The Federal Maritime Commission Newsroom

News

Prepared Remarks of Steven R. Blust, Chairman, to the Propeller Club of Washington, DC - November 17, 2004

November 17, 2004

Prepared Remarks of Steven R. Blust , Chairman
Federal Maritime Commission

Propeller Club of Washington
Washington , DC

November 17, 2004

   

          Thank you for the gracious introduction.  As always, I am honored to be here today. 

          It is hard to believe that it has been just over two years since I last had the opportunity to address this esteemed audience.  A lot has changed since then – both at the Commission and in the industry.  Today I would like to reflect on some of those changes and the FMC’s participation in this dynamic marketplace.        

FMC and World Trade

          The United States , recognizing the vital importance of open ports and fair shipping practices, created the Federal Maritime Commission's predecessor agency in 1916 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, Section 19 of the Merchant Marine Act, 1920, and the Foreign Shipping Practices Act of 1988, 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 the Foreign Shipping Practices Act, 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.

          Our great country was founded on trade. A defining moment, the Boston Tea Party in 1773, 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.

          Speaking generally, because of the great tradition of openness of the sea trade, and the general understanding that the Commission has the ability to use the full measure of 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 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.  This is an important mandate as 90% of cargo moving in international trade moves by water. We must be responsive to those changes.

          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.  Fortunately, we have found it rarely necessary to take formal action once a  restrictive practice has been identified, and brought to the attention of our trading partners. The rationale for open markets and fair trading is clear, and our trading partners generally work 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.

          In 1998, the Commission initiated a proceeding to gather information concerning potentially restrictive practices of the Peoples Republic of China affecting the U.S./China shipping trade.  We were concerned about non-Chinese companies' ability to establish and operate branch offices and conduct vessel agency operations, and, most recently, under regulations established two years ago, to operate 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 , as reflected in the exchange of diplomatic notes in Washington on April 21, 2004. We are very pleased with this outcome. U.S. ocean common carriers and NVOCCs are now able 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-owned or controlled vessel operators who were able to 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, and we continue to take this responsibility seriously.

          That said, the Shipping Act allows the Commission flexibility to grant exemptions if it finds that doing so will not result in a substantial reduction in competition or be detrimental to commerce. In light of that flexibility, the Commission recently granted the petitions of three Chinese controlled carriers and, just 3 weeks ago, the petition of American President Lines, for relief from a procedural requirement of the law, which requires controlled carriers to wait 30 days before reducing their tariff rates. We believe these exemptions will provide the stability and predictability that those carriers, and their customers require.

NVO Petitions

           Two years ago, I spoke about our industry trying to reach a balance in the new environment and the natural evolution of the carrier and OTI relationship since OSRA.

           The Commission recently issued a Notice of Proposed Rulemaking to permit NVOCCs to enter into NVOCC Service Arrangements, or “NSAs,” with their shipper-customers.  This rule is perhaps one of the most significant items faced by the Commission since the passage of OSRA.  The rulemaking was spurred by petitions from the OTI industry, and culminated in a joint proposal by OTIs and shippers that was acceptable to the ocean carriers.   The joint proposal requested an exemption from the tariff publication requirements conditioned upon the confidential filing of an NVO service arrangement with the Commission.  As published, the rule would permit the parties to agree, on a confidential basis, upon the rates and conditions of service for the transportation of cargo. 

           The Commission is relying on the exemption authority in Section 16 of the Shipping Act in issuing the rulemaking.  Section 16 allows the Commission to exempt any activity from the requirements of the Act if it finds that the exemption will not result in a substantial reduction in competition or be detrimental to commerce.  In order to satisfy the conditions in section 16, and to allow the Commission to monitor NSAs, the NSA must be executed and filed with the Commission.  Without filing the NSA with the Commission, a detriment to commerce could arise if the Commission is unable to fulfill its statutory mandate to ensure that NVOCCs are abiding by their common carrier responsibilities.  Furthermore, as a condition of opting to enter into an NSA, the NVOCC would be subject to various administrative prohibitions similar to those of Section 10 of the Shipping Act.

           The proposed conditional exemption will promote a competitive and efficient ocean transportation system and lead to greater reliance on the marketplace.

 Commission Changes and Recent Initiatives

           Aside from conducting our business with the industry, we have also been engaged in an internal review of what we do, and how we can best fulfill our statutory mandates.

           Throughout this process, we have reviewed and revised our vision statement.  After many hours of debate among senior staff, we have established a new vision.  It is a vision which captures the essence of the Federal Maritime Commission.  The Commission’s vision is “Fairness and efficiency in U.S. maritime commerce.”  What we strive for is a fair and efficient ocean transportation system.

          We have also recently conducted an internal review of our functions to determine how we can best promote compliance, improve our responsiveness, and continue being fair to the industry.  This review included examining both what we do, and how we are doing it. 

           Starting with the ‘how’ - this past summer, the Commission realigned itself in order to create a more focused agency, one which is best suited to foster and support an environment of fairness and efficiency in U.S. maritime commerce.  The realignment seeks to reallocate the Commission’s existing resources to maximize the effectiveness of the staff and to facilitate efforts to better serve the ocean transportation industry.

           The changes included separating the operating bureaus from the administrative functions.  In doing this, the operating bureaus (Bureau of Trade Analysis, Bureau of Certification and Licensing, and the Bureau of Enforcement), were placed under one individual with focused responsibility, maximizing our compliance efforts and responsiveness to our stakeholders.  Equally important, the administrative functions have been separated from the operating bureaus to permit better focus and support of the operating bureaus, and other offices, to maximize responsiveness and support of our business requirements. While these changes have simplified many of our in-house operations, they are likely less noticeable to the outside world.  Nonetheless, we expect that the changes will enhance our responsiveness to the industry.

