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Commissioner Doyle speaks to members of the Agriculture Transportation Coalition regarding port congestion

July 2, 2015

Introduction

Good evening. I would like to thank Peter Friedmann for inviting me to speak with you all this evening. Agricultural exports are a vital component to stimulating and expanding the U.S. economy and the Agricultural Transportation Coalition maintains a prominent role within U.S. transportation policy as it relates to trade.

The mission of the Federal Maritime Commission is to foster a fair, efficient and reliable international ocean transportation system and to protect the public from unfair and deceptive practices. A couple of prominent issues regarding fair, efficient and reliable international ocean transportation have kept theFMC and you in the audience busy over the last year. The Federal Maritime Commission has been working to help alleviate port congestion. And addressing port congestion is my top priority. Specifically, the Commission has fielded a number of complaints from importers, exporters and truckers related to the assessment of demurrage and detention charges by vessel operating common carriers (VOCCs) and marine terminal operators (MTOs).

I want to spend a little time reviewing this past year, and then focus on where we are now and where we need to be in the future.

A year ago many of us anticipated possible problems on the West Coast with the then-upcoming PMA-ILWU negotiations. Congestion was a problem long before 2014 and the Commission initiated a round of forums across the country on this topic.

Here are some quotes that should sound familiar to everyone in the room:

For agriculture shippers, the timing of the congestion couldn’t be worse. The resulting terminal closings, port call cancellations, chassis and drayage shortages and long truck lines outside of terminals "is having very real, very immediate injury to the U.S. economy and U.S. agriculture, our most important export. Agriculture Transportation Coalition (November 4, 2014)
Apple shippers have a record harvest but risk not getting their shipments out for the Christmas season where apples are a holiday fruit in South American markets. The export delays don’t just threaten long-term relationships but are also costing apple farmers about $19 million weekly. Rebecca Lyons, international marketing director for the Washington Apple Commission.
Washington lost $23.5 million in frozen french fry exports in November (2014). . .
For potatoes, November, December and January are peak export months to Asia in advance of the Chinese New Year. . . But the export build-up for the holiday has been lost. . . The potato pipeline is backed up and full. Not a lot of product is getting out so raw product, potatoes that should be processed, are still sitting in storage. Matt Harris, assistant executive director of the Washington State Potato Commission in Moses Lake, January 2015.

Congestion Surcharges:

In November 2014, the Federal Maritime Commission received numerous inquiries regarding the congestion surcharges for "labor unrest" being implemented by ocean carriers as announced in tariff rules required to be published under the Shipping Act of 1984 and the Commission’s regulations.

In short, the carriers jumped the gun. And not just once. Many carriers previously published in their tariffs advance or conditional notice of an intention to implement surcharges should certain conditions arise. However, all such carrier tariff rules must be clear and definite as to the implementation and termination of the surcharge related to "labor unrest." Also, the Shipping Act and the Commission’s regulations require that the rules applicable to any given shipment shall be those in effect on the date the cargo is received by the common carrier or its agent – the tender rule. Thus, if labor disruption were to occur at a port after cargo has been tendered by a shipper, a carrier may only lawfully charge the rates in effect on the day the cargo is tendered.

The carriers got carried away. The tariff rules lacked clarity – I certainly didn’t think the required trigger was met – and we the FMC put a stop to it.

Alliance Agreements:

I would like to back up for a moment and discuss the situation before the West Coast port congestion issue related to the contract negotiations. Last year saw the coming together of sixteen of the top twenty world’s largest ocean carriers to form or build upon four vessel sharing alliances. These four major ocean carrier alliances are known as 2M, Ocean Three, G-6 and CKYHE. There is evidence that these vessel alliances are contributing to port congestion at terminals in the United States and stretching the capacity of some gateways. However, alliances alone are not the only drivers causing congestion.

There is a laundry list of factors contributing to port congestion, of which alliances may aggravate, including but not limited to the following:

  • vessel bunching;
  • inadequate
  • transportation infrastructure;
  • shortages of truck capacity, containers, chassis and intermodal rail equipment;
  • consolidation of terminals;
  • exodus of truck drivers who cannot make a living wage and;
  • rail service delays, including a shortage of railcars nationwide.

Shoreside Agreements

While 2014 will be remembered as the year of vessel alliances, 2015 is shaping up to become the year of agreements filed by shoreside parties. Over the past year, we have seen agreements filed with the Commission to alleviate in part, port congestion.

