Comments of U.S. Federal Maritime Commissioner Rebecca Dye at Global Liner Shipping Conference

April 2, 2009

It is a pleasure to be here in London to address this distinguished audience.
The Global Liner Shipping Conference provides a valuable opportunity to discuss the future of ocean transportation. I am pleased that Containerization International as well as the other sponsors and supporting organizations made this forum possible.
My remarks today reflect my own individual views and are not offered as the official position of the United States or the Federal Maritime Commission.
I would like to give you a brief summary of the main points in my remarks.
First, I believe the Ocean Shipping Reform Act of 1998, which the U.S. Congress passed 11 years ago, successfully and substantially deregulated ocean transportation in the U.S. trades;
Second, I do not believe that it is wise to consider significant changes to the U.S. ocean shipping regulatory regime under current economic circumstances;
Third, however, I believe the Federal Maritime Commission can use the liberalized exemption authority that Congress gave us under the Ocean Shipping Reform Act to consider certain regulatory relief;
Fourth, although I believe that U.S. and European Union liner regulations are moving in a similar direction, especially now that the E.U. has moved beyond the traditional conference system, differences likely will remain.
We have had different approaches to liner regulation for some time, and it makes sense that we will have differences in our approaches to deregulation as well; and
Finally, I will offer a few remarks about consortia – what we call global alliances and vessel sharing agreements. It’s a topic of interest in Europe and among Pacific Rim nations, and one that is likely to gain in importance.

The Ocean Shipping Reform Act of 1998

In 1984, Congress took the first step toward greater deregulation in the U.S. liner shipping trades. The Shipping Act of 1984 introduced service contracting and mandatory independent action for conferences.
Fourteen years later, the U.S. Congress passed the Ocean Shipping Reform Act of 1998 and further deregulated ocean shipping.
As some of you may know, I had the privilege of serving as Counsel to the House Transportation and Infrastructure Committee during the development of the Ocean Shipping Reform Act.
The Ocean Shipping Reform Act effectively deregulated ocean transportation by allowing shippers and ocean common carriers to work together on an unprecedented level by allowing ocean common carriers to enter into confidential contracts with one or more shippers.
In the U.S. trades, conferences with binding rate authority largely disappeared. Prior to the Reform Act taking effect there were 34 conferences in U.S. trades, as of last year there were only seven.
Of that seven, three are limited to discussion of government cargos, two are dormant, one is a two member conference that exists mainly to allow joint contracting, and one is a two member conference concerned with inland shipping services.
Under the Reform Act, carrier conferences gave way to rate discussion agreements, 27 of which are operating in U.S. trades. They neither regulate, nor have access to, the terms of their members’ service contracts.
In the U.S./Europe trades, the two previously existing conferences are gone; instead the Container Trade Statistics Agreement, a cooperative working agreement for the gathering and distribution of trade statistics, has been filed by the carriers.
There are also 48 vessel-sharing agreements in the U.S./E.U. trades. These efficiency-enhancing operational agreements, ranging in size from major global alliances to limited vessel sharing and slot-charter agreements, are the heart of joint carrier activity today.
As compared with traditional conferences of the sort that the E.U. banned last October, or that existed in U.S. trades before the Reform Act was enacted, these discussion agreements have rarely been the subject of shipper complaints in the U.S.
Shippers concerns about these agreements are generally reactions to trade conditions or proposals emanating from a specific agreement. For example, shippers reacted negatively to a proposal by the Transpacific Stabilization Agreement to discuss and develop a possible capacity coordination program.
Ultimately, following FMC decisions not to grant expedited review and to delay implementation of the proposed agreement, the agreement parties withdrew the proposal.
Today there are no traditional ocean conferences left in U.S. trades, and the vast majority of U.S. imports and exports move under confidential contracts between shippers and ocean common carriers.

Current Economic Conditions

Although I support moving forward on the deregulatory path, I think it is unwise to consider major, comprehensive reform under current economic conditions.
Under present market conditions, neither rate levels nor vessel space availability appears to be a problem for U.S. shippers.
I do not need to tell any of you that the maritime industry, like every other sector of the global economy, is facing the most significant economic challenges of at least a generation.
International trade volumes have shrunk dramatically and overcapacity in liner ocean shipping has grown to a point where it is estimated that over 400 container ships lay idle around the world.
The average age of the world’s container fleet is now only nine years old, the lowest among all vessel types. This makes it extremely difficult for vessel operators to gain additional efficiencies from vessel operations.
The Federal Maritime Commission is carefully monitoring the effects of the global recession on all sectors of the maritime industry, including shippers, intermediaries, ports and carriers, to allow us to accurately evaluate the circumstances surrounding any regulatory actions we may take.
Further, the Commission carefully considers the concerns of all affected parties in reaching regulatory decisions.
Some of the Commission’s recent decisions have been controversial with our regulated interests, particularly our decisions involving the ports of Los Angeles/Long Beach and the Transpacific Stabilization Agreement.
I can assure you that there has been no attempt by the Commission to favor the interests of one group over another, but rather to enforce the Shipping Act in a fair and evenhanded way.

