Remarks of Chairman Harold J. Creel before the International Symposium on Liner Shipping VII, Hamburg, Germany - September 10, 2001
September 10, 2001
Remarks of Harold J. Creel
Chairman, Federal Maritime Commission
International Symposium on Liner Shipping VII
September 10, 2001
It's a pleasure to be back in Hamburg for this Symposium. These occasions are excellent opportunities for exchanges of views on matters of policy, and for exchanges of insights and experience as this dynamic industry evolves and adapts. I certainly appreciate the opportunity to spend a few moments with you to discuss the view from the United States, and particularly from the perspective of the Federal Maritime Commission, where, as of 5:25 on Friday afternoon, when I left Washington, I was still Chairman. Having received no faxes or messages otherwise, I assume that is still the case.
My last visit to Hamburg was in 1997, and I spoke at that year's symposium about the legislation then pending in the United States Senate to amend our shipping laws. That process finally resulted in the Ocean Shipping Reform Act of 1998, called "OSRA,"amending the Shipping Act of 1984, and it became effective in May of 1999. It was essentially compromise legislation. Congress found, after years of effort, a middle ground between those who wanted minimal or no legislative reform, and those seeking more or even complete deregulation.
OSRA created a number of major innovations in the U.S. regulatory scheme. I'll mention just a few of them to you. Service contracts between shippers and carriers no longer have to be publicly filed; they are filed confidentially with the FMC, and the important rate information is allowed to remain private between the contracting parties. I should add that confidentiality is not mandated; if the parties want to reveal rate information about their contracts, they may do so, subject to whatever limits and understandings they agree on together. This was clearly a deregulatory step, but not a radical elimination of all contract filing and adherence requirements as some requested.
Another change effected by OSRA was the elimination of tariff filing with the FMC. Tariffs are still required, but they can merely be published on a website, and there are few substantive requirements as to format and content. This too was a compromise, between those seeking continued transparency and oversight, and those seeking complete elimination of tariffs.
In the area of group carrier activity, antitrust immunity remains, but there are now more limits and checks, and a narrower scope -- again, a compromise between two opposing positions on the subject. Most importantly, conferences and agreements can no longer dictate service contract terms; individual carriers have the right to negotiate and enter into contracts with shippers or groups of shippers, regardless of whether the carrier belongs to an agreement. However, Congress also determined to allow carrier agreements to establish "voluntary guidelines" on service contract matters. These guidelines may not be enforced by the agreement the way conference rules on service contracts were enforced prior to OSRA. A carrier may choose to follow the guidelines or not.
I am not going to continue listing all the changes that OSRA made to the shipping laws of the United States. Those that I mentioned are among the most significant ones. What I would like to discuss today is how, over two years into these changes, the industry appears to have been affected, and what policy questions and issues remain "on the screen." Do these changes by OSRA constitute the fix that the industry needed? Are they just the first step toward complete deregulation? Or did OSRA already go too far toward deregulation?
We at the FMC determined that someone should attempt to make an impartial, objective assessment of OSRA's impact, and report the findings to Congress, so that Congress would have an idea of how successful or unsuccessful its legislation was. We therefore decided to prepare a report on the impact of OSRA, to be issued approximately two years after OSRA's effective date. An interim report was issued last summer, and the five FMC Commissioners are in the process of reviewing and approving a draft of the final report. There will be a public meeting of the FMC in two weeks, on September 26, at which time the report will be discussed and made publicly available. We had announced that our final report would be issued over the summer of 2001, which technically will have ended on September 21, five days before our September 26 meeting. But we at the FMC believe that flexibility and adaptability are the key to effective regulation.
To prepare for the study, we invited all segments of the industry -- shippers, carriers, intermediaries, labor and all other interested parties -- to offer their views on how OSRA has affected their operations. You may have read about some of the responses we received, as they were widely reported in the trade press. The general response was quite positive. Carriers and shippers in particular stated that they were pleased with the changes that OSRA made to service contracting. The overwhelming majority of cargo shipments in the U.S. trades are now subject to service contract rates, rather than tariff rates, and nearly all of these are individual carrier service contracts rather than conference or agreement contracts. Because the publicly available information from service contracts no longer includes the rate information, this means that for nearly all U.S. imports and exports, that rate information can be private between the shipper and the carrier. Significantly, we received no complaints from shippers that they are unable to secure service contracts from carriers. The ability to deal with individual carriers and the new contract negotiation environment are two of the benefits of OSRA which the consensus of opinion appears to have declared a big success. I have also heard very few complaints from those mourning the end of FMC tariff-filing. When our report is issued in the coming weeks, it will contain a full account of the reactions to OSRA reported by those who took the time to respond to our surveys.
