moving companies and three of the individuals named in the
Commission’s Order from operating as NVOCCs in violation of the
Shipping Act by accepting cargo for transportation, and for advertising for
or soliciting cargo while operating as an OTI without a valid license, bond
or other security on file with the Commission. In addition to each of the
companies and individuals named in the injunction, the named companies’
and individuals’ agents, servants, employees, and attorneys, and those in
active concert or participation, are also enjoined.

The Court found that the Commission met the requirements for
issuance of the injunction by showing a substantial likelihood of success
on the merits, that irreparable injury would be suffered unless the
injunction were issued, the threatened injury to the moving party (the
Commission) outweighed whatever damage the injunction might cause
those enjoined, and that the injunction would not be adverse to the public
interest.

The Court injunction and the Commission’s formal investigation
are based on more than 250 consumer complaints. Those complaints
included: (1) failure to deliver cargo and refusal to return the pre-paid
ocean freight; (2) losing the shipper’s cargo; (3) charging the shipper for
marine insurance which was never obtained; (4) misleading the shipper as
to the whereabouts of the cargo; (5) after initially quoting a rate to the
shipper, withholding the cargo until a subsequent higher rate was paid by
the shipper; and, (6) the shipper having to pay another carrier or
warehouse to obtain release of cargo after having already paid a
respondent for that transportation or warehousing. The injunction will
remain in effect until ten days after the Commission issues an order
disposing of the issues under investigation.

3. Legislative Activities

The General Counsel represents the Commission’s interests in all
matters before Congress. This includes preparing testimony for
Commission officials, responding to Congressional requests for assistance
and information, commenting on proposed legislation, proposing
legislation, and responding to OMB requests regarding proposed bills and
testimony.

51


ant

DEVELOPMENTS IN MAJOR
U.S. FOREIGN TRADES

A. NORTH EUROPE

In fiscal year 2006, U.S. export cargo to North Europe grew by
only 2.9 percent, compared to 8.1 percent in fiscal year 2005. Liner
import cargo from North Europe grew by 6.8 percent, up from 4.7 percent
in fiscal year 2005. The imbalance in cargo volume essentially remained
unchanged. For every one TEU that moved outbound from the U.S., 1.4
TEUs moved inbound from North Europe. On average for the fiscal year,
the quarterly utilization of vessel capacity was 66.3 percent outbound and
86.8 percent inbound.

Numerous carriers serving the trade restructured their services
during the fiscal year, which in turn affected their operational agreements
and respective partnerships. These changes were largely brought about by
the acquisitions in the preceding fiscal year of P&O Nedlloyd and CP
Ships by Maersk Line and Hapag-Lloyd, respectively. For example, in
April 2006, P&O Nedlloyd and Contship Containerlines (formerly owned
by CP Ships) formally terminated their round-the-world service that
included the trade between the U.S. Atlantic Coast and North Europe. The
service operated through a series of five vessel sharing agreements in
partnership with CMA-CGM, S.A. (“CMA-CGM”) Compagnie Maritime
Marfret (“Marfret”), Hamburg-Siid, and Hapag-Lloyd. In its place,
Maersk Line and Hamburg-Siid initiated two separate pendulum services
operating between the U.S. Atlantic Coast, North Europe, and
Australia/Oceania, while the remaining carriers jointly formed a similar
pendulum service under the CMA-CGM/HLAG/Marfret Vessel Sharing
Agreement.

17




During fiscal year 2006, the OIG issued the following audit reports

and evaluations:

A05-03

A05-03A

A05-04

A05-05

A06-01

A06-02

OR06-01

A06-04

Audit of FY 2005 Financial Statements

FY 2005 Management Letter to the FY 2005
Financial Statements

Review of Agency Implementation of the Federal
Information Security Management Act for FY
2005

IG Assessment of Management Challenges Facing
the Federal Maritime Commission

Data Accuracy of the Bureau of Enforcement’s
Tracking Systems

Audit of Payroll Processing Transactions

Operational Review: Control of Privacy Data on
Leave Request Forms

Review of Agency Implementation of the Federal
Information Security Management Act for FY
2006

In addition to these completed audits, the OIG initiated its annual
financial statement audit and opened three investigations into alleged
misconduct, closing two by the end of the fiscal year.

OIG staff was also involved in other OIG mission-related activities
during the period. For example, the IG co-lead a symposium on IG
information security reviews under the Federal Information Security
Management Act of 2002 (“FISMA”) attended by representatives of the
Chief Information Officers (“CIO”) Council and small agency IGs. The
purpose of this symposium was to assist both groups to perform more
meaningful and helpful evaluations of their respective information security
programs. In addition, the OIG redesigned its web page to make it more

60


The OIT Director serves as the Commission’s IT Officer,
Information Resources and Data Telecommunications Manager, and Help
Desk and Database Administration Manager, and oversees the IT security
program. OIT plans, coordinates, and facilitates the use of automated
information systems.

(b)

Achievements

During fiscal year 2006, OIT:

Implemented the new SERVCON system; initiated
development of an automated filing system for Form
FMC-18; merged a legacy system with the new BOE
index card system; and completed the implementation
of the upgraded CADRS database.

Improved the data and wireless telecommunications
services and support, and implemented wireless
network access,

Completed the requirements analysis and inventory to
meet the internet Protocol version 6 (“IPv6")
government-wide initiative.

Initiated and administered contracts to provide IT
support and other services to further the Commission’s
mission.

Continued to lead the Asset Management Committee,
the Technical Users Group, and the IT Change Control
Process.

Conducted an analysis of the agency’s
telecommunications services and began the transition to

assume management of those services.

Further developed the disaster recovery/continuity of
operations plans for the agency.

71


I

THE YEAR IN REVIEW

Growth in the U.S. liner trades favored imports in fiscal year 2006.
China accounted for 37 percent of the total U.S. container trade, while
over half of it was concentrated in Northeast Asia. The fiscal year also
marked the introduction of the world’s largest containership, Emma
Maersk, reputed to hold up to 13,500 TEUs (20-foot equivalent units).
Overall, concentration in the liner shipping industry remained relatively
stable during fiscal year 2006 after the large scale acquisitions of the
preceding period.

The Commission continued to monitor the international liner trade,
while advancing initiatives to increase public outreach and to simplify
compliance with Commission regulations. For instance, the Commission
continued to update and improve access to information through its
website. New tools were added which provided for uploading large
documents, allowing electronic access to Commission reports that were
formerly only available in hard copy. In terms of simplifying compliance,
the Commission initiated a review of requirements to support electronic
filing of OTI bond information and achieved significant progress in the
development of an automated Form FMC-18, Application for an Ocean
Transportation Intermediary License.

To emphasize the role of the alternative dispute resolution process
as a way to resolve shipping disputes, the Commission provided
ombudsman services to the shipping public by assisting consumers and
other complainants, and provided mediation services during the fiscal
year.

This Annual Report highlights areas of particular interest and
provides an office-by-office synopsis of activities and accomplishments
during the past fiscal year.


1. Office of Financial Management

(a)

General Office Responsibilities

The Office of Financial Management (“OFM”) administers the
Commission’s financial management program and is responsible for
offering guidance on optimal utilization of the Commission’s fiscal
resources. OFM is charged with interpreting government budgetary and

financial

policies and programs, and developing annual budget

justifications for submission to the Congress and OMB. The Office also
administers internal control systems for agency funds, travel, and cash

management.

(b)

Achievements

During fiscal year 2006, OFM:

Collected and deposited $1,595,530 from user fees, fines,
and penalty collections, and ocean freight forwarder,
OTI application, and passenger vessel certification fees.

Coordinated and prepared budget justifications and
estimates for the fiscal year 2007 Congressional budget
and fiscal year 2008 budget to OMB.

Prepared a variety of external reports, including: the
Annual Leave Year Report and the Report on
Workyears and Personnel Costs for 2005 (Office of
Personnel Management - “OPM”); the Report on
International Travel for FY 2005 (OMB); the Report on
First-Class Airline Accommodations for fiscal year 2005
(General Services Administration - “GSA”); and the
quarterly Continuation of Pay Reports (Department of
Labor).

66


sectors of the trade, a number of carriers participate in the Venezuela
Discussion Agreement, which authorizes voluntary rate discussions among
its members between the geographic scope of the U.S. and Venezuela.

G. ASIA

Asia dominates the U.S. container trades, accounting for 63

wk ATT Lot ee eo Anaroa



major commodities moving between key port pairs; a descriptive study of
service contracting activity and contract terms and conditions using a
random sample of service contracts covering the period of July 1, 2005
through June 20, 2006; an exploration of how the SERVCON and
ACE/ITDS systems, when used in combination, may be integrated into the
Commission’s monitoring of carrier activities and commercial conditions
in USS. liner markets; and the design and successful implementation of a
user-friendly interface that provides staff access to the Commission’s
extensive PIERS dataset in order to more effectively analyze the economic
impact of filed agreements, monitor trade conditions or agreement
activities, and respond to shipper complaints and congressional requests
for trade analyses and data.

4. Tariffs

The Shipping Act requires common carriers and conferences to
publish their tariffs electronically. These electronic tariffs contain rates,
charges, rules, and practices of common carriers operating in the U.S.
foreign commerce. The Bureau monitors the public accessibility of the
private tariff systems and reviews published tariff material for compliance
with the requirements of the Shipping Act. The Bureau also determines
whether to grant applications for special permission to deviate from tariff
publishing rules and regulations. During fiscal year 2006, the Bureau
received and processed 13 special permission applications.

The Bureau also collaborates with other Commission bureaus and
offices to verify that NVOCCs comply with the Commission’s licensing,
bonding and tariff publication requirements. Further, the Bureau is
directly involved in processing the electronic Form FMC-1, Tariff
Registration Form, required to be filed with the Commission by common
carriers, conferences and MTOs. The data on this form identifies the
location of common carrier tariffs, including common carrier and
conference service contract essential terms publications or any MTO
schedules. At the end of fiscal year 2006, a total of 3,942 tariff location
addresses were posted on the Commission’s website. Of that number,
3,438 tariff addresses were for NVOCCs.

95


Top Twenty U.S. Liner Cargo
Trading Partners (2005)

Rank Country TEUs
(000s)

1 China (PRC)

2 Japan ..........

3 Hong Kong 2

4 South Korea . 032

5 Taiwan... ,000

6 Germany

7 Brazil .

8 Italy ...

9 Thailand

10

11 Indonesia ..

12 Belgium and Luxembourg
13 Netherlands ................
14 United Kingdom (incl. N. Ireland).
15 Malaysia ..

16 Honduras

17 Vietnam ...

18 Guatemala .

19 France

20 Spain .

2 On July 1, 1997, Hong Kong reverted to Chinese control as a special administrativ:

region. However, PIERS continues to report data separately for Hong Kong because of it
status as a major transshipment center.

Source. All data are aggregated from the PIERS (Port Import Export Reporting Service)
database maintained by the Journal of Commerce.

31


Facilitated early resolution of employment-related
problems.

Expanded outreach and recruitment initiatives.
Provided adequate career counseling.
Developed program plans and progress reports.

Provided briefings to FMC senior staff and met
regularly with senior management.

Provided counseling assistance and No FEAR Act
training to FMC managers, supervisors and employees,
and updated and posted No FEAR statistics to FMC
website (http://www.fme.gov/home/NoFEARAct.asp).

Reviewed and assessed management and personnel
human resource activity and actions.

Provided support and assistance to managers and
supervisors in maintaining and effectively managing a
diverse workforce.

Held special commemorative programs for FMC
employees (Disability Employment Awareness,
American Indian, Black History, Women’s History,
Asian Pacific, Gay and Lesbian, and Hispanic Heritage
months programs).

Managed the FMC’s Advisory Council on Women’s
Issues.

56


Container imports through Pacific Northwest ports, such as Seattle,
Tacoma and Portland, expanded by more than 40 percent to reach about
2.4 million TEUs. That region’s share of U.S. container imports rose to
12.4 percent from 10.1 percent last year. The share of U.S. containers
imports through the Pacific Southwest ports, including Los Angeles, Long
Beach, and Oakland remained at 46.1 percent. Ports along the U.S.
Atlantic and Gulf Coasts handled around 41.5 percent of all U.S. container
imports, compared to 43.8 percent last year.

During this fiscal year, some minor shifting occurred among
coastal regions in their shares of U.S. export containers. About 60 percent
of all export containers were handled by U.S. Atlantic and Gulf Coast
ports, 30 percent by Pacific Southwest ports, and about ten percent by
ports in the Pacific Northwest. Percentage shares in fiscal year 2005 were
58, 31, and 11 percent, respectively.

The U.S.’s top five liner cargo trade partners remained unchanged:
China, Japan, Hong Kong, South Korea and Taiwan. Notably, these
partners are all located in Northeast Asia, and collectively accounted for
55 percent of the total U.S. container trade in fiscal year 2006. This year,
trade with China accounted for 37 percent of the total U.S. container trade,
up from 35 percent in fiscal year 2005.

Containership capacity growth nudged ahead of the growth in
container demand on a worldwide basis. By July 2006, the containership
fleet’s nominal capacity had grown by over 15 percent compared to the
same month a year earlier. During this time, the world container fleet
expanded by a net addition of just under 300 ships. Today, about 3,800
containerships with a fleet capacity of almost nine million TEUs are
deployed in the world’s container trades. During the last quarter of the
fiscal year, Maersk Line took delivery of the world’s biggest
containership, the Emma Maersk, rated by the carrier at 11,000 TEUs. At
the end of July 2006 there were orders worldwide for 1,224 new
containerships with an aggregate capacity of 4.3 million TEUs. The
capacity on order amounted to approximately 50 percent of the existing
fleet capacity.

27


E. OFFICE OF THE
INSPECTOR GENERAL

The Inspector General (“IG”) Act of 1978, as amended, creates
independent audit and investigative units called Offices of Inspector
General (““OIGs”) at 61 federal agencies, including the Federal Maritime
Commission. The mission of the OIGs, as spelled out in the IG Act, is to:

7 Conduct and supervise independent and objective
audits and investigations relating to agency programs
and operations.

. Promote economy, effectiveness, and efficiency within
the agency.
. Prevent and detect fraud and abuse in agency programs

and operations.

ry Review and make recommendations regarding existing
and proposed legislation and regulations relating to
agency programs and operations.

. Keep the agency head and Congress fully and currently
informed of problems in agency programs and
operations.

To ensure objectivity, the IG Act empowers IGs with:

. Independence to determine what reviews to perform.
7 Access to all information for the reviews.
. Authority to publish findings and recommendations

based on the reviews.

59


5. Service Contracts

Service contracts are an alternative to transportation of cargo under
tariff terms. Service contracting enables the contracting parties to tailor
transportation services to their commercial and operational needs and to
keep many terms of these arrangements confidential.

During fiscal year 2006, the Commission received 46,682 new
service contracts, compared to 47,648 in fiscal year 2005, and 252,566
amendments, compared to 231,508 in fiscal year 2005. The number of
new service contract filings decreased nearly two percent, and amendment
filings increased nearly nine percent over fiscal year 2005. During the
fiscal year, 2,162 records involving corrected transmission copies were
filed into SERVCON. Original service contract or NSA filings that
contained errors due to clerical errors can be corrected within two business
days by filing a “corrected transmission” copy into SERVCON.

6. NVOCC Service Arrangements

In fiscal year 2005, the Commission issued a Final Rule to exempt
NVOCCs from the tariff publication requirements of the Shipping Act,
subject to certain conditions. Commission rules now allow NVOCCs to
offer transportation services pursuant to an individually negotiated,
confidential service arrangement rather than under a published tariff. The
Commission’s rules implementing NSAs, 46 CFR Part 531, NVOCC
Service Arrangements, became effective on January 19, 2005.

At the end of fiscal year 2006, there were 424 NVOCCs registered
with the Commission to file NSAs, of which 403 designated a tariff
publishing agent to file NSAs on their behalf and 21 named a person or
persons within their company to file. During fiscal year 2006,
approximately 557 NSAs and 448 amendments were filed by 59
NVOCCs. Since January 2005, there have been 678 NSAs and 502
amendments filed by 71 NVOCCs.

96


during fiscal year 2006. Data migration will be completed and this system
will become fully functional during the next fiscal year. This system will
help support the agency’s continuity of operations initiatives by improving
preservation of, and Commission staff access to, Commission documents.
Additionally, the new system will reduce the time it takes Commission
staff to respond to public inquires, as well as improve public access to
electronic files through the Commission’s website.

During the fiscal year, the Office of the Secretary continued its
initiative to fill a publication gap for Commission decisions and to make
more information available electronically. Commission decisions issued
between 1987 and 1997 were compiled and converted to electronic form.
Those issued between 1987 and 1995 were posted on the Commission’s
website during the fiscal year, with the balance posted by the end of
October 2006. In addition, the Office made opening/reply briefs,
exceptions, and replies in selected docketed proceedings available through
its website. Throughout fiscal year 2007, the Commission will continue to
increase the number of documents available through its website.

