[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
FEDERAL MARITIME COMMISSION MANAGEMENT AND REGULATION OF INTERNATIONAL 
                                SHIPPING

=======================================================================

                               (110-144)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 19, 2008

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure


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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             WAYNE T. GILCHREST, Maryland
JERROLD NADLER, New York             VERNON J. EHLERS, Michigan
CORRINE BROWN, Florida               STEVEN C. LaTOURETTE, Ohio
BOB FILNER, California               FRANK A. LoBIONDO, New Jersey
EDDIE BERNICE JOHNSON, Texas         JERRY MORAN, Kansas
GENE TAYLOR, Mississippi             GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland         ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California        HENRY E. BROWN, Jr., South 
LEONARD L. BOSWELL, Iowa             Carolina
TIM HOLDEN, Pennsylvania             TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington              TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington              SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts    BILL SHUSTER, Pennsylvania
TIMOTHY H. BISHOP, New York          JOHN BOOZMAN, Arkansas
MICHAEL H. MICHAUD, Maine            SHELLEY MOORE CAPITO, West 
BRIAN HIGGINS, New York              Virginia
RUSS CARNAHAN, Missouri              JIM GERLACH, Pennsylvania
JOHN T. SALAZAR, Colorado            MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            TED POE, Texas
NICK LAMPSON, Texas                  DAVID G. REICHERT, Washington
ZACHARY T. SPACE, Ohio               CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              JOHN R. `RANDY' KUHL, Jr., New 
BRUCE L. BRALEY, Iowa                York
JASON ALTMIRE, Pennsylvania          LYNN A WESTMORELAND, Georgia
TIMOTHY J. WALZ, Minnesota           CHARLES W. BOUSTANY, Jr., 
HEATH SHULER, North Carolina         Louisiana
MICHAEL A. ACURI, New York           JEAN SCHMIDT, Ohio
HARRY E. MITCHELL, Arizona           CANDICE S. MILLER, Michigan
CHRISTOPHER P. CARNEY, Pennsylvania  THELMA D. DRAKE, Virginia
JOHN J. HALL, New York               MARY FALLIN, Oklahoma
STEVE KAGEN, Wisconsin               VERN BUCHANAN, Florida
STEVE COHEN, Tennessee               ROBERT E. LATTA, Ohio
JERRY McNERNEY, California
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
VACANCY

                                  (ii)

  
?

        SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

                 ELIJAH E. CUMMINGS, Maryland, Chairman

GENE TAYLOR, Mississippi             STEVEN C. LaTOURETTE, Ohio
RICK LARSEN, Washington              DON YOUNG, Alaska
CORRINE BROWN, Florida               HOWARD COBLE, North Carolina
BRIAN HIGGINS, New York              WAYNE T. GILCHREST, Maryland
BRIAN BAIRD, Washington              FRANK A. LoBIONDO, New Jersey
TIMOTHY H. BISHOP, New York, Vice    TED POE, Texas
Chair                                JOHN L. MICA, Florida
LAURA A. RICHARDSON, California        (Ex Officio)
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Berzon, Michael, President, Mar-Log, Inc., Chairman, Ocean 
  Transportation Committee, National Industrial Transportation 
  League.........................................................    28
Brennan, Commissioner Joseph E., Commissioner, Federal Maritime 
  Commission.....................................................     4
Cole, Donald A., Management Consultant...........................    19
Creel, Jr., Commissioner Harold J., Commissioner, Federal 
  Maritime Commission............................................     4
Dye, Commissioner Rebecca F., Commissioner, Federal Maritime 
  Commission.....................................................     4
Friedmann, Peter, Executive Director, Agriculture Transportation 
  Coalition......................................................    28
Froelich, Win, General Counsel, National Association of 
  Waterfront Employers...........................................    28
Muoio, Mary Jo, President, National Customs Brokers and 
  Forwarders Association of America, Inc.........................    28
Sher, Stanley O., Acting President, World Shipping Council.......    28

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Cummings, Hon. Elijah E., of Maryland............................    43
Oberstar, Hon. James L., of Minnesota............................    57

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Berzon, Michael..................................................    60
Cole, Donald A...................................................    76
Creel, Jr., Harold J.............................................    86
Dye, Rebecca F...................................................    92
Friedmann, Peter.................................................    96
Froelich, Win....................................................   106
Muoio, Mary Jo...................................................   127
Sher, Stanley O..................................................   139

                        ADDITIONS TO THE RECORD

American Association of Port Authorities, Jean Godwin, Executive 
  Vice President and General Counsel, written statement..........   157
Household Goods Forwarders Association of America, Terry R. Head, 
  President, written statement...................................   166

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FEDERAL MARITIME COMMISSION MANAGEMENT AND REGULATION OF INTERNATIONAL 
                                SHIPPING

                              ----------                              


                        Thursday, June 19, 2008

                  House of Representatives,
    Committee on Transportation and Infrastructure,
   Subcommittee on Coast Guard and Maritime Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:45 p.m., in 
Room 2167, Rayburn House Office Building, Hon. Elijah E. 
Cummings [Chairman of the Subcommittee] presiding.
    Mr. Cummings. The hearing is called to order.
    Let me apologize to all of you. We have a record of 
starting our hearings on time, if not early, but we had some 
votes and the swearing in of a new Member from Maryland. And I 
am from Maryland, so I had to be there.
    So we will get started now. We will move this hearing 
along, and I just told Mr. LaTourette we will try to expedite 
the hearing as best we can.
    Today, the Subcommittee convenes for a second hearing on 
the Federal Maritime Commission. The Subcommittee held its 
first hearing on the Commission in the 110th Congress in April 
of this year. At that time, there were four Commissioners; and, 
in the absence of a chairman, all four were collectively 
responsible for administrative decisions as well as for 
deciding on the regulatory issues brought before the 
Commission. However, the Commission rarely held public 
hearings, and testimony suggested that four Commissioners had 
limited visibility over the functioning of the Commission.
    Additionally, responses to the Federal Human Capital Survey 
suggested that employees at the Commission had deep concerns 
about a number of issues, including the effectiveness of the 
management exercised by senior leadership. They were also 
concerned about fairness in the resolution of disputes and 
complaints and the ability of the Commission to recruit 
qualified personnel.
    Between April and today's hearing, the Commission has begun 
convening regular public meetings. Further, Mr. Paul Anderson, 
who had been serving as a Commissioner and had been nominated 
by the President to be the chairman of the Commission, has 
resigned from the Commission and withdrawn his nomination for 
the chairmanship.
    We look forward to hearing the testimony of the three 
current Commissioners regarding the steps that they are taking 
to effectively administer the Commission and conduct the 
Commission's business.
    We will also receive testimony from Mr. Donald Cole, a 
consultant who had been hired by FMC's former chairman to lead 
a strategic planning initiative at the Commission. As a prelude 
to the strategic planning effort, Mr. Cole conducted an 
organizational analysis that uncovered findings that in many 
ways echo the concerns expressed by the Commission employees in 
the Federal personnel survey.
    The effective functioning of the Commission is critical, 
because it must be prepared to respond to the dramatic changes 
that are occurring in the international shipping arena. The 
organization of the maritime industry and the pricing of 
carrier services are unique and are, to be frank, generally 
contrary to the standards of competitiveness within an open 
market system that most other industries are required to 
observe.
    Tariffs for ocean freight transportation have historically 
been set by cartels of liner services, often called 
conferences.
    In 1916, Congress passed a Shipping Act that formally 
sanctioned the existing cartel system by granting immunity from 
antitrust requirements in certain circumstances for the tariff 
decisions and other actions taken by ocean common carriers 
acting in collusion with one another.
    In 1961, Congress enacted legislation to require that the 
agreements decided by cartels be filed with the Federal 
Maritime Commission, which was established by legislation as 
the successor to the United States Shipping Board. The FMC was 
empowered to reject those agreements that were found to be 
contrary to the public interest, but many in the industry 
complained that the FMC often took years to grant approval.
    Congress revisited the regulation of ocean shipping by 
enacting the Shipping Act of 1984. This Act took a first step 
towards the introduction of pro-market competition in rate 
setting by allowing carriers to enter into service contracts 
with shippers. However, the cartels still often limited the 
ability of carriers to sign such agreements.
    At the same time, the Shipping Act altered the FMC's 
authorities by eliminating the power of the Commission to 
reject agreements that were not found to be in the public 
interest. Instead, agreements filed with the Commission were 
allowed to go into force unless challenged by the Commission as 
being unlikely to reduce competition or lead to an unreasonable 
reduction in transportation service or an unreasonable increase 
in transportation cost.
    The Shipping Act of 1984 was subsequently amended by the 
Ocean Shipping Reform Act of 1998, which allowed carriers to 
establish confidential service contracts without the approval 
of conferences and without the disclosure of the negotiated 
rates. Nonetheless, the Act did not eliminate the conference 
system; and the Act continued to grant antitrust immunity to 
many acts taken by carriers acting in collusion with one 
another.
    The European Union is now taking the next step in the 
deregulation process and will eliminate its so-called "block 
immunity" for ocean carriers in October of this year. As a 
result, carriers will no longer be able to collude in the 
establishment of tariffs for service to Europe.
    At present, antitrust immunity will continue to be granted 
by the European Union for other types of agreements among 
carriers relating to service provision. The full effects that 
this move will have on international shipping and particularly 
on ocean carrier service to the United States market remain to 
be seen but will certainly be critical.
    The witnesses who will appear on our third panel today will 
present multiple perspectives on this issue. Some will argue 
that the maritime transportation market continues to have 
characteristics that require it to be exempted from competition 
requirements, and they will argue that antitrust immunity 
enables carriers and other actors in the maritime industry to 
address critical public policy issues such as congestion and 
air quality around ports that they would not or could not 
address on their own.
    Others will argue that the United States should follow the 
EU's move by eliminating antitrust immunity for ocean common 
carriers because carriers are not constraining the ability of 
shippers to move their products to foreign markets and because 
the antitrust immunity allows them to charge rates higher than 
would be charged in a purely competitive market. This is one of 
the most critical issues facing not only international shipping 
today but really the American economy, which is so dependent on 
ocean common carrier services to move the cargos that keep our 
economy moving.
    So it is, and I look forward to the testimony of today's 
witnesses. I want to thank you all for being here. I want to 
thank you for your patience. We also look forward to continuing 
to examine this issue as data recording the impact of the EU's 
actions become available.
    And now it is my honor to grant such time as he may consume 
to the distinguished Ranking Member, Mr. LaTourette.
    Mr. LaTourette. Mr. Chairman, thank you for yielding and 
thank you for holding this hearing. I will move through my 
statement quickly so we can get to the witnesses.
    This Subcommittee is meeting this afternoon to continue its 
oversight of the Federal Maritime Commission and to examine 
conditions that impact U.S. interests in the maritime trades. 
Since our last hearing, the Commission has begun making 
significant changes in the way that it conducts its business; 
and I want to commend the Commissioners for making positive 
changes since our last hearing. A lot of times you come before 
the Congress and people express disappointment. I want to 
express my appreciation for your taking the last hearing 
seriously and doing the things that you can.
    However, as we are aware, during the time since our last 
meeting, there is another vacancy on the board, leaving only 
three members, and I would be interested to hear the 
Commissioners' observations about how that is going to impact 
the work before the Commission.
    The FMC has responsibilities to oversee U.S. interests in 
maritime trade and to enforce international and domestic 
shipping regulations. Recently, the Commission took action to 
approve a plan to reduce air pollution from trucks servicing 
the Ports of Los Angeles and Long Beach. As I understand, the 
Commission's approval is based solely on the plan and that the 
FMC will monitor the implementation of the plan in the future. 
I look forward to hearing the Commissioners' views on that as 
well.
    I am also interested in discussing how conditions in 
foreign markets and practices by foreign industries are 
impacting U.S. maritime interests today and in the future.
    I want to thank you for coming, and I look forward to your 
testimony, and I yield back my time.
    Mr. Cummings. Thank you very much.
    Ms. Richardson.
    Ms. Richardson. I will waive my opening comments if I can 
be first up with questions, given the time frame.
    Mr. Cummings. Thank you very much.
    We will now hear from Ms. Dye, and it is my understanding 
that Mr. Creel will have a brief statement. Is that right, Mr. 
Creel?
    And, Mr. Brennan, you will not have an opening statement; 
is that correct?
    Mr. Brennan. I would like to make a very brief statement.
    Mr. Cummings. Very well.
    We will start with Ms. Dye. Thank you all very much for 
being here and again, thank you for your patience.

