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The Propeller Club Of Los Angeles-Long Beach - January 27, 1999

January 27, 1999

REMARKS OF

THE HONORABLE HAROLD J. CREEL, JR.

CHAIRMAN

OF THE

FEDERAL MARITIME COMMISSION

BEFORE

THE PROPELLER CLUB OF LOS ANGELES-LONG BEACH

LONG BEACH, CALIFORNIA

JANUARY 27, 1999

I want to thank Deborah Harding, Gerald Fisher, and the LA-Long Beach Propeller Club for the invitation to speak with you all today. I also want to acknowledge Jon Simon for all of his assistance in getting me here. I know Jon went to some lengths to ensure a broad-based audience, so as not to overlap too much with the group I addressed yesterday with the Steamship Association of Southern California. Although I see a couple of familiar faces, this definitely is a different crowd. So my gamble paid off, and I will be safe in giving the same speech I used yesterday. No, just kidding, I have a different text for today, and that's what you'll hear.

I have been asked to discuss what the Federal Maritime Commission is doing to implement the Ocean Shipping Reform Act of 1998 or OSRA. I thought the most effective way to proceed would be to briefly describe the general approach we are taking to our rulemaking responsibility, and then explain the rationale behind certain of our major proposals.

OSRA is the culmination of a nearly four-year process to update and revise the Shipping Act of 1984. Those of you who followed the legislative reform process may have wondered when, or if, the time would come when there would be a gathering like this to talk about a new shipping act. I know I did. It was a long and tedious process these last four years.

If you will recall, the legislative reform effort began in earnest back in early 1995. At that time, a small group of maritime interests authored and promoted a deregulatory plan that was very much to their own benefit, although maybe not what was best for the industry as a whole. The House of Representatives ultimately passed a bill that maintained many of the features of that initial proposal.

When the Senate became involved, a process was established that permitted all segments of the industry to jump into the fray. While clearly a positive, substantive development, the more considered pace in the Senate did require more time to ensure that the informed views of all involved players were considered. The meetings and brokering that are typical of the legislative process, as well as members' efforts to plead the case of their constituents, also precluded quicker action.

A major focus of the reform proponents was to allow normal market factors to determine the landscape of U.S. ocean shipping. Enhanced competition and increased efficiency were viewed as direct byproducts. That is evident from the new paragraph added to the Declaration of Policy, which details the Act's purposes. It reads:  "... to promote the growth and development of United States exports through competitive and efficient ocean transportation and by placing a greater reliance on the marketplace."

All things considered then, Congress and the President were successful in achieving an acceptable compromise. It is a compromise reflecting many competing and conflicting interests. Some are more pleased than others, and no one is claiming total victory. But the divergent interests were molded into a law that can enhance U.S. international trade and strengthen those U.S. interests involved in that trade.

The new Act certainly will bring significant changes to liner shipping. All participants will have greater choice in whom they may partner with, and more flexibility in establishing their contractual relationships. It reduces the role of government and places a responsibility directly on those in the industry to ensure ready access to meaningful information about rates and services. In a nutshell, it has streamlined regulation while at the same time maintaining essential protections and oversight.

The FMC has the responsibility of drafting regulations to implement the new Act by March 1 of this year. Although no easy task, our early preparation enabled us to issue proposed rules in all areas by mid-December.

Public comments on the last of our proposed rules were due last Friday, so we now are in the process of assessing the industry's views. This is a crucial stage, because we have been quick to emphasize in several areas that we do not have all the answers. While I believe we took a reasonable "first shot" at the regs, we will rely on the comments of those who must operate under them to help us draft the final version. After all, those in the industry are in the best position to explain the impact of our proposals and what specifically will be involved in complying with them. So the Commission is extremely interested in what the industry has to say and will consider each and every comment when arriving at final rules.

When drafting our rules to implement this new statute, we decided early on to follow specific guidelines. First and foremost, we recognized that we must reflect the specific requirements set forth in OSRA. There should be no question about that. We also determined to explore all possible means of minimizing filing burdens and the cost of complying with statutory and regulatory requirements. At the same time, we have attempted to ensure that all information required to be publicly available, as well as that which can be of significant benefit to the public, is readily accessible. Further, we took this opportunity to update and simplify certain of our rules, and we focused on being clear and concise as best we can, although much of the subject matter of the rules is necessarily complex. Finally, each of our rules is couched so as to avoid unnecessary government intrusion in the operations of the marketplace. On several occasions, these guidelines helped to keep us on track and facilitated preparation of proposed rules that are legally sufficient and pragmatic in their application.

Allow me to address certain of our major rules and the Commission's rationale for drafting them as we did. I want to emphasize that I am speaking about our proposed rules and the thinking behind them - I in no way mean to imply that this is how the final rules will read. As I just indicated, we will need to review the comments we received to determine what changes to our proposals may be necessary. My main objective from here on is to explain the relevant factors in our decisionmaking process to date.

As I indicated, OSRA will require carriers to publish tariffs in their own individual automated systems. The Commission must prepare regulations prescribing specific requirements for the accessibility and accuracy of these systems. That's not as easy as it sounds. And this difficulty is compounded by the legislative history which speaks of innovative systems devoid of system design restraints with an end result of simplified and standardized tariff information.

Our proposed rule sets forth what we believe to be the minimum number of system and technical requirements necessary in developing individual automated systems. We focused hard on limiting burdens. We have avoided specific requirements where at all possible and have not established a lengthy list of prescribed rules. Having said that, we believe that our proposed rule will ensure that interested parties can readily access carrier systems, and that once in them, they will be able to locate desired information without a great deal of difficulty. Our hope is that carriers will voluntarily make full use of available technology so that their systems present relevant information in a user friendly manner. I am particularly interested in the comments we receive on this proposed rule.

