The World Shipping Council (WSC) challenged how the Federal Maritime Commission (FMC) interpreted the “unreasonable refusal to deal or negotiate” rule in 46 U.S.C. § 41104(a)(10). World Shipping Council v. Federal Maritime Commission, No. 24-1298, 2026 WL 880278 (D.C. Cir. Mar. 31, 2026). The D.C. Circuit upheld the FMC’s interpretation.
The statute prohibits common carriers from unreasonably refusing to deal or negotiate with potential shippers, including with respect to vessel space accommodations.
In interpreting this provision, the FMC issued a non-binding, non-exhaustive list of factors it may consider when assessing whether a refusal to deal or negotiate is reasonable. One of these factors is whether the ocean common carrier followed its documented export policy—a written report produced by the carrier that details its practices and procedures for U.S. outbound services and is filed with the FMC annually.
The FMC also provided examples of unreasonable conduct, including quoting rates so far above current market rates that they cannot be considered a good faith offer or an attempt at engaging in good faith negotiations.
WSC challenged these interpretations as arbitrary and capricious.
The D.C. Circuit disagreed.
I. Background: What Is “Unreasonable Refusal to Deal or Negotiate”?
The Shipping Act of 1984 establishes a “regulatory process for the common carriage of goods by water in the foreign commerce of the United States.” 46 U.S.C. § 40101(1). Among other things, it regulates the commercial relationships between ocean common carriers and shippers.
Ocean common carriers and shippers establish their commercial relationships through service contracts, under which a shipper commits to providing a certain volume or portion of cargo over a specified period, while an ocean common carrier agrees to provide transportation at a certain rate or rate schedule and a defined service level (such as assured space, transit time, and port location). 46 U.S.C. § 40102(21). The Act requires such contracts to be filed with the FMC and to include certain essential terms. Id. § 40502(b), (c).
The Act prohibits common carriers from “unreasonably refus[ing] to deal or negotiate” with potential shippers, including with respect to vessel space accommodations provided by an ocean common carrier. Id. § 41104(a)(10). In simple terms, this refers to situations where an ocean common carrier unreasonably refuses to provide space on a vessel for a shipper’s cargo or unreasonably refuses to even negotiate the terms for booking that space.
In 2022, Congress directed the FMC to conduct a rulemaking to define “unreasonable refusal to deal or negotiate” in this context.
In 2024, the FMC issued the Final Rule establishing the framework for evaluating refusals to provide vessel space accommodations for containerized cargo under 46 U.S.C. § 41104(a)(10).1See Definition of Unreasonable Refusal To Deal or Negotiate With Respect to Vessel Space Accommodations Provided by an Ocean Common Carrier (Final Rule), 89 Fed. Reg. 59648 (2024) (codified at 46 C.F.R. § 542.1). The Final Rule identifies the following non-binding factors the FMC may consider when assessing whether an ocean common carrier’s conduct is reasonable: (1) whether the ocean common carrier followed a documented export policy that enables the timely and efficient movement of export cargo; (2) whether the ocean common carrier engaged in good faith negotiations; (3) whether the refusal was based on legitimate transportation factors; and (4) any other relevant factors or conduct.
The FMC also provided examples of conduct that may be considered unreasonable. One of such examples is quoting rates so far above current market rates that they cannot be viewed as a good faith offer.
The FMC’s interpretation of “unreasonable refusal to deal or negotiate” triggered a dispute.
WSC argued that the FMC’s interpretation violates the Administrative Procedure Act (APA) on three grounds. First, it contended that the FMC lacks statutory authority to consider pricing when assessing the reasonableness of a carrier’s offer. Second, it argued that requiring carriers to submit a documented export policy exceeds the FMC’s authority and is arbitrary and capricious. Finally, WSC challenged the FMC’s decision to remove “business decisions” as a factor in the reasonableness analysis, after it had been included in the Notice of Proposed Rulemaking but omitted from the Final Rule, arguing that this change was arbitrary and capricious.
II. The D.C. Circuit’s Opinion: The FMC’s Interpretation Is Not Arbitrary or Capricious
The Court analyzed WSC’s arguments in their order.
1. “Quoting Rates That Are So Far Above Current Market Rates” as an Example of Unreasonable Conduct: Is It Arbitrary and Capricious? The Court Says No.
The Final Rule includes price as a non-binding example of unreasonable conduct, namely: “Quoting rates that are so far above current market rates they cannot be considered a good faith offer or an attempt at engaging in good faith negotiations.” 46 C.F.R. § 542.1(h)(1).