So, is there unanimous concurrence that OSRA was a success? Is it universally agreed that the U.S. Congress need not reexamine the shipping laws for the foreseeable future? No, that is not the case. Before discussing what are, for some, the problem areas of OSRA, it may be useful to remind you what OSRA did not do. Congress determined not to deregulate to the degree some had originally requested. As I noted, Congress did not abolish antitrust immunity outright. It did not abolish tariffs outright. It did not choose to eliminate or blur the distinction between the different types of carriers that we acknowledge in the US: the ocean common carriers -- that is, the steamship lines -- and the intermediary carriers, which we have given the awkward name of "non-vessel-operating common carriers," or NVOCCs. The statute now refers to ocean freight forwarders and NVOCCs both as "ocean transportation intermediaries," or "OTIs," and the grouping of these two entities is also reflected in the fact that more and more companies are obtaining licenses and operating as both NVOCCs and forwarders (although they may not, of course, do so on the same shipments). However, there remain significant differences between the rights and responsibilities of forwarders and NVOCCs, and I will, for the purposes of this discussion, continue to refer to those intermediaries serving as carriers, and not as agents for shippers, as NVOCCs.
The continued distinction between ocean carriers and NVOCCs is a significant one. Under OSRA, NVOCCs still are not permitted to offer service contracts to their shipper customers. Furthermore, NVOCCs are now subjected to new licensing requirements, in addition to the bonding requirements they had to meet even before OSRA. Ocean carriers have no such bonding and licensing requirements. Yet NVOCCs, though distinguished in this manner from ocean carriers and subjected to these additional restrictions and requirements, are treated just like the ocean carriers in one major respect: they have to publish their tariffs. This tariff requirement has important ramifications, not just because of the expenses and burdens involved in publication. By having public tariffs, the NVOCCs' rates remain open to the world, while the ocean carriers, who are using service contracts more and more, benefit from the new opportunity for confidentiality that service contracts afford. Under the shipping laws, all shipments must be charged the rates under the applicable service contracts or tariffs, so the NVOCCs, unlike the ocean carriers, are required to adhere to publicly available rates.
I am not describing these distinctions between ocean carriers and NVOCCs as a way of pointing out a defect or problem in the statute, nor am I suggesting that these issues are on the verge of creating the next round of legislative reforms. They do, however, directly or indirectly, point to the areas of contention, the remaining issues after the new legislation on which there remains some dissatisfaction by some parties. And they may also explain why the issue of antitrust immunity doesn't seem to want to go away. But more about that later.
The complaints that are being made about OSRA, for the most part involve the changes that OSRA did not make. That is, the dissatisfied voices are of those who advocated and continue to prefer that there be less regulation. These voices are largely those of the intermediary community - the forwarders and especially the NVOCCs. Many of these entities believe that OSRA has given them very little in the way of new opportunities, compared with what OSRA provided to the ocean carriers and shippers in the form of confidential, individual service contracts. NVOCCs have the disadvantages, or at least the responsibilities, of being carriers, in the form of tariff publication, licensing, and bonding, but are not afforded the right to offer service contracts to their customers like the ocean carriers can. They can, of course, enter into service contracts in their capacities as shippers.
Why did Congress make these distinctions? During the OSRA legislative process, there was, in fact, an amendment offered by one senator which would have given NVOCCs the right to offer service contracts. The senator successfully leading the opposition to this proposal argued on the floor of the Senate that NVOCCs make none of the capital investments that ocean carriers make, and should not be given the same privileges as those companies who actually buy and build and operate vessels and have tangible assets to support their obligations. There were also political influences; the labor community argued for transparency in NVOCC rates and strongly opposed the concept of NVOCCs offering their customers confidential contract terms. The Senate voted, by a large margin, to deny NVOCCs the ability to offer service contracts to their shipper customers.
It is no surprise, then, that these intermediaries constitute the primary entities calling for additional changes in the regulatory scheme. Some of these voices are suggesting the need for further changes in the law itself, necessitating action by Congress. Others are suggesting changes in the FMC's administration of the law. Along these lines, I understand that the intermediary community is planning to ask the FMC to issue what we call an exemption from the tariff publication requirements for NVOCCs. Of course, I can't comment on whether I would support such a request, because I would want to see the particulars of the request and the justification for it. The Commission must also consider the comments and reactions of others in the industry, before determining whether we can legally and appropriately alter this aspect of the regulatory system through administrative, rather than legislative, processes.
Whether the forum is the FMC or Congress itself, I suggest to you that the aspects of US maritime policy which will be the focus of ongoing attention and lobbying will be those areas involving these intermediaries, as they argue to be allowed to offer service contracts to shippers, and to be excused from the tariff publication requirement. It appears that some NVOCCs are arguing for both of these at the same time. This means that instead of getting all the responsibilities of ocean carriers and none of the benefits -- they would be getting all the benefits and none of the responsibilities. Or perhaps these requests are being made only in the alternative.
The other topic on which segments of the NVOCC community appear particularly distressed is the continuation of antitrust immunity for ocean carriers, particularly as it provides the carriers joint rate-making authority. There are, of course, some shippers not within the intermediary community who, given their preference, would not mind seeing antitrust immunity revoked. Other proprietary shippers --- that is, those who own the cargo they are shipping --- appear more to be adopting the position of the major shippers organization in the US, the NIT League, whose public statements suggest that they are cautiously tolerant of limited immunity. Thus, the most vocal proponent of a change in the law on this issue again appears to be the intermediary community. While some of the rhetoric is broad enough to encompass an attack on all antitrust immunity, the focus of the attacks is on the ability of carriers to get together to discuss and set rates, as opposed to the ability to engage in operational agreements such as alliances and cargo sharing arrangements.