TESTIMONY OF COMMISSIONER REBECCA F. DYE, COMMISSIONER, FEDERAL 
    MARITIME COMMISSION; COMMISSIONER HAROLD J. CREEL, JR., 
  COMMISSIONER, FEDERAL MARITIME COMMISSION; AND COMMISSIONER 
  JOSEPH E. BRENNAN, COMMISSIONER, FEDERAL MARITIME COMMISSION

    Ms. Dye. We appreciate it.
    Mr. Chairman and Members of the Subcommittee, thank you for 
opportunity to appear before you today. Of course, with me are 
my fellow Commissioners, Hal Creel and Joe Brennan.
    We have made significant operational and management changes 
at the Commission since the last hearing. We have begun 
regularly scheduled meetings of the Commission, which 
facilitate public access and provide a forum for the Commission 
to conduct its day-to-day business efficiently in the absence 
of a chairman. We have previously provided you and Members of 
the Subcommittee with information on additional concerns raised 
at our last hearing.
    I want to emphasize to you, Mr. Chairman, and to the other 
Members of the Subcommittee our sincere commitment to improving 
the working environment at the Federal Maritime Commission and 
our desire to work with you and the Members of the Subcommittee 
to address any additional concerns you may have about the 
management of our agency.
    We are appearing before you today at an interesting time 
not only for the Commission but also for the industry at large. 
Due to international economic conditions, we are facing 
dramatic increases in demand for U.S. exports on the eve of 
shifting ocean competition policies by one of our largest 
trading partners.
    The Ocean Shipping Reform Act of 1998 significantly 
deregulated U.S. ocean shipping and eliminated some of the 
regulatory obstacles between shippers and ocean carriers. 
Competition in the U.S. trades has increased because of the 
success of confidential contracting.
    The Commission has been closely monitoring recent 
developments in the U.S. export trade, particularly since the 
United States is one of the world's largest exporters, a fact 
little recognized because of the volume of imports.
    Due to a variety of international economic conditions, U.S. 
exports have experienced strong growth, while imports have 
slightly declined. This growth, however, has not come without 
corresponding challenges. Shippers in some parts of the country 
have had difficulty in obtaining enough equipment and service 
to ship their goods abroad.
    One of the purposes of the Shipping Act, which we enforce, 
is to promote the growth of U.S. exports. The Commission is 
reaching out to carriers and shippers to assist the industry in 
overcoming the challenges of shifting trade dynamics and 
finding a workable solution to our exporters' problems. We are 
pleased that a meeting among interested exporters and ocean 
carriers is scheduled for next week, and we will be monitoring 
the results of that meeting.
    Concurrently, in the European Union, like the United 
States--the European Union, like the United States, grants 
antitrust immunity to certain ocean carrier agreements. On 
October 17, the European Union's antitrust immunity for ocean 
carrier agreements is scheduled to expire. Agreements that 
improve efficiency in ocean transportation will continue to be 
immunized under European regulations. We estimate that six 
agreements in our trades that are currently filed with the 
Commission may need to be restructured or eliminated to comply 
with the new European competition laws. But to put this figure 
into perspective, there are 234 ocean carrier agreements of all 
types on file with the Commission, and the majority of these 
agreements increase efficiency of the ocean carriers involved.
    The Commission will monitor this transition and will study 
the impacts of the European Union's elimination of immunity for 
ocean carrier agreements. The Commission encourages members of 
the maritime industry and the shipping public to participate in 
our study and to provide their insights into this transition.
    The Commission has focused most recently on many agreements 
among marine port terminal operators. These agreements include 
those that address operational issues such as port congestion, 
security, and air pollution.
    One of these agreements involves the Clean Trucks Program 
in the Ports of Los Angeles and Long Beach. The Ports of L.A./
Long Beach filed an agreement with the Commission to allow them 
to discuss and agree upon joint programs to address 
environmental issues.
    The Port of Los Angeles has announced its intention to 
limit access to port terminals to qualified trucking companies 
who must use only employee drivers to the exclusion of 
independent owner/operators. In order to implement the Clean 
Truck Program, the ports and their marine terminal operators 
filed an agreement with the Commission providing authority for 
the parties to cooperate on the implementation of the programs. 
Last week, the Commission concluded an expedited review of the 
implementation agreement and allowed the agreement to go into 
effect, but it is our position that there was no basis at this 
time to determine that the implementation agreement would 
result either in an unreasonable increase in transportation or 
a decrease in service.
    We will continue to closely monitor developments at the 
ports to ensure that the agreement activities do not violate 
the Shipping Act. We have emphasized to the parties the need to 
immediately file with the Commission all substantive aspects of 
the Clean Truck Program.
    Mr. Chairman, we hope these comments have provided you with 
an overview of some of the most important issues the Commission 
is currently addressing; and we are, of course, happy to answer 
any questions you may have. Thank you so much.
    Mr. Cummings. Thank you very much, Ms. Dye.
    Mr. Creel.
    Mr. Creel. Thank you, Mr. Chairman and Members of the 
Subcommittee.
    I apologize for the late notice of this statement, but I 
thought it might be helpful--after being mired down in the 
details for this hearing, preparing for this hearing, I thought 
it might be helpful to step back and take a larger look at some 
of these issues. I offer the following thoughts on some of the 
issues being faced by the ocean shipping industry and being 
addressed by the Committee today.
    Having worked on shipping issues virtually my entire 
career, as Merchant Marine Counsel in the Senate and then as 
Chairman and Commissioner at the Federal Maritime Commission 
for 14 years, I want to share these perspectives.
    Antitrust immunity for shipping companies to agree on rates 
is the most significant issue that has been raised. It has been 
raised in the context of the European Union that is altering 
its treatment of carrier rate making under its antitrust laws. 
Honestly, I don't think that what Europe is doing much matters 
in how we regulate the industry in this country. Their shipping 
regulation system, in my opinion, was arcane. They gave full 
immunity for rate making by conferences only, but there was no 
government oversight. Extremely anti- competitive, in my 
opinion.
    We, on the other hand, changed our regime 10 years ago to 
introduce more competition between carriers and to allow 
carriers to contract directly with their shipper customers.
    Will the Europeans' actions have an effect in U.S. trades? 
Some. Carriers trading between the U.S. and Europe can't set 
rates collectively, but the vast majority of cargo carried in 
that trade is not carried under collectively set rates but, 
rather, under individual contracts between shipper and 
carriers. So, very few agreements on file with the Commission 
will be affected.
    While I am not so concerned about what Europe is doing, I 
do think that it provides a case study for review of our own 
regulatory system of international shipping. It has been 10 
years since we did such a review. We made major pro-competitive 
changes to our laws and regulations 10 years ago. It has worked 
better than anyone ever would have imagined. But 10 years is 10 
years, and a lot has changed in the world and in the industry 
since then.
    I caution you, however, not to throw the baby out with the 
bath water. This has been the challenge faced by every 
Committee or commission that has looked at these issues since 
the first liner conference was formed in 1875. Shipping is a 
unique international industry, and it's a means by which most 
of our trade is conducted. So we have to be careful and make 
the right decisions.
    Congress has wrestled over these issues since the Merchant 
Marine Committee hearings in 1912 to 1914, 1959, 1984, and 
1998; and, in each of these hearings, antitrust immunity has 
been the focus.
    Some of these old questions may have new answers, but some 
of the questions are new. The industry has changed, and the 
focus of the Commission has evolved over the last several 
years.
    Much of our focus is now on port operations. Why is that? 
Well, the numbers of containers moving in and out of this 
country in the last 10 years has doubled, and they all come 
through the same ports that have been serving ships since the 
early sailing days.
    So why all this focus on ports? I believe that is because 
there has been exponential growth in trade, meaning container 
volume, and with that growth an exponential increase in 
problems related to growth. More volume, more problems that 
come with more volume, but the same geography. And there are 
huge problems now: congestion, pollution, degrading 
infrastructure.
    Just imagine what it will be like in the next 10 years when 
trade is expected to double yet again. What will be the effect 
on roads and bridges? What will be the effect on non-port 
traffic, pollution? These are all issues on which ports, 
terminal operators, and carriers will need to discuss and agree 
upon in order to frame a common plan of action.
    Specifically, as to antitrust immunity, of course, it is 
generally anti-competitive. That is why Congress has gone to 
great pains over the years to determine if it is necessary and 
has been extremely careful in granting immunity in order to 
limit its impact.
    Does immunity serve a vital role in some circumstances? I 
would say absolutely. For example, carriers and shippers alike 
concur that carriers should be able to agree on sharing space 
on ships or coordinating service that creates efficiencies, 
thereby lowering cost. Is there a good reason that competing 
ports or terminal operators should be able to get together and 
agree on issues that benefit the environment or that reduce 
congestion or that enhance security? I believe so.
    My point is that we need to figure out what is broken and 
fix that. Not everything is broken. In fact, I would say very 
little is broken. But this is a complicated issue.
    For example, some will testify today that you need to do 
away with antitrust immunity and let there be wide-open 
competition, but that you should keep the provisions of the Act 
that will protect them from carriers who refuse to deal with 
them or who discriminate against them. That doesn't sound like 
wide-open competition to me. I am not saying that the point is 
not valid or that I don't agree with it. I am saying that 
individual issues should be viewed in the context of the 
totality of the industry.
    I feel strongly that we should take a good look at the 
industry and the Commission's regulation of it. I view this as 
a very positive project. We should be looking at new 
initiatives to increase exports and facilitate imports in a 
business environment that is fair and a physical environment 
that is clean and safe. In fact, I think we are obligated to do 
that.
    Has the Ocean Shipping Reform Act been successful in 
carrying out its primary purposes in creating a more 
competitive shipping environment? Indeed, and in spades. Could 
more be done? You bet. Can the Federal Maritime Commission help 
you achieve those goals? Absolutely.
    There is just one last thing I would like to say; and that 
is that the working environment among affected parties, 
especially the shippers and carriers, is vastly better than it 
was 10 years ago. And the reason for that I believe is that 10 
years ago they were given the ability to work one-on-one and 
craft confidential contracts. This I believe creates an 
environment in which positive change that is beneficial to all 
is possible.
    Finally, we at the Federal Maritime Commission will do our 
part in helping identify any changes that should be made to the 
regulation of international shipping and assist you in bringing 
about those changes.
    Thank you very much.
    Mr. Cummings. Thank you very much.
    Mr. Brennan.
    Mr. Brennan. Mr. Chairman and Members of the Committee, at 
the last hearing in April the Committee questioned employee 
morale and agency operations in general. In general, the idea 
was that it must have been a terrible place to work. Well, I 
think some of the criticism was, frankly, based on out-of-date 
information. When I returned to the Commission, I talked with a 
good number of the employees, and they were stunned by all the 
criticism.
    The fact is that the 2006 Federal Capital Survey of 
employees showed that the FMC's results were better than the 
average of most of the Federal Government. The 2007 results 
were even better than 2006. But we are not going to rest on our 
laurels.
    And I will say this, Mr. Chairman: You were very effective 
in motivating us to have more meetings and hearings, and we 
have been having them every other week, and I think they have 
been very effective in building morale. But we are proud of the 
direction that we are going.
    I said I would be brief, and I will be available for 
questions.
    Mr. Cummings. I want to thank all of you for being here and 
thank you for your testimony.
    Mr. Brennan, I had not intended to start with you, but I 
will. It is good to know that we were able to do a hearing to 
help push the process along, and you say that you believe 
morale is up; is that right?
    Mr. Brennan. That's what I believe, and there are some 
studies that reflect that.
    Mr. Cummings. Now, can you discuss specific changes you 
have made to strengthen the management--and when I say "you" I 
am directing this to all of you--to strengthen the management 
of the Commission and to respond to the findings of the Federal 
Human Capital Survey conducted by the Office of Personnel 
Management?
    Because it seemed as if having to manage with four people 
was a bit much. It seemed as if you all had to meet on every 
little thing and it was difficult. So now I guess it is better 
in a sense because now there are only three.
    But I am just wondering what all did you all do and what 
things have you done which you see remaining in place so that 
it does not take a hearing and does not take the Congress of 
the United States to push you along? That is not our job. And, 
as I say to my staff, if I have to do your job, then I don't 
