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The National Industrial Transportation League - January 15, 1999

January 15, 1999


REMARKS OF

THE HONORABLE HAROLD J. CREEL, JR.

CHAIRMAN

BEFORE

THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE

WASHINGTON, D.C.

JANUARY 15, 1999

Thank you. I would like to thank Ed Emmett and the NIT League for the invitation to speak today at their initial seminar on the Ocean Shipping Reform Act of 1998. I will also be presenting my perspective on the FMC's role under the new statute at the NIT League seminar in London next month.

In preparing my remarks for today, I had the opportunity to ask several shippers and carriers what they expect will be the greatest benefit of the Act. In response, the shippers said that carriers were going to benefit from the Act because shippers were going to be doubling their cargo commitments under the new regime - and even promising to ship as much cargo in the west bound Pacific as they are shipping east bound! The carriers, on the other hand, said that shippers would benefit because the carriers were going to roll back their rates to 1984 levels. My first thought was - WOW - that sounds great! Then I thought - "rollback!" Wait a minute. What were the rates in '84?! Of course I'm kidding. But I think this points out two things. First, that no one knows exactly what the effect of the Act will be. And second, that there will hopefully be more trust and partnering of shippers and carriers under the Act than there has been in the past.

The legislative reform effort was a long, frustrating, and often curious process. In all candor, I must acknowledge that I had serious misgivings with the initial proposals back in early 1995. I had grave concerns with the far-reaching, and in some respects, radical aspects of the earliest reform proposals, including the version that first passed the House of Representatives. I believed that the major thrust and many of the specific provisions were neither in the best interest of international commerce nor the most effective means of promoting efficiency and competition in our ocean trades.

So I was pleased that the Senate took a measured approach that permitted all sectors of the industry to air their views and offer their suggestions. The final deal does not give any group everything it had sought, and I understand that it causes particular concerns for certain segments of the industry. But I believe it is a viable compromise that has the potential to enhance U.S. ocean trade and increase the influence of normal market dynamics in that trade.

My comments today will have a narrow focus. I would like to explain the Commission's overall approach to its refined international trade and regulatory oversight responsibilities.

As you are aware, we are still at the proposed rule stage -- most of our rules will not be made final until late February. So I am precluded from going into much detail on our rulemaking exercises since a major factor in how those final rules will look is going to be the comments we receive on them. And since I will be sitting as one of the decisionmakers on the final rules, I have to abide by due process and Administrative Procedure Act limitations. Also, we are in the process of revising our general policy goals and objectives consistent with OSRA, and considering changes we need to make to effectively accomplish our revised responsibilities. But that doesn't prevent me from discussing the rationale behind certain of our proposals, how we envision our rules working, or the actions we plan to take to implement our new rules. Of course, I will only be presenting my individual views as a Commissioner in all of these matters.

From a very general standpoint, don't look for OSRA to cause some total metamorphosis of the FMC. That will not happen. Come May 1st, you will not see a totally transformed agency with no resemblance to the FMC most of you have all come to know and love. Yes, our rules are being changed significantly. Yes, we have new and strengthened mandates. And yes, we will be overseeing a significantly altered landscape for U.S. ocean shipping. But to expect a completely new and improved FMC would be a mistake. Well, completely new, no -- but improved, yes.

I say all of that because the Commission has been transforming itself over the past few years. In both our planning and daily operations, we have recognized the emerging trends in ocean shipping along with innovations that continually occur both technologically and operationally. We also have been initiating numerous actions to comport with Administration directives, which, among other things, require us to cut red tape, listen to stakeholders, and increase efficiency. And we have been forced to address all the foregoing with reduced resources - both in terms of dollars and people. So we have been focusing our attention in recent years on how we can increase our effectiveness in overseeing what is a very dynamic industry.

