Remarks of Commissioner Harold J. Creel, Jr.

The International Association of NVOCC's

November 14, 1997

I am honored to serve as your featured speaker as you celebrate 25 years as an international association. Your organization and the FMC have maintained a longstanding and positive relationship over the years, one built on mutual respect and appreciation for the different roles we play in U.S. ocean commerce. I intend to focus today on maritime regulatory reform, and to touch briefly on the Commission's recent actions in response to the restrictive practices existing at ports in Japan.

The legislative reform effort has been quite dynamic of late. I believe that in itself is a story. During the late summer months, we did not hear much about reform legislation. Or at least, it wasn't the daily topic in the press and at trade gatherings that it had been in the spring or early summer. It was widely known that several Senators had placed holds on S. 414 at the request of certain maritime labor unions. This created severe doubt whether the Senate bill would ever move forward.

Behind the scenes, extensive negotiating and lobbying did persist. Key Senators met with representatives from all sectors of the industry to listen to their concerns and suggested approaches, or, in some cases, pleas for no action.

Meanwhile, the Senate staffers responsible for drafting the bill were busy absorbing all of this activity and attempting to develop specific language to implement new approaches. Trial balloon after trial balloon was floated, but none seemed to have sufficient helium to sustain legitimate hope for survival. It was becoming more and more difficult to alter the delicate compromise that previously had been reached and which was hanging on ever so precariously. Changes endangered the support of proponents who had struggled to agree on this compromise, while failure to alter the draft or adopt some fairly significant new provisions assured the continued opposition of major players.

This scenario changed somewhat when S.414 reportedly became linked with the OECD shipbuilding measure. It was informally understood that the fate of each rested with the other. The onus then fell on major Senate proponents to work the necessary compromises on each bill to permit both to be considered by the Senate. This significantly enhanced S.414's chances, given the more promising prospects for passage of the shipbuilding bill. But when several groups voiced their concerns with the reform effort in general, and specific proposed changes in particular, action this year seemed quite unlikely.

That was until two weeks ago, when we all began reading of a major agreement struck by the involved Senators that purportedly would pave the way for prompt Senate action on S.414. This was news. Essentially thought to be doomed for this session, S.414 not only had renewed life, but its passage was being discussed as a distinct possibility. A new floor manager's amendment was drafted and several reports circulated of possible quick Senate passage.

The basic changes in this new version, dated October 31, involved, what else, but service contracts. All contracts would continue to be filed confidentially with the Commission, but only agreement service contracts would be required to publish their essential terms, although with a more complete listing of such terms than in previous iterations. A new provision was added to permit carriers serving different trades to offer joint service contracts that would be considered as individual contracts for purposes of confidentiality. And, only parties to agreement service contracts would be prohibited from unjustly discriminating against or providing unfair advantage to any locality, shippers' association, or ocean transportation intermediary in their service contract dealings -- individual carriers would face no such prohibition.

Of particular interest to NVOs, the October 31 version calls for any claim against an ocean transportation intermediary bond to be reviewed by the involved surety company, and also requires those who would seek damages in court against such intermediaries to first attempt resolution with a surety. A subsequent clarification to the October 31 version also provides for the bill to become effective on May 1, 1999. And, oh yes, this version eliminates the proposed merger of the Federal Maritime Commission with the Surface Transportation Board. That entire provision has been deleted, and the FMC would remain as a free-standing independent agency.

Putting aside this recent flurry of activity, what about the overall bill and its effects, particularly concerning you in the NVO community? From a general standpoint, the Commission consistently has maintained that should carrier antitrust immunity be continued, then any reduction in public transparency of rate and service terms in tariffs or contracts increases the need for government oversight. If oversight is to be performed effectively, access to all relevant information is an absolute necessity.

And we have stressed the need for the ocean shipping oversight agency to maintain its decisional independence. Such independence is a must for the effective protection of U.S. interests. There is general consensus by all in the industry on this point. I am encouraged that the Senate now appears to agree. I will speak in a moment about a particular case that demonstrates the necessity of an independent, effective oversight agency. But allow me a brief digression to discuss certain Commission accomplishments or activities that receive little recognition, yet just the same have a truly significant impact on U.S. consumers.

The first involves an unscrupulous NVO who took advantage of hundreds of small shippers who were sending small parcels of personal belongings to families in the Philippines. The NVO received his freight payments and then hit the road without paying the ocean carriers. These people had nowhere to turn -- the Better Business Bureau, State Attorneys General, Consumer Affairs Offices -- no one could tell them how to proceed, much less obtain release of their cargo. Someone mentioned the FMC, and immediately we became the main contact. After hours upon hours of work by our Area Representative in Seattle, as well as our rep. in LA, along with the cooperation of the involved carriers, I am happy to report that these shippers began to receive their cargo. I cannot tell you the extent of appreciation these people have conveyed to us. Several NVOs in the trade also called to applaud our actions. I believe they realized that the good name of your entire industry is preserved when the harmful practices of a rotten apple are appropriately addressed.

And then there was the freight forwarder we uncovered that was being compensated for doing nothing. Those of you who enjoy the Seinfeld show can appreciate that we dubbed this operation "a business about nothing." This forwarder was involved in a scheme with an NVO where the NVO would reflect the forwarder as the freight forwarder on bills of lading. The forwarder performed absolutely no forwarding services for the involved shipments. But he kept on hauling in compensation from carriers. When the payments arrived, the forwarder split them with the NVO -- quite the scam, huh? Again, clamping down on such unprincipled operators not only precludes them from inflicting more damage, but serves to protect law abiding companies who comply with applicable requirements.