need you. I have to do my own job.
    So I am just wondering if you would just give us an idea, 
any of you. But, Mr. Brennan, since you were kind enough to 
address the morale, you might want to start.
    Mr. Brennan. I think, for a start, we are meeting every 
other week and many members of the Commission are there. Half 
of it is a public meeting; half of it are closed meetings. The 
SCS is meeting more among themselves. They are meeting among 
the Commission.
    I think there is a tremendous increase in morale. But, as I 
said, the surveys, as I look at it, as I read it, we weren't 
doing badly compared with the rest of the government, but we 
know we want to do more, and that is what we are going to 
continue to do.
    Mr. Cummings. Ms. Dye, did you have some comments?
    Ms. Dye. Yes. Mr. Chairman, we have established a working 
group to review some of the concerns that were raised in the 
'07 study; and we intend to take back additional concerns from 
some of the things that you had sent over to us and anything 
that we hear today, for that group to consider and make 
recommendations to us. We have a lot of vacancies to fill, and 
we have made sure that the staff is working as soon as possible 
to get people on board. We also have a few SCS positions to 
fill that report directly to us.
    Mr. Cummings. How many vacancies would you say you have now 
to fill? Do you know?
    Mr. Creel. Fifteen.
    Ms. Dye. We have two that report directly to us, plus a few 
other decisions that we have to make, and hopefully we will 
make those if there is an agreement among us. So I am very 
pleased about that.
    An additional point about the Federal Maritime Commission 
is that it is in our charter that, even though we have gone 
down to three members, two of us is a quorum. So we can 
continue to do business regardless the fact that we are down to 
three.
    Mr. Cummings. Mr. Creel, you seemed like you were about to 
jump out of your seat. Did you have something?
    Mr. Creel. You said that last time. I will try to restrain 
myself. I didn't mean to act like that.
    I don't have anything to add to what my colleagues have 
said except_I just can't tell you how different things are now. 
The difference is palpable. I mean, you can feel it in the 
staff, the senior staff, and also----
    Mr. Cummings. First of all, tell me this so that we can put 
what you are saying in context. When you are saying "I can't 
tell you what the difference is", difference from what?
    Mr. Creel. Well, from before. I mean----
    Mr. Cummings. What was before? That is what I am trying to 
get to. Before our last hearing?
    Mr. Creel. Right. I think the point is having our meetings 
provides a forum for us to hear each other talking, not only us 
but also for the senior and junior staff to hear us talking. 
And then what happens is, after we have a meeting, everybody is 
on the same page or understands where the Commission is coming 
from so there is no sort of behind-the-scenes manipulation of 
what they think a member was saying or they thought a member 
was saying. It is all out there in the open.
    And then the senior staff gets together immediately after 
our official meeting and discusses what happens. There is an 
agreement on what was said and also what their marching orders 
are. So, at that moment, there is an understanding of exactly 
what the Commission decided and where it is going from there.
    And the value of that is tremendous, because it takes care 
of a lot of stuff, and it is all out in the open. It's all 
done. Everyone is planning for these meetings ahead of time. 
They know 2 weeks from now they had better get their issues on 
board because it is coming up. And if it doesn't come up in 
this meeting, it is going to be carried over to the next one. 
So that is very helpful for planning purposes.
    But the other thing, as I mentioned last time, Mr. 
Chairman, is one of my concerns is about upward mobility. And 
just mentioning that at this hearing last time and subsequently 
in our meetings, I have had a number of employees come up to me 
and talk to me about that in my office. And I don't have the 
answer to that yet, but it is of concern to me and to us and we 
have identified it. Through this working group, this ad hoc 
working group, we hope to address that. So just by getting the 
word out, giving folks hope that there is some way for them to 
move up the ladder I think is extremely beneficial.
    Mr. Cummings. Is it because basically it is a kind of dead-
end agency----
    Mr. Creel. I don't like the sound of that. It is not a 
dead-end agency.
    Mr. Cummings. What I meant was there are certain agencies 
that are structured in a way where there is simply nowhere to 
go, and I am just wondering are you looking at possibly trying 
to figure out a way to restructure it so that people can feel 
they can move up within the agency?
    Mr. Creel. It is not so much restructuring as it may be 
retraining. And, remarkably, I have had people there that are 
in jobs that you would not expect them to be reading the 
regulations and they tell me they have read the regulations 
over and over. And these are people who don't need to read the 
regulations for what they do necessarily.
    So my point is that I think the training is essential. And 
slots do come available. Things do open up. So if you provide 
the training and education, then I think we can provide--we are 
not going to fill every job with someone from below that we 
would like to, but there is the opportunity there, I think. So 
I would say, yes, there is opportunity.
    Mr. Cummings. There are two words that I want you to zero 
in on, and that is effectiveness and efficiency. Effectiveness 
and efficiency. If we have a situation--going back to the 
training that you just talked about, where we can do a much 
more effective and efficient job and training would help us do 
that--in other words, we don't want five people doing a job 
where really we should have just three doing and two others 
doing something else to make the agency more effective and 
efficient. So you all are seeking outside expertise on that?
    Mr. Creel. Not yet. We are identifying the issues. We are 
talking to the staff. We haven't committed to that. That is 
certainly an option. You mentioned that last time. That is 
certainly an option.
    Mr. Cummings. But I would ask that you look at 
effectiveness and efficiency, please, sir.
    Mr. Creel. And I would add one more thing. What I have 
always found is people who are motivated make the best workers, 
and if you give the people an opportunity, they are motivated.
    Mr. Cummings. I just want to ask two more questions, and 
then I am going to turn it over to Mr. LaTourette.
    I just want to go back to one of the issues that we are 
dealing with today. Would you all agree that the primary 
purpose of regulating international shipping is to protect 
shippers that import and export cargos to and from the United 
States?
    Ms. Dye?
    Ms. Dye. Mr. Chairman, I think that is obviously one of the 
main concerns of all transportation regulation. But I have 
always thought that our regulatory scheme is to promote growth 
in our economy, which benefits consumers directly. Now, of 
course, the Shipping Act of 1984, the major law that we 
enforce, one of the purposes is for us to encourage the growth 
of exports, which is one of the reasons we are so concerned 
about the problems that our exporters are having right now 
obtaining the equipment service to get their goods sold.
    Mr. Cummings. Well, if 95 percent of U.S. imports and 
exports are shipped by contract carriage and not by common 
carriage, do the remaining shippers need to be protected by 
having tariffs filed and publicly available?
    Ms. Dye. I am on record, Mr. Chairman, as saying that I 
believe it has been 10 years, we have had a lot of experience 
with the '98 Act, and it is time for us to consider the next 
phase of deregulation. What that involves----
    I also believe that reason that the '98 bill was effective 
was because all the parties were involved. It was a 
comprehensive bill, and everybody bought into the result.
    Whether tariff filing or publication should be eliminated 
in that context is a good question. I am on record as favoring 
our considering at the Commission eliminating tariff 
publication, because I understand that not a lot of people use 
tariffs that are publicly filed or available anymore because 90 
or 95 percent of cargo goes by contract. That is an undeniable 
conclusion.
    What other types of reforms would be included in a 
comprehensive package I would be grateful to talk to you about 
if you ever start to consider something like that.
    Mr. Cummings. Mr. Creel?
    Mr. Creel. Mr. Chairman, I guess there are two issues on 
that, and one is there has been a lot of questions about 
whether the Federal Maritime Commission can exempt tariff 
publication by regulation. There is a legal question there. 
Quite frankly, I am a little skittish about stepping on the 
toes of Congress. I am not sure that we can do it by 
regulation. So I think there is a valid question there.
    The other issue is whether it's good policy; and, as you 
said, that is a remnant of common carriage. And, in the trans-
Pacific, I think about 5 percent of all cargo is carried under 
tariff; trans-Atlantic, 5 to 10 percent; Caribbean, 10 to 15 
percent. So those are some significant numbers.
    So before prejudging myself on something like that--we may 
get a petition at the Commission to do this, so I don't want to 
prejudge myself, but those are all things to consider, I think. 
And the role of common carriage is a valid concern. As I 
mentioned in my statement, I think you have to look at 
everything in totality. It is all related.
    Mr. Cummings. All right. I am going to go to Mr. 
LaTourette.
    Mr. LaTourette. Thank you very much, Mr. Chairman.
    Thank you again for your testimony. Thanks for coming back.
    I just have three areas that I want to explore.
    First, Mr. Creel, I understood you to say in your written 
and oral testimony that, in your opinion, the actions of the 
European Union aren't going to have a huge impact on our 
shipping trades, and it would be your recommendation--I think I 
heard Ms. Dye say this as well--that we revisit the '98 Act. 
And you are not on the side of the repealers, and you are not 
on the side of the do-nothings, and, like in most things, the 
totality of the circumstances, I guess--I guess my question 
is--I think I got what you think--Mr. Brennan, do you agree 
with that?
    Mr. Brennan. Philosophically, I am opposed to antitrust 
immunity. I think the right thing to do now is we will be 
working on that. We will be watching what happens with the 
European Commission.
    I don't like it for the simple reason that people are in 
business to make money, and they want to maximize profits. And 
to maximize profits it is kind of a pretty good deal if you can 
set rates.
    I used to wonder--when I first came to the Commission, I 
would talk to carriers, and they said they weren't making any 
money, and I was sort of stunned. How is it you don't make 
money when you can fix rates?
    So, generally, I am opposed to it, but I think at this 
stage it might be instructive what happens with the European 
Commission.
    Mr. LaTourette. Ms. Dye, do you agree with that as well?
    No.
    Ms. Dye. I am not going to prejudge my study, the study 
that we are holding. But I do believe that it is time for the 
Congress or for us to look at rate making in the ocean 
transportation system. Yes, sir, I do believe the time has 
come.
    I am probably not as prepared to go as far as Mr. Brennan 
in saying we should get rid of all of it. We frankly didn't 
start deregulation of ocean transportation until '98. So that 
would be a huge step. But it is definitely time to start 
considering whether or not we should do something about rate 
making.
    Mr. LaTourette. Thank you.
    The Subcommittee has heard from a number of folks in the 
industry that are having trouble getting containers, 
particularly if they are not located near ports or near 
container depots. And I guess the question is, is there 
something that any of you feel the Commission can do to solve 
or help alleviate this problem?
    Mr. Creel, you first.
    Mr. Creel. Yes, sir, that is a problem. We met with Pacific 
shippers a few weeks ago, and they expressed some serious 
problems about being able to get their exports moved.
    There are a number of issues. I mean, one thing is the cost 
of shipping a container into the country and outside of the 
country is vastly different. The revenue, I should say. It is 
more than double coming in than it is going out. So there are 
some carriers that have a vested interest in trying to move 
their container back to China where they can fill it up and 
ship it back and get more revenue than shipping wastepaper or 
hay from the United States. But there also are agricultural 
commodities and beef and other things that need to be moved. 
Yes, there is a problem there.
    The additional problem is where the containers are located. 
Containers coming into the country go to the port, and they get 
stuck there, and the cargo gets loaded into 53-foot trailers 
and moved to the hinterlands. When you are tying to move cargo 
from the hinterlands to the ports, you have got 53-foot 
containers which won't go on a ship. You have to transload it 
back into a 40-foot. These are all additional costs.
    In addition, we are exporting mostly not to China but to 
Taiwan, Japan, Korea; and that is not where we are importing 
from. So you also have a problem with the containers being in 
the wrong place internationally. So the container displacement 
is a big issue.
    And as to the role of FMC, we have been talking to the 
carriers and the shippers in trying to get them together. As 
Commissioner Dye mentioned, they are meeting next week, some of 
them, to try to address this problem amongst themselves, but we 
stand ready to help mediate any of these issues that we can 
help with.
    Mr. LaTourette. I guess I would ask after that meeting 
occurs, with the good offices of the chairman, if somebody 
could share back to the Subcommittee what progress you are 
making and if there is any assistance you need in that.
    Mr. Creel. You bet.
    Mr. LaTourette. Before my time goes, on the next panel is 
Mr. Cole, and we talked about Mr. Cole and his contract at the 
last hearing. I know he is going to share his thoughts.
    I have a document that is a page and a third, and my 
question was I think the last time we all got together that the 
Commission had not received a report. Apparently, the Senate 
Democratic staff had received a report that made its way over 
here. So, today, as we sit here in June, have you all received 
a report?
    Mr. Creel. Yes, sir. We received that a couple weeks ago, 2 
or 3 weeks ago. And it is not dated, but it seems like that 
