The United States is one of the most heavily involved countries in international trade and shipping. With the heavy volume of international shipments entering and exiting the U.S., the government has positioned a federal agency – the Federal Maritime Commission or FMC – to intimately manage the details surround ocean-borne international shipments. Without certification and approval by the FMC, companies cannot import or export goods to or from the United States. The role of the FMC in international transportation is to oversee, regulate, and manage the rules of ocean-borne freight that touches U.S. soil. Here’s a closer look at what this entails for importers, exporters, and other parties involved in the international shipping process:
History of the FMC
The United States has been involved in international trade since its very beginnings. Although this never required such high levels of moderation until recently. In the late 1800’s, multiple conferences were held by shipping lines to control and institute standards for freight rates. The more space shippers purchased and the closer relationships they had with congress, the less they’d pay for shipping. However, this created a disadvantage for shippers outside of these circles. In the 1960’s, the U.S. created the FMC as a way to promote competition in the transportation industry and maintain economic development of the nation.
The purpose of the FMC as stated by their website is, “to ensure that neither the activities of liner shipping groups nor foreign government laws or regulations impose unfair costs on American exporters, or on American consumers of imported goods.” After the 1960’s, the popularity of intermodal container shipping options rose in popularity quickly. The ability to standardize shipping with containers that could be carried via rail, truck, or ocean created an even larger need for an organization to monitor and control the shipping regulations and practices of the United States.
The Purpose and Role of the FMC in International Transportation
While the federal organization exists to promote fair trade regulations and reasonable costs for exporters and importers of ocean-borne containers in the U.S., the role of the FMC in international transportation extends beyond this one responsibility. The United States is a large stakeholder in the industry of international trade and transportation. Thus, since the creation of the FMC, the federal agency has evolved to accommodate the arising needs for regulation, legal implications, and management of the economic development of foreign nations. Here are some of the roles of the FMC in international transportation:
Monitoring and Controlling Shipping Costs and Services
The largest understood purpose of the FMC is to control international shipping costs involving U.S. based importers or exporters. The FMC reviews agreements between terminal operators servicing U.S. involved trade and ocean carriers to ensure they do not impose unreasonable costs or low quality services. The FMC was originally formed to combat the price increases and service quality decreases that so frequently impacted importers and exporters when liner shipping companies influenced these factors.
There are a few different types of tariff rates which all exist to control international trade and the balance of foreign vs. domestic production and product sales. Tariff rates are charges placed on exports or imports to or from the United States based on product type/country of origin/destination/etc. The point of the charges is to regulate international trade and promote domestic production. For example, the U.S. may increase the tariff rate on products which is wishes to have produced domestically, so as to encourage U.S. based production of that specific product. However, tariff rates may also be low or non-existent for products the U.S. wishes to import from overseas more frequently. This could be for a couple reasons. The U.S. may either wish to promote economic growth in the foreign country from which goods are being imported, or may be seeking to lower the cost of the product in the U.S. by driving tariff rates below the cost of production in the U.S.
The role of the FMC in international transportation is to guarantee that importers and exporters located within the United States are able to engage in international trade without worry of unreasonably high shipping prices. While the organization is a U.S. federal agency, their decisions, regulations, and legal rulings have an impact on international trade in its entirety. Noncompliance with FMC law (such as an attempt to misstate products to achieve lower tariff rates) can result in major fines or bans from doing business with the United States. But operating within the regulations of FMC will keep you in good relation to U.S. government and allow your international trade to operate efficiently and effectively.
If you’ve been burned in the past by misunderstanding FMC law, or working with an overseas company that has intentionally construed their trading practices against the federal agency, give us a call. Our team has extensive experience working with FMC, AES, Customs, and other legal entities in the shipping process. We would be happy to help you understand anything that doesn’t make sense to you regarding the role of the FMC in international transportation.