STATEMENT OF

THE HONORABLE HAROLD J. CREEL, JR.

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

FEBRUARY 11, 1999

Mr. Chairman and members of the Subcommittee, it is a pleasure to appear before you today to present the President's fiscal year 2000 budget for the Federal Maritime Commission.

Let me predicate my comments by advising the Subcommittee that since FY 1995, the Commission has absorbed significant cuts in funding. It was only in FY 1999 that we received a modest increase in appropriations. For example, in FY 1994 the Commission had an appropriation of $18,900,000 and funded 199 FTEs. In FY 1999, our appropriation is $14,150,000 and we anticipate funding only 138 FTEs, 30% fewer than in FY 1994. Please note that, at current levels, we cannot fund a fifth Commissioner and staff. Obviously, it was only through a series of extraordinary cost-cutting efforts, including reductions in force, other personnel reductions and elimination of our district offices, that we have been able to continue to carry out our statutory functions at these reduced budgetary levels.

As you know, the Ocean Shipping Reform Act of 1998 ("OSRA") will go into effect on May 1, 1999, and the Commission must adapt to numerous program revisions prior to that date. It will be a tremendous challenge to adjust to changing statutory mandates within the budget strictures of our current funding level. For FY 2000, the first full year of operation under OSRA, it is vital that the Commission receive adequate funding to meet the challenges of the new Act. We have anticipated our requirements to the fullest extent we are able, especially considering that our rulemakings to implement this new law are still ongoing. Until we have operated under this new regulatory regime for at least one full fiscal year, we will not know the full impact of the legislation on the Commission's resources. We have made a good faith effort to provide a reasonable, modest budget request for FY 2000, given the unknowns still before us. We urge Congress not to reduce our budget request; to do so might seriously impair the Commission, disabling it from administering the important functions and programs entrusted to it by Congress in this important time of legislative change.

The President's budget for the Commission provides $15,300,000 for fiscal year 2000. While this represents an increase of $1,150,000 over our FY 1999 appropriation, nearly two-thirds of the increase is solely to fund required annual salary and benefit adjustments for federal workers. The remainder is for increased rent costs and to support computer modernization efforts, including the final stage of upgrades to meet Year 2000 requirements. I would also point out that this budget request does not include funding for a fifth Commissioner and staff; should the Commission enter FY 2000 with those individuals on board, we would begin with a shortfall of approximately $385,000. Official travel has been straightlined at the FY 1999 level, and represents a reduction of almost 40 percent from FY 1995 travel costs.

The Commission's budget is composed mainly of mandatory or essential expenses such as salaries and benefits, rent and guard services, health services and accounting services, telephone and other communications costs, supplies, mandatory training, and printing and reproduction costs. These items all represent the basic expenses any organization faces in order to conduct day-to-day operations.

With the passage of OSRA, the Commission is moving ahead with plans to terminate the Automated Tariff Filing and Information system ("ATFI"). ATFI is not a part of the Commission's FY 2000 budget request, but the Commission has included funding to maintain historical tariff records electronically, as required by statute, as well as to support both our continuing and new program responsibilities.

The proposed FY 2000 budget provides for only 138 FTEs, with all employees located in Washington, D.C., except for five area representatives who serve in New York, New Orleans, Los Angeles, Miami, and Seattle. As previously mentioned, the Commission has had a steady and precipitous reduction in employees over the past six years. In part, this was the result of the closing of the agency's seven field offices, which reduced our staff by over 30 employees. However, over half of our staff reductions, accomplished via attrition, were necessary to accommodate lower funding levels and to position the agency to adjust to the requirements of the new legislation.

For instance, historically the Commission's Bureau of Tariffs, Certification and Licensing has committed significant resources to the tariff filing and review program. We have made a concerted effort to readjust resources and reduce staff by attrition. Today, we have only 8 employees handling such matters; as of May 1, 1999, these individuals will be utilized in new or increased program responsibilities which are the result of OSRA, e.g., the licensing of ocean transportation intermediaries, the anticipated huge increase in service contract filings, etc. The Bureau of Tariffs, Certification and Licensing handles a variety of statutory functions in addition to its tariff functions. Those include freight forwarder licensing and bonding, NVOCC bonding, and passenger vessel certification for liability for injury or nonperformance. Under the Act, this Bureau will also be responsible for NVOCC licensing. Despite increased responsibilities due to OSRA (discussed in more detail below), the Bureau has been assigned only 30 FTEs in FY 2000, down from, for example, 41 FTEs in FY 1994. I believe the Commission has effectively prepared for the new legislation, with the result being that staff reductions (except in district offices) have been timed to eliminate the need to conduct RIFs. I would remind the Subcommittee that OSRA does not end tariffs per se, since it requires carriers to publish them in private automated systems. Further, the Commission retains the responsibility to ensure that these tariff systems are accessible and accurate. Therefore, some staff will be needed to address certain tariff matters, albeit on a much reduced basis.

Currently, the primary functions of the Federal Maritime Commission are to ensure a fair system of oceanborne transportation for the benefit of U.S. exporters and importers and to protect U.S. trades from unfair foreign shipping practices. In addition to its current statutory mandate, OSRA further charges the Commission with promoting the growth and development of U.S. exports through competitive and efficient ocean transportation and by placing a greater reliance on the marketplace. The industry the Commission oversees transported 14.5 million containerloads of imports and exports in 1997 (the latest year for which data is available), with an estimated value of greater than $414 billion.

