Remarks of Commissioner Rebecca Dye at the MABA Luncheon
Thank you, Ashley, for that kind introduction, and for the invitation to be here with colleagues and old friends to talk about what’s happening at the Commission, in particular with respect to our demurrage and detention investigation, and our review and revision of Commission regulations.
As many of you may have heard me say, my favorite business author is Jim Collins, author of Good to Great and other good books. Collins says that the most important thing an organizational leader can do is “get the best people on the bus.” Even before you know where the bus is going. With us today are many of the best people on the FMC’s bus, and I appreciate your being here.
As you know, the Commission is currently considering a demurrage and detention petition filed by the Coalition for Fair Port Practices, a group of 26 trade associations composed, mainly, of American shippers and drayage trucking companies.
In its petition, the Coalition asked the Commission to issue a policy guidance statement that would clarify what elements the Commission would take into account when deciding if certain demurrage and detention practices should be deemed unreasonable.
Broadly speaking: Shippers, intermediaries and drayage trucking companies supported the request; carriers and marine terminal operators did not. Public comments on the petition were followed by two days of public hearings, and – subsequently – the Commission’s unanimous decision to launch an investigation.
I agreed to serve as Fact Finding Officer for that investigation – known as Fact Finding 28. I agreed to lead the investigation in part because of the perspectives I gained on our freight delivery system from the Commission’s Supply Chain Innovation Teams project completed last year. I’ll have more to say about the Supply Chain Innovation Teams initiative, and its relevance to Fact Finding 28, in a few minutes.
At the hearing on the petition of the Fair Port Practices Coalition, I made a couple of comments that I still believe to be the case.
I believe that meaningful improvement in demurrage and detention practices will require closer coordination and mutual accommodation among carriers, marine terminals, and American importers and exporters. And that we will not only need to examine the challenges we face in the US but also compare our practices with how detention and demurrage are addressed in other parts of the world.
You may be interested to know that I recently spoke at the Global Shippers Forum Conference in Melbourne, Australia, and many shippers there discussed with me their demurrage and detention complaints that are very similar to those we have heard from American shippers.
And most important, my interest is in how demurrage and detention practices can optimize, not diminish, the performance of the overall American international freight delivery system.
As the trade press has reported, the Commission issued extensive information demands to liner companies serving U.S. trades, and for the container terminals serving our top container ports.
As you might expect, that has not resulted in a spike in my popularity with liner shipping companies or marine terminal operators. However, the ultimate resolution of this investigation will have the potential to affect every ocean common carrier calling the United States.
It is vital, therefore, that the information we gather is representative of business and operational practices, as well as market conditions, nationally. In addition, the investigation faces two self-imposed deadlines: An interim report to the Commission by September 2nd. A final report by December 2nd.
So, given the need for representative and reliable information – and to complete the investigation before the end of the calendar year — those information demands were the course we needed to take. And I very much appreciate the carriers’ and MTOs’ willingness to provide that information.
I also believe that further active participation of shippers, truckers, and intermediaries in the investigation phase is essential. The demurrage and detention controversy is as much about customer service as it is about cost and risk allocation.
So shipper participation is crucial. We expect shippers and other interested parties to help establish the nature and extent of their perceived detention and demurrage problems.
I have held meetings with members of several shipper groups and individual shippers- seeking a better quantitative understanding, supported by documentation, of the challenges they face.
Our investigation’s emphasis will be on organizational behavior– analysis of specific practices, legal obligations and responsibilities, and the actual control and transfer of cargo.
In particular, the investigatory order specifies that we evaluate five key issues:
- Whether the current alignment of commercial, contractual, and cargo interests enhances or aggravates the ability of cargo to move efficiently through U.S. ports;
- When has the carrier or MTO tendered cargo to the shipper and consignee;
- What are the billing practices for invoicing demurrage or detention;
- What are the practices with respect to delays caused by various outside or intervening events; and
- What are the practices for resolution of demurrage and detention disputes between carriers and shippers.
So, in general, we will be looking into the basis for and consequences of today’s demurrage and detention practices in U.S. trades and whether those practices – to the extent they may be legacy approaches, for example – still make sense in today’s system of increasingly high-tech supply chain networks.
We’re aware, of course, that some parties may have concerns that Commission action could have an impact on commercial costs and risks. Our aim is not to target the specific business models of any company, but rather to improve the delivery system–
- By reducing unnecessary operational complexity;
- By promoting throughput efficiency; and
- By minimizing misunderstandings between service providers and their customers.
Supply Chain Innovation Teams
As most of you know, the Commission exercises broad programmatic authority over ocean carriers, seaports, marine terminals, freight forwarders and non-vessel operating common carriers.
Our flagship authority is contained in the Shipping Act of 1984, under which we analyze agreements among ocean carriers, ports and marine terminal operators to ensure that U.S. ocean transportation markets are competitive.
The ultimate benefit of this program accrues to American importers and exporters– to provide the highest quality of ocean freight transportation, at the lowest cost. So, well before the demurrage and detention issue arose, the Commission’s involvement with port and terminal issues was deep and expanding.
In part, that is a result of the Commission’s regulatory mandate regarding marine terminal operators – a mandate that includes ports, not just terminals. In order to carry out that mandate and develop an in-depth understanding of the businesses we regulate, we analyze and evaluate a huge amount of current operational and financial data from our stakeholders.
Of course, we are also familiar with the commercial realities of all categories of U.S. importers and exporters. It was our understanding of the commercial interaction among key supply chain actors that gave us the foundation to move forward with the Commission’s Supply Chain Innovation Teams initiative.
