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Journal of Commerce Conference "Making It Work: Compliance & Ocean Transport Deregulation" - March 15, 1999

March 15, 1999

Remarks of

Commissioner John Moran

Federal Maritime Commission

Before The

Journal of Commerce Conference

"Making It Work: Compliance & Ocean Transport Deregulation"

New York, New York

March 15, 1999


Introduction

I want to thank the Journal of Commerce 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 Journal and sponsors of similar seminars to help prepare for May 1.

I have had the pleasure to work with the Journal on a number of occasions over the years. This is the first time I have been asked by the Journal to make some public remark, but I have been quoted in the paper's pages. A few weeks ago, the Journal referred to me as the most "laissez-faire" member of the Commission. I got some friendly ribbing from my fellow Commissioners that the Journal had gotten half of its story right. Being a political creature, I was confident I knew which part of the description they believed to be correct. Being a lawyer, I knew better than to ask a follow-up question I was not entirely sure of the answer to.

The Future Role of the Federal Maritime Commission

Protecting U.S. oceanborne trade and U.S. carriers from discriminatory or unfavorable treatment by foreign governments

I have been asked today to talk about the future role of the Federal Maritime Commission. I think this is an appropriate time to do just that. We will spend a lot of time today the deregulatory aspect of OSRA and the rulemaking and that is entirely appropriate as we approach May 1. But before talking about OSRA, I want to take just a moment to talk about the reason for an independent and strong Federal Maritime Commission and mention what will continue to be one of the most important future missions of the Commission.

The ocean shipping system part of the underpinning -- the basic infrastructure -- for the international trade on which the vitality of the U.S. economy depends. In 1997, liner vessels carried a total value of $414 billion dollars in waterborne exports and imports. And the volume, value and importance to the U.S. economy of international trade is expected to grow dramatically in coming years. A fair and open maritime transportation system is fundamental to our international commerce. A fair and open system creates business opportunities for U.S. shipping companies and provides more favorable transportation conditions for U.S. exports. Market distorting practices may benefit individual parties or countries for a limited period of time, but ultimately they undermine the efficient market to everyone's detriment.

Congress has given the Commission the duty to protect U.S. oceanborne trade and U.S. carriers from discriminatory or unfavorable treatment by foreign governments. The Commission has the authority, under section 19 of the Merchant Marine Act of 1920, to make rules and regulations governing shipping in the foreign trade to adjust or meet conditions unfavorable to shipping. The Foreign Shipping Practices Act directs the Commission to address adverse conditions affecting U.S. carriers in foreign trade, which conditions do not exist for foreign carriers in the United States. The Ocean Shipping Reform Act recognized the increasing importance of the FMC's activities in this area and enhanced the Commission's responsibility for unfair practices of foreign governments, especially as it relates to the oversight of controlled carriers under section 9 of the 1984 Act. The Commission has and will continue to use its authority to force foreign governments to abandon protectionist policies and to open maritime markets to U.S. companies.

The Ocean Shipping Reform Act

The Rulemaking

Since 1961, the Federal Maritime Commission has been the regulatory body charged with ensuring a fair system of oceanborne transportation and I believe the Commission has faithfully accomplished this mission. But the ocean transportation system was changing -- and a broad coalition of ocean transportation interests came to agree that our nation's shipping laws were hampering flexible, creative, mutually beneficial commercial relationships among carriers, shippers, and intermediaries to the detriment of the U.S. foreign trade and all the benefits it brings. It became increasingly clear to all that the law had to change to keep pace with commercial needs and realities.

We all know that the Ocean Shipping Reform Act was not a total deregulation of the ocean transportation system. Congress preserved the antitrust immunity for ocean carriers and retained some elements of tariff publication and the common carriage system. But OSRA is much more than a Shipping Act of 1984 "lite" -- merely less of the same. If not total deregulation, the 1998 Act is, as Senate Majority Leader Trent Lott recently said, "a paradigm shift in the conduct of the ocean liner business and its regulation by the FMC." Senator Lott went on to say, "Where ocean carrier pricing and service options were diluted by the conference system and "me too" requirements, an unprecedented degree of flexibility and choice will result. Where agency oversight once focused on using rigid systems of tariff and contract filing to scrutinize individual transactions, the "big picture" of ensuring the existence of competitive liner service by a healthy ocean carrier industry to facilitate fair and open maritime commerce among out ocean trading partners will become the oversight priority."

I think Senator Lott's statement makes clear that the Commission has been presented with a rare challenge for a regulatory body. Congress has provided the opportunity -- the mandate -- for the Commission to reinvent itself, its priorities, and how it approaches its regulatory mission as we move from common carriage to an ocean transportation system that is primarily contract based.

As a Commissioner, I was fortunate to have a role in looking at the law, trying to determine what the Congress and the President intended, and translating that intent into workable regulations. 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. I believe Congress intended the Commission to:

1. Give a creative and dynamic marketplace the opportunity to work;

2. Avoid inflexible "command and control" regulations and unnecessary regulatory burdens that would hinder innovative solutions to commercial needs;

3. Let competitive forces and the marketplace be the primary regulator and enforcement mechanisms;

4. Identify competition-reducing and market-distorting problems that do develop; and,

5. Target limited agency resources on these problems.

There is an old American Shaker hymn called "Simple Gifts." The third line of the hymn goes as follows -- "t'is a gift to come down where we ought to be." The implementation of the Ocean Shipping Reform Act was a difficult process for me. I was brand new to the Commission. There was very little time. There were many complex and controversial issues to resolve -- issues that involved a change in the Commission's regulatory role. At the end of the process, however, I am very satisfied that the Commission came down "where it ought to be." I think it is a balanced and workable package of rules that, by and large, implements the intent of Congress and the President in enacting OSRA.

