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Statement of Steven R. Blust, Chairman, before the Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation, United States House of Representatives, March 13, 2003

March 13, 2003

STATEMENT OF
THE HONORABLE STEVEN R. BLUST
CHAIRMAN, FEDERAL MARITIME COMMISSION

800 NORTH CAPITOL ST., N.W.
WASHINGTON, D.C. 20573
(202) 523-5911

BEFORE THE
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
SUBCOMMITTEE ON COAST GUARD AND
MARITIME TRANSPORTATION

UNITED STATES HOUSE OF REPRESENTATIVES

MARCH 13, 2003

Mr. Chairman and members of the Subcommittee, it is a pleasure to appear before you today to present the President's fiscal year 2004 budget for the Federal Maritime Commission. With me today are Amy W. Larson, the Commission's Acting General Counsel, and Bruce A. Dombrowski, our Executive Director.

The President's budget for the Commission provides for $18,471,000 for fiscal year 2004. This represents an increase of $1,880,000 over our fiscal year 2003 appropriation, and an increase of $1,031,000 over the President's fiscal year 2003 request. This budget provides for 137 workyears of employment.

As you are aware, the budget estimates submitted to you on February 3 represented the President's budget for fiscal year 2004 compared to the President's budget for fiscal year 2003, the latter being the latest approved budget at the time. Subsequent to submission of that request, the Commission received its final fiscal year 2003 appropriation of $16,591,000, which is $849,000 lower than the President's fiscal year 2003 budget. In order to reflect the Commission's budget status appropriately, all comparisons in the statement to follow are between the President's fiscal year 2004 budget and the Commission's actual fiscal year 2003 appropriation.

Our fiscal year 2004 budget request contains $13,708,000 for salaries and benefits to support the Commission's programs. This is an increase of $849,000 over our fiscal year 2003 appropriation. This includes all salaries, including those for the additional employees we plan to hire in fiscal year 2003, promotions, within-grade increases, and an anticipated cost of living adjustment. The funding includes annualization of the fiscal year 2003 cost of living adjustment increase at the 3.1 percent level originally anticipated. However, it does not contain funding for the recently approved additional one percent fiscal year 2003 pay increase. The Commission must fund the resulting $140,000 increase in fiscal year 2004. Further, it does not contain funding for any additional positions; it only will fund positions anticipated to be on board at the beginning of fiscal year 2004.

Official travel has been decreased $2,000 from our fiscal year 2003 level. This decrease takes into consideration additional travel expenses to be incurred in fiscal year 2003 for three significant investigatory proceedings the Commission is pursuing. Nonetheless, travel remains an essential aspect of our effort to provide better service to the ocean transportation industry and to accomplish our oversight duties more effectively. Lastly, administrative expenses will have increased $1,033,000 over fiscal year 2003. The Commission is planning for a substantial increase in rent as a result of a new long-term lease for Commission space. Other administrative expenses will be incurred in fiscal year 2004 to support increases in our customary business expenses, such as maintaining government and commercial contracts, and for items such as telephones, postage, and supplies.

As we have noted in prior years, the Commission's budget contains primarily non-discretionary spending. It is composed of mandatory or essential expenses such as salaries and benefits, rent and guard services, health services, accounting services, telephone and other communication costs, supplies, mandatory training, and printing and copying costs. These items represent the basic expenses any organization faces in order to conduct its day-to-day operations, and are crucial to allow us to meet the responsibilities Congress has entrusted to the agency effectively.

As you know, Mr. Chairman, the Commission is responsible for the regulation of oceanborne transportation in the foreign commerce of the United States. Since its inception in 1916, the Commission and its predecessor agencies have effectively administered Congress's directives for the ocean transportation industry, and its long-standing expertise and experience have been recognized by Congress, as well as by the industry the Commission oversees, courts, and other Nations. Working with the industry, we have developed a regulatory system that allows for necessary oversight with minimal disruption to the efficient flow of U.S. imports and exports.

