MSC Objects to Record FMC Fine, Says It Would Be ‘Difficult’ to Defend in Court

If the FMC moves forward with the record fine, MSC said, it will be “difficult” for the commission to explain to the "U.S. Court of Appeals why engaging in concerted, anti-competitive conduct without filing an agreement merits a penalty of no more than $1.5 million and while the conduct at issue in this case warrants a penalty in excess of $63 million."

The ocean carrier pushed back against the penalty and defended its shipping practices in a 113-page reply brief filed May 3, which came about one month after the FMC's enforcement bureau asked an administrative law judge to fine the company for using overbroad merchant clauses in its bills of lading, billing incorrect rates for certain containers and failing to publish certain container tariff rates, causing "obscurity" and "uncertainty" for shippers (see 2404100065).

MSC said the penalty is "8 times greater” than any previous FMC penalty and “15 times greater than any penalty ever collected” by the commission. The penalty is “so far beyond the realm of what the Commission has done that it simply cannot be justified on any rational basis,” MSC said, and “certainly not for billing errors.”

If the FMC decides to impose any fine, it should come to a "much more reasonable penalty" than the “astonishing” $63 million number, MSC said. The carrier suggested a penalty of about $2 million to $3 million, which would align with precedent and “would be appropriate and legally defensible.”

The commission didn’t respond to a request for comment.

Along with criticizing the penalty, MSC also used its reply to deny any wrongdoing, including relating to its merchant clause. It said its merchant clause is “typical” of those set in the shipping industry.

The FMC said the major ocean carrier used its market power to define standard bills of lading terms such as "'merchant'" to justify billing detention and demurrage to non-contracting third parties, such as the notify party, which is the party designated to be notified when a shipment arrives at its destination.

But MSC said it only billed those parties in "very limited circumstances.” There were only “18 instances” in which MSC used the “Merchant” clause in its bill of lading and tariff to “bill a notify party for certain charges,” the carrier said.

“If, as the Bureau incorrectly suggests, it were MSC’s policy to always bill the notify party by default, then surely the Bureau would have been able to find more than 18 examples, 8 of which date from 2018, given the millions of containers MSC transported to/from the U.S. during 2021,” the carrier said.

MSC also said the Shipping Act doesn’t “prohibit the billing of notify parties,” adding that the FMC didn’t publish rules on detention and demurrage billing until February (see 2402230049).

“When the law does not provide fair notice of what is required, it is not appropriate to impose fines on conduct that allegedly violates the unclear law,” MSC said. This "lack of notice" prevents the FMC from "imposing penalties retroactively.”

MSC also argued that its billing of non-operating reefer containers, which are refrigerated containers with the refrigeration function turned off, was lawful. The carrier said its policy was to bill those containers as dry containers, and that any containers that were mistakenly billed was a "systems error.”

When customers notified MSC that their non-operating reefer containers were billed as an "operating reefer,” MSC said it fixed the issue. If this is found to violate the Shipping Act, it was not "knowing and willful," MSC said.

"MSC vehemently denies the Bureau’s false accusation that this was a deliberate strategy to enable MSC to impose higher reefer charges on NORs or that it was a knowing and willful violation of the Shipping Act," the carrier said. "There is no evidence in the record to support the Bureau’s allegation. The Bureau knows this, which may explain why it strategically refrained from taking any depositions of the relevant MSC personnel."