2. Office of Consumer Affairs and Dispute Resolution
Services

The Office of Consumer Affairs and Dispute Resolution reports to
the Office of the Secretary. CADRS is responsible for developing and
implementing the Commission’s ADR program. Through this program,
the Commission provides services to assist parties in resolving
commercial disputes in U.S. ocean shipping. A broad range of services is
designed to avoid the expense and delay inherent in litigation and to
facilitate the flow of U.S. ocean commerce.

The Office encourages parties to disputes to avail themselves of
mediation or other ADR processes such as conciliation, facilitation, fact-
finding, mini-trials, or arbitration, as a means to resolve disputes. The
Commission makes trained neutrals available to facilitate the resolution of
shipping disputes, whether prior to or after commencement of the
litigation process. If parties prefer outside neutrals, the Office will assist
them in locating acceptable neutrals with appropriate expertise.

37


H. BUREAU OF
CERTIFICATION AND LICENSING

1. In General

The Bureau of Certification and Licensing has responsibility for
the Commission’s OTI licensing program and passenger vessel
certification program. The Bureau:

. Licenses and regulates OTIs, including ocean freight
forwarders and NVOCCs.

. Issues certificates to owners and operators of passenger
vessels that have evidenced financial responsibility to
satisfy liability incurred for nonperformance of voyages
or for death or injury to passengers and other persons.

5 Manages programs assuring financial responsibility of
OTIs and passenger vessel operators, by developing
policies and guidelines, and analyzing financial
instruments and financial statements.

. Develops and maintains information systems that
support the Bureau’s programs and those of other
Commission entities.

In carrying out these functions, the Bureau provides information
and referrals in response to a wide array of informal inquiries and provides
guidance with respect to licensing and bonding.

The Bureau is organized into two offices: the Office of
Transportation Intermediaries and the Office of Passenger Vessels and
Information Processing. The former reviews and approves applications
for OTI licenses, and maintains and updates records about licensees. The
latter reviews applications for certificates of financial responsibility with
respect to passenger vessels, manages all activities with respect to
evidence of financial responsibility for OTIs and passenger vessel

79




FEDERAL MARITIME COMMISSION
WASHINGTON, D.C. 20873-0001

March 31, 2007

To the United States Senate and House of Representatives:

Pursuant to section 103(e) of Reorganization Plan No. 7 of
1961, and section 208 of the Merchant Marine Act, 1936, now
codified, as amended, at 46 U.S.C. §306 (a), Iam pleased to
submit the 45th Annual Report of the activities of the Federal
Maritime Commission for fiscal year 2006.

Sincerely,

ZELL Mei

Bryant L. VanBrakle
Secretary




comply with the Government Paperwork Elimination Act and FISMA.
Additionally, the Office guided the development of the fiscal year 2008
budget request to the Office of Management and Budget (“OMB”) and the
fiscal year 2007 President’s Budget submission, and directed all efforts
involving the audit of the Commission’s fiscal year 2006 financial
statements. During the year, the Office provided primary support for the
OMB clearance and records management programs, and guided the
continuing development of the agency’s Continuity of Operations Plan.
The Office also directed the effort to update and refine the agency’s
performance evaluation system, and coordinated the agency’s
development of a pilot Individual Development Plan program and a series
of in-house functional briefings.

OA’s key objectives for fiscal year 2007 consist of implementing
the Chairman’s policy directions aimed at refining and enhancing agency
administrative programs and operations; monitoring the accomplishment
of agency performance goals, particularly those related to the agency’s
performance management system and implementation of Pay.gov;
initiating further IT improvements, including the replacement, integration
or update of agency database systems and the upgrading of network and
desktop operating systems; and working with senior managers to ensure
effective strategic succession planning, including providing key support
for the agency’s new Emerging Leaders Program. The Office also will
take the lead in assuring that the agency-wide computer security program
is effective, that the agency’s financial management system receives an
unqualified opinion in annual financial audits, and that the agency
complies with the Homeland Security Presidential Directive (“HSPD”)-12
initiative.

65


Area Representatives’ support services requirements, to
include: office space leasing; local, long-distance, and
wireless communications needs; GSA motor pool and
fleet management provisions; supply and property
inventory actions; consolidation of the use of the
Government Purchase Card within the activity.

Implemented full-service procurement cross-servicing
support through BPD’s Administrative Resources
Center.

Administered the agency’s transit subsidy benefits and
the Headquarters Metro Check usage programs.

Expanded the agency’s printing and copy management
program to include the Government Printing Office’s
Express Program for using FedEx Kinko facilities
nationwide.

Continued coordination through the Headquarters
Building Security Committee to enhance the physical
security and emergency preparedness programs, and
complete the implementation of assessment
recommendations made by the Federal Protective
Service.

In coordination with the Federal Protective Service,
joined the newly established Committee of Emergency
Managers within the Union Station Area of
Washington, D.C., for more effective coordination of
emergency preparedness-related events and activities.

Established a transition plan with OIT and initiated

actions to transfer the voice telecommunication
functions and activities to its control.

74


FEDERAL MARITIME
COMMISSION

45th
ANNUAL REPORT

for

Fiscal Year

2006





Vv. SIGNIFICANT ACTIVITIES BY
ORGANIZATIONAL UNIT

A.

so monmoop

Office of the Secretary 02.0.2... ccc 35
Office of Administrative Law Judges ..
Office of the General Counsel........
Office of Equal Employment Opportunity .
Office of the Inspector General . .
Office of Administration .
Office of Operations .
Bureau of Certification and Licensing .
Bureau of Enforcement

APPENDICES

SORP>

mo

Organization Chart
Commission Proceedings
Agreement Filings and Status . :
Form FMC-1 Tariff Location Addresses -

Electronic Service Contract Filings

and Special Permission Applications .
Civil Penalties Collected
Statement of Appropriations, Obligations

and Receipts ....... 6... ccc ece cece cece eee eneeeee 108

«+. 103
- 104
- 105

++. 106
. 107

-ti-


APPENDICES


by members of the rate discussion agreements: two direct services to the
U.S. Pacific Coast and three direct services to the U.S. Atlantic Coast.
US. Lines is the only independent carrier that offers a direct service in the
trade. Other independent carriers serve the trade indirectly using relay
services that involve transshipment through Northeast and Southeast Asia.

E. CENTRAL AMERICA
AND THE CARIBBEAN

In fiscal year 2006, the volume of cargo transported between the
US. and Central America remained relatively unchanged compared to the
preceding period. U.S. export cargo declined by a fraction, while import
cargo from Central America grew slightly by two percent. Export cargo
exceeded import cargo in the trade. For every one TEU that moved
inbound from Central America, 1.4 TEUs moved outbound from the
United States. The ratification of the Dominican Republic-Central
America Free Trade Agreement (“DR-CAFTA”) promises to promote
future cargo growth in the trade. It is anticipated that DR-CAFTA will
boost U.S. exports by reducing and eliminating tariffs on many U.S.
consumer and industrial goods. Additional ratifications by signatories
may broaden the effect of the DR-CAFTA in fiscal year 2007.

In the trade between the U.S. and the Caribbean, the volume of
cargo declined by about 2.5 percent in both trade directions compared to
the preceding fiscal year. In TEUs, containers of U.S. exports exceeded
containers of Caribbean imports by a ratio of 3.4 to 1. The outbound leg
of the trade is greater because many Caribbean nations rely on U.S.
exports of food, consumer, and manufactured products to sustain their
local economies and tourist industry.

Carriers in the U.S./Central American trade participate in the
Central America Discussion Agreement. Carriers in the U.S./Caribbean
trade participate in four rate discussion agreements covering discrete
trades: (1) the Hispaniola Discussion Agreement, (2) the Caribbean Ship-
owners Association, (3) the Florida-Bahamas Ship-owners and Operators
Association, and (4) the ABC Discussion Agreement. There were no
significant changes in the provisions or memberships of these agreements
during fiscal year 2006.


U.S./China trade.

During fiscal year 2006, Bureau staff continued to work with other
Commission components to examine the Commission’s rules, policies,
and procedures regarding OTIs. Areas of focus included: review of the
requirements for OTI license applicants; streamlining the application
process; posting timely and easier-to-locate information about OTIs on the
Commission’s website; and initiating a review of requirements to support
electronic filing of OTI bond information. During this period, the Bureau
also made significant progress in the development of an automated Form
FMC-18, Application for an Ocean Transportation Intermediary License.
Testing of an automated FMC-18 filing system is being conducted
internally by BCL prior to release.

3. Passenger Vessel Certification

The Commission administers 46 U.S.C. 88 44102-44103, which
require evidence of financial responsibility for vessels which have berth or
stateroom accommodations for 50 or more passengers and embark
passengers at U.S. ports and territories. The program now encompasses
197 vessels and 47 operators, which have evidence of financial
responsibility coverage in excess of $339 million for nonperformance and
over $666 million for casualty. The certificates issued pursuant to this
program are necessary for U.S. Customs and Border Protection’s
clearance of thousands of passenger vessel sailings annually. During
fiscal year 2006, the Commission received applications for 50 certificates
(casualty and performance), while 24 casualty and 29 performance
certificates were approved and issued.

In conjunction with CADRS, the Bureau offers information and
guidance to the cruising public throughout the year on passenger rights
and obligations regarding monies paid to cruise lines that experience
financial difficulties and nonperformance problems.

The cruise industry continues to grow and is becoming
characterized by innovative, feature-full ships, international ports-of-call
and convenient departures from embarkation cities. The volume of cruise
passengers reached an all-time high of nearly 11 million passengers during

81




nonperformance of transportation. The Commission certifies such
operators upon the submission of satisfactory evidence of financial
responsibility.

The Commission also ensures that all OTIs have established
sufficient financial responsibility to protect shippers from financial loss.
Additionally, the Commission licenses all U.S. OTIs.

The Commission carries out its regulatory responsibilities by
conducting informal and formal investigations. It holds hearings,
considers evidence, renders decisions, and issues appropriate orders and
regulations. The Commission also adjudicates and mediates disputes
involving the regulated community, the general shipping public, and other
affected individuals or interest groups.

C. ORGANIZATION

The Commission is composed of five Commissioners appointed by
the President with the advice and consent of the Senate. Commissioners
serve five-year, staggered terms, and no more than three members of the
Commission may belong to the same political party. The President
designates one of the Commissioners to serve as Chairman. The
Chairman is the chief executive and administrative officer of the agency.

The Commission’s organizational units consist of: Office of the
General Counsel; Office of the Secretary (includes the Library and Office
of Consumer Affairs and Dispute Resolution Services); Office of
Administrative Law Judges; Office of Equal Employment Opportunity;
Office of the Inspector General; Office of Administration (includes the
Offices of Financial Management, Human Resources, Information
Technology, and Management Services); and Office of Operations
(includes the Bureaus of Certification and Licensing, Enforcement, and
Trade Analysis and the Commission’s Area Representatives).


basis. Commenters initially were given until November 19, 2004, to
submit comments on the NPR; this period was later extended to November
30, 2004.

The Commission voted to issue a Final Rule on December 15,
2004. The Final Rule, which became effective on January 19, 2005,
exempts NVOCCs offering “NVOCC Service Arrangements” (“NSAs”)
from the publication requirements of the Shipping Act, subject to certain
conditions. The Final Rule defines an NSA as “a written contract, other
than a bill of lading or receipt, between one or more NSA shippers and an
individual NVOCC or two or more affiliated NVOCCs, in which the NSA
shipper makes a commitment to provide a certain minimum quantity or
portion of its cargo or freight revenue over a fixed time period, and the
NVOCC commits to a certain rate or rate schedule and a defined service
level. The NSA may also specify provisions in the event of non-
performance on the part of any party.” The Final Rule’s exemption is
conditioned on the electronic filing by the NVOCC of the NSA with the
Commission, through SERVCON service contracts provided for in the
Shipping Act. Analogous to the Shipping Act’s requirements for service
contracts offered by VOCCs, the exemption also requires that the essential
terms of all NSAs be published in the NVOCC’s tariff publication.

Due to prior judicial interpretations of the extent of the antitrust
immunity granted by the Shipping Act, the Commission declined several
commenters’ requests to extend the exemption to encompass arrangements
between two or more NVOCCs, including shippers’ associations whose
members include NVOCCs. The Commission found that such an
exemption could confer antitrust immunity on arrangements between and
among NVOCCs, and that this could result in a substantial reduction in
competition, contrary to the Shipping Act’s exemption standards.

Subsequently, after issuance of an opinion by the U.S. Court of
Appeals for the Fourth Circuit which clarified that NVOCCs are not
entitled to antitrust immunity under the Shipping Act, on September 23,
2005, the Commission issued a final rule extending the exemption to allow
NVOCCs to offer NSAs to other NVOCCs as well as shippers’
associations with NVOCC members. This Final Rule became effective on
October 28, 2005. The Commission also determined that it would further
consider the expansion of the exemption to enable two or more

46


In fiscal year 2007, the Bureau will continue to pursue market-
distorting, fraudulent, and anticompetitive practices not in compliance
with the statutes and regulations administered by the Commission,
including the operations of licensed and unlicensed OTIs and possible
non-compliance by the parties with the regulatory requirements for service
contracts and NSAs.

88


(c)

Prepared monthly status reports on workyears,
funding, travel and receivables, and monthly allocation
reports to provide management with meaningful, timely
expense data by program.

Completed a process for the individual offices/bureaus
to forecast annual goals in accordance with the
Commission’s strategic goals.

Worked with Bureau of Public Debt (“BPD”) staff and
auditors regarding the audits of the fiscal years’ 2005
and 2006 financial statements.

Pursued all delinquent receivables and_ referred
applicable debts to the Department of Treasury for
collection.

Complied with E-travel initiatives by migrating to a
new electronic travel application.

Worked with the Director of Administration to finalize
the Commission’s 2005 Management’s Discussion and
Analysis and prepare the Commission’s 2005
Performance and Accountability Report.

Future Plans

Financial management goals in fiscal year 2007 include:
continued development of a fully integrated financial management system;
in conjunction with the Office of Management Services, continued
implementation of electronic commerce to automate the processing of
purchase orders, obligations, receipts and invoice processing; reviewing
and updating, as necessary, procedures and controls for current business
processes; and pursuing initiatives leading to economy and efficiency in
budget and financial operations goals.

67


Concentration in the container shipping industry did not
appreciably increase during fiscal year 2006. By year’s end, the top five
container operators were still Maersk Line, MSC, CMA-CGM, Evergreen
and Hapag Lloyd, respectively. Two Chinese carriers, COSCO Container
Line and China Shipping, rose up the ranking to occupy the sixth and
seventh places, respectively. The top five container operators reportedly
controlled 36 percent of the world’s containership fleet capacity, the top
10 controlled 53 percent, and the top twenty controlled 73 percent. A
recent estimate by JMB Global Business Services suggested that the top 10
carriers may control 80 percent of the world containership fleet by 2015
through further consolidation of the industry.

28


of being returned to the United States. Office staff worked with the ocean
carrier, a foreign, unlicensed NVOCC, a United Kingdom destination
agent, and the British government to effect British Customs clearance, the
unloading of the container, and the onward delivery of the household
goods to the shippers’ various European destinations.

With respect to passenger matters, the failure of a small cruise
operator generated a number of complaints, and assistance was provided
to a number of passengers in obtaining refunds for cruises that were
cancelled. In addition, a number of passengers were affected by certain
vessels being taken out of service in order to provide berthing
accommodations in the wake of Hurricane Katrina.

Another function of the Office is adjudication of small claims
through informal proceedings. Office personnel serve as Settlement
Officers in such cases, which involve complaints seeking reparations up to
$50,000 for violations of the shipping statues. Those claims generally
involve alleged prohibited acts in connection with the international
transportation of goods, or the failure to establish, observe, and enforce
just and reasonable regulations and practices. CADRS staff also evaluates
and adjudicates applications for permission to apply other than tariff rates,
and to waive or refund freight charges arising from various errors in tariff
publications, and inadvertent failure to publish and intended rate, or a
misquotation of a rate.

During fiscal year 2006, the office developed and implemented a
database that is enabling better tracking and monitoring of ombudsman
complaint cases. The new database has resulted in better information and
improved efficiency in the management of such cases. This will satisfy a
critical need as the complexity and volume of such complaints continue to
grow.

In fiscal year 2007, the Office intends to expand awareness of the
ADR program through education and training and other outreach efforts.
A brochure/pamphlet will be developed to advise consumers in avoiding
difficulty with moving internationally. Further efforts will be made to
increase shipping industry awareness of less adversarial, more cost-
effective means of resolving disputes in a manner that enables the parties

40




C. OFFICE OF
THE GENERAL COUNSEL

The General Counsel provides legal counsel to the Commission.
This includes reviewing staff recommendations for Commission action for
legal sufficiency, drafting proposed rules to implement Commission
policies, and preparing final decisions, orders, and regulations for
Commission review. In addition, the Office of the General Counsel
(“OGC”) provides written and oral legal opinions to the Commission, its
staff, and the general public in appropriate cases. As described in more
detail below, the General Counsel also represents the Commission before
the courts and Congress and administers the Commission’s international
affairs program.