As this Committee knows first-hand, the ocean transportation industry has changed dramatically since September 11, 2001. The security and safety of our Nation's transportation infrastructure is of critical importance to the free flow of trade. The Commission is committed to helping front-line organizations ensure the safe and efficient movement of cargo into and out of the United States. Our oversight of ocean common carriers, ocean transportation intermediaries ("OTIs"), including ocean freight forwarders and non-vessel-operating common carriers ("NVOCCs"), and marine terminal operators, is a vital link in the effort to protect our Nation's seaports.

Pursuant to the Shipping Act of 1984 ("Shipping Act"), as amended by the Ocean Shipping Reform Act of 1998 ("OSRA"), 46 U.S.C. app. ยง 1701 et seq., the Commission licenses those OTIs in the United States who have met the qualifications set forth in the Commission's rules. Moreover, all OTIs must secure evidence of financial responsibility, usually in the form of a surety bond, to operate in the U.S. foreign commerce. Additionally, ocean common carriers and marine terminal operators must register with the Commission. Our enforcement efforts include monitoring and surveillance of those regulated entities to ensure compliance with the Shipping Act and other statutes within our jurisdiction. We continue to investigate malpractices in the U.S. foreign trades, including incidents of cargo misdescriptions, to ensure that the cargo being imported into the United States is accurately described in the appropriate shipping documentation.

Various members of the Commission's staff participate in interagency groups as well as international maritime discussions to facilitate the exchange of information regarding operational and security elements of ocean commerce. In addition, we continue to exchange information with the U.S. Customs Service through a Memorandum of Understanding. The resulting cooperation between the Commission's Area Representatives and Customs has led to several joint field operations to investigate entities suspected of violating either or both agencies' statutes or regulations. We expect to extend our cooperative efforts, including sharing our vast collection of commercial information, to other agencies involved in maritime transportation.

We have also initiated a series of informational seminars to be conducted by the Commission's Area Representatives and other Commission personnel at various locations around the country. At these seminars, we provide information to the industry and the shipping public with respect to the Commission's functions and services, as well as instruction regarding the regulatory obligations of providers and users of ocean liner shipping services in the U.S. foreign trades in accordance with the statutes administered by the Commission.

We are pleased with the success of our first outreach seminar, held on February 25th in Miami, which was attended by over 80 people, including representatives of ocean freight forwarders, NVOCCs, ocean common carriers, and their agents. Our staff gave a formal presentation on the Commission's oversight responsibilities and services and then fielded many questions from individuals with particular issues or concerns regarding their businesses. We will host a seminar next week in New Orleans, and other locations for upcoming seminars include Seattle, Los Angeles, and New York.

The Commission continues to exercise its authority to address restrictive or unfair foreign shipping practices under section 19 of the Merchant Marine Act, 1920; the Foreign Shipping Practices Act of 1988 ("FSPA"); and the Controlled Carrier Act of 1978. Section 19 empowers the Commission to make rules and regulations to address conditions unfavorable to shipping in our foreign trades; FSPA allows the Commission to address adverse conditions affecting U.S. carriers in our foreign trades that do not exist for foreign carriers in the U.S. And, under the Controlled Carrier Act, the Commission can review the rates and rules of government-controlled carriers to ensure that they are not unjust or unreasonable.

As we have advised this Committee previously, in August 1998, the Commission initiated a proceeding to investigate whether the laws, rules or policies of the Government of the People's Republic of China might have an adverse impact on U.S. shipping and warrant action under section 19 or the FSPA. The Commission sought information from interested parties, including shippers, ocean transportation intermediaries, vessel operators, and others in the ocean transportation industry, on Chinese policies and practices regarding port access, the licensing of multi-modal transport operations, and the establishment of representative and branch offices.

The initial responses indicated that Chinese laws and regulations discriminate against and disadvantage U.S. carriers and other non-Chinese shipping lines. In late 1999 and early 2000, the Commission obtained further information from two more parties: China Shipping Container Lines, a new Chinese government-controlled carrier in the trade, and A.P. Moller Maersk, which had just taken over the substantial U.S.-flag China service of Sea-Land Service, Inc.

