Container shipping lines preparing for the International Maritime Organization’s (IMO) Net-Zero Framework (NZF) could find themselves facing a complex operational and legal situation in the United States, depending on the final shape of the framework.
That warning comes from a regulatory briefing published by law firm Holland & Knight, which highlights potential conflicts between the IMO’s proposed carbon-compliance system and the regulatory powers of the US Federal Maritime Commission (FMC).
The IMO is proposing a tiered penalty system ranging from $100 to $380 per tonne of carbon dioxide equivalent as part of efforts to accelerate fleet decarbonization. However, attorneys at Holland & Knight warn that carriers attempting to recover those costs from customers could attract significant scrutiny from the FMC.
“The FMC plays an important role in protecting US importers and exporters from unjust practices,” Holland & Knight said in the briefing. The firm added that international environmental requirements affecting shipping costs and service availability could warrant Commission oversight.
The briefing was authored by partners Sean Pribyl and Lucille Marvin, along with associate Allison Skopec.
The challenge of recovering NZF costs
One of the central questions for carriers will be how they recover the financial burden created by the IMO’s proposed penalty structure.
Under the Shipping Act of 1984, as amended by the Ocean Shipping Reform Act (OSRA) of 2022, common carriers are prohibited from practices that result in unreasonable increases in transportation costs or unreasonable reductions in service.
That provision could give US importers and exporters grounds to challenge carrier practices before the FMC if shipping lines attempt to compensate for IMO penalties through broad environmental surcharges or by incorporating compliance costs directly into service contracts.
The law firm also highlights uncertainty surrounding proposed fuel requirements.
“Additionally, proposals that would mandate adoption of fuels before they reach demonstrated commercial viability raise questions about realistic availability, affordability and scalability,” the attorneys noted.
Industry stakeholders are continuing to debate whether implementation schedules should depend on measurable indicators demonstrating that alternative fuels are ready for commercial use, or whether fixed deadlines are needed to encourage investment and accelerate adoption.
Laura DiBella puts FMC authority in focus
Another major concern for carriers comes from recent comments by FMC Chair Laura DiBella.
DiBella has argued that any decarbonization framework should be connected to the viability and availability of alternative fuels. She has also indicated that the IMO’s Net-Zero Framework could potentially become the subject of an FMC investigation.
According to Holland & Knight, DiBella has not suggested that the FMC intends to launch proceedings against a particular country. However, her comments have brought the Commission’s rarely used Section 19 authority directly into the debate over international climate policy.
Section 19 of the Shipping Act gives the FMC the ability to initiate an investigation independently or following a petition when foreign government laws, regulations or practices — or the competitive or pricing practices of foreign vessel operators — create unfavorable conditions for US foreign-trade shipping.
As a result, the law firm says, both implementation of the NZF by flag states and the methods carriers use to recover the resulting costs could attract FMC attention if those measures create such conditions.
Potential consequences for carriers
Holland & Knight warns that the FMC has a range of potentially serious remedies at its disposal.
These include:
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Equalizing fees imposed on foreign-flag vessels calling at US ports.
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Suspending tariffs and service contracts.
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Restricting sailings or cargo movements.
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Imposing financial penalties of up to $1 million per voyage.
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Denying vessel entry into US ports.
For carriers, the issue therefore extends beyond the cost of complying with the IMO framework itself. How those costs are transferred to customers could become an equally important regulatory consideration in the US market.
What shippers and carriers should prepare for
As pressure is likely to mount on IMO delegates in the months ahead as negotiations over the NZF continue, Holland & Knight has identified a number of key considerations for shippers, carriers and other participants across the maritime sector.
Companies should watch for any changes in the US regulatory stance and any retaliatory trade measures Washington could potentially take against flag states that back the framework.
They should also assess their exposure to higher transportation costs from fuel mandates, and develop strategies to manage those costs and pass them on through service contracts.
The law firm urges industry players to engage with policymakers and maritime associations to lobby for NZF provisions in line with the availability of commercially viable alternative fuels.
Another issue is the potential for regulatory fragmentation. Further delays in NZF adoption could result in an increasingly complex patchwork of regional carbon-pricing systems with different compliance requirements.
Carriers and shippers should review their existing service contracts and tariff provisions, especially concerning environmental surcharges and the possibility of passing on compliance costs.
Finally, companies may be able to benefit from the protections provided by the FMC when carrier practices raise issues under the US Shipping Act.
The next few months could therefore be crucial for the shipping industry. The final design of the IMO Net-Zero Framework will not only determine how carriers plan fleet decarbonization, but has the potential to set the legal basis for the recovery of decarbonization costs in one of the world’s most important maritime markets.
