A recent ruling by the Federal Maritime Commission has put an end to the way major ocean carriers provide chassis to motor carriers, giving intermodal truckers more freedom to choose their chassis provider.
On Tuesday, Feb. 13, the Federal Maritime Commission affirmed a ruling from a year ago that found the Ocean Carrier Equipment Management Association (OCEMA), Consolidated Chassis Management and 11 of the largest ocean carriers violated the Shipping Act by requiring motor carriers to use default chassis providers in port-to-port shipments, also called merchant haulage.
The decision comes after the American Trucking Associations’ Intermodal Motor Carriers Conference filed a complaint with the Federal Maritime Commission in August 2020. According to the complaint, the practice of requiring certain chassis providers has cost the trucking industry and American consumers nearly $2 billion from 2017-2020 alone.
Up until about 2005, ocean carriers owned their own intermodal chassis, according to a Federal Maritime Commission report. However, the intermodal shipping industry was marred by the widespread use of chassis that were deemed unfit for travel.
In the 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act, Congress addressed the issue by requiring chassis providers to “establish a systematic inspection, repair and maintenance program to assure the safe operating condition of each intermodal chassis.” The law also required providers to maintain documentation of their maintenance program and provide a way to respond to truckers’ reports regarding defective chassis.
As a result, ocean carriers began to divest in chassis. In 2006, OCEMA members filed the Consolidated Chassis Management Pool Agreement. Ocean carriers contract with chassis providers to deliver chassis on an exclusive or preferred/default basis. Motor carriers have no say in these contracts but still must pay for the chassis.
Although the pool agreement gives motor carriers freedom of choice, the operations manual allows ocean carriers to veto a motor carrier’s decision to choose a certain chassis provider.
The Intermodal Motor Carriers Conference’s complaint alleges that OCEMA members engage in a pattern and practice of refusing motor carriers’ requests.
Additionally, the complaint points out that motor carriers are being overcharged for chassis usage rates. When customers choose “door-to-port” service referred to as carrier haulage, the ocean carrier is responsible for the cost of the chassis. However, in merchant haulage, truckers pay for chassis usage. According to the Federal Maritime Commission’s decision, “Ocean carriers can negotiate with (chassis providers) for lower carrier haulage rates in exchange for higher merchant haulage chassis volume and restrictions on choosing a chassis provider.”
A report submitted by a market expert supported the allegation that the lack of chassis provider choice led to higher rates. The report pointed out that merchant haulage rates have increased while carriage haulage rates have either declined or remained stagnant. The expert surmised that because providers do not risk losing business to competitors offering lower rates, they can raise rates with impunity. Therefore, ocean carriers are incentivized to designate exclusive chassis providers so they can pay lower rates for carriage haulage.
“(Experts’) opinions about the exclusivity restrictions have on prices and competition are supported by facts and sound reasoning,” the Federal Maritime Commission decision states. “It is clear from merchant haulage pricing trends, particularly when compared with carrier haulage pricing trends, that these choice restrictions are tied to higher prices with no attendant drop in business volume. In most situations, motor carriers do not have a viable alternative to paying the price the designated (chassis provider) imposes. Chassis are a necessity, and substituting trucker-owned wheels is generally not economically feasible. These restrictions also effectively shut out potential chassis provider competitors or at least markedly impede their ability to compete for motor carriers’ merchant haulage business.”
In its decision, the Federal Maritime Commission has ordered defendants in the case to cease practices regarding chassis providers and merchant haulage.
The case has been sent back to the administrative law judge who made the initial decision last year for further proceedings based on the commission’s final ruling.
“With details to be finalized by the (administrative law judge), hard-working American trucking companies will now be able to choose their chassis providers, rather than being taken advantage of by a cartel of overseas shipping lines,” Intermodal Motor Carriers Conference Executive Director Jonathan Eisen said in a statement. “By affirming motor carriers’ right to chassis choice, the (Federal Maritime Commission) has taken action to reduce supply chain delays and cut costs for motor carriers and consumers.” LL
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