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Remarks of Commissioner Michael A. Khouri at the NCBFAA’s Annual Conference

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Good morning. Thank you for the invitation to join you today. I always find it helpful to share what we are doing at the FMC with NCBFAA’s membership, and more importantly – to hear directly from you about your interests, concerns, and priorities. As always, my remarks reflect my individual views and thoughts and are not offered as the official positions of the United States or the FMC.

As an opening note – on March 29th, President Biden designated Commissioner Dan Maffei as Chairman and I reverted to my role as a Commissioner. I congratulate Dan on his appointment, and I will do all in my power to support him in his new leadership role.

Concerning capacity and rate outlooks – As all know, the supply chain is global in scope with many links in the chain. I last spoke with you in September of 2020. Since then, the supply chain has continued to be stressed and challenged by COVID.

You all know the progression of import and export volatility all too well. From the initial effect of the pandemic and reduction of imports to the wave of increased import demand as Asia reopened and the US began a surge of consumption buying – all stretching the ocean supply chain to its limits.

U.S. import demand is projected to continue to rise through the remainder of 2021 as “lock downs” end and economic activity returns to normal.

U.S. export demand is also expected to increase substantially during the remainder of 2021.

Throughput velocity in U.S. ports remains slow while costs are up due to a variety of factors affecting port and ocean carrier operations. The list of headwinds include:

  • few – if any – available idle container vessels to address additional demand.
  • Vessel charter rates are at a 10-year high.
  • Fuel/prices are up 50% versus Sept 2020.
  • Vessel idling costs up.
  • Container repositioning costs are high, due in part to historical imbalance between import and export volumes.
  • Truck shortage and increased trucking costs.
  • Driver shortages
  • Increased intermodal rail costs.
  • And recent decreases in rail car availability.
  • COVID-related labor shortages with increased costs.
  • Inadequate container storage space with increased storage costs at terminals and inland depots.
  • Lack of available containers.
  • Significant year-over-year freight contract and spot market price increases.
  • Enough!

One marine terminal issue concerning port congestion that I want to “lean into,” so to speak, is the hours of operations. I have been talking with the top executives of all the major container vessel lines concerning the ocean supply chain and getting their thoughts on how to improve freight fluidity and container velocity throughout the system. Among the many issues and factors raised, virtually every CEO has raised the following point:

When there is serious port congestion at most every port in the world, the ports start operating on a 24/7 weekdays and weekends basis until the congestion is cleared. However, this does not occur in U.S. ports. Major U.S. marine terminals are not open and working every evening, night, and weekend – even in the face of unprecedented congestion.

This must change. The various marine terminal operators and the respective port authorities need to put their heads together and find solutions. But they cannot fix this on their own. They also need committed cooperation from many other stakeholders and “links” in the supply chain.

Collectively, our American importers are losing sales with out-of-stock items. Our consumers are facing higher prices for their daily purchases.

It is a competitive disadvantage for our American exporters who compete on a global basis, and they are suffering the consequences.

The ability of American companies to reach overseas markets is an issue of utmost importance to the FMC. One of the purposes of the FMC, as set forth in the Shipping Act, is in two parts – to promote the growth and development of United States exports through competitive and efficient ocean transportation and, second, by placing a greater reliance on the marketplace. We do not want more regulation. But we do need the marketplace to work better.

For the FMC’s role – The responses and solutions to the current challenges impacting the global supply chain are multifaced in nature, involving the participation of many nations, government agencies, and stakeholders.

The FMC is called on to play its part in responding and working to nurture an efficient and economic ocean transportation system for the American economy. So, let me mention some of the ongoing initiatives at the Commission that are important for the shipping industry and especially the NVO and freight forwarder community.

First, Fact findings – In the first phase, Fact Finding 28 led to a new interpretive rule that addressed how the FMC will interpret “unreasonable practices” in complaint cases brought under the Shipping Act. The rule recognizes the role of detention and demurrage charges in facilitating freight mobility and prompt cargo movement and productive use of assets.

Then, with Fact Finding 29, the Commission has been working to address both short term, urgent problems, as well as longer-term port inefficiencies and is focused on (1) demurrage and detention, (2) empty container return to seaports, and (3) the availability of containers for the carriage of U.S. exports.

The Commission has a duty to investigate and address impediments to performance in our major port gateways. Therefore, in November 2020, the Commission approved a Supplemental Order to expand Fact Finding 29 to investigate ocean carriers operating in alliances and to determine if policies and practices related to detention and demurrage, container return, and container availability for U.S. export cargoes violate the Shipping Act.

Commissioner Dye, as Fact Finding Officer, issued information demand orders to ocean carriers and marine terminal operators to determine if legal obligations related to detention and demurrage practices are being met.

The demand orders require carriers and MTOs to provide information on their policies and practices related to container returns and container availability for exporters.

Following evaluation of the submitted information, Commissioner Dye will make recommendations to her colleagues concerning next steps.