The Commission issued a Notice of Inquiry ("NOI") on March 12, 2002, and a Further Notice of Inquiry ("FNOI") on June 28, 2002. The Commission's issuance of the NOI was prompted by the adoption, on December 21, 2001, of a new Chinese law, the Regulations on International Maritime Transport ("RIMT") (effective January 1, 2002) and the news that the Chinese Ministry of Communications ("MOC") intended to issue regulations implementing and interpreting the requirements of the RIMT ("Implementing Rules"). The NOI also was prompted by concerns raised by the National Customs Brokers and Forwarders Association of America, Inc. ("NCBFAA"), a trade association of ocean freight forwarders and NVOCCs. The FNOI was issued in response to the MOC's June 21, 2002, release of a "Notice Inviting Comments on Implementing Rules for the Regulations of the PRC on International Maritime Transportation." The Commission's FNOI specifically requested information about the impact of the Implementing Rules. Generally, the Commission was concerned that the RIMT and the draft Implementing Rules may have changed the restrictions and requirements it was continuing to scrutinize in this proceeding.

Pending the Commission's consideration of the matter, MOC announced finalized Implementing Rules which became effective on March 1, 2003. The Commission obtained a translation of these Final Rules on February 20, 2003, and we are currently in the process of determining whether these revisions adequately address the concerns raised in this proceeding or whether further action is merited.

As you may be aware, the Commission also had occasion to address restrictive port practices in Japan in 1997. The Commission took action under section 19 against various restrictive conditions in the harbor services industry in Japan, including a system that required carriers to receive permission from the Japan Harbor Transportation Association (a cartel of Japanese terminal and stevedore companies) before making any operational changes, and prevented non-Japanese carriers from offering or performing for themselves or others terminal and stevedoring operations routinely undertaken by carriers at U.S. ports. As a result of these conditions, both U.S. carriers and U.S. trade were burdened with unreasonably high costs and inefficiencies.

The Commission found these conditions to be unfavorable to shipping in the U.S. trade and imposed a fee of $100,000 per voyage on Japanese ocean common carriers entering U.S. ports. The Commission subsequently compromised the outstanding fines after government negotiators reached an accord under which some changes to the system of prior approval would be put in place and other changes in port practices would be sought legislatively. We also imposed semiannual reporting requirements on U.S. and Japanese lines to keep us apprised of the anticipated changes in the system, and received one-time reports in August, 2001, from additional carriers serving the trade.

Since we last updated this Committee, Japan has revised its Harbor Transportation Business Law and has made other changes in port operations. Unfortunately, I cannot report to you that those changes have resolved fully the challenging conditions affecting the operations of non-Japanese carriers in Japanese ports. Although Japan maintains that its "deregulation" of shipping has resulted in major improvements, including increased competition in Japanese ports, the U.S. executive agencies with maritime responsibilities and others continue to express dissatisfaction with the results of Japan's deregulation efforts. We are hopeful that attempts to address the problem through bilateral talks will be renewed. In the meantime, we continue to monitor closely developments in Japan that affect our shipping interests.

With respect to our oversight of passenger vessel operators, the Commission has undertaken to update and improve its administration of Public Law 89-777, which requires cruise lines to demonstrate financial responsibility to ensure that passengers are indemnified for nonperformance of a voyage, or in the event of death or injury. We recently completed a rulemaking that eliminated self-insurance as a mechanism that cruise lines may use to demonstrate their financial responsibility. Self-insurance proved to be an inadequate guarantee of financial responsibility in the face of bankruptcies that have occurred within the industry.

Several commenters in that proceeding also suggested that the Commission's $15 million ceiling on nonperformance coverage should be raised or eliminated, believing that amount to be inadequate for some cruise lines who have passenger revenue in the hundreds of millions of dollars, and that a ceiling would artificially limit the protections available to consumers in the event of an incident or catastrophe of a large scale. After reviewing the matter, the Commission issued a proposed rule that would eliminate the ceiling. The current ceiling has not been adjusted since 1991, and is no longer consistent with the reality of an industry that has undergone both dramatic growth and consolidation. The proposed rule would require cruise lines to provide coverage, in the form of bonds or other securities, for all of their unearned passenger revenue, meaning revenue taken in for cruises not yet performed. However, the proposed rule excepts monies taken in pursuant to credit card transactions, because consumers are protected in those transactions by the Fair Credit Billing Act.