report is from 2003. I am not sure.
    Mr. LaTourette. Is it different from the document that I 
have described? Is it a lengthy thing?
    Mr. Creel. It's a page and less than a quarter, I think.
    Mr. LaTourette. Okay. And are discussions ongoing between 
the Commission and Mr. Cole's representatives relative to 
outstanding contract items?
    Mr. Creel. They are. He has hired counsel. There is 
potential litigation.
    Mr. LaTourette. And just for my purposes, when did you all 
receive the document? You didn't have it when you were here 
last.
    Mr. Creel. No. It was 2 or 3 weeks ago.
    Mr. LaTourette. All right. Thank you.
    Mr. Cummings. Ms. Richardson.
    Ms. Richardson. Thank you, Mr. Chairman.
    And, Commissioners, I am the new kid on the block, so if 
you could make your responses as brief as possible because we 
have only got 5 minutes here.
    I am going to focus my questions primarily on what Mr. 
LaTourette referred to and, Ms. Dye, you mentioned, which is 
your decision of the FMC on Friday regarding particularly the 
Ports of Long Beach and Los Angeles. Mr. Rohrabacher represents 
those ports specifically, but one foot outside of the Port is 
my district. So 45 percent of the entire Nation's cargo goes 
through my district, and your decision was very pertinent to my 
role in this Committee today.
    Number one, in your press release, it said that you 
contemplate future discussions to determine the extent to which 
terminal operators will administer certain aspects of this 
plan. What is the timeline to do so?
    Ms. Dye. Ms. Richardson, the parties are under obligation 
when they have actually discussed the implementation of the 
plan, and they will file the amendment to that agreement with 
us, and then we will look at that under the same process.
    Ms. Richardson. You also stated in your press release that 
the Commission noted that its decision today does not foreclose 
future actions with respect to the AIA. So does that mean that 
if that amendment was not satisfactory you might change your 
decision?
    Ms. Dye. We could.
    Mr. Creel. And if I could add there, what was filed--what 
we agreed to was to allow the agreement to discuss basically--
for the ports to discuss with the marine terminal operators may 
be required to do. It does not lay out the specifics of exactly 
what they are going to do. Once they decide on what they are 
going to do with the MTOs, it is our opinion that they will 
have to file another amendment which we will then review as 
well.
    Ms. Richardson. Okay. Now, I started off on the City 
Council in Long Beach, and when we originally had this idea, we 
were told we couldn't do it because there was a difference 
between intrastate and interstate. So I found it kind of 
interesting that the FMC took this position honoring local 
bodies, especially given the point that you were coming before 
this body one week later. Can you tell me how you view that 
this is an appropriate jurisdiction within your body of 
allowing intrastate to take the lead versus an interstate 
overall nationwide proposal?
    Mr. Creel. I will address that.
    We have jurisdiction because, under the Shipping Act, the 
agreements that are filed are both between marine terminal 
operators. There are two agreements; one between the two ports 
who are acting as marine terminal operators and between the two 
ports and the Association of Marine Terminal Operators. Because 
there are agreements on file, the parties are able to discuss 
with antitrust immunity and also to be able to facilitate any 
sort of program, we have jurisdiction, and can conduct both a 
competitive analysis under 6(g) or review under section 10 of 
the Act. If perhaps any action is an unreasonable refusal to 
deal or we believe they are operating under an unfiled 
agreement, that gives us authority.
    Ms. Richardson. Are you aware of Mr. Calvert's bill that's 
on file?
    Mr. Creel. No, I am not.
    Ms. Richardson. What I would like to do--I have got about 
1-1/2 minutes. I have one more question I would like to ask.
    But, for the record, I had an opportunity to speak with the 
Chairman and hope to work with both him and Mr. LaTourette and 
other Members of this Committee to conduct a hearing on this 
very issue in our particular area no later than the end of 
July; and I hope that you would participate and be involved and 
testify and share your reasons.
    Because Mr. Calvert's bill, which has gained some 
discussion here on the Hill--in fact, Chairman Oberstar was 
looking into what these potential implications could be. And 
the fact that a lot of this is stemming from my area, I think 
it is important everyone is hearing all pieces, what the Port 
of Los Angeles and Long Beach proposed, what Mr. Calvert is 
proposing.
    And then, also, which leads me to my final point, what do 
you anticipate the impacts being of the potential legal action 
of the Port of Los Angeles' plan and also State Senator 
Lowenthal's legislation?
    Mr. Creel. Well, I will just say that the difference 
between the Long Beach plan and the L.A. Plan is, for the most 
part, that Los Angeles----
    Ms. Richardson. I am familiar with that.
    Mr. Creel. Okay. I am sorry.
    Ms. Richardson. My question to you is, what do you foresee 
as being the impact? Because, if I am not mistaken, there is 
potential pending litigation on the one plan because they are 
leaving out independent operators; isn't that correct?
    Mr. Creel. That's correct.
    Ms. Richardson. So my question was, what do you anticipate 
that legal action to be and what do you anticipate the impact 
of State Senator Lowenthal's legislation?
    Mr. Creel. I don't know what Senator Lowenthal's 
legislation is, but I----
    Ms. Richardson. It has been going on for at least 3 years 
now.
    I look forward to seeing you at that hearing. Thank you.
    Thank you, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    Mr. Taylor.
    Mr. Taylor. Mr. Chairman, I have no questions, but I want 
to welcome my first next-door neighbor in Washington, 
Congressman Brennan, back to town.
    Mr. Brennan. Thank you very much.
    Mr. Taylor. And just a matter of curiosity, I know you had 
a relative, I believe it was a sister, who lived in south 
Mississippi. I am curious how she did in the storm.
    Mr. Brennan. She did well, actually; and she speaks very 
strongly about your representation.
    Mr. Taylor. I am glad she did.
    Thank you, Mr. Chairman.
    Mr. Cummings. It sounds like a commercial to me.
    Mr. Coble, I apologize. I didn't realize you snuck back in 
on me.
    Mr. Coble. That is okay. I have been in and out, Mr. 
Chairman; and I hope I won't repeat a question.
    Ms. Dye, let me start with you. Since the Committee's last 
hearing, an additional vacancy has been created on the 
Commission, leaving only three of you sitting members. How does 
the current status impact the Commission's abilities to conduct 
oversight and make decisions on pending matters?
    Ms. Dye. Thank you, Mr. Coble.
    In our charter, we have authority to conduct business even 
though we go down to three members because two of us can 
constitute a quorum. So we still--if two out of three of us 
agree on any matter, then that is the Commission's position; 
and we found that that is working well. We are holding public 
meetings now and doing all of our major and our routine 
business in meetings, and things are working very well.
    Mr. Coble. Very well.
    Mr. Brennan, are U.S. maritime interests currently playing 
on a level playing field internationally?
    And let me put a second question to you. And are there 
specific areas that the Commission is focusing on to improve 
conditions internationally?
    Mr. Brennan. Mr. Coble, we had ongoing, long-term problems 
dealing with getting certain type services for some of our 
people, you know, in the Far East, in Asia, in Japan and in 
China, but we are working on it. And I know Mr. Creel, even 
before I came on the Commission, took major steps to advance 
that.
    Mr. Coble. Mr. Creel, do you want to add anything to that?
    Mr. Creel. I would agree with Mr. Brennan. Yes, we still 
have an outstanding proceeding on the Japan harbor practice 
issue that carriers that serve the U.S. were not treated the 
same way in Japanese ports--as Japanese vessels are in U.S. 
ports. That is still an open proceeding. We are monitoring 
that. There are some issues in China regarding freight 
forwarding. We worked closely with the Maritime Administration, 
who negotiates on behalf of the administration. So we are 
actively involved with them.
    Mr. Coble. Let me put this question to you. Since you are 
operating apparently effectively with three, do you think that 
we should stay with three or should we go back to five?
    Mr. Creel. As long as it is these three, we are okay!
    Seriously, clearly, we can do the job with three. But one 
thing that is interesting, because of the Sunshine Laws, two of 
us cannot get together and talk about substance. So whenever we 
get together, we can't make decisions or talk about our 
decisions or how we might come to a decision. So we have to be 
very mindful of that with just two of us. Where you have 5 
members, for the 14 years I have been there, two members would 
get together and talk and then you talk to another member and 
of course then decide things in public, but we are not able to 
do that. So we are frustrated in that way.
    Mr. Coble. I got you. Thank you all for being with us.
    Thank you very much, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    Just two items. Again, as I said a little bit earlier, I 
was impressed by the fact that you all have now moved more 
towards addressing some of the leadership issues and morale and 
staff issues, and one of my concerns is that you stay on 
course. So, therefore, I am going to ask that you all come back 
to us--not come back to us but give us a report in 90 days. Let 
us take a look at it to see where you are. In particular I am 
concerned about the issues raised by Mr. Cole.
    I just want to--what is the matter, Mr. Brennan? What is 
wrong?
    Mr. Brennan. I would just like to make a brief comment on 
the Mr. Cole matter.
    Mr. Cummings. Sure.
    Mr. Brennan. Some of the things that you read in his 
talking points, that was done about 5 years ago.
    Mr. Cummings. I understand.
    Mr. Brennan. And if you give a lot of weight to that, it 
would be like grading somebody who was in the eighth grade on 
what happened in the third grade, to use an analogy. That's 4 
or 5 years ago. I think there is a substantially different 
Commission at this time.
    Mr. Cummings. I understand.
    What we will do is we will put together a set of questions. 
And we need some benchmarks. We need some benchmarks, and then 
we need to measure, to see where we are going. I don't want a 
situation where we are talking about these same issues 6 years 
from now. If we are talking about them, I want us to be talking 
about the progress that we made.
    So what we want to do, the way the Subcommittee operates is 
that we try to--I am going to say this in a nice way--keep your 
feet to the fire. So we will check back with you in 90 days. 
Staff will work with us on both sides--and, Mr. LaTourette, I 
am sure you all will work with us--to come up with some 
questions as to where we are on these issues.
    Because we want the agency to function properly. And now 
that you all are meeting and it sounds like you are one big 
family of three and you are moving forward, we want to see that 
you continue to do that.
    Is that all right, Mr. LaTourette?
    Mr. LaTourette. Just one thing, I want to thank you for the 
positive progress that you have made since our last get-
together.
    Mr. Cummings. I do, too.
    Mr. LaTourette. And, Mr. Brennan, I would say that I could 
tell without knowing that you are not only a former Member of 
this House but the former Governor of Maine. Because in your 
observation about Mr. Taylor, a lot of us have strong feelings 
about his representation, and you didn't say which way those 
strong feelings went.
    Thank you very much for being here.
    Mr. Cummings. The only other thing I would have is I just 
want to know to what extent do you all believe that ocean 
common carriers are colluding with regard to guidelines or the 
floors and the rates--with regard to the rates that are being 
charged even under confidential service contracts, and what 
impact, if you believe that there is such collusion, would you 
say such collusion is having on prices?
    Ms. Dye, we will start with you, if you have a response. 
Did you understand the question?
    Ms. Dye. Yes, I believe I did, Mr. Chairman.
    Part of our job is to monitor all of the discussions that 
agreement parties have. Anytime they actually get together and 
hold meetings and operate under their agreements under which 
they get antitrust immunity, they have to report to us; and our 
folks make sure that they are operating within the agreement 
and not in ways that concern the worst of anti-competitive 
process, like capacity, rationalization.
    Also, confidential contracting at the option of the shipper 
starves any cartel from information, and without information 
the group can't hold it together because they cheat on each 
other. And that is one of the reasons that we began by pulling 
the rug out from under the system of collusion in '98 by 
keeping information confidential between the shipper and the 
carrier. When 90 to 95 percent is carried confidentially, there 
is not a lot of information on which to collude.
    Mr. Creel. I would agree with that, and I would just add 
for those agreements that have antitrust immunity, whether it 
is discussion agreements or the very few conferences that 
exist, they have to file minutes with us.
    Now, you might say, why don't they just file what they want 
us to hear? You would be surprised what we find out from the 
minutes. That is not a justification for antitrust immunity or 
anything. It is just a statement.
    The other thing I would say is that, on service contracts, 
back in '98 and prior to '98, some of the carriers went kicking 
and screaming to agreeing to service contracts. They did not 
want to have service contracts. And, lo and behold, they 
actually like it now. They use them. They are able to tailor 
their contracts with their customer shippers, and it works.
    Mr. Cummings. I want to thank you all very much, and we 
will look forward to hearing from you in 90 days. I just want 
you to understand if we review that document and we are not 
satisfied, you will get an invitation to come back.
    Thank you very much.
    Mr. Creel. Thank you.
    Ms. Dye. Thank you, Mr. Chairman.
    Mr. Cummings. We will now hear from Mr. Donald Cole, who is 
the management consultant who worked with the FMC under the 
direction of his former chairman.
    Thank you very much, Mr. Cole. You have 5 minutes.

