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The Agriculture Transportation Coalition, San Francisco, CA - June 26, 1998

June 26, 1998

Remarks of Commissioner Harold J. Creel, Jr.

The Agriculture Transportation Coalition

San Francisco, CA

June 26, 1998

It is a pleasure to be with you at your annual meeting, and I am honored that you asked me once again to serve as your keynote speaker. Ocean shipping reform legislation remains a timely topic. Actually, we've been saying that for over 3 years now. But we really seem to be in the home stretch, and you have lined up a terrific panel to discuss the likely outcomes of the impending statutory changes.
 
 I particularly am pleased to have the chance to speak with so many of you in the shipper community. You and your exports are vital to a healthy and prosperous U.S. economy. And you always have such keen perspectives, being out there in the front lines trying to open markets, maintain competitive positions, and deal with your partners in the transportation chain. Plus, it permits me to explain the role of my agency, the Federal Maritime Commission, and to describe how we address our statutory mission and how we determine to take action.
 
 I have to tell you that I prepared two separate texts for today's speech. The first spoke of a reform bill passed by the House and awaiting anticipated signature by the President. I honestly thought that that would be the speech I would be delivering today. But that draft ended up in the trash heap. As so often is the case in Washington, new hurdles arose just when final action seemed a sure thing.
 
 Apparently, NVO rights under the bill continue to be at issue, while the totally unrelated rider dealing with World War II Merchant Marine burial rights has raised concerns. This has put the bill back into a holding pattern, as the clock keeps ticking on the legislative calendar. Although time certainly remains to complete the process and enact legislation, the envelope of opportunity is growing smaller.
 
 My view is, however, that any last minute hurdles can be overcome. But the sponsors and supporters of reform legislation need to move quickly and effectively. I think everyone who has been close to this issue realizes that the situation may never be better to achieve statutory reform. The proposed bill is a compromise among most of the major players in the industry. It is supported by the substantive committees and the leadership in both Houses. But, and it's a big "but", the overall compromise consistently has been described as delicate. As more time passes, the chances increase that complications can upset this delicate compromise, or worse, that time will run out and no bill gets enacted. It is incumbent upon those with the influence and positions of authority to make things happen. Absent action this year, who knows what the future holds, and I, for one, don't want to think about extending the already too lengthy period of uncertainty we all have been facing.
 
 Assuming that maritime reform legislation is enacted, I would like to take a moment to congratulate those of you in the audience today who were so involved in the effort. Yours was not an easy assignment - you had a significant amount of convincing to do to reach your end goal. Admittedly, I had even questioned the need for major statutory changes.
 
 I had maintained all along though, that despite the existence of favorable trading conditions, the law always can be refined to better address emerging trends and market dynamics. My belief was that if those who operate in the industry saw a need for change, and if legislation could be crafted towards that end, without impairing effective government oversight, then it certainly deserved serious consideration.
 
 I don't intend today to speak about the probable impacts the 1998 Act should produce in our industry. You all are fully familiar with the provisions of the bill. Additionally, the panelists for this session, as well as many of you in the audience, are in a better position than me to predict the commercial effects and just how ocean shipping will operate in the future. But allow me yet another digression regarding one issue that received a good deal of attention.
 
 Speaking candidly, I realize some in this audience supported the initial proposals to abolish the FMC or, at a minimum, to meld it into another Federal agency. Perhaps some still hold to such a view. While admitting to somewhat of an unavoidable bias, I tried to discuss this issue from an objective standpoint. I made all of the obvious arguments for the need for a well funded, independent oversight agency, one free from political pressure. I argued that this was a must if the statutory scheme being discussed was to operate as intended. I emphasized that decisional independence was absolutely necessary and that the current organizational framework was best suited for the job. I also chose to allow the Commission's past and continuing actions to speak for themselves. In the end, I think the soundness of this approach became fairly evident.
 
 Practically all in the debate were convinced that the present setup was working and that the FMC was fulfilling its various statutory mandates in fine fashion. We at the Commission are pleased with that result. And I'm not talking about a job preservation effort here, or the selfish perpetuation of a less than desirable system. I believe firmly that the FMC consistently has acted impartially, with sound decisions that benefit U.S. trade, and that our status as an independent agency made that success possible. As I've told the Congress and the Administration, everyone can expect more of the same from the FMC whether reform legislation is enacted or not.
 
 So what does the immediate future hold for the U.S. ocean shipping industry? Reports you see in the press, and talk you hear at industry gatherings, focus on the things various businesses are doing to prepare for life after the 1984 Act. All sectors of the industry are assessing just what moves they need to make in the near term so as not to be left behind when the new Act first takes effect. At the same time, it seems that they are taking the steps necessary to develop long-range partnerships so as to position themselves to effectively market their services in this new order of ocean shipping.
 
