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Commissioner Daniel B. Maffei Remarks Transportation Club of Tacoma Luncheon Meeting
Thank you for inviting me to speak at your luncheon today. Before I begin, I must mention that the views I express are mine alone as one individual Commissioner and are not the position of the Federal Maritime Commission or of the U.S. Government.
As many of you know, the FMC is the independent agency responsible for ensuring a competitive and reliable international ocean transportation supply system. We are tasked with supporting the U.S. economy and protecting the public from unfair & deceptive practices.
One of our regulatory tools is the provision of antitrust protections for industry participants, such as the Northwest Seaport Alliance in Tacoma, who file agreements with the Commission allowing members of the alliance to collaborate in certain areas provided under the agreement.
As independent Commissioners, each member of the FMC can decide on which issues he or she should focus. But one of the biggest challenges with the current pandemic is getting out to tour ports and visit with stakeholders nearby to see what the needs and concerns of the industry truly are. So, I am especially grateful for this opportunity to share some of my views with you today and hear your thoughts & questions.
In my remarks, I will cover three of my concerns – detention & demurrage, the competition from Canadian ports, and the lack of available containers for exports.
Detention and Demurrage
One area that the Commission has been addressing in the last couple of years and remains a major area of concern is detention and demurrage practices in the industry – particularly during a time of port congestion.
Last spring, when the FMC unanimously voted to finalize the interpretive rule concerning detention and demurrage charges, I stated in the record that we had made a first step but should consider further action if that interpretive rule was not sufficient. In November, the Commission voted unanimously to expand Commissioner Dye’s fact-finding investigation specifically into practices at the Nation’s three largest ports that seem to be contributing to congestion and unfairness, and specifically whether carriers are implementing practices or regulations that may violate the law.
The pandemic conditions combined with the incredible import volumes partly resulting from the pandemic have created a crisis in the supply chain. While total volume out of Seattle-Tacoma was down in 2020 compared to 2019, you’ve seen huge volume surges in recent months – up 11.3% total year over year, and 23.3% up for inbound loads. Even with new weekly services being launched in the eastbound trans-Pacific trade, I expect that volume surges will continue, even through the Chinese New Year.
It seems that some carriers have taken positive steps to work with other groups in the supply chain to develop more fair and efficient practices as the crisis evolved. However, there are reports that some carriers are threatening high charges for failure to return empty containers on time, even in cases where congestion has made it difficult or impossible to do so.
Although this was the most expeditious way to begin, we may find that the parameters of Fact Finding 29 are insufficient to address the root of the problems. As Commissioner Dye reports back to the Commission, we will explore every action available under our authority.
I am not discounting the valid purposes for detention and demurrage charges, but I fear there are too many in the industry who may be ignoring the principles set out in the interpretive rule when it comes to levying them in a reasonable way. Therefore, I strongly support this expansion of the Fact Finding 29 investigation.
Commissioner Dye recently issued an advisory urging industry stakeholders to submit specific allegations of behavior that violates § 41102(c) when considered in the context of guidance provided in the Interpretive Rule on Demurrage and Detention to the Bureau of Enforcement via email at boe@fmc.gov. I echo her advice.
Cargo Diversion to Canada
An issue more specific to your region that I care about greatly is the impact of cargo diversion to Canada.
I read the recent PMA study on cargo diversion to Canada with great interest. The FMC used to study this issue as well, and I have continued to ask questions and pay attention, because I think it is something to watch closely.
The Ports of Prince Rupert and Vancouver continue to expand and have long-term plans to build new terminals with capacity for 2 million TEUs each. Land use plans for Prince Rupert indicate they plan to double their cargo capacity by 2040.
The Harbor Maintenance Tax (HMT) has long been a part of the conversation around competition with Canada, particularly so for the Pacific NW ports. I have always said that, if we are going to have an HMT, then our ports – such as Seattle and Tacoma, better see the benefits of it and not just the costs. In other words, if a port collects a “harbor maintenance tax,” then the tax should go toward maintaining its harbor.
The Water Development Resources Act that passed last month, thanks to the tireless work of Senators Murray and Cantwell and their Evergreen State House colleagues is a huge win for this area. I am pleased to see that there will finally be a more equitable distribution of funding to U.S. ports, and that both Seattle-Tacoma and the Great Lakes ports (a region close to my own heart) will see increases in annual maintenance money.
The rebate program included at Senator Murray’s request will also mitigate the incentive that currently exists for shippers to divert cargo to Canada.
Rail, however, remains a largely unaddressed issue. It should not be cheaper to transport a box from Prince Rupert to Chicago than from Tacoma to Chicago. This and many of the problems in competing are not all within FMC’s jurisdiction but addressing the potential diversion to Canadian ports is something that I feel the Commission cannot ignore.
It may be time for the Commission, or perhaps a cross-agency group, to perform a more comprehensive study considering the current conditions along with potential courses of action.
On Availability of Containers for Export
The Shipping Act, our primary governing statute, also includes the “promot[ion] of the growth and development of [U.S.] exports” as one of the purposes for the regulation of ocean shipping. Right now, one of my most serious concerns about the industry is the lack of availability of containers for U.S. export shipments.
The Shipping Act prohibits carriers from entering into arrangements that are exclusionary to certain shippers, and it is very important for the FMC to deeply scrutinize ocean carriers and alliances to make sure they are providing a non-discriminatory system of common carriage.
