FMC’s big to-do list

FMCÆs big to-do list Commission intends to continue work on capacity even as it tackles new issues in 2011.

By Chris Dupin

   The U.S. Federal Maritime Commission has outlined an ambitious agenda for 2011, even as its biggest initiative in 2010 received mixed reviews, and amid uncertainty about whether its chairman's legislative recommendations last year will be picked up by the new Congress.
   The commission's major task in the year ahead will be continuing implementation of recommendations from what it called 'Fact-Finding Investigation 26,' a nine-month probe into vessel capacity and container availability issues that roiled the liner shipping industry in 2009-2010.
   The investigation was part of FMC Chairman Richard Lidinsky's effort to support President Barack Obama's goal of increasing U.S. exports and helping with the economic recovery.
   In addition to continuing work on the capacity study, Lidinsky has outlined plans for the coming year, including:
   ' An investigation of the effect of vessels operating at reduced speeds, so-called 'slow steaming,' on supply chains and the environment.
   ' A review of the European Community's decision to end the block exemption for liner shipping conferences in 2008.
   ' Issuance, possibly in January, of a long-awaited rule to relieve 3,300 licensed non-vessel-operating common carriers from having to publish in tariffs the rates they charge for cargo shipments. According to comments submitted to the FMC last year, some NVOs say they could realize annual savings of up to $240,000 by eliminating the rule. DHL Global Forwarding, for instance, places its average monthly costs at $20,000.
   But as in 2010, much of the independent agency's work will likely grow out of the capacity investigation led by Commissioner Rebecca F. Dye, who conducted more than 170 interviews with companies involved in international shipping, including carriers, shippers and the organizations representing them.
   'It was a very intense report and road map for the future,' Lidinsky said. 'We haven't seen or heard the last of '26'.'
   The FMC issued an interim report on the fact-finding in June and approved a final report and adopted recommendations in December.
   Actions growing out of the report include:
   ' Creating 'rapid response teams' within the FMC's Consumer Affairs and Dispute Resolution Services (CADRS) department to help resolve problems between carriers and customers. Sixteen ocean carriers named high-level executives to work with those teams.
   ' Increasing oversight of carrier discussion agreements in the eastbound and westbound transpacific trades. Those are the largest U.S. trade lanes and where the greatest number of complaints about capacity issues arose in late 2009 and early 2010. The FMC is requiring the agreements to provide verbatim transcripts so it has information 'relating to whether member carriers are improperly discussing capacity.'
   ' Increasing oversight of global vessel alliances such as the Grand, New World and CKYH alliances. The FMC in January issued new requirements to the three alliances requiring them to provide minutes on meetings and monthly monitoring reports about their joint services.
   ' Forming two working groups. The first will focus on issues involving booking cancellations and rolling cargo; improving shipper forecasting and minimum quantity estimates; export capacity forecasting; and other ways to improve shipper-carrier relationships. The second will focus on container availability for U.S. exporters.
   ' A project to help small U.S. exporters and importers improve service-contracting practices through education and outreach. The project will include a Web-based educational tool.
   ' Working with the U.S. Department of Agriculture and exporters on a project aimed at helping shippers find available containers at inland locations. The USDA said it has submitted plans for the project to the Office of Management and Budget for review and approval.