The Commission created the Supply Chain Innovation Teams Initiative following port congestion situations beginning in 2012-2013 on the East Coast and becoming acute on the West Coast in the second half of 2014 and the first half of 2015. We began with a series of four Commission regional port forums in the fall of 2014.
And, in response to expressions of further stakeholder interest, the Commission later issued an Order directing me to form supply chain innovation teams – ultimately three import teams and three export teams – composed of leaders of all sectors of the supply chain to develop commercial solutions to port congestion and related supply chain challenges.
Let me repeat that: To help develop commercial solutions, not promulgate federal regulations.
That Order resulted in a two-year initiative in which we established small, multi-stakeholder teams of industry leaders to develop a systems perspective on our international supply chain problems. The size and composition and the ground rules of those small working groups were critical.
When the Supply Chain Innovation Teams project was launched in May, 2016, we insisted on small teams composed of key industry leaders – 12 or fewer — because small, multi-stakeholder teams would be essential to ensuring active engagement by the participants.
Members of larger groups or roundtables, as we all know, tend to present each participant’s prepared talking points, but rarely engage in anything resembling open dialogue or productive debate.
Participants in roundtable groups, by and large, view themselves as advocates for their particular industry or company positions rather than as active participants committed to developing innovative system-wide solutions.
And of course, formal Advisory Boards are designed to advise particular agencies on their own regulatory programs, not to develop and implement private sector, commercial solutions. Furthermore, we insisted on industry leaders as our team members. Only participation by industry leaders can ensure that there is enough experience and authority at the table to make meetings productive.
Also, if you expect candid exchange and productive interaction from your participants some degree of confidentiality is essential. We emphasize direct engagement, not collaboration. Not brainstorming and facilitation, but guidance focused on a defined goal.
The most important reason that the team approach is successful is because we encourage team members to “step up out of their enterprise silos,” and address the problems occurring in the complex system that is our international freight delivery supply chain.
From Supply Chain Performance to Demurrage and Detention
So, by the time the Coalition for Fair Port Practices submitted its petition on demurrage and detention, the port forums, other related research, and our work with supply chain leaders had provided many useful insights into the commercial relationships, operational practices, and organizational challenges likely to be involved.
In short, the Commission’s supply chain initiative provided a solid foundation this deeper dive into demurrage and detention issues. And, not surprisingly, when I was announced as the Fact Finding Officer, several of the initial calls I got asked if I would be using a similar team approach to address the demurrage and detention issues.
It’s clear to me that — besides notice and comment, or negotiated rulemakings – the use of a carefully designed team process to resolve commercial challenges can be successful.
I’m currently engaged with a team in Memphis, who invited me there to lead a team focused on chassis problems in the railyards there. And for the record, I am not interested in running the railroads or railyards, in Memphis or anywhere else.
With respect to using a team approach as part of Fact-Finding 28, as new insights and ideas arise – and suggestions for possible innovative approaches are proposed – we may indeed want to find a way to involve relevant actors in assessing them.
Industry Leaders Needed
So, Fact Finding 28 has been launched. Information demands, document requests, interviews, and related activities have commenced. We have provided a dedicated e-mail address – FF28@FMC.gov — for those who are willing to share relevant, specific information and supporting documentation.
Some of our questions identify where and why detention and demurrage may be a recurring concern for the affected parties.
As the ocean carriers highlighted in their hearing testimony, situations that give rise to demurrage and detention are often a problem for all the parties involved – not just shippers or truckers. Carriers need their equipment back in productive use. Terminals want improved throughput velocity and should not be serving as unwilling de facto storage sites.
That being so, we expect there to be a common interest among carriers, marine terminals, shippers and drayage trucking companies in alleviating frustrations, delays and unnecessary administrative costs all around.
As the saying goes, however, “If it was easy to do, someone else would already have done it.” Nevertheless, with the active cooperation of industry leaders — from shippers, marine terminals, port authorities and the container lines — I believe that we can surmount today’s demurrage and detention challenges, and reap the economic benefits of a more efficient international ocean freight transportation system.
Most of our carriers and marine terminals took our information demands very seriously. Quite a few have called with great advice, which I appreciate and encourage. I am looking for industry leaders to step up and participate in our effort! Productive change in the maritime business has always happened when industry leaders stepped forward to support and influence change.
Final Rule on NSAs and NRAs
And finally, before I close and take questions, I want to briefly mention the Commission’s ongoing review and reform of its existing regulations.
Our most recent deregulatory effort, as many of you know, was to relieve the regulatory burdens on ocean transportation intermediaries, while simultaneously giving shippers more choices and flexibility.
As a result, the Commission will be implementing three key changes:
- allowing NVOCC Negotiated Rate Agreements to be amended at any time;
- allowing the inclusion of non-rate economic terms; and
- allow an NVOCC to provide for shipper’s acceptance of the Negotiated Rate
Agreements by booking a shipment.
With the Final Rule, the Commission will also make NVOCC Service Arrangements easier and more attractive to use by removing filing and essential terms requirements.
Our purpose is consistent with the goal of the Shipping Act — to maintain a competitive system in which rates and service between shippers and carriers are individually negotiated.
The changes will remove impediments on the ability of NVOCCs and their customers to negotiate a single business arrangement that serves the interests of both parties. It will provide industry with the flexibility and freedom to fully meet the business needs of their customers, not the government-as should be the case.
In addition, I hope that these changes will inspire other stakeholders to consider taking advantage of our regulatory review process. If that’s true, and depending on what is proposed and when the proposal reaches us, we may have further deregulatory news later this year.
I look forward to it!
But, for the time being, thank you for your kind attention! I appreciate it. And, to the extent that time allows, I’ll be happy to take questions.