated or must be "contained in a publication widely available to the public and well known within the industry."


The proposed rule reflects a developing derivatives model for the international liner shipping industry, but use of such financial instruments for container cargo is still very new, the FMC acknowledged.


A statement from the FMC published by Washington law firm Venable LLP said that this "certainty of terms" standard has "caused concern among carriers and shippers that have entered into contracts that link to subscriber-only freight rate indices that reflect changes in market conditions, such as the Transpacific Stabilisation Agreement (TSA) and the Shanghai Containerised Freight Index (SCFI). The most common reason for structuring a service contract this way is for carriers and shippers to embed market-based flexibility of pricing into a long-term contract".


The FMC now says the earlier requirement of having contractually-linked freight indices "widely available to the public" be replaced with a new requirement that only index-referenced rates be filed with the commission.


The FMC is calling for written, submitted comments on its proposed changes until November 28. See 76 FR 63581, available athttp://federalregister.gov/a/2011-26418.


The FMC also welcomed comment regarding possible methods by which contracting parties could ensure that the information referred to in service contracts is readily available to the commission, and ways to reduce impediments to small shippers having the option of index-linked service contracts.


The possible finalisation of the new rule is likely to take place over the next several months, it added.