1. Rulemakings and Decisions

The following are rulemakings and adjudications representative of
matters prepared by the General Counsel’s Office:

(a) Rulemakings

Non-Vessel-Operating Common Carrier Service Arrangements, [Docket
No. 04-12], 30 S.R.R. 592 (February 8, 2005); Non-Vessel-Operating
Common Carrier Service Arrangements, [Docket No. 05-05], 30 S.R.R.
763 (September 23, 2005); Non-Vessel-Operating Common Carrier
Service Arrangements (Notice of Inquiry), [Docket No. 05-06],
S.R.R.___ (August 30, 2005).

Unlike VOCCs, NVOCCs are limited by the Shipping Act to
offering common carrier services for the carriage of international
oceanborne cargo to the shipping public under the terms of a published
tariff. The Commission initiated this proceeding with the issuance of a
notice of proposed rulemaking (“NPR”) on October 28, 2004. The NPR
was issued to solicit public comment on specific proposed language for an
exemption to the tariff publication requirements of the Shipping Act for
cargo moved by NVOCCs for their shipper customers on a contractual

45


to control the outcome. Use of mediation, in particular, will be promoted
to assist in resolving formal proceedings and other significant disputes.

The Office also will continue to make consumer protection information
available and will expand its outreach through various websites and media
sources. While these efforts may be expected to generate additional
complaints, their real value will be the number of consumers that are
forewarned and thereby avoid problems. Through this means, assistance
may be provided to many more consumers than could be possible through
post-shipment problem resolution.

3. Library

The Office of the Secretary also administers the Commission’s
Library. The Library serves the Commission’s research and information
needs, and is a specialized repository of current and basic materials
primarily covering the shipping industry, the history of shipping, and
regulations covering all phases of shipping in the U.S. foreign trade. It
contains a large variety of books, directories, encyclopedias, journals,
magazines, reports, microforms, and videos. The Library also contains
material on several related fields such as engineering, economics, political
science, and an extensive collection of legal publications. The Library
collection includes law encyclopedias, engineering textbooks, legal
treatises, Comptroller General Decisions, and selected titles of the
National Reporter system. The Library’s holdings consist of
approximately 4,500 volumes and numerous microfiches, CD-ROMs, and
on-line services.

41


5 Conducted a proactive retirement program including
counseling, computing benefits, providing retirement
seminars and related training, and processing all
retirements.

. Coordinated with other administrative units and GSA
to implement HSPD-12.

7 Conducted HR _ staff assessment and __ finalized
contracted assistance in the areas of personal suitability
adjudication and classification/position management.

(c) Future Plans

In fiscal year 2007, OHR plans to continue to: advise agency
management and staff on all human resources matters and ensure the
maintenance of a sound and progressive human resources program;
implement pertinent portions of the agency’s strategic, training and related
performance plans, particularly performance goals related to the
management of human resources; explore and implement simplification,
flexibility, and accountability of human resources management programs,
including investigating automated solutions to address program
requirements; in conjunction with administrative components and the
GSA, continue to implement pertinent provisions of HSPD-12; and
monitor activities of the NFC in conjunction with the government-wide E-
payroll initiative to ensure timely and accurate payroll and personnel
services.

3. Office of Information Technology

(a) General Office Responsibilities

The Office of Information Technology (“OIT”) provides
management support to the program and administrative operations of the
Commission with respect to IT, and thus is responsible for ensuring that
the Commission’s IT program is administered in a manner consistent with
applicable rules, regulations, and guidelines. OIT receives programmatic
guidance from the CIO.

70


owner/operators, and develops and maintains all Bureau databases and
records of OTI applicants and licensees.

2. Licensing of Ocean Transportation Intermediaries

OTIs are transportation middlemen for oceanborne cargo moving
in the U.S.-foreign trades. There are two types: NVOCCs and ocean
freight forwarders. Both NVOCCs and ocean freight forwarders must be
licensed by the Commission if they are located in the U.S. NVOCCs
doing business in the U.S. foreign trades but located outside the U.S.
(“foreign NVOCCs”) may choose to become licensed, but are not required
to do so. Whether licensed or not, foreign NVOCCs must establish
financial responsibility. All NVOCCs must publish electronic tariffs.

To become licensed by the Commission, an OTI must establish
that it is qualified in terms of experience and character, as well as establish
its financial responsibility by means of a bond, insurance, or other
instrument. Licensed ocean freight forwarders must establish financial
responsibility in the amount of $50,000, and licensed NVOCCs, $75,000.
An additional $10,000 of coverage is required for each unincorporated
U.S. branch office of a licensee. Furthermore, unlicensed foreign
NVOCCs must maintain $150,000 in coverage. The financial instrument
must be available to pay claims against the OTI arising from its
transportation-related activities, any order of reparation assessed under the
Shipping Act and any judgments for damages against an OTI arising from
its transportation-related activities under the Shipping Act.

During fiscal year 2006, the Commission received 420 new OTI
applications and 227 amended applications, issued 512 OTI licenses,
revoked 278 licenses, and reissued approximately 65 licenses. At the end
of the fiscal year, 1,157 ocean freight forwarders, 1,561 U.S. NVOCCs,
1,119 joint NVOCC/ocean freight forwarders, and 40 foreign NVOCCs
held active OTI licenses. An additional 888 foreign NVOCCs maintained
proof of financial responsibility on file with the Commission, but chose
not to be licensed. U.S. NVOCCs may file riders to their existing
NVOCC bonds to meet financial responsibility requirements imposed by
the Chinese government. The Commission received 11 riders providing
optional proof of financial responsibility for carriers serving in the

80


A. OFFICE OF THE SECRETARY

1. In General

The Office of the Secretary, serves as the focal point for matters
submitted to and emanating from the members of the Commission. It is
the public’s main contact point with the FMC. The Office receives and
processes a variety of documents filed by the public, including: complaints
initiating adjudicatory proceedings for alleged violations of the shipping
statutes and other applicable laws; special docket applications and
applications to correct clerical or administrative errors in service contracts
or NVOCC service arrangements; all communications, petitions, notices,
pleadings, briefs, or other legal instruments in administrative proceedings;
and subpoenas served on the FMC, its members or employees.

The Office is responsible for preparing and submitting regular and
notation agenda matters for consideration by the Commission and
preparing and maintaining the minutes of actions taken by the
Commission on these matters; issuing orders and notices of actions of the
Commission; maintaining official files and records of all formal
proceedings and Commission regulations; issuing publications; and
authenticating instruments and documents of the Commission. During
fiscal year 2006, the Commission issued orders finalizing seven formal
proceedings and three informal dockets. Two rulemaking proceedings
were pending at the end of the year.

The Office also responds to information requests from
Commission staff, the maritime industry, press, and the public;
administers the Freedom of Information, Government in the Sunshine, and
Privacy Acts; compiles historical Commission decisions; maintains a
public reference/law Library and a Docket Activity Library; manages the
Commission’s internet website; and participates in the development and
coordination of agency-wide public relation/outreach strategies and
initiatives. Additionally, the Office oversees the Office of Consumer
Affairs and Dispute Resolution Services (“CADRS”).

35


APPENDIX C

AGREEMENT FILINGS AND
Fiscal Year 2006

Agreements Filed in FY 2006
(including modifications)

Carrier .... - 263
Terminal .... .
Total 0. e nee eee 284

Agreement Processing Categories in FY 2006

Forty-Five Day Review . .
Shortened Review ....
Exempt-Effective Upon Filing .
Rejection of Filing ..........
Formal Extension of Review Perio
Not Subject . .
Withdrawals .

Carrier Reports Submitted for Commission Review

Minutes of Meetings
Ad Hoc Reports...
Monitoring Reports .

Agreements on File as of September 30, 2006

Conference ....
Rate Discussion .
Non-Rate Discuss!
Joint Service ...
Vessel-Sharing .
Cooperative Working and Other
Terminal ................0055

105


TABLE OF CONTENTS

LETTER OF TRANSMITTAL ...

MEMBERS OF COMMISSION . o
SENIOR COMMISSION OFFICIALS.. . » Vii
VISION vee ix
FMC MISSION .... 0.0.0.0. e cece cece eee eee eee eee eee ix

I THE COMMISSION
A. History... ...
B. Functions .
C. — Organization ..

Tl THE YEARIN REVIEW ...........00.00 0.000 c eee 7
A. Outreach .8
B. Trade Developments 9
C. Restrictive Trade Practices . meet
D. =‘ Trade Oversight el
E. Alternative Dispute Resolution ~ 13
F. Enforcement .. 15

I. DEVELOPMENTS IN MAJOR U.S. FOREIGN TRADES
North Europe
Mediterranean ..
Indian Subcontinent and the Middle East ..
Australia and Oceania
Central America and the Caribbean
South America ..
Asia ..
Africa .
Worldwide .

HOME DOR>

IV. THE FOREIGN SHIPPING PRACTICES ACT OF 1988
A. InGeneral 0.0.0.6... oe ene eee eee eee 29
B. Top Twenty U.S. Liner Cargo
Trading Partners ......... 0 cece eee cece eee e en eee 30


9. Automated Database Systems

The Bureau currently maintains and uses the following automated
databases and filing systems: (1) Form FMC-1 System; (2) Tariff Profile
System; (3) SERVCON, the system for filing service contracts (as well as
internal databases related to Form FMC-83 System for registration to file
service contracts and Form FMC-78 to file NSAs); and (4) the Agreement
Profile Database. The Agreement Profile Database contains information
on all effective agreements on file with the Commission.

During fiscal year 2006, the Form FMC-1 System reflected the
tariff location addresses of 323 VOCCs, 3,438 NVOCCs, ten conferences,
and 171 MTOs. The FMC-1 System also allows the Commission to
quickly track the status of any Form FMC-1 submitted.

Information in the Tariff Profile System is used to review and
analyze carrier tariffs and service contract and NSA essential terms
publications to ensure compliance with Commission rules and regulations.

SERVCON contains service contract and NSA data, most of which
is only available to the Commission’s staff due to confidentiality
requirements. Registration to file service contracts into the system is
authorized through the submission of Form FMC-83, and to file NSAs
through submission of Form FMC-78. The SERVCON system was
upgraded in fiscal year 2006 to include major performance enhancements
for faster retrieval and greater reliability of service contract and NSA data.

The Agreement Profile System contains information about the
status of carrier and terminal agreements, as well as related monitoring
reports.

These databases and systems provide support for many of the
Commission’s programs and the Bureau’s monitoring efforts. Through
specially tailored reports, certain database information is also available to
the general public.

98




2. Commission Action

In fiscal year 2006, the Commission determined not to review four
formal proceedings that were dismissed by the Office of ALJs, as well as
the initial decisions in three informal proceedings.

3. Decisions of Administrative Law Judges (in
proceedings not yet decided by the Commission)

American Warehousing of New York, Inc. v. The Port
Authority of New York and New Jersey [Docket Nos. 04-09
and 05-03].

These two separately-filed cases involving the same parties were
consolidated for hearing and decision. Complainant American
Warehousing of New York, Inc. (“American”) filed Docket 04-09 on
August 5, 2004, alleging that the respondent, the Port Authority of New
York and New Jersey, had violated the Shipping Act with regard to the
leasing arrangements of a pier that American occupies. While that action
was pending, American filed Docket 05-03 on June 15, 2005, alleging new
violations of the Shipping Act that had occurred after Docket 04-09 had
been filed. Both the complainant and respondent are marine terminal
operators subject to the jurisdiction of the Commission. The parties were
also in litigation in the Civil Court of the City of New York, Kings
County, on the Port Authority’s attempt to evict American as a tenant. On
July 24, 2006, the Office of ALJ issued an Initial Decision finding that the
Port Authority did not violate section 10 of the Shipping Act by declining
to enter into a long-term lease and taking the other actions about which
American complained.

4. Pending Proceedings

At the close of fiscal year 2006, there were nine formal
proceedings pending before the Office of ALIs.

44


During fiscal year 2006, the Bureau received 21 MTO agreement
filings. Four new MTO discussion agreements, a new MTO lease, and a
new MTO CWA were also filed. One MTO lease agreement was
determined to be not subject to the Commission’s jurisdiction and was
withdrawn. The other 14 filings were modifications to existing MTO
agreements. Three MTO lease agreements were terminated or withdrawn,
two MTO conferences were terminated, and two MTO CWAs were
terminated during the fiscal year.

One example of new filings is the Bi-State Public Marine Terminal
Discussion Agreement, filed in December 2005 by the Georgia Ports
Authority and the South Carolina State Ports Authority. This MTO
agreement authorizes the parties to discuss terminal rates, charges, rules,
conditions of service, terminal congestion, and methods for relieving
terminal congestion. Another example is the Los Angeles and Long Beach
Port Infrastructure and Environmental Programs Cooperative Working
Agreement, filed in June 2006, which permits the Port of Los Angeles and
the Port of Long Beach to discuss, consult, and agree on the establishment
and implementation of programs and strategies to improve port-related
transportation infrastructure and to decrease port-related air pollution
emissions.

3. Monitoring and Economic Analysis

The systematic monitoring of common carrier activities and
commercial conditions in the U.S. foreign trades is an integral part of the
Commission’s responsibilities under the Shipping Act. Such monitoring
helps ensure that such carriers comply with the statutory standards of the
Shipping Act and the requirements of relevant Commission regulations.
To that end, the Bureau administers a variety of monitoring programs and
other research activities designed to keep it informed of current trade
conditions, emerging commercial trends, and carrier pricing and service
activities.

The importance the Commission attaches to its monitoring
activities is a direct consequence of the removal, under the Shipping Act,
of the Commission’s previous discretion to disapprove agreements, as well
as the exhortations of OSRA’s drafters that the Commission thoroughly

93


Collectively, all of the service changes that occurred in the
U.S./North Europe trade during the fiscal year resulted in an increase of
about 25 percent in annualized vessel capacity deployed in each trade
direction. The substantial increase in vessel capacity, combined with weak
cargo growth, reduced average vessel capacity utilization. As a
consequence freight rates also fell. Some industry analysts speculated that
by the end of calendar year 2006, freight rates in the trade would fall by 15
to 25 percent below the levels at the start of the year.

As a condition for the purchase of CP Ships, the European
Commission required Hapag-Lloyd to withdraw from the Trans-Atlantic
Conference Agreement. In addition, with its membership in TACA
absorbed into Maersk Line, P&O Nedlloyd formally resigned from the
conference in February 2006. These changes reduced the market share of
TACA members from approximately 50 percent to 40 percent in both
directions. The weakened market position of TACA, coupled with excess
capacity in the trade, thwarted the conference’s rate initiatives. TACA
implemented three moderate general rate increases in both trade directions
at the start of the first three quarters of the fiscal year. Further, the
conference announced plans to phase in additional 2006 general rate
increases (“GRIs”) on the first of July and October. As freight rates
eroded in the trade, the conference’s general rate increases (“GRIs”) were
largely ineffective, and TACA canceled its plans for further GRIs for the
immediate future.

In September 2006, the Council of the European Union voted to
repeal the block exemption for liner shipping conferences (Council
Regulation 4056/86). The repeal is scheduled to take effect in October
2008. Thereafter, liner carriers operating on routes serving EU nations
must comply with the EC Treaty competition rules, which prohibit, among
other things, price-fixing and capacity regulation. To assist the industry in
this transition, the EC plans to issue guidelines on the application of the
competition rules to maritime transport prior to October 2008. Notably,
the EU renewed the block exemption that allows ocean carriers to form
certain operational agreements that do not include price fixing and are
subject to certain market share restrictions until 2010 (EC Regulation
611/2005).


During fiscal year 2006, Commission staff mediated six disputes.
Of significance, Commission mediators resolved a dispute involving a
major port and two marine terminal operators. This matter involved
allegations by one operator that the port’s actions would drive it out of
business. Through the mediation process, the parties reached agreement
on all issues, enabling all parties’ needs to be met and avoiding litigation
that was likely to be protracted.

Another example of successful dispute resolution facilitated by
Commission staff involved a significant dispute concerning detention
charges. In this matter, an NVOCC had collected substantial charges from
a consignee in anticipation of potential equipment detention charges
which, in fact, had not been charged by the ocean common carrier. A
resolution was reached among the consignee, NVOCC, and ocean carrier
with Commission staff mediation.

The Office of Consumer Affairs and Dispute Resolution Services
(“CADRS”) also provided substantial ombudsman services to the shipping
public by assisting consumers and other complaining parties in resolving a
number of problems without resorting to litigation.

During fiscal year 2006, approximately 3,632 complaints and
information requests were processed. Of those, 632 complaints required
ombudsman dispute resolution services. These included 221 complaints
about cruise issues, 178 household goods matters, and 233 other matters
affecting cargo shipments. Complaints involving the transportation or
handling of cargo continued to increase, partly due to the Commission’s
revitalized focus on informal and non-adjudicatory means of complaint
resolution, and to the increased awareness of Commission assistance
available through electronic and other means of communication.

