STATEMENT OF
THE HONORABLE STEVEN R. BLUST
CHAIRMAN, FEDERAL MARITIME COMMISSION

800 NORTH CAPITOL ST., N.W.
WASHINGTON, D.C. 20573
(202) 523-5911

BEFORE THE
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
SUBCOMMITTEE ON COAST GUARD AND
MARITIME TRANSPORTATION

UNITED STATES HOUSE OF REPRESENTATIVES

MARCH 4, 2004

Mr. Chairman and members of the Subcommittee, it is a pleasure to appear before you today to present the President's fiscal year 2005 budget for the Federal Maritime Commission. With me today are Amy W. Larson, the Commission's General Counsel, and Bruce A. Dombrowski, our Executive Director.

The President's budget for the Commission provides for $19,496,000 for fiscal year 2005. This represents an increase of $1,134,000 over our fiscal year 2004 appropriation. This budget provides for 135 workyears of employment.

Our fiscal year 2005 budget request contains $14,397,000 for salaries and benefits to support the Commission's programs. This is an increase of $711,000 over our fiscal year 2004 appropriation. This includes all salaries, including those for the employees hired in fiscal year 2004, promotions, within-grade increases, and an anticipated cost of living adjustment. The funding includes annualization of the fiscal year 2004 cost of living adjustment increase at the 4.1 percent level. Further, it does not contain funding for any additional positions; it only will fund positions anticipated to be on board at the beginning of fiscal year 2005.

Official travel has been increased $16,000 from our fiscal year 2004 level. This increase takes into consideration the rise in travel costs for airfare and per diem increases, and our intention to continue to offer informational seminars throughout the country to explain regulatory requirements and enhance statutory compliance. Travel remains an essential aspect of our effort to provide better service to the ocean transportation industry and to accomplish our oversight duties more effectively. Lastly, administrative expenses will have increased $407,000 over fiscal year 2004. The Commission is planning for an increase in rent as a result of a new long-term lease for Commission space, as well as an increase to fund Homeland Security charges per GSA. Other administrative expenses will be incurred in fiscal year 2005 to support increases in our customary business expenses, such as maintaining government and commercial contracts, and for items such as telephones, postage, and supplies.

As we have noted in prior years, the Commission's budget contains primarily non-discretionary spending. It is composed of mandatory or essential expenses such as salaries and benefits, rent and guard services, health services, accounting services, telephone and other communication costs, supplies, mandatory training, and printing and copying costs. These items represent the basic expenses any organization faces in order to conduct its day-to-day operations, and are crucial to allow us to meet the responsibilities Congress has entrusted to the agency.

In response to a directive in the Consolidated Appropriations Act of 2004, I will be providing the House and Senate Committees on Appropriations with a report summarizing the Commission's current information technology improvement initiatives and long-term technology improvement plan. I will provide you with a copy of the report as well. In brief, the report identifies basic, critical infrastructure improvements necessary in the near term to increase the stability, security and responsiveness of the agency's IT resources, as well as agency-wide program initiatives to improve planning and comply with government-wide IT initiatives in the longer term.

As you know, Mr. Chairman, the Commission is responsible for the regulation of oceanborne transportation in the foreign commerce of the United States. Since its inception in 1916, the Commission and its predecessor agencies have effectively administered Congress's directives for the ocean transportation industry, and its long-standing expertise and experience have been recognized by Congress, as well as by the industry the Commission oversees, courts, and other Nations. Working with the industry, we have developed a regulatory system that allows for necessary oversight with minimal disruption to the efficient flow of U.S. imports and exports. I would like to highlight for you some of the significant activities in which the Commission is involved.

The Commission continues to address restrictive or unfair foreign shipping practices under section 19 of the Merchant Marine Act, 1920; the Foreign Shipping Practices Act of 1988 ("FSPA"); and the Controlled Carrier Act of 1978. Section 19 empowers the Commission to make rules and regulations to address conditions unfavorable to shipping in our foreign trades; FSPA allows the Commission to address adverse conditions affecting U.S. carriers in our foreign trades that do not exist for foreign carriers in the United States. Under the Controlled Carrier Act, the Commission can review the rates and rules of government-controlled carriers to ensure that they are not unjust or unreasonable.