Dissent. Dye's report was accepted and recommendations were approved in December by a 3-1 vote, with Commissioner Joseph E. Brennan voting against adoption. According to the commissioner's counsel, Steve Najarian, Brennan was 'ready to accept the report and praised the hard work of Commissioner Dye and her staff. It was his preference, however, for the commission to first release a public version of the report and then to hold a public hearing. At such a hearing, industry participants would have been able to comment on recommended solutions to the problems of insufficient containers and ship space.'
   Brennan questioned the setting up of 'working group' subcommittees to be facilitated by the FMC staff, and 'whether there will be strong interest in having a governmental agency at the table during service-contract negotiations between commercial parties, attempting to influence the outcome.'
   According to Najarian, Brennan, a Democrat who was formerly governor of Maine and a member of the U.S. House of Representatives, saw an irony in the fact that Dye, a Republican member of the commission, 'advocates expanding the role of government in everyday commercial dealings.'
   Since the report relied heavily on confidential testimony, only a limited amount of information was released to the public and the FMC commissioners discussed the report in closed session.
   In an FMC press release Dye was quoted as saying the report 'concluded that the most effective long-term solutions to the commercial problems experienced by U.S. exporters and importers this year will be developed by ocean carriers working closely with their customers within a framework organized by the commission.'
   The limited disclosure about the fact-finding did not sit well with the National Industrial Transportation League, the nation's largest shipper organization. NIT League President Bruce Carlton issued a statement saying the FMC's announcement 'failed to include any reference to the findings made during the investigation and is conclusory.'
   He added the FMC 'appears to have concluded that these problems were simply a misunderstanding between carriers and their customers over their respective contractual obligations.'
   And he raised concern similar to Brennan's that the FMC might be 'taking on the unconventional role of a commercial facilitator.'
   Peter Gatti, the NIT League's executive vice president, said the organization was not unhappy with the FMC's conclusions, but its members were disappointed by the lack of details and absence of an 'analysis that led to the conclusions.'
   The NIT League said it might request further information under the Freedom of Information Act, but Gatti emphasized that if such a request is made, the NIT League would specifically ask that it be redacted so that identities of the companies that provided information to the FMC would not be revealed.
   Dye explained in an interview with American Shipper that her investigation was shaped by the powers that the FMC had to address shippers' concerns.
   'We quickly ran right into the provision that under the Shipping Act, the exclusive remedy for breach of contract is in the courts,' she noted.
   Since the agency was not pursuing violations of law, Dye said the FMC relied heavily on confidential testimony and, 'from the beginning I was focused on solutions.'
   Gatti said the NIT League 'absolutely agrees that is the right approach,' but wanted to see how the FMC 'connected the dots' to come to the recommendations they approved and whether the conclusions they reached were somehow limited by the authority of the FMC or the guise of the investigation.
   Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), praised what he saw as a 'sea change in view of the purpose of the FMC' toward 'an entity trying to facilitate exports.'
   He said the 'rapid response teams' are being used by his members to help resolve 'hiccups in the process which are undermining agricultural exports.' For example, he said if accurate and timely bills of lading cannot be obtained before a letter of credit expires, major agricultural exports cannot be made and sales fall through.
   He felt both the working groups and service contract reviews would also be helpful. 'Smaller shippers could use some assistance in understanding ocean transportation contracts and in gaining provisions that were fair. I think that there was a sense ' that smaller shippers, in particular, do not have the negotiating leverage to get provisions that many would say would be reasonable.'
   Lidinsky said, 'We are trying to concentrate on solutions to these issues, not so much rehash how many people were rolled or did phantom bookings,' or instances where shippers book cargo with carriers, but then fail to show up for a sailing. 'Everyone knows what went on in that period of time and we have to move on and make sure it never happens again.'
   But Gatti expressed some concern that what the FMC was proposing was similar to shipper advisory committees of the Transpacific Stabilization Agreement and Westbound Transpacific Stabilization Agreement.
   'We have several members that are part of that, and quite frankly, those have not gone that smoothly,' with some shippers complaining that an effort to develop a list of best practices were one-sided and biased toward the carriers. But Gatti allowed 'maybe this is part of a growing process they have in this advisory group.'
   'My general view is that no matter what format these groups take it is all for the good,' Lidinsky said. 'To the extent that there is increased communication between parties, that is the goal, whether it takes place at the TSA' or best practices groups organized by the FMC.
   Chris Koch, president of the World Shipping Council, said the FMC's intent 'seems pretty helpful.' He did not feel the FMC's mediation work was overly intrusive since 'it is up to parties to bring issues to them,' but that 'one would see how this develops over time.'

Antitrust Legislation. Gatti said one reason the NIT League would like to see more detailed information about the probe is because it would be 'absolutely essential to Congress understanding the findings of the investigation.'
   'It's an integral part of the cog that would be necessary to give evidence to Congress why changes are necessary. Given similar market conditions there is nothing to prevent what happened in 2009 and 2010 from reoccurring. Ultimately those types of circumstances at a precarious time in the U.S. economy was not helpful for companies that had to compete overseas, and as far as the import side was concerned, having reliable and competitive service to serve consumers at home. Those things were really knocked out of whack.'
   Gatti had praised Lidinsky's testimony before the House Subcommittee on Coast Guard and Maritime Transportation this summer and recommendations he made this summer to its then-chairman Elijah Cummings, D-Md., on statutory changes that he felt were needed for the FMC to become more effective, saying he was providing 'the inside baseball understanding on how to be a more effective agency.'
   Lidinsky's proposals included:
   ' Reforms to the service contract dispute resolution process to allow more timely and inexpensive assistance from the commission's CADRS office.
   ' Prohibiting unfair or deceptive practices in such areas as excessive cargo rolling, excessive booking cancellations, imposing surcharges, or refusing to accept third-party or ''shipper-owned'' containers.
   ' Adding some visibility into container-leasing companies that according to some reports control more than 60 percent of the world's container inventory. Lidinsky knows the industry well, having worked for container-leasing company Sea Containers from 1985 to 2006.
   Lidinsky said he expected when the FMC appears before Congress, probably in March, the agency will likely be questioned about the capacity investigation.
   After Lidinsky made his recommendations, former Congressman James Oberstar, then head of the Transportation and Infrastructure Committee, introduced a wide-ranging bill, H.R. 6167, to reregulate the shipping industry, a bill whose co-sponsor was Cummings.
   Titled the Shipping Act of 2011, it called for an end to antitrust immunity for discussion agreements among shipping lines.
   While Lidinsky noted after its introduction that the FMC had not taken a position on antitrust immunity, he said he was pleased that other parts of the bill dovetailed with the proposals he made to Cummings.
   Those included a bigger role for the FMC in resolving service contract disputes, prohibitions on unfair or deceptive practices in 'bumping' cargo or imposing surcharges.
   But it was unclear whether Cummings will make an effort to reintroduce the legislation now that he is a member of the minority. In early January, it was not even clear if he would continue to be a member of the Coast Guard and Maritime Transportation subcommittee.
   'My take is that the Oberstar legislation was not a very good approach to addressing the issue,' said Koch of the World Shipping Council. As of early January he said he did not know of any effort to reintroduce the legislation.
   More generally he said, 'the indications are that transportation is not going to be a focal point of the new Congress and to the extent that it is, it will be on a highway infrastructure bill and on Army Corps projects.'
   A challenge for the new Congress, he said, would be 'the new approach of being against earmarks. How are they going to deal with channel deepening projects at ports around the country which are always handled on a port-specific basis? Particularly Charleston and Savannah are trying to figure that out. And the inland lock and dam system, what are they are going to do with that?'