 While all of that clearly is necessary, I submit that the first order of business involves my agency, the FMC. Sure, all in the industry have to plan and be prepared to operate under the new regulatory structure. We at the Commission are in the same position. We will need to reassess our goals and objectives, and the way we perform our regulatory and international trade responsibilities. But before all of that, the industry needs to know what the new operating guidelines will be. And that's where the Commission comes in. We need to lay the groundwork, set the standards, prescribe the rules of the game. I am speaking about the revision of the Commission's rules in the Code of Federal Regulations.
 
 The new Act would become effective on May 1, 1999. But it calls for the Commission to have its implementing regulations in place by March 1, 1999. That gives us a gestation period of barely 8 months to rewrite our rules and allow for the statutorily-mandated comment period. Many of the agency's veterans have assured me that we do not face the same daunting task presented when the 1984 Act was passed. However, we all agree that it will be a huge job.
 
 I have been meeting with my senior staff over the past few months to both identify the rulemakings that will be necessary and to develop a general plan for completing all the required work. Such planning is absolutely necessary given the relatively short time frame we have to complete the job.
 
 Probably our most imposing task will be the revision of our tariff rules. S.414 eliminates the requirement that carrier tariffs be filed electronically at a central location with the Commission. Instead, carriers will be required simply to maintain their own automated tariff systems, pursuant to specific Commission requirements. The Commission is required to prescribe requirements for these privately maintained systems, and periodically review systems which have been established. The Act's only guidance is that the Commission ensure the accessibility and accuracy of these systems. This contrasts with our current authority to prescribe the "form and manner" of tariffs. The Commission must establish rules that on the one hand provide the public with pertinent information and the Commission itself with the ability to monitor carrier and conference activity, while on the other hand reconcile these basic purposes with the relative discretion Congress has granted carriers to develop their own automated systems. The Senate report on S.414 noted that innovative private sector approaches should be encouraged and that common carriers should be free to develop their own means of tariff publication. Yet the Committee recognized the need for integrity in the carrier's tariff and in the tariff system as a whole, and stated that tariff information should be "simplified and standardized".
 
 The dilemma the Commission faces is just how it can meld the various Congressional directives to produce tariff publication requirements that fully comport with the letter and spirit of the reform act while ensuring ready public access and effective Commission oversight. Certain of the requirements of our current system may be desirable, yet we must be careful so as not to impose undue burdens or contradict Congress' clear deregulatory intentions. This will be a complex and difficult rulemaking effort. Because of the dilemma posed in this rulemaking, I would like to ask for input from the industry prior to the Commission proposing a specific rule. Your serious consideration and comments would be helpful so that we may arrive at regulations that are both commercially practical and not burdensome, yet in line with Congressional intent.
 
 Service contracting presents us with two distinct issues. First, staying with the filing question, I am sure you all are aware that all service contracts must be filed with the Commission confidentially. Currently, service contracts are filed confidentially in paper form. Last fiscal year, the Commission received over 10,000 new contracts and nearly 29,000 amendments. Each of these figures was an increase from the prior year, and it would appear that the number of service contracts will increase even more significantly under the new statutory scheme, in which more service contract data will be kept confidential. Therefore, the Commission must determine a practical and cost-effective means of receiving this information. Given the new age of information technology, it certainly is a possibility that we will require these contracts to be filed electronically. This may be yet another issue that begs for industry input prior to preparation of an actual rule.
 
 And secondly on service contracts, I believe we are looking at a total revision of our present service contract filing requirements. While confidential filings still must be made with the Commission, the big change will be in the publication of essential terms. Note that I say the "publication" of essential terms. That's because while a contract may continue to have many such terms, only those dealing with commodity, volume, involved port ranges and duration, must be made public. That will be the minimal amount of information competitors and the general public will have regarding any given contract. That is vastly different from the comprehensive essential terms publications we all are dealing with today. Additionally, the "me-too" requirement, which allows similarly situated shippers the opportunity to gain a contract in line with a competitor's, will be eliminated under the new bill, and carriers may enter into joint contracts with shippers outside of conference agreements. And, carriers now will be required to disclose service contract information concerning specific dock or port cargo movements at the request of organized labor.
 
 So, while you all are busy planning potential future contracts or the type of contracting relationships you hope to pursue, we at the Commission will be developing a completely revised operating framework for the conduct of such contracting. As with any major rule change, complex issues must be appropriately resolved and potential nuances properly addressed. Nonetheless, I am confident that we will be able to propose a new rule structure that implements Congressional intent and sets forth a pragmatic approach.
 
 The Act also creates a new entity, the ocean transportation intermediary. Both NVOs and freight forwarders will fall under this new category. An additional change in this area requires all NVOs in the U.S. to satisfy FMC licensing requirements. The Commission will need to determine just what "in the U.S." means, so that it is clear which entities face this requirement. Once that is accomplished, we face a significantly increased workload to assess the character, experience, or other qualifications of what likely will be hundreds of new applicants.
 
