By: Patrick Rogers

Bed Bath & Beyond, one of the United States’ most prominent retail brands, filed for Chapter 11 bankruptcy earlier this year.[1] In a complaint filed with the Federal Maritime Commission (“FMC”) last Tuesday, Bed Bath & Beyond alleged that the ocean carrier Yang Ming violated the Shipping Act and contributed to the company’s financial catastrophe by engaging in anticompetitive behavior and unlawful profiteering.[2] Bed Bath & Beyond alleges, inter alia, that Yang Ming purposefully failed to meet its obligations under its service contract in order to provide space to buyers on the “spot market” who typically pay a higher price.[3] Additionally, Bed Bath & Beyond claims that Yang Ming unlawfully applied surcharges (or “junk fees”) and engaged in anticompetitive behavior, including retaliation.[4] Luckily for Bed Bath & Beyond, the law as it relates to retaliation and service contracts will likely keep its claim afloat; however, its claim for relief from the lofty surcharges will not hold water.

The shipping industry is not unfamiliar with Yang Ming’s conduct as alleged in the complaint.[5] Ocean carriers and businesses often engage in service contracts which reserve a certain amount of cargo space on ships for the business and guarantee a revenue stream for the carrier.[6] However, sometimes carriers breach those contracts in order to sell cargo space on the “spot market,” which consists of shippers willing to pay premium prices for immediate cargo space accommodations.[7] Additionally, ocean carriers have invented new ways to make profits, such as the assessment of “congestion surcharges” to shippers. These “surcharges” have recently come under intense scrutiny from the FMC.[8]Further, there are very few ocean container shipping companies in the world; just ten companies divided into three “alliances” control 84.5% of the market.[9] This monopoly power enables ocean carriers to engage in anticompetitive behaviors, such as retaliating against businesses who file claims against them.[10]

The Shipping Act of 1984 (“Shipping Act”) and the Ocean Shipping Reform Act of 2022 (“OSRA 2022”) likely provide some relief to Bed Bath & Beyond.[11] Under the Shipping Act, a carrier may not “provide service in the liner trade that is . . . not in accordance with . . . rule[s] and practices contained in a . . . service contract.”[12] In 2022, the FMC found that a complaint alleging that an ocean carrier refused to perform its obligations under the service contract in order to get higher rates on the spot market “properly allege[d] a plausible violation of section 41102(a)(2)(A).”[13]Accordingly, Bed Bath & Beyond’s claim against Yang Ming for purposefully denying space under the service contract is likely to defeat a motion to dismiss, at least.

Bed Bath & Beyond also alleges Yang Ming violated the Shipping Act by refusing to enter into future agreements unless Bed Bath & Beyond agreed to amend the service contract in Yang Ming’s favor.[14] As part of its objective to combat anticompetitive behaviors of ocean carriers, OSRA 2022 expressly prohibits ocean carriers from denying cargo space to shippers for retaliatory reasons.[15] As such, Yang Ming’s alleged threat to end its business relationship with Bed Bath & Beyond unless they agreed to the contract amendments would be a violation of not only the Shipping Act’s provision against unreasonable refusals to deal or negotiate,[16] but also OSRA 2022’s prohibition against retaliation.[17]

It will likely be more difficult for Bed Bath & Beyond to obtain relief for the alleged exorbitant “congestion surcharges” that Yang Ming assessed them. The Shipping Act prohibits carriers from failing “to establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.”[18]  Congestion surcharges, however, are not “connected with receiving, handling, storing, or delivering property,” rather, they are ostensibly connected with how much traffic there is at a port.[19] While carriers are prohibited from charging unjust “detention and demurrage” fees,[20] “detention and demurrage” refer to charges resulting from excess time that cargo is held at a port, not “receiving, handling, storing, or delivering property.”[21] Thus, “congestion surcharges” are able to evade the current laws meant to protect U.S. businesses such as Bed Bath & Beyond.

In sum, both the Shipping Act and OSRA 2022 provide relief to U.S. businesses like Bed Bath & Beyond that face anticompetitive behaviors from ocean carriers such as retaliation and refusing to enter into future deals. Additionally, Bed Bath & Beyond’s complaint will likely defeat a motion to dismiss. However, the FMC and Congress will have to fight congestion surcharges with new rules or legislation to further the objectives of OSRA 2022.

