THE Office of Enforcement of the US Federal Maritime Commission has asked that Mediterranean Shipping Company, the world’s largest ocean carrier, pay a civil penalty of no less than $63.3m for “knowingly and wilfully” violating the US Shipping Act amid the supply chain crisis.

It also asked the administrative law judge to issue a cease-and-desist order given MSC’s alleged “blatant disregard for the Shipping Act”, allowing the FMC to pursue MSC should it “engage in similar unlawful activities in the future”.

The FMC Office of Enforcement disclosed its recommendations in a brief published on Thursday, stemming from an investigation that began in August 2023.

“MSC is reviewing the Office of Enforcement’s brief and will vigorously defend itself against the allegations and the excessive penalties sought,” the ocean carrier told Lloyd’s List.

MSC, which the FMC enforcement office dubbed a “titan” of the industry, is accused of Shipping Act violations in three categories: using an overly broad definition of “merchant” in its bills of lading to charge third parties without their consent, billing non-operating reefers (NORs) at the reefer rate and cheating NORs out of free time, and failing to publish NOR rates in its US tariff.

“It was opportunistic for MSC to commit these violations at the height of the Covid pandemic, amid significant global shipping tension and competition,” said the FMC enforcement office.

“MSC’s global status, size, resources and experience all collectively highlight the egregious nature of the violations,” which were of an “iniquitous nature, vast extent and severe gravity”.

Billing third parties that were not consignees

The enforcement office alleged in its brief that MSC “wielded heavy-handed tactics” to use the “merchant” clause in its bills of lading to invoice third-party “notice parties” and treat them as “unwilling and non-consenting billing departments” for detention and other charges.

Those third parties — which had no control over the timely drop-off or pick-up of containers and were not the consignees — were forced to “either spend administrative resourcing fighting invoices, or financial resources by yielding to MSC’s demands for fear of [being] shut out”.

The case before the administrative law judge focuses on 18 cases of alleged violations in this category, for which the FMC enforcement office is seeking the maximum penalty of $73,045 per violation, for a total fine of $1.3m.

“This proceeding only addresses 18 invoices out of a universe of many more invoices MSC surely sent and continues to send to its customers,” said the enforcement office. “MSC’s bills of lading have remained unchanged to this day.”

While five of the 18 invoices were dated prior to the five-year statute of limitations, it argued that MSC’s collection efforts continued into 2021, within the statute of limitations.

NORs charged at reefer rate

The largest concentration of requested fines involve MSC’s application of operating reefer charges to NORs. The enforcement office cited 2,629 violations and is asking for a penalty of $17,609 per violation for a total of $46.3m.

It said that MSC director Marco Sidoti admitted “that this was a misapplication within MSC’s internal billing system that resulted in a billing error”.

“However long or widespread this practice occurred, it was a systematic problem embedded within MSC’s billing system,” said the enforcement office.

It said “facts are not in dispute” that MSC charged operating reefer detention and demurrage rates for 2,629 NORs. The charging of NORs as operating reefers led to $1.2m in refunds by MSC for 925 disputed charges, with 1,704 instances where “overcharges remained undisputed”.

“Only when confronted by its customers regarding these overcharges did MSC issue refunds,” said the FMC enforcement office. “MSC never proactively undertook any action to return millions of dollars in overcharges”.

“Refunds do not absolve MSC of its Shipping Act violations,” it continued, also claiming that “many of MSC’s customers were cheated free time”.

“To charge an NOR the same detention and demurrage rate as an operating reefer… is unreasonable,” it said, adding that “at times, MSC would correct the free time calculation and then fail to fix the overcharged reefer rate”.

The FMC enforcement office said that Sidoti reported that the overcharge problem was “corrected on or about September 16, 2021,” but that Sidoti was “informed that only the Houston port was fixed, while he was still receiving emails originating from other ports across the country that were still having issues”. Erroneous invoices were issued “well into 2022”.

The enforcement office argued that “this constitutes obstinate behaviour akin to gross negligence on the part of MSC, to take the report of only one port and claim the billing error for NORs was no longer an issue”.

Failure to publish NOR rates in tariff

The third category of alleged violations centres on MSC’s failure to publish NOR rates in its US tariff. The FMC enforcement office cited 798 violations and is asking for $19,607 per violation, for a total of $15.6m.

It said MSC did not publish NOR rates until March 9, 2023, and that customers requested clarification at least a year prior to that date (the exact date of the first clarification request was redacted).

MSC “waited more than a year to publish these rates in its US tariff”, it said.

“As the largest shipping company in the world, MSC knew or should have known to publish rates in the US tariff and thereafter correctly apply those rates to tendered cargo.” By not doing so, “MSC placed the shipping public at a disadvantage, thereby creating opportunities for MSC to continuously exploit and overcharge its customers”.

The delay in clarifying rates on NORs “demonstrates not only the purposeful, knowing and wilful nature of MSC’s failure, but also the intentional aspect inherent in MSC’s billing inaccuracies”, alleged the FMC enforcement office.