Address at the World Trade Center of New Orleans

My thanks to the World Trade Center of New Orleans for including the Federal Maritime Commission in its luncheon speaker series this spring. This definitely is a time of major change for the ocean shipping industry, and we appreciate the opportunity to provide you with what hopefully will be useful information.

I’d like to acknowledge Gene Schreiber and the entire staff here at the World Trade Center. They clearly put a great deal of effort into developing meaningful events on timely topics for you in the business of world trade. They are a professional and top-notch group, and the City of New Orleans, your port, and all local businesses truly benefit from their efforts to promote trade and commerce here in the great state of Louisiana. And a special thanks, too, goes out to the many businesses and organizations that joined in sponsoring today’s luncheon. Your commitment to the local economy and this wonderful city is just great.

Gene has asked me to speak today about the new shipping statute, the Ocean Shipping Reform Act of 1998, or OSRA, and what it means to your businesses here in Louisiana. I thought I also would take advantage of this opportunity to tell you all a little bit about the FMC and several of our more important statutory missions. So, I’ll begin with that, then outline certain of OSRA’s more noteworthy provisions, and finish by discussing what I believe will be some of the significant effects and impacts we should expect from OSRA.

First, the Federal Maritime Commission. Let me clarify for the record that we have nothing to do with marine mammals or ocean fisheries – different U.S. agencies handle that. We also have no responsibility for boater safety – contact the U.S. Coast Guard on such matters. And, we do not determine who qualifies to carry government-reserved cargo, nor do we issue operating or construction subsidies to U.S.-flag carriers – our cousins at the U.S. Maritime Administration do that.

The FMC is an international trade and transportation agency that basically is charged with oversight of the operations and activities of those engaged in U.S. ocean commerce. We were created as an independent regulatory agency in 1961, when Congress saw the wisdom of separating our regulatory functions from MarAd’s responsibility to subsidize and promote the U.S.-flag fleet.

We are a very small agency by Washington’s standards – we have a staff of only 140 people, and our annual budget is just over $14 million. But we oversee an industry that transported over 14 million containerloads of imports and exports in 1997, with a value of over $414 billion.

Clearly our most significant responsibility is to protect shippers, carriers, and intermediaries from the restrictive practices of foreign governments or entities. This statutory mandate requires the Commission to initiate appropriate responsive action when a U.S. interest or U.S. commerce is being harmed by unjust foreign actions. Certain of the barriers to trade that the Commission addresses under this authority include restrictions on conducting business or operating offices in a foreign country, impediments to entering a certain trade or market, and unfair treatment for U.S. entities compared with a foreign government’s national companies.

We also are responsible for investigating unduly discriminatory or preferential actions, or other unjust or unreasonable practices that improperly disrupt ocean commerce or create inequitable trading conditions. A specific section of the shipping act contains a lengthy list of prohibited acts which we must guard against.

The Commission grants ocean carriers and marine terminal operators immunity from the antitrust laws for specific concerted activities. These parties must submit their agreements for the agency’s review, and we then monitor activities pursuant to these arrangements. We have the unique authority to seek a court injunction against any agreement whose anticompetitive effects convince us will unreasonably increase costs or reduce service.

And the Commission maintains an ongoing monitoring program that tracks industry developments and identifies relevant trends and practices. This program provides integral information for our compliance and enforcement efforts, while enabling the Commission to compile data for economic and commercial analyses and answer inquiries we receive from Congress and the public.

In addition to the foregoing, the Commission also regulates the rates and regulations of carriers who are subsidized or owned by a foreign government, entities known as controlled carriers; certifies passenger vessel operators who demonstrate adequate financial responsibility to pay judgments for nonperformance or personal injury; licenses and bonds ocean transportation intermediaries; provides an inexpensive forum for the resolution of formal disputes; and serves as an ombudsman for all sectors of the ocean transportation industry.

So you can see that we have quite an array of responsibilities for such a small agency. We would like to believe that we provide the taxpayer with a real bang for its buck, and we are proud of our performance and accomplishments over the years.

Enough about us. What about that new statute that just became effective on May 1^st. Well, as most of you probably know, OSRA is the culmination of a nearly four-year process to update and revise the Shipping Act of 1984. It is a compromise that reflects many competing and conflicting interests. Clearly, some are more pleased with OSRA than others, and no one is claiming total victory. But, many divergent interests have been molded into a law that can enhance U.S. international trade and strengthen those interests involved in that trade.

