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Remarks of Chairman Blust to the Propeller Club of Washington, D.C., November 13, 2002

November 13, 2002

Remarks of Steven R. Blust, Chairman
Federal Maritime Commission

Propeller Club of Washington
Washington, DC

November 13, 2002



I. Introduction

Thank you. I am honored to be here. During my brief tenure, I have spoken before a fair number of industry groups around the county and now I am delighted to have the honor of addressing this esteemed Washingtonian audience. I was pleased to speak last month to the International Propeller Club Conference in Charleston. And I hope, for the sake of those of you who were in attendance at that event, that I won't repeat myself too much today. I intend to keep my remarks brief to allow for your questions - and in recognition of the fact that you all know the FMC very well by now.

II. Balance

I was asked shortly after I joined the Commission - way back in August - whether I had a particular "agenda" for my term as Chairman. My answer was and has been that I intend for the Commission to continue its role of ensuring "Fair Maritime Competition." And that pursuit has not been an agenda per se but rather the FMC's primary mission envisioned for it by Congress upon creation of the agency 41 years ago, which is to ensure that fair competition exists in the ocean transportation industry, resulting in maximum benefits to the nation, with a minimum of government intervention and regulatory cost. The intent of our governing laws is to let market forces guide the growth and development of U.S. international trade. The Federal Maritime Commission is charged with ensuring that there are no undue controls, influences, or non-market barriers imposed by any nation, carrier, cargo owner or intermediary, which can adversely affect U.S. oceanborne trade. Our mandate is to help remove impediments to fair competition and thereby allow you to conduct business as effectively as possible.

A. Trade Imbalance

While I make no claim to an agenda, I do find myself often returning to the theme of "BALANCE." I believe that our industry is striving for balance in many arenas. The most obvious example of an imbalance challenging the industry is the trade imbalance. Currently on many trade lanes, cargo volumes are high in one direction only. Ships are full, rates are low, and most ocean carriers are losing money. Transpacific container carriers are predicted to lose 1.2 billion dollars this year. The trade imbalance with Asia is 2 to 1 - US imports to exports. With China alone, we face a 3.4 million TEU imbalance, which is greater than the entire US/North European trade. Ocean carriers are attempting to adjust to this trade imbalance in various ways, including cost reduction through the use of larger ships and carrier consolidation, finding additional cargo sources, and increased revenue compensation through the use of surcharges. US exporters are challenging the proposed implementation of the surcharges because the increased costs may limit their export opportunities. It seems to me that a balance must be struck by these parties to achieve maximum benefit to both sides.

On the bright side, long term projections for cargo growth look very good. Many foreign trade barriers are being reduced or eliminated. The Department of Transportation released a study recently indicating that tonnage volume in the nation's transportation system should increase by about 70% by the year 2020. Most of that will be in international freight which is expected to double to about 2 billion tons annually.

B. OSRA - Carrier/OTI relationship

The Ocean Shipping Reform Act of 1998 (OSRA) has changed the rules of the game, and four years after enactment, OSRA is still in its infancy. The industry is still striving to reach a balance in this new environment. The relationship between the carriers and the OTIs is still working itself out. I believe that these groups can find the right balance to allow them to work together harmoniously.

C. Security

Just a few words on maritime and port security. Our role at the FMC is primarily to ensure that commercial entities perform their business in a proper manner. As such, among other functions, we license OTIs and collect service contract information to allow us to monitor activities as may be required. These commercial compliance and enforcement processes can help deter and limit potential security violations. We also use our expertise and vast collection of commercial information to assist the various entities on the front lines of securing our ports and vessels. The Commission maximizes the benefits of our efforts through participation on multi-agency task forces and direct communications with other agencies, such as Customs when cargo misdeclarations are identified.

It is essential that each entity in the supply chain do its own part towards securing the chain, and there must a balance of supply chain security with trade facilitation - balance risk and return, control and cost. The transportation system must continue to work. I believe that all of the entities involved in ocean transportation, including government agencies, must form a collaborative and integrated system to ensure the safety and efficiency of the supply chain.

