FMC staff reports growth in OTI registrations, details bond rules and cruise-operator protections

Federal Maritime Commission staff on Thursday gave commissioners a status report on licensing and consumer-protection programs that oversee ocean transportation intermediaries and passenger-vessel operators.

Deputy Managing Director Cindy Henigan told the commission that the Bureau of Certification and Licensing (BCL) continues to "protect the public from financial harms and contributes to the integrity of the U.S. supply chain," highlighting a 98% processing rating for applications and a workload of about 15,000 transactions a year.

"A portion of our second agenda item will have to be closed to the public because of the proprietary business information that could be discussed," the chairman noted during opening remarks.

Rusty Haynes, BCL special advisor who briefed commissioners on the OTI program, said the combined total of ocean transportation intermediaries (OTIs) at the end of Q2 FY24 is approximately 9,200 — about 5,119 active domestic licensed OTIs and roughly 4,000 foreign registered NVOCCs. Haynes said the agency's OTI bond program administered about $1.1 billion in bonds at the end of Q2 and has processed more than 2,300 actions year-to-date.

"Prior to a license or registration being issued, a form of financial responsibility is required," Haynes said. He described the common bond levels cited in the briefing: $75,000 for an ocean freight forwarder license applicant, $50,000 for certain NVOCC licensing categories, and $150,000 for a foreign NVOCC registration. Haynes added that bonds, rather than other instruments, have historically been the principal form of security used by the industry.

Towanda Singleter, the passenger-vessel-operator program manager, summarized the PVO program's scope and statistics: 51 participants in the program, aggregate proof of financial responsibility for performance of approximately $763 million, and aggregate casualty coverage of about $773 million. She said the program currently certifies 278 vessels and that proof-of-financial-responsibility can be met with bonds, guarantees, insurance policies, escrow accounts, or a combination of those instruments.

"Proof of financial responsibility for performance is usually 110% of unearned passenger revenue until you hit the cap," Singleter said. She noted the statutory casualty cap is currently $32 million and that staff will work on the formula used to increase that cap if an update is needed.

Commissioners pressed staff on several operational issues. Commissioner Bensel raised concerns about large foreign-registered NVOCCs, noting allegations during the pandemic that many Chinese NVOCCs are affiliated with state-owned enterprises and may exert market power. Haynes and other staff replied that BCL focuses on financial-responsibility and registration compliance and that the commission has statutory tools (for example, section 4104 and analogous historical "section 15" authorities) to compel reports and other information when required to assess anti-competitive conduct.

On the question of where foreign registrants deposit registration funds, staff said BCL does not systematically track registrants' commercial-banking arrangements but agreed to look into the issue at commissioners' request.

Commissioners also asked about whether bond amounts are indexed for inflation. Haynes said the bond levels are standardized and "don't inflate or anything to that degree" (staff estimated the current standardized levels have been in place for roughly 15 years), while Singleter said the PVO casualty cap is governed by statute and any change would follow a formula and rule-making process.

The briefing also touched on consumer-protection work tied to cruise-line bankruptcies and bond claims: staff said they coordinate with carriers and financial-instrument providers to facilitate distributions to passengers when non-performance or bankruptcy occurs, and that the commission assists in coordinating payouts rather than acting as the bankruptcy court administrator.

The commission commended BCL staff for their work and asked staff to continue pursuing clarifications on foreign registration data and the timing to fill the vacant BCL director post; Henigan said the appointment process is underway.

The commission is scheduled to take follow-up actions internally; commissioners and staff indicated some audit-program details would be discussed in the meeting's closed session.