Commissioner Doyle’s Prepared Remarks to the Global Shippers’ Forum Annual Meeting

Contact: David Tubman, Counsel to Commission Doyle

Thank you for inviting me to speak with members of the Global Shippers’ Forum this morning. I am Commissioner William Doyle of the U.S. Federal Maritime Commission. I would like to recognize Chris Welch, Secretary General of the Global Shippers Forum and GSF Board Member, President and CEO of the U.S. National Industrial Transportation League—Bruce Carlton.

I would like to address some of the current items the FMC has recently taken action on and other developments.

FMC Allows Port of Seattle/Port of Tacoma Discussion Agreement to Proceed

This past week the Commission unanimously voted to effectively allow the Ports of Seattle and Tacoma to move forward on a cooperative agreement to exchange information and work together to find synergies.

Beginning March 8, 2014, the Ports of Tacoma and Seattle will be free to collect, share and discuss a wide range of issues regarding container terminal operations including information on container facility planning and development, management, and operational efficiencies.

This new cooperation is allowed pursuant to a discussion agreement they filed with the Federal Maritime Commission, which permits the two ports to discuss matters of mutual interest.

The FMC is charged with reviewing and monitoring agreements between marine terminal operators servicing the U.S. – foreign oceanborne trades to ensure that they do not cause substantial increases in transportation costs or decreases in transportation services.

The Ports of Tacoma and Seattle are separate port districts governed by locally elected port commissioners. The two ports are located 30 miles apart in Washington State. They support tens of thousands of jobs. Puget Sound is considered the third largest container gateway in the U.S., but a significant portion of the inbound container cargo is considered discretionary. Competition is stiff between ports on the U.S. West Coast and the ports in Canada and Mexico. Our ports need to compete on an international level and keep providing good paying jobs– I hope this agreement helps the ports of Seattle and Tacoma figure out their best options for the future.

FMC – KPMG conduct China Value Added Tax Maritime Webcast

In August 2013, Bruce Carlton of the National Industrial Transportation League wrote to the Federal Maritime Commission, namely FMC Chairman Mario Cordero, seeking clarity on carriers charging shippers a fee for handling the new Chinese value added tax (VAT). This is an issue that affects not only American companies, but all of you in the room who engage in business with the People’s Republic of China.

At the Commission’s September 2013 meeting, the FMC announced that it would look into ways to obtain further clarity on how China was implementing the tax. I led VAT discussion for the U.S. delegation during last year’s Annual U.S. Bilateral Maritime Consultation Meetings with the People’s Republic of China. This meeting resulted in moving the ball forward on seeking clarity for businesses impacted by the new tax regime.

The FMC has also been working with the U.S. State Department through its officials in DC, the U.S Embassy in Beijing, and the U.S. Consulate in Shanghai. Together, the FMC and State Department have been seeking guidance on the VAT through China’s Ministry of Transport, the Ministry of Finance, and China’s State Administration of Taxation.

China’s Ministry of Finance and State Administration of Taxation released Circular 106 this past December, which made significant updates to the VAT treatment of services related to the international transportation of goods. During the week of January 20, 2014, China provided further clarifications for freight forwarding agent companies in China with regard to Circular 106.

Last week I participated in a KPMG LLP TaxWatch webcast that covered the latest information on China’s VAT reform with specific emphasis on the development of Circular 106 as it affects international carriers, shippers, and ocean transportation intermediaries. Several hundred people attended the live webcast. KPMG LLP will re-post a video version of the webcast this week, which will also host answers to some of the questions.

I appreciate NITL’s diligence in bringing to our attention issues of uncertainty surrounding China’s VAT program. I look forward to continuing to work on this issue with governmental and industry partners.

FMC Bureau of Enforcement Activities—Carriers Settling Shipping Act Violations

The Commission’s enforcement bureau has been involved in ongoing investigations in the Roll-on/Roll-off (RO/RO) – car carrier sector. The Bureau has done a good job – and in most cases, Shipping Act violations have been settled through compromise agreements with the operators. It is important for the carrier community to understand that the FMC is not an agency that solely regulates the container trade. Carriers must ensure that they comply with the Shipping Act and this includes properly filing with the Commission their agreements affecting carrier working relationships.

Over the past several weeks, the Commission has entered into to compromise agreements settling allegations of Shipping Act violations with Compania Sud Americana de Vapores (CSAV), Mitsui O.S.K. Lines Ltd. (MOL) and its corporate affiliate, Nissan Motor Car Carrier Co. (NMCC), Kawasaki Kisen Kaisha Ltd. (K Line), and Nippon Yusen Kaisha (NYK Line).

On February 27, 2014, the U.S. Department of Justice announced that CSAV plead guilty and agreed to pay an $8.9 million criminal fine for its involvement in a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks, to and from the United States and elsewhere.

Since at least 2012, United States, Canadian, Japanese, and European antitrust authorities have been engaged in a global, coordinated price-fixing investigation regarding an alleged unlawful conspiracy.

On the civil litigation front, over 25 lawsuits have been filed in federal courts across the country against major Ro/Ro operators alleging that defendants conspired to fix, raise, maintain, and stabilize the price of vehicle carrier services. In October 2013, the United States Judicial Panel on Multidistrict Litigation began ordering consolidation of lawsuits into a multidistrict litigation (MDL). The purpose of an MDL is to centralize similar lawsuits to avoid duplicative efforts and increase the efficiency of the judicial process.

Judge Ester Salas of the United States District Court for the District of New Jersey will preside over the MDL, which is referred to as In Re: Vehicle Carrier Services Antitrust Litigation.

