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Remarks of Chariman Blust at Sea Cargo Americas

May 12, 2005

Good afternoon, it is an honor to be speaking with such an esteemed group – and hard to believe it has been two years since I was last here. Joining me today are our South Florida area representatives, Andy Margolis and Eric Mintz.

I have been amazed at both the depth and diversity of the many speakers and panelists involved with this conference. This conference clearly leads the industry in the Latin American and Caribbean trades, and beyond. As you lead the industry, you also have an important role in shaping the future of this sector of the maritime world. Trade among the Americas has a promising future, with a host of new opportunities.

Before looking at the state of the industry, I thought it would be interesting to reflect on the past significance of the Caribbean and Latin American trades.

I. Historical Relevance

The Caribbean and Latin American trades have played an important role in the history of our great Nation. They have been a lifeline of our economy, as well as a source of great sacrifice by both our merchants and our merchant mariners.

In the early 1600’s, the American colonies were content to trade only with the British Empire . However, as our shipbuilding industry began to prosper, the Colonists sought to establish trading relationships with other foreign nations. The Caribbean trades met those needs, and provided a nearby source of raw materials, and markets for finished goods and agricultural products -- resulting in the creation of wealth on both sides of the trade lane, and the further development of the shipbuilding industry. Successful trade with the Caribbean – including the French, Dutch and Spanish colonies as well as the British, soon led Colonists to view themselves not as mere colonials, but as merchants deserving the same political rights as those in Great Britain . Unrest with the British trading policies hampered colonial trade with the Caribbean as well as other areas, and soon led the Colonists to demand independence.

The significance of the Caribbean and Latin American trades to the United States has continued ever since. In more recent times, merchant ships, their owners and merchant mariners have made significant sacrifice while plying the Caribbean waters over the course of our history. In World War II, many Caribbean and Latin American nations supported the United States , Great Britain and their allies, by providing materials and production of goods. Germany sent its U-boats into the area to try to disrupt this support, resulting in 180 ships being sunk or damaged in the Caribbean, and another 45 ships sunk or damaged in the Gulf of Mexico - for a total of 225 ships in these trade lanes alone. The story of only one of these vessels demonstrates both the sacrifices made, and the importance of the trades during World War II. In May of 1942, the freighter Alcoa Puritan, a 6,795-ton cargo ship owned by the Alcoa Steam Ship Co., was en route from Port of Spain , Trinidad, to Mobile , Alabama , with a cargo of bauxite from Guyana . There were also seven passengers aboard which, ironically, were all survivors of a tanker torpedoed by a German U-boat off the coast of Brazil . On May 6, 1942, the Alcoa Puritan was attacked by U-507, approximately a hundred miles south of Mobile , Alabama . When the first round of torpedo attacks narrowly missed, U-507 overtook the slower freighter and opened fire with her deck guns, and disabled Alcoa Puritan’s steering. The captain of the Puritan brought the crippled freighter to a stop and gave orders to abandon ship. After allowing the crew to leave the stricken freighter, U-507 sank Alcoa Puritan with a single torpedo. The crew and passengers of the freighter survived and, although abandoned at sea by the German U–boat, were rescued four hours later by the U.S. Coast Guard Cutter Boutwel.

The significance of the Caribbean trades to our forefathers, and the sacrifices of our fathers, echoes in the importance of these same trade lanes today. As our Nation continues to break down barriers, and create the opportunities associated with free, open and fair trade, trade among the Americas will continue to prosper.

II. Opportunities Available

Today, trade amongst the Americas stands at an important crossroads. As we increasingly move towards free, open, and fair trade, the industry must be equipped to handle ever-greater volumes. The recent boom in the transpacific markets caught many by surprise, and we are now confronting the difficulties associated with overburdened ports and intermodal links.

It is only with forethought and collaboration that the Latin American and Caribbean trades will be able to capitalize on the advantages of increasing trade volumes. Recent studies show that while worldwide trade is forecasted to double by 2020, trade and shipping between Latin America and the Caribbean and states in the southeastern U.S. may triple in the same time frame. While trade volumes are forecasted to increase rapidly, existing ports and infrastructure are at or near capacity, and will require significant changes to accommodate the needed expansion. The increasing trade volumes create a necessity for greater efficiency and creativity. In turn, efficiency and creativity will allow the industry to maximize the advantages of the increasing volumes.

Everyone must work together to take the steps necessary to ensure tomorrow’s efficiencies – to create better, faster, and more cost-effective transportation infrastructure and supply lines. We all have a role to play, and we all have a responsibility to work together to ensure we are prepared to meet tomorrow’s challenges. It is far better to prepare for the growth in volumes, then to play catch up when the cargo is at the water’s edge.

Trade amongst the Americas has several distinct advantages and opportunities which promise to deliver a bright future.