From a broad perspective, OSRA intends to encourage the establishment of effective business relationships and ease certain regulatory burdens so as to facilitate U.S. ocean commerce. It is a response to the plea of those in the industry who wanted competition and the marketplace to play a larger role in the fate of U.S. ocean shipping. The revised statute certainly lays the groundwork for achieving those objectives.

Initially, OSRA totally revamps the manner in which carriers and marine terminal operators will provide information to the public about the rates, charges, and practices that apply to their services. The publications containing this information, known as tariffs, formerly were required to be filed with the Federal Maritime Commission, under specific form and manner requirements, in a centralized electronic system. You may be familiar with the FMC’s ATFI system, and perhaps some of you even accessed it in the past. That all has been changed.

Now, carriers, and by that I mean steamship lines as well as consolidators known as non-vessel operators, must publish this information in their own automated systems. They are free to publish simplified publications under very general regulations established by the FMC. The statute only specifies that these systems be accessible and contain accurate information. The Commission has the responsibility to review carrier systems to ensure that such accessibility and accuracy exists. We envision most of these systems being located on the Internet, and carriers are free to assess charges for access to their systems.

Without a doubt though, the most significant changes wrought by OSRA involve service contracting. Service contracts in the maritime industry essentially are special deals negotiated between a carrier and a shipper that deviate from a carrier’s published service and provide for special rates and service commitments. Prior to OSRA, a carrier could negotiate a service contract with a shipper, or a group of carriers could do so. Contracts were filed confidentially with the Commission, but all of their essential terms were published in our ATFI system. Once a carrier finalized a contract, it was required to offer the same deal to other similarly situated shippers who so requested.

Well, OSRA provides for some wholesale changes. Contracts still must be filed confidentially with the Commission, but only a limited number of essential terms are public information. Most importantly, the applicable rates are permitted to be kept confidential. OSRA permits multiple party contracting, by that I mean more than one carrier can get together and negotiate a contract with a group of shippers. That requirement I mentioned about offering a contract to a similarly situated shipper, which was known as "me too" rights, has been eliminated. Contracts now can be negotiated for a portion of a shipper’s cargo, as opposed to a fixed amount; contracts covering global operations are permissible; and carriers operating under an agreement are prohibited from requiring their members from disclosing details of contract negotiations or the actual terms of a completed contract. However, and this is a significant qualification, agreements are permitted to adopt voluntary guidelines that can apply on a non-binding basis to members’ service contracting. And, carriers are not precluded in most respects from discriminating or giving preferential treatment in their contracts.

I apologize for that somewhat lengthy listing, but I thought it would be important to mention the various liberalizing changes surrounding service contracting. This definitely will open up a host of opportunities and freedoms for those in the industry, but that’s one of the impacts I intend to talk about in just a bit.

OSRA has combined the middlemen known as non-vessel operators and freight forwarders under one category dubbed "ocean transportation intermediary." The distinct rights and responsibilities of each have been preserved. But, all intermediaries operating in the U.S. now must be licensed by the FMC. Formerly, only U.S. freight forwarders were licensed. We have defined "in the U.S." to mean "resident in, or incorporated or established under the laws of the U.S." All intermediaries, regardless of where they are based, continue to face a bonding requirement from the FMC. We increased the bond amounts when finalizing our rules to implement OSRA so as to more appropriately reflect current costs and attendant risks. OSRA also modified the approach by which claims can be filed against an intermediary’s bond, and set forth other requirements applicable to dealings with sureties.

The antitrust immunity maintained for carrier activities also continues for ports and marine terminal operators. But these entities are no longer required to publish tariffs. Instead, they have the option of publishing a schedule of their rates and services. If they do so though, those schedules shall be enforceable as an implied contract, and they must adhere to form and manner requirements established by the FMC. An interesting provision of the Act, which obviously can be attributed to the success of port lobbying efforts, is that ports are the only entities protected against unjust discrimination or preference by individual carriers in their service contracting.

OSRA also reflects a sense of Congress for heightened oversight of those controlled carriers I spoke about earlier. The new Act eliminates a loophole that enabled a controlled carrier to escape otherwise applicable requirements by flagging out its vessels. OSRA also eliminates three instances where controlled carriers were excepted from statutory requirements, the most noteworthy of which results in their now facing such requirements in bilateral trade with the U.S. And the Act also strengthens the Commission’s authority to deal with the restrictive practices of foreign governments.

