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National Industrial Transportation League - March 12, 1999

March 12, 1999

Remarks of

Commissioner John Moran

Federal Maritime Commission

Before The

National Industrial Transportation League

Chicago, Illinois

March 12, 1999


I want to thank the National Industrial Transportation League for the opportunity to participate in today's seminar. Before I begin my remarks, I want to acknowledge the important contribution to the implementation of the Ocean Shipping Reform Act made by the League and sponsors of similar seminars to help prepare for May 1.

I have had the pleasure to work with the League on a number of occasions and this is not the first time I have been asked by the League to make some public remarks. I remember that a number of years ago, Ed asked me to address a group of his members. By chance, I was addressing a group of carriers later that same day. It will surprise no one that I had two different texts. My remarks for the League clearly acknowledged the gospel according to shippers -- "In the beginning, there was cargo." Of course, my speech to the carriers acknowledged the holy writ for vessel operators - that the ultimate act of creation was a ship. And the shipowners said at the end of God's work, "It is good."

I hope that now, however, I can use one text for everyone. A text stating that cargo and ships - and labor and intermediaries - need each other and the freedom to cooperate and enter into commercial relationships of mutual benefit.



The Ocean Shipping Reform Act - the Legislative Process

If you think about it, this theme of cooperation and mutual benefit is the key to the success of the Ocean Shipping Reform Act.

The legislative effort began in a sense of frustration - frustration that the regulatory framework of the Shipping Act of 1984 did not allow carriers, shippers, and intermediaries to enter into flexible, creative, market-driven relationships. The vision was that the freedom to negotiate and cooperate for mutual commercial benefit would lead to benefits for everyone and a more efficient transportation system.

Vision may get the debate started and a bill introduced, but seldom will vision alone get legislation enacted. Cooperation and compromise is usually required to achieve legislative results. That was true for the Ocean Shipping Reform Act. At almost every step along the way, logjams were broken and obstacles were overcome only when parties saw that it was in their mutual interest to negotiate, cooperate, and achieve a mutually beneficial compromise. As a long-time student of the legislative process, I know how difficult this was. Congress, the President, and all of the involved stakeholders deserve a great deal of credit for getting this law to a successful legislative conclusion.



The Rulemaking

Congress passed the Ocean Shipping Reform Act, the President signed it, and the Federal Maritime Commission gets to implement it. And this is where I enter into the picture. As a Commissioner, I was fortunate to have a role in looking at the law, determining what Congress and the President intended, and translating that intent into workable regulations.

As I went through the rulemaking process, I tried to determine what Congress intended to achieve. I concluded that, if not clear in every bit of statutory language, the overall intent of the legislation was simple and clear -- a competitive and efficient ocean transportation system is fostered by placing greater reliance on the marketplace.

In promulgating the rules, I believe Congress intended the Commission to:



  1. Give a creative and dynamic marketplace the opportunity to work;
  2. Let competitive forces and the marketplace be the primary regulator and enforcement mechanisms;
  3. Avoid unnecessary regulatory burdens and costs that stifle commercial relationships and pro-competitive practices;
  4. Identify competition-reducing and market-distorting problems -- if, and as, they develop; and,
  5. Target limited agency resources on these market-distorting problems.

Congress did not leave the Commission much time to finish this work. The President signed the legislation on October 14, 1998, and the effective date is a little more than six weeks away. The Commission realized that the proposed rules would require substantial revision, but we believed it was more important to get something out for comment than to delay publication in an effort to refine the proposed rules. As a result, the public's participation in this rulemaking process was critical. A primary reason the Commission successfully completed the rulemaking in time for the May 1 deadline was the response and participation of the private sector in the rulemaking process under very tight deadlines and during a holiday season.

I believe that the rules approved by the Commission substantially achieve what Congress intended when enacting OSRA. While I am not going to discuss the rulemaking at length, I would like to spend a few minutes on what I consider to be several important, controversial, and interesting elements of the rulemaking.



Service Contracts

The single most important pro-competitive element of OSRA is confidential service contracting. Congress intended this to be the de-regulatory centerpiece of the act. In promulgating regulations, the Commission needed to be especially sensitive that its rules and regulations did not impose rigid regulatory restrictions, burdens or costs that would hinder or discourage the use of service contracting. The filing procedure for service contracts needed to be simple, speedy, and straightforward to use. The requirements needed to allow the use of off-the-shelf, generic and widely-used technology, enabling users to file information without the additional burden or cost of converting information to a mandated system or form. While the Commission needed to ensure the ability to search and retrieve information, we needed to achieve that goal without adding additional costs or burdens on filers, which would discourage the use of service contracts.



