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Remarks of the Honorable Harold J. Creel Speech before the American Association of Port Authorities - September 28, 1999

September 28, 1999

REMARKS OF

THE HONORABLE HAROLD J. CREEL, JR.

BEFORE THE

AMERICAN ASSOCIATION OF PORT AUTHORITIES

88TH ANNUAL CONVENTION

 

SEPTEMBER 28, 1999

NEW YORK, NEW YORK

 

I'd like to thank Kurt Nagle and the AAPA for inviting me to participate in your Association's annual convention. Eighty-eight years! That certainly is a testament to the value and effectiveness of your organization.

Ports and marine terminals obviously play a critical role in U.S. ocean commerce. And as we approach the next century, you are right in the middle of the debates on harbor maintenance funding, port dredging, U.S. cabotage laws, and proposals regarding the cruise industry, while at the same time adjusting to the impacts of our new shipping statute.

I've been asked to discuss the current issues and proceedings before my agency, the FMC. So I thought I'd give you somewhat of a status report on the Commission. I intend to cover three specific areas. First, just where the Commission is devoting its attention - the projects and responsibilities we're focusing on right now. I then will briefly update you on some of the more relevant cases and issues we're addressing. And third, I'd like to finish up by mentioning a few of the more important matters facing the ocean shipping industry in the months and years ahead.

So what are we up to at the FMC right now? Well, I can begin by telling you that I am deeply involved in what I hope will be a successful effort in convincing Congress of the need for adequate funding for the FMC. Due to the tight funding caps placed on the Appropriations Committee, the Commission's budget situation for the fiscal year beginning in 3 days is not a bright one. Similar to other agencies in government, our appropriators have straightlined us for fiscal year 2000 at the same budget we currently are operating under, $14,150,000. Our oversight committees in both the House and the Senate earlier had voted out a budget for us of $15,685,000, which was more in line with the request the President sent to Congress.

But it's the appropriators who have the final say in this area, and we are left to do all we can to impress upon those members the absolute importance of the Commission being adequately funded, particularly as we implement OSRA and begin to address our new responsibilities under that statute. I have not been shy about stating that my agency has been operating at far less than optimum budget levels for a few years running. Our hope is that the caps will be lifted and that the Commission will be funded at a level that allows us to perform the job Congress just laid out for us in passing OSRA last October. Absent positive action in this regard, the Commission will be faced both with some very difficult personnel issues, along with the prospect of pursuing implementation of this new statute at a distinct disadvantage. Being an optimist, I am hopeful that this situation will be resolved in a positive manner.

Now, I'm not spending all my time dealing with budget issues. A significant amount, yes. But believe me, the Commission remains a busy place. We have been in high gear for over a year straight now, and I don't see much slowdown in the future.

We completed all final rules implementing the new provisions of OSRA by March 1st, as statutorily required. That was no small task. Since that time we have been assessing all of our rules to determine where they might need to be tweaked or refined. The industry and the maritime bar have been helpful in that regard, contacting us about provisions that they believe could benefit from clarification. We continue to analyze this situation and will be prepared to initiate any clarifying rulemakings if necessary.

We also have spent a great deal of time addressing the industry's efforts to comply with the new statutory requirements as reflected in our amended rules. And I'm speaking here basically about technical requirements -- I'll get to substantive issues in a moment. As an example, all carriers are now required to publish tariff information in their own automated systems. Congress mandated that those systems be accessible to the public and accurate. Initially, we have focused on determining the accessibility of carrier tariffs. Considering the number of liner companies and NVOs who operate in U.S. trades, we've had our hands full.

Closer to home for you all, we also have been monitoring the publication of MTO schedules. To date, approximately 175 MTOs have filed the required form with the Commission advising us of pertinent information such as their corporate name, contact person, and the Internet address for any MTO schedule they publish. Based on our records, that means that there could be as many as 100 MTOs who have yet to file this information with the Commission. We will be contacting those parties to clarify any misunderstandings and to obtain the necessary information. Of those 175 I just mentioned, most, or approximately 145, have published MTO schedules applying to their operations. I'm really not in a position to speak to the substance or content of those sites, but you all are free to review them by accessing the Commission's Homepage to obtain the Internet address for any schedule in which you are interested.

The Commission also has been inundated with service contract filings since May 1st - 15,000 in May and June alone, with a projection that we will receive approximately 29,000 in the May 1st - September 30 time frame. And you can add almost 35,000 contract amendments to that figure. So in addition to expending a great deal of time and effort to provide the industry with a viable system for the electronic filing of contracts, you can see that we have been somewhat overwhelmed with the number we have received and must process.

The same goes for ocean transportation intermediary licenses. We are in the process of dealing with approximately 300 new applications, and almost 4,000 grandfathered companies whom we are re-licensing. And at the same time, we have been reviewing and analyzing the various agreement modifications carriers have filed to comport with the changes wrought by OSRA and our implementing regulations.