Moving over to Bureau of Enforcement issues, an important role for Commissioners is to provide guidance to BOE about the agency’s enforcement priorities and where limited Commission resources should be focused. To that end, in July 2019, the Commissioners began a conversation with BOE and the agency’s Area Representatives as to enforcement areas that should receive priority attention. The conversation is continuing with a focus on integrity within the regulated maritime community.

One enforcement area I will note is misdeclared cargoes with focus on misdeclaration of hazardous cargos.

First, there is the clear issue of the cargo interests receiving a freight rate that is lower than what the carrier would charge if it knew the true nature of the cargo – thus a violation of the Shipping Act.

Second is the issue of these misdeclared cargos being stowed far below deck and then – due to the dangerous nature of the cargo – catching fire and imperiling other cargo, the crew and the ship itself.

We welcome the help of the OTI community to address these dangerous situations.

Next – In December 2019, the Commission revised its delegations of authority to the Bureau of Enforcement and revised procedures for initiating and settling enforcement actions. I mentioned this last time I spoke here. I think this seemingly modest change is very important for NCBFAA members. The purpose of this change was to enhance Commission oversight of these aspects of agency enforcement actions. Under the new procedure, the Commission itself – that is the five Commissioners – must approve commencement of compromise negotiations by BOE and then, must approve any compromise agreements reached by BOE before the agreement become final.

In addition, the rule provides for a new pre-enforcement process that will:

  1. provide notice to the subject of an investigation that BOE intends to recommend that the Commission initiate an enforcement proceeding; and
  2. allow such parties the opportunity to respond before BOE submits a recommendation to the Commission to initiate an enforcement proceeding. These party responses will be provided to the Commissioners along with BOE case analysis and recommendation.

As with any new process, there are questions to be resolved about exactly how the process will work, and kinks will need to be worked out. This process is modeled after the Securities and Exchange Commission’s Wells Notice procedures that they implemented in 1972. I am confident that, in the end, these changes will achieve a better result for both the Commission and its stakeholders through:

  1. more due process for the targets of agency enforcement efforts.
  2. more involvement by the Commissioners in setting agency enforcement priorities and appropriate civil penalty assessments.
  3. better oversight of enforcement activities; and
  4. the approval by the Commission of compromise negotiation commencement and settlements reached.

The first cases are now working their way through the new process and I look forward to the Commissions having a greater ability to shape the agency’s future enforcement priorities.

Concerning co-loading – The last time I appeared before this group, I mentioned a topic that Ed Greenberg has advocated for – co-loading regulation reform. Differences of the definition of co-loading between the Commission and other agencies, such as Customs and Border Protection, and even within the Commission, has created confusion among stakeholders.

As a result, and as part of our agency’s ongoing Regulatory Reform Initiative, the Office of Managing Director has been examining the issues raised by NCBFAA and will be reporting back to the Commissioners.

Tariff filing requirements applicable to co-loading were first proposed following enactment of the Shipping Act of 1984. The Commission last considered the co-loading requirements in 2004 but discontinued the matter without action.

This is an appropriate time for the Commission to revisit the co-loading rules with a view to the important effects that NRAs and NSAs have had in bringing greater rate flexibility to the NVO market.

I cannot, at this stage, predict a final result of this project, but look forward with great interest to its completion and in engaging my colleagues on the Commission in a candid discussion upon the topic of the co-loading regulations.

Now, for “merchant” clauses in bills of lading. The issue of ocean carriers inserting a clause into their standard bill of lading document has been raised by NCBFAA members. The typical so called “Merchant Clause” provides that the normal cargo interests are responsible for freight and related accessorial charges, but it then goes on to include other parties such as customs brokers, all OTIs, regardless of legal status as “shipper”, and other parties who have no legal or contract responsibilities. The Commission issued a Notice of Inquiry to gather information on what the major ocean carriers are including in their bills of lading and how their enforcement of those terms are being applied. I expect the Commission will have the opportunity to consider this issue soon.

Regarding the Shipper Advisory Board – Congress recently enacted legislation to establish an advisory committee to provide advice to the Commission on policy matters relating to the competitiveness, reliability, integrity, and fairness of the international ocean freight delivery system. This was one of the recommendations coming out of Fact Finding 28. The National Shipper Advisory Committee will consist of 12 importers and 12 exporters.

The Commission is currently considering how to stand up the committee. More news shortly. I expect the Advisory Board will serve as a valuable resource for the Commission to obtain industry feedback in advance of proposed actions.

Looking out over the next year, the FMC will continue to look for opportunities to address bottlenecks and friction points in the ocean supply chain – using collaborative cooperative solutions wherever possible, and other means if necessary. And, through the remainder of the ongoing pandemic and beyond, the FMC will continuously pursue our goal of ensuring competition and integrity in America’s ocean supply chain.

Again, thank you for the opportunity to be here with you today. I look forward to our discussion and the opportunity to hear from you.

Michael A. Khouri is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not represent the position of the Commission.