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Remarks of Chairman Blust for National Maritime Week, Long Beach, CA, May 19, 2004

May 19, 2004

Remarks of Chairman Steven R. Blust,
Federal Maritime Commission

Fair Maritime Competition in a Dynamic Marketplace

National Maritime Week
May 19, 2004

Long Beach, CA 

Introduction

Thanks John for the introduction. Also, thanks to (all of you) for making my visit to the Los Angeles possible and so productive.

I've had the opportunity this week to visit The Alameda Corridor, the Marine Exchange and I viewed the ports from the waterside. I was particularly impressed by the passion for the port that all of the people that I have met and the overall willingness to cooperate on achieving common goals.

World Trade History

The necessity and desire for trade has driven human exploration and innovation for centuries.

While the Phoenicians were believed to be the first international traders to use ships in the Mediterranean, approximately 500 years ago, explorers traveled to greater distance lands, looking for new trade opportunities. One of these explorers was Christopher Columbus, who was looking for a better, faster and cheaper route to move cargo between Europe and Asia. Unfortunately for him, but fortunate for us, he discovered what is now North and South America.

Fifty years later, in 1542, Cabrillo, while unsuccessful in his search for a northwest passage to Asia, helped shape the origins of this area through his discovery of California and his claim of it for Spain.

Our great country was founded on trade. A defining moment, commonly called the Boston Tea Party, occurred in 1773, and was the result of preferential tax treatment of a British company (East India Co.) at the expense of the colonial importers and merchants. Today, such an issue would likely fall under the FMC's jurisdiction as a foreign shipping practice.

Trade between the United States and Asia dates back over 200 years to the beginning of our nation. Chinese products were greatly valued here. Besides the distance of the trade involved, the major economic hurdle facing American traders was that the new nation produced nothing of value to the Chinese. However, enterprising American merchants, including Robert Morris, (and later John Jacob Astor, and Daniel Boone) discovered the Chinese demand for ginseng, and so, after securing a cargo of 29 tons of ginseng and other cargo the Empress of China left New York on February 22, 1784, George Washington's 52nd birthday. It would not be until 128 days later that she finally landed in Whampoa, on the Pearl River on August 28, 1784. The Empress of China arrived back in New York on May 11, 1785 - a round trip of 15 months.

Also in 1784, General George Washington, called for the improvement of the Potomac River, by building a canal, so that it might be the door between the headwaters of the Ohio River and the East Coast and trans-Atlantic trade.

Less than twenty years later, in 1803, President Thomas Jefferson, looking for even greater trade opportunities, sent the Lewis and Clark expedition beyond the Potomac and Ohio Rivers, to seek out a northwest passage from the U.S. East coast to Asia via the lands obtained in the Louisiana Purchase. Unfortunately, they found a mountain range in the way.

This obstacle was conquered by the development of the railway system in the US in the mid-1800's. Phineas Banning was instrumental in early access to this port.

With the current importance of the US/Asian container trade, now ranked number one worldwide, I believe that our forefathers would be please with what we have accomplished today.

FMC and World Trade

I want to talk today about fair maritime competition in this dynamic marketplace.

The U.S., recognizing the vital importance of open ports and fair shipping practices, in 1916, created the Federal Maritime Commission's predecessor agency to regulate international waterborne commerce. In 1920, that agency was tasked with ensuring that our trading partners maintained open and fair systems for oceanborne trade. Since then, the Commission's mission has changed little. Its primary task is to ensure a level playing field for all competitors; and its primary controlling statutes, the Shipping Act of 1984, the Foreign Shipping Practices Act of 1988, and Section 19 of the Merchant Marine Act, 1920, are all part of this general goal.

We are charged with addressing restrictive or unfair foreign shipping practices by Section 19, which empowers the Commission to make rules and regulations to address conditions unfavorable to shipping in our foreign trades; and FSPA, which allows the Commission to address adverse conditions affecting U.S. carriers in our foreign trades that do not exist for foreign carriers in the United States.

Speaking generally, because of the great tradition of the openness of the sea trade, and the general understanding that the Commission and its predecessors have the ability to use the full measure its powers, most adverse conditions are remedied without the need for the Commission to invoke its powers. The international ocean trading system is unique - different from international air- rail- or truck-borne commerce- there is a long history of the open access to sea-faring trade and a long tradition of freedom of the seas. The Commission's mandate is to ensure that this freedom is maintained, as it is vital to the smooth functioning of international commerce, as 90% of cargo moving in international trade moves by water.

As a regulatory agency we do not drive changes in the marketplace and we aim not to create new challenges for the industry. The drivers are all of you and your customers. And the challenges come from the marketplace and events both foreseeable and as yet unforeseen.

Foreign Shipping Practices

Close scrutiny of the practices of our trading partners falls heavily on the shoulders of the Commission. It is not a mission we take lightly, but we have found it rarely necessary to take action once such restrictive practices have been identified and brought to the attention of our trading partners. The rationales for open market places and fair trading is clear, and our trading partners generally work very hard to ensure the concerns raised by international shippers and carriers, through the Commission, are addressed. Of course, there are times when the Commission is called upon to use the full measure of its retaliatory powers, and it has issued regulations to counter practices it finds unfairly restrictive.