On the more substantive side, OSRA permits agreements to establish voluntary guidelines covering their members' individual service contracting efforts. These guidelines must be filed confidentially with the FMC. We are somewhat surprised at the relatively few agreements that have implemented such guidelines to date, but we will be vigilant in monitoring operations pursuant to them to discern any potential abuses of market power or other activities prohibited by the Act.

We also have been trying to keep up with the actual terms and provisions of new service contracts to identify any innovative and creative approaches that are developing. And, while OSRA has made significant modifications to the prohibited acts section of the 1984 Act, the Commission maintains a good deal of responsibility to address malpractices. We continue to be active in this regard in order to obtain statutory compliance and to do what we can to ensure the existence of equitable trading conditions.

And lastly, we have been analyzing our future role and what we need to do to effectively accomplish it. OSRA has changed the landscape of ocean shipping. Its key provisions provide greater flexibility and freedom for the industry to conduct its business, while at the same time expecting the marketplace to dictate industry activities and practices. Nonetheless, Congress has maintained a specific oversight role for the Commission in several areas, some new and some changed. And I have maintained for some time that the Commission's oversight role is one of the key elements in what I've referred to as the three-legged stool underlying OSRA, that is, retention of antitrust immunity for carriers combined with less transparency of industry activities, requires ongoing and effective government oversight of resulting practices and behavior. We have been advised by Congress that we are expected to effectively and pragmatically perform this oversight function.

With that in mind, the Commission has been looking at itself. Our role has changed. Actually, our role has been changing over the last several years. We have placed far less emphasis on technical, regulatory matters, and have been emphasizing our international trade and transportation responsibilities. OSRA has been the impetus for us to take a completely fresh look at our strategic objectives and performance goals. As a matter of fact, we are in the process right now of modifying our priorities to ensure that they comport with the vision of OSRA, and identifying the most appropriate means for us to accomplish them. While we are far from finished and I am not in a position to give you any specific details, I can tell you that the Commission will be initiating whatever steps or actions are necessary to put us in the best position to satisfy our statutory mandates. The budget constraints I described earlier only heighten the importance of our doing so.

I don't mean to leave you all with the impression that OSRA and its implementation have been our sole focus in the recent past.

For example, this summer we disposed of three petitions which sought specific Commission action. One asked that we address the definition of the term "shipper." Another requested that we issue information demand orders to obtain operating information from the discussion agreement in the inbound transpacific trade. And a third asked us to reassess our OTI rule.

Presently, we have two proceedings in progress involving agreements. One is a proposed rule that seeks to clarify the definition of "ocean common carrier," while the other is a Notice of Inquiry requesting comments on how we can more explicitly state FMC requirements for the contents of agreements. Each of these cases hopes to remove uncertainties that have existed, and to provide clearer, more definite operating guidelines for the industry.

COSCO has requested an exemption from statutory controlled carrier provisions to enable it to publish reduced rates below those of its competitors on immediate notice. Current requirements prohibit such action. The Commission presently is weighing the justification provided by COSCO along with public comments received.

Allow me one aside here. Think back one year to all of the issues and concerns that were present in the transpacific trades. Those of you from the West Coast are probably more keenly aware of that situation. As you will recall, the trade imbalance resulting from the Asian financial crisis wreaked havoc on the ocean transportation industry. Imports were booming and exports were down, which resulted in a severe space shortage for inbound cargo. No carrier was immune from this problem, and the response of some carriers to it caused a great deal of concern for many shippers. After numerous inquiries and complaints from various shippers, the Commission began an investigation of the situation. And while we continue to pursue certain cases based on last year's activities, this year presents quite a different picture.

All indications are that the transpacific is not experiencing the divisiveness and instability of last year. Market dynamics as much as anything are the cause for this change. I would also like to think that the industry was more prepared this year after enduring last year's problems, that the Commission's fact finding initiative deterred serious malpractices or patterns of unreasonable activity, and that OSRA opened some new doors for innovation and more positive shipper/carrier relationships.

One last area of Commission activity I'd like to discuss is our pursuit of foreign government actions that impede U.S. ocean commerce or create conditions unfavorable to shipping in our trades. Government restrictions in the China trade are highest on our priority list right now, and continue to receive our close scrutiny. A delegation from China was negotiating with the Maritime Administration just last week over these issues. I had the opportunity to meet with members of the Chinese delegation and came away impressed with their recognition of the existing problems and their desire to arrive at diplomatic resolutions. However, if the past is any indication, any change in this trade will be gradual and incremental. So the Commission must stand guard and be prepared to initiate responsive action should U.S. interests or U.S. trade continue to face unfair barriers.

Allow me just one more aside. The face of U.S. liner companies indeed has changed in the past couple of years. Foreign carriers have taken over the operations of major U.S. carriers, such as Lykes and APL, and now Sea-Land and Crowley. A legitimate question for the Commission is whether and how the acquisition of our major carriers by foreign companies will affect the Commission's role in addressing restrictive foreign shipping practices. We have had a number of high-profile cases over the years, the most publicized being the Japan case, in which the agency took decisive measures on behalf of U.S. companies operating U.S.-flag vessels. But does the FMC have a role when the parties injured by unfair foreign laws and policies are other foreign interests?