The Commission is currently involved in several proceedings related to shipping conditions in China. As we advised this Committee previously, the Commission had initiated a proceeding, Docket 98-14, Shipping Restrictions, Requirements and Practices of the People's Republic of China, to investigate whether the laws, rules or policies of the Government of the People's Republic of China might have an adverse impact on U.S. shipping and warrant action under section 19 or the FSPA. Responses to the Commission's inquiries in this proceeding over the past 5 years have indicated that Chinese laws and regulations might discriminate against and disadvantage U.S. carriers and other non-Chinese shipping lines with regard to a variety of maritime-related services.

I am pleased to report that since I was last here, a bilateral maritime agreement was signed by Secretary of Transportation Norman Y. Mineta and his counterpart, the Chinese Minister of Communications, on December 8, 2003. The Commission is hopeful that many of the issues addressed in our pending proceeding have been resolved in that agreement, including issues affecting vessel operators, NVOCCs, and other industry interests.

The Commission is also considering the petitions of three Chinese controlled carriers for relief from the 30-day waiting requirement for reduction of tariff rates of the Controlled Carrier Act (Petition Nos. P3-99, P4-03 and P6-03). As part of its deliberations, the Commission considered letters from the U.S. Maritime Administrator and the Under Secretary of State for Business, Economics and Agricultural Affairs that discuss commitments made in the bilateral Maritime Agreement between the United States and China. The Administrator and Under Secretary urged the Commission to favorably consider the Petitions. The Commission will schedule a meeting to discuss the Petitions and comments in the near future.

In order to implement concessions for NVOCCs offered by the Chinese in the recent U.S.-China talks, the Commission has issued a Notice of Proposed Rulemaking. These new rules would allow licensed NVOCCs, at their option, to file proof of additional financial responsibility as an alternative to meet China's requirements for deposit of at least $96,000 in a Chinese bank. I am hopeful that these proposals will ease the burdens for NVOCCs doing business in China.

The Shipping Act permits ocean common carriers to enter into a service contract with one or more shippers. As you know, OSRA permitted these contracts to be filed confidentially with the Commission. Indeed, since OSRA's implementation, ocean common carriers report that eighty percent or more of their liner cargo moves under service contracts. While NVOCCs may enter into service contracts as shippers with ocean carriers, the Act does not grant NVOCCs the right to offer service contracts in their capacity as carriers with their shipper customers.

Six NVOCCs and one national trade association representing NVOCCs filed separate petitions with the Commission seeking some type of relief from this prohibition. United Parcel Service ("UPS"); C.H. Robinson Worldwide, Inc.; Danzas Corporation, and BDP International request individual exemptions from the Shipping Act; the National Customs Brokers and Forwarders Association of America, Inc. ("NCBFAA") seeks an exemption from the tariff filing requirements for all NVOCCs; Ocean World Lines, Inc. requests a rulemaking to expand the definition and scope of the term "special contracts" in the Commission's regulations to include NVOCCs if UPS and/or NCBFAA's petitions are not granted; and BAX Global Inc. seeks a rulemaking to permit BAX and other similarly situated entities (a determination to be based on assets, corporate format, and regulatory history) to enter confidential service contracts as "ocean common carriers" with their shipper customers. BDP and Danzas have requested the Commission to exempt them from the applicable tariff filing requirements of section 8 of the Shipping Act to the extent necessary to permit them to offer their customers confidential contracts for individually tailored packages of logistics services that include ocean transportation. The Commission received many comments in response to the petitions, from all segments of the maritime industry. The comments address the substantive requests for relief, as well as the fundamental question of whether the Commission has the authority to grant the types of relief requested, and we are presently considering these issues.