Conversely, fewer complaints were received from individuals
concerning household goods shipments relative to fiscal year 2005. The
decrease is primarily attributable to improved outreach and the
Commission’s formal investigation of several problem movers. In
addition to opening the proceeding, injunctions were obtained against
several companies and individuals to prohibit their continued operation.
As a result, several entities ceased operations, thereby substantially
reducing the numbers of complaints against those entities. Despite the

14


7. Controlled Carriers

A controlled carrier is an ocean common carrier that is, or whose
operating assets are, owned or controlled directly or indirectly by a
government. The Shipping Act provides that no controlled carrier may
maintain rates or charges in its tariffs or service contracts that are below a
level that is just and reasonable, nor may any such carrier establish,
maintain, or enforce unjust or unreasonable classifications, rules or
regulations in those tariffs or service contracts. In addition, tariff rates,
charges, classifications, rules, or regulations of a controlled carrier may
not, without special permission of the Commission, become effective
sooner than the 30th day after the date of publication.

On May 5, 2005, the Commission published its most recently
updated list of controlled carriers in the Federal Register to supersede the
list published on June 9, 2003. The Commission’s staff monitors U.S. and
foreign trade press to ensure accurate identification of controlled carriers,
and to detect early indications of any unjust or unreasonable controlled
carrier activity that might require Commission action.

8. Marine Terminal Activities

Pursuant to OSRA, an MTO may make available to the public,
subject to section 10(d) of the Shipping Act, a schedule of rates,
regulations, and practices, including limitations of liability for cargo loss
or damage, pertaining to receiving, delivering, handling, or storing
property at its marine terminal. Any such schedule made available to the
public shall be enforceable by an appropriate court as an implied contract
without proof of actual knowledge of its provisions. Pursuant to the
Commission’s regulations governing MTO schedules, any terminal
schedule that is made available to the public must be available during
normal business hours and in electronic form. Each MTO must notify the
Bureau of the electronic location of its terminal schedule by submitting
Form FMC-1 before commencing operations. A total of 251 MTOs have
filed Form FMC-1. At the close of fiscal year 2006, of these, 171 have
published their terminal schedules. The internet addresses for these MTO
terminal schedules were posted on the Commission’s website.

o7


In the fiscal year, carriers serving the Africa trade expanded their
operations and added some new services. For example, Delmas, now a
part of CMA-CGM, began a relay service connecting the U.S.
Atlantic/Gulf Coast, West Africa, and Europe through the port of Le
Havre, France. Grimaldi Lines inaugurated a new service between the
U.S. Atlantic Coast and West Africa for container and roll-on/roll-off
cargo. Hapag-Lloyd also initiated a new liner service between the U.S.
Atlantic Coast and South Africa with calls at ports along the Coast of
West Africa on the outbound leg from the United States. In addition,
Safmarine Container Lines N.V. (“Safmarine”), a subsidiary of Maersk
Line, started a new service between the U.S. Atlantic Coast and West
Africa.

Agreement changes were comparatively few this year. In the
preceding fiscal year, the U.S./Southern Africa Conference and the U.S.A.-
Southern and Eastern Africa Discussion Agreement had been terminated,
while members of the Southern Africa/Oceania Agreement had revised the
disbursement of earnings under their revenue pooling provisions and had
increased the number of vessels deployed in their America Express
service.

I. WORLDWIDE

The world’s container trades continued their strong expansion in
fiscal year 2006. World container traffic volumes reached around 125
million TEUs, more than 13 percent greater than the level reached at the
end of fiscal year 2005. Expansion of the U.S. container trades, however,
was more subdued. During the year, the total number of containers
imported to and exported from the U.S. reached almost 29 million TEUs,
or just under nine percent more than in fiscal year 2005. The U.S.
container trades represent about 23 percent of the total volume of cargo
shipped worldwide. U.S. container imports increased almost 12 percent in
fiscal year 2006 to reach 19.5 million TEUs, but U.S. container exports
expanded by less than three percent to reach just over nine million TEUs.
For every loaded container exported from the U.S., more than two were
imported.

26


APPENDIX E

CIVIL PENALTIES COLLECTED
Fiscal Year 2006

American First International .
Interglobo Morra, NA .
Norton Line, Inc.. ...
Sea-Land Service, Inc.
Sobe Enterprise, Inc...

20,000.00

Star Freight Solutions, In .. 22,000.00
Willy Express Shipping, Inc. ........ccsssscsesessssesssssesseeseessseseesseseeay 20,000.00

Total Civil Penalties Collected ............cccssseseeseeeeseeeeeee $1,042,000.00

107


Government of the Territory of Guam v. Sea-Land Service, Inc. and
American President Lines, Ltd., served July 11, 2005. Horizon Lines,
LLC (the successor company to Sea-Land) and American President Lines,
Ltd., appealed the Commission’s June 1, 1998 Order, which found them to
have collected excess revenues in violation of the Shipping Act, 1916.
The Government of Guam appealed both Orders. The Commission, in the
July 11, 2005 Order, found that the Government of Guam did not prove
damages and denied reparations and dismissed the proceeding. The
appeals of the June 1, 1998 Order were made at this time because that
Order did not become final for purposes of court appeal until the
Commission completed the final phase of the proceeding with the issuance
of its July 11, 2005 Order. The Court consolidated the three proceedings.
On April 5, 2006, the Court granted a motion by the Government of Guam
to withdraw its appeal, thereby terminating its role in the appeal of the
Commission’s Orders. Shortly after the Court’s dismissal of the
Government of Guam’s appeal, APL and Horizon Lines filed motions to
withdraw their separate appeals. The Court granted APL’s and Horizon’s
motions and dismissed the remaining consolidated proceedings by order
dated June 12, 2006. As a result of the dismissals of all appeals, the
litigation which began 17 years ago with the filing of the Government of
Guam’s complaint with the Commission has concluded.

Federal Maritime Commission y. All-In-One Shipping, Inc., et al,. U.S.
District Court for the Southern District of Florida, Case No. 06-60054
— Civ.

On January 11, 2006, the Commission commenced Docket No. 06-
01 by issuing an Order of Investigation and Hearing to determine whether
nine household goods moving companies and their owners and/or primary
corporate officers (14 individuals) were operating in violation of sections
8, 10, and 19 of the Shipping Act by operating as NVOCCs without
obtaining a license, without providing proof of financial responsibility,
without publishing an electronic tariff, and by failing to establish, observe,
and enforce just and reasonable regulations and practices related to
receiving, handling, storing, or delivering property.

The U.S. District Court for the Southern District of Florida issued

a preliminary injunction by Order dated January 17, 2006, at the request of
the Commission. The injunction enjoins four of the household goods

50


APPENDIX B

COMMISSION PROCEEDINGS
Fiscal Year 2006

Formal Proceedings

Discontinuances, Dismissals and Settlements .........00. 7

Informal Dockets...

104


2. Office of Human Resources

(a)

General Office Responsibilities

The Office of Human Resources (“OHR”) plans and administers a
complete human resources management program, including recruitment
and placement, position classification and pay administration,
occupational safety and health, employee assistance, employee relations,
workforce discipline, performance management and incentive awards,
employee benefits, career transition, retirement, employee development
and training, and personnel security.

(b)

Achievements

During fiscal year 2006, OHR:

Monitored the activities of the agency’s
payroll/personnel service provider, National Finance
Center (“NFC”), and worked with OFM on
conversion to a web-based _ time-and-attendance
reporting system.

Worked with senior management to recruit and staff
employee development programs and _ activities to
address succession planning.

Conducted a comprehensive training program,
including drafting agency policy on training and
employee development, providing executive training for
SES candidates, continuing the college tuition
reimbursement program, ensuring training for new
employees on the No FEAR Act was accomplished, and
participating in the SAC Training Program.

Conducted a comprehensive personnel security
program, including completing work necessary for
reporting and updating data in the Clearance
Verification System pursuant to the E-clearance

68


C. INDIAN SUBCONTINENT AND
THE MIDDLE EAST

Two major agreements cover the U.S. outbound trade to the Indian
Subcontinent and Middle East: the Middle East Indian Subcontinent
Discussion Agreement (“MIDA”) and the Westbound Transpacific
Stabilization Agreement (“WTSA”). U.S. container exports in fiscal year
2006 declined by five percent to the Indian Subcontinent and by two
percent to the Middle East. During the fiscal year, the U.S. exported
approximately 220,000 TEUs to the Indian Subcontinent’ and 280,000
TEUs to the Middle East.

MIDA’s geographic scope covers U.S. exports to the Middle East
and the Indian Subcontinent primarily via service from the U.S. Atlantic
and Gulf coasts, and has a 50 percent share of that market. During the
fiscal year, American President Lines resigned from MIDA, causing the
market share of the Agreement to drop by approximately ten percent.

WTSA’s geographic scope covers U.S. exports to the Indian
Subcontinent primarily via service from the U.S. Pacific coast, and
maintains a 35 percent share of the market for the Indian Subcontinent.
WTSA had no changes in carrier membership.

Only one rate discussion agreement covers the U.S. inbound trade
from the Indian Subcontinent, the Jndian Subcontinent Discussion
Agreement (“ISDA”). It has a market share of approximately 35 percent.
U.S. container imports for fiscal year 2006 grew by 16 percent from the
Indian Subcontinent and by three percent from the Middle East. The U.S.
imported approximately 660,000 TEUs from the Indian Subcontinent! and
160,000 TEUs from the Middle East.

During the summer, CMA-CGM, Zim, Shipping Corporation of
India, Emirates Shipping Line, and MacAndrews & Co., Limited
(‘“MacAndrews”) joined ISDA. However, the two major carriers active in
this trade lane, Maersk Line and American President Lines, whose

1

Since the Annual Report for fiscal year 2005 was published, the geographic
definition of the Indian Subcontinent has been revised. The volume figures for this year,
therefore, are not directly comparable with those published last year.

20


obtaining statutory compliance, ensuring equitable trading conditions, and
focusing enforcement efforts on activities having market-distorting effects.

The Bureau prepares and serves notices of violations of the
shipping statutes and Commission regulations and may compromise and
settle civil penalty demands arising out of those violations. Other Bureau
investigations may be resolved through compliance measures. Bureau
attorneys represent the Commission in formal Commission proceedings
that may result in the assessment of civil penalties. The Bureau also
participates, in conjunction with other bureaus, in special enforcement
initiatives, fact-finding investigations, and rulemaking efforts.

During fiscal year 2006, the Bureau of Enforcement investigated
and prosecuted possible violations in many trade lanes, including the
transpacific, North Atlantic, North and West African, Central and South
American and Caribbean. The Bureau also initiated actions to address
market-distorting activities such as rebates and absorptions,
misdescriptions of commodities and misdeclarations of measurements,
illegal equipment substitution, unlawful use of service contracts, as well as
carriage of cargo by and for untariffed and unbonded NVOCCs and joint
carrier activities outside the authority of agreements or pursuant to unfiled
agreements. Emphasis was placed on industry service contracting
activities to ensure fair trading conditions and protection of the public.
Most of these investigations resulted in compromise settlements of civil
penalties or were treated as compliance matters and closed without action.
However, certain investigations of NVOCCs and ocean common carriers
have required the institution of formal adjudicatory proceedings in order to
pursue remedies under the Shipping Act.

In addition to malpractice activity, several matters arose with
respect to activities pursuant to filed and unfiled agreements between and
among ocean common carriers. A major enforcement action was
continued into the operations of unlicensed and unbonded NVOCCs
specializing in the carriage of used household goods, and was expanded to
include licensed OTIs providing service to the unlicensed. Also, an
investigation into an exclusive arrangement among passenger/passenger
vehicle carriers in the Portland/Nova Scotia trade was completed with
termination of the agreement.

86


THE COMMISSION

A. HISTORY

The Federal Maritime Commission (“Commission” or “FMC”)
was established as an independent regulatory agency by Reorganization
Plan No. 7, effective August 12, 1961. Prior to that time, the Federal
Maritime Board was responsible for both the regulation of ocean
commerce and the promotion of the United States Merchant Marine.
Under the reorganization plan, the shipping laws of the U.S. were
separated into two categories -- regulatory and promotional. The
responsibilities associated with the promotion of an adequate and efficient
U.S. Merchant Marine were assigned to the Maritime Administration, now
located within the Department of Transportation. The newly-created FMC
was charged with the administration of the regulatory provisions of the
shipping laws.

The Commission is responsible for the regulation of oceanborne
transportation in the foreign commerce of the U.S. The passage of the
Shipping Act of 1984 (“Shipping Act”) brought about a major change in
the regulatory regime facing shipping companies operating in the U.S.
foreign commerce. The subsequent passage of the Ocean Shipping
Reform Act of 1998 (“OSRA”), with its deregulatory amendments and
modifications to the Shipping Act, further signaled a significant shift in
shipping regulation.

B. FUNCTIONS

The principal statutes administered by the Commission are the
Shipping Act, the Foreign Shipping Practices Act of 1988 (“FSPA”),
section 19 of the Merchant Marine Act, 1920 (“1920 Act”), and Pub. L.
No. 89-777. Most of these statutes were amended by OSRA.


initiative, and collaborating with the U.S. Customs and
Border Protection (“CBP”) to gain access to the CBP
Automated Commercial Environment/International
Trade Data System.

Conducted a comprehensive performance management
and incentive awards program, and _ continued
working with senior management to assess the
performance appraisal system, making
recommendations changes to simplify and streamline
the program.

Conducted a comprehensive recruitment program
utilizing flexibilities and recruitment alternatives to staff
critical positions.

Coordinated with OPM, OMB, and pertinent partners
on a variety of human capital initiatives related to
accomplishment of action items pursuant to the
President’s Management Agenda.

Maintained the partnership for acquisition of assistive
devices through the Department of Defense’s
Computer/Electronic Accommodations Program.

Promoted the Preventive Health and Awareness
Program by hosting wellness seminars and issuing
notices focusing on health issues, and conducted
employee benefit and charitable contribution programs
and Open Seasons.

Oversaw preparation for implementation of the
Enterprise Human Resources Integration project, and
administered other E-Gov initiatives such as
Recruitment One-Stop, E-payroll, E-clearances, E-
learning and the Fast-Track implementation of E-
OPF.

69


(c) Future Plans

In fiscal year 2007, the Office’s objectives include: completing the
transition of the voice telecommunication functions to OIT; working with
GSA, Department of Homeland Security, and other tenant agencies at
Headquarters facilities and field locations to upgrade and/or improve the
buildings’ security measures and emergency preparedness; continued
participation in the Emergency Managers Committee to enhance the
coordination of emergency preparedness-related activities and events; and
providing advice and assistance to FMC activities regarding innovative
support services.

75


SENIOR COMMISSION OFFICIALS

Counsel to the Chairman ........... Lucille L. Marvin
General Counsel .................. Amy W. Larson
Secretary ...........00 cesses Bryant L. VanBrakle
Administrative Law Judge ........... Clay Guthridge

Director, Office of
Equal Employment Opportunity ... Carmen G. Cantor

Inspector General ...............005 Adam Trzeciak
Director of Administration ..... Bruce A. Dombrowski
Director of Operations ............ Austin L. Schmitt

Director, Bureau of Certification
and Licensing ............... Sandra L. Kusumoto

Director, Bureau of Enforcement ........ Vern W. Hill

Director, Bureau of
Trade Analysis ................5- Florence A. Carr

- vit -


APPENDIX A

FEDERAL MARITIME COMMISSION
ORGANIZATION CHART

Fiscal Year 2006
Commissioner Commissioner Chairman Commissioner Commissioner
Ofice of qual | fice of tHe | oe fice of fe of Office of the Office of
Employment Inspector ‘eee Cperatins | Adnan General Administrative
Opportunity General ay rs Counsel Law Judges
Office of
Consumer
Bureau of Office of
Mfairs and
Certification and Financial
Dispute Licensin Hanagement
Resolution ® e
Services

Bureau of Trade

Office of Human

Analysis Resources
Ofice of
Bureau of
Information
Enforcement
Technology
Area
Representatives
New York Office of
Los Angeles Management
New Orleans Services
Seattle

South Florida

103



security infrastructure, continue to improve data and _ wireless
telecommunications services and support; continue to improve the capital
planning and investment control process; continue to provide assistance,
as needed, in the updating of the Commission’s website to provide
information to the public; support the Pay.gov initiative; and continue to
research new technology through the IT Test Lab and User Support
Center.

4. Office of Management Services

(a) General Office Responsibilities

The Office of Management Services (“OMS”) directs and
administers a variety of management services functions that principally
provide administrative support to the regulatory program operations of the
Commission. The Director of the Office serves as the Commission’s
Contracting Officer.

The Office’s support programs include telecommunications,
procurement of administrative goods and services, property management,
space management, printing and copying management, mail and records
services, facilities and equipment maintenance, and transportation. The
Office’s major functions are to secure and furnish all supplies, equipment
and services required in support of the Commission’s mission, and to
formulate regulations, policies, procedures, and methods governing the
use and provisions of these support services in compliance with the
applicable Federal guidelines.

(b) Achievements

During fiscal year 2006, OMS:

. Coordinated and oversaw the construction alterations
at the agency’s Headquarters facility required to

accommodate the reorganization of August 2004,

. In coordination with the Office of Operations,
reestablished appropriate program oversight of the

73


10. Future Plans

During fiscal year 2007, the Bureau intends to research the
activities of some of the newer MTO and VOCC agreements, such as
PierPASS, the Los Angeles and Long Beach Port Infrastructure and
Environmental Programs Cooperative Working Agreement, and various
chassis pool agreements, to determine their impact and effectiveness and
to identify any concerns of affected parties. The Bureau will also strive
for initial or upgraded automation of several of its data collection
processes, including SERVCON filings, NSA and service contract
registration forms, carrier and MTO agreements, agreement minutes and
required reports.