I also should note that groups of carriers operating under an agreement are now free to negotiate with inland carriers on rates for inland services. OSRA also specifically stipulates that shippers no longer are required to repay freight undercharges that may occur. And, the criteria to obtain an exemption from statutory requirements have been relaxed by OSRA.

OSRA contains several other specific provisions which bear varying degrees of relevance or application. Time doesn’t permit me to mention them all. But one of the handouts that you are being provided today clearly reflects for your reference all of the changes contained in OSRA.

So just how will OSRA affect you on a daily basis and in the long term? Before moving to that discussion, I think it is very important to consider several circumstances that already are at play in the ocean shipping industry. The industry is in the midst of a very dynamic period, and OSRA cannot be reviewed in isolation.

For example, much like other industries, consolidation and concentration, often involving mergers, abounds in ocean shipping. If not by outright mergers, many have found it desirable to form alliances or other types of joint ventures. Ocean carriers, intermediaries, exporters and importers, and even some port interests are finding it beneficial to combine in one form or another to cut costs and increase chances for profitability.

Also, all of our major trades presently are facing their own unique set of problems or concerns. The financial crisis in the Asian community has created a tremendous trade imbalance that poses a host of issues affecting ocean commerce in the transpacific. Rates in the North Atlantic continue to fall, yet more and more carriers enter that trade. The North/South trades with South and Latin America, also are affected by economic woes and trade imbalances.

And, globalization certainly has hit ocean transportation. All sectors of the industry are thinking globally. In their efforts to maintain an edge or plan for long-term growth and development, organizations must, out of necessity, establish effective global relationships and global operations. The economics and technology of today’s world pretty much demand major corporations to develop their strategic plans and daily operations from a global perspective.

So in discussing the effects of OSRA, we cannot ignore these factors or trends, each of which, in its own right, has a major impact on commercial operations. That’s why I believe it is the consensus of the industry that it will be some time, perhaps as long as two years, before we can reasonably assess the effects of this new statute.

So just how will OSRA change the landscape of ocean shipping?

Well, it’s clear that this new law has changed the industry, granting new freedoms and encouraging technological and operational innovations. You simply cannot succeed under those circumstances without successful planning. I think companies will need to alter their strategic outlook and their corporate visions. Short-term tactics have to be identified as to what trades to enter or leave, who to partner with and how, and where to focus marketing efforts. Also to be considered are means of controlling costs, increasing efficiencies, and further developing services. OSRA only heightens the importance of spending the time on solid, effective planning. Those who do so will have a leg up over those who devote only marginally more time to their planning exercises.

When you do your planning or perform market analyses, you can expect that information will not be as readily available. As I mentioned, information about carrier rates and services will no longer be available from the FMC – it remains to be seen how accessible carriers’ systems are and how easy they will be to use. Also, far more limited information will be public about service contracts, and I trust that there will be less openness among all in the industry as OSRA unfolds. The result of all this is that a more aggressive approach to obtaining information will be necessary. Companies will simply need to work harder and put more effort into obtaining the information that is pertinent to their future planning and daily operations. The value of information cannot be overestimated, and I think it will be incumbent upon all entities operating in U.S. ocean commerce to make up their mind that they will expend the effort necessary to obtain that which they need.

OSRA also should put the focus for international trade where it belongs, on effective partnerships and long-term relationships, along with the flexibility and accountability attendant thereto. It encourages the industry to act more as partners than adversaries. Parties will need to identify means of tailoring deals to their specific needs and mutual benefits. For too long many in ocean shipping, knowingly or not, have operated with the myopic view of "what advantage can I gain right now." That approach must be replaced with thinking that is more strategic and long term, and which considers a host of logistics questions that can create mutual efficiencies and benefits. Whether it be via more structured service contracts, relationships with new clients or even competitors, or new forms of creative marketing, those in the industry should be striving to be both more competitive and more cooperative as they develop their business plans for the next century.