Separate from the car carrier cases, the Commission reached a compromise agreement the last week in February with Rickmers-Linie GmbH & Cie KG (Rickmers).

Basically, Rickmers cooperated and voluntarily disclosed to the Commission details relevant to its transportation activities and practices giving rise to alleged violations – providing service in the trade that was not in accordance with rates, charges, classifications, rules and practices contained in a published tariff or filed service contract; accepted cargo from unlicensed and unbonded OTIs; and operated pursuant to an unfiled agreement.

Rickmers has now brought its service contracting practices into compliance with the Shipping Act and has conducted a comprehensive internal training program with regard to tariff publication and the carrier has taken steps to ensure it is not providing service to unlicensed, unbonded or unregistered entities.

FMC Grants Un-Cruise Adventures First Request to Provide Alternative Financial Responsibility

The Federal Maritime Commission granted the request of InnerSea Discoveries, LLC (InnerSea) dba Un-Cruise Adventures (Un-Cruise), for partial relief from its financial responsibility coverage required to indemnify passengers for nonperformance. This effectively provides Un-Cruise with a reduction in the bonding amount it is required to post (i.e., escrowed) in case of non-performance.

Un-Cruise is a Seattle, Washington based passenger vessel operator (PVO) that operates predominantly in and around the Alaskan inner passage. The company also operates exploration cruises with destinations to Southeast Alaska, Columbia & Snake Rivers, the Hawaiian Islands, Mexico’s Sea of Cortés, Coastal Washington, and British Columbia. InnerSea’s largest vessel is an 88-berth passenger vessel.

InnerSea is the first such request tendered by a PVO since the Commission updated its regulations in 2013. On February 13, 2013, the Commission voted to approve the Passenger Vessel Operator Financial Responsibility Requirements for Nonperformance of Transportation and Technical Revision to Passenger Vessel Operator Regulations. The new rule includes provisions that allow the Commission to recognize alternative protections submitted by small PVOs.

Un-Cruise has worked hard building its fleet and creating jobs in the adventure cruise sector. In fact the company, for all intents and purposes, has doubled the size of its fleet since 2011 by purchasing vessels from an operator that was going out of business.

I am appreciative that the regulations set forth by the Commission eased the burden for Un-Cruise to comply with the unearned passenger vessel revenue safeguards. I wish Un-cruise the best in their endeavors.

Carrier Alliances: 6 (g) Analysis

As you know, there are carrier alliance operational agreements that are currently before the Commission. These agreements are being reviewed by the Commission.

Our Shipping Act 6 (g) analysis is as follows:

If the FMC determines that an agreement is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost, the Federal Maritime Commission may bring a civil action in the United States District Court for the District of Columbia to enjoin the operation of the agreement.

Aside from that, I have a couple of comments:

First, I appreciate the comments submitted in response to the FMC notices in the Federal Register. It is helpful and brings issues to light.

Second, and this goes for all agreements, not just with regard to carrier alliances, I prefer those filing agreements with the Commission to file agreements that contain clauses which they intend to use in the foreseeable future. Agreements can always be amended later to include additional agreement authority. And, in filing any new authority, it gives the Commission the opportunity to fully vet the authority proposed.

Panama Canal Expansion

This is an interesting time to be a canal operator. The Panama Canal has been in the news quite a bit lately regarding issues with the builders of the third set of locks. And the Suez Canal has been in the news, having raised tolls by 3% in 2012 and 5% in 2013, it will again increase transit fees by more than 4% for vessels larger than 20,000 dwt in the dry bulk and energy sectors. The two canals are increasingly in competition. However, I am going to focus on the Panama Canal expansion because it is having a transformative impact upon our ports and related infrastructure.

To be finished in early 2016, the more than $5-billion expansion of the Panama Canal will create a third lane accommodating mega-ships nearly three times larger than previously passable.

Here in the U.S., the expansion impacts state ports, rail lines, trucking and cargo movement from the south and east to the west. To meet the Canal’s expansion, ports in the U.S. are deepening their shipping channels and harbors, increasing dock facilities, and installing new cranes to accommodate larger ships and much greater cargo volumes. And the modernization of U.S. ports is not just happening on the East and Gulf Coast — West Coast ports are also updating their infrastructure to accommodate larger vessels.

The Panama Canal expansion fits in well with the Obama Administration’s focus on manufacturing, exports, and job creation. The Obama Administration, members of Congress and state and local officials support the tremendous economic, business, job-supporting, energy and transportation related opportunities the expanded Canal will bring to the United States.

Finally, during my visit to the West Coast I look forward to surveying projects with officials from the Port of Los Angeles and Port of Long Beach, including the TraPac Terminal Project, Berth 200 West Basin Railyard Project, Gerald Desmond Bridge Project, Middle Harbor Terminal Project, and a tour of the Alameda Corridor Trench.

These are some of the issues and topics being followed, promoted, promulgated, prosecuted, and adjudicated at the FMC.

I welcome your questions and comments.

Thank you.

Commissioner William P. Doyle Disclosure:
I am a Commissioner with the U.S. Federal Maritime Commission. The Federal Maritime Commission is an independent regulatory agency responsible for regulating the nation’s international ocean transportation for the benefit of exporters, importers, and the American consumer. The FMC’s mission is to foster a fair, efficient, and reliable international ocean transportation system while protecting the public from unfair and deceptive practices. With that said, I should emphasize that my thoughts and comments here are mine and mine alone – they do not reflect the position of the Commission, and they should not be construed to represent the positions of any of my fellow Commissioners.