The Bureau will review service contract and NSA filings; assess
compliance with tariff publication requirements; monitor the activities of
common carrier and MTO agreements; assist other bureaus by providing
relevant information and analysis; and implement a variety of industry
research projects covering issues likely to affect the commercial and
regulatory environment for liner shipping in U.S. foreign trades, including
in-depth inquiries into carrier behavior in specific trade lanes.

99




During fiscal year 2006, 120 bills, proposals and Congressional
inquiries were referred to the Office of the General Counsel for comment.
The Office prepared and coordinated testimony for the agency’s fiscal
year 2007 budget authorization hearing before the U.S. House of
Representatives Committee on Transportation and Infrastructure,
Subcommittee on Coast Guard and Maritime Transportation. In addition,
the Office assisted in the written testimony for the agency’s fiscal year
2007 budget requests submitted to the U.S. Senate Committee on
Appropriations, Subcommittee on Transportation, Treasury, the Judiciary,
HUD, and Related Agencies. The Office also consulted with
Congressional staff on the continuing efforts to revise, codify, and enact
certain maritime laws as part of Title 46, U.S. Code, Shipping.

In fiscal years 2007 and 2008, the Office will continue to take the
lead in providing assistance and technical advice to Congress regarding
issues for possible legislative consideration, with particular emphasis on
port and maritime security initiatives. The Office will recommend
legislative and regulatory amendments as necessary to ensure uniformity
with other federal initiatives to allow for the efficient and secure flow of
ocean transportation. Additionally, the Office will continue to serve as
liaison with other federal agencies with respect to port and maritime
security.

4. Foreign Shipping Restrictions and International
Affairs

The General Counsel is responsible for the administration of the
Commission’s international affairs program. The General Counsel
monitors potentially restrictive foreign shipping laws and practices, and
makes recommendations to the Commission for investigating and
addressing such practices. The Commission has the authority to address
restrictive foreign shipping practices under section 19 of the 1920 Act and
the Foreign Shipping Practices Act (“FSPA”). Section 19 empowers the
Commission to make rules and regulations governing shipping in the
foreign trade to adjust or meet conditions unfavorable to shipping. The
FSPA directs the Commission to address adverse conditions that affect

52


practices, undue or unreasonable preferences, and undue or unreasonable
prejudice or disadvantage, such complaints are appropriately before the
Commission.

Sea-Land Service Inc. - Possible Violations of Sections 10(b)(1),
10(b)(4) and 19(d) of The Shipping Act of 1984 [Docket No. 98-06], 30
S.R.R. 872 (February 8, 2006).

The Commission issued an Order of Investigation and Hearing on
April 24, 1998, to determine whether Sea-Land Service, Inc. (‘‘Sea-
Land”), a VOCC, violated the Shipping Act by substituting larger
containers for smaller ones for certain NVOCCs and charging those
NVOCCs rates lower than it lawfully should have charged based on the
amount of cargo actually loaded into the larger containers. The Order also
alleged that Sea-Land paid forwarder compensation to certain freight
forwarders who did not perform forwarding services.

By Order dated February 8, 2006, the Commission affirmed the
ALJ’s rulings that Sea-Land violated sections 10(b)(1) by failing to collect
the rates contained in its applicable tariff and 10(b)(4) by failing to collect
the applicable rate through an unjust device or means. The Commission
vacated the $4,082,500 penalty assessed by the ALJ and imposed instead a
penalty of $820,000 for the violations.

2. Litigation

The General Counsel represents the Commission in litigation
before courts and other administrative agencies. Although the litigation
work largely consists of representing the Commission upon petitions for
review of its orders filed with the U.S. Courts of Appeals, the General
Counsel also participates in actions for injunctions, enforcement of
Commission orders, actions to collect civil penalties, and other cases
where the Commission’s interest may be affected by litigation.

48


and Hapag-Lloyd, AG (“Hapag-Lloyd”), respectively. Overall, service
changes resulted in a substantial increase in vessel capacity in both
directions. Excess vessel capacity, combined with weak cargo growth,
reduced carriers’ capacity utilization levels and led to a decline in freight
rates. With rate levels eroding in the trade, members of the Trans-Atlantic
Conference Agreement (“TACA”) canceled GRIs that had been planned.
In addition, TACA’s market share dropped from 50 to 40 percent with the
withdrawal of Hapag-Lloyd. On the regulatory front, the Council of the
European Union (“EU”) voted to repeal Council Regulation 4056/86, the
block exemption from the application of EU competition laws for liner
pricing agreements. The repeal is to become effective in October, 2008.
The European Commission (“EC”), on the other hand, renewed the block
exemption for non-pricing agreements among liner carriers (“consortia”)
until 2010.

In the U.S./Mediterranean trade, U.S. export cargo volumes
declined, and import cargo grew by only a fraction. The imbalance of
cargo volume between inbound containers and outbound containers
reached a ratio of 2.2 to 1. Both Maersk Line and Hapag-Lloyd
reconfigured and upgraded their services in the trade with the additional
vessel capacity from their carrier acquisitions. Other carriers introduced
new service strings, including Mediterranean Shipping Co. (“MSC”) with
six vessels deployed between the U.S. Atlantic/Gulf Coasts, Mexico, and
the Mediterranean. With additional excess capacity in the trade,
utilization levels fell even lower than in the preceding fiscal year, keeping
freight rates down. The U.S. South Europe Conference was terminated
after Hapag-Lloyd withdrew its membership and Maersk Line purchased
P&O Nedlloyd.

In the liner trade between the U.S. and Australia/Oceania, U.S.
export cargo to the region fell by nine percent during the fiscal year, and
import cargo remained essentially unchanged. A series of mergers and
acquisitions among carriers left the trade highly concentrated. By the
fiscal year’s end, three carriers (Hapag-Lloyd, Maersk Line, and
Hamburg-Siid) handled nearly 80 percent of the total liner cargo moved in
the trade.

10


attributable to improved outreach and the Commission’s institution of a
formal investigation of several problem movers. In addition to opening
the proceeding, injunctions were obtained against several companies and
individuals to prohibit their continued operation. As a result, several
entities ceased operations, thereby substantially reducing the number of
complaints against those entities.

Information about the Commission’s services has been
disseminated by consumers through websites for those experiencing
moving problems. In addition, the Commission’s website was expanded
to provide consumer advice and to caution consumers to deal only with
properly licensed OTIs. As a result, we received more inquiries from
consumers searching for a valid OTI and correspondingly fewer post-
shipment complaints.

Consumers increasingly are using the internet in order to find a
means of shipping their personal effects internationally. While there are
many efficiencies with internet usage, some entities find it particularly
effective to prey on unsuspecting consumers by offering services through
very sophisticated websites. These entities usually are unlicensed and
often operate only through a website that does not identify a correct
address or name of the entity. Such entities tend to offer very low prices
to entice customers. Once payments have been received and goods have
been picked up from the consumer’s household, significant delays often
are encountered, and additional payments demanded to continue with the
shipment. Some customers have experienced lost cargo or delivery delay
of up to one year, and have had to pay twice for the same ocean
transportation services. A great deal of staff time was devoted to simply
assisting customers in locating their household goods, and once located,
working with respondents, licensed OTIs, and others to enable customers
to retrieve their goods.

In one case, for example, intervention by Office staff resulted in
the release of household goods being held at a German warehouse for
nonpayment by a rogue mover. The consumer had been able to locate his
property, but the warehouse had refused to release it, as the mover owed
the warehouse for other shipments. As a result of staff intervention, the
consumer was able to eventually obtain his goods. In another matter, a
container loaded with seven shippers’ household goods was on the verge

39


B. OFFICE OF THE
ADMINISTRATIVE LAW JUDGES

1. In General

Administrative Law Judges (“ALJs”) manage the development of
an evidentiary record through rulings and conferences with counsel for the
litigating parties, rule upon dispositive motions, and preside at hearings
held after the receipt of a complaint or institution of a proceeding on the
Commission’s own motion.

The Office of ALJs has the authority to administer oaths and
affirmations, issue subpoenas; rule upon offers of proof and receive
relevant evidence; take or cause depositions to be taken whenever the ends
of justice would be served thereby; regulate the course of the hearing; hold
conferences for the settlement or simplification of the issues by consent of
the parties; dispose of procedural requests or similar matters; make
decisions or recommend decisions; and take any other action authorized
by agency rule consistent with the Administrative Procedure Act.

At the beginning of fiscal year 2006, ten formal proceedings and
two informal proceedings were pending before the Office of ALJs.
During the year, eight formal cases and one informal case were added.
The Office of ALJs issued initial decisions in three formal and three
informal proceedings, and six formal proceedings were dismissed.

43


a Continued enhancements to the OIT Test Lab and User
Support Center for testing hardware and software and
to provide user assistance.

a Updated the FMC Enterprise Architecture Plan and
System Development Lifecycle Plan.

a Initiated improvements to the virtual private network
portion of the network security infrastructure.

= Improved IT compliance with FISMA and_ the
President’s Management Agenda by reviewing FMC
systems, conducting Security Assessments and
completing Certification and Accreditation packages.

a Continued the development and enhancement of FMC
systems to automate processes consistent with the E-
Government Act.

. Continued to update the policies and procedures
associated with the technical assistance provided to
FMC staff and changes in the IT infrastructure.

(c) Future Plans

Major OIT initiatives for fiscal year 2007 include plans to: ensure
compliance with government programs such as FISMA and the
President’s Management Agenda; implement electronic filing of a new
automated Form FMC-18; update the FMC Enterprise Architecture Plan;
continue to develop plans to stabilize all critical systems and recommend
enhancements to the existing IT infrastructure; begin development of a
new Regulated Persons Index and automated Form FMC-1; implement a
new PIERS system; facilitate the Commission’s ability to take advantage
of e-commerce; complete the IPv6 upgrade and upgrade existing
applications for interoperability with IPv6; continue to investigate options
to partner with other agencies’ initiatives to better serve the public in the
dissemination and collection of information; begin the analysis for
upgrading the existing desktop operating system, software, applications,
and equipment; continue to improve the VPN piece of the network

72


In fiscal year 2006, the Commission was authorized a total of 180
full-time equivalent positions and had a total appropriation of
$20,294,010. That appropriation supported the actual employment of 121
full-time equivalent positions during the fiscal year. While the majority of
its personnel is located in Washington, D.C., the Commission has Area
Representatives in New York, New Orleans, Los Angeles, South Florida
and Seattle.


unaffiliated NVOCCs to jointly offer NSAs. On August 30, 2005, the
Commission issued a Notice of Inquiry, seeking comments on such joint
NSA authority. 70 Fed. Reg. 52345 (September 2, 2005). The responses
to that inquiry are currently under review by OGC.

(b) Decisions

Anchor Shipping Co. v. Alianca Navegacao E Logistica Ltda., [Docket
No. 02-04], 30 S.R.R. 991 (May 10, 2006).

This proceeding was initiated by a complaint filed by Anchor
Shipping Co. (“Anchor”) against Alianca Navegacao E Logistica Ltda.
(“Alianca’”’). Anchor, an NVOCC, alleged that Alianca, an ocean common
carrier, violated numerous sections of the Shipping Act during the course
of its service contract with Anchor. Anchor sought $1,000,000 in
reparations.

Prior to filing its complaint with the Commission, Anchor and
Alianca participated in binding arbitration. After reviewing the evidence,
the arbitrator issued a decision in which Anchor was awarded over
$381,000, which Alianca paid. Following the issuance of the arbitrator’s
decision, Anchor filed its complaint with the Commission. In response,
Alianca filed a motion to dismiss.

The ALJ issued an Order dismissing Anchor’s complaint. The
ALJ determined that it would be unfair and unjust to allow Anchor to
litigate a claim that had been previously settled in arbitration. Anchor
appealed the ALJ’s ruling to the Commission.

The Commission issued an Order vacating the ALJ’s dismissal
order and remanding the proceeding to an ALJ for further adjudication.
The Commission held that precluding Anchor from filing its complaint
merely because it had previously participated in private arbitration would
be inconsistent with the agency’s statutory mandate. The Commission
further explained that arbitration would be appropriate to resolve breach of
contract claims, but it cannot prohibit the Commission from exercising its
statutory obligations. Specifically, when a complaint contains allegations
specific to the Shipping Act such as unfair or unjustly discriminatory

47




The OA Director is the FMC’s Chief Acquisition Officer (“CAO”),
Audit Follow-up and Management (Internal) Controls Official, and Forms
Control Officer. The Director also represents the FMC as Principal
Management Official to the Small Agency Council (“SAC”). As the Chief
Financial Officer, the Director provides program oversight for the
agency’s budget and financial management responsibilities, and ensures
agency compliance with the Financial Integrity Act, the Antideficiency
Act, and the Debt Collection Improvement Act of 1996. The Director also
serves as the agency’s lead executive for strategic planning and
implementation of the Government Performance and Results Act of 1993
(“GPRA”).

The Deputy Director of Administration is the FMC’s Chief
Information Officer (“CIO”). The CIO oversees the Office of Information
Technology operations and activities administered under the Clinger-
Cohen Act of 1996, as well as other applicable laws which prescribe
responsibility for operating the program. As the FMC’s Competition
Advocate, the Deputy Director challenges barriers to competition, reviews
procurement practices, and reports to the CAO as required. The Deputy
Director also serves as Records Management Officer.

The Office of Administration had significant programmatic
achievements in fiscal year 2006. The Office guided the agency’s
continuing efforts to enhance its IT program; during the fiscal year the
agency mitigated two material weaknesses and addressed the final
outstanding recommendations made by the IG through a contractor
assessment of agency IT operations. The agency received an unqualified
opinion in its fiscal year 2006 financial statement audit. The Office again
directed preparation of the Annual Performance Plan and the Annual
Program Performance Report, as required by GPRA. The Office also
prepared the Federal Activities Inventory Reform Act report, the
Performance and Accountability Report (which included — the
Management’s Discussion and Analysis), the Federal Managers Financial
Integrity Act report, and transmittal letters for the IG’s semiannual reports
to Congress. Also, the Office coordinated completion of the agency’s 44”
Annual Report, and prepared the agency Regulatory Plan and Semiannual
Unified Agendas. Additionally during the fiscal year, the Office directed
the update of the internal Commission issuances that specify procedures
for a variety of programs and activities, and guided Commission efforts to

64


B. MEDITERRANEAN

During fiscal year 2006, liner cargo volumes were weak in both
directions of the U.S./Mediterranean trade. U.S. export volumes to the
Mediterranean contracted by 1.45 percent, as compared to a 4.7 percent
increase in fiscal year 2005. Import cargo from the region to the U.S.
grew by only 0.3 percent, down from a 0.7 percent increase in the
preceding fiscal year. Ultimately, the imbalance of cargo volume
remained high. For every TEU that moved outbound from the U.S., 2.2
TEUs moved inbound from the Mediterranean.

As in the other trades, consolidation among major carriers through
acquisitions led to a restructuring of operational arrangements and services
in the Mediterranean, and also ushered in additional vessel capacity. For
example, both loop services operated by P&O Nedlloyd through its vessel
sharing agreements with Hapag-Lloyd and Zim Integrated Shipping
Services, Ltd (“Zim”) were terminated in April 2006. However, Maersk
Line absorbed and reconfigured the capacity of P&O Nedlloyd into two
new. loops serving the Western and Eastern sectors of the Mediterranean
trade. In addition, Hapag-Lloyd took over and upgraded the service loops
of CP Ships, and entered into a space sharing arrangement with Zim under
the Hapag-Lloyd/Zim Mediterranean Slot Exchange Agreement.

Overall, as a result of the service changes by the end of the fiscal
year, annualized vessel capacity increased by 12 percent in each direction
of the trade. Utilization of vessel capacity was relatively weak, and
carriers competed to fill excess space, keeping freight rates at low levels.
On average, the quarterly utilization of vessel capacity over the fiscal year
was 38.1 percent outbound and 74.8 percent inbound, representing a
decline in each trade direction from the preceding fiscal year.

The U.S. South Europe Conference was effectively eliminated by
the withdrawal of Hapag-Lloyd and the purchase of P&O Nedlloyd by
Maersk Line. The conference agreement was terminated in February
2006.

19




D. OFFICE OF EQUAL
EMPLOYMENT OPPORTUNITY

The Office of Equal Employment Opportunity (“EEO”) follows
Federal EEO and personnel management laws, concepts, procedures, and
regulations to develop, implement, and manage a comprehensive model
program of equal employment opportunity. The EEO program is
statutorily mandated with required activities in complaints processing,
adjudication, affirmative employment program planning, workforce
diversity management, special emphasis programs, community outreach,
monitoring, and evaluation.

The Chairman of the FMC, who is responsible for ensuring equal
opportunity in the Commission, has delegated this authority to the
Director of Equal Employment Opportunity. However, operational
responsibility for compliance with EEO policies and programs lies with
the Commission’s managers and supervisors.

