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National Customs Brokers & Forwarders Association of America - March 11, 1999

March 11, 1999

REMARKS OF

THE HONORABLE HAROLD J. CREEL, JR.

CHAIRMAN

FEDERAL MARITIME COMMISSION



BEFORE THE

NATIONAL CUSTOMS BROKERS & FORWARDERS

ASSOCIATION OF AMERICA, INC.



ORLANDO, FLORIDA

MARCH 11, 1999


I want to thank the association for the invitation to speak with you all today. I have been honored to appear at your annual conference in the past, and I always look forward to the opportunity to meet with you and exchange thoughts and views on issues of the day.

I must tell you that I am particularly pleased to be with you in Florida this year, and I have proof of my sincerity. A couple of weeks ago, right after the FMC meeting where we completed the last of our rules to implement the new Shipping Act, a reporter caught up with me and asked above the noise of several conversations, "Hey, Hal Creel, you just successfully completed the task of drafting rules to implement OSRA. What are you going to do now?" And I immediately responded with a firm voice and a big smile, "I'm going to Disney World!" Of course, I had to explain that it was a business trip. But I've always wanted to use that line, and you all gave me the chance to do so.

But seriously, I would never think of taking the credit for the job my agency just completed. That honor clearly must go to our extremely dedicated staff back at the FMC. I just can't say enough about these people and the tremendous effort they have displayed over the past several months. Naturally, we've been preparing for OSRA since late last summer. But our rulemaking effort could not begin in earnest until the final law was passed. And once it did, we put it into overdrive. Believe me, you and the rest of the American taxpayers really got your money's worth, and then some, out of the FMC these past few months.

I also must say that I was quite pleased with the manner in which our entire rulemaking process unfolded. In retrospect, I believe things operated exactly as intended by the Administrative Procedure Act. The Commission assessed the new statute and issued proposed rules based on our interpretation of it and in recognition of various industry dynamics. Affected parties gave us their views and suggestions, with numerous specific ideas, in all of our rulemakings. The Commission reviewed each and every one of these comments, assessed their merit, and then adopted those that we believed could facilitate Commission processes and still comport with the letter and intent of OSRA. I think that is quite clear from the final versions of our major rules.

You all are probably generally familiar with what the Commission did in its final rulemakings. So today I thought I would discuss a few of our more prominent actions and then focus on certain provisions that are of particular interest to you freight forwarders, or, should I say, ocean transportation intermediaries.

Before I do that though, I would like to make a point that I have emphasized in speeches, discussions and meetings of late. That is that everyone involved in the implementation of OSRA must concentrate on being reasonable. Actually, I have been quite pleased to hear several people tell me that they believe the Commission consistently is reasonable in its regulatory endeavors. But I have emphasized that an even greater focus must take place at this time. Not only because of the uncertainty that naturally will be prevalent when beginning a new system, but clearly, the temptation will be there to perhaps fudge on a specific requirement in an attempt to obtain a short-term gain during the transition period. And similarly, it may be just as natural for the Commission to be a bit overzealous in its efforts to ensure compliance with the new law. So I have consistently stated that if the industry maintains a reasonable effort to adapt to the new law, then we at the Commission will be reasonable and fair in our application of it. I for one am entering this transition phase fully expecting to navigate through unusual twists and hurdles as we search for effective implementation and appropriate statutory compliance. But I am confident that by working together we can obtain the market-driven ocean shipping environment envisioned by Congress and the President.

Now on to some of the more relevant actions the Commission took in the past few weeks. Probably our most important decisions involved the means by which tariffs will be published and service contracts will be filed confidentially with the Commission.

As to service contracts, the Commission has determined to significantly scale back the requirements of our proposed rule. Our initial proposal was an attempt to ease the transition by relying on a filing procedure with which the industry is familiar and which we believed filing parties could easily effectuate with minimal costs. Those who would have to comply with the rule told us in no uncertain terms that we had missed the mark. They itemized the problems which they believed they would encounter and offered various alternatives for the Commission's consideration. Ultimately, after assessing these comments and going full bore on research and analysis of other viable approaches, the Commission has decided to use an internet-based service contract filing system that will permit filers to utilize off-the-shelf software to file their contracts in standard word-processing formats. This approach should be far simpler than what we proposed at the outset and should be relatively easy to develop with minimal costs. We adopted this proposal only after we were certain that it would satisfy the requirements of OSRA and was technologically feasible.

I am not going to stand here and tell you with 100 percent certainty that we have come up with a risk-free, ideal system. But I am confident that what we have in mind will work and that it goes a long way towards satisfying Congressional intent to avoid unnecessary burdens for those who operate in U. S. ocean commerce. We are implementing this system as an interim final rule, since it is a new approach which the industry has not had the opportunity to assess. We have asked for comments by April 1st. We also have determined to retain temporarily as an option the initial approach that was tied to our ATFI-based system, to ease the transition for those who may have been planning on using it.

