by M. Sigmund Shapiro
July 14, 1998

The battle being waged between large and small forwarders regarding ocean freight brokerage, as reported in the press recently, fails to discuss what is in fact the key problem – the obsolescence of the controlling regulation and Section 19(d) of the Shipping Act of 1984.

The Act, which tracks previous legislation, permits carriers to compensate ocean freight forwarders only when the forwarder books the cargo and prepares the bill of lading, dock receipt or other similar documents.

The FMC, over the years has vigorously policed this regulation and investigated forwarders who considered the amount of brokerage to be received as a factor in quoting its forwarding fees to a client. The FMC considered a reduction in service fees to be tantamount to a freight rebate to the shipper, which is a no-no. This vigor led to a complaint to the Commission that certain forwarders were bidding on government business through the General Services Administration and quoting as little as five cents per shipment, since the brokerage was substantial. Needless to say, the FMC took no action to stop the practice.

Now the Commission is being asked to rule on the nuance of whether a PC can be licensed as an ocean freight forwarder!

The problem of course, is that the law and regulation are archaic, in the definition of an ocean freight forwarder but the Commission is compelled to go through the exercise of investigating the issue. One wonders whether the convoluted arguments put forth by both sides will receive a response based on what is happening today in a highly automated industry.

Transportation is virtually unregulated today. Service Contracts abound on sea traffic and rebates are not a serious problem, at least in the rest of the trading world. The CAB is out of existence as is the ICC and air and truck traffic rates are negotiated privately.

It was recently reported that many ocean carriers are reducing their sales and marketing staffs and relying on NVO’s to generate business for them in the same way that airlines operate.

Today, the freight forwarder is a multi-modal operator. He can be an NVO, is usually an airfreight forwarder and might engage in trucking. He receives commissions from many different entities. The airlines for example consider brokerage payments to be sales commissions. Yet the Federal Maritime Commission, constrained by the 1984 Act and its own regulations, is forced to examine labor saving technology to see if it violated the law. It sounds like a case for Groucho Marx.

It is the fervent hope of the writer that, if it’s not too late, the National Customs Brokers and Forwarders Association of America, Inc. would lend its efforts to changing the process, rather than decrying the enterprise of one of its own. Protectionism, to paraphrase Barry Goldwater, is no virtue.