The Office of EEO advises and assists the Chairman, the
Commissioners, and other principal officers of the Commission in
carrying out their responsibilities relative to Titles VI and VII of the Civil
Rights Act of 1964, other laws, executive orders, and regulatory
guidelines. The Office of EEO is responsible for establishing and
maintaining a continuing affirmative program designed to promote equal
opportunity in every aspect of the Commission’s personnel policies and
practices.

The major functions of the Office of EEO are Affirmative
Employment Programs/Diversity Outreach and Complaints Management.
Significant accomplishments in fiscal year 2006 include the following:

. Maintained an effective discrimination complaint

process that resolves issues informally and

expeditiously.

= Continued non-discrimination policy and programs.

55


During the fiscal year, Commission staff addressed a number of
issues relating to the activities of ocean common carriers and marine
terminal operators in agreements on file at the FMC. One example of such
activity was oversight of PierPASS. PierPASS is a program designed to
alleviate road and port congestion by allowing terminals to remain
operational during off-peak hours and weekends. PierPASS was
implemented in July 2005 by 13 MTOs at the ports of Los Angeles and
Long Beach under the West Coast MTO Agreement. To encourage use of
terminals during off-peak hours, PierPASS assesses a fee on each
container of cargo transported by motor carrier through the terminals
during peak hours.

Although PierPASS is generally viewed as effective, some U.S.-
based shippers of export cargo alleged that the fee was unreasonable
relative to the profit margins earned on their products overseas.
Commission staff met with a number of U.S.-based shippers, executives of
PierPASS, and Los Angeles city officials to gain firsthand knowledge of
the relevant issues. In addition to its standard reporting requirements, the
Commission has also imposed special quarterly reporting requirements on
the PierPASS program, and maintains close scrutiny of the Agreement to
continually assess the reasonableness of the MTO members’ activities.

On other agreement matters, Commission staff conducted an in-
depth economic analysis of the revenue pooling arrangement between
carrier members that share vessel space under the Southern
Africa/Oceania Agreement. In March 2005, parties to that Agreement
filed a modification capping the disbursement of revenues they receive
from their U.S. Atlantic Coast-South Africa service. After the
modification took effect, the staff continued to monitor the competitive
impact of the revenue cap and will report its findings to the Commission.

This year the staff also met with representatives of the Transpacific
Stabilization Agreement (“TSA”) on two occasions in accordance with the
terms of a 2003 settlement agreement following a Commission fact-
finding involving TSA members’ service contracting practices, FMC
Fact-Finding Investigation No. 25 — Practices of Transpacific
Stabilization Agreement Members Covering the 2002-2003 Service
Contract Season. Since the time of the settlement, the Commission has

12


IV

THE FOREIGN SHIPPING
PRACTICES ACT OF 1988

A. IN GENERAL

The Foreign Shipping Practices Act of 1988 (“FSPA”) became
effective on August 23, 1988. The FSPA directs the Commission to
investigate and address adverse conditions affecting U.S. carriers in U.S.
oceanborne trades, when such conditions do not exist for foreign carriers
in the U.S. under U.S. law or as a result of acts of U.S. carriers or others
providing maritime or maritime-related services in the U.S.

In fiscal year 2006, the Commission monitored potentially

unfavorable or discriminatory shipping practices by a number of foreign
governments. No FSPA action was taken in 2006.

29


The following is representative of matters litigated by the Office:

American Institute of Shipper’s Associations vy. Federal Maritime
Commission, D.C. Circuit, Case No. 05-1036; International Shippers’
Association vy. Federal Maritime Commission, D.C. Circuit, Case No.
05-1037.

This proceeding is an appeal of the FMC’s final rule and its order
denying rehearing, in Docket No. 04-12, Non-Vessel-Operating Common
Carrier Service Arrangements. In order to ensure that competition would
not be harmed, that rule forbade NVOCCs and shippers’ associations with
NVOCC members from acting as shippers in NSAs. The petitioners
sought to convince the Court of Appeals either that the Commission’s rule
is discriminatory against shippers’ associations with NVOCC members, or
that the rule is entirely beyond the scope of the agency’s authority. The
Court, on its own motion, consolidated Case Nos. 05-1036 and 05-1037.
On May 11, 2005, the following entities were granted leave to intervene in
support of the FMC’s rule: BAX Global Inc., FEDEX Trade Networks
Transport & Brokerage, Inc., National Industrial Transportation League,
Transportation Intermediaries Association, and United Parcel Service, Inc.
The Court also granted permission to the Fashion Accessories Shippers
Association (“FASA”) to participate as an amicus curiae. Following
amendments made by the Commission to the NSA rule, petitioners moved
for voluntary dismissal of the petitions. Amicus curiae, FASA, moved to
convert its status to intervenor, in order to continue the case. On January
12, 2006, the court issued a per curiam Order granting petitioners’
motions for voluntary dismissal of these consolidated proceedings. The
Court also denied FASA’s motion to intervene.

American President Lines vy. Federal Maritime Commission, D.C.
Circuit, Case No. 05-1288; Horizon Lines, LLC v. Federal Maritime
Commission, D.C. Circuit, Case No. 05-1289; Government of the
Territory of Guam v. Federal Maritime Commission, D.C. Circuit, Case
No. 05-1360.

These proceedings involved appeals of the Commission’s orders in

Docket No. 89-26, The Government of Guam, et. al. v. Sea-Land Service,
Inc. and American President Lines, Ltd., served June 1, 1998, and The

49


decrease in the number of household goods complaints from the previous
fiscal year, cases were relatively more complex and required more time to
resolve.

During the year, the failure of one small cruise operator generated
a number of complaints, with a number of passengers requiring assistance
to obtain refunds for cruises that were canceled. In addition, a number of
passengers were affected by certain vessels being taken out of service in
order to provide berthing accommodations in the wake of Hurricane
Katrina.

F. ENFORCEMENT

During fiscal year 2006, the Commission’s Bureau of Enforcement
investigated and prosecuted malpractices in many trade lanes, including
the transpacific, North Atlantic, Central and South American, North and
West Africa, Oceania, and Caribbean. These included market-distorting
activities such as various forms of rebates and absorptions, misdescription
of commodities and misdeclaration of measurements, illegal equipment
substitution, and unlawful use of service contracts, as well as carriage of
cargo by and for untariffed and unbonded NVOCCs. Most of these
malpractice investigations were resolved informally, some with
compromise settlements of civil penalties.

In addition to rate malpractice enforcement activity, several
matters arose with respect to activities pursuant to filed and unfiled
agreements between and among ocean common carriers. Further, an
investigation into an exclusive arrangement at Portland, Maine was
completed and the arrangement, which appeared to foreclose competition
among passenger/passenger-vehicle carriers in the Portland/Nova Scotia
trade, was terminated. A major enforcement effort also continued with
respect to a number of unlicensed and unbonded NVOCCs specializing in
the carriage of used household goods, and was expanded to include the
vessel operating common carriers (“VOCCs”) and licensed NVOCCs
providing service to such unlicensed and unbonded operators.


fiscal year 2006. New cruise operators continue to enter the industry, and
existing cruise lines continue to build and purchase additional vessels.
The annual delivery of new vessels has also decreased due to their
dramatically increased size. Additionally, the acquisition of niche-market
cruise lines changes the industry’s environment.

Cruise lines are developing new and creative ways of establishing
their required financial responsibility. As the cruise industry continues to
grow, the smaller cruise operators are still at an economic disadvantage in
terms of access to working capital to fund operations. During fiscal year
2006, Glacier Bay Cruise Lines, CQ Rivers Cruises LLC d/b/a Great
American Journeys, and Delphin Cruises ceased operation or left the U.S.
trade. Also, the Ambassadors Cruise Group acquired the vessels of
American West Steamboat Co. and Delta Queen Steamboat Company and
subsequently formed the Majestic American River Line.

During fiscal year 2006, the Bureau commenced an On-Site
Monitoring Program that evaluates PVO financial responsibility under 46
U.S.C. § 44103. This program is responsive to congressional concern for
the practices of PVOs generally with respect to protecting passengers’
advance deposits for transportation. The Bureau’s PVO monitoring
program ensures that operators provide accurate and timely information
required to be submitted, and that evidence of adequate financial coverage
has been provided.

4, Automated Database Systems

A significant function of the Bureau is to support all Commission
programs by providing information about all of the entities it regulates. In
addition, a database is maintained that provides information about
financial coverage for all OTIs, as well as the status of license
applications.

In conjunction with the OIT, BCL: has initiated a new project to
modernize the Regulated Persons Index. A primary function of the
Bureau is the maintenance of up-to-date records of licensed OTIs. The
Bureau continues to post on the Commission’s website a list of OTIs
which are licensed, bonded and have provided their tariff location, if

82


As the Commission’s public information/press office, the Office of
the Secretary prepares or coordinates the preparation of Commission
News Releases; responds to public and press inquiries or directs inquiries
to the appropriate Commission bureav/office; and monitors the trade press
for matters of agency interest for referral to the Chairman, Commissioners,
and Commission staff.

The Office remained involved in the Commission’s effort to
increase contact with all segments of the maritime community and the
general public. During the fiscal year, several steps were taken to improve
industry outreach. New lists of government and media contacts were
compiled and used to disseminate Commission information. Educational
and informational materials were updated. Commission staff expanded
the scope of its outreach effort by meeting with the industry through
telephone calls and personal visits. In addition, the Commission continued
to host briefings given by various segments of the industry. Finally, the
Office collected and analyzed the Commission’s public relations policies
to identify those that best foster open communication with the maritime
industry and the shipping public.

The Office of the Secretary also manages the Commission’s
website. During the fiscal year, the Office continued to make
improvements to increase user-friendliness and information availability.
A number of programming enhancements were made to the administrative
tool used to manage the website’s organization and content. A new
feature was added to the tool that allows uploading of large documents to
the site, giving users fast electronic access to reports formerly only
available in hard copy and by visiting the Commission in person.
Programming enhancements also were made to the FAQs section of the
tool that now permits adding links directly within this section, facilitating
access to additional information and resources. The Office continues to
evaluate the overall usefulness of the website and works with other
Commission offices and bureaus to improve its content and user-
friendliness.

In addition, the Office of the Secretary assessed agency-wide
document scanning requirements and selected a more robust, flexible
document scanning system to replace its current one. New scanning
software and equipment was installed and data migration was started

36


G. OFFICE OF OPERATIONS

The Director of Operations, as a senior staff official, is responsible
to the Chairman for the management and coordination of the following
Commission bureaus:

. Bureau of Certification and Licensing
. Bureau of Enforcement
. Bureau of Trade Analysis

The Office of Operations oversees the development and operation
of various Commission programs and recommends new programs and
necessary changes in staff objectives.

The Office also oversees the Commission’s Area Representatives.
The Commission maintains offices in Los Angeles, South Florida, New
Orleans, New York and Seattle through Area Representatives, who also
serve other major port cities and transportation centers within their
respective areas. In addition to monitoring and investigative functions,
Area Representatives represent the FMC within their jurisdictions, provide
liaison between the FMC and the maritime industry and the shipping
public, collect and analyze information of regulatory significance, and
assess industry conditions. The Area Representatives support the
functions of each Bureau under the Office of Operations. Liaison
activities include: cooperation and coordination with other government
agencies and departments; providing regulatory information and relaying
FMC policy to the shipping industry and the public; and handling informal
complaints.

In fiscal year 2006, the Office of Operations worked with other
agency units to review Commission rules and regulations regarding
business practices in the OTI sector. The Office also worked with BCL to
keep the Commission abreast of OTI industry changes and proposed
initiatives in that area. Additionally, the Office led the Bureaus and other
agency units in reviewing and coordinating compliance and enforcement
policy, including taking action against the illegal conduct of household
goods movers.

77


Another responsibility of the Office is the identification and
verification of controlled carriers under section 9 of the Shipping Act.
Common carriers that are owned or controlled by foreign governments are
required to adhere to certain requirements under the Shipping Act, and
their rates are subject to Commission review. The Office investigates and
makes recommendations to the Commission regarding the status of
potential controlled carriers. The Office, in conjunction with other
Commission components, also monitors the activities of controlled
carriers.

In fiscal years 2007 and 2008, the OGC will continue to take the
lead in accomplishing the agency’s performance goals relating to
eliminating restrictions that unjustly disadvantage U.S. interests. Through
the Permanent Task Force on International Affairs, the OGC will monitor
foreign laws and practices to determine whether there are any unjust non-
market barriers to trade. The Office will recommend appropriate action to
the Commission as warranted.

5. Designated Agency Ethics Official

The Ethics Official is administratively within the Office of the
Chairman, but the position is performed as a collateral duty by the Deputy
General Counsel.

The Commission’s Ethics Official is responsible for administering
public and confidential financial disclosure systems in order to prevent
conflicts of interest from arising in the execution of the agency’s
regulatory functions. The Ethics Official also conducts annual training
and offers day-to-day advice and guidance to ensure compliance with the
standards of ethical conduct that apply to Executive Branch officials.

54


The Office was also heavily involved in developing an agency
outreach strategy. Within the Office of Operations, the current outreach
effort was augmented in fiscal year 2006. For instance, the Area
Representatives continued to focus on bringing unlicensed OTIs into
compliance and increased their focus on outreach, particularly in South
Florida, where FMC staff addressed several groups, from large
conferences to groups of small OTIs. On the West Coast, Area
Representatives focused on service contract regulation compliance and
equipment substitution problems. On the West Coast, and in New York
and Miami, Area Representatives coordinated the publication of print
public service announcements aimed at small shippers warning against the
use of unlicensed OTIs. During fiscal year 2006, the public service
announcement project was expanded in South Florida and in New York to
include publications aimed at shippers in the Brazilian and Dominican
communities, respectively. These efforts have resulted in both an increase
in inquiries on OTI status and a decrease in complaint activity in certain
areas.

The Office of Operation’s key objectives for fiscal year 2007
include increasing agency outreach and raising public awareness of
agency regulations and services. In particular, the Office will focus on
reviewing agency policies and regulations to ensure alignment between
the FMC and the industry, automating certain processes, and refining
integration of the three agency bureaus it oversees.

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F. SOUTH AMERICA

As a whole, between the U.S. and South America, the volume of
cargo grew by about two percent in each trade direction. By the end of the
fiscal year, U.S. export cargo to South America stood at 633,769 TEUs,
while import cargo from South America to the U.S. was just over one
million TEUs. The South America region is generally divided into the
trades between the U.S. and the East and West Coasts of South America.

Around 40 percent of all of the U.S./South America cargo moved
in the trade is between the U.S. and the West Coast of South America,
with about 650,000 TEUs of annualized vessel capacity deployed in each
trade direction by the end of the fiscal year. Most of the carriers that
provide direct service in the trade are also members of the West Coast of
South America Discussion Agreement (“WCSADA”). The combined
market share of WCSADA members was about 70 percent in the outbound
direction and 60 percent in the inbound direction. Many carriers also
serve the trade indirectly via relay and feeder services based at ports in
Mexico, Panama, and the Caribbean.

During the year, WCSADA was amended to add a third section to
the geographic scope of the agreement to cover the trade between the U.S.
Pacific Coast and the West Coast of South America. The other two
sections of WCSADA’s geographic scope cover the trades between the
U.S. Atlantic/Gulf Coasts and: (1) the West Coast of South America, and
(2) the Caribbean Coast of Colombia. Membership in WCSADA also
changed during the year. Maruba S.C.A. joined the agreement, while
CMA-CGM resigned, and Hapag-Lloyd replaced CP Ships.

Liner cargo in the trade between the U.S. and the East Coast of
South America accounted for about 60 percent of all of the U.S./South
America liner cargo. By the end of the fiscal year, the amount of
annualized vessel capacity had grown to over 1.1 million TEUs in each
direction of the East Coast of South America trade. Unlike the West Coast
of South America, carriers serving the East Coast of South America have
not actively engaged in broad-based rate discussions spanning the entire
geographic scope of the trade since the demise of the East Coast of South
America Discussion Agreement in April 2004. However, in smaller

23


Vision

Fairness and Efficiency in U.S. Maritime Commerce

FMC Mission
The FMC’s Mission is to:
. Develop and administer policies and regulations that
foster a fair, efficient and secure maritime

transportation system;

° Protect U.S. maritime commerce from unfair foreign
trade practices and market-distorting activities;

° Facilitate compliance with U.S. shipping statutes
through outreach and oversight;

. Assist in resolving disputes

-ix-


During fiscal year 2006, Commission mediators provided
mediation services in six dispute resolution proceedings, attempting to
assist parties in avoiding significant litigation costs and risks. An example
of such proceedings was the dispute between a major port authority and
two marine terminal operators about rights to certain facilities and
concerns by one operator that port actions would make it impossible for it
to continue to stay in business. Through the mediation process, the parties
reached agreement on all issues, enabling all parties’ needs to be met. The
resolution avoided protracted litigation. Another example involved a
significant dispute as to the amount of detention charges. In this matter,
an NVOCC had collected substantial charges from a consignee in
anticipation of potential equipment detention charges which, in fact, had
not been charged by the ocean common carrier. Office staff mediated a
resolution among the consignee, NVOCC, and ocean common carrier.

