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The Ocean Liner Contract System

In the past three years, the ocean liner contract system (OLCS) has been impacted by the adoption of the International Code for the Security of Ships and Port Facilities (ISPS). The code functionally changes some of the liability in pre-existing contracts between carriers and shippers due to the respective duties of carriers and shippers to comply with the code. As a result, the OLCS has increased in complexity, with increasing reliance by shippers on management firms that can effectively coordinate carrier selection, rates and tariffs. New legislative reforms are also gradually changing the industry by reducing the number of shipping conferences that negotiate with carriers on behalf of the conference members, with rates and services increasingly driven by more competitive market forces rather than by structured conference agreements with carriers.

The Ocean Liner Contract System

OLCS developed as a result of the Shipping Act of 1984 that provided specific statutory authority for carriers and conferences to enter into service contracts without violating American antitrust laws. The resulting contact system allowed shippers to commit to a specified volume of cargo over a specified period of time in exchange for the carrier promise to carry the cargo at a fixed rate and an agreed upon level of service. This system also led to the development of a number of conferences or associations of shippers that negotiated contracts on behalf of members, with approximately 37 of these organizations operating by the end of the 1990s. As a condition of membership in these conferences or associations, individual members were prohibited from negotiating individual contracts with shippers, and were bound by the contract that was negotiated for the group. In addition, the rates negotiated by the group as well as the other specific terms of the contract were a matter of public record, which inhibited competition and confidentiality. Under this system of public disclosure of rates and contract terms, similarly situated shippers could force carriers to provide the same rates as those offered to competitors. The Federal Maritime Commission (FMC) is responsible for monitoring administration and disclosure of the contracts, with an electronic filing system via the internet now in place.

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