Speech of Commissioner Richard A. Lidinsky, Jr. 20th Annual European Maritime Law Organization Conference November 7, 2014

I would like thank the European Maritime Law Organization for inviting me to speak today on the important topic of whether or not we need a more uniformed international approach to regulation. EMLO has always been a lively forum for discussion on the ever-evolving maritime industry. So on the 20th anniversary of this organization it is only appropriate that we turn our attention to a global regulatory issues. On a personal note, I am delighted to say that I was here for the first EMLO conference and over these many years EMLO has been fortunate to have officers and members who have been at the forefront of the maritime regulatory scene, and I am proud to contribute to this important tradition.

I would like to start my presentation today with a few quotations on the state of affairs in our industry:

“Lines, through their monopolistic powers, so completely dominate the shippers with whom they deal that these shippers cannot afford, for fear of retaliation, to place themselves in a position of active antagonism to the lines by openly giving particulars of their grievances…The various lines…have the same interests and their organization is effective. Shippers on the contrary, live far apart, and because of their different and frequently antagonistic interests can only combine for mutual protection with the greatest difficulty.”

“The consensus of opinion…is overwhelming in favor of some form of government regulation of…carriers engaged in this country’s foreign trade”

As you can imagine, the above is sweet music to the ears of a regulator. The only note of discord is that they are quotations from a report written after the Proceedings of the House Committee on the Merchant Marine and Fisheries in the Investigation of Shipping Combinations under House Resolution 587, and published in 1914, the so-called Alexander Report.

One hundred years later we are still facing the same balancing dilemma. During this century we witnessed the formation, growth, stranglehold, and eventual dismemberment of the strong conference system. In its wake came Talking Agreements, Vessel Sharing Agreements, Rate Stabilization Agreements, Slow Steaming Schedules, and other variations of carrier cooperation schemes. Today, we have all been witnesses to the formation and birth of alliances, and in the near future, the four major ones will control over 95% of the international maritime container trade.ⁱ

Now that they are in place and about to be fully operational, the time is at hand to see if alliances are the 21st Century solution in making a positive contribution to the age old relationship of cargo owner versus cargo carrier.

My own experience at the FMC in the final conference glory days of the 1970s, at a port authority thereafter, at an international maritime corporation, and now back at the FMC, makes me realize that ocean carriers detest any regulation, but fail to acknowledge that the real demons in their corporate existence — overcapacity, weak rates, unsustainable GRI’s, equipment shortages, and port congestion — are of their own making and not the result of any ruling by the EU, PRC, or FMC. On alliances, in March 2013, I stated in an article that was published by Containerisation International that, “the creation of alliances by vessel owners, often beyond the reach of any nation’s regulatory authority, has created an attitude of ‘carrier globalism’ – meaning that certain operators want to take on a sense of influence in the domestic maritime affairs of countries or even exert authority equal to or higher than the nation that allows their ships to call at its ports, and access to maritime trade.” I am not opposed to alliances — even voting for two of them — but I believe to offset and balance this new “carrier globalism” we need the counterweight of “regulatory globalism.” Therefore, it should come as no surprise that I endorse our Chairman’s view that we need a global regulatory approach if we are to meet our national mandates in regulating the alliances serving the international waterborne commerce of each major shipping jurisdiction.

During the just concluded debate on approval of the 2M alliance, it was not a carrier or a regulator, but rather a shipper in Hong Kong who made this very thoughtful comment:

“Can you imagine Apple and Samsung teaming up to produce generic smartphones, sharing production lines, sharing suppliers and sharing customers? That won’t happen, of course, because in the real world there is product and price differentiation, unlike the surreal container shipping world where the smaller lines are so busy listening to the propaganda of the largest that they merely huddle into bigger and bigger alliances in a frightened attempt to defend themselves. The outcome of course is zero differentiation and reduced competition…Shipping lines say the alliances only involve operational coordination, not commercial collusion.”ⁱⁱ

Over the years, since the enactment of the 1984 Shipping Act, which laid out the basic procedural ground rules in place today, there have been two trends which merit attention. First is an unbridled sense of “entitlement” by the carriers filing their agreements, seeking the state of immunity, and belief that certain “rights” flow from it. The 1984 Act provided a 45 day post filing examination period to be conducted by staff and the commissioners, with an additional 45 days, if necessary, to clear up additional serious questions. We have witnessed recently complaints that 45 days is too long, don’t even suggest an additional 45 days, and one gets the impression that certain carriers favor what I call the “ATM antitrust approach”…ie give us our immunity in 45 seconds. Carriers perceive that they have these so called “rights,” such as: the right to U.S. antitrust immunity promptly awarded, the right to excessive confidentiality, the right to be free of any substantial ongoing monitoring, the right to amend without any further review, and above all the right to make a profit.