The Office also provided ombudsman services to participants in
ocean shipping transactions. Typical complaints included situations where
an NVOCC or ocean carrier had placed a lien on cargo in its possession,
often for sums owed under a different contract of carriage, and cases in
which an NVOCC had received cargo from its customer, had taken
payment for the transportation of the cargo, but had failed to deliver it.
Tracking the whereabouts of a shipment can be difficult, and often
additional charges have accrued, necessitating payment of additional funds
to obtain release of the shipment.

During fiscal year 2006, approximately 3,632 complaints and
information requests were processed. Of those, 632 complaints required
ombudsman dispute resolution services. These included 221 complaints
about cruise issues, 178 household goods matters, and 233 other matters
affecting cargo shipments.

Complaints involving the transportation or handling of cargo
continued to increase, partly due to the Commission’s revitalized focus on
informal and non-adjudicatory means of complaint resolution, and the
increased awareness of Commission assistance available through
electronic and other means of communication.

Conversely, fewer complaints were received from individuals
concerning household goods shipments. The decrease is primarily

38




With only a few exceptions, the 2005 top twenty trading partners
closely mirror those for 2004. Almost across the board, the top twenty
trading partners saw gains in volume. Growing by 25 percent, China has
further widened the gap between itself and Japan, the number two trading
partner. India and Malaysia experienced 14 and 12 percent increases in
volume, respectively. Again this year Hong Kong’s volume declined, this
time by 20 percent. Vietnam, surpassing Guatemala, France, and Spain,
appears on the list for the first time.

32


C. RESTRICTIVE TRADE PRACTICES

One of the Commission’s significant missions is to identify and
address protectionist practices of other countries that unreasonably favor
their domestic companies or discriminate against U.S. trade interests in
ocean shipping. In this regard, the Commission may issue rules in
response to foreign practices that create conditions unfavorable to U.S.
shipping in general. It also may institute countermeasures in response to
foreign laws or policies that adversely affect U.S. carriers. It also can
initiate appropriate action in instances where a U.S.-flag vessel faces
unfair barriers in entering a foreign-to-foreign trade.

The Commission continued to monitor regulations and port
practices of the Government of Japan. In fiscal year 2001, the
Commission revised its semiannual reporting requirement for U.S. and
Japanese carriers, The Commission continued to require these semiannual
reports in fiscal year 2006 and to review them for any developments in
Japanese practices.

The Commission’s Permanent Task Force on International Affairs,
established in 2000, is chaired by the Deputy General Counsel and made
up of personnel from that office and the Bureaus of Enforcement, Trade
Analysis, and Certification and Licensing. The Task Force identifies and
evaluates foreign practices which might have adverse impacts on U.S.
shipping interests.

D. TRADE OVERSIGHT

As part of its statutory responsibilities, the Commission maintains
systematic oversight of the commercial activities of ocean common
carriers and other regulated entities in the U.S. foreign oceanborne trades.
On a regular basis, the Commission also monitors relevant economic and
trade conditions that affect the ocean shipping industry. The
Commission’s oversight helps to ensure regulatory compliance by
uncovering unreasonable or unfair industry behavior, and by identifying
any potentially unfavorable trade practices that could affect U.S. foreign
oceanborne commerce.

11




MEMBERS OF THE COMMISSION

hes
an

a
Steven R. Blust
Chairman
Appointed 2002
Term Expired 2006

Harold J. Creel, Jr. Joseph E. Brennan
Commissioner Commissioner
Appointed 1994 Appointed 1999
Term Expires 2009 Term Expires 2008

Rebecca F. Dye A. Paul Anderson
Commissioner Commissioner
Appointed 2002 Appointed 2003

Term Expires 2010 Term Expires 2007

-y-




useful and easier for the public and FMC staff to navigate. The Office
also began preparations for a peer review, by a sister OIG, of the FMC
OIG’s quality control program.

In April, 2006, a new inspector general was appointed to replace
the FMC’s first inspector general, who retired in 2005.

In fiscal year 2007, the OIG will continue to place high priority on
audits and reviews with the objective of improving agency programs and
operations. The OIG will complete statutorily-required reviews to include
an audit of the agency’s fiscal year 2006 financial statements and an
evaluation of the agency’s information security program and privacy
assurance controls as required by FISMA.

61


Although the Commission continues to undertake enforcement
activity, as required by its statutory mandate, its primary objective is to
encourage voluntary compliance by the regulated ocean transportation
industry. The Commission collected $1,042,000 in civil penalties in fiscal
year 2006 (see Appendix E). These collections represent a wide range of
violations in all major U.S. trade lanes.


The Commission’s regulatory responsibilities include:

Reviewing agreements among ocean common carriers
and marine terminal operators (“MTOs”) relating to
service in the U.S. foreign oceanborne trades, to ensure
that they do not cause substantial ill effects to
transportation costs, services or to shipping in the U.S.
foreign trades.

Reviewing service contracts between ocean common
carriers and shippers to guard against ill effects to
shipping in the U.S. foreign trades.

Ensuring that common carriers’ tariff rates and
charges are accessible to the shipping public in private,
electronically accessible systems.

Regulating rates, charges, and rules of government-
owned or -controlled carriers to ensure that they are
just and reasonable.

Issuing passenger vessel certificates evidencing financial
responsibility of vessel owners or charterers to pay
judgments for personal injury, or death or to refund
passenger fares for the nonperformance of a voyage or
cruise.

Licensing ocean transportation intermediaries (“OTIs”)
to protect the public from unqualified, insolvent, or
dishonest companies.

Ensuring that OTIs maintain sufficient financial
responsibility to protect the shipping public from
financial loss.

Ensuring against harm to the shipping public by
investigating rates, charges, classifications, and
practices of common carriers, MTOs, and OTIs
operating in the foreign commerce of the U.S.


combined market share of the trade is around 30 percent, are not members.
D. AUSTRALIA AND OCEANIA

This region encompasses Australia, New Zealand, Papua New
Guinea, Western Samoa, and other South Pacific Islands. U.S. container
imports from the region totaled 182,000 TEUs in fiscal year 2006, while
the U.S. outbound liner trade totaled 210,000 TEUs. Australia is the
largest U.S. trading partner in the region, accounting for almost two-thirds
of the liner cargo in the trade. Compared to last fiscal year, U.S. exports
to the region fell nine percent, and U.S. imports remained virtually
unchanged.

Substantial changes in the trade’s competitive landscape occurred
during fiscal year 2006. For example, Maersk Line and Hapag-Lloyd
completed their consolidations of P&O Nedlloyd and CP Ships,
respectively.. Hamburg-Siid purchased certain assets of FESCO Ocean
Management Limited, a subsidiary of the Far Eastern Shipping Company.
Additionally, NYK Reefer, a subsidiary of NYK Lines, and LauritzenCool
merged their specialized reefer activities through the joint venture
NYKLauritzenCool AB. As a result of these developments, market
concentration substantially increased. By the end of the fiscal year, just
three carriers, Hapag-Lloyd, Maersk Line, and Hamburg-Siid, accounted
for nearly 80 percent of the container volume in this trade.

Following the spate of consolidations, several “new” services
emerged from the reconfiguration of some pre-merger services. For
example, Maersk Line inaugurated a new weekly “Oceania Pendulum”
service between Australia, New Zealand, and Europe via the U.S. Atlantic
coast, on which Hapag-Lloyd is chartering slots. CMA-CGM, Marfret,
and Hapag-Lloyd also initiated a new joint “North Atlantic/South Pacific
Pendulum” service. U.S. Lines, a newcomer to the trade, inaugurated its
“ANZL Service” from the U.S. Pacific Coast operating between Los
Angeles and Tauranga, Melbourne, Sydney, and Brisbane.

One major rate discussion agreement covers the U.S. outbound

trade, and two cover the U.S. inbound trade from the region. Just six
direct container services operate in the trade, five of which are provided

21


published by such entities.

= Reviewing tariff publications in automated systems of
carriers and conferences and ensuring that tariffs under
OSRA are accessible to the public and accurate.

2. Agreement Filings and Review

Under sections 4 and 5 of the Shipping Act, all agreements by or
among ocean common carriers to fix rates or conditions of service, pool
cargo or revenue, allot ports or regulate sailings, limit or regulate the
volume or character of cargo or passengers to be carried, control or
prevent competition, or engage in exclusive or preferential arrangements
are required to be filed with the Commission. Except for certain exempted
categories, agreements among marine terminal operators and among one
or more MTOs and one or more ocean common carriers also are required
to be filed with the Commission. Generally, an agreement becomes
effective 45 days after filing.

In fiscal year 2006, the Bureau received 284 agreement filings, an
increase of one from the previous year. The Bureau analyzed and
processed 292 agreement filings during the year. Statistics on agreement
filings for fiscal year 2006 are contained in Appendix C.

(a) Ocean Common Carrier Agreements

Two broad categories of ocean common carrier agreements are
filed with the Commission: (1) pricing agreements, where the main focus
is on rates, and (2) non-pricing agreements, where the focus can range
from the sharing of vessel space to the management of an internet portal.
Descriptions follow of the two categories of agreements.

90


required, so that the public can ascertain whether an OTI has met FMC
requirements. The OTI list, which is updated weekly, also indicates
whether an NVOCC has filed an optional rider for additional proof of
NVOCC financial responsibility for the Chinese trade.

5. Future Plans

In fiscal year 2007, the Bureau will: initiate a rulemaking to release
its automated FMC-18 filing system for public use; continue its efforts to
improve the electronic FMC-18 system to expedite licensing; to further
explore integration of FMC databases; to develop the functionality for
electronic payments and E-signature capability; and to support electronic
filing of bond information. In addition, it will seek to improve compliance
by VOCCs and OTIs with the Shipping Act and to reduce the number of
transportation users currently impacted by action of unlawful operators by
enhancing the OTI outreach program and promoting awareness of OTI
requirements. The Bureau will continue its efforts to assure that the
Commission’s PVO programs meet the current needs of the cruising
public by further review of the PVO monitoring procedures and
appropriate and timely adjustment of staff procedures and monitoring
schedules. Finally, it will continue work on a PVO financial responsibility
rulemaking.

83


a Taking action to address unfavorable conditions arising
out of foreign government or business practices in the
U.S. foreign shipping trades.

The Shipping Act is applicable to the operations of common
carriers and other persons engaged in U.S. foreign commerce. It exempts
agreements effective under the Shipping Act and the Commission’s
jurisdiction from the U.S. antitrust laws, as contained in the Sherman and
Clayton Acts. The Commission reviews and evaluates agreements to
ensure that they do not result in an unreasonable increase in transportation
cost or unreasonable reduction in service or otherwise violate the Shipping
Act.

In addition to monitoring relationships among carriers, the
Commission is also responsible for ensuring that individual carriers, as
well as those permitted by agreement to act in concert, treat shippers and
other members of the shipping public fairly. U.S. law also requires all
carriers to make their rates, charges and practices available in automated
tariff systems that must be available electronically to the public. Ocean
common carriers are permitted to enter into service contracts with their
shipper customers. Such contracts are confidentially filed with the FMC
in its internet-based system. The Commission does not approve or
disapprove general rate increases (“GRIs”) or individual commodity rate
levels in the U.S. foreign commerce, except with regard to certain foreign
government-owned or -controlled carriers.

The Commission is authorized to take action to ensure that the
foreign commerce of the U.S. is not burdened by non-market barriers to
ocean shipping. The Commission may take countervailing action to
correct unfavorable shipping conditions in U.S. foreign commerce and
may impose penalties. The Commission may address actions by carriers
or foreign governments that adversely affect shipping in the U.S. foreign
oceanborne trades including the intermodal operations of carriers or the
operations of OTIs, or that impair access of U.S.-flag vessels to ocean
trade between foreign ports.

Pub. L. No. 89-777 requires the operators of passenger vessels
with 50 or more berths embarking passengers at U.S. ports to establish
financial coverage to indemnify passengers in cases of death, injury, or


J. BUREAU OF TRADE
ANALYSIS

1. In General

The primary function of the Bureau is the oversight of concerted
activity by ocean common carrier and marine terminal agreements under
the standards of the Shipping Act. Further, the Bureau administers the
Commission’s agreements, service contract, and NSA programs, and
monitors the accessibility and accuracy of all published tariffs. The
Bureau’s major program activities include:

Administering comprehensive trade monitoring
programs to identify and track relevant competitive,
commercial, and economic activity in each major U.S.
foreign trade, and to advise the Commission and its
staff on current trade conditions, trends, and regulatory
concerns affecting oceanborne liner transportation.

Conducting systematic surveillance of carrier activity in
areas relevant to the Commission’s administration of
statutory standards.

Developing economic studies and analyses in support of
the Commission’s regulatory responsibilities.

Providing expert economic testimony and support in
formal proceedings, particularly regarding unfair
foreign shipping practices.

Processing and analyzing ocean common carrier and
MTO agreements.

Reviewing and processing service contracts, NSAs, and
amendments filed by ocean common carriers,
conferences of such carriers, and NVOCCs, including
service contract and NSA statements of essential terms

89


scrutinize the competitive impacts of filed agreements. The Shipping Act
provides that, unless rejected under relevant statutory authority,
agreements filed with the Commission shall become effective on the 45th
day after filing or the 30th day after notice in the Federal Register,
whichever is later. Agreements can be rejected for technical reasons or for
failure to include statutory provisions in the agreement language. Also,
the Commission may extend the original 45-day period when additional
information from filing parties is deemed necessary and is requested.
Finally, if the Commission determines that an agreement, by virtue of a
reduction in competition, is likely to unreasonably increase transportation
costs or decrease transportation service, it may seek injunctive relief in the
U.S. District Court for the District of Columbia.

As a consequence of the Commission’s limited authority to block
agreements from taking effect, the need for adequate and timely
evaluation of activity under agreements has increased considerably. The
Commission’s monitoring program examines carrier competition,
including market share, concentration, entry conditions, general rate and
service conditions, as well as pricing trends, vessel utilization, service
contracting activity, and shipper complaints.

In addition to research and economic analysis pertaining to its
monitoring programs, the Bureau provides economic expertise for a
variety of Commission initiatives, including rulemaking proceedings.
Bureau economists prepare testimony in fact-finding investigations and
cases of unfair shipping practices under section 19 of the 1920 Act and
FSPA. They also contribute to speeches and provide briefings for senior
agency officials.

Major projects begun or completed by the Bureau in fiscal year
2006 included: a review of the West Coast Marine Terminal Operators
Agreement (“WCMTOA”) PierPASS program at the ports of Los Angeles
and Long Beach; an econometric assessment of the competitive impact of
a recently imposed cap on disbursements from an agreement’s revenue
sharing pool; an analysis of conditions in the U.S./Bermuda trade and the
competitive impact of the Bermuda Discussion Agreement; an economic
evaluation of approaches to providing financial protection for American
cruise passengers; an analysis of the pricing activities of controlled
carriers in the import trade from Northeast Asia to the U.S. using selected

94


a Prepared all required affirmative employment program
accomplishment reports and plans with OHR.

a Created and administered a survey on career
development, equal employment, and workforce issues.

. Attended EEO related training and conferences.
During fiscal year 2007, the Office will continue all existing
programs and initiate additional activities designed to increase an

understanding of EEO concepts and principles, including workforce
diversity, outreach, career development, and retention.

57


F. OFFICE OF ADMINISTRATION

The Office of Administration (“OA”) provides administrative
support to the program operations of the Commission. OA interprets
governmental policies and programs, and administers these in a manner
consistent with Federal guidelines, including those involving procurement,
information technology (“IT”), financial management, and human
resources. OA initiates recommendations, collaborating with other
elements of the Commission as warranted, for long-range plans, new or
revised policies and standards, and rules and regulations, with respect to
its program activities. The Director of OA is responsible for the direct
administration and coordination of the:

. Office of Financial Management
. Office of Human Resources

. Office of Information Technology
. Office of Management Services

The Director of OA provides administrative guidance to the:

. Office of Operations

. Office of the Secretary

. Office of the General Counsel

7 Office of Administrative Law Judges

and administrative assistance to the:
7 Offices of the Commissioners

. Office of the Inspector General
. Office of Equal Employment Opportunity

63


A. OUTREACH

During the fiscal year, the Commission continued to update and
improve access to information through its website. New tools were added
which provided for uploading large documents, allowing electronic access
to Commission reports that were formerly only available in hard copy. In
addition, the Frequently Asked Questions (“FAQs”) section was modified
to allow links to be added directly to answers, easing access to related
information.

The Commission continued to expand the scope of its outreach
efforts to the maritime community as well as to the general public. Media
and government contact lists were created to help the Commission share
information. The Commission increased its visibility to the public by
updating and distributing informational and educational materials.
Individual staff members engaged in outreach with industry participants
through in-person meetings and by phone, while the Commission as a
whole continued to foster dialogue by hosting briefings given by various
segments of the industry on a variety of industry topics. Finally,
Commission policies and procedures regarding public relations were
analyzed to determine how the Commission could improve
communication with the maritime industry and the shipping public.