       TESTIMONY OF DONALD A. COLE, MANAGEMENT CONSULTANT

    Mr. Cole. Mr. Chairman and Members of the Subcommittee, I 
am pleased to be here at your request to testify on issues at 
the Federal Maritime Commission.
    In December 2003, Chairman Blust sought outside assistance 
because he wanted two things: to transform the agency focusing 
on compliance rather than enforcement, and to create an agency 
that would work in partnership with industry.
    Among the major issues that I identified for the FMC during 
the diagnostic phase of my work were: there was no vision and 
no positive operational values; that the Commissioners rarely 
met as a group to deliberate on internal/external issues; that 
there was a lack of basic communication from the leadership to 
the staff, people were starved for information; there was a 
lack of trust; there was serious conflict and resistance to 
change.
    In June 2005, the first phase ended with the chairman and 
the senior staff accepting my findings. We scheduled a retreat 
to set up groups to work on each of the major issues. The 
Commissioners were invited to attend that retreat. All attended 
except Commissioner Anderson. They were invited to be full 
participants, so they were certainly aware of staff efforts to 
improve the organization. Their support and engagement has not 
been strong, but they have been aware.
    In November 2006, Chairman Blust and his director of 
administration left the agency. My contract was cancelled and 
my final invoice was not paid by FMC, because the Inspector 
General was beginning an audit and raised issues about my 
contract with the new director of administration, Peter King.
    My contract with FMC was standard in the consulting 
industry, both the scope of work and the fee schedule. From 
2003 to 2006, each of my invoices was paid without question and 
without concern. Again, it was a normal agreement, and progress 
was being made. I earned my fees, provided insight and 
recommendations for changes, and worked with the staff to 
implement improvements.
    The audit of my contract and the behavior of the IG have 
been puzzling, and the IG has compromised his independence in 
the process. He directed management not to pay my final 
invoice. This instruction is clearly beyond his authority. He 
was directly involved in the cancellation of my contract, which 
occurred at the very beginning on this audit and was not 
appropriate. After meeting with congressional staff, he 
reported his discussion back to the Commissioners.
    Since the chairman's departure, Mr. King has claimed to be 
the sole authority of FMC, stating that the Commissioners will 
not meet with me. Certainly the Commissioners are all aware of 
this controversy, even though they wanted to deny knowledge of 
it during your April 15 hearing.
    The controversy about me and my work has cost me and the 
agency time, energy and money. It has caused angst for the 
staff. But the real issue for me, as a 37-year public servant 
and a 6-year consultant to Federal agencies seeking change, is 
that the FMC has serious problems that need to be addressed. To 
a large extent, the issue of my contract being cancelled acts 
as a diversion from the real issues.
    Since Blust left the public service, inside FMC has 
struggled. They have toiled without leadership, lived in fear, 
and worked where conflict abounds. The Commissioners and SES 
have not stepped up to fill the leadership role. Those who 
could leave the agency have, due to the toxic environment. 
Among those who have left: four of the six employees selected 
for the SES Candidate Development Program, the next generation 
of senior leaders, the deputy general counsel, the deputy for 
administration, the director of EEO, the senior IT supervisor, 
the secretary and others.
    People have reached out to me and to others for help and 
support because there is none to be had inside FMC's 
leadership.
    The April 15th hearing precipitated changes, some for the 
better, some not. On the positive side, Commissioner Anderson 
resigned in May. Sadly, his counsel is being considered for 
permanent Federal employment. On the positive side, the EEO 
case that was filed by the agency's general counsel is being 
settled. Sadly, no such case should have ever had to be filed.
    On the positive side, the Commissioners called the staff 
together to tell them what happened at the hearing. Sadly, they 
stated that some disloyal employees provided information to 
congressional staff and added, "This, too, will pass."
    On the positive side, work may have started on the results 
of the Human Capital Survey. Sadly, the report lay dormant 
until this Committee, you, brought attention to it.
    Commissioner Dye stated today, as well as the others, that 
changes are under way. I am encouraged to hear that. The bottom 
line is, your oversight is beginning to show through. Now, 
industry watches, the employees watch.
    The future is where we must focus. The FMC needs leadership 
and a strategy to produce outcomes that meet stakeholders' 
expectations. The requisite skills for change not available 
within the FMC can be brought in. The Human Capital Survey and 
my findings and recommendations identify the challenges and 
offer direction. The value of those and the work of the staff 
can, again, be useful.
    I am an optimist, but I know that hope is not a strategy. 
Your involvement is FMC's only chance to bring the agency back 
into alignment both for the staff within and to the industry it 
serves.
    Mr. Chairman, this concludes my statement, and I will be 
pleased to answer your questions.
    Mr. Cummings. Thank you very much, Mr. Cole.
    In your testimony, you provide what you indicate are the 
results of the organizational assessment you conducted as a 
prelude to intended strategic planning exercises at FMC. You 
then indicate that you were working closely with the chairman 
to address these issues, including visiting each office at the 
FMC together to meet with all employees to explain the issues 
and concerns.
    Are the issues that you found in your organizational 
assessment a reflection of the leadership or lack thereof at 
the top of the organization?
    Mr. Cole. Yes, sir, it was.
    Mr. Cummings. And how do you think that things got so bad? 
And was the then-chairman solely responsible? And what led him 
to seek to hire an organizational consultant in the first 
place, if you know?
    Mr. Cole. I do not actually know his decision process. But 
I certainly think his observations, after being there for a few 
months, gave him an understanding of the leadership team and 
the skill level he had. And he knew that he needed outside help 
to bring about the change that he wanted to do.
    Mr. Cummings. Now, you heard the testimony from at least 
one of the Commissioners, I think it was Mr. Brennan, when I 
asked him a question, when I was talking about wanting him to 
go back and take a look at what you had done and then give us a 
report in 90 days. And if you will recall, he said just a few 
moments ago, sitting I think in the very chair you are sitting 
in, that he felt that your concerns were not relevant today.
    Now, you know, I don't know whether you feel comfortable or 
you think you can answer the question, since you haven't been 
around there this year or the last few years. Right?
    Mr. Cole. I haven't.
    Mr. Cummings. But the things that you saw--I guess what 
concerns me is that it seems as if Mr. Brennan tried to paint a 
nice picture. Basically, what he was saying was this: that 
either, one, it is not as bad as you made it out to be; and, 
two, that even if it were, this is a new day, and that is old 
stuff, and we don't need to really pay too much attention to 
what you have said since it is old.
    Now, I know that sometimes when people look at these kinds 
of situations, they see certain things that are systemic, and 
they see things that they can almost pretty much bet every 
single professional talent that they have, that at least 
remnants of those things will go on, if not results from those 
problems.
    And I just wanted to know, do you feel like you can render 
an opinion with regard to that? Do you understand my question?
    Mr. Cole. I understand your question perfectly, Mr. 
Chairman.
    I would say that certain patterns exist, from my findings 
in 2003 to the last two Human Capital Surveys. As you well 
know, trust is fundamental in all relationships. And if trust 
has been broken, it takes a long time to restore that. You 
can't do it in 60 days or 90 days and sometimes in 6 months or 
a year or sometimes even in a lifetime.
    So while I am glad to hear Commissioner Brennan's views, I 
don't necessarily believe that. I would have to be there and 
see the results myself or have somebody else that I trusted be 
able to do that to say that everything is on the up and up.
    These are significant fundamental issues about taking care 
of people, stewardship, respecting others. And it takes a long 
time to build that, Mr. Chairman.
    Mr. Cummings. And so, in all your findings, what are the 
things that, kind of, caused you the greatest concern? Remember 
what I said a few minutes ago, is that what we are talking 
about is effectiveness and efficiency, effectiveness and 
efficiency. What were your major concerns?
    And one of the things that has been brought up is the whole 
question of people who feel, having a sense of morale, that 
morale being high at the institution. One of the reasons that 
has been presented is that people have nowhere to go, that they 
have sort of a dead-end situation or they don't feel that they 
can go anywhere.
    Can you talk about that and talk about what your major 
findings were, in a limited amount of time, please, sir?
    Mr. Cole. Yes, sir. I would say that there was no 
leadership team. There was no vision. And, as you know, with no 
vision, that people perish. There was no support and 
development of people. There was a sense that people were not 
valued, their opinions. I think the employees there--and they 
have some really great employees, or they did before the great 
exodus--had valuable information to provide and improve the 
operation. They just were not honored and asked for their 
opinion.
    So in a nutshell, those three or four things: honoring the 
people, leadership, having a vision, and communication. 
Communication is always a big thing. In the absence of 
communication, people make up stuff.
    Mr. Cummings. Now, you indicated in your written testimony 
that you completed an interview as part of the organizational 
assessment with all the Commissioners, except for Mr. Anderson, 
who left in the middle of your interview.
    Did he just get up and leave, or did you make him upset? I 
mean, what happened?
    Mr. Cole. No, sir, I did not make him upset. Although I 
could do that, I think. He got up after 20 minutes and said he 
had to get a plane. So I said, okay. And then, as I put in my 
testimony, I tried to reschedule.
    Mr. Cummings. Okay. Well, how closely did you work with the 
Commissioners other than the chairman to develop and implement 
responses to the findings of your organizational assessment?
    Mr. Cole. I met with each of the Commissioners twice or 
more, except Commissioner Anderson. As I stated, I invited them 
to the retreat to be full participants in the work of the 
Commission.
    One of my findings, as I said, was I considered the four 
Commissioners and their counsels extremely valuable resources 
that I didn't think the Commission was using.
    Mr. Cummings. Say that again?
    Mr. Cole. One of my findings was that there was not very 
much use, in my opinion, of what I saw, of the four 
Commissioners and their counsel, all of whom are very bright, 
smart people. So I considered that a huge underutilization of 
resources for the operation of the Commission.
    Mr. Cummings. That goes to effectiveness and efficiency.
    Mr. Cole. Yes, sir.
    Mr. Cummings. Yes, so basically you have talent, but the 
talent is not being pulled together.
    Mr. Cole. Mr. Chairman, I believe in something that is 
called stewardship of the whole. That is where everybody in the 
organization is responsible for and accountable for the 
expenditure of the resources that the agency is given. So no 
one part succeeds or no one part fails, and it is okay, 
everybodyis in it together.
    Mr. Cummings. Were you pleased to hear that the 
Commissioners are now meeting?
    Mr. Cole. Very pleased, sir.
    Mr. Cummings. And if you were, since at least one of them--
oh, they are all three here. Since you are sitting here and 
they are sitting here, they have expressed their desire to be 
effective and efficient, and if you were to give them a 
message, what would it be today?
    I am not trying to mess with you. I really want to know. I 
am trying to make sure your testimony is effective and 
efficient to help us make them effective and efficient.
    Mr. Cole. Mr. Chairman, I would have them develop a 12-
month plan with goals, objectives, plans of action, and 
milestones which would identify and address the issues raised 
here, plus the operational parameters for their mission as 
chartered. In other words, are there backlogs? How are they 
dealing with that? Are they efficiently utilizing the 
resources? Is there an overload in one area and an underload in 
another, where they could become efficient and effective by 
moving people around to execute their mission?
    That would be the message I would give them: Come up with a 
12-month plan; report back to you in 90 days. They ought to 
report to you voluntarily on a monthly basis. If I was in their 
position, I certainly would do that.
    Mr. Cummings. All right. Thank you very much.
    Mr. LaTourette?
    Mr. LaTourette. Thank you, Mr. Chairman.
    Welcome, Mr. Cole.
    The document that I referred to when the Commissioners were 
still here but when they were testifying, I have with me a 
document called "Thorough Maritime Commission Organizational 
Analysis for Discussion with Chairman Blust and the SES and 
Rachel." Are you familiar with that?
    Mr. Cole. Yes, sir.
    Mr. LaTourette. And am I correct in my observation that it 
is a full page and then a part of a second page?
    Mr. Cole. Correct, sir.
    Mr. LaTourette. When was that document prepared?
    Mr. Cole. My handwritten document was prepared in, I 
