Traditionally, Non-Vessel-Operating Common Carriers (NVOCCs) compete for shippers’ business by publishing the amount they charge in rate tariffs that are made available to the public. However, as of April 18th, 2011, the Federal Maritime Commission approved the use of Negotiated Rate Arrangements (NRAs) as a new method for NVOCCs to establish rates. We constantly receive inquiries from NVOCCs seeking guidance on proper preparation of these rate quotations.
According to the FMC, NRAs are “written and binding arrangements between a shipper and a licensed NVOCC to provide specific transportation service for a stated cargo quantity, from origin to destination, on and after a stated date or within a defined time frame.”[1] If an NVOCC correctly meets the conditions of using an NRA, then they are no longer obligated to publicly publish the rate they are charging. The five conditions of creating an NRA compliant with the FMC’s rules are as follows:
- NRAs are only eligible to be used by NVOCCs.
- A notice of using an NRA must be posted in the tariff.
- All tariff access charges must be eliminated. An NVOCC using an NRA must provide the public with access to its rules tariff (the document outlining the regulations governing the shipment) at no charge.
- The shipper and the NVOCC must agree to the use of an NRA in writing prior to the NVOCC receiving the cargo.
- NVOCCs must keep their NRA documentation on file for a minimum of five years. NRAs don’t have to be officially filed with the FMC, but the agency must be able to audit NRA records on demand at any time within the relevant time period.
This FMC regulation transformed industry practices for ocean transportation by allowing NVOCCs the opportunity to be exempt from the tariff rate publication requirements set forth in the Shipping Act of 1984. The only downside here is that NRAs are non-amendable, and as such they retain much of the rigidity of old Tariff Line Item rates. NRAs are a great tool for confidentially agreeing on short-term rates with shippers, but a different rate agreement may be more beneficial for long-term use.
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[1] http://www.fmc.gov/news/negotiated_rate_arrangement_exemption.aspx