           We have also been reviewing what we are doing, and how we can better serve the industry.  One of the key areas that the Commission is focusing on is how to best obtain compliance with our regulations.  As I have mentioned before, there are three conceptual methods of compliance: voluntary compliance (where the individual comes to the Commission in order to comply with our regulations); enlightened compliance (where the Commission reaches out to the industry in order to successfully bring them into compliance); and forced compliance (where a formal proceeding may be necessary to obtain compliance).  We are actively trying to enlarge the second category in order to obtain the broadest possible level of compliance.  Central to our strategy of achieving industry compliance is to continue and improve our education and information sharing efforts.                          

 Education and Information Sharing

          In 2002, I said that we were planning industry seminars to allow us to reach out to the industry with information and education and also serve as a forum for consideration of your regulatory and commercial concerns.

          Our program “Navigating the Regulations” has been presented at almost 20 industry seminars over the past two years by our Area Representatives in various cities.  The program provides the basic information regarding how to operate as a regulated entity in compliance with our regulations.  It is intended as a grass roots effort to educate those entities unsure of the rules and regulations for which they are accountable.  In essence, it is a tool to facilitate compliance with our licensing programs.  The seminars have been well attended, and I hope that they 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. We will announce the details of upcoming seminars on our website at www.fmc.gov as they are scheduled.

 

          Second, the Commission has been working to develop a greater awareness and understanding of the current issues and concerns affecting the maritime shipping industry through a series of panel briefings with the various segments of the industry.  We recently held a panel briefing by the NCBFAA which we found to be most informative and beneficial.  We hope to be able to facilitate similar briefings with our other major industry segments, including: vessel operating common carriers; shippers; marine terminal operators; and passenger vessel operators.

           The goal of these briefings it to broaden the Commission’s understanding of the various segments of the industry by promoting ongoing dialogue between the agency and its stakeholders, especially in light of the continually changing dynamics of the ocean shipping industry.

Norfolk Southern v. Kirby

           The recent Supreme Court decision reaffirmed the statutory distinction between Forwarders and NVOCCs.  Although the case involved a shipment on a thru bill of lading from Sydney , Australia to Huntsville , Alabama , the dispute arose from the damage to the cargo resulting from a derailed train between the Port of Savannah and Huntsville .  The shipper sued the railroad, which claimed the COGSA limitation of liability under the ocean bill of lading.  Interestingly, as Justice O’Conner commented that, “it is a maritime case about a train wreck.”

           Ultimately, the Court held that a downstream carrier is protected from a lawsuit by the proprietary shipper under the COGSA liability limitations in the bill of lading the carrier issued to an NVOCC. 

           The case is significant because it confirms that an NVOCC is not an agent for its shipper, but instead is a common carrier and a principal in its own right.  This is what the Shipping Act says, and we are glad to see the Supreme Court unanimously agrees.

Industry Challenges

        Security

          In this day and age, it is impossible to talk about maritime commerce without addressing maritime security.  We all have a vested interest in the security of maritime commerce, and we all have a role to play.  Just as important, we must also work to keep trade operating as efficiently as possible.                       

           The only effective way to address maritime security is by examining the entire supply chain.  Once a contaminated box enters the transportation network, it is very difficult, and expensive, to identify, isolate and neutralize a single container.  We all must work to focus our efforts on the start of the supply chain - before a box is loaded on a vessel bound for the United States .  This step is not easy, and it will not come without sacrifice. 

           Congestion


          Carriers and ports throughout the U.S, have seen continual and impressive growth in trade and have 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 ability of domestic infrastructure, especially ports, highways, rail, and short sea shipping, to handle the continued growth in the ocean-borne volumes that are expected to double and, in certain locations, such as Los Angeles and Long Beach , to triple (36 million teus by 2020).

          Congestion is already a problem at many ports, and in particular in Los Angeles and Long Beach . The ports of Los Angeles and Long Beach are often on the leading edge of issues and solutions. Ships, volumes and facilities have been supersized over the past few years. This has resulted in interface challenges on our highways and railways. The Alameda corridor is a major forward-looking solution to ease the impact of the increased rail volume.

          The trucking interface is the next challenge. Individual ports and terminals are working to find solutions. 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 weighing 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.

Conclusion

 

          Although he was not an advocate for frequent changes in laws and institutions, Thomas Jefferson stated in a 1786 letter to George Washington, that “laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with times.”  While Jefferson was contemplating how to proceed with the framing of our Nation and our Constitution, his words ring true in the development of maritime commerce.  Laws, rules and regulations all must remain stable, but they cannot be allowed to stand still. 

           We've found this to be true in the evolution of our regulations following OSRA.  We continue to review our regulations to ensure they are consistent with the laws passed by Congress, while trying to address the innovations of the industry. The NVO Petitions and the recent Supreme Court decision in Norfolk Southern v. Kirby illustrate the extent to which the industry and the Commission are still in the midst of absorbing the impacts of OSRA. Regardless of how the industry 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.

           I know this audience recognizes 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 continue to believe that these challenging issues can be more easily resolved when the industry works in a collaborative manner to find solutions for success.

 

          We at the Commission look forward to working with you and the rest of the industry to make our trades safe, secure, efficient and profitable for all.  Thank you again for inviting me. May you and your families and friends have a wonderful holiday season.