What I am hearing about conditions in the industry is upsetting. We hear of allotments of containers – seemingly guaranteed in contracts – being cut more than 95% in some cases. We hear of little or no notice being given when expected containers are not made available, making it impossible to get containers even if the exporter is willing to pay a high premium. And we see that there are stacks of empties accumulating at terminals when, at the same time, exporters are begging for them.
Average container turnaround times in China have increased almost two-fold, from 60 to 100 days, according to recent reporting from Reuters and the China Container Industry Association. Between this lag, and the lopsided trade balance that results from China exporting three containers for every one returning full, availability of the physical equipment is a major problem. It is not just a U.S.-China issue, though, as there are reports of shortages globally.
Although I only speak for myself, the actions of my fellow Commissioners convey the gravity of the issue.
FMC Chairman Michael Khouri has shown real leadership on the issue. Last month at the Global Maritime Conference, he shared that, as a Commission, “we are looking into all potential – I repeat – all potential responsive actions, including a review of whether such ocean carriers’ actions are in full compliance with the Shipping Act.”
The Commission recently increased the frequency of mandated reporting for ocean carrier alliances and voted unanimously to expand Commissioner Dye’s investigation related to the effects of COVID-19 to specifically examine this issue.
My fellow Commissioner, Carl Bentzel, and I issued a letter to the World Shipping Council last month, encouraging their member carriers to follow their obligations as common carriers and making sure they know we are serious about scrutinizing them for it.
My other colleague, Commissioner Louis Sola, has fully supported these efforts and said to CNBC recently, “if we continue to focus to be a nation of consumers of imports, and neglect to ensure exporters are protected, our economy’s foundation is as doomed as ancient Rome.”
So the good news is that – while I only speak for myself – I do believe ALL five commissioners are deeply concerned about the scarcity of export containers. And there are indications that the industry knows how serious we are and that more carriers will open lines of discussion and try to work with shippers to come up with solutions. For example, the World Shipping Council was responsive to our letter last month, and Maersk has also issued public statements about their plans to handle the crisis, which is also appreciated.
The bad news is that the regulatory situation is complicated by the vagaries of the legislation covering international ocean shipping. The statutory mechanisms for the FMC to address the industry’s current issues are not as clearly established as I would like.
The Act does prohibit carriers from entering into arrangements that are exclusionary to certain shippers, and it is very important that the FMC deeply scrutinize carriers and alliances to make sure they are providing a non-discriminatory system of common carriage.
So far, we do not have sufficient evidence that there is any collaborative behavior or discriminatory conduct. The carriers are handling the situation differently – even if the ultimate result is the same – and the dearth of containers for export does not seem to be tied to any specific type of commodity or individual entity.
And indeed, it is not a problem that is limited to the United States. I have also heard from shippers who are struggling to get containers out of other countries that are as different from each other as Canada and Vietnam.
The Shipping Act prohibits conduct that is unreasonable, unfair, or unjust. But the powers of the Commission in this area are heavily couched in the definitions of subjective terms such as “reasonableness” and “unfairness.” The precedents – to the extent there are any – in FMC cases have pretty much left the carriers alone.
So, perhaps it is time that Congress take a hard look at whether the law covering ocean shipping – mostly written more than a third of a century ago – adequately addresses the modern realities of the shipping industry. The current law was written in an era when it was assumed that the marketplace could resolve most problems and there were more than two dozen common carriers competing – some of which were U.S.-based.
To be clear, I am not suggesting that the Shipping Act could have predicted how a crisis such as COVID would affect the industry, nor am I advocating for a knee-jerk regulatory solution to a problem that will hopefully get better as volumes stabilize. However, both Congress and we at the FMC should consider the lessons learned in this current crisis and make sure the Shipping Act is made robust enough to accomplish its stated purposes – not the least of which is promoting American exports.
For you in the State of Washington, there couldn’t be a better time for a legislative reboot of the Shipping Act. Senator Patty Murray will likely be Assistant Majority Leader in the Senate and Maria Cantwell is likely Chair of the Senate Commerce, Science and Transportation Committee.
In the House, I know my good friend Congressman Derek Kilmer is no stranger to this group and he is a champion of both transportation infrastructure and exports. Recently, Rick Larsen – a senior member of the Transportation Committee – and I have discussed how to keep Washington State’s ports competitive. I have collaborated with Dr. Kim Schrier on how to best help her ag and chemical exporters (especially hay exporters). Cathy McMorris Rodgers is Ranking Member of the House Commerce Committee.
This is not to mention the lobbying prowess of AgTC’s Peter Friedman and his team and that the House Transportation Chair Peter DeFazio is from neighboring Oregon.
Conclusion
This is perhaps not the best time to tell people in Washington State to look to Washington DC for anything requiring people to get along with each other. And, indeed, my belief is that when consensus solutions come from different aspects of the industry, those solutions will work best. However, I do feel that we regulators have a special responsibility to encourage the industry to come up with solutions fair to all stakeholders and especially solutions in which U.S. exports are promoted as vital to our national interest.
One of the best things about the FMC is that – in a time of conflict in Washington – we five Commissioners work well together in a non-partisan environment.
Another of our strengths is the outstanding support we get from staff in and out of Washington. In the Puget Sound area, we have two full-time area representatives – Shad Scheirman and Diane Rebollo – that you should always keep in the loop.
Please also keep in touch with me. As an independent Commissioner, I can be most effective if I hear directly from stakeholders such as you. I am so grateful for this opportunity and look forward to your questions.
Daniel B. Maffei is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not represent the position of the Commission.