While the FMC currently requires tariff rates and surcharges to be open and available on a public website for inspection,[22] it is difficult to investigate every tariff rate and surcharge because of how many tariff rules each ocean carrier has.[23] Thus, Congress should appropriate more funding to the FMC to bolster their capacity to investigate and inspect unreasonable and unjust rates and surcharges.[24] Additionally, because many tariff schedules do not specify what level of congestion is necessary to trigger the surcharge,[25] the FMC could issue a rule stating that congestion surcharges are not sufficiently “just and reasonable.”[26] In any event, if neither the government nor the free market reign in surcharges like the ones charged by Yang Ming, more U.S. businesses will sink into bankruptcy.

[1] Debtors’ Chapter 11 Petitions And First Day Motions, In re Bed Bath & Beyond, Inc., No. 23-13359 (Bankr. D.N.J. filed Apr. 23, 2023); Jordyn Holman and Lauren Hirsch, Bed Bath & Beyond Files for Bankruptcy, N.Y. Times (Apr. 23, 2023), https://www.nytimes.com/2023/04/23/business/bed-bath-beyond-bankruptcy.html (noting that Bed Bath & Beyond was insolvent by about $800 million at the time of its Chapter 11 filing).

[2] Complaint at 2-4, Bed Bath & Beyond Inc. v. Yang Ming Marine Transp. Corp., No. 23-10 (Fed. Mar. Comm’n filed Sept. 12, 2023) https://www2.fmc.gov/readingroom/docs/23-10/23-10%20Verified%20Complaint.pdf/.; see Glen Taylor, Bed Bath & Beyond Files FMC Complaint Against Cargo Line That Sued it in April, Sourcing J. (Sept. 13, 2023), https://sourcingjournal.com/topics/logistics/bed-bath-and-beyond-yang-ming-complaint-federal-maritime-commission-fmc-oocl-contract-ocean-freight-454739/ (discussing the events that led to Bed Bath & Beyond filing the complaint).

[3] Complaint, supra note 2, at 8-10.

[4] Id. at 10-15, 17-18.

[5] See National Milk Producers Federation and U.S. Dairy Export Council, Comments Regarding Advance Notice of Proposed Rulemaking by the Federal Maritime Commission Detention and Demurrage Billing Requirements (Apr. 14, 2022), https://www2.fmc.gov/readingroom/docs/22-04/22-04_Comments_NMPF_USDEC.pdf/ (“Our members have reported sharp increases in cancelled or delayed vessel bookings, cancelled service contracts and shifts to spot market rates . . .”).

[6] See 46 C.F.R. § 530.3(q) (defining “service contract”).

[7] See Complaint at 2, MCS Indus., Inc. v. COSCO Shipping Lines Co., 3 F.M.C.2d 132 (Aug. 3, 2021) (No. 21-05) https://www2.fmc.gov/readingroom/docs/21-05/21-05_Complaint.pdf/ (arguing that “[w]ith the onset of the COVID-19 pandemic, global ocean carriers . . . have doubled down on policies and practices that manipulate prices and deliver unprecedented windfall profits to them by forcing shippers into an artificially inflated spot market.”).

[8] See, e.g., Mediterranean Shipping Co., No. CC-001, 3-4 (Fed. Mar. Comm’n filed Feb. 3, 2023), https://www2.fmc.gov/readingroom/docs/CC-001/CC-001%20Charge%20Complaint_post.pdf/ (ordering respondent to show cause as to why its congestion surcharges are not a violation of the Shipping Act); Commission Questions Shipping Lines about Surcharges, Fed. Mar. Comm’n, (Aug. 4, 2021), https://www.fmc.gov/commission-questions-shipping-lines-about-surcharges/.

[9] Alphaliner Top 100, Alphaliner, https://alphaliner.axsmarine.com/PublicTop100/ (last visited Sept. 14, 2023); see alsoGeorge Lauriat, The Tripartite of Ocean Carrier Alliances Face Multitude of Challenges, 740 Am. J. Transp. 4 (2022) (discussing the impacts of the alliances on shippers).