The Commission's history of assessing foreign shipping practices span decades and the globe -- from Iceland to Australia (and Japan, Italy, Brazil, Korea, Taiwan, Ecuador, Venezuela, Peru, Argentina, Columbia, the Philippines, Trinidad and Tobago, Guatemala, Uruguay), the Commission has had great success in encouraging the liberalization of practices affecting international shipping.

FMC's Impact on Business

How does the Federal Maritime Commission serve you and your transportation partners In this dynamic marketplace?

• Help identifying business partners you can trust - through our licensing of Freight forwarders and NVOCC's (OTI's) and the registering of Vessel operators and marine terminals that operate within our oversight. Lists of licensed and registered companies are listed on our website: www.fmc.gov

• Provide an impartial review and test of fairness of agreements or processes both before the implementation and during its use. The LA/LB ports discussion agreement is an example of our review prior to implementation. The TSA settlement last year is an example of our efforts to ensure fairness under existing agreements

• In your leisure time, you can book travel on passenger vessels with great peace of mind because of our oversight in this segment. The Commission issues certificates of financial performance and casualty to cruise lines that have sufficient financial responsibility to pay judgments for personal injury and death or for nonperformance of a voyage.

• Our complaint resolution processes help you as individual entities to resolve commercial disputes. I believe that it is better to resolve a problem when it is small and before it becomes a big problem. Our multilevel approach, from informal complaint resolution, to ADR to the ALJ process and ultimately to the Full Commission, allows our stakeholders to pursue solutions to their disputes through the process best suited to their needs.

• Through enforcement, the FMC attempts to weed out bad actors that may unfairly compete by subverting regulatory requirements.

• Our oversight helps to ensure fairness and access in conducting your businesses through the use of international common carriage services.

China Petitions

Over the course of our nations 200 plus year existence, with several noted exceptions, US-China trade has been important for both countries.

Since resumption of trade 25 years ago, trade volumes between our nations have grown exponentially, and in 2003 represented over $180 billion -- most of that carried by ocean-going vessels, and more volume moves thought this ports complex than any other in the US. We are now China's second-largest trading partner, and China is now the third-largest trading partner for the United States (after our neighbors Canada and Mexico). U.S. exports to China have been growing more rapidly than to any other market.

As we all know, progress comes of necessity and the drive to evolve. In the past quarter century, China has become a major producer and exporter of consumer goods, and has increased the size of its fleet of merchant ships and container ships exponentially. Over 26% of U.S. export of containerized cargo to the Far East goes to China. Forty-eight percent of imports to the U.S. from the Far East come from China.

In 1998, the Commission initiated a proceeding to gather information concerning potentially restrictive practices of the PRC affecting the U.S./China shipping trade. We were concerned about non-Chinese companies' ability to establish and operate branch offices, conduct vessel agency operations, and do business as NVOCCs in China. We believe that many of the issues we identified in that proceeding have been satisfactorily addressed through implementation of the bilateral Maritime Agreement between the U.S. and China signed on December 8, 2003, and diplomatic notes, implementing the agreement were exchanged in Washington on April 21, 2004. We are very pleased with this outcome. Early word is that the changes envisioned in the bilateral Agreement are going well. However, as it has done in the past in such situations, the Commission issued a Notice of Inquiry requesting comments from participants in the trade on the degree to which the conditions addressed in the Commission's proceeding have been ameliorated and whether the proceeding should be discontinued. It is my sincere hope and my expectation that we will hear from U.S. ocean common carriers and NVOCCs that it is now possible for them to do business in China without undue burdens, in the cooperative spirit of the new U.S.-China bilateral Maritime Agreement.

Controlled Carriers

The Controlled Carrier Act, now part of the Shipping Act, was originally enacted in 1978 to address the practices of government-controlled vessel operators who were able to unfairly under price their services and gain market share from commercial competitors on the basis of unfair competition. Although many conditions have changed since 1978, the Commission's mandate to scrutinize the practices of such carriers continues today and will do so unless and until the controlling legislation is changed.

That said, however, the Shipping Act allows the Commission flexibility to grant exemptions if it finds that doing so will not be detrimental to commerce or unduly affect competition. In light of that flexibility, the Commission recently granted the petitions of three Chinese controlled carriers for relief from a procedural requirement of the law, which requires controlled carriers to wait 30 days before reducing their tariff rates. COSCO, China Shipping and Sinolines, requested, and were granted, in Petition Nos. P3-99, P4-03 and P6-03 exemptions from this requirement. We believe this exemption will provide the stability and predictability for their operations that those carriers had sought.

NVO Petitions

The Commission in the last few months has received a total of seven petitions from NVOs seeking various forms of Commission action to address what they see as a burdensome regulatory structure. An NVOCC may enter into a service contract with an ocean common carrier as a shipper, or customer of the ocean common carrier. However, the Act does not allow NVOCCs to offer service contracts as carriers to their shipper customers. Instead, NVOCCs must provide service pursuant to their tariffs, which are open for public inspection. The distinction drawn between VOCCs and NVOCCs in the area of service contracting was and continues to be a disappointment to the NVO community.