believe, December 2003.
    Mr. LaTourette. And was it subsequently converted--mine is 
typewritten; it is not handwritten. So when did you type it on 
the computer?
    Mr. Cole. I am not certain when I typed it. But I can tell 
you that, when I was asked for it, I went back to my 
handwritten notes and produced it.
    Mr. LaTourette. Okay. And let's go through that. When you 
were asked for it by whom?
    Mr. Cole. By the Senate, sir.
    Mr. LaTourette. And that was earlier this year?
    Mr. Cole. That is correct.
    Mr. LaTourette. Okay. And who over in the United States 
Senate asked you for your report?
    Mr. Cole. The Senate Committee, I guess, on Transportation.
    Mr. LaTourette. A member of the Democratic staff of the 
Senate Committee of jurisdiction?
    Mr. Cole. I believe that is correct, sir.
    Mr. LaTourette. Okay. And prior to that request, you had 
not prepared a typewritten document? It was your handwritten 
notes?
    Mr. Cole. Actually, I was in the process of preparing a 
document after my contract was cancelled for my meeting which I 
thought was going to take place with the Commissioners.
    Mr. LaTourette. And that was at the end of 2006?
    Mr. Cole. That is correct, sir.
    Mr. LaTourette. When is the last time that you performed an 
act or a service on behalf of the Commission that you would 
have been entitled to bill and receive compensation for?
    Mr. Cole. In November, December 2006.
    Mr. LaTourette. Okay. I ask you that because I had 
understood you to say--I don't know if it was in response to a 
question by the Chairman or maybe in your--you made some 
observations about things that went on at the Commission after 
our last hearing. And I think that you specifically indicated 
that the Commissioners--you praised the Commissioners for 
having a meeting with employees, but said it wasn't such a good 
idea. And I am paraphrasing now, that some bad eggs were 
responsible for this.
    Do you remember saying that?
    Mr. Cole. I do, sir.
    Mr. LaTourette. How is it that that information comes to 
your attention if you are not under contract with the FMC 
today?
    Mr. Cole. Well, Mr. LaTourette, I worked in that agency for 
3 years, and I developed relationships. I think I am a good 
listener, and a lot of people came to me and asked for help. I 
think that I am fairly empathetic and nonjudgmental, and 
therefore I developed a great deal of trust with the employees 
at the Commission.
    Mr. LaTourette. So basically they felt comfortable calling 
you, today, still today, calling you and just chatting about 
things that are happening at the shop. Is that right?
    Mr. Cole. I would say that lots of people would feel 
comfortable contacting me.
    Mr. LaTourette. Okay.
    Back to the inception of the contract, because I am going 
to be straight-up with you, when you said that you earned all 
the money that you billed for, I believe you, and I am sure you 
do good work and you are good in your field and everything 
else. I have difficulty, I think, understanding how this 
contract came to be initially, and in particular on page 1 of 
your testimony that, "We agreed that I would only report to the 
chairman."
    Now, this is a Commission made up of multiple members. And 
I don't think I am aware, and I guess I would ask you, are you 
aware of contracts like this where--and I get sole source and 
all this other business--but that you didn't have to report to 
all the other members of the Commission ever?
    Mr. Cole. Mr. LaTourette, any top-notch consultant will 
only report to the top of the organization. They will not 
report to lower levels in the organization, because it, based 
on my experience and the experience of others in the field, is 
problematic. So my point in putting that there was to emphasize 
that I would only work for the top person in the organization.
    Mr. LaTourette. Okay. And I----
    Mr. Cole. Does that make sense to you?
    Mr. LaTourette. Sure, it makes perfect sense. And I guess I 
would understand that better--and I am not disputing that that 
is your belief and that is your practice--but I would 
understand that better if we were dealing with a Fortune 500 
company and you only dealt with the president or the CEO or 
chairman of the board of directors perhaps. But these men and 
women are all presidential appointees, and they have been 
appointed by different Presidents of both parties. And each of 
them, even though they may be a nominal chairman confirmed by 
the United States Senate, each of these folks has a 
responsibility to the organization.
    I guess--and this is not a "you." I guess I am questioning 
the former chairman and his acceptance of an agreement where he 
had his own consultant that reported only to him.
    And to that point, because I think I have made the point I 
wanted to make, but did you--I heard what you said about your 
handwritten notes, converted at the request of the Senate 
Democratic staff before this last hearing. But did you report 
to the chairman in writing on a regular basis?
    Mr. Cole. I was typically there 2 days a month. I did an 
in-brief and an exit brief with the chairman most every visit. 
Because of the nature of some of the work that I did, there 
were not a lot of written reports. We were in constant 
communication with one another.
    Mr. LaTourette. Okay.
    And the last question--and thank you for your indulgence, 
Mr. Chairman.
    Mr. Creel was a Commissioner that you would have sat down 
with and answered all your questions and so forth and so on. 
Did any of the Commissioners ever say to you, "Are you going to 
tell us what you are doing, or are you just talking to Blust?"
    Mr. Cole. No, sir.
    Mr. LaTourette. Okay.
    Mr. Cole. As I said, I met with each Commissioner, save 
Commissioner Anderson at the time, at least twice. I met with 
Commissioner Creel on more than two occasions.
    Mr. LaTourette. And the meeting that got cancelled when 
Blust was leaving, and then you got the call from somebody in 
SES who said, "Don't come, because there is this IG thing, and 
we took a vote, and we are going to cancel your contract," was 
it your intention at that meeting, if it had not been 
cancelled, to report to the full Commission?
    Mr. Cole. It was my intention. The chairman had asked me if 
I would stay on through the transition to the next chairman, 
and I had agreed to do that.
    Mr. LaTourette. And if your deal was you were only going to 
report to the chairman--I mean, what we saw with Mr. Anderson, 
nominated by the President a very long period of time, still 
not confirmed, and now he has resigned--who would you have 
reported to then under this contract?
    Mr. Cole. I guess I would have reported to the four 
Commissioners.
    Mr. LaTourette. Okay.
    Thank you very much, Mr. Chairman.
    Mr. Cummings. Thank you.
    I just want to--staff was trying to find, Mr. LaTourette, 
the reference, but it is our understanding that, under the law, 
he can only report to the chairman. And we will find that 
reference for you, but apparently that is----
    Mr. LaTourette. Will the Chairman yield?
    Mr. Cummings. Yes, of course.
    Mr. LaTourette. Mr. Cullather there has a great stage 
voice, so I have heard what he said. And that is, I agree with 
him that the chairman is responsible for the administrative and 
the head of the board.
    But I would very much like to see a Federal citation that 
says that these Commissioners aren't co-equal, in terms of--I 
mean, for Christ's sake, they have been appointed by the 
President of the United States to oversee the agency.
    Mr. Cummings. I am not trying to defend anybody. All I am 
saying is we are going to try to find the citation for you. And 
Mr. Cole may not even know this. Apparently there is law that 
says there are certain people that he has to deal with, period, 
and doesn't have to deal with the others.
    But this is probably a very unique situation in that we 
didn't have a chairman. But we are trying to look at that cite 
and just see exactly what it says so that we can all be clear. 
I was just trying to see if I could bring a little 
clarification to it. And we will find that cite.
    Mr. LaTourette. Thank you.
    Mr. Cummings. One other thing. Do you believe that--I mean, 
this whole morale thing, part of the question that you didn't 
address is this upward mobility issue. Did you look at that 
part of the organization, the structure?
    Mr. Cole. Yes, sir.
    Mr. Cummings. And what is that about, this whole thing of 
upward mobility? Are the positions not there?
    Mr. Cole. It is as you said. There are some people who are 
in dead-end jobs. We tried to do some reconstruction to expand 
duties and to do some retraining. There is at least one FMC 
member in this room who was in a dead-end job who is now in 
another much better job, I can tell you that.
    But I think there are certain jobs--and I don't care what 
agency you are in--that are just flat out dead-ended, Mr. 
Chairman.
    Mr. Cummings. What can be done about that, though? They 
talked about retraining.
    Mr. Cole. It depends on the skill that is in the individual 
and whether they can develop other skills. If we can train 
them, you know, that is one option. But there are just flat-out 
some dead-ended jobs.
    And the pity of it is that a lot of them are in the lower 
ranks, from GS-9 and -10 on down, the secretaries and the staff 
assistants and that kind of thing. And it is not a good thing. 
People need to earn a living wage in this country, and people 
in dead-end jobs feel disenfranchised when they don't do that.
    Mr. Cummings. What do you think other agencies do?
    As you were speaking, I could not help but think about the 
University of Maryland professional schools which are in my 
district. And one of the things that they do, let's say, for 
example, a guy comes in as a parking attendant. And they will 
go to that guy and say, "Look, you have been a great employee 
for 2 or 3 years. We've got the hospital over here. We need 
orderlies. We will train you to do that. And you won't stay 
under the parking situation, but you will move up." And they 
have a wonderful system where people see themselves moving up. 
They have hope. They are making more money, and they see 
themselves progressing from one point to another.
    And the program has been around 10 or 15 years now. You 
have somebody who would have been stuck almost at minimum wage 
who is now making maybe $50,000, $60,000 and feeling better 
about themselves, able to do more for their family, and just 
moving up in life.
    And, you know, I am assuming that there are people like you 
and others who consult with folks and say, you know, "These are 
the kinds of things you might want to do." And I just was 
wondering, did you do any of that?
    Mr. Cole. A little. It requires a huge horizon. It requires 
a lot of networking. It requires individual communication, 
knowing what people's desires and capabilities are and seeking 
those out and doing exactly what you said when you find 
somebody that is bright.
    Mr. Cummings. But I guess you have to have a good human 
resources person, too.
    Mr. Cole. I think it is just a function of leadership, Mr. 
Chairman. It is not a function of human resources. I wouldn't 
want to put that on them. The leadership has got to pay 
attention and know the people.
    Mr. Cummings. Thank you very much.
    Mr. Cole. Thank you, sir.
    Mr. Cummings. By the way, do you think, in the 
Commissioners that you have gotten to know, do you think they 
have the potential to do that, to do what you just said?
    In other words, you said a little bit earlier that you have 
very bright people and they are sharp, and it is a question of 
them having a vision.
    Mr. Cole. A lot of their talent has left, Mr. Chairman. 
There is something seriously wrong when you spend a couple 
hundred thousand dollars, I must think, to develop the next 
generation of your senior leadership, your SES and a candidate 
development program, and four of them leave. That is a huge 
message.
    So I think, you know, they have a leadership void.
    Mr. Cummings. And I would assume that--do exit interviews--
I mean, for some people like what you just said, I assume that 
somebody in your position would say, "You have to really sit 
down and find out why these people left."
    Mr. Cole. Absolutely. I do exit interviews at a number of 
agencies.
    Mr. Cummings. Are they helpful?
    Mr. Cole. Very helpful, especially in the Ph.D. Community, 
where lots of people come and stay for 2 or 3 years and then 
leave. And they leave for primarily the same two reasons.
    Mr. Cummings. What are those?
    Mr. Cole. Those are lack of leadership and lack of support 
and understanding the culture in which they enter into. There 
is nobody that explains to them how to travel, how to do all 
the basic things that you want people to do. So they get 
disenfranchised. And for those people who are post-docs, it is 
easy for them. But the feelings are the same, Mr. Chairman.
    Mr. Cummings. You know, I read once that the greatest thing 
that destroys relationships between human beings are two 
things: one, the expectations that each party has but that are 
never communicated with each other. And that leads to 
disappointment. And they don't even know what they expected 
from each other. And the other part is they are assuming that 
the other person knows.
    Mr. Cole. That is the communication and the clear 
expectations. You are absolutely correct, Mr. Chairman.
    Mr. Cummings. Anything else?
    Thank you very much.
    Mr. Cole. Thank you, sir.
    Mr. Cummings. We will now hear from Mr. Peter Friedmann, 
who is executive director of the Agriculture Transportation 
Coalition; Mr. Michael Berzon, president of Mar-Log, Inc., and 
chairman of the Ocean Transportation Committee of The National 
Industrial Transportation League; Mr. Win Froelich, who is the 
general counsel for the National Association of Waterfront 
Employers; Mr. Stanley O. Sher, who is acting president of the 
World Shipping Council; and Ms. Mary Jo Muoio, who is the 
president of the National Customs Brokers and Forwarders 
Association of America.
    Thank you all for being with us. We are not going to ask 
that you use your whole 5 minutes. You don't have to. We are 
not forcing you.
    Mr. Friedmann?