The Commission staff worked very hard to develop a system that met these needs. I am very satisfied that the rule approved by the Commission substantially achieved our goals. The final rule provides for an Internet-based service contract filing system that will permit contract filers to use "off-the-shelf software" to file service contracts utilizing standard word processing formats. The Commission staff is working very hard to make sure this system in place and operating by May 1.



Voluntary Guidelines

One of the most important, difficult, and controversial issues raised was how to address the use of "voluntary guidelines" by carrier agreements. This issue raised a number of conflicting policy considerations under OSRA.

The proposed rules included a provision that would have limited voluntary guidelines to "procedures" between shippers and carriers and not to arrangements and procedures among discussion agreements between carriers. Now, I do have concerns about discussion agreements and the possibility that, under certain market conditions, carriers might abuse the antitrust immunity to undermine confidential service contracting. However, after carefully considering the issue, I decided to vote against the proposed rule for several reasons:



  • Congress retained antitrust immunity for carriers. The carriers should have the opportunity to use the antitrust immunity responsibly to obtain efficiencies and cost-savings that benefit themselves and shippers.
  • Congress drafted the "voluntary guidelines" language, which is fairly clear on its face.
  • Congress did not want the FMC to impose complex, inflexible "command and control" prohibitions in an effort to control every potential problem.
  • Congress intended for competition to be the primary regulator, with scarce agency resources targeted on market-distorting problems if, and when, they develop.
  • If the discussion agreements abuse the antitrust immunity to undermine service contracting, the FMC can, and will, take aggressive action with the available statutory tools.
  • If they abuse the immunity to undermine service contracting, and if FMC efforts to address the problem are inadequate, Congress may reconsider the question of antitrust immunity.

 

Bonding for OTI's

The Commission approved a substantial increase in the financial security required for ocean transportation intermediaries. In comments submitted during the rulemaking, a number of commenters raised concerns about both the added costs and the lack of justification in the record for the increased bond levels. I agreed and voted against this across-the-board increase.

I am not opposed to raising the financial security requirements if warranted and justified. But, I believe OSRA requires the Commission to carefully consider and justify regulatory requirements. The Commission should carefully examine each and every regulatory cost or burden and ask several questions:



  • "Is it really necessary to achieve Commission goals and objectives?" If not, we should not require it -- period.
  • If it is necessary, we need to ask, "What is its impact?" Before acting, the Commission should know the costs, as well as the benefits, of the regulation.
  • Finally, the Commission needs to ask, "Is there a less 'command and control', less costly, or less burdensome way to achieve the Commission's objectives?" If so, we should go in that direction, even if it makes the Commission's job more difficult.

I do not think we sufficiently explored the potential impact of the increases on the affected small businesses or how it would affect competition. I would have preferred developing a more adequate record on the potential impact on small businesses or its effect on competition before raising the bond amounts.



After OSRA

Activities at the FMC

So, where do we go from here? Well, there are several OSRA-related activities for the FMC to pursue:

  • There are follow-up issues from the rulemakings.
  • There will inevitably be "bumps in the road" when implementing the new rules that will require continued attention and action.
  • The Commission must be vigilant and willing to take strong action to ensure that competition, especially in the area of service contracting, is not undermined by anti-competitive behavior.
  • Finally, the Commission must continue to examine ways to further reduce regulatory costs and burdens that limit market flexibility without serving substantial regulatory interests or needs.

 

The Challenge for the Private Sector

But, if the Commission has done its job right, the main focus will now shift to the marketplace to see if OSRA works as intended.

The purpose of the Ocean Shipping Reform Act was to "let the genie out of the bottle." It is intended to allow a fuller and more dynamic play to those forces which were already transforming ocean transportation. I hope that the FMC has done its part to unleash entrepreneurial creativity and allow businesses to find new cost-savings, efficiencies, and opportunities to provide service or have commercial needs addressed. I read daily press articles about what may happen under OSRA and the possibilities, permutations, and the opportunities seem open-ended.

I began these remarks talking about how a vision got this whole thing started and carried it through the legislative process. As the quote goes, "What is past, is prologue." The critical test for whether OSRA will be a success or failure will not happen at the Federal Maritime Commission. It will happen with you and whether you implement OSRA in the marketplace with the same vision of commercial freedom and cooperation for mutual commercial benefit with which the law began.



Thank you for opportunity to talk with you all today. I was glad to be a part of rulemaking process and I look forward to future challenges at the Commission. But I am most excited to see what happens where it counts the most -- in the marketplace.