The short answer is an emphatic "yes." The FMC has entertained nearly two dozen requests and petitions for action under our "section 19" authority to impose sanctions in the face of restrictive foreign practices, and a review of those matters shows that about half of the time the interests we have sought to protect are broader and more varied than "pure" U.S. companies flying the U.S. flag. We have taken action on behalf of U.S. carriers flying foreign flags; on behalf of foreign carriers flying the U.S. flag; on behalf of foreign carriers flying a third flag, when they have been unfairly precluded from serving U.S. shippers in our foreign trade; when an NVOCC was harmed by unfair foreign laws restricting its operations; and on behalf of shippers who were being denied their choice of carrier because of restrictive foreign laws and policies. This is because section 19, the statute we principally invoke, directs the FMC to address "conditions unfavorable to shipping in the foreign trade." This is a broad mandate, encompassing our ocean commerce in general, and one we have consistently interpreted as meaning exactly what it says. Section 19 is not directed solely at protecting some narrow definition of only U.S. carriers.

So do the recent changes in carrier ownership have no effect on our section 19 activities? That would be an overstatement, because the changes may affect how a party requesting FMC action portrays the harm to U.S. interests, the harm to our country's foreign trade. The negative impact on shipping, within the meaning of the statute, may be less direct than it is when the injured party is a U.S.-owned, U.S.-flag carrier being denied the opportunities foreign entities are afforded in the United States. But less direct does not mean less onerous, or having less impact, as we have consistently found in the administration of our section 19 duties. So our role remains intact, and our responsibilities in this area continue to be among the most critical with which this agency is entrusted. We stand ready to act as necessary on behalf of all involved in our ocean commerce - the carriers, U.S. or foreign, who serve our trades; the importers and exporters who rely on those carriers and who may bear the burdens of inefficiencies or expenses created by unfair laws and policies; and the ports, intermediaries and labor interests whose viability depends on a marketplace free of discriminatory and arbitrary distortions.

And I should also point out that the other major statutory tool we possess - the Foreign Shipping Practices Act of 1988 - is applicable wherever a U.S.-flag carrier is not afforded reciprocal rights by foreign laws and practices. It protects U.S. flags generally, not only those flown by U.S. companies.

I'd like to close my comments today by mentioning a few things that I see on the horizon for both the FMC and the shipping industry.

First, as for the FMC, we intend to perform an overall assessment of OSRA - both what has happened as a result of this new Act and the impact of those occurrences. We are developing an outline of how we can assess just what OSRA has done. We intend to focus on the industry's response to OSRA, what we at the Commission have seen, and just what all in the industry have done with the new freedoms and flexibilities provided by OSRA. As I mentioned, our intent is to focus on how the industry has complied with OSRA's requirements, as well as the effects on industry operations from that compliance. We hope to be in a position to both answer short-term questions about OSRA's implementation, as well as provide the President, Congress and the public with our views over a longer period of time.

And then there is antitrust immunity in the U.S. maritime trades. A common view in the industry is that it is too early at this point to determine OSRA's effects, and that it is premature to even contemplate changes to this new statute. While no one is claiming total victory with OSRA, and others are displeased with certain of its provisions, most agree that OSRA needs a chance to work before any type of changes are even considered. I agree with the wisdom in that position and would hope that all would allow OSRA time to accomplish its basic policy objectives. Despite that though, I believe antitrust immunity will continue to be the focus of much attention.

Congressman Hyde's Judiciary Committee held a hearing on antitrust immunity just days after OSRA went into effect. The OECD recently prepared a draft report for the consideration of other maritime nations which focuses on antitrust questions and the propriety of current waivers from antitrust laws. And the major shipper organization in the U.S., the NIT League, has indicated that it intends to keep a close eye on this issue. I'm not suggesting any immediate changes, but it just stands to reason that antitrust immunity for U.S. ocean shipping will remain on the radar screen.

Additionally, there can be no question that we all will have to continue to grow accustomed to dealing with mergers, consolidations, or other combinations in the maritime industry. Joint ventures, acquisitions, alliances, and other types of joint arrangements have hit all sectors of the industry. Carriers, forwarders, OTIs, and even you in the port industry continue to assess the wisdom of combining forces to create efficiencies or enhance operations. Where this will take us and where it will end is anybody's guess. One thing is for sure though, this trend shows all the signs of both continuing and probably increasing.

And lastly, I believe we all must be prepared to address the continued globalization of world commerce. We see it in the maritime industry with global service contracts, companies in all sectors merging with competitors from different countries, and operators expanding their business to markets they hadn't even thought of serving just a couple of years ago. The speed with which information is now available and the ease of communication are key factors spurring on this globalization. I believe this phenomenon will continue to dictate the success of operations and the extent to which companies wield market power or dominance.

That concludes my remarks for today. I wish you all in the port industry success as you address those issues which will impact maritime commerce in the 21st century. Thank you for having me.