Remarks of FMC Commissioner Rebecca Dye Women’s Traffic and Tourism Club Dinner Baltimore, Maryland

Thank you for that kind introduction. It’s a pleasure to be here this evening. Thank you so much for inviting me.

Because this group is devoted to both transportation and tourism, I’ll begin with a few brief remarks about the Commission’s flagship programs in each area, and then comment on one of our “high profile” projects currently underway.

I’ll conclude with a few words about a topic that the liner shipping industry – and the cruise industry as well – will be struggling with for the remainder of 2019: The International Maritime Organization’s mandated cap on sulfur discharge beginning January, 2020.

The Commission’s Role

The Federal Maritime Commission (FMC) is an independent federal agency responsible for regulating international ocean liner transportation in U.S. trades.

The Commission’s primary role is to oversee the competitive behavior of carriers and marine terminal operators, to ensure that participants in global alliances – or any other carrier or terminal cooperative agreement continue to price and market independently.

We ensure that competitive ocean transportation markets exist to benefit U.S. exporters, importers, and, ultimately, the American consumer.

The Commission is headed currently by four Commissioners, of whom I’m one, nominated by the President and confirmed by the Senate.

We have roughly 120 lawyers, economists, industry specialists and support staff at the agency.

Our oversight responsibility includes the shipping lines whose large vessels unload and load containerized imports and exports here in Baltimore and at container ports along America’s Atlantic, Gulf and Pacific coastal ranges.

The Commission is a specialized competition agency, focused on international freight transportation by water.

Our fundamental goal is to ensure continuing and robust competition in America’s international ocean transportation system.

We use many of the economic and legal analytic tools that are used by the Department of Justice Antitrust Division and the Federal Trade Commission to analyze the competitive effect of proposed cooperative agreements among shipping lines and among U.S. marine terminal operators.

We continuously monitor the behavior of carriers and marine terminals operating under those agreements.

I’m sure you’ve seen trade press articles about the Commission’s oversight of three ocean carrier agreements that authorize the formation of strategic alliances among the major shipping lines.

Those three alliance agreements have attracted significant attention because of the size of the alliances themselves, and because the nature of ocean shipping alliances is often misunderstood.

It’s easy to understand the concerns that can arise when one reads that the liner shipping industry has consolidated into three major alliances with only a few remaining smaller non-alliance lines.

One could easily assume that a carrier alliance to jointly provide common services amounts to a virtual organizational merger.

This leads some to conclude that while the three alliances may compete with each other, the members of each alliance don’t compete with each other.

But that is not the case.

Ocean shipping alliances are limited to operational cooperation – the sharing of vessels, terminal facilities, and the like.

Each member line continues to price and market its services separately from its other alliance partners.

As a consequence, the formation of these alliances does not reduce competition among member lines.

There are still just as many lines independently selling their services after an alliance is created as existed prior to its creation.

For that reason, alliances don’t increase market concentration.

What they do increase is cooperation in providing assets, container vessels, and terminal services that make up global ocean transportation networks.

It is important to understand that consolidation of service networks is not the same thing as increased concentration of sellers of vessel space.

Increasing seller concentration, which occurs when the number of competing sellers is reduced, is what competition agencies – the FMC included — are rightfully concerned about.

Cooperative provision of ocean transportation services among lines that remain market competitors may well justify close monitoring, but it doesn’t create a competition problem.

Quite the contrary, so far.

Shipping lines form alliances in order to become more efficient, remain competitive, and lower each line’s financial risk.

They form alliances so they can continue to compete in the highly contested global ocean transportation market.

It’s also important to remember that the alternative to these operational alliances is not a return to the pre-alliance status quo.

In a dynamic marketplace, the alternative is that some existing lines reduce their participation in the market or are acquired by other lines through mergers or acquisitions.

In short, the alternative to ocean shipping alliances may be exactly the sort of increase in market concentration that would raise competition concerns.

Cruise Line Financial Responsibility

Our role in the area of tourism concerns the financial responsibility of cruise lines whose vessels carry 50 or more passengers and embark at U.S. ports and territories.

Our passenger vessel program ensures that cruise operators provide adequate financial coverage for possible non-performance of transportation and for possible casualties.

It’s a small program in terms of personnel, but one that supports the Commission’s broader mandate to protect the shipping public from unlawful, unfair and deceptive practices and help resolve various types of shipping disputes.

Fact Finding Investigation 28

Currently, the FMC project that seems to be getting the most press attention is our investigation into demurrage and detention practices – practices having to do with how long cargo can be left on the dock at U.S. terminals without financial penalty, and how quickly containers must be returned to the possession and control of the shipping lines that own them.

Our investigation – Fact Finding 28 – is in response to a petition filed by a coalition of 26 trade associations representing American importers and exporters, ocean transportation intermediaries and drayage trucking companies.

They asked the Commission to issue guidance clarifying what constitutes just and reasonable rules and practices regarding demurrage and detention charges by carriers and marine terminal operators.

We reviewed the petition and the roughly 110 public comments we received. We held two-days of hearings in January, 2018 to take testimony on the petitioners’ – and the lines’ and terminals’ — experiences, concerns and recommendations.