 TESTIMONY OF PETER FRIEDMANN, EXECUTIVE DIRECTOR, AGRICULTURE 
 TRANSPORTATION COALITION; MICHAEL BERZON, PRESIDENT, MAR-LOG, 
   INC., CHAIRMAN, OCEAN TRANSPORTATION COMMITTEE, NATIONAL 
    INDUSTRIAL TRANSPORTATION LEAGUE; WIN FROELICH, GENERAL 
COUNSEL, NATIONAL ASSOCIATION OF WATERFRONT EMPLOYERS; MARY JO 
   MUOIO, PRESIDENT, NATIONAL CUSTOMS BROKERS AND FORWARDERS 
     ASSOCIATION OF AMERICA, INC.; STANLEY O. SHER, ACTING 
               PRESIDENT, WORLD SHIPPING COUNCIL

    Mr. Freidmann. Thank you, Mr. Chairman. I will try not to.
    First of all, I want to say that, while I may not 
personally agree with every position that the three 
Commissioners have, I respect all three Commissioners. I think 
they are doing a good job. They all three take their job 
seriously.
    And they have also initiated a program where they help your 
constituents, who I represent, in dealing with the steamship 
lines or, as you call them, and the cartels, because sometimes 
your constituents are small businesses and need a Government 
regulatory agency such as the FMC to step in, sometimes on 
seemingly minor matters but are major to your constituents. And 
so we appreciate that. And I can explain what that function is 
later, if you want.
    Secondly, Mr. Chairman, I want to say that I am really 
encouraged by something you said that I gleaned out of your 
opening statement. You know, when you get into the Ocean 
Shipping Act, that sometimes takes several years of debate on 
Capitol Hill. You said something there that gave me an idea 
that maybe we have some sort of path to a solution that could 
get to a solution much faster. And that will take a little 
while to describe, but I will be happy to discuss that. But I 
am encouraged.
    The Agriculture Transportation Coalition represents, 
really, the most fundamental form of the positive balance of 
trade of this country, the exporters.
    And I will say this: There are few issues that come before 
this Subcommittee that warrant top-of-the-fold, front-page 
coverage in the Wall Street Journal, the Los Angeles Times, the 
Seattle Times, and every newspaper around the country in the 
last few weeks. I have attached to my submitted testimony the 
Wall Street Journal and the Los Angeles, but there are dozens 
of other newspapers that have been covering this issue.
    And it is an issue that this Subcommittee can play an 
effective role in addressing. And I think you may be hearing 
from other colleagues of yours and other Committees, 
Agriculture and so forth, who are going to be looking to this 
Subcommittee and the Senate counterpart to start addressing 
some specific components.
    So this is a rare issue, and I think you are going to see 
more in the international publications about this issue, the 
issue being the lack of capacity to handle U.S. exports.
    So, whether it is cotton from Mississippi, whether it is 
poultry or pork producers in the Carolinas and poultry folks in 
Maryland, horticulture in Washington State, we all had a 
meeting, and we have had several meetings throughout this year, 
over the current crisis. We could be exporting maybe 20, 
sometimes 30 percent--depending on the sector, and particularly 
in poultry--more if there was more shipping capacity out of 
this country.
    Now, we are working with the ports and others, and there 
are many reasons why there is insufficient capacity right now 
in the United States. And it is North America, East Coast, Gulf 
Coast, West Coast, Canada and the United States, there is 
insufficient capacity. And I laid out in my testimony some of 
the reasons.
    So what is the issue that is before this Subcommittee? Is 
this a temporary blip, all these exporters? Is it due to the 
exports? Is it due to the low value of the dollar? The answer 
is, no. The agriculture exporters and other exporters reported 
that the surge of demand for U.S. exports preceded the decline 
in the U.S. dollar. The consuming nations--China, India, Korea 
and so forth--their ability to consume more and better food or 
the products that we manufacture in this country are indeed 
growing, their ability to consume is growing and will continue 
to grow. We are going to be an exporter.
    So, what can we do about that? Well, there are only limits 
on what Congress can do to increase capacity. But one of our 
concerns is that we have a system of regulation of 
international ocean transportation of containerized, not the 
bulk ships, but the containerized cargo that is now out of 
synch at least with Europe, coming in October, and perhaps 
other countries as well.
    The European Union has terminated the exemption from the 
antitrust immunity because they believe that it hurts the 
economy of Europe, the exporters and the importers. That 
antitrust immunity is the law that is under the jurisdiction of 
this Subcommittee.
    Now, we, the agriculture exporters, want to work with the 
individual ocean carriers, and we have constructive 
relationships. We have put together--actually, we met in 
Memphis with a group of the cotton folks from the Southeast--
and meeting with the individual ocean carrier and then again 
with another individual ocean carrier or how we can improve 
service, how they can improve revenues, and so forth.
    Our concern is that, in transportation today, we are 
dealing through the filter of, well, you called it a cartel, 
and people don't like to be called a cartel; they like to be 
called an agreement or a stabilization agreement and so forth. 
But let me just read to you the specific law under the 
jurisdiction of this Subcommittee.
    "The law allow ocean carriers to discuss, fix or regulate 
transportation rates; to control, regulate or prevent 
competition in international ocean transportation; to limit the 
volume or character of cargo that is to be carried; to restrict 
and regulate the number and character of sailings between 
ports."
    That is what the law says. People say, well, we don't do 
those things. But the law allows them to do that, and they may 
or may not be doing it. We suspect--that is what the law 
allows, and we don't blame ocean carriers for doing those 
things.
    The act also states at the beginning the purposes of this 
shipping act. And this, again, is under this Subcommittee's 
jurisdiction. "The purposes of the act are to stimulate 
exports, to support the U.S. Merchant Marine, and to be 
consistent with international shipping practices."
    Well, today, as Commissioner Creel said, 10 years have gone 
by. This act now is inconsistent with the European Union's 
regulatory scheme. Under this antitrust immunity and the 
Shipping Act, most of the U.S. flag liner fleet has gone out of 
business, unfortunately. And the act is currently, we believe, 
the exporters believe, undermining the growth of exports from 
this country. So we believe this act can and should be looked 
at by this Committee, and we will stand by.
    I would say that we strongly support, also, the position of 
other constituents of yours that are represented by the NIT 
League and by the National Customs Brokers and Freight 
Forwarders and the Pacific Coast Council of Customs Brokers and 
Freight Forwarders, the people that are the travel agents for 
U.S. cargo exports. Those folks are all in agreement with the 
need for this Subcommittee to review the act.
    Thank you very much.
    Mr. Cummings. Thank you very much.
    Mr. Berzon?
    Mr. Berzon. Thank you, Mr. Chairman. I am Michael Berzon, 
and I am here today representing the National Industrial 
Transportation League, which is the Nation's oldest and largest 
association of companies engaged in freight transport.
    As a member of the League, I serve as chairman of our Ocean 
Transportation Committee, whose members are concerned with the 
transportation of goods via vessels, including liner carriers 
regulated by the Federal Maritime Commission.
    The League is no stranger to the issue of international 
shipping and the oversight of this industry by the FMC. We were 
actively engaged in past reforms of U.S. International Shipping 
that led to the adoption of the Shipping Act of 1984 and, more 
recently, the Ocean Shipping Reform Act of 1998.
    The League today, as it has in the past, supports a 
competitive, robust transportation environment which delivers 
timely and efficient ocean transportation services to importers 
and exporters who rely upon these services. We strongly believe 
in an ocean transport system where competition is encouraged 
among carriers and the forces of supply and demand determine 
the level of rates and charges assessed to the carriers' 
customers.
    The reforms brought forth by OSRA, most significantly the 
introduction of confidential contracting between liner carriers 
and shippers and later with third-party intermediaries, have 
resulted in commercial benefits for both carriers and their 
customers, as well, and has improved the working relationship 
between them.
    Despite these significant statutory and regulatory reforms, 
we do not believe it is appropriate to stand aside and admire 
our past accomplishments. Ocean liner carriers still engage in 
collective discussions regarding supply and demand, as well as 
establishing benchmarks for rates and surcharges for the U.S. 
trades through carrier organizations known as discussion 
agreements. This ability leads shippers to question why liner 
carriers cannot establish their pricing based on individual 
costs plus a reasonable return on investment, like other 
industries that operate internationally.
    We believe that Congress should conduct a comprehensive 
review of the Shipping Act. The international liner shipping 
industry has changed substantially over the last 10 years, in 
part driven by the Shipping Act reforms of the 1980s and 1990s. 
Additionally, the forthcoming deregulation of the maritime 
industry in Europe will eliminate the ability of carriers to 
fix prices and will give European companies a distinct 
advantage over their U.S. counterparts.
    It is important to note that the independent Antitrust 
Modernization Commission told Congress last year that the 
antitrust immunity afforded to liner carriers has outlived any 
utility and should be repealed. Finally, where antitrust 
immunity has in the past existed for other transport modes, 
action by two executive branch agencies in the last year has 
resulted in repealing antitrust immunity for sectors of the 
aviation and motor carrier industries.
    The League believes there are serious questions on whether 
carrier liner immunity should be continued in the U.S. trades. 
If Congress agrees with this conclusion, it is clear that other 
reforms will be necessary. For example, service contracts must 
now be filed with the FMC. Service contracts are by far the 
dominant way that liner shipping is conducted today. This 
filing requirement was designed to facilitate enforcement of 
certain prohibited acts in the Shipping Act and to monitor 
joint carrier activities.
    While the FMC rarely reviews these contracts except in the 
case of a complaint, contract filing is an expensive 
administrative burden and cost to the carriers that ultimately 
falls back on their customers. In our view, this requirement 
has devolved to a make-work project that has little or no value 
and could easily be eliminated or modified.
    We have already submitted the list of modifications that 
the League suggests to the Shipping Act, and I won't go through 
them here. But if the reforms that we propose in that context 
were adopted, the proper role and structure of the FMC would 
then need to be addressed by Congress.
    In conclusion, we believe the time is right for Congress to 
review the Shipping Act and to determine whether additional 
reforms could result in greater competition, efficiencies and 
other benefits to U.S. businesses. The review should examine 
the value of antitrust immunity in light of changes in the 
industry, the great strides that have taken place in Europe, a 
major trading partner and competitor, the recommendations of 
the AMC, as well as repeal the antitrust immunity in other 
modes of transportation.
    We believe this review will result in changes which will 
lead to a more efficient competitive and vibrant maritime 
industry which will be best suited to serve our Nation's needs. 
Thank you.
    Mr. Cummings. Thank you very much.
    Mr. Froelich?
    Mr. Froelich. Thank you, Mr. Chairman and Members of the 
Committee. My name is Win Froelich, and I am the general 
counsel of the National Association of Waterfront Employers. 
NAWE represents the marine terminal operators and stevedores 
who load and unload the ships in virtually all of the Nation's 
ports.
    Let me make three quick points. I have gone into great 
detail in the written testimony. One, the first one goes 
without saying. We are a maritime nation. Twenty percent of the 
world's maritime commerce comes to or from the country. Fifteen 
percent of the U.S. GDP goes through our ports. That, I think, 
under-represents the impact that our ports have on the U.S. 
economy, because that 15 percent goes and creates other jobs in 
every State and every city and every county in America.
    Second point: The regulation of the maritime commerce of 
the United States is exclusively a Federal responsibility. The 
reason our Constitution was founded was to take regulation of 
maritime commerce away from the original 13 colonies and give 
that responsibility to the Federal Government. Now I believe 
that any review of the Shipping Act should include a review of 
that Federal responsibility, and that Federal role in 
regulating maritime commerce needs to be strengthened.
    Third and finally, I know the Committee is considering 
changes related to antitrust immunity. Mr. Chairman, you 
mentioned tariffs. Let me request that the Committee consider 
any changes related to ocean common carriers separate and apart 
from changes related to marine terminals.
    The reason is the economic environment and the legal 
structure that marine terminals operate in are very different 
than the issues confronting ocean common carriers. And NAWE 
members believe it is important that those be considered 
separately and distinctly to have the merits addressed on their 
own basis.
    So, with that, I will stop and turn it over to the next 
witness.
    Mr. Cummings. Thank you very much.
    Ms. Muoio?
    Ms. Muoio. Thank you, Mr. Chairman. I am Mary Jo Muoio, 
president of the National Customs Brokers and Forwarders 
Association of America. And I am senior vice president of 
Barthco, International, a division of Ozburn-Hessey Logistics, 
a company providing international logistics services.
    Members of the NCBFAA provide U.S. exporters and importers, 
both large and small companies, with the transportation and 
logistic services that are essential to the movement of their 
goods in international trade.
    By the way, Mr. Chairman, let me tell you how appreciative 
our Baltimore members are of the attentiveness you have to the 
port and the shipping issues. And they asked me to send you 
their regards.