Before adopting the Final Rule, the FMC faced significant opposition to including the practice of “[q]uoting rates that are so far above current market rates” as an example of unreasonable conduct. WSC, another carrier trade association, and several major ocean common carriers all objected this approach.
WSC and Mediterranean Shipping Company (USA) Inc. argued that the FMC has no authority to regulate prices and that using a standard such as “so far above current market rates” would be vague and unworkable. Similarly, OOCL (USA) Inc. argued that the FMC does not regulate prices and that this provision interferes with carriers’ and shippers’ ability to negotiate, which is an essential element of a free market economy.
The FMC rejected these arguments. It clarified that the provision is not a bright-line rule, but simply an illustrative example. Nor does it involve setting or regulating rates. Instead, the FMC described it as a reference point: it compares negotiated rates to market rates to assess whether the conduct is reasonable. In the FMC’s view, this approach does not interfere with the market. The market continues to determine price levels, while the FMC considers whether a particular offer is so far outside those levels that it may indicate unreasonable conduct. For these reasons, the FMC retained this example in the Final Rule as originally proposed.
WSC subsequently initiated this proceeding. It argued that characterizing a rate as unreasonably high or low amounts to setting rate limits, and therefore to regulating rates, which falls outside the FMC’s statutory authority.
The FMC responded that there is a difference between setting rates and evaluating whether a quoted rate is unreasonably high as one factor in an adjudication. The Court agreed. It did not view the FMC’s example of unreasonable conduct—rates so far above market levels that they cannot be considered a good faith offer—as amounting to rate regulation, particularly because the FMC must consider other relevant factors. In reaching this conclusion, the Court relied on Evergreen Shipping Agency (America) Corp. v. Federal Maritime Commission, 106 F.4th 1113, 1118 (D.C. Cir. 2024), which held that “[i]t was arbitrary and capricious for the FMC to commit to making a circumstantial, fact-bound inquiry in the interpretive rule and then, when it came time to apply the rule, to jettison all but its favorite factor.” Thus, price is one of the factors considered in evaluating whether conduct is reasonable. The FMC does not fix prices; rather, it evaluates conduct based on a range of factors, including price.
At the same time, the Court acknowledged that an ocean common carrier may quote a rate so extreme that it alone would establish an unreasonable refusal to deal or negotiate. As the Court noted, “[t]o hold otherwise would permit any ocean carrier to refuse to deal or to negotiate with impunity, simply by quoting an unrealistically high rate.”
WSC further argued that an agency without ratemaking authority may not consider rate levels in the reasonableness analysis. The Court disagreed. It drew a comparison to labor law: even though the National Labor Relations Board cannot set wages, it can look at wage proposals to assess whether a party is bargaining in good faith. By the same logic, the FMC may consider a carrier’s rate proposal when determining whether it has unreasonably refused to deal or negotiate.
Finally, the Court rejected WSC’s argument that the phrase “so far above current market rates” is impermissibly vague. The Court concluded that it was not arbitrary for the FMC to decline to set a strict rule for determining when rates exceed the market to an unreasonable extent. It noted that the D.C. Circuit has previously upheld agency decisions that do not draw precise boundaries around open-ended terms but instead define them through case-by-case adjudication. See PDK Laboratories Inc. v. U.S. Drug Enforcement Administration, 438 F.3d 1184, 1195 (D.C. Cir. 2006).
2. Requirement to Submit a Documented Export Policy: Is It Arbitrary and Capricious? The Court Says No.
A documented export policy is defined as “a written report produced by an ocean common carrier that details the ocean common carrier’s practices and procedures for U.S. outbound services.” 46 C.F.R. § 542.1(b).
The Final Rule establishes that ocean common carriers must file a documented export policy with the FMC once per calendar year. Id. § 542.1(j)(1). This policy must include “pricing strategies, services offered, strategies for equipment provision, and descriptions of markets served.” Id.
WSC argued that the FMC exceeds its authority and acts arbitrarily and capriciously by requiring ocean common carriers to submit a documented export policy and by considering deviations from that policy in assessing whether a refusal to deal or negotiate is reasonable.
The FMC relied on its authority under 46 U.S.C. § 40104(a)(1), which permits it to require carriers to submit reports or records related to their business operations. The Court agreed that this authority is broad enough to include requiring a documented export policy.