As to service contracting, I would offer some suggestions. First, ensure that any confidentiality requirements, both during negotiations and after culmination of a contract, are clearly stated and are fully acceptable to you. Remember, each side in a contract is going to expect mutuality in that regard. Second, think beyond bottom-line rates and basic service requirements. OSRA encourages flexibility and creativity in contracting, and the expectation is that contracts will help to establish deals and relationships that meet a host of logistic and operational needs. So, take full advantage of the one-on-one, confidential contracting permitted by OSRA. And third, think long term, and don’t be so concerned with obtaining all the benefits you perceive as possible right away. All parties are still feeling their way through the OSRA transition. So strike a reasonable deal now, and then work with your carrier or shipper counterpart towards even more meaningful contracts down the road. I fear that those who approach the immediate future with short-sighted goals may be the losers once more experience is gained with this new statute.

Actually, I believe the expectations raised by OSRA have convinced many that they need immediately to achieve some type of special deal. After all, OSRA has been touted as the means by which more effective relationships can be established. With OSRA’s relaxation of various requirements, and with the elimination of certain prohibitions and other restrictions, many will be expecting special treatment or preferential arrangements beyond what others may be willing to concede to. All sectors of the industry must be prepared to deal with this phenomenon. Again, the more you plan and anticipate, the better prepared you will be to address these situations and make the right decisions for your company or organization.

In addition to becoming more attuned to the needs of others in the industry, OSRA forces companies and organizations to expend more effort on controlling costs and increasing efficiency. Achieving success in the future will require a concerted effort to maximize efficiencies down the road, and not be so influenced by doing whatever it takes to increase short-term profits. That gets back to the forward thinking and meaningful partnerships I just mentioned. Efficiencies can be achieved both with creative corporate thinking and by assessing just how to interact with entities or organizations from all sectors of the industry.

I spoke about a moment ago about the increasing importance of globalization. Similar to the trend toward mergers, alliances, and joint ventures, global operations are here to stay. I can recall the days when multinational companies were not all that common. Now, all major corporations are entrenched on every continent, and most companies are thinking globally. Now, don’t get me wrong. Those of you who operate in a niche market or offer a specialized service that is tailored to certain clients or businesses may be well positioned for continued success. But anyone looking for future growth and development has to be thinking beyond their current markets or present sphere of operations. Global expansion, with the appropriate amount of analysis and planning, just could be the key to success.

I think all in the industry should become accustomed to the recent shift we have witnessed away from liner conferences and their binding obligations, towards discussion agreements which provide members with a more flexible approach to cooperation on pricing policies and other operational matters. Market pressures, in large part, have driven this shift to date. I think OSRA will further this shift. Discussion agreements definitely provide carriers with a forum for meaningful discussions and the ability to effectuate common approaches in a more effective manner. So while carriers become accustomed to operating under this type of arrangement, all other sectors of the industry would do well to develop the approaches and rationales that can best deal with them.

Post OSRA, you can also look for my agency, the FMC, to be in a strengthened position as it addresses its international trade responsibilities. We understand that we will be operating under a changed regulatory framework and that we will need to streamline ourselves in order to effectively accomplish our statutory mandates. But our regulatory and oversight roles will be just as essential, and we must be prepared to appropriately administer them. The FMC stands prepared to implement this new legislation in line with the policy goals and objectives that have been established.

Given the foregoing, all in the industry must be prepared to deal with the new requirements of OSRA and the Commission’s implementing regulations. There are different statutory requirements, and our rules have drastically changed. So you need to do your homework and to do what’s necessary to have your company or organization in compliance with whatever the law or new rules provide. We at the Commission have gone on record that we will be understanding of those who make an honest effort to be in compliance, and who move quickly to correct any instances when they are not. But the effort has to be there. I encourage all of you if you have any questions about the new law or are unsure of new regulatory requirements, to contact Al Kellogg, our area representative here in New Orleans, or our offices in Washington. We encourage that and we will actively work with you to obtain statutory and regulatory compliance.

In conclusion, Congress and the President believed that competition and efficiency would be enhanced if the conditions that ordinarily influenced a market become more prominent. I think this is evident from the new policy objective added to the shipping act by OSRA, which states, and I quote, "to promote the growth and development of U.S. exports through competitive and efficient ocean transportation and by placing a greater reliance on the marketplace." OSRA certainly moves the industry in that direction. It provides far greater flexibility for all entities to tailor their services more closely to situations that may be unique to their company’s overall thinking. Regulatory requirements and burdens have been lessened, and all participants in the industry are provided more choice in how they will conduct their businesses. All in the industry face a greater sense of responsibility to mold their operations so as to more effectively meet the needs of the clients they have targeted as most important to their success.