REMARKS OF

COMMISSIONER DELMOND J.H. WON

FEDERAL MARITIME COMMISSION

BEFORE THE

JOURNAL OF COMMERCE GROUP

Chicago, Illinois

October 25, 1999

Good afternoon. I'd like to thank the Journal of Commerce Group for having me today to share my views on our experiences with OSRA since its effective date of May 1.

It's always difficult to prepare for events like this because it's never easy to anticipate what an audience wants to hear. That the Journal of Commerce Group told me what to talk about makes it a whole lot easier.

Speaking on our experiences with OSRA is not that simple a task because for the most part, the tone and tenor of those experiences depends on who is being asked. I think that point is a very important point to bear in mind whenever we hear a discussion on whether OSRA is working or not. We've all been told that OSRA was a compromise and a compromise implies that nobody got everything they wanted and that some parties will be happier than others.

There are obviously a lot of different opinions regarding OSRA...I have mine and you have yours...and while we may not always agree, I believe that it's very healthy to discuss all differing points of view.

Opinions aside for the moment, the FMC has been quite busy adjusting to the implementation of OSRA. As you all know, the FMC directed pretty much of its entire attention to the promulgation of OSRA's implementing rules during the first quarter of this year. Throughout that process, all of us at the Commission admitted that fine tuning of those rules would be necessary as we gained experience under OSRA. I used to like to refer to those rules that we promulgated not as final rules, but rather as "start" rules.

Well, since May 1, we have been assessing the effectiveness of those rules to determine where we might have to tweak them. The industry, that is all of you, has been helpful in pointing out provisions which could benefit from further clarification. I encourage you to continue to do so as we evaluate those situations to determine if the initiation of clarifying rulemakings are necessary.

We're also spending a lot of time evaluating the industry's efforts to comply with the new statutory requirements as reflected in our new rules from a technical perspective. For example, all carriers are required to publish tariff information in their own automated systems. Congress mandated that those systems be accessible to the public and accurate. Our initial efforts are focused on determining the accessibility of carriers tariffs.

Another example of technical compliance is the licensing of OTIS's. We are currently processing some 300 new applications, as well as relicensing some 4,000 grandfathered companies.

Service contract filings? Since the end of September, we've received over 22,000 service contracts and over 32,000 service contract amendments.

Now before you all start thinking that all of our efforts are directed at what the industry is doing, I want to tell you that we are also spending a considerable amount of time evaluating our own organization and processes to insure that our own resources are allocated in the most efficient and effective manner.

But enough of the technical, internal impacts of OSRA. I'm guessing that you're all much more interested in hearing what the impacts have been on the industry. What's happened since May 1?

Well, in spite of all the shippers' complaining last year leading up to Fact Finding No. 23, this year's service contract negotiations concluded with the carriers generally implementing a rate increase in the $900 to $1,000 range pretty much across-the-board, with little apparent fanfare.

The National Industrial Transportation League announced that its members were generally happy with the contracts they had negotiated.

ANERA suspended its operations.

If we stop here, it might be easy to conclude that OSRA is having its intended effects and what we are seeing is the beginning of a success story for deregulation.

Except for a couple of things.

First, I do not believe that OSRA represents deregulation as much as it represents regulatory reform. While OSRA directs the FMC to place a greater reliance on the marketplace in promoting the growth and development of United States exports through competitive and efficient ocean transportation, our industry's marketplace is very much defined by the parameters set forth in OSRA.

Second, I think we would be remiss if all we did was conclude that OSRA appears to be a success because nobody complained during this year's contract negotiations without trying to understand the dynamics that brought that result. Based on all I've heard, the fact that everybody anticipated a repeat of the 1998 peak shipping season this year and that shippers as a result, were more concerned about securing space than they were about rates or perhaps any other contract provision, tells me a lot more than the mere fact that we received little or no complaints about the contracts that were signed.

Throughout the debate that resulted in OSRA, we all heard the various arguments for and against regulation. Generally, the arguments against regulation painted a picture of a structure so rigid that a particular group could not do the things that were commercially necessary.

The arguments in support of regulation generally painted a picture that regulation is necessary to insure a relatively level playing field.

In my view, both arguments are correct. Regulation is intended to level the playing field and it does so by not allowing the regulated party to do what they might otherwise do if there were no regulation.