    The Shipping Act refers to us as ocean transportation 
intermediaries. The members of the NCBFAA are an essential cog 
in arranging for international ocean shipping both into and out 
of the United States. Ocean freight forwarders and NVOCCs 
arrange for the actual movement of cargo aboard the vessels 
owned or operated by the steamship lines but are regulated 
somewhat differently. Without getting into too much detail at 
this point, suffice it to say that both ocean forwarders and 
NVOCCs are subject to extensive regulation by the Federal 
Maritime Commission.
    We have numerous issues before the FMC that we address in 
full in our written testimony, such as the anachronistic 
retention of antitrust immunity and the puzzling conclusion 
emanating from the FMC last Friday. However, in the interest of 
observing the time limits, let me address our most pressing 
concern.
    At the outset, it is worth noting that ocean freight 
forwarders and NVOCCs are the only entities that are subject to 
the licensing and bonding requirements of the Shipping Act. 
More specifically, the Shipping Act requires that any company 
in the United States providing services as an ocean freight 
forwarder or under the NVOCC must be licensed by the Commission 
and otherwise obtain a bond or other proof of financial 
responsibility that would be available to pay claims to the 
public or Government arising out of their ocean transportation-
related activities.
    In addition, although foreign-based NVOCCs are not subject 
to the Commission's licensing requirements, they are also 
required to maintain FMC-mandated levels of financial 
responsibility. The NCBFAA has long-supported the Commission's 
implementation of its statutory licensing and bonding 
requirements.
    Another aspect of the current policy, however, does carry 
undue and totally unnecessary burdens; namely, the requirement 
that NVOCCs publish and maintain rate tariffs.
    Section 8 of the Act requires that both the vessel 
operators and NVOCCs publish the rates to be charged the 
shipping public for moving cargo in international commerce. 
This is the embodiment of the concept of common carriage that 
was originally established for ocean shipping. The idea behind 
common carriage, of course, was to prevent undue discrimination 
so that all similarly situated shippers would be entitled to 
receive comparable rates from any carrier.
    The passage of the Shipping Act of 1998, however, 
substantially transformed the ocean shipping industry in a 
number of ways. Perhaps chief among these changes was the rapid 
and almost total shift from the public rates applicable to 
comparably situated shippers through the system of common 
carriage created by the Shipping Act of 1916, to the privately 
negotiated contract carriage that.
    Now, through the introduction of confidential service 
contracts, carriers may negotiate individualized rates with 
each of their various customers. And, unlike before, carriers 
no longer have to file extensive publicly available information 
with the FMC outlining the details of their charges.
    OSRA did not authorize NVOCCs to enter into confidential 
service contracts with their customers, but the changes brought 
by the Act were just as significant for us.
    In the post-OSRA environment, shippers no longer rely on 
pre-established rates in determining how or when to ship or in 
selecting which carrier or NVOCC to utilize. Four years ago, 
the NCBFAA petitioned with the FMC asking for regulatory relief 
by exempting NVOCCs from having to publish and maintain freight 
tariffs in those situations where they have separately 
negotiated rates with their customers. The FMC ultimately did 
agree to utilize its exemption authority, but only to authorize 
NVOCCs to enter into what are called NVOCC service 
arrangements, or NSAs, and denied the broader relief sought by 
the NCBFAA.
    The granting of NSA authority has been little utilized by 
the industry for many reasons but primarily because they are of 
little use to both the shippers and NVOCCs. Consequently, these 
anachronistic regulatory requirements compel NVOCCs to continue 
to memorialize negotiated rates by publishing rate tariffs 
despite the clear record that these rate tariffs are almost 
never reviewed or used by customers; the NVOCC rates are almost 
uniformly negotiated individually with individual customers and 
only later published; and that the cost of tariff publication 
needlessly increases NVOCC costs, thereby reducing flexibility 
and competitiveness.
    In the view of the burden and unnecessary costs resulting 
from continuing this mandated tariff rate publication, the 
NCBFAA will in the near future again request the FMC to utilize 
the liberalized exemption authority.
    Mr. Chairman, this concludes my remarks, and I would happy 
to respond to questions.
    Mr. Cummings. Thank you very much.
    Mr. Sher?
    Mr. Sher. Thank you, Mr. Chairman, Members of the 
Subcommittee. My name is Stanley Sher. I am the acting 
president of the World Shipping Council.
    Essentially, the World Shipping Council's members are the 
carriers that you have heard discussed here earlier. We are, of 
course, the carriers that are regulated by the agency. 
Therefore, we have a very, very definite and strong interest in 
seeing that the regulatory system be clear, fair and flexible. 
That is our main objective.
    I have explained the role of the FMC in my testimony, and I 
have extensively gone into certain things we think the 
Commission can do and where it is headed over the future time. 
In the few moments I have, I would like to, if I can, talk 
about three things.
    The first one is there is general agreement that the major 
congressional overhaul of the Shipping Act of 1998 achieved 
exactly what Congress desired. What has happened is that the 
objectives of the Congress were achieved. The ocean carriers' 
authority over rates were significantly decreased, and the 
negotiating powers of the shippers were significantly 
increased.
    The amendments are a true success. The system in the United 
States, since the revisions in 1998, is competitive, commercial 
and flexible. And, indeed, the major beneficiaries of the 
revisions to the Shipping Act in 1998 are the U.S. exporters. 
That isn't completely due to the act, but it is due in part to 
the act and in part to the economics.
    U.S. exporters, for the last 10 years, or at least the 9 1/
2 years, have shipped their goods all over the world from the 
United States on container carriers with service on 2 to 3 
days' notice at exceedingly low rates. The rates have been so 
low that I would term them to be noncompensatory.
    As a matter of fact, I will make the more broad statement, 
and that is, on virtually every voyage over the last 10 years 
that has left the United States with U.S. exports, the carriers 
lost money. So the U.S. exporters have been the beneficiaries, 
partly because there was significant excess capacity for those 
9 1/2 years. That has changed over the last 6 months, and I 
will talk about that in a minute.
    The second point I want to talk about briefly is the change 
in the European law. Two points.
    The first point is that, even after the European repeal, 
the majority of countries in the world will still grant an 
antitrust exemption of different types to liner operators. In 
other words, Europe will be in the minority; the United States 
will still be in the majority.
    But the point I want to make, and maybe it is the most 
important point, is this. This debate over antitrust immunity 
has been going on for years. The arguments are always the same. 
The one thing that is lacking and has been lacking since the 
1960s, 1984, 1997, have been involved in the situation in 
Europe, and that is we don't have any real facts. The repeal of 
the European system gives us that opportunity. Because the 
system has been in effect for 140 years worldwide, we have 
never had an opportunity to say, what does it look like when 
you don't have this system? In Europe, we now have that 
opportunity.
    The Maritime Commission is going to study it. It seems to 
us--and we are not dogmatic on this--that makes all the sense 
in the world. Let's look at this, let's get the facts, and then 
take a look at the system and see how it has worked in Europe. 
If it hasn't worked or there are problems, we can learn from 
them. We don't have to learn on the job ourselves. If it turns 
out that there are benefits to it, we are perfectly prepared to 
look at them.
    Our point, though, is the system works, works well now. And 
it seems to us that people that want to change it should have 
the burden to establish the need for change.
    My last point is the export situation that Mr. Friedmann 
spoke about. I guess if I had one point I would leave with the 
Subcommittee on, it is this: this is a sharp turn of events 
that has come about over the last 6 months. But our customers 
are struggling, and we are also struggling with them to provide 
the type of space they have been used to on 2 and 3 days' 
notice. It has been difficult.
    So the point I would like to leave with you is this: The 
ocean carriers are concerned about this. We are working to do 
something about this. We are not ignoring it. But we must be 
realistic. There are significant economic forces going on in 
the world right now--and I describe those in my testimony--that 
make this flexibility very difficult to achieve.
    I think there are things we can do. I think we will sit 
down with our exporters, and we will make some changes. But 
this is a joint problem. It is their problem, and it is our 
problem. At the end of the day, it is a commercial problem. 
Each of these shippers has contracts with us. We must address 
it as such. I know that carriers intend to do it, and do it in 
good faith. I think we can find some solutions, but they are 
not going to be easy.
    Thank you.
    Mr. Cummings. Thank you very much.
    Mr. LaTourette?
    Mr. LaTourette. Thank you, Mr. Chairman.
    I thank all of you for coming.
    Before I ask this panel any questions, Mr. Chairman, I just 
want to thank you and Mr. Cullather for your courtesy. And Mr. 
Cullather has shown me the citations you were referring to. 
And, although I perhaps don't agree with it, I will concede the 
point.
    But I just want the record to be clear, my concern is not 
with Mr. Cole. I think my concern is that, if this is the law 
or the regulation, that the chairman of a commission where all 
members are appointed by the President of the United States can 
enter into his own contract for a person that reports solely to 
him, and then--but, in this instance, when there was no 
chairman, apparently we don't know who he is going to report 
to, one; and, two, that the first time that this document, 
which I guess I would ask unanimous consent to be made part of 
the record----
    Mr. Cummings. So ordered.
    Mr. LaTourette. --Mr. Cole's report is seen by the 
Commission after it is delivered to the United States Senate. 
And I think that it doesn't matter who is in charge, I think 
that is a strange way to do business.
    And so that is the point I want to make. But I thank you 
for your courtesy.
    Mr. LaTourette. I want to talk about this container 
shortage, because, Mr. Sher, I was very interested in your last 
point. What we are hearing, when you say things like 2 to 3 
days, some of the shippers that we have talked to indicate that 
they can't find containers if they are not near a port or a 
container storage facility. And then they can't get on a ship 
unless they have a reservation for as far as away as 6 weeks. 
And I think that is of a concern.
    And I guess I would ask you, is the sharp turn that you are 
talking about in the last 6 months, again, I have been told 
that it is more cost-efficient, if you will, or you can make 
more money. And I heard what you said, that they sort of got a 
free ride for 9 1/2 years. But that it is better from a profit 
standpoint to send empty containers back to Korea and China 
than it is to put, I think as one of the Commissioners 
indicated, American agricultural products on board.
    Mr. Sher, I guess I would start with you.
    Mr. Sher. Well, I think, first of all, what I would start 
with is this. And it is more a question of a little bit of 
common sense. And that is, the carriers are in the shipping 
business. They are in the shipping business to transport cargo. 
There would be no reason for them to do anything that would 
interfere with the growth of their customers, and that is, the 
growth of our customers is also our growth.
    What has happened here is that there is a combination of 
things. One, the exports have boomed, absolutely boomed. Some 
commodities have gone up 100 percent.
    The second aspect of this is that you have to look, you 
can't generalize on this, because you have to look at each 
geographic area because they are different. And that is, in 
Europe the situation is different; in Asia, the situation is 
different; in South America, it is a little bit different. But 
let me talk about Asia, because that is the biggest trade.
    What is happening here is that the ships are full; they are 
full going out. I think this is going to get a little bit 
better now, because some additional capacity is coming into the 
trade. The head haul part of the trade is the inbound; that is 
where the money is. That essentially subsidizes the outbound, 
the export. That trade is seasonal, and the season is now 
picking up, so I expect additional capacity to come in. I don't 
think it will necessarily solve the problem, but I think it 
will go some ways to alleviating it.
    The problem is partly an operational problem. When the 
ships are going out, outbound, they are full. We, 
unfortunately, in the United States export a lot of heavy, low-
value goods: metal scrap, wastepaper. Those commodities are so 
heavy compared to what is coming in that you can't load some of 
these ships more than 60, 65 or 70 percent, because the dead 
weight is such that you create safety or stability problems. So 
we have this constraint. That constraint was not a problem for 
9 or 10 years because there were so little exports that, even 
filling 50 percent of the ship, we still didn't fill the ship.
    Mr. Sher. Now we are filling the ship. There are some 
empties on that are going back to Asia. But that is part of the 
service. If you can't get those containers back to Asia, you 
can't service the U.S. retailers that are bringing the cargo 
back. So it is a balance. And we are trying to get it into a 
little better shape, but it's going to take some time.
    I mean, this isn't unique to us. You have all sorts of 
businesses where there is a sudden and violent shift in the 
marketplace and they are overwhelmed at times. We have to deal 
with it, and we are dealing with it the best we can.
    But the point is you can't--one more point and I will quit. 
What adds to the problem is the cost of fuel. There may have 
been a time in the cost of cheap fuel that maybe you would put 
a ship in and you would say, well, it won't be used efficiently 