A primary reason the Commission successfully completed the rulemaking in time for May 1 was the leadership of Chairman Creel and the hard work of a dedicated and creative Commission staff. Another critical reason for the timely completion of the rulemaking was the response and participation of the private sector in the rulemaking process under very tight deadlines and during a holiday season.

I am not going to discuss the rulemaking at length, but I would like to highlight several aspects that, taken together, indicate to me that the Commission has moved in the direction intended by Congress and is making the "paradigm shift" referred to by Senator Lott.

Service Contracts

The single most important pro-competitive element of OSRA is confidential service contracting. Congress intended this as 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 that 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 on service contracts 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 is in place and operating by May 1. The ATFI-based service contract filing system will remain as an option for a brief period of time to assist in the transition to the new system.

Carriers Automated Tariff Systems

Another important change made by OSRA was the change from tariff filing with the Commission to a system of private tariff publication. In the final rule, the Commission responded to concerns raised by many of the commenters and significantly reduced the requirements for carrier automated tariff systems that were included in the proposed rule. It eliminated the requirement for rule titles, the mandatory use of the Harmonized Code and 10-digit commodity codes, and the requirement for a minimum rate calculation capability. The Commission also reduced the amount of time that historical tariff data would have to be retained on-line and provided more flexibility in the use of geographic locators, standard terms and terminology, and cross-referencing of tariffs than was provided for in the proposed rule. The Commission also determined that the current Automated Tariff Filing Information System would not be available for tariff filing after April 30. These changes should provide carriers with a great deal of flexibility and freedom in developing their automated tariff systems while ensuring accessibility and accuracy for the public and the FMC.

Carrier Agreements

The rulemaking on carrier agreements presented the Commission with some of the most complex and controversial issues. I believe, however, that the final rule addressed these issues appropriately. The Commission removed the extensive reporting requirements for individual service contracts contained in the proposed rule. It also voted to eliminate the specific "form and manner" requirements related to filing agreements. Some concern was raised that elimination of this requirement would create confusion about the current content requirements. The Commission clarified that change did not affect the content requirements, but the Commission did decide to examine the content requirement separately.

The Commission also considered 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 agreement 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 the antitrust immunity because the carriers convinced Congress that it was necessary, beneficial and would be used wisely. If the carriers use this unique immunity for the intended purposes, it can help them achieve efficiencies and cost-saving that will benefit themselves and the shipping public. Congress drafted the "voluntary guidelines" provision and it is a fairly clear on its face. As a general rule, Congress does not want the FMC to impose complex, inflexible "command and control" prohibitions in an effort to control every potential problem. The marketplace is the primary regulator and competition will, for the great majority of the cases, undermine the ability of discussion agreements to effectively limit service contracting. Finally, if the carriers cannot resist the temptation and the market circumstance allows a discussion agreement to abuse the antitrust immunity, the FMC has the statutory tools to pursue any malpractices and market distorting behavior in question. As directed by Congress, the Commission will aggressively pursue the carriers to punish past malpractices and address anticompetive behavior.

I hope the carriers will employ discretion and good judgment in their use of voluntary guidelines. If the FMC efforts to address any problems in this area are inadequate, the carriers most likely face a short trip to Congressional review of the antitrust immunity. if that happens, Congress could give the Commission the additional legislative tools necessary to address the carrier malpractices. Congress might just as likely decide, however, that is time to simply eliminate their antitrust immunity. The children's fable of "The Goose that Laid the Golden Egg" may be instructive for the carriers. They can use their antitrust immunity wisely to obtain benefits for themselves and others for a long time. If they abuse the immunity for short-term gain, they may lose the antitrust immunity entirely.

The Future Role of the Federal Maritime Commission under OSRA

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" in 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. 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", costly or burdensome way to achieve the Commission's objectives?" If so, we should go in that direction, even if it makes the Commissions job more difficult.

The future will be a challenge for the Commission. Change and uncertainty about how things will work -- or if they will work -- is not always pleasant. Carriers, shippers, intermediaries, ports, and labor face it everyday in the marketplace. But change can create opportunities and benefits. If we successfully meet that challenge, the Commission will continue to provide a valuable service to the public and remain relevant to a shipping public that is changing and reinventing itself daily.

The Challenge for the Private Sector

If the Commission has done its job right during the OSRA rulemaking, the main focus will now shift to the market place 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 find new cost-savings, efficiencies, opportunities to provide service or have commercial needs addressed. I read daily press articles about what may happen under OSRA - the possibilities, permutations, and the opportunities seem open ended. 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 how you implement OSRA

Conclusion

Earlier I mentioned the hymn "Simple Gifts." The remainder of the first verse continues on, "And when we find ourselves in the place just right, it will be in the valley of love and delight." Well, ocean transportation may never get to that state of grace. But even if we do not end up in "the valley of love and delight," the new commercial freedoms and opportunities for mutual commercial benefit envisioned by Ocean Shipping Reform Act at least offer the opportunity for something good.

Thank you for the 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 will be most interested to see what happens where it counts the most -- in the marketplace.