In a simplistic sense, I view the fundamental purpose of regulation as an attempt to control market forces to fit a particular view of fairness or reasonableness. Regulation typically comes about only when there's a sense that for a given industry, the marketplace, if left alone, would bestow unfair advantage to a party or a particular group of parties. Absent this sense of impending unfairness, regulation would not exist.

Given this premise, the success of OSRA can only be measured against that which is determined to be fair or reasonable.

So how do we define fair and reasonable?

As far as I'm concerned, that is the most important question the FMC, and all of us for that matter, must try to answer as we move forward.

What we have today is an environment that continues to be defined through regulation, albeit through a scheme that purports to avail industry participants to some of the freedoms of the marketplace.

It's clear that regulation of our industry, and all other industries for that matter, has evolved toward greater reliance on the free market.

For those of us who've spent our entire careers in regulated environments, that evolution can be a scary thing. For regulators, the task can be daunting.

It's difficult enough sometimes to just understand the technical requirements of regulation without having to try to understand the "spirit" of the legislation. But there are lots of attorneys to help us with the technicalities of the law. I believe that the more difficult problem is trying to understand and administer the "spirit" of the law. Fundamentally, I believe that in trying to place a greater reliance on the marketplace, we must all have a clear understanding of what a free marketplace is and implies in terms of the conduct of business.

In order to administer OSRA effectively, I believe that how we at the FMC define the marketplace is of the utmost importance. Will the marketplace that we are charged with placing a greater reliance on be the environment as it was defined by the 1984 Shipping Act, or will it be the environment as it would be if it were a truly "free" market?

If we choose the former, we could easily conclude that confidential contracting provides the industry more commercial flexibility and a significant competitive tool that was not available under the 1984 Shipping Act. If we adopt this perspective, we could say that things are better than before and do nothing more than enforce the letter of the law.

If we choose the latter, however, our perspective becomes one of realizing that OSRA is simply one step towards deregulation, and that we should be more active in administering the law to guide and shape our industry toward a future ideal, the "free" market.

In order to effectively promote a greater reliance on the marketplace within our industry, it's no secret that I think the major issue which needs to be addressed is the issue of antitrust immunity.

While one could argue that from a pure economics perspective, there are no prohibitions against monopolies, I think that any reasonable person would define the "free" market as one which includes the kinds of antitrust laws that we have in place in this country.

If we accept this assumption, we would have to conclude that the concept of antitrust immunity runs counter to the principles of a "free" market.

While it's arguably legal for the sharing of information under antitrust immunity, between what would otherwise be natural competitors regarding market conditions and the competitive consequences of contemplated operational and rate decisions to occur, I'm troubled by the resulting elimination of business risk and competition among carriers.

I'm troubled by the many calls I received early this year telling me that there were no negotiations for contracts, only a "take it or leave it" offering. I'm troubled that this scenario was possible only because carriers knew that their so-called competitors agreed not to deviate from this approach. I'm troubled when I get calls telling me that there are carriers looking for ways to reduce transportation costs for direct account shippers while not offering the same consideration to OTIs. I'm troubled when I get calls telling me that there are some carrier representatives who candidly tell shipper agents that there are no secret rates among carriers. And I think all of you should be troubled as well.

I have no way of determining whether any of this "street" talk is true or not, but it's all troubling nonetheless because as long as OSRA defines our marketplace in a way which includes unfettered antitrust immunity, these kinds of scenarios could be happening. These are precisely the kinds of marketplace dynamics which tell me a lot more about life after OSRA than simple indications that contracts were signed with little or no complaints.

That the recent activities of the carriers are technically in compliance with the law does not imply in my mind, that the resulting behaviors are necessarily reasonable or more reflective of the marketplace. And I do want to remind everyone that OSRA continues to obligate the FMC to guard against "unreasonable" behavior, an obligation and responsibility that I take very seriously.

So, is OSRA a success? From my perspective, the answer at this time has to be no.

Does it need to be changed? Maybe, maybe not. There are many who have said that more time is needed for the intended benefits of OSRA to be realized. To a certain degree, I agree. But it should not preclude our policy makers from exploring other regulatory scenarios which may improve things. This is no different than any of your businesses continuing to look for better ways to do things even as certain goals are achieved. You should expect no less from your regulators.

Ultimately, I agree with what Barry Horowitz said in his opinion piece in last week's Journal of Commerce, that "OSRA has brought the potential for real change" in our industry. It's up to all of us to help our industry move in the right direction.