To be fair, this attitude is reinforced by the fact that out of nearly 1600 agreements under this procedure since 1984, only one – YES ONE, AND NOT INVOLVING AN OCEAN CARRIER—has ever been taken to federal court to seek an injunction as proscribed in the 1984 Act. The 2009 financial nosedive of the container carrier industry and subsequent recovery, further strengthened the carrier position that in addition to their rights, somehow governments had the obligation to set the table with growing economies, equal balance of trade, and other favorable conditions for a carriers’ feast.

The second trend to note is that at the FMC all alliance agreement applicants are foreign owned. I know this reflects vessel ownership reality, and my own country has much to explain as to why there are not hundreds of U.S. flagged container vessels on the seas. This state of affairs was foreseen in the first review of the 1984 Act when a congressman from New Jersey stated:

“a fundamental variable in the equation arriving at the decision to grant such immunity was the preservation of the U.S. fleet. Obviously, once such a critical variable changes, the balance of the entire equation falls into doubt and the utility of the immunity itself must be questioned.” ⁱⁱⁱ

To that end I reiterate my call for hearings on the 30th anniversary of the 1984 Act to be held by Congress early next year.

In his recent Lloyd’s List article, our Chairman puts forth the goal of a more uniform international approach to regulation. He correctly observed in the recent 2M case that by the FMC not taking a global view of alliances it has severely hampered the creation of necessary legal tools to judge alliances on a global basis. For as he wisely observed, “even when directed at non-U.S. trade, this anti-competitive conduct [of 2M] may well have an effect on domestic U.S. markets.” Recognizing that governments have the inherent right to regulate their international waterborne commerce as they see best for their national interests, there is probably very little likelihood to a uniform approach to regulation. Having said that, I feel that it is possible to have coordinated and harmonized actions by all regulatory authorities who wish to participate.

Clearly the Federal Maritime Commission cannot do this alone. Other jurisdictions will have to examine their practices and procedures in light of the increasingly global nature of our industry. In the meantime, until the Braakman Doctrine takes hold, a viable alternative might be the free sharing of evidence and other data with regulatory bodies cooperating in a system that ensures that alliances are adhering to the conditions they formed under, that competition flourishes and that all carriers whether global cross-traders, or small regional national flag lines can freely offer reasonable services to shippers and the consumers they serve. This renewed global regulatory structure should also have as a centerpiece an annual summit of all countries possessing a maritime regulatory regime, such as we held last December in Washington, D.C. with E.U. and PRC colleagues present. The coordinated steps I’ve outlined above, as well as others mentioned here today, will prove to be beneficial to alliances and carriers as they align and realign themselves to serve their shipper customers.

Let’s hope that at the 120th meeting of EMLO our successors will not only be quoting the Braakman Doctrine, but also debating the operational impact of 44 Alliances’ 75,000 teu vessels on world ports!!

Thank you for your attention and I look forward to our panel’s discussion.

Commissioner Richard A. Lidinsky, Jr. 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.

ⁱ Grace M. Lavigne, Sizing Up O3, Journal of Commerce, Sept. 15, 2014, http://www.joc.com/maritime-news/container-lines/ocean-three/s izing-%E2%80%98o3%E2%80%99-infographic_20140915.html.

ⁱⁱJing Yang, Maersk Line, MSC Alliance May Stifle Competition, South China Morning Post, Oct. 9, 2014, http://www.scmp.com/business/companies/article/1612656/maersk-line-and-msc-alliance-cleared-us-regulator.

ⁱⁱⁱ Report to the President and the Congress of the Advisory Commission on Conferences in Ocean Shipping 174-175 (1992) (statement of Rep. Hughes, Member, Advisory Comm’n on Conferences in Ocean Shipping).