Free, Open and Fair Trade

With the progression of hemisphere-wide free, open and fair trade, trade among the Americas has a bright future. Free trade agreements promise to provide a tremendous boost to bilateral trade and the transportation sector. With the free flow of goods comes a thriving future for the maritime industry. The numbers related to the increase of trade associated with free trade agreement are truly impressive:

  • U.S. exports to Chile increased 32% during the first six months of the recent bilateral agreement with Chile ;
  • Studies estimate that free trade agreements with Central America and the Dominican Republic could increase U.S. manufactured exports by $3 Billion, and agricultural exports by $1.5 Billion.

There is also remarkable reciprocity in trading with Central America that does not exist in some other major trade lanes. Approximately 40% of all U.S. yarn, and 25% of all U.S. fabric are exported to Central America, and 56% of Central American apparel imports are produced with U.S. textiles. These numbers indicate the potential for reciprocal trade between the U.S. and the Caribbean and Latin America . As free trade progresses, the benefits of breaking down trade barriers will continue to contribute to rising cargo volumes – both import and export.

What does this mean? Every dollar of imports or exports, and every percentage point of import or export data translates into cargo. And this is where the transportation industry comes into play. The transportation industry will soon be tasked with transporting the increased trade associated with the free trade agreements – and it must be prepared to accommodate the predicted increases in trade volumes.

Proximity

Latin America and the Caribbean enjoy a competitive advantage in their location. The relatively short distance between markets in the U.S. and those in the Caribbean and Central and South America greatly benefits both ends of the trade lane. As supply lines are shortened, stability and predictability improve. The just-in-time nature of today’s delivery demands benefits by shorter distances between the factory and the consumer. Furthermore, shippers located in Central America, and parts of South America, are able to ship cargo without contributing to the complexities of the Panama Canal by sending their cargo by truck to ports on either the east or west coast. From there, they are within easy reach of either the U.S. Gulf or East coast, or, via the Pacific, to the west coast. In today’s competitive markets, this flexibility is an important asset.

Transportation Industry Considerations

Retailers and manufacturers have good reason to be attracted to the Latin American trades. Vessel operators are able to quickly adjust capacity to meet the needs of shippers, and ports are making the investments necessary to meet their demands.

The short-sea nature of many of the trade lanes provides an agility which is unavailable in other areas. The shorter distance creates the flexibility for vessels to make sailings on a more frequent basis, with more room for adjusting schedules; and smaller vessel size facilitates port operations by not having to accommodate massive cargo volumes. An 8,000 TEU vessel requires approximately five days to load or unload. In that same time frame, vessels serving many areas of the Caribbean or Central America are able to unload their cargo, sail to next destination, and return again, with a second load of cargo. Such agility can provide efficiencies that benefit everyone.

U.S. Gulf and East Coast and Latin American ports are actively investing in port development and improvements to meet the demands of rising cargo volumes. In the U.S. , ports have been purchasing cranes, deepening channels, improving intermodal links, and updating container facilities to meet rising demands. Latin American ports are also investing heavily to meet tomorrow’s port infrastructure needs with both the expansion of existing facilities, and the development of additional ports. In Central America there are several substantial projects on the drawing board. In El Salvador , La Union is being developed as a new trucking hub and transshipment port for Central America . There are also several significant projects underway in Panama, including a huge expansion in Balboa that will nearly double their capacity levels, the Port of Manzanillo, which is being expanded as a transshipment port, and the Port of Colon, which is also upgrading and expanding its facilities.

South America is undergoing a host of port development projects as well. Brazil , Argentina , Uruguay and Chile are all upgrading port facilities. Just to give a few examples, in Uruguay , the Port of Montevideo is seeking approval to construct the “ Cero Port ” – a new terminal within Montevideo , which will add considerable container capacity. In Chile , Port Angamos in Megillones Bay is constructing a new container and general cargo facility. This expansion is the result of a recent study showing that cargo from several interior regions could be exported through Chile 15 days faster (and cheaper) than the traditional movements through the east coast of South America. Several ports in Brazil and Argentina are also actively investing in port infrastructure and development projects.

Retailers have also been aggressively pursuing port and warehouse diversification strategies in order to reduce dependence on a particular port, and allow them to meet regional demands. Three of the top ten U.S. warehouse and distribution markets are on the Gulf and East Coasts , and all are within easy reach of Latin America and the Caribbean . For non-time-sensitive cargo, the low-cost inland waterways offer a wealth of opportunities, including faster access to major distribution centers.

All of these factors – free and fair trade, proximity, and transportation industry considerations - each a piece of a larger puzzle – provide a picture which promises good times ahead. However, every opportunity has challenges. It is how, and when, we chose to deal with the challenges that will determine our success.