Last year I reported to you that the Commission had been considering changes to its oversight functions of passenger vessel operators. Public Law 89-777 requires cruise lines to demonstrate financial responsibility to ensure that passengers are indemnified for nonperformance of a voyage, or in the event of death or injury. You may recall that public comment from a rulemaking completed last year suggested that the Commission's $15 million ceiling on nonperformance coverage should be raised or eliminated due to the inadequacy of that amount for some cruise lines who have passenger revenue in the hundreds of millions of dollars. It was also asserted that the ceiling artificially limits the protections available to consumers in the event of an incident or catastrophe of a large scale.

The Commission issued a proposed rule to eliminate the ceiling, which had not been adjusted since 1991. The proposed rule would require cruise lines to provide coverage, in the form of bonds or other securities, for all of their unearned passenger revenue, i.e., revenue received for cruises not yet performed. Consumers who pay by credit card for cruise voyages are protected under the Fair Credit Billing Act in the event of nonperformance by the cruise line. Accordingly, revenue acquired through credit card transactions would be exempt from the coverage calculation. Further, although the rule would increase coverage requirements above the current ceiling for the largest cruise lines, coverage requirements for many of the smaller cruise lines would be reduced.

Significant, extensive comments were received in response to the proposals. In addition, the Commission held oral hearings to receive input from affected parties, and our Commissioners have met with many industry representatives. The comments and information provided in response to the proposed rule have been analyzed by staff, and the Commission will soon consider its options.

We continue our vigilant review of carriers' utilization of their antitrust immunity to ensure that their collective activities do not result in market-distorting practices. To that end, the Commission recently entered into a settlement agreement with the 14 ocean carrier members of the Transpacific Stabilization Agreement ("TSA") and four members of other agreements. The settlement brought to a successful conclusion the proceeding we mentioned to you last year, Fact Finding Investigation No. 25, which was initiated in August, 2002, to investigate whether service contract practices of the TSA and its members during negotiation of service contracts for 2002/2003 violated the anti-discrimination provisions and other prohibited acts of the Shipping Act. The settlement provided for structural changes in the TSA, resulting in removal of authority with respect to the sharing of shipper-specific information on service contracts, discussion of capacity rationalization, and rate discussions outside meetings for which minutes are filed with the FMC. The settlement also resulted in termination of two "bridging" agreements between TSA and other carriers, including one by which the reach of TSA had extended to the Indian subcontinent.

The settlement agreement includes the carriers' commitment not to establish any committee or subcommittee to discuss or agree upon rates, charges, or other terms intended to apply solely or separately to transportation of cargo for NVOCCs, or establish any voluntary service contract guidelines or other agreement pertaining to different timing of negotiations for service contracts with NVOCCs or which contain general rate increases or surcharges that distinguish between shippers based on the status of the shipper as an NVOCC or a beneficial cargo owner.

The settlement agreement also contains provisions for semi-annual meetings between representatives of TSA and of the Commission to review the activities of TSA and the state of the trade. The first of those meetings took place this week.

In the last few years the Commission has seen a proliferation of exclusive contracts between marine terminal operators and tug service providers in various ports and waterways. Through these contracts a marine terminal operator would enter an arrangement with one tug service provider to provide all of the tug services at that particular terminal or port. Various complaints by excluded tug providers, carriers and others encouraged the Commission to investigate this issue. A Show Cause Order and an Order of Investigation were issued against Canaveral Port Authority in Port Canaveral, Florida, and a Show Cause Order was issued against twelve marine terminal operators along the lower Mississippi River for alleged violations of the Shipping Act for entering such exclusive arrangements.

In the cases brought against the Canaveral Port Authority ("CPA"), the Commission found that CPA violated various sections of the Shipping Act relating to CPA's operation of a tug franchise system at Port Canaveral that resulted in one tug provider having the sole franchise for the port. The Commission subsequently approved a settlement agreement resolving both proceedings in which the Canaveral Port Authority agreed to dismantle its tug franchise system and permit vessels calling at the port to select the tug company of their choice. Canaveral Port Auth. - Possible Violations of Section 10(b)(10), Unreasonable Refusal to Deal or Negotiate, and Exclusive Tug Arrangements in Port Canaveral, Florida, 28 S.R.R. 1455 (2003). The case against the twelve marine terminal operators operating in the lower Mississippi is ongoing before an administrative law judge. An Initial Decision is expected in July, 2004. Docket No. 01-06, Exclusive Tug Franchises - Marine Terminal Operators Serving the Lower Mississippi River.