One of the Propeller Club's primary objectives is "to promote, and support the United States merchant marine, including shipyards and other allied industries, to meet the requirements of national security and economic welfare". What better way to provide secure ocean transportation than through the use of US flag ships manned by US crews, inspected and licensed by the US Coast Guard. I encourage you to continue your support to the US flag industry.

D. Supply Chain

As the industry seeks balance on these varied fronts, I think we can also expect to see the business model reorient towards greater supply chain integration. Shippers are looking for simplification in their logistics sourcing, supply chain security is being mandated by customs organizations, and ocean carriers are seeking differentiation in services offered. Consolidation and integration of the components of the international supply chain may meet these varied needs.

E. China/ FSPA - fairness and balance internationally

In December of last year the People's Republic of China issued a new law which raised concerns about whether it would create or perpetuate differing requirements for, and treatment of, Chinese and non-Chinese carriers and intermediaries, or create new and unreasonable barriers to those who provide transportation services to and from China.

The Maritime Administrator, Captain William Schubert, and many private industry groups have raised their concerns with the Chinese government's Ministry of Communications (MOC). They have requested further clarification of the meaning and impact of the law and asked for a more transparent process in the development of the rules which will implement the law. In response to these new laws, the Commission issued a Notice of Inquiry earlier this year asking for input from the shipping public on this new law and particularly how it would affect business in the industry. At the moment, we are in the process of reviewing the comments from the industry and shipping public in response to our requests for further information on the effects of this new law. The FMC will continue to closely scrutinize the impact of this law as well as MOC rules and the practices that result from it.

The Commission is authorized to address restrictive foreign shipping trade practices. Section 19 of the Merchant Marine Act of 1920 and the Foreign Shipping Practices Act of 1988 empower the Commission to make rules and regulations governing shipping in the foreign trade to adjust or meet conditions unfavorable to shipping and to address adverse conditions that affect carriers, OTIs and shippers in the foreign trade, but which conditions are not otherwise applied to foreign entities operating in the U.S. The Commission, as always, stands ready to use the tools at its disposal should adverse conditions arise from this new initiative.

F. West Coast situation

I'd like to say just a little about the current situation on the West Coast and the lasting implications of recent events. While not directly in the FMC's jurisdiction, we take an interest in any event that appears to be an impediment to the conduct of international oceanborne trade. Two weeks ago the FMC issued an advisory in response to numerous inquiries - I refer you to our website where the advisory is posted. The labor disruption has had serious implications for all U.S. commerce. But, again, I will go back to my focus- "balance." In order to solve the problem each of the players needs to balance their own needs with those of their customer or service provider to come to a solution that is the most beneficial to all involved.

III. Agency outreach

A. Website

The FMC is willing and ready to share its expertise in the interest of helping all industry players adjust to the new maritime regulatory environment. We have a number of programs and services available to the shipping public. Our website, www.fmc.gov offers information about our programs, our regulations, decisions by Administrative Law Judges and the Commission, a link to our service contract system, a list of common carrier tariff locations, and numerous other features.

B. Informal complaints/ADR

Most of you are aware of our formal proceedings before ALJs, however the FMC also offers several informal dispute resolution programs, including consumer complaint ombudsman-type assistance and more structured forms of alternative dispute resolution, such as mediation. I encourage everyone to take advantage of this service - the efficiency and economy of alternative dispute resolution is now well established in the business world.

C. Area Rep Seminars

One new initiative I think will enhance our outreach is a series of seminars hosted by our five field offices to help educate the industry and the public about our functions and services. Our area representatives in New York, Miami, New Orleans, Los Angeles and Seattle, have always functioned as a kind of "help desk" for the industry and we hope to formally expand this role through these seminars. Topics will likely range from the assistance the Commission can offer in day to day business to topics of timely interest to the industry as a whole.

V. Conclusion

In conclusion, I would like to again thank you for inviting me to address you today and also for helping to make me feel part of this community. I wish you success in your businesses and a safe and joyful holiday season. I will be happy to answer any questions that you may have for me.