Again, speaking generally, we will continue to offer an ear to those who have a complaint. We will use our eyes to detect egregious malpractices and injurious anticompetitive behavior. We will attempt to sniff out the unscrupulous and unsavory operators who knowingly defraud or cheat unsuspecting customers. We also will continue to lend a hand in helping the industry and the public deal with problems that arise in implementation of the Act. Well, I've covered four of the five senses, but I couldn't come up with an FMC activity that appropriately covers the sense of taste. So I will replace that with the sixth sense, which we all know is common sense. I assure all of you that the Commission will take a pragmatic and considered approach in all of its dealings. Naturally, any Commission action must comport with its own regulations, applicable law and case precedent. But we also must remain diligent in discerning the commercial and practical results of our actions, and in ensuring that our decisions help foster the policy direction and stated purposes of the Shipping Act.

In the time I have remaining, I thought I would cite several of the Commission's major functions and briefly describe our specific approach to each, along with how our new rules play into that. So, on to specifics.

I decided to step right into the breach and begin with our oversight of service contracting. Allow me to assure those who believe the Commission is attempting to inject itself into the middle of the service contracting process. No, the Commission is not dictating how contracts must be negotiated or drafted. We are not mandating the inclusion of specific terms or provisions other than as required by OSRA. And we in no way are seeking to frustrate the new Act's objective of providing the industry with expanded freedoms in establishing partnerships or finalizing contractual arrangements.

What must not be forgotten is that for all of its deregulatory attributes, OSRA still maintains an array of regulatory requirements. Less onerous and simplified yes, but requirements nonetheless.

Service contracts still must be filed confidentially with the Commission. We determined at the outset that a requirement to file paper contracts not only would be soundly denounced as backward thinking, but would appear totally unacceptable for the Commission's oversight purposes. Our experience with attempting to keep up with the thousands of paper contracts and amendments we receive now persuaded us that electronic filing likely was the only feasible course of action. We expect even greater use of service contracts under the new regulatory regime, and it is imperative that when the Commission receives this information, it be in a form the Commission can actually use, to fulfill its responsibilities in guarding against certain abuses. Comments on our Notice of Inquiry supported this approach. When considering our time constraints and budgetary concerns, it became clear that we needed to adopt a modified version of the system used for today's public essential terms filings.

Of course that involves certain technical and system requirements. But under the circumstances, it appears to be the best option to accomplish the transition. You, as shippers, still are free to negotiate whatever arrangement you like, as limited or expansive as your business needs require. The FMC merely proposes to require that that arrangement be forwarded electronically according to a format and system with which the industry has grown accustomed. I hope this addresses any misconceptions that may be out there concerning our approach to service contracting.

From a substantive standpoint, the confidential filing requirement, as well as the limitation on essential terms required to be made public, and the elimination of the right to "me too" contracts, will place a greater responsibility on the Commission to uncover unfair negotiating tactics and discern trends or practices that may rise to the level of a prohibited act. Congress and the President have determined that reduced public transparency requires increased government oversight. The onus will be on the Commission to step up its efforts to identify and address malpractices that can have a negative effect on the marketplace. Again, that doesn't mean we will be looking over your shoulder as shippers negotiate with carriers and agreements. Rather, our job will be to focus on egregious actions, refusals to deal, or patterns of abuse that clearly are contrary to the shipping act.

I also want to emphasize that the Commission has sought comment on the acceptability of receiving global contracts. We recognize that commerce increasingly is being conducted with a global emphasis. And while we in no way seek to extend our jurisdiction beyond the limits of the shipping statutes, we realize how business is being done, and we are interested in facilitating the establishment of commercial relationships to the extent permissible. I am eager to read the industry's views on whether, and how, we can move in this direction.

Concerning tariffs, the FMC's proposed rule makes every effort to fulfill the statute's objective of ensuring that pertinent information is readily available to the public from the carriers themselves. I don't need to tell you that this was not the simplest of tasks. The statute is very clear - carrier tariff systems must be accessible and accurate. The fun begins when factoring in the Committee Report's directions to encourage innovation and avoid restraints on system design, while rendering tariff information simplified and standardized.

Those of you familiar with our proposed tariff rule hopefully can appreciate the struggles we faced in adhering to this guidance. But I must say that I am pleased with our proposal. Sure, we have set forth certain system and technical requirements, and have been fairly specific and detailed in several respects. But again, that cannot be avoided if an automated system is to be usable. And we were successful in limiting filing burdens.

Just what approach will we use in overseeing tariff systems and the information published in them?

