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Competition and Integrity for America’s Ocean Supply Chain

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# Acting Chairman Michael A. Khouri – Remarks Association of Transportation Law Professionals Transportation Forum XV

On behalf of the Federal Maritime Commission, I welcome the ATLP to our Washington headquarters. It is great to have this group of transportation professionals that work in every mode and aspect of the global transportation and logistics marketplace. As some of you do not work in the maritime area on a regular basis, John (Maggio) and Karyn (Booth) asked me to give you a brief introduction to the Commission – where we came from, what we do, and where are we going.

The FMC is an independent federal agency charged with regulating liner shipping in the U.S. international trades. First constituted over 100 years ago by the Shipping Act of 1916 as the United States Shipping Board, the FMC was authorized in its current form as an independent regulatory agency in 1961. The Commission is dedicated to protecting competition and integrity for America’s ocean supply chain. The FMC’s mission is to ensure a competitive and reliable international ocean transportation supply system that supports the U.S. economy and protects the public – that is, American exporters, importers and consumers – from unfair and deceptive practices.

A primary program through which the Commission performs this mission is our competition review and monitoring of cooperative agreements among ocean vessel common carriers and also by and between marine terminal operators serving the U.S. ocean borne foreign trades.

Any time two or more liner vessel operating common carriers or two or more marine terminal operators want to jointly meet and discuss business issues that could affect commerce, then that agreement must first be filed with the Commission. Our professional economists and staff in the Bureau of Trade Analysis analyze the agreement for competitive effects under a standard that is similar to the legal standards applied by the Federal Trade Commission and the Department of Justice when those agencies review commercial joint ventures and mergers.

Our competition standard, section 6(g) of the Shipping Act, has two parts. First, it provides that, in the event an agreement will or, by its operation, has substantially reduced competition and, second, such decrease in competition has produced an unreasonable reduction in transportation service, or, has produced an unreasonable increase in transportation cost, then the Commission shall, after notification to the agreement parties, go into federal court and seek to enjoin further operation of the agreement. The Commission’s 6(g) review and oversight responsibility is ongoing and continues after an agreement has gone into effect.

The ocean transportation system has changed significantly over the last decade. The number of major global shipping companies decreased from 21 to 12. Ten years ago, the global liner fleet had 4,300 ships and just under 11 million TEUs of capacity. With new construction, today, that fleet stands at 5,300 ships and double the TEUs, now at 22 million TEUs of capacity. If you look back a mere two decades, the global fleet was less than one-half the current number of ships and less than 20 per cent of the current TEU capacity.

Eight of the twelve major ocean carriers are now members of three global vessel cooperative operational alliances. Two of the non- alliance carriers have separate operational agreements with the alliances on individual trade lanes. There is far more activity beyond these three alliance agreements. In fact, we have on file and monitor 347 carrier agreements.

The Commission has responded to these structural developments with a new agreement negotiation approach that narrows agreement authority where appropriate, restricts language scope where necessary, and enhances ongoing monitoring programs. For all agreements, our staff maintains a careful watch on industry trends, being vigilant for indications of anticompetitive behavior.

Marine terminals and port authorities have recently shown increased interest in using alliance type agreements and terminals are cooperating in new ways. The ports are using these cooperative agreements to help in addressing the challenges presented by larger vessels operating in new alliance structures. These vessels are unloading more containers at each port call with the resulting need for enhanced port infrastructure and the development of collective solutions to mitigate cargo bottlenecks. We have on file and monitor 99 marine terminal agreements.

The Commission also protects the shipping public from unlawful, unfair, and deceptive ocean transportation practices through the Bureau of Enforcement and helps in resolving shipping disputes through the Consumer Affairs and Dispute Resolution office. We ensure system integrity through licensing and financial responsibility requirements of ocean transportation intermediaries who facilitate our international commerce. The Bureau of Certification and Licensing oversee and audit 6,466 licensed and/or registered OTI companies.

We investigate and rule on public party complaints regarding charges, and practices of vessel common carriers, marine terminal operators, and ocean transportation intermediaries. America’s exporters, importers and consumers are the ultimate beneficiaries.

On the regulatory front – or rather the *DE*-regulatory front – we are following Shipping Act provisions and directions set out in Executive Order 13777 to identify and address outdated, unnecessary, or unduly burdensome regulations.

Earlier this year, a final rulemaking went into effect simplifying and offering deregulatory flexibilities for two common freight contracting processes, Non-Vessel-Operating Common Carrier Negotiated Rate Arrangements and NVOCC Service Arrangements. The changes allow NRAs to be amended at any time; allow the inclusion of non-rate economic terms; and, allow an NVOCC to provide for shipper’s acceptance of the NRA by booking a shipment. NSAs will become easier and more attractive to use by removing filing and essential terms requirements. These changes will benefit American consumers and the industry by expanding choices for shippers, reducing regulatory requirements, and increasing efficiencies in contracting for ocean shipping services.

I remain committed to addressing outdated, unnecessary, or unduly burdensome regulations. Global supply chain operations benefit from less regulation through lower costs that ultimately pass through to America’s exporters, importers, and consumers. The Commission welcomes public engagement and comments on statutory requirements that may be addressed through the Section 16 exemption processes.

The Commission currently has before it for consideration a petition of the World Shipping Council, representing vessel operating common carriers, seeking an exemption from the service contract filing and essential terms publication requirements under the Shipping Act.

The Commission addresses other matters that impede the efficient and cost-effective flow of cargo. After numerous public comments and two days of hearings on a petition by the Coalition for Fair Port Practices that ask the FMC to begin a new rulemaking proceeding to regulate practices by marine terminals and ocean carriers related to demurrage and detention fees, the Commission voted to open a formal investigation to develop a full factual record. My colleague, Commissioner Dye, is the Fact Finding Officer for that petition and will be speaking to you about her activities in that regard and other initiatives in a moment.

So again, we welcome you to our agency, I will turn this over to Commissioner Dye. When she is done with her presentation, we would be happy to take comments and questions. Thank you.

**Federal Maritime Commission**

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