In response to changes in the industry and input we have received from the public concerning the administration of our agreements program, we are currently in the process of overhauling that program. The Commission initiated a rulemaking, Docket No. 03-15, Ocean Common Carrier and Marine Terminal Operator Agreements Subject to the Shipping Act of 1984, to update its regulations governing agreements among ocean carriers and marine terminal operators. The rulemaking is intended to lessen the overall burden and cost of filing agreements on ocean common carriers while still ensuring that the Commission receives the information necessary to conduct effective oversight. The proposed rule seeks to make numerous changes to update, clarify and simplify the Commission's regulations governing the content of agreements subject to the Shipping Act; minutes filing requirements; Information Form and Monitoring Report filing requirements; and to clarify the definitions of transhipment and nonexclusive transhipment agreements.

The proposal is designed to ensure that the Commission receives complete information regarding those agreements that are most likely to present competitive concerns. In addition, we have proposed to exempt from the current 45-day waiting period those agreements with a low market share. We believe that approximately one-third of the agreements currently filed with the Commission would benefit from this exemption. The proposal would also modify the Information Form and Monitoring Report regulations to reflect changes in the amount and type of data the Commission deems necessary to monitor carriers' use of their antitrust immunity. By focusing our monitoring efforts on the largest agreements most likely to present competitive concerns, we believe that over one-half of those agreements currently required to file ongoing data with the Commission will be relieved from this reporting requirement. We have a team comprised of members from several agency offices and bureaus working together, summarizing comments in response to the proposed rulemaking, and we expect to consider the matter in the near future.

Last year we informed you about the agency's public outreach initiative involving a series of informational seminars hosted by the Commission's Area Representatives and other Commission personnel at various locations around the country. These on-going, well-attended seminars have been successful in creating a forum for continued and enhanced dialogue between the industry and the Commission. We provide information with respect to the Commission's functions and services, as well as instruction regarding the regulatory obligations of providers and users of ocean liner shipping services in the U.S. foreign trades in accordance with the statutes administered by the Commission. Last year we held 11 seminars. Four more are planned thus far for this year, in Puerto Rico, St. Louis, Chicago and Philadelphia, and we expect to continue these seminars.

Our Alternative Dispute Resolution ("ADR") program continues to grow and provide a mechanism for parties involved in ocean transportation to settle their disputes without the need for costly and time-consuming litigation. The Commission's Dispute Resolution Staff have provided mediation services in several formal proceedings, and settlements have been reached in the majority of formal proceedings mediated between private litigants. The Commission's administrative law judges continue to view ADR as a useful tool in resolving their cases, and almost always encourage parties to utilize Commission ADR resources. The Commission's Office of Consumer Complaints responds to consumer inquiries and complaints and attempts to informally resolve disputes involving both cruises and shipments of cargo. The office resolved more than 550 disputes during FY 2003. This year, the office is on pace to deal with approximately 800 cases.

Lastly, the security and safety of our Nation's transportation infrastructure is of critical importance to the free flow of trade, and the Commission's oversight of ocean common carriers, ocean transportation intermediaries, including ocean freight forwarders and non-vessel-operating common carriers, and marine terminal operators, is a vital link in the effort to protect our Nation's seaports. To that end, we are continuing our efforts to combat unlawful participation in the U.S. ocean transportation system by ensuring that all entities engaged in the U.S. foreign commerce are in compliance with the requirements of the Shipping Act. In addition, we continue to cooperate with other agencies involved in maritime transportation, including the Department of Homeland Security, Department of Transportation and intelligence agencies regarding information-sharing and other possible FMC contributions to the efforts to ensure a safe and efficient maritime transportation system.

Mr. Chairman, I hope that my comments have served to give you a clear indication of the important work to be accomplished by the Federal Maritime Commission. I respectfully request favorable consideration of the President's budget for the Commission so that we may continue to perform our vital statutory functions in fiscal year 2005.