Remarks of Steven R. Blust, Chairman, Federal Maritime Commission

Journal of Commerce 13th Annual Breakbulk Conference

General Session

September 9, 2002

Thank you Bill for the kind introduction. And, of course, thanks to Alan, Peter, Rene and the rest of the folks at the Journal of Commerce for including me in this event. It is great to see so many friends and colleagues again at this conference. I have attended this conference over the years in other capacities and genuinely feel it is a worthwhile and important industry function. The record attendance level of 1100 individuals is fantastic and truly reflects the importance of the event to our industry.

As I'm sure will be discussed in great detail over the next couple of days, the breakbulk cargo market is encountering some real challenges today. It is expected that, in the short term, the weak global economy will have a tempering effect on breakbulk in certain market segments such as Latin American imports. Also increased competition from container operators for traditional breakbulk commodities will continue as the size and quantity of containerships grows. However, I believe that the long range forecast for the breakbulk market is very good. Overall growth in world demand for breakbulk commodities will continue, especially in emerging markets such as China, which has recently become the world's second largest importer of lumber products. Also the continued development of new cost-effective breakbulk handling and transportation methods will keep breakbulk services competitively priced, allowing the trade to take advantage of future growth opportunities.

I would now like to take a few minutes to give you a brief overview of how we at the FMC relate to all of you and to the marketplace in general.

The Federal Maritime Commission plays a crucial role in this marketplace by ensuring that "fair maritime competition" exists and that the maximum benefits of international ocean transportation are received by this nation, with a minimum of government intervention and regulatory cost. The intent of our governing laws is to let market forces guide the growth and development of U.S. international trade. The Federal Maritime Commission is charged with ensuring that there are no undue controls, influences, or non-market barriers imposed by any nation, carrier, cargo owner or intermediary, which can adversely affect U.S. ocean borne trade. The FMC does not have a promotional role, rather, we use our mandate to help remove impediments to fair competition and thereby allowing you to conduct business as effectively as possible. This role could be of even greater importance to you when weak market conditions are present.

A common misperception about the FMC is that we regulate only the container trade or liner operators. In fact, all common carriage including breakbulk common carriage is subject to the Shipping Act of 1984, the statute under which we operate. With the notable assistance of my fellow panel member, Ed Emmett, the 1984 Shipping Act was updated, streamlined and refocused by the passage of the Ocean Shipping Reform Act of 1998, commonly called OSRA. This Act, among other things, established the use of confidential service contracts and simplified the requirements for publishing tariffs.

The Commission ensures that the various entities involved in common carriage - container and breakbulk - including VOCCs, ocean transportation intermediaries and marine terminal operators - conduct their operations in a manner that is consistent with the intent of Congress.

For example, the Shipping Act requires that all common carriers publish automated tariffs. However many commodities typically carried in breakbulk services, including forest products, recycled metal scrap, new assembled motor vehicles, wastepaper, paper waste, and bulk are exempt from that requirement.

The Act requires that any person in the United States who operates as an ocean transportation intermediary ("OTI") obtain a license from the Federal Maritime Commission. OTIs include both ocean freight forwarders, which have historically been licensed by the Commission, as well as NVOCCs. Moreover, all OTIs, whether in the U.S. or foreign based but engaged in the U.S. foreign commerce, must furnish evidence of financial responsibility in the form of a surety bond, guarantee or insurance. This is available to pay for damages arising from the OTIs' transportation related activities.

Marine Terminal Operators are also subject to the Shipping Act. A marine terminal operator is defined as a person in the U.S. engaged in the business of furnishing wharves, docks, warehouses or other terminal facilities in connection with a common carrier.

Each of these entities is subject to at least some of the prohibited acts set out in the Shipping Act. Our staff at the FMC is always available to answer any questions that you might have concerning the requirements and regulations that may be relevant to your businesses. We encourage you to utilize our website, www.fmc.gov which contains contact phone numbers and email addresses, plus other useful information concerning the FMC and the laws which we administer.

The Commission is also authorized to address restrictive foreign shipping trade practices. The Merchant Marine Act of 1920 and the Foreign Shipping Practices Act of 1988 empower the Commission to make rules and regulations governing shipping in the foreign trade to adjust or meet conditions unfavorable to shipping and to address adverse conditions that affect carriers, OTIs and shippers in the foreign trade, but which are not otherwise applied to foreign entities operating in the U.S. Typically such conditions might involve restrictions or fees discriminatorily imposed by a foreign government on carriers operating in the U.S. foreign trade. They may also include limits on terminal ownership, trucking operations, and agency or forwarding services.

As many of you are aware, back in December of last year the People's Republic of China issued a new law which caused much confusion and consternation in the ocean shipping industry. This new law took everyone by surprise and raised concerns about whether it would create or perpetuate differing requirements for and treatment of Chinese and non-Chinese carriers and intermediaries, or create new and unreasonable barriers to those who provide transportation services to and from China. The Maritime Administrator, Captain William Schubert, and many private industry groups have raised these concerns with the Chinese government's Ministry of Communications (MOC). They have requested further clarification of the meaning and impact of the law and asked for a more transparent process in the development of the rules which will implement the law. In April when the MOC was visiting Washington for consultation discussions with Marad, the FMC staff spent several days with their staffers, explaining how we operate here in the U.S. - both specifically as to the FMC and more generally, as to all U.S. regulatory agencies. We were pleased to learn that in June the MOC requested public comment on its implementing rules, and did not make them effective immediately. We hope that the Chinese take the comments they have received into consideration when developing their final rules, and continue to keep the industry involved in the development of this regulation and all future regulations.

At the moment, we are in the process of reviewing the comments from the industry and shipping public made in response to our requests for further information on the effects of this new law. Rest assured, the FMC continues to closely scrutinize the impact of this law as well as MOC rules and the practices that result from it. But the FMC can only be as effective as you, the industry, let us be. We rely on you for input on the effects that foreign practices have both on your ability to do business on a day-to-day basis, and on your ability to expand your business in different geographic and service markets. I look forward to hearing from you and working with you on these issues.

I'm sure that maritime security is a topic that will be discussed in many a forum in the next couple of days, and I would just like to assure you that it is something we at the FMC include in our day to day functions such as the licensing of OTIs. While our direct role in maritime security is limited, our goal is to help reduce the "haystack" that is before all of us. We regularly provide technical expertise and assistance to the various entities in Washington that are on the front lines of securing our ports and vessels.

As many have said before, it is essential that each entity in the supply chain, including government agencies, do its own part towards securing the chain. I will do all that I can to be certain that the Federal Maritime Commission continues to work in concert all the stakeholders, including the cargo interests, other governmental agencies and Congress to ensure that U.S. international commerce is conducted in a safe and secure manner.

And I believe the effort must be collaborative and integrated through the entire international business process - from the initial buyer/seller agreement, to the sourcing of the product at its origin, to the cargo handling and transportation legs, through to delivery of the product to its destination. By working with trusted partners, you can help to ensure that safe and expedient transportation of the cargo will occur.

Another issue that I know you'd all love to hear me speak on, one that will be discussed here amongst some of you, are the proceedings we have undertaken at the FMC regarding exclusive tug arrangements. Both the Canaveral and the Lower Mississippi proceedings are still pending before the Commission, awaiting either an administrative law judge decision or a Commission decision. As such, I am not in a position to comment on those cases. Due process requires that a decisionmaker remain neutral and not even appear to have prejudged adjudicative facts in pending matters. Simply put, I can't talk about it at this time.

In closing, I'd like to again thank the Journal of Commerce for asking me to be here today and I look forward to your questions and to lively discussions during the next 2 days.