[10] See Press Release, The White House, FACT SHEET: Lowering Prices and Leveling the Playing Field in Ocean Shipping (Feb. 28, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/fact-sheet-lowering-prices-and-leveling-the-playing-field-in-ocean-shipping/ (“because of their market power, [ocean carrier] alliances are able to cancel or change bookings and impose additional fees without notice.”).

[11] See Shipping Act of 1984, 46 U.S.C. §§ 40101-41309; Ocean Shipping Reform Act of 2022, Pub. L. No. 117-146, 136 Stat. 1272 (2022).

[12] 46 U.S.C. § 41104(a)(2).

[13] Order on Motion to Amend Complaint and Motion to Dismiss at 7-8, MCS Indus., Inc. v. COSCO Shipping Lines Co., 3 F.M.C.2d 132 (Fed. Mar. Comm’n Aug. 3, 2021) (No. 21-05) (Fed. Mar. Comm’n Feb. 4, 2022), https://www2.fmc.gov/readingroom/docs/21-05/21-05_Order_Dismiss_Amend_Complaint.pdf/.

[14] See Complaint, supra note 2, at 20-21.

[15] Ocean Shipping Reform Act of 2022, Pub. L. No. 117-146, 136 Stat. 1272, 1273 (2022) (codified at 46 U.S.C. § 41104(a)(3)).

[16] 46 U.S.C. § 41104(a)(10); see also OJ Commerce, LLC v. Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft A/S & Co., 6 F.M.C. 2d 165, 195-99 (June 7, 2023), https://www.fmc.gov/wp-content/uploads/2023/08/LawReporterVol6.pdf. (finding that the ocean carrier unreasonably refused to deal or negotiate with the shipper when it ended negotiations after the shipper planned to file an FMC complaint).

[17] 46 U.S.C. § 41104(a)(3).

[18] 46 U.S.C. § 41102(c); see Complaint, supra note 2, at 19 (arguing that Yang Ming’s conduct is a violation of the statute).

[19] See Response at 20, Mediterranean Shipping Co., No. CC-001 (Fed. Mar. Comm’n Feb. 3, 2023), https://www2.fmc.gov/readingroom/docs/CC-001/CC-001%20Response%20of%20MSC%20Mediterranean%20Shipping%20Company%20S.A.%20to%20Order%20to%20Show%20Cause%20-public%20version%203-9-2023.pdf/ (“the congestion surcharge herein does not relate to receiving, handling, storing or delivering property – it relates . . . to the water transportation of the cargo, and hence falls outside the scope of Section 41102(c).”).

[20] See 46 U.S.C. § 41104(a)(15).

[21] Demurrage, Ballentine’s Law Dictionary, (3d ed. 1969).

[22] 46 C.F.R. § 520.3(a) (“all common carriers and conferences shall keep open for public inspection, in automated tariff systems, tariffs showing all rates, charges, classifications, rules, and practices . . . .”).

[23] See, e.g., Tariff Rules, Yang Ming, https://www.yangming.com/e-service/tariff/tariff_rules_ymjsa.aspx (last visited Sept. 22, 2023) (listing 546 tariff rules, of which the 279th listed is a “port congestion surcharge” applicable to “[U.S.] east coast ports that [are] congested due to or caused by a strike, lockout, or labor dispute”).

[24] See Fed. Mar. Comm’n, Fact Finding Investigation 29 Final Report: Effects of the COVID-19 Pandemic On The U.S. International Ocean Supply Chain: Stakeholder Engagement and Possible Violations Of 46 U.S.C. § 41102(c), 59(2022), https://www.fmc.gov/wp-content/uploads/2022/06/FactFinding29FinalReport.pdf (recommending that the FMC launch an investigation into tariff surcharges).

[25] See, e.g., Tariff Rule Filing Request, Yang Ming, https://as3.yangming.com/FRT_FILE_DOWNLOAD/download_file.aspx?p_file=12843.doc (last visited Sept. 22, 2023) (failing to describe what level of congestion is required to trigger the surcharge, only that it need to be “congested due to or caused by a strike, lockout, or labor dispute”).

[26] 46 U.S.C. § 40701(a).