Efforts to abolish antitrust immunity were introduced in Congress shortly after OSRA was enacted, as then-Chairman Henry Hyde of the House Judiciary Committee proposed such a bill. A Judiciary Committee hearing on the matter generated somewhat less national attention than its recent presidential impeachment hearings, but still captured the interest of all in the industry and certainly of us at the FMC. Chairman Hyde's bill gathered few supporters in Congress, however, and did not come close to being enacted. There is now a new Chairman of that Committee, James Sensenbrenner, and he too has introduced essentially the same bill. It will be interesting to see if it generates any more support than Mr. Hyde's bill; so far, there have been no hearings scheduled or substantial support for the Sensenbrenner bill expressed by other members of Congress.
It is difficult to gauge the interest in and prospects for the Sensenbrenner bill, as is clear from reading the press reports in Washington. Just last month, the American Shipper magazine reported in a headline that "Forwarders, NVOs and many shippers rally behind Sensenbrenner to reform OSRA," while the issue of the Journal of Commerce that appeared the same day, had as its headline: "Immunity debate grinds on: Two years after OSRA took effect, there are few talking about carriers' antitrust immunity."
The particular target of the critics of antitrust immunity has been OSRA's authority for agreements to prescribe voluntary guidelines on service contracts. The degree to which these guidelines have been adhered to or deviated from is one of the issues the FMC is assessing in its impact study. I should note that the guidelines themselves are, under OSRA, confidentially filed with the FMC, and we cannot under the law divulge the contents of those guidelines. But we will, to the extent possible, discuss in general terms the effect which the guidelines have or have not had in the U.S. trades.
We will also in the study be discussing the general rate levels in the trades, as well as the degree to which individual carriers are negotiating and offering contracts, and the types of agreements currently operating, including the disappearance of so many conferences and the predominance of operational agreements. All of these factors will, I hope, assist Congress in its determination whether further amendments to the shipping laws are necessary. I've always thought it odd that the shipping business has to be the only business in the world where companies are given immunity to set prices as a group, and still manage to lose money. Nevertheless, if carriers are able to establish convincingly, despite the limited immunity they have, that rates are generally low, and if shippers are unable to establish convincingly that they are suffering from the collective rate setting activities of the carriers, it will be difficult to persuade Congress to alter the general regulatory system. The idea of immunity, particularly with respect to rate-setting, is abhorrent to some. But I suggest that the practical implications of immunity, not an ideological approach, are what should determine its place in the competition policy of all our nations. The stakes are too high to experiment with change for the sake of change.
Although I have been perceived as a strong supporter of continued antitrust immunity for ocean carriers --- indeed, I testified against the Hyde bill last year, noting that we should give OSRA time to work --- I do not consider competition policy to be a sacred cow that can never be challenged or questioned. I do believe, however, that limited immunity is part of the puzzle, part of the system of rights and obligations, freedoms and oversight, that make up the body of U.S. shipping law. Certain pieces of that puzzle cannot and should not be examined or tinkered with in isolation from the other pieces of the puzzle, especially where there is no compelling demonstration that a problem needs to be addressed. In my view, the responses to the FMC's impact study surveys, and my own assessment of how things are working, based on observations and conversations with the industry, suggest that no demonstration that our shipping law is unfair or seriously defective has been shown at this time.
Thomas Jefferson, a Founding Father of the United States, suggested that the US Constitution be rewritten every generation, to prevent the dead from governing the living. Mr. Jefferson was a revolutionary, and although I am a progressive Democrat, I confess to being slightly more conservative than was Mr. Jefferson. So I will say only that I think our shipping laws should be examined and debated regularly, to prevent laws based on obsolete and outdated principles from being imposed on our ever-changing industry. I encourage the continuation of that debate, even as I conclude that, in my opinion, OSRA appears to be working well, and no fundamental changes to the legislation are required in the immediate future.
Perhaps some of you were hoping that my comments would reveal more details of the FMC's Impact Study. As the draft of that study is currently under review by my four fellow commissioners, it would be presumptuous and premature for me to give more details of its contents. I hope that I have piqued your interest in it, however, and trust that my hosts at this symposium will forgive my using this forum for advertising purposes. As I noted, the report is scheduled to be released on September 26, and will be posted on that date on the FMC's website at www.fmc.gov.
Again, I thank you for the invitation to participate in this useful symposium. All of us will be taking home with us something very valuable, and I don't just mean German chocolates and several extra pounds from overeating. The ocean liner industry, perhaps more than any other, is a global one, and a thorough understanding and appreciation of the world economy, and the changing commercial and regulatory environment in which we operate, is critical to our success, whether we are in industry or in government. I wish all of us success in our endeavors.