During the fiscal year, the Commission also continued to make
more information available through its website. Commission decisions
issued between 1987 and 1997 were compiled and converted to electronic
form. Those issued between 1987 and 1995 were posted on the
Commission’s website during the fiscal year, with the balance posted by
the end of October 2006. In addition, for selected docketed proceedings
the Office of the Secretary made other documents, including briefs, reply
briefs, exceptions to Commission decisions and replies to exceptions
available through the website. Providing electronic access to this
information will make the Commission’s policies and precedents more
readily available to the maritime and legal communities.

The Office of the Secretary assessed agency-wide document
scanning requirements and determined to replace its document scanning
system with a more flexible and robust system. New scanning software


qd) Pricing Agreements

Conference agreements provide for the collective discussion,
agreement, and establishment of ocean freight rates and practices by
groups of ocean common carriers. Conferences publish a common rate
tariff in which all the member lines participate. No new conference
agreements have been filed since 2000. During fiscal year 2006, the
Bureau received 17 modifications to existing conference agreements and
analyzed 18. The majority of the modifications were membership
changes.

Three conferences were terminated during the fiscal year: the Asia
North America Eastbound Rate Agreement, the United States South
Europe Conference, and the New Caribbean Service Rate Agreement. In
addition, a fourth conference, the Turkey/United States Rate Agreement
expired by its own terms.

Rate discussion agreements (“RDAs”) also focus on rate matters,
but unlike conferences, any consensus reached under RDAs is non-binding
on the parties. RDAs do not have common rate tariffs; each party
publishes its own tariff. These agreements have become the primary
pricing forum in most U.S. trade lanes. During fiscal year 2006, the
Bureau received and processed one new RDA and 42 modifications to
existing RDAs.

Two rate discussion agreements were terminated during the fiscal
year: the Maersk Sealand/P&O Nedlloyd Agreement and the Indamex
Agreement.

(2) Non-pricing Agreements

Non-rate discussion agreements (“NRDAs”) provide ocean
common carriers with a forum for discussing matters of mutual interest
other than rates. During the fiscal year, the Bureau received and processed
one new NRDA and seven modifications to existing NRDAs. The new
NRDA authorizes its participants to exchange information related to
credit.

91


received no complaints about the contracting practices of TSA member
lines.

Other specific monitoring and research projects begun or
completed in fiscal year 2006 include: an analysis of the activities of
parties to the Bermuda Discussion Agreement and conditions affecting the
U.S./Bermuda trade; an evaluation of the regulations governing passenger
vessel operators (“PVO”) and recommendations on approaches for
regulatory modifications in connection with FMC Docket No. 02-15 —
Passenger Vessel Financial Responsibility; a study of service contract
terms and conditions based on a statistical random sample of contracts
taken from the FMC’s Service Contract Filing System (“SERVCON”)
database; ongoing staff participation in the development of the Automated
Commercial Environment/International Trade Data = System
(“ACE/ITDS”) of the U.S. Customs and Border Protection; the
development and implementation of a database and intranet interface to
contain and access commercial trade data such as that in the Port Import
Export Reporting Service (“PIERS”); various economic analyses of filed
agreements and agreement modifications; the preparation of responses to
congressional and other requests regarding agreement issues and for trade
information; and participation in various meetings with industry
representatives on agreement and trade matters.

ALTERNATIVE DISPUTE RESOLUTION

During fiscal year 2006, the Commission continued to emphasize
the role of Alternative Dispute Resolution (“ADR”) in resolving shipping
industry disputes and encouraged parties to disputes to utilize the program
in lieu of litigation. Under this program, parties are encouraged to avail
themselves of services provided by the Commission to resolve disputes
through conciliation, facilitation, mediation, fact-finding, mini-trials,
arbitration, or the use of ombudsman services. The Commission makes
trained neutrals available to facilitate the resolution of shipping disputes at
all stages. Mediation is the most frequently chosen method of dispute
resolution for matters being litigated and is also utilized to resolve pre-
litigation disputes.

13




Interaction between the Bureau, the Commission’s Area
Representatives, and U.S. Customs and Border Protection (“CBP”) with
respect to the exchange of investigative information continues to benefit
all parties. Cooperation with CBP included staff interactions and joint
field operations to investigate entities suspected of violating both
agencies’ statutes or regulations. Such cooperation also has included local
police and other government entities, including the Federal Bureau of
Investigation, when necessary.

In fiscal year 2006, the compliance audit program continued. This
program, conducted from headquarters primarily by mail, reviews the
operations of licensed OTIs to assist them in complying with the statutory
requirements and the Commission’s rules and regulations. The audit
program also includes review of entities holding themselves out as
VOCCs with no indication of vessel operations. At the beginning of fiscal
year 2006, nine audits were pending. During the fiscal year, 53 audits
were commenced, 60 audits were completed, and two were pending in the
Bureau on September 30, 2006.

At the beginning of fiscal year 2006, 27 enforcement cases were
pending final resolution by the Bureau, the Bureau was party to four
formal proceedings, and there were 71 matters pending which the Bureau
was monitoring or for which it was providing legal advice. During the
fiscal year, 21 new enforcement actions were commenced; 14 were
compromised and settled, administratively closed, or referred for formal
proceedings, while 34 enforcement cases were pending resolution at fiscal
year’s end. Also, three formal proceedings were completed, and five were
pending at the end of the fiscal year. Additionally, 53 matters involving
monitoring or legal advice were received during the fiscal year, 57 such
matters were completed, and 67 were pending in the Bureau on September
30, 2006.

87


WTSA operates as a forum for the exchange of information between its
members and allows them to discuss and agree, on a non-binding basis,
upon rate levels for cargo exported from the U.S. to Asia. WTSA’s
geographic scope covers Northeast and Southeast Asia as well as the
Indian Subcontinent. WTSA has a market share of approximately 60
percent for the complete scope of the agreement. During the 2006 fiscal
year, WTSA experienced no change in its membership.

USS. container exports to Asia grew by six percent to reach nearly
4.5 million TEUs in fiscal year 2006. Most of this increase was
attributable to Northeast Asia. U.S. exports to Northeast Asia grew by
nine percent, but declined by nine percent to Southeast Asia. The former,
however, received 87 percent of all U.S. container exports in the
transpacific trade, with China and Japan being the primary destinations.

Unlike TSA, WTSA does not have a distinct service contract
season in which most shippers finalize their annual service contracts prior
to the start of the new season. Instead, WTSA’s practice is to establish
voluntary service contract guidelines for rate increases by commodity type
throughout the calendar year. This practice primarily reflects the varying
seasonalitv of mast mainr I] S exnort commodities


and equipment was installed, and data migration was started during fiscal
year 2006. Data migration will be completed and this new system will
become fully functional during the next fiscal year. The new system will
help support the agency’s continuity of operations initiatives by improving
the preservation of Commission documents and will also increase
Commission staff access to Commission documents. Additionally, these
improvements will reduce the time it takes for Commission staff to
respond to public inquiries as well as improve public access to electronic
files through the Commission’s website.

B. TRADE DEVELOPMENTS

In fiscal year 2006, the total volume of import cargo to the U.S.
rose by 12 percent, while total U.S. export cargo grew by less than three
percent. China accounted for 37 percent of all of the imports and exports
in the U.S. container trade. In fact, more than half of all U.S. container
trade was with Northeast Asia. Containership capacity on the world
market grew by 15 percent, outpacing the growth in demand. In
September, A.P. Moller Maersk A/S (‘Maersk Line”) began service with
the world’s largest containership, the Emma Maersk, reputed to hold up to
13,500 TEUs. In general, concentration in the liner shipping industry
remained relatively stable during fiscal year 2006, with the top ten carriers
continuing to control 53 percent of the world’s containership capacity.

Once again, Asia dominated the U.S. liner trades during the fiscal
year, accounting for 70 percent of the total volume of U.S. import cargo,
and 48 percent of U.S. export cargo. Compared to other trades, cargo
growth between the U.S. and Asia was relatively robust in fiscal year
2006. U.S. export cargo to Asia rose by six percent, and import cargo
from Asia to the U.S. grew by 15 percent. This imbalance between import
cargo and export cargo persisted; containers of U.S. imports outnumbered
containers of U.S. exports by a ratio of three to one.

In the U.S./North Europe trade, the volume of import cargo grew
by 6.8 percent during the fiscal year, while export cargo growth was 2.9
percent. Carriers serving the trade restructured their services and
operational agreements as a result of the acquisitions of P&O Nedlloyd,
Ltd. (“P&O Nedlloyd”) and CP Ships, Ltd. (“CP Ships”) by Maersk Line


U.S. carriers in foreign trade and that do not exist for foreign carriers in
the US.

The OGC represented the Commission at the 27th meeting of the
Asia-Pacific Economic Cooperation (“APEC”) Transportation Working
Group, a group composed of staff-level experts in various modes of
transportation from the relevant government agencies of each member
economy. The Deputy General Counsel made a formal presentation on
perspectives on the United States’ experience with shipping deregulation
under OSRA and provided information on U.S. legislation and regulation
to the APEC Transportation Working Group. The Office also represented
the Commission at the 28" APEC Transportation Working Group
meeting.

The OGC also pursued informally several matters that involved
potentially restrictive foreign practices including new legislation, new
interpretations of existing legislation and new regulations of non-domestic
carriers’ terminal handling charges.

The Commission continued to monitor developments relating to
restrictive practices in Japanese ports, including the effects of amendments
to the Port Transportation Business Law enacted in 2000 and 2005. The
Commission continued to receive and evaluate semi-annual reports from
its proceeding in Docket No. 96-20, Port Restrictions and Requirements in
the United States/Japan Trade.

The Commission’s Permanent Task Force on International Affairs,
chaired by the Deputy General Counsel, is a network of representatives
from a number of Commission Bureaus and Offices. The Task Force
meets to exchange information regarding new or continuing areas of
concem relating to restrictive foreign shipping practices possibly
necessitating action under one of the Commission’s statutory authorities in
this area.

53


APPENDIX D

FORM FMC-1
TARIFF LOCATION ADDRESSES - ELECTRONIC
SERVICE CONTRACT AND NSA FILINGS AND
SPECIAL PERMISSION APPLICATIONS
Fiscal Year 2006

Form FMC-1 Filings

VOCCS ooo ee eee e ee 323
OTINVOCCS .. 2. 3,438
MTOs ....... 00.00 eee eee eee 251
Conferences ..........0. 00 2c eee eee 10

Electronic Service Contract Documents

New Service Contracts ............ 46,682
Service Contract Amendments ...... 252,566

NVOCC Service Arrangement (“NSA”) Documents

New NSAS .......0 02000002 e eee eee 557

Special Permission Applications

Granted... 0.0.6... 10
Denied 2.0.0... eee eee eee 2
Withdrawn 0.0... 0... 0. eee eee ee 1

106


APPENDIX F

STATEMENT OF APPROPRIATIONS,
OBLIGATIONS AND RECEIPTS FOR
THE FISCAL YEAR ENDED
SEPTEMBER 30, 2006

APPROPRIATIONS:

Public Law 109-115, 109" Congress: For necessary expenses of the Federal
Maritime Commission as authorized by section 201(d) of the Merchant Marine Act
of 1936, as amended (46 App. U.S.C. 1111), including services as authorized by 5
U.S.C. 3109; hire of passenger motor vehicles authorized by 31 U.S.C. 1343 (b);
and uniforms or allowances therefor, as authorized by 5 U.S.C. 5901-5902,
$20,499,000: Provided, that not to exceed $2,000 shall be available for official
reception and representation expenses.

$20,499,000
Public Law 109-148, 109" Congress
Government Wide Rescissions, 2006 ~___ 204,990
Revised Appropriation $20,294,010
OBLIGATIONS AND UNOBLIGATED BALANCE:
Net obligations for salaries and expenses for the fiscal year
ended September 30, 2006. $20,289,373
STATEMENT OF RECEIPTS: Deposited with the General
Fund of the Treasury for the Fiscal Year Ended September 30, 2006:
Publications and reproductions,
Fees and Vessel Certification,
and Freight Forwarder Applications $ 553,530
Fines and penalties $1,042,000
Total general fund receipts $1,595,530

108




I. BUREAU OF ENFORCEMENT

The Bureau of Enforcement is the primary prosecutorial arm of the
Commission. Attorneys of the Bureau serve as trial attorneys in formal
proceedings instituted under section 11 of the Shipping Act and in
investigations instituted under the FSPA. Bureau attorneys serve as legal
advisors to the Office of Operations and other Commission bureaus and
also may be designated Investigative Officers in nonadjudicatory fact-
finding proceedings. The Bureau monitors all other formal proceedings,
including relevant court proceedings, in order to identify major regulatory
issues and to advise the Director of Operations and the other bureaus. The
Bureau also participates in the development of Commission rules and
regulations and serves on inter-bureau task forces and special committees.
On occasion, under the direction of the General Counsel, attorneys from
the Bureau may participate in matters of court or other agency litigation to
which the Commission is a party.

Through investigative personnel, and most often as the result of
information provided by the industry and other government entities, the
Bureau monitors and participates in investigations into the activities of
Commission-regulated entities, such as VOCCs, OTIs, shippers, ports and
terminals, and other persons, to ensure compliance with the statutes and
regulations administered by the Commission. Monitoring activities
include: service contract and NSA reviews to determine compliance with
applicable statutes and regulations; reviews and audits of ocean common
carriers, NVOCC and ocean freight forwarder operations, including
compliance with licensing, tariff, and bonding requirements; audits of
passenger vessel operators to ensure the financial protection of cruise
passengers; and various studies and analyses to support Commission
programs. Investigations involve alleged violations of the full range of
statutes and regulations administered by the Commission, including:
illegal or unfiled agreements; abuses of antitrust immunity; unlicensed
OTI activity, including servicing of noncompliant OTIs by VOCCs and
licensed NVOCCs; illegal rebating; misdescriptions or misdeclarations of
cargo; untariffed cargo carriage; unbonded OTI and PVOs, and various
types of consumer abuses, including failure of carriers or intermediaries to
carry out transportation obligations, resulting in cargo delays or financial
losses for shippers. The Bureau adheres to the agency’s objectives of

85


B. TOP TWENTY U.S. LINER CARGO
TRADING PARTNERS

Pursuant to the Foreign Shipping Practices Act, the FMC must
include in its annual report to Congress “a list of the twenty foreign
countries which generated the largest volume of oceanborne liner cargo
for the most recent calendar year in bilateral trade with the United States.”
46 U.S.C. App. §1710 (g)(1)(2004), now codified at 46 U.S.C. §306

(by).

The Journal of Commerce’s PIERS database was used to derive the
Commission’s list of top twenty trading partners. PIERS obtains data on
U.S. import and export shipments from tapes of bill-of-lading manifests
filed electronically with U.S. Customs and Border Protection via the
Automated Manifest System (“AMS”). PIERS also stations personnel at
individual ports to collect manually shipment data that is incomplete or
not filed through AMS. The company edits the raw shipment data and
distinguishes liner shipments from non-liner shipments, and also employs
additional procedures to increase data accuracy.

The most recent complete calendar year for which data are
available is 2005. The table on the next page lists the twenty foreign
countries that generated the largest volume of oceanborne liner cargo in
bilateral trade with the U.S. in 2005. The figures in the table represent
each country’s total U.S. liner imports and exports in thousands of TEUs.

30


Under joint service agreements (“JSAs”), two or more carriers
operate a joint venture under a single name in a specified trading area.
The JSA issues its own bills of lading, sets its own rates, and acts as an
individual ocean common carrier. One JSA and two modifications to
existing JSAs were received and processed during the fiscal year. One
JSA, the Star West Joint Service Agreement, was terminated during the
fiscal year.

Vessel-sharing agreements (“VSAs”) make up the largest group of
agreements on file with the Commission. Most VSAs authorize some
level of service cooperation while limiting individual operating costs.
VSAs range from alliance agreements, which involve considerable
operational cooperation, to slot charter agreements, which require only
minimal cooperation. During fiscal year 2006, the Bureau received 45
new VSAs, representing 86 percent of all new carrier agreements filed
during the year, and 79 modifications to existing VSAs. Forty VSAs were
terminated, and 15 expired by their own terms.

Cooperative working agreement (“CWA”) is the designation
applied to non-pricing agreements that tend to deal with unique
operational considerations relating to acquisitions, joint service
contracting, sharing of administrative services, or internet portal
management. Other agreements filed with the Commission in small
numbers include agency, sailing, transshipment, and equipment
interchange (including chassis pooling) agreements. During fiscal year
2006, the Bureau received and processed two new CWAs, a new chassis
pool agreement, and a new sailing agreement. Seven modifications to
existing CWAs were also filed in fiscal year 2006.

(b) Marine Terminal Operator Agreements

Marine terminals, operated by both public and private entities,
provide facilities, services, and labor for the interchange of cargo and
passengers between land and ocean carriers, and for the receipt and
delivery of cargo from shippers and consignees. The Bureau is
responsible for reviewing and processing agreements among MTOs.

92


Vv

SIGNIFICANT ACTIVITIES

BY

ORGANIZATIONAL UNIT