Since its founding on August 12, 1961, the Federal Maritime Commission (FMC) has worked to ensure that neither the activities of liner shipping groups nor foreign government laws or regulations impose unfair costs on American exporters, or on American consumers of imported goods.
The FMC was officially established in 1961 in the early months of the Kennedy Administration, but its genesis can be traced back to the turmoil of World War I.
Genesis of the FMC’s Role in Maritime Trade
America’s economic lifelines since its founding were the sea lanes of export from and imports to our shores, largely accomplished using vessel fleets of other nations. To address this situation that had grown serious, Congress enacted the organic act of all our maritime commercial statutes – the Shipping Act of 1916.
In 1914, the war in Europe created a tremendous crisis in ocean shipping as so many vessels were being used in the war effort, while demand for U.S. exports and vessel space grew quickly. Based on war-generated concern, and information developed in an investigation into the methods and practices of shipping lines (The Alexander Committee Investigation, 1912-1914), Congress determined that the fear that collective liner pricing organizations called conferences might gain sufficient market power and the ability to unreasonably raise rates or reduce services, had to be weighed against the need for a stable and reliable source of international ocean shipping. A new maritime watchdog agency, Congress decided, could adequately protect American exporters and importers from any potential abuse of the limited antitrust immunity Congress would grant conferences under new shipping legislation. The agency they created, under the Shipping Act of 1916, was the United States Shipping Board.
Early Versions of the FMC
The United States Shipping Board and its immediate successor organization, the United States Maritime Commission, combined the roles of regulatory policeman and promoter of what was to become the U.S. merchant marine, an integral part of the Allied victory in World War II.
In 1920, Congress passed the Merchant Marine Act, which charged the United States Shipping Board with monitoring and responding to foreign laws, regulations, or practices that create conditions unfavorable to shipping in the foreign trade.
In 1933, President Franklin D. Roosevelt signed an executive order that transferred the United States Shipping Board’s functions to the U.S. Shipping Board Bureau in the Department of Commerce. In 1936, Congress separated the Board from the Commerce Department, creating the United States Maritime Commission, and President Roosevelt named Joseph P. Kennedy to serve as its first Chairman. In 1950, the regulatory programs of the United States Maritime Commission were transferred to the Federal Maritime Board at the Department of Commerce, where they resided until the FMC’s creation in 1961.
The Founding of the FMC
In 1961, the Kennedy Administration and Congress decided that the tasks of regulating the activities of international liner shipping companies and promoting a healthy U.S. merchant marine should be pursued by separate agencies. By executive order (called Reorganization Plan No. 7) signed by President John F. Kennedy, two agencies were established: the Federal Maritime Commission and the Maritime Administration (MARAD). As an independent agency, the FMC was charged with regulating U.S. ocean commerce, and MARAD was formed to promote America’s merchant marine and oversee an emergency reserve of cargo ships for use in times of conflict.
The Commission’s creation in 1961 also coincided with the early days of the containerization revolution – the spread of the use of intermodal shipping containers that could be carried on ships, rail, and trucks – that greatly increased the efficiency and reliability of international trade in goods. The rapid adoption of the intermodal container system, and the accompanying drop in transportation costs, provided a powerful boost to global trade. It also meant that an industry that had long been relatively stable suddenly became much more dynamic. This resulted in a challenge to the fledgling FMC to take the lead in updating the nation’s transportation regulations to remove obstacles to the intermodal services that became so critical to our nation’s commerce.
The Shipping Act of 1984
By the early 1980s, both shippers and carriers recognized that the pre-container Shipping Act of 1916 needed modernization. Passage of the Shipping Act of 1984 (1984 Act), on March 20th of that year, introduced regulatory innovations that have had a major impact on liner shipping and the FMC’s responsibilities. For example, the 1984 Act introduced the concept of contract carriage under service contracts filed with the FMC. The pricing of liner services via negotiated contracts, rather than exclusively by public tariffs, was a change that had profound effects on the liner industry. The 1984 Act also clarified the authority of conference members to offer intermodal pricing (the integration of ocean carriage with truck or rail service) – an important advance in transportation service.
The FMC’s authority to review and approve agreements was also overhauled. Under the Shipping Act of 1916, ocean common carriers and other entities wishing to enter into cooperative agreements were required to justify the terms of those agreements to the FMC. The Commission’s review and approval process could be time-consuming, particularly when an agreement was protested by outside parties. Under the 1984 Act, cooperative agreements automatically become effective after 45 days, unless the Commission takes specific actions to block the effective date of the agreement. As a result of that change, the Commission has heightened its emphasis on monitoring competitive conditions and carrier activity to ensure that carrier agreements remain in compliance with the letter and spirit of the 1984 Act.
The Ocean Shipping Reform Act of 1998
The 1984 Act included a requirement that the FMC conduct a 5-year study on how the Act’s reforms actually worked out in practice. The Section 18 Study, as it was known, provided the foundation for a subsequent review of U.S. liner shipping policy also mandated in the 1984 Act. That review was conducted between April 1991 and April 1992 by a high profile advisory panel – The Advisory Commission on Conferences in Ocean Shipping (ACCOS). The ACCOS Report’s research, findings and recommendations, while not initially acted on by Congress, provided the basis for a second round of deregulatory liner legislation – The Ocean Shipping Reform Act of 1998 (OSRA).
OSRA was signed into law by President Bill Clinton on October 14, 1998, and went into effect on May 1, 1999. It provides the basis of U.S. liner shipping policy today. The primary objectives of OSRA were to provide the ocean shipping industry with more flexibility in conducting daily business, remove certain regulatory restrictions, and promote U.S. international liner trade by supporting greater reliance on the marketplace. Among its most notable changes were:
- ending the authority for liner conferences to regulate their members’ service contracts
- encouraging confidentiality of rates in contracts
- giving the Commission enhanced authority to provide exemptions from existing statutory provisions
- strengthening the FMC’s authority to address restrictive practices by foreign governments and state-controlled carriers
The FMC Today
Over the past five decades, international ocean transportation has changed dramatically. The FMC, an independent expert agency charged with regulating liner shipping in U.S. trades, has adapted to and evolved with those changes. From its inception, the FMC has worked to further its mission to foster a fair, efficient, and reliable international ocean transportation system for the benefit of U.S. exporters, importers, and the U.S. consumer. While the specifics of U.S. maritime policy and legislation have changed markedly during the last few decades, the FMC’s goal of protecting American exporters and consumers remains the cornerstone of today’s regulatory efforts.