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Testimony of Chairman Maffei before Congress: “Review of Fiscal Year 2022 Budget for the Coast Guard and the Maritime Transportation Programs”

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Testimony of
Chairman Daniel B. Maffei
Federal Maritime Commission

Before the
Committee on Transportation and Infrastructure
Subcommittee on Coast Guard and Maritime Transportation
U.S. House of Representatives

Good morning Chairman Carbajal, Chairman DeFazio, Ranking Member Gibbs, and Members of the Subcommittee. I am honored to appear today in support of the Federal Maritime Commission’s budget request for Fiscal Year 2022.

The FMC is a relatively small agency, with an annual budget of approximately 30-million-dollars, that is charged with ensuring a competitive and reliable international ocean transportation system that supports the U.S. economy and protects the public from unfair and deceptive practices.

At no time in decades has that mission been as important as it is today. The U.S. has brought in more ocean freight in less time than ever before in our nation’s history. In fact, the U.S. imported more containers in the first five months of 2021 than in any previous entire year. Exports are also up substantially – including of agricultural products – and that increase only looks modest when compared with the explosion of imports.

The American demand for consumer goods, which started largely due to online shopping during COVID, continues to increase. This spike in demand for imports has pushed cargo rates to record highs – even higher now than they were when I last appeared before you in June. For example, the July spot rate to move a 40’ container from Shanghai to Los Angeles is approaching $10,000 and is more than five times higher than July of 2019 – pre-COVID. Depending on the specific circumstances, the actual rate to book a transpacific box could cost much more even than that. And this is without including congestion surcharges that can add thousands more dollars to shippers’ costs.

And rates just tell part of the story – there is not enough space on ships for all the shippers that want space and so some are having to wait for a future sailing. Once on a ship, congestion-related delays of days or even weeks are commonplace.

All of this notwithstanding that the world’s container ship fleet remains effectively fully deployed and ocean carriers have accelerated their ordering of new ships, containers, and other equipment.

Despite some gains in capacity in our ports and maximization of the global container fleet, the overall capacity of the system is still limited by truck, rail, and warehouse space shortages.

This situation is creating real hardship for some shippers such as:

  1. agricultural exporters that deal in relatively low margin commodities;
  2. U.S. manufactures that depend on specific inputs from abroad; and
  3. small to medium-sized importers and ocean transport intermediaries.

It is these categories of shippers that cannot afford the rates or lack sufficient market-power for the carriers to value their continued business as much as they do a large nationally known shipper.

While the Shipping Act gives the FMC no authority to place a cap on rates, set quotas for export carriage, or require carriers offer the same rates to smaller shippers as bigger shippers, we do have authority to take on a major source of headaches for shippers and truckers – unreasonable detention and demurrage fees.

In Spring of 2020, the FMC unanimously voted for an interpretive rule that identified when these fees would be likely unreasonable and in violation of the Shipping Act. Late last year, the FMC launched an investigation of detention and demurrage, container return, and export carriage policies at our nation’s two largest port complexes. The Commissioner in charge of that fact finding – Rebecca Dye – will present her interim recommendations at the FMC meeting next week.

One recommendation coming out of the investigation is for the FMC to conduct “audits” of the major carriers to determine exactly what they are doing to comply with the detention and demurrage rule. Such an audit could inform additional rulemaking or enforcement and, given the urgency of the situation, this week I used my authority as Chair to designate our managing director to lead the audits and start as soon as possible.

Two other areas in urgent need of shoring up given the current situation are FMC’s Bureau of Enforcement (BoE) and Office of Consumer Affairs and Dispute Resolution Services (CADRS). As Chairman, I have authorized additional hiring for these offices which is in progress, including a specific advocate for exports.

While we are working hard to maximize this year’s resources, we respectfully request $30.8 million to fund FMC operations for the coming year.

This amount supports an agency workforce of 128 FTE employees – many of whom must have advanced degrees and/or specialized expertise to facilitate implementation of all the provisions of the Shipping Act. That is why the bulk of our budget goes towards salaries and benefits. Lease & Security represents the next largest part of the Commission’s budget. The third largest part is technology which allows our workforce to do their jobs, both at the office and in telework.

Again, I am grateful for this opportunity to appear before you today and welcome any questions you might have about our budget request or about the ocean transportation system.