III. Role of the FMC

The Commission stands ready to do its part to help to foster a fair and efficient maritime industry.

Section 19 of the Merchant Marine Act

The Federal Maritime Commission's predecessor agency was created in 1916 to regulate international waterborne commerce in recognition of the vital importance of open ports and fair shipping practices. In 1920, we were tasked with ensuring that our trading partners maintained open and fair systems for oceanborne trade. Since then, the Commission's mission has changed little. Our primary task is to ensure a level playing field for all competitors.
We are charged with addressing restrictive or unfair foreign shipping practices by section 19 of the Merchant Marine Act, 1920, 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 authorizes 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.

Fortunately, the threat of formal Commission action to address a restrictive practice has been an effective tool in ameliorating these conditions. The rationale for open 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 authority - and it has issued regulations to counter practices it finds unfairly restrictive. In these circumstances, the Commission has wide latitude to take appropriate measures to remove non-market barriers to ocean transportation in U.S. foreign commerce.
These types of actions foster stability and enhance shipper confidence in the transportation industry - thereby benefiting the entire transportation supply chain. Fortunately, we do not find ourselves in these situations very often, but when we do, we have the tools, and will to do our part to protect the industry.

We also have other tools available to assist the trades.

Agreements

The Shipping Act of 1984 allows marine terminal operators and vessel operating common carriers to collaborate on issues of mutual interest. The Shipping Act recognized that there are occasions when it would be beneficial to allow MTOs and VOCCs to talk about their commercial operations. These types of agreements serve an important role in problem solving. They can provide a nexus for necessary communications, and can facilitate the discussions to solve the most vexing problems in order to take advantage of the brightest opportunities.

As an example, in June, 2004, a group of California marine terminal operators filed an agreement with the Commission which enables them to meet and discuss how to address congestion, late gate openings, and other issues under the Shipping Act. The filed agreement allows the terminal operators to find solutions to matters that would otherwise be difficult to discuss. However, such a valuable tool also has safeguards. Agreements are made available for public comment, and the Commission reviews agreements to ensure that they do not produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost. The Commission continues to closely monitor the agreements while they remain in effect and can take action at any time if an agreement creates concern.

Security

In this day and age, it is difficult to address the challenges facing the maritime industry without discussing maritime security. We all have a vested interest in the security of maritime commerce, and we all have a role to play. We must also work to keep U.S. ocean trades operating as efficiently as possible. I believe that the most effective way to address maritime security is to ensure security throughout the entire supply chain, beginning with the original agreement between the buyer and seller. Once a contaminated box enters the transportation network, it is very difficult and expensive to identify, isolate and neutralize a single container. Securing the supply chain is not an easy process, and it will only come through multilateral effort and cooperation.

FMC Outreach / Compliance

In order to do our part to protect the security of the trades, we have been focusing on how to obtain the broadest possible compliance with our regulations. Through compliance, we are better able to assist in securing the supply chain by knowing who’s who in the ocean transportation and logistics industries. We are actively expanding our compliance efforts through our education and information sharing programs.

The Commission has been reaching out to the industry in several different ways –including sending our representatives into the field, and by inviting industry executives to come to the Commission. Our program “Navigating the Regulations” has been presented at almost 20 industry seminars over the past two years by our Area Representatives in key U.S. locations. 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 continue to provide a forum for enhancing dialogue between the industry and the Commission. I believe the Commission and the industry can benefit greatly from participation in that dialogue. We will announce details of upcoming seminars on our website (www.fmc.gov) as they are scheduled.

The Commission has also 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 various segments of the industry. We have recently held panel briefings with the National Customs Brokers and Forwarders Association of America, World Shipping Council, and the American Association of Ports Authorities. The goal of these briefings is to broaden the Commission’s understanding of the current issues facing various segments of the industry by promoting dialogue between the agency and its stakeholders. We hope to be able to facilitate similar briefings with our other major industry segments, including shippers, marine terminals, and passenger vessel operators.

Conclusion

The Caribbean and Latin American trades have played an integral role in the history of our great Nation, and continue to play an important a role in the U.S. trading agenda. These trades have endured for over 300 years – and we every reason to believe they have as prosperous a future today as when they played a pivotal role in the formation of our Nation. Close proximity, removal of trade barriers, and transportation factors are all encouraging signs that trade amongst the Americas will endure and flourish.

With the expansion of trade and globalization, what we do in Washington not only affects the nation, but the world at large. We seek to fulfill our regulatory obligations in a fair and balanced manner. We continuously strive to ensure that our regulations accurately reflect the dynamic industry we are entrusted to oversee. As always, we look forward to working with you as you face the challenges of an evolving marketplace.

Thank you for inviting me to share some time with you and best wishes for success in the future.