The current situation at most U.S. ports is historic in many ways and has and is being covered by FreightWaves’ journalists and market experts. Accumulating supply side disruptions are keeping upward pressure on ocean container rates, while already heightened levels of import demand have overwhelmed a number of the ports. Import volume records continue to be broken almost weekly.
The influx of imports has produced instances of 20-plus vessels waiting for a berth at numerous U.S. ports. The continued deterioration of the global maritime supply chain has caused a surge in rates that is likely to remain elevated.
With this backdrop, this article continues the series on the major U.S. transportation-related agencies. The Federal Maritime Commission (FMC) was established on August 12, 1961 by the Kennedy administration. However, its roots go back to the World War I era.
The Commission works “to ensure that neither the activities of liner shipping groups nor foreign government laws or regulations impose unfair costs on American exporters, or on American consumers of imported goods.”
The importance of maritime trade to the U.S.
The United States is separated from some of its largest import and export markets by the Atlantic and Pacific oceans. Since the nation’s founding use of the sea lanes has been a critical component of its economy. Moreover, shipping exports and receiving imports is generally accomplished using ships of other nations.
Congress established the Alexander Committee investigation (which took place from 1912 to 1914) to look into the methods and practices of maritime shipping lines. With information gathered during the investigation, Congress grappled with the issue of whether collective liner pricing conferences might gain sufficient market power to unreasonably raise rates or reduce services and the need for a stable, reliable source of international ocean shipping.
These issues were exacerbated following the outbreak of World War I in 1914. There was a major crisis in ocean shipping because many ships were suddenly being used in the war effort; concurrently demand for U.S. exports and space on its ships grew quickly.
Based on concern generated by the war, Congress passed the Shipping Act of 1916. The legislation created a new maritime watchdog agency – the United States Shipping Board. The Board was established to “protect American exporters and importers from any potential abuse of the limited antitrust immunity Congress had granted conferences” through the Shipping Act, which is the foundation of much of the U.S. commercial maritime statutes since.
The United States Shipping Board was replaced by another organization, the United States Maritime Commission. Both had dual roles – regulatory agency as well as promoter of the precursor of the U.S. merchant marine.
The U.S. Merchant Marine and regulatory hopscotch
Congress passed the Merchant Marine Act in 1920. That law required the United States Shipping Board to monitor and respond to foreign laws, regulations or practices that caused unfavorable conditions in shipping and foreign trade.
President Franklin D. Roosevelt signed an executive order in 1933 that transferred the United States Shipping Board’s functions to the U.S. Shipping Board Bureau in the U.S. Department of Commerce.
However, Congress removed the Board from the Commerce Department in 1936, when it created the United States Maritime Commission. Joseph P. Kennedy was chosen by President Roosevelt to serve as the Commission’s first Chairman. The regulatory programs of the United States Maritime Commission were transferred in 1951 to the Federal Maritime Board, which was placed under the Department of Commerce. That lasted until the FMC was established in 1961.
In concert with members of Congress, the new Kennedy administration determined that regulating international liner shipping companies’ activities and promoting a vibrant U.S. merchant marine should be handled by different entities. Through a 1961 executive order two new federal agencies were established – the Federal Maritime Commission and the Maritime Administration (MARAD). An independent agency, the FMC was established to regulate U.S. ocean commerce, while MARAD was charged with promoting America’s merchant marine as well as overseeing an “emergency reserve of cargo ships for use in times of conflict.”
At about the same time that the FMC and MARAD were created, a revolution in ocean cargo was gathering steam. Due in large part to the efforts of Malcom McLean and SeaLand, intermodal shipping containers that could be transported on ships, as well as by rail and truck, began a transportation transformation. The efficiency and reliability of international commerce increased tremendously as the use of intermodal containers grew.
Global trade expanded as the intermodal container system was adopted by the world’s shippers. The use of intermodal containers also led to a drop in transportation and labor costs.
It also meant that the FMC was the lead agency for the federal government – charged with updating U.S. transportation regulations and removing issues that interfered with the intermodal services that quickly became critical to the U.S. shipping and distribution networks.
Shipping Act of 1984
In the early 1980s, the U.S. airline, railroad and trucking industries were deregulated. Meanwhile, the U.S. was using the pre-intermodal container Shipping Act of 1916 to guide legislative and regulatory issues in the shipping industry. Shippers, carriers and other interested parties united to seek a more modern framework. Congress passed the Shipping Act of 1984 on March 20, 1984, which generated a number of regulatory innovations.
Three of the most important innovations were: the introduction of “contract carriage under service contracts” that were filed with the FMC; the “pricing of liner services via negotiated contracts, rather than exclusively by public tariffs” significantly changed the liner industry; and the clarification of “the authority of conference members to offer intermodal pricing (the integration of ocean carriage with truck or rail service)” was a key advance in integrated transportation services.
In addition, the legislation also changed some of the FMC’s responsibilities, including the agency’s “authority to review and approve agreements.” Previously, ocean common carriers that sought to “enter into cooperative agreements” had to “justify the terms of those agreements to the FMC.” However, the Commission’s review/approval process was usually time-consuming, especially if an agreement was opposed by outside parties. The 1984 legislation changed that process – now, cooperative agreements automatically become effective after a period of 45 days (unless the FMC takes specific actions to block an agreement).
Shipping Reform Act of 1998
As part of the 1984 Act, there was a requirement that the FMC conduct a five-year study on how well the various reforms worked in the marketplace. Another requirement of the 1984 Act was a review of U.S. liner shipping policy; the study also provided information for it. The study’s “research, findings and recommendations” were the foundation of new deregulatory liner legislation – the Ocean Shipping Reform Act of 1998 (OSRA).
Congress passed OSRA and President Bill Clinton signed it into law. Effective on May 1, 1999, it still provides the basis of the nation’s liner shipping policy. Among OSRA’s primary objectives were: “provide the ocean shipping industry with more flexibility in conducting daily business; remove certain regulatory restrictions; and promote U.S. international liner trade by supporting greater reliance on the marketplace.”
The FMC in 2021
An independent agency responsible for “regulating liner shipping in U.S. trades,” the FMC has had to adapt to the changes that have taken place in maritime and other forms of shipping over the past 60 years. However, while the industry has evolved, the FMC’s mission has not changed dramatically; it is still charged with ensuring a “competitive and reliable international ocean transportation supply system that supports the U.S. economy and protects the public from unfair and deceptive practices.”