FMC Exemption Authority

Besides introducing confidential contracting, and eliminating conference regulation of members’ service contracts, the Ocean Shipping Reform Act contained a third potentially significant deregulatory element, more liberal exemption authority.
By liberalizing the terms under which the Commission can, on its own initiative, exempt entities that are subject to the Shipping Act from particular regulatory requirements, Congress allowed the Commission to reduce unnecessary regulatory burdens. If the Commission identifies regulatory relief measures that would not substantially reduce competition or be detrimental to commerce, I believe that we should provide this relief.
In 2005, the Commission used this authority to exempt non-vessel ocean common carriers that offered the equivalent of service contracts, and filed them with the Commission like service contracts, from the Shipping Act’s tariff publication requirements.
I supported the creation of NVOCC service arrangements at the time. And given what appears to be the lack of practical usefulness of the current tariff system, I believe it is time to revisit the traditional notion of tariff filing and enforcement.
The Commission can use the Reform Act’s more liberal exemption authority to review, and if warranted, exempt NVOCCs and vessel operators alike from any regulatory burdens that are not necessary for the protection of the shipping public.

Differences Harmonized by the Federal Maritime Commission

If the United States Congress begins consideration of statutory reform of the Shipping Act, the Federal Maritime Commission stands ready to provide assistance.
However the E.U. ultimately decides to treat the international liner industry, and in the case of consortia that is still an open question, I expect the U.S. will continue to rely on certain aspects of our current ocean regulatory system for several reasons.
One reason involves U.S. antitrust law. The potential chilling effect of exposure to U.S. antitrust law is considerably greater than to E.U. competition law.
There is the threat of treble damages for violation and the fact that private parties may also bring antitrust actions.
U.S. antitrust laws are also criminal statutes. Executives of companies found guilty of violating these laws can face substantial jail terms and fines.
Many shipping executives may shun even potentially legal partnering activities due to severity of U.S. antitrust law.
In addition, the Shipping Act is broader and more complex than the E.U.’s conference exemption.
The U.S. ocean shipping regulatory system is comprehensive, and includes not only antitrust immunity for vessel operators, but also for marine terminals, and certain port authorities. Antitrust immunity is offset in the Shipping Act by the “prohibited acts” contained in section 10 of the Act.
Finally, the Federal Maritime Commission has the authority to seek injunctive relief against agreements that are substantially anticompetitive because they either unreasonably increase prices or decrease service.
Terminal operators, port authorities, maritime labor, freight forwarders, cargo consolidators, not just ocean carriers and shipper organizations, are affected by comprehensive shipping reform efforts. The impact of legislative change, and the potential for unintended consequences, is great.
What the E.U. was addressing, when it undertook its review of the conference bloc exemption, was an out-dated, unreformed system of carrier self-regulation. It’s basically the same system that the U.S. began moving away from 25 years ago, and largely eliminated 11 years ago.
The Ocean Shipping Reform Act successfully altered the U.S. system of ocean shipping regulation. I support further deregulation, when the economic climate stabilizes, that is comprehensive and includes all affected parties.
Regardless of the differences between our two systems, the Federal Maritime Commission has the flexibility and the responsibility to harmonize the two systems in accord with international shipping practices.

The Consortia Review

I will close here with a brief word about consortia, or what the Asia-Pacific Economic Cooperation (APEC) organization’s Transportation Working Group calls “non-ratemaking agreements.”
While I have discussed the United State’s differences with E.U. on ocean regulation, I still believe international comity must be a key consideration when drafting liner regulations. A multilateral perspective is needed.
Late last year, APEC’s Transport Working Group released a consultant’s report on non-ratemaking agreements. The authors concluded that such agreements have the potential to provide important operating efficiencies and improved quality of service to customers.
They also proposed several guidelines for the regulation of those agreements, including that “APEC member economies do not subject non-ratemaking agreements to a market share test based on pre-defined threshold levels.”
I understand that that report, and the proposed guidelines, will be the subject of further discussion in Singapore this summer.
My hope is that, as the E.U. and APEC proceed, they share with each other their research findings, economic concerns and policy perspectives. A multilateral perspective really is crucial.
With the end of European antitrust immunity, the Commission staff plans to assess what competitive impacts the change will have on all U.S. liner trades.
I want to thank you all for your kind attention to my remarks. I would also like to thank Containerization International for the opportunity to be here today.