One example is the formation of the Pacific Ports Operational Improvements Agreement (PPOIA). The agreement, filed by parties including members of the West Coast Marine Terminal Operators Agreement (WCMTOA) and the Ocean Carrier Equipment Management Association (OCEMA), allows parties to discuss factors contributing to congestion, delays at marine terminals and inefficient interchange of equipment, with the ultimate goal of creating ways to address these problems.

PPOIA allows for discussion between the parties, both carriers and marine terminal operators, in order to reduce port congestion on the West Coast. Who can argue with that? However, just yesterday I supported the Commission taking action. In closed session, the Commission directed staff to prepare for consideration and approval, an order to require the ocean carrier members of the PPOIA agreement to submit certain data and information relevant to the Commission’s oversight responsibilities and further assessment of the competitive impact of the agreement. We don’t take our hands off the wheel just because an agreement has gone into effect.

Let me say, that I, as one of five commissioners, will be advocating for something called a Section 15 action. Section 15 of the Shipping Act provides the Commission the authority to order common carriers and their employees and agents to report on a matter germane to the Commission’s regulation. 46 U.S.C. § 40104. The authority of the Commission to use such orders to gather information is broad and has been used in the past to gather information on a variety of policies.

A second agreement filed with the FMC is from the Ports of Long Beach and Los Angeles to tackle operational related questions and maximize their combined efforts in the management of their respective ports. Notably, port congestion was a key instigator for this cooperative effort. Additionally, last year the ports of Seattle and Tacoma, long-time fierce rivals who have been losing market share to other regions throughout the U.S. and Canada, filed a "Discussion Agreement" with the Commission, which led to the filing of a new agreement, the so called "Northwest Seaport Alliance." Under the contemplated agreement, the port commissions in Washington State plan to unify management of the two ports’ marine cargo terminals and related functions, combining their respective strengths to address competitive challenges and create new economic opportunities.

FMC Forums:

Between September and early November 2014, the FMC held four forums at major gateway ports to foster dialogue between industry stakeholders, regulators, and the general public on the causes, impacts and possible solutions for the congestion experienced in seaports around the country. A growing point of discontent voiced at these meetings concerned demurrage fees (shippers who are ready willing and able to pick up their cargo yet, through no fault of their own, must pay demurrage fees for days beyond "free time" that the cargo sits in a terminal. Subsequently, the Commission in April issued the first in a series of planned reports entitled: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports.

Report: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports:

As the report noted, the Commission has a variety of actions that could be used to address these issues provided there is sufficient factual basis to support the action. These actions include: the establishment of an Advisory Committee under the Federal Advisory Committee Act; the imposition of special reporting requirements on filed agreements; the requirement for filing special reports by common carriers pursuant to Section 15 of the Shipping Act; the initiation of a docketed proceeding for adjudication through an order of investigation; the grant of review of a petition with the Commission for specific action, if such a petition were appropriately presented by a party; the initiation of a non-adjudicatory fact-finding; direction to the agency’s Ombudsman to undertake focused facilitative meetings with industry; or the initiation of a rulemaking proceeding.

Yesterday the FMC voted to release (any day now) the next phase of the congestion study. Chairman Mario Cordero acknowledged that American shippers have expressed their interest in the FMC taking action to address the claimed unfair and unreasonable costs incurred by importers and exporters as a result of congestion. Chairman Cordero noted the Commission will consider all options moving forward.

To date, the Commission has received two letters from this Coalition concerning these demurrage and detention charges and several visits by Peter Friedmann. I call on industry stakeholders to weigh in and inform the Commission as to the kind of action desired, if any. Should members of the Agricultural Transportation Coalition or other industry stakeholders wish to file a written petition with the Commission regarding these matters, the petition must: set forth the petitioner’s grounds of interest in the subject matter; clearly and concisely describe the nature of the relief desired; include any relevant facts, views, arguments, statutes, and data; and be verified (sworn). What the Commission needs is actionable evidence – anecdotes are informative but not enough – so that we can ensure fair, efficient and reliable international ocean transportation.

Conclusion:

Port congestion issues are impacting the work of the Federal Maritime Commission, and more importantly, that of the American importers and exporters such as yourselves. Now, more than at any time in our history, Americans are selling more U.S. goods and services to the 95 percent of consumers who live outside of our borders. I urge you moving forward to get involved and work with Peter in his efforts to foster and bring about achievable solutions to this persistent congestion problem.

Thank you.