Ocean Freighter Ordered to Pay Furniture Retailer $9.8M

Date: Tuesday, June 13, 2023
Source: Sourcing Journal

The Federal Maritime Commission (FMC) slapped Maersk-owned ocean liner Hamburg Süd with a $9.8 million fine after it found the German container shipping company refused to fulfill shipping contract obligations with a furniture retailer.

Hamburg Süd must pay Florida-based online furniture and home goods retailer OJ Commerce (OJC) on the grounds that it violated the Shipping Act of 1984 by preventing the importer from accessing contracted cargo space for its containers.

OJC had sought $100 million in damages when it initially filed a case with the FMC in November 2021, accusing Hamburg Süd of contract breaches and unreasonably high prices. The e-commerce seller later amended its complaint in February 2022, accusing the shipping company of retaliation and refusing to deal with the retailer.

The retaliation claims stem from two letters OJC sent in October 2020 and April 2021, which threatened Hamburg Süd with legal action for breaching service agreements.

OJC said it had a long-term freight contract with Hamburg Süd from June 2020 to May 2021 with an agreed minimum volume of 400 TEU. It claimed the ocean carrier failed to transport 30 containers under the contract and wrongfully billed nearly $41,000 in demurrage charges against 13 containers, which Hamburg has since paid back.

The commission ruled that Hamburg first retaliated by refusing to fulfill existing contractual obligations under the 2020-21 service contract, and then by refusing to renew or negotiate a 2021-22 service contract.

Although the FMC previously dismissed the home goods merchant’s claims related to unreasonable business practices in August 2022, the commission also found that the ocean carrier violated the “refusal to deal” provision of the Shipping Act, ruling it unfairly shut the retailer out from contract agreements.

In its decision, the FMC said Hamburg Süd’s move in April 2021 to “disengage” from both fulfilling the 2020-21 contract and negotiating a 2021-22 deal was made due to the litigation risk posed by OJC, “which under these facts, is not a legitimate transportation-related factor.”

“Commission case law is clear that an ocean common carrier [like Hamburg Süd] does not have a duty to grant a contract to every potential party,” wrote Judge Erin Wirth in her 64-page order. “However, long-standing Commission precedent prohibits common carriers from shutting out any person for reasons having no relation to legitimate transportation-related factors and from retaliating against shippers.”

The agency found that OJC sustained actual injury damages of $4.9 million, but because the violation was “knowing and willful,” compensation could be doubled to $9.8 million.

A Maersk spokesperson told Sourcing Journal, “We are reviewing the decision and considering next steps.” OJ Commerce did not immediately respond to a request for comment.

“This case raises novel legal issues about refusal to deal claims, retaliation claims and calculation of reparations. In addition, the parties disagree about many of the factual allegations,” wrote Wirth. “The parties heavily litigated this proceeding, with multiple motions to compel evidence filed. Indeed, both parties allege that the other party violated discovery requirements.”

The FMC’s powers were expanded in June last year after the signing of the Ocean Shipping Reform Act of 2022 (OSRA22), which was designed to ensure the commission could promote competition in the ocean shipping market, and investigate complaints related to carrier detention and demurrage charges.

With the updated legislation, the agency is cracking down on retaliatory practices. Last December, the FMC required the 20 largest shipping lines serving the U.S. to prove their compliance with the law’s anti-retaliation measures.

Since OSRA22 passed, the expansion of FMC’s oversight has been beneficial to many importers that were impacted by demurrage and detention fees. More than $1 million of disputed charges assessed to shippers and forwarders have been waived or refunded as of May, the agency revealed.

More importers are coming out of the woodwork with similar claims. Bed Bath & Beyond filed a complaint against Cosco Shipping subsidiary OOCL, saying that the container shipping company owes it $31.7 million, including $6.4 million in detention and demurrage fees.

In that filing, the bankrupt home goods retailer said OOCL failed to meet minimum quantity commitments (MQCs) under its 2020 and 2021 service contracts. The retailer also contended that the shipping giant strongarmed the chain into paying premium pricing.

Later that month, OOCL filed a rebuttal with the FMC denying the Bed Bath & Beyond’s claims, saying that the retailer “is asking the commission to invent contract requirements that were not bargained for or agreed to between the parties.”


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