The Commission will receive comments on this proposed rule through April 8, 2003, and we hope that affected industry participants and the public in general will supply us with their perspectives and analysis of the proposed rule. Indeed, the Commission welcomes comments that might suggest a different approach to reaching the goal of ensuring that all passengers are fully protected.

The monitoring of carrier activities and commercial conditions in the U.S. liner trades is an integral part of the Commission's responsibilities under the Shipping Act. The Commission administers a variety of monitoring programs and other research activities designed to keep it informed of current trade conditions, emerging trends and carrier pricing and service activities. These monitoring programs help ensure that carriers operating in the U.S. trades comply with the statutory standards of the Shipping Act and the Commission's regulations, while allowing for the free flow of goods shipped under service contracts and tariffs.

As you know, OSRA made significant changes in the area of service contracting. To assist ocean carriers with their statutory obligation to file service contracts, the Commission developed an Internet-based system for the filing of service contracts which is flexible, does not require contract terms to be filed in any prescribed order, and allows carriers to submit service contracts using various software applications. We continue to enhance the system to meet the needs of the agency and the industry. Improvements developed in fiscal years 2002 and 2003 to further refine the system have proven beneficial to the Commission's oversight of service contracts. Of particular importance has been the adaptation of an advanced search feature that has been very helpful in facilitating the Commission's analysis of service contract data in recent proceedings concerning carriers' service contracting practices in some of the major U.S. trades.

The Commission initiated a fact-finding proceeding last August to investigate whether service contract practices of the Transpacific Stabilization Agreement ("TSA") during negotiation of service contracts for 2002/2003 violated the anti-discrimination provisions and other prohibited acts of the Shipping Act. The Commission concluded that the allegations made in a petition by two groups representing NVOCCs and ocean freight forwarders (NCBFAA and the International Association of NVOCCs) should be examined through the investigative tools and processes available to the Commission. The groups alleged that TSA members had agreed to complete the negotiation and signing of service contracts with proprietary shippers before negotiating with NVOCCs. They further contended that TSA members colluded to charge NVOCCs significantly higher rates than proprietary shippers for the same services by subjecting NVOCC service contracts to a discriminatory general rate increase and peak season surcharge not applied to the service contracts of proprietary shippers.

Commissioner Joseph Brennan was designated to act as Fact Finding Officer on behalf of the Commission and to report on his findings. Commissioner Brennan has held hearings in San Francisco, Los Angeles/Long Beach, Seattle, and Washington, D.C., to hear testimony from each of the carriers and a number of NVOCCs and shippers, and has used the Commission's section 15 powers to require submission of information and documents by the carriers. The report of the Fact Finding Officer is due to the Commission on April 11, 2003.

We continue to enhance our Alternative Dispute Resolution ("ADR") program to provide those involved in ocean transportation a means to settle disputes without becoming embroiled in potentially costly and time-consuming formal litigation. The Commission's Dispute Resolution Specialist and other staff have undergone training in ADR and, particularly, in mediation. Mediation is the most frequently used ADR process and has been employed to resolve disputes in several formal Commission proceedings. The number of parties who have availed themselves of our ADR program is growing and settlements were reached in a majority of mediated proceedings between private litigants, excluding those cases involving bankrupt parties. The Commission's administrative law judges have found this program to be very useful to resolution of their cases, and almost always encourage parties to utilize Commission ADR resources.

A cornerstone of the ADR program is the assistance provided by the staff of the Commission's Office of Consumer Complaints, which responds to consumer inquiries and complaints and attempts to informally resolve disputes, particularly those involving cruises and shipments of cargo. The number of cases resolved by this office continues to grow, with the office involved in resolution of more than 500 disputes during FY 2002. We continue to encourage disputants to use ADR to resolve their disputes with a minimum of litigation.

Mr. Chairman, I hope that my comments have served to give you a clear indication of the important work to be accomplished by the Federal Maritime Commission. I respectfully request favorable consideration of the President's budget for the Commission so that we may continue to perform our vital statutory functions in fiscal year 2004.