I would like to highlight the Commission's current programs before turning to a brief discussion of the potential impact of OSRA on the Commission's activities in FY 2000.

One of the most important responsibilities vested in the Commission is its duty to protect U.S. oceanborne trade and U.S. carriers from discriminatory or unfavorable treatment by foreign governments. The Commission has a long history of using its authority to impose sanctions and other retaliatory measures, pursuant to section 19 of the Merchant Marine Act, 1920, and the Foreign Shipping Practices Act of 1988, to force foreign governments to abandon protectionist policies and to open maritime markets to U.S. companies. These ongoing actions have created business opportunities for U.S. shipping companies and provide more favorable transportation conditions for U.S. exports. Currently, the Commission is monitoring and/or reviewing conditions and activities in the U.S./China trade, commitments to reform Japanese port practices, and conditions in Brazil which may be hindering free and open ocean trade.

The Commission performs a wide range of other statutory functions as well. The Commission has continued investigative and enforcement activities with respect to all of its statutorily-mandated responsibilities. This includes policing anti-competitive abuses of antitrust immunity, various types of fraud against consumers, misdescriptions or misdeclarations of cargo, illegal or unfiled agreements, unlicensed freight forwarding, untariffed cargo carriage and illegal kickbacks, and unbonded NVOCC and passenger vessel operations. In most instances, voluntary compliance is achieved in these areas without the necessity of formal adjudicatory or assessment proceedings.

Another essential responsibility of the Commission is the oversight of carrier activity and commercial conditions in the U.S. liner trades. The Commission ensures that carriers operating in these trades comply fully with the standards of applicable U.S. laws and Commission regulations. The Commission also conducts a variety of economic analyses of the pricing and service behavior of carriers operating in the U.S. trades, as well as research on emerging trends in the liner shipping industry. The purpose of these analyses is to ensure that there are not specific violations of the Act and to ensure that carriers do not abuse their statutorily granted antitrust immunity.

Additional functions performed by the Commission include ensuring that cruise vessel operators have sufficient resources to pay judgments to passengers for personal injury or death or for nonperformance of a voyage pursuant to sections 2 and 3 of P.L. 89-777, licensing ocean freight forwarders under section 19 of the 1984 Act, and ensuring that NVOCC middlemen are bonded to protect customers using their services.

The Commission also provides an expeditious and inexpensive forum for the resolution of disputes between private parties involved in ocean transportation. A substantial number of such complaints have been filed with and resolved by the Commission. The Commission also provides informal procedures for the resolution of disputes. The Commission's processes have provided a more affordable and expeditious means of allowing small shippers to obtain relief than would filing lawsuits in the more costly and formal judicial system. Further, the Commission's ombudsman mediates maritime disputes on behalf of the public, thereby saving those involved the costs of litigation.

Mr. Chairman, the Commission fully supports OSRA and we are excited about moving forward under the new regime in ocean shipping. We will strive to implement the Act in a manner consistent with Congressional intent. OSRA made significant changes to the Shipping Act of 1984, especially in the treatment of service contracts, the filing of tariffs, matters pertaining to agreements, expansion of the definition of "controlled carrier," marine terminal tariff publication, the combining of non-vessel-operating common carriers and ocean freight forwarders into a new entity (ocean transportation intermediaries) with new licensing and qualification standards, and the rewriting of certain prohibited acts. We fully intend that rules implementing the new statute will be in place by March 1, 1999, the statutory deadline. The Commission will issue final rules in three rulemakings this week, and we'll consider our remaining four rulemakings a week from today. Once all rules have been completed, the Commission will complete its assessment of how it best can accomplish its changed statutory responsibilities.

As a result of OSRA, an area which will require significantly less resources than in the past is that of tariff filing and review. Although the Commission will no longer operate the ATFI system, a minimal staff will be required to ensure the accessibility and accuracy of tariff material published by carriers and conferences on private automated systems. Therefore, instead of funding in the area of $700,000 - $800,000 for a contractor-maintained system, the Commission has included $350,000 in its fiscal year 2000 request to fund automation efforts required to implement OSRA and to maintain historical tariff data as required by statute.

In contrast to its impact on tariff matters, we do know that OSRA will require an increased resource commitment in several areas, including our service contract program. Industry sources project a tremendous increase in service contract filings once OSRA becomes effective, perhaps as much as a 300 percent increase. Additional resources also will be required for the licensing of ocean transportation intermediaries. We foresee a nearly 100 percent increase in the number of licensees, since currently many of those affected by the new law are not required to be licensed, but only tariffed and bonded. Additionally, although not a result of OSRA, our passenger vessel program has become more active and more complicated recently, due to the tremendous number of U.S. citizens embarking on cruise vacations each year. We therefore need to devote more resources to it. It is of paramount importance that they are protected in the event of death or injury or nonperformance of the voyage by the cruise line.

Mr. Chairman, the Federal Maritime Commission needs its entire fiscal year 2000 budget request in order to effectively fulfill its many statutory duties. Agency-wide, resource requirements as a result of the impact of OSRA preclude further reductions in staff; current staffing resources are already at the minimum level needed to effect the new legislation.

I hope I have adequately expressed the importance of the work of the FMC, and I respectfully request favorable consideration of the President's budget so that the agency may continue to perform its statutory functions in fiscal year 2000.