They believe that the inability to offer service contracts to their customers puts them at significant competitive disadvantage to ship owning and ship operating VOCC's. The Petitions ask for various forms of relief. Some ask the Commission to exercise its exemption authority to provide certain, specific entities or types of entities the right to offer service contracts. Another asks the Commission to exempt NVOCCs from the requirement to file tariffs. Each petition is aimed at leveling the playing field, on the rate side, between VOCCs and NVOCCs.

The scope of the issues and options presented and the high level of interest by the shipping public in these issues quickly put these petitions in the industry spotlight.

We at the Commission recognize the significance of any action or inaction on our part on this matter. As with any matter before the Commission, the authority to take the actions requested and the implications to the industry of doing so will be considered carefully. As some commenters have suggested, I believe it is crucial that the Commission be enlightened with as much industry wide and OTI specific intelligence as possible when considering the questions raised by the petitions.

Education and Information Sharing

We reach out to the industry with information and education and also serve as a forum for consideration of your regulatory and commercial concerns.

In the last couple of years the Commission has undertaken to enhance our outreach with a series of seminars, now in our second year, hosted by our five field offices, to help educate the industry and the public about our functions and services and to provide instruction regarding the regulatory obligations of providers and users of ocean liner shipping services in the U.S. foreign trades. Our area representatives in New York, South Florida, New Orleans, Los Angeles and Seattle have always functioned as help desks for the industry and we are expanding this role through these seminars. Topics range from the assistance the Commission can offer in day-to-day business to issues of timely interest to the industry as a whole. I hope that these seminars will also provide a forum for continuing and enhancing dialogue between the industry and the Commission. I believe the Commission and shippers can benefit greatly from participation in that dialogue. We offer our services to you and hope that you will continue to educate us in turn. When a seminar is upcoming it will be advertised on our website at www.fmc.gov .

Industry Challenges

The West Coast has seen continual and impressive growth in trade and has risen to meet that growth with impressive infrastructure, technological and environmental innovation. One of the biggest challenges presented by the growth in trade in general will be the domestic infrastructure, especially ports, highways and rail, and its ability to handle the continued growth in the ocean-borne volumes that are expected to triple here to 36 million teus by 2020. Congestion is already a problem at many ports and in particular here in Los Angeles and Long Beach.

The ports of Los Angeles and Long Beach are usually on the leading of issues and solutions. The ships, volumes and facilities have been supersized over the past few years. This has resulted in interface challenges with roadways and railways. The Alameda corridor is a major forward-looking solution to easing the impact of the increased rail volume.

The trucking interface is the next challenge. Individual ports and terminals are working to find solutions, including extended gate hours and infrastructure improvements. The Ports of Los Angeles and Long Beach have set up a framework for discussion and agreement on means to reduce congestion. State legislators are also chiming in to encourage the industry to address the problem. In the end, the solution to the problem will require collaboration between the ports, the carriers, inland transporters, intermediaries, government entities, and the consignees and shippers. The solution will undoubtedly come through multi-faceted approaches including further integration of processes and enhanced communication flow. We at the FMC will do our part to ensure fairness is achieved in those areas within our oversight.

Ocean Supply-Demand

I have heard it predicted that within the next few years the demand by shippers for capacity will meet up nicely with the supply of space, as carrier bring new vessels and new capacity into the trades. For the moment though, shippers are faced with a limited supply of space, carriers are experiencing record short-term vessel charter rates to add capacity, and higher transportation rates may be a result. I believe it to be true that the closer the relationship between the shipper and the carrier, the more likely the two can enter into mutually beneficial shipping arrangements. I've read reports recently of an evolving business concept that is encouraging all entities along the supply chain to share information and sales forecasts. For the largest shippers it appears that this facilitates both "just in time" distribution and increases efficiency and visibility, which in turn lowers costs. This type of collaboration becomes more possible as technology and information sharing platforms become more widely utilized.

Cooperation and Collaboration

Regardless of how the industry may change or the Commission's regulations may change, the mandate given to us by Congress will drive our policies. The Commission will continue to strive for fairness and equality among industry components while monitoring to ensure our industry remains competitive. At the same time, the Commission aims not to impose requirements that will impede the efficiency or growth of the industry.

You recognize the many challenges that the ocean shipping industry faces in today's world - from the need to increase security to the impact of globalization with resultant trade imbalances and the effects of economic recovery. I would like to propose that these challenging times can be more easily weathered when the industry continues to seek balance - balance between shipper and carrier interests, balance between governmental and commercial interests, balance in the international trades, and so forth. I commend you for looking forward at the future and your recognition that cooperation and collaboration among segments in the ocean shipping industry will work more effectively than what can be achieved alone.

Conclusion

Thank you for inviting me to be a part of World Trade Week. Congratulation on your successes of the past and present and best wishes for continued success and prosperity in the future.