The FMC explained that this information helps it assess whether a carrier’s conduct in a particular case is consistent with its general policies and therefore reasonable. The Court accepted this reasoning. It noted that a departure from common practices may indicate unreasonableness and concluded that the requirement to submit a documented export policy is “reasonable and reasonably explained.”
3. Removal of ‘Business Decisions’ from the Reasonableness Factors: Was It Arbitrary and Capricious? The Court Says They May Still Be Considered.
Before adopting the Final Rule, the FMC stated in the Notice of Proposed Rulemaking that it would consider a carrier’s business decisions when assessing whether a refusal to deal or negotiate was reasonable. It acknowledged that carriers are not required to contract with every potential shipper and may exercise business discretion based on factors such as profitability and alignment with their business strategy. The FMC explained that its role would be limited to assessing whether those decisions were applied in a fair and consistent manner.
However, the FMC did not include the “business decisions” factor in the Final Rule. WSC argued that the FMC acted arbitrarily and capriciously by removing “any mention of business decisions from the Final Rule.” The Court rejected this argument. It found that the FMC has made clear in the preamble to the Final Rule that information about business decisions remains relevant to determining whether a refusal to deal or negotiate is reasonable. As a result, the Court concluded that the FMC did not meaningfully change its approach by omitting an explicit reference to business decisions in the Final Rule.
Based on the foregoing, WSC’s petition was denied.
III. Takeaways
This case upholds the legal framework under which the FMC assesses the reasonableness of an ocean common carrier’s refusal to deal or negotiate with potential shippers. It also has broader relevance in the context of judicial review of administrative agency action under the APA. Specifically, it illustrates the scope of arbitrary-and-capricious review under the APA.
“Under [the arbitrary-and-capricious] standard, a court asks not whether it agrees with the agency decision, but rather only whether the agency action was reasonable and reasonably explained.” Seven County Infrastructure Coalition v. Eagle County, Colorado, 605 U.S. 168, 180 (2025). “[A] reviewing court may not set aside an agency rule that is rational, based on consideration of the relevant factors and within the scope of the authority delegated to the agency by the statute.” Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 42 (1983). The D.C. Circuit applied these principles in upholding the FMC’s interpretation of “unreasonable refusal to deal or negotiate” in this case.
Interestingly, in 2025, WSC successfully challenged the FMC’s interpretation of the demurrage and detention billing rule under the same arbitrary-and-capricious framework. See World Shipping Council v. Federal Maritime Commission, 152 F.4th 215 (D.C. Cir. 2025). In that case, WSC argued that allowing invoices for demurrage and detention to be issued only to contracting shippers or consignees was arbitrary and capricious. The Court agreed with WSC and set aside that part of the rule, finding inconsistencies between the FMC’s reasoning and the rule itself.
The FMC explained that, in establishing the parties to whom invoices for demurrage and detention could be issued, it was guided by the existence of a contractual relationship between the billing and billed parties. The Court found the restriction on billed parties arbitrary and capricious because the FMC “failed to explain the seeming inconsistency between its contractual-privity-based rationale and its categorical bar against billing motor carriers even when in privity with the billing party.”
Notably, the Court did not decide whether contracting motor carriers should or should not be excluded from the list of properly billed parties. It acknowledged that such an exclusion might be permissible, but the FMC must reasonably explain it. The Court stated:
In short, when faced with a seeming discrepancy in the reach of the Rule given its underlying rationale, the [FMC] acknowledged—even embraced—the existence of the evident inconsistency but gave no reasonable justification for it. None of this is to say definitively that the [FMC] could never give a satisfactory explanation for categorically excluding motor carriers from the field of parties that may be assessed demurrage and detention fees, should the [FMC] opt to maintain that policy. Rather, it is to say that the [FMC] has yet to give such an explanation.
Moreover, the Court found another inconsistency: although the FMC relied on a contractual privity rationale, it still allowed demurrage and detention invoices to be issued to consignees even when they were not in contractual privity with the carrier. The Court quoted Natural Resources Defense Council v. U.S. Nuclear Regulatory Commission, 879 F.3d 1202, 1214 (D.C. Cir. 2018), stating that “it would be arbitrary and capricious for the agency’s decision making to be ‘internally inconsistent.’”
In sum, while the arbitrary-and-capricious standard under the APA is deferential, it is unmet “if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” State Farm, 463 U.S. at 43 (1983).
The information provided in this article is intended for informational purposes only and does not constitute legal advice. It should not be relied upon or applied without consulting an attorney to address your specific circumstances. Please note that this article was published on the date indicated and may not reflect subsequent changes in the law.