 So I think it is fairly evident that we have our work cut out for us. I have only highlighted some of the major rulemakings we must initiate. Several other existing rules may require a good deal of analysis and rewriting. I hope that all in the industry will bear with us as we attempt to develop sound regulations that comply with the new law and avoid unnecessary burdens. I encourage you and other affected parties to participate in the rulemaking process. Perhaps the cooperative spirit and good will developed during the legislative reform effort will foster meaningful comments that facilitate the Commission's mission of drafting pragmatic implementing regulations.
 
 I would like to discuss one more point before I close. The new Act would make certain changes in the area of carrier agreements. The notice period for independent action would be reduced from 10 days to 5 days, and carriers would be free to take independent action to negotiate service contracts. Also, agreements would be prohibited from requiring their members to disclose service contract negotiations or the terms of contracts that members have entered into, and conferences would be precluded from establishing mandatory guidelines for service contract activity, although voluntary guidelines would be permissible. Additionally, agreements would have the authority to jointly negotiate inland rates with inland carriers. But for all intents and purposes, carriers have maintained the same extent of immunity from the antitrust laws that exists under the current statute. This was one of the main ingredients of the compromise that was achieved.
 
 This means that the Commission must continue its active monitoring and oversight of all agreement activities. Naturally, certain conferences or agreements bear closer scrutiny than others. The volume of traffic moving in a given trade or the degree of market power maintained by an agreement dictates the extent to which the Commission will expend its time and resources on full-scale monitoring. Certainly the Transatlantic trades and more recently the North-South trades merit close attention. And of course, nothing has changed in the Transpacific trades, where the Commission has maintained surveillance for years. Our inquiry into the activities of the Asian Shipowners Forum is a recent example. I should clarify that our review of this situation is neither a formal investigation nor an adversarial proceeding at this time. Our interest was heightened by the possibility that this group's activities may fall within our jurisdiction, and the potential impact its actions may have on carrier decisions in the trade. The Commission determined that it needed to find out more about this entity. Until the responses of the involved carriers are received, it would be premature to assume anything. Once those responses are assessed, the Commission will be in a better position to determine whether additional action is warranted.
 
 Similarly, you all are well aware of our continual monitoring of the transpacific conferences, as well as the two discussion agreements in the transpacific - TSA and WTSA. These agreements have significant impact on their respective trades, and the Commission consistently has conducted in-depth monitoring to assess their ongoing activities. As a matter of fact, it was at this very forum two years ago that I first publicly spoke as Chairman regarding my concern about the concept of capacity management and its propriety in the Pacific trades. I fully recognize the need for carriers to experience adequate utilization of vessel capacity while maintaining an appropriate rate of return. But I question the acceptability of artificial constraints to achieve those ends. It was for that and other reasons that the Commission voiced its concern when TSA proposed to reinstitute capacity management in the spring of 1997. The Commission was prepared to litigate this matter, with the assistance and support of the shipper community. We were pleased that the agreement ultimately decided against its proposal after heeding the Commission's warnings on this matter.
 
 Of late, you can't mention TSA or WTSA without conjuring up one phrase - rate increase. Now I don't propose to sit in judgment here today on the average $300 per container increase TSA implemented recently, or on reports that it already is planning next year's increase, or on the purported increase WTSA will seek in the currently depressed westbound trades. But I assure you that the Commission continues to observe these trades closely. And we're not limiting ourselves to rate activity. We also are reviewing any other actions that may demonstrate unreasonableness or an abuse of market position. We are not in the business of rate regulation, but we certainly are responsible for ensuring that carriers enjoying antitrust immunity do not unreasonably reduce service or unreasonably increase rates. We assess the operating reports of these carriers and remain in touch with various shippers active in the trades. I encourage any of you who are experiencing any type of difficulties in these trades to contact our staff back in Washington.
 
 We at the Commission are fully aware of the difficult circumstances you in AgTC face as you attempt to market your goods worldwide. You often are at the mercy of unpredictable weather conditions, uncontrollable economic factors such as those presently existing in the Asian markets, and other circumstances that impact on your ability to produce and move your commodities. Unreliable service and fluctuating rate structures can only add to these problematic conditions. I appreciate the logic of your members who have asserted that you and ocean carriers, as well as other groups such as forwarders, ports, and the like, are in the transportation business together. That's why I always have fostered communication among the various sectors of the industry, and why I was so pleased to see the coalition that was established to arrive at meaningful reform legislation. That was a beginning. Continuing dialogue, as well as the willingness to see each other's point of view, can only nurture such relationships. That, in turn, can move the entire industry in a more cohesive manner as it addresses the challenges facing international ocean shipping.
 
 I will close by saying that the Commission anxiously awaits the upcoming weeks to see whether legislation is enacted. We are preparing for it, and we will be in a position to move efficiently to initiate implementing actions should a new law be passed. We recognize that as time goes on, we will need to interpret the new statute and develop case law on what I'm sure will be an array of contested issues. But at the same time, that's what makes our jobs challenging as we strive to provide U.S. ocean commerce with the sound, effective oversight envisioned by Congress.
 
 Thank you for your invitation, and thanks for listening to me this afternoon.