As a first step, we are responsible for reviewing tariff systems for compliance with our established requirements. Those reviews will determine whether carriers initially are fulfilling the accessibility and accuracy requirements. After that, our goal is to be more efficient in the review of tariff information. Our focus will be on substantive analysis. We will be concentrating on uncovering improprieties or potential malpractices, identifying industry trends, and compiling information useful to our overall oversight mission. My hope is that all carriers take advantage of this new filing system to simplify their tariffs, while at the same time making them useful tools that can facilitate everyday commercial dealings.

You all know that carrier antitrust immunity is retained by OSRA. But Congress did pay particular attention to the activities of carriers pursuant to their filed agreements. Independent action now can be accomplished on five days' notice instead of the present 10-day requirement, and applies to all rates and charges. Agreements are precluded from requiring members to disclose the terms of service contracts they have entered into or any details of ongoing negotiations. And although agreements can establish guidelines for members' service contracting activity, these guidelines must be voluntary and are required to be submitted confidentially with the Commission. Our proposed rule implements these changes, and on the latter point, emphasizes that the guidelines must remain nonbinding and nonenforceable, and cannot apply to internal agreement procedures. We will monitor this area to ensure that agreements do not nullify the restrictions on disclosing members' individual service contract activities or otherwise improperly dissuade members from exercising their rights to enter into individual contracts.

Most importantly concerning carrier agreements is the revised approach to section 6(g). As you know, section 6(g) is the shipping act provision that permits the Commission to seek an injunction against agreements which reduce competition in a manner that unreasonably increases costs or reduces service. The Senate Report reflects Congressional intent that the Commission take a more active and forward-looking approach to enforcing the general standard of section 6(g). The Commission now will be expected to use reasoned projections based on its experience and expertise to address what it believes may be problematic agreements. Congress has admonished us to avoid a restrictive reading of section 6(g) and to redirect our focus to a modified analytical approach.

The Commission will be refining its agreement analysis and tailoring its actions under this responsibility to more effectively comport with Congressional desire. I can assure you that the Senate's directive has strengthened our resolve and enhanced our ability to address improprieties that we detect.

OSRA also makes specific changes relative to our responsibility to closely regulate controlled carriers and to address the restrictive laws and practices of foreign governments or foreign entities. We have been very active and, I might add, quite successful in addressing the troublesome situations that have arisen over the years. I believe we have received a clear message from Congress and the President to continue down that path and fully utilize all of the tools at our disposal to address unfavorable conditions that adversely affect U.S. interests and U.S. ocean trade. We will continue to focus our attention in this area. I would put in a plug here that it is extremely valuable to the Commission when the shipper sector is active in such cases. Information and documentation you may have can be very useful in helping us to eliminate unfair barriers to trade.

And finally, the Commission will continue to emphasize its goal of obtaining statutory compliance. Under the reform act, uncertainties will arise. And one can expect attempts to push the envelope so as to take advantage of the creativity and innovation the law encourages. So the Commission will assist those involved in ocean commerce to conduct their businesses in line with the new statutory requirements.

But at the same time, the Commission must satisfy its broad enforcement responsibilities. Our increased emphasis on obtaining industry compliance cannot lessen our resolve to identify and eliminate deliberate malpractice activity. The prohibited acts are clear, and Congress expects the Commission to take the appropriate action to quickly and effectively address violative activity that has a negative effect on fair and open trade. We will need to change our approach to enforcement given the new regulatory scheme and the ways in which it has altered access to pertinent information. We realize that in that respect, our job will be more difficult than in the past. But the responsibility is still there, and we will fulfill it. Those who make honest attempts to comply with U.S. law should have no fears in this regard.

Before I close, I would solicit your active participation in the Commission's rulemaking effort. Shipper views obviously are important. But if you disagree with a specific proposal, then you don't need to bother commenting! No seriously, in that case I would ask that you offer a viable alternative, and explain how it meets the Act's objectives. Similarly, if you agree with a potentially controversial rule or requirement, it would be helpful to the process if you voiced your endorsement.

I want to thank you all for your attention today. I hope I have provided you with a good idea of how the Commission will satisfy its responsibilities under the reform act.