As I'm sure most of you are aware, service contracting was the centerpiece of this new legislation. Congress authorized the confidential filing of service contracts, with the FMC, with no requirement for carriers to offer the same deal to similarly situated shippers. What that means essentially is that carriers and shippers can customize their contractual relationships in secret without conveying other than a few very general essential terms to the public. We expect these changes to generate a huge increase in what already is a massive number of service contracts filed in our ocean trades.

To implement this requirement, the Commission determined that submission of paper contracts would likely be too unwieldy, and would be criticized as out of touch with today's technological capabilities. We have a difficult time now keeping up with the thousands of paper contracts and amendments we receive. And we must receive contracts in a form that renders them readily usable. So we determined to propose a modified version of the system that we use today for the receipt of publicly available essential contract terms.

We recognized that that approach imposed certain automation and processing requirements on filing carriers. But given our significant time constraints and a very limited budget, and the industry's familiarity with the present system, this proposal seemed to be the best means of accomplishing a smooth transition. Again, we paid particular attention to avoiding substantive requirements that would limit the freedom and flexibility authorized by OSRA.

I expect that the industry will pay particular attention to this rulemaking on service contracting. It is one of our toughest nuts to crack, and clearly is important in light of the increased contracting we anticipate. My hope is that we receive meaningful comments and viable, detailed alternatives from those who may have a better idea. Comments of general displeasure will not be much help as we consider final rules. What will prove useful are specific counter proposals within our technical abilities and fiscal limitations, and which are consistent with OSRA's various objectives.

OSRA continues antitrust immunity for carriers, but does place certain limitations on agreements' control of members' individual contracting. In this vein, the statute precludes an agreement from establishing other than voluntary guidelines for its members to follow in their service contract dealings. We have made very clear in our rule that we expect these guidelines to remain "voluntary." Our objective is to preclude these voluntary guidelines from creating improper restrictions on individual contracting or influencing members not to exercise their statutory rights to enter into individual contracts.

You may be aware that since 1984, the shipping statute has permitted the Commission to seek an injunction against any agreement that reduces competition in such a manner that costs are unreasonably increased or service unreasonably reduced. This safeguard was intended to protect shippers against undue market abuse being exercised by carriers when acting concertedly.

While OSRA does not modify the statutory provision, its legislative history instructs the Commission to revise its approach in this area so as to ensure that shippers are properly protected. We have analyzed Congress' specific directions and are developing certain options that can best implement them. While not the subject of a specific rule, this area will require some policy decisions and in-depth planning by the Commission. But I can assure you that we will spend the time and effort necessary to ensure that we satisfy our mandate to effectively monitor carrier agreements and appropriately address any unduly anticompetitive situations that they present.

A specific change in OSRA that does not receive a great deal of attention involves the Commission's general exemption authority. The Commission is authorized, upon its own motion or if petitioned, to exempt any activity within its jurisdiction from specific regulatory requirements if certain criteria are satisfied. OSRA eliminates two of the present four prongs of the exemption criteria. That is, the Commission no longer must examine whether a specific exemption would impair effective regulation or result in unjust discrimination. Now, the Commission is permitted to exempt any activity upon a showing that the exemption will not substantially reduce competition or otherwise be detrimental to commerce. Those are the only two criteria the statute dictates must be considered.

Our proposed rule to implement this important change was relatively easy to draft. We merely removed the two eliminated exemption criteria and moved the entire rule to a more appropriate location. But what bears mentioning is the impact this statutory change can have on the future administration of our exemption authority.

The legislative history for the present and earlier exemption provisions suggested that the FMC's authority was intended to be exercised in narrowly-described circumstances that would have minimal effect on foreign commerce. And the Commission on more than one occasion has interpreted the statute as not providing the authority to repeal or substantially amend the general statutory scheme established by Congress. OSRA's legislative history is not dissimilar. It indicates that Congress has identified and addressed those broad areas deserving reduced regulation, and left to the Commission specific regulatory provisions and practices, not yet addressed by Congress, for consideration of further deregulation. Nonetheless, with OSRA's relaxation of the statutory test, the Commission will need to assess just how it legally and commercially should examine future exemption matters.

But what certainly will remain true is that any exemption will need to clearly satisfy the criteria retained by OSRA. The Commission will be responsible for assessing all relevant factors and public comments, both pro and con, and determining whether an exemption is justified on the merits. A convincing case must be made before an exemption will be granted. And each particular case very probably will present its own set of unique circumstances and considerations. I have a hunch that we will not have to wait too long before putting this modified statutory provision to the test.

I would like to close my remarks today with a general observation. During the rulemaking process, our role at the FMC is to translate broad statutory language into specific, detailed regulations that are the nuts and bolts used to implement the policy objectives of Congress and the President. This sounds pretty straightforward. But the difficulty arises when you have an act that is the result of a compromise, as is the case here. The very "give and take" of a compromise - some interests get this, others get that - often creates what may appear to be inconsistencies in the act. In the case of the Shipping Act, the difficult task we have is writing regulations that on the one hand preserve antitrust immunity for carriers and provide for confidential contracting , but on the other hand maintain government oversight of that immunity and contracting. The Senate Report on the bill states that the Committee "recognizes that in retaining ocean carrier dispensation from the antitrust laws...the alternative regulatory structure must provide a mechanism to ensure that shipping malpractices are capable of being ascertained."

I raise this to give you an example of the difficult issues with which we have been wrestling. Our job is very complex in some respects but it's very simple in others. It is our responsibility to carry out the will of Congress and the President. But like they always say, "the devil is in the details!" Hopefully, by the time this is all over we won't be seen as devils but as an agency that has taken its role seriously in drafting rules that are fair and that accurately implement the underlying statute.

I appreciate being able to speak to you today, and thank you for your attention.