And cruise passengers have benefitted from the active interest we took in a carrier bankruptcy and an individual in the cruise industry who would have pulled off quite a heist had we not stepped in. In the former case, we advised hundreds of passengers of their procedural rights and the process they needed to follow to recover money paid for cruises that were canceled. And in the latter, we were able to obtain passenger refunds for phantom cruises. We also were successful in keeping this insolvent operator from burning other unsuspecting passengers.

I could go on, but suffice it to say that if there were no FMC, the foregoing consumers, and others in similar situations, would essentially be at the mercy of these illegal operators.

But moving back to reform legislation, what would S.414 mean to NVOs? Naturally, that depends upon a host of factors, including your company's size, your strategic objectives, the primary trades in which you operate, and so on. S.414 would convey both new benefits and additional responsibilities on NVOs.

You no longer would be required to file tariffs or anti-rebate certifications with the FMC, but you would have to maintain an automated tariff system that is both accessible to the public and accurately reflects your rates and practices. This clearly would reduce your filing burdens, yet it remains to be seen how it will affect your ability to access your competitors' information.

A significant change for NVOs would be your new authority to negotiate service contracts as a carrier, not just as a shipper. And, since you would be doing so as an individual carrier, the essential terms of such contracts would not have to be made public, and, you would face less liability for possible allegations of unjust discrimination or preference. But again, your competitors would have the same rights, and you would not be aware of what service contract actions they would be taking. This provison was opposed by shoreside labor.

Just as significantly, NVOs in the U.S. would now have to be licensed by the FMC, given their new status as an ocean transportation intermediary. Only one bond would be required for entities which maintain both NVO and freight forwarder operations, and as I mentioned earlier, your surety company has a more active and direct role in any claims filed against your bond.

I am sure you all have identified other provisions or nuances of the proposed legislation that have a direct impact on your daily operations. And we should not lose sight of the fact that if the bill is passed by the Senate, there is still the possibility of changes being sought by the House. Any legislation that is enacted definitely will change the landscape of ocean shipping regulation, with NVOs affected as much as any group.

While passage of S.414 is unlikely this year, I believe that it will come up for consideration next year. Far too much work has been accomplished to date, and its continued linkage to the OECD shipbuilding measure leads me to conclude that the Senate will concentrate on it early in the next session. Therefore, it would behoove all of you to keep a close eye on its progress, and to continue to present your views to the involved players to ensure that matters most important to the NVO community are appropriately considered.

Finally, I would like to emphasize a few important points concerning the Commission's recent Japan port practices case.

I am certain you are all aware of the restrictive practices that exist at Japanese ports. These are longstanding problems, and the Commission became involved due to its statutory mandate to protect U.S. interests and U.S. commerce from discriminatory actions by foreign governments and laws or regulations that create conditions unfavorable to shipping. Our goal from the outset has been to eliminate these practices. Plain and simple, we are seeking fairness. Japanese carriers and companies are free to operate at U.S. ports without unnecessary impediments or restrictions that reduce efficiency and add to costs. We are seeking the same thing for U.S. companies in Japan. Successful removal of the involved restrictions will benefit not only U.S. carriers, but all carriers that operate in Japan, as well as others involved in the U.S./Japan trade -- ports, labor, consolidators, importers/exporters, and ultimately, the U.S. consumer.

Why did the Commission vote to detain Japanese vessels at U.S. ports? Because the Japanese carriers refused to remit fees owed the U.S. Government, fees that were assessed due to the Japanese Government's failure to live up to an agreement it signed in April. Despite their continued assurances, they did not submit the payments as required by the Commission's order. Seeking vessel detention is our statutory authority, and was specifically set forth in our rule. Once the Japanese carriers refused to pay the fees, it should not have come as a surprise to anyone that the Commission initiated the next step. While It never became necessary for the Commission to formally submit its request for detention of the involved vessels, I am convinced that the Commission's firm action was instrumental in bringing the Japanese back to the bargaining table with a firm resolve to appropriately address and rectify the existing restrictive practices.

I also would like to clarify what became a common misperception. Some thought that the major impediment to finalization of an agreement between the U.S. and the Government of Japan was the fees owed to the FMC. However, the sticking point was not over the payment of fees as much as it was over the ability of the Commission to actively oversee implementation of any agreement reached. Extensive negotiations and discussions centered on this point. In the end, the Commission maintained all of its authority in this regard and accepted a partial payment of the owed fees, given the significant agreement that had been reached between the two governments.

Many asked us, why would you compromise any of the fees that were owed, particularly in light of the Commission's continual insistence that fees be paid? As I stated, the Commission accepted a partial, but substantial, payment because we had achieved the end which we were seeking, concrete and significant movement toward resolution of the problem. Our objective in this matter was not to penalize the Japanese carriers, but to establish a framework for eliminating Japan's restrictive port practices.

One last point. The Commission is committed to using its full breadth of statutory authority to ensure that Japan's restrictive port practices are eliminated. That is why we would not budge on maintaining our continuing oversight role.

I am pleased to announce that all documents have been signed by both the Government of Japan and the U.S. Without a doubt, this agreement to resolve the problem is a crucial first step; but just as importantly, effective and timely implementation of that agreement must take place. The Commission will monitor continuing actions and assess the results of those actions to determine whether the unfavorable conditions are, in fact, being removed.

Thank you again for your invitation, and I wish your association all the best as you celebrate your 25th anniversary.