Based on what we learned, the Commission voted to establish a fact finding investigation into the situation.

I was designated the fact finding officer.

The investigation involves a three step process: First, we issued a set of detailed set of questions and document requests to 23 ocean carriers and 44 marine terminal operators and operating ports.

Their answers, and the many additional interviews with various industry groups and experts us helped identify the extent and nature of demurrage and detention challenges that the Commission could reasonably address.

Stage one concluded last September with publication of an interim report. That report identified four specific areas on which we would focus our attention during phase two.

Those four areas were:

• Transparent, standardized language for demurrage and detention practices;
• Clear, simple and accessible billing and dispute resolution processes;
• Explicit guidance regarding the types of evidence relevant to resolving disputes;
• Consistent notice to cargo interests of when their containers are actually available for pick-up; and
• A Shippers’s Advisory Board

The interim report, which is posted on the Commission website, was generally well received by shippers and carriers, drayage truckers and marine terminal operators alike.

I suspect there was some relief that we were viewing the demurrage and detention issues seriously and thoughtfully – neither rushing to judgement and blame, nor sidestepping the challenges involved.

We identified serious and systemic challenges that affect our nation’s ocean freight delivery system as a whole – not just a few ports from time-to-time.

Phase two, running from September through November, involved a series of in-depth discussions on those four areas with affected parties in ports around the country concerning practical ways to improve the relevant processes and practices.

The second phase concluded with the publication of our final report and recommendations on December 3rd. It, too, is available on the Commission website.

The final report’s main recommendation was that the Commission organize teams composed of a cross-section of industry leaders to meet on a limited, short-term basis to refine commercially practical demurrage and detention approaches in four areas identified:

Standard language, clear billing and dispute resolution processes, guidance as to relevant evidence, and consistent notice of cargo availability and a reasonable opportunity to pick up that cargo.

The Commission adopted that recommendation, and those teams – two of them – will be coming to Washington in early to mid-April.

The members include liner company officials, ocean transportation intermediaries, marine terminal operators, and drayage trucking representatives, importers and exporters.

The teams will discuss how best to refine the four approaches outlined in the December report in ways that significantly improve existing demurrage and detention practices.

Unlike our earlier Innovation Team approach, I will not be seeking consensus. Rather, I will ask the participants to offer suggestions – on the four key topics — on how the Commission could best benefit America’s ocean freight delivery system as a whole.

If any consensus develops, I’ll be delighted.

Based on what I’ve learned during the three phases of the investigation, I will prepare a practical set of recommendations for Commission action.

Over the course of the investigation, many people – liner officials, shippers, terminal operators, port authority leaders and others – have provided information and insights that helped clarify our understanding of existing demurrage and detention processes and practices.

We will continue to receive information from industry leaders who wish to contribute in writing or with phone conversations.

Having access to people with first-hand experience of how this complex industry works – and are willing to share their knowledge with the Commission — was been, as always, a gift and a pleasure.

IMO’s Low Sulfur Fuel Regulations

And finally, an observation or two about the U.N. International Maritime Organization’s 2020 sulfur cap and its potential complications.

The new IMO rules will ban the use of ships using fuel with a sulfur content higher than 0.5 percent, compared to 3.5 percent now (1.0 percent in the U.S.) unless the vessel uses special equipment to clean up its sulfur emissions.

There are three widely discussed ways to meet the IMO’s new standard:

• By using low-sulfur distillates in place of traditional higher-sulfur bunker fuel.
• By refitting vessels with scrubber technology that captures sulfur exhaust gas, and
• By building more vessels that operate using Liquified Natural Gas.

The LNG is a longer-term option because of the need to develop the additional infrastructure needed to support LNG use.

So, in the immediate future, the choice is between switching to low-sulfur fuel and installing scrubbers.

With respect to the new fuel regulations, the main concerns of container lines and their shipper customers – and American consumers– are (1) possible service disruptions and (2) the impact of higher fuel costs (including fuel surcharges). Will sufficient low-sulfur fuel be available in areas where and when it’s needed? If so, at what cost? And how – and by whom — will those costs be absorbed? Will the shift from bunker to low-sulfur fuel result in higher costs for other low-sulfur distillates – like home heating oil?

How will the new IMO regulations be enforced here in the U.S. and abroad?

The FMC, as I mentioned, is a competition enforcement agency. So, we have no direct role in how that happens. That’s Coast Guard and EPA territory.

That said, if the implementation begins to affect freight rates and service levels, I wouldn’t be surprised if the Commission hears concerns related to ocean carrier fuel surcharges.

One already hears that, in the current round of carrier/shipper annual service contract negotiations, future fuel costs are an issue.

In the recent past, a now defunct carrier agreement in the trans-Pacific trades published an annual bunker fuel adjustment formula.

That common formula, at a minimum, provided a starting point for fuel surcharge negotiations between ocean carriers and their customers.

The lack of a transparent, common bunker fuel adjustment formula has contributed to shipper concerns and uncertainty.

Thank you for your kind attention. I’ll be happy to address any questions.