Likewise, our final rule dealing with carriers' automated tariff systems addressed the various issues and options that had been raised in the public comments. While not as vociferous as the comments in the service contract proceeding, the industry nonetheless suggested that we take another look at our proposal in an effort to eliminate certain burdens and facilitate the development of these systems. Upon further review, the Commission decided to reduce the requirements that had been included in its proposed rule. We specifically eliminated requirements that we believed would not have a drastic effect on the accessibility and accuracy of tariff information. For example, we voted to eliminate requirements for specific rule titles, mandatory use of 10-digit commodity codes, and minimum rate calculation ability. As much as we viewed these requirements as desirable for facilitating review of tariff information, upon reflection we refocused our attention on OSRA's aim to provide carriers and conferences with a large degree of flexibility when developing their systems. So as not to impede innovation or creativity, we determined to do away with those requirements which we felt were not absolutely necessary.

Remember though, that the Commission maintains the responsibility for periodically reviewing carrier automated systems to ensure that they comply with our regulations and meet the statute's tests for accuracy and accessibility. While we have gone a long way to ease the burdens on the filing parties, I can guarantee you that we will reassess our regulations if in fact our periodic reviews determine that carrier systems suffer from inadequate accessibility or accuracy flaws. Hopefully that will not be the case.

Our decisions regarding final rules applicable to agreement filing were noteworthy more for what we didn't do as opposed to what we did. This rulemaking was a bit of an enigma to me, because when we initially proposed it, it seemed to be relatively straightforward and free of any real controversy. My initial assessment did not prove to be too accurate. Most of the public comments questioned certain of our proposals as either going too far or unnecessary to achieve the requirements of OSRA. In the final outcome, we essentially agreed with most of those comments and initiated changes that we felt were more in line with the new law.

Specifically, we removed a reporting requirement for the filing of service contract information by agreement parties, and we modified proposed language dealing with "voluntary guidelines" for individual service contracting to closely track the statutory language. Similar to our review of carrier tariff systems, our monitoring of agreement actions concerning voluntary guidelines will be ongoing. Congress clearly has made individual service contracting the centerpiece of this new statute, and I believe the Commission is duty bound to ensure that it is implemented as the Act envisions. So we will keep a close eye on carrier agreement activity to ensure that this liberalizing feature of OSRA is not improperly frustrated.

And what about our rules dealing with OTIs? Have we drafted rules that will facilitate your compliance with the new Act? Well, yes, I think we have. And again, completing our OTI rules did pose some specific problems in that we had to combine all of our current freight forwarder rules with some of the requirements that are presently applicable to NVOs.

First and foremost, the Commission has settled on a meaning for the phrase "in the United States." As you know, this is a critical issue because only OTIs "in the United States" need to be licensed by the FMC. Now, you would think that this would be a relatively easy matter to resolve. Well clearly it wasn't, because Congress opted to pass it on to the Commission for decision. And from the moment we began drafting our OTI rules, we found out the full extent of Congressional wisdom in making that pass-off. I can't tell you the number of discussions and meetings we had and all the factors that came into play in defining "in the U.S."

You will recall that we offered two alternatives in our proposed rule. We ultimately went with the first of these options, which defines in the U.S. as being "resident in, or incorporated or established under, the laws of the United States." We added the proviso that only persons licensed under our rules may furnish or contract to furnish OTI services in the U.S. on behalf of an unlicensed OTI.

Several commenters voiced their preference for this option, including your association. In the end, the Commission believed that this approach was the fairest and most equitable. We saw it as leveling the playing field between OTIs located here and those overseas, as well as an approach that hopefully will increase competition consistent with the aims of OSRA. Additionally, our action provides foreign NVOs with the option of either obtaining a license or using a licensed agent in the U.S. As you would expect, we did not offer the same option to freight forwarders overseas, since they do not dispatch shipments "from the U.S." Hence, they cannot qualify as ocean freight forwarders.

We also believed it was prudent to allow foreign NVOs to satisfy the experience requirement by demonstrating three years' experience in OTI activities generally, as opposed to limiting such experience to activities here in the U.S. This approach only seemed logical once we determined to offer this option. We effectuated this portion of the regulation as an interim final rule in order to provide the industry with an opportunity to comment on it, although it is scheduled to be effective May 1st with the rest of the rule, barring convincing comment to the contrary.

Although all OTIs in the U.S. must apply for a license, we are attempting to make things easy in this regard. In response to comments received, we have grandfathered current licensees permitting them to keep their current license and their present FMC number. Existing freight forwarders only need to increase their financial responsibility by May 1. They do not have to file a new application. Your association made a point of the importance many of you place on the years of experience you have, which often is evidenced by the low license number you maintain. So we have adapted our rules and procedures to facilitate your maintaining your current bona fides with us. We will though, be issuing new licenses which clearly reflect whether an entity is operating as a freight forwarder, an NVO, or both. The Commission is treating NVOs in the U.S. similarly, in that we are permitting any such entity that has a tariff and appropriate financial responsibility in effect as of April 30, 1999, to continue operating without having to satisfy the experience and character requirements. NVOs however, will be required to file a license application and establish the increased financial responsibility by May 1.

We also found public comments very useful in arriving at definitions for transportation-related activities and NVO services. I must say that there was no clear consensus on these points. The definition of transportation-related activities is extremely important to ensure that financial responsibility instruments are used to pay only legitimate claims. We avoided a restrictive reading and opted to provide as much guidance as possible without running afoul of OSRA's general intent.

The appropriate amount of financial responsibility - now there's an area where we had total agreement in all respects. No, I kid, because the comments on this issue were all over the map. Ocean carriers supported the Commission's proposal to increase the required levels of financial responsibility. Your association, not surprisingly, believed that the proposed amounts for OTIs in the United States were too high, and supported higher amounts for unlicensed foreign OTIs. The association representing U.S. NVOs also suggested a higher amount for foreign entities, while one individual NVO submitted that an amount less than $1 million for such entities would not even be sufficient. Naturally, the group representing foreign OTIs contended that the proposed amounts for their members were too high. So we had no consensus on this issue either.

After reviewing our proposal and assessing all comments, the Commission essentially stuck with the basic thrust of its initial proposal. We did alter applicable bond levels somewhat, particularly in the case of entities who are operating as both freight forwarders and NVOs. But we maintained a certain amount of increase inasmuch as our current levels have been unchanged since 1990 for NVOs and 1981 for freight forwarders. We are confident that the increased amount will provide added protection for the public while having only minimal effect on OTIs. We have every reason to believe that the increased bond levels will result in only a few hundred dollars of additional premiums for OTIs. And in recognition of the difficulties some may face in obtaining the increased coverage by May 1, the Commission will allow OTIs to increase their coverage by negotiating a rider to their existing instruments of financial responsibility.

In line with OSRA's changes, the Commission also proposed new procedures for pursuing claims against any bond, insurance, or other surety. Our rules in this regard got pretty involved and technical, so I'm not even going to begin to summarize them for you. But if you have any questions after you review them, feel free to call our freight forwarder office back in Washington, who will be more than happy to answer any of your questions. They're going to love me back there for that one.

And one last point about the rules that directly affect OTIs. Our rules implementing OSRA codified earlier Commission guidance regarding in-plant arrangements and the increasing use of electronic data interchange in your industry. The rules require a written agreement to memorialize any in-plant arrangements and state the absolute necessity for a forwarder to actually perform value-added service when it is operating or maintaining an EDI-based computer system in its business. We opted not to attempt to address every permutation of in-plant arrangements in our rulemaking, but we are codifying the foregoing so as to comport with OSRA's generally liberalizing policy direction. We will monitor the development of these areas in the upcoming months.

I would like to close by saying that I look forward to May 1st and the succeeding months as we begin to operate under the new ocean shipping environment envisioned by OSRA. Well, I say I look forward to it, but I know we'll have our work cut out for us as we go forward under the first year of the Act.

It is almost a certainty that questions will arise and interpretations will have to be made once our rules become effective. As a matter of fact, we're already getting calls on certain provisions, and we ourselves have noticed certain nuances in our rules as the result of our attempts to effectuate OSRA's new flexibilities while still enabling the Commission to effectively accomplish its oversight role. And that's not to mention the cases of first impression we probably will be deciding, petitions for rulemaking or exemption we may receive, and our normal workflow that has backed up just a little over the past few months.

But truth be told, I am anxious for May 1 to arrive and to begin to meet the challenges OSRA presents. We at the Commission are fully cognizant of the new policy direction Congress and the President have set for us, and we are prepared to adapt so as to fulfill our statutory mandates in an efficient manner. Our jobs certainly will not be easier. We are sure to face an immediate increased workload as regulated entities submit the filings and applications necessitated by OSRA. We will be expending greater effort in assisting these same entities in achieving compliance with the new statute. And in some circumstances we will have a more difficult time identifying violations and discerning distortions that are taking place in the marketplace. But if the past is prologue, the Commission and its staff will be equal to the task and will maintain what I believe is a well-deserved positive reputation.

Again I thank you for having me, and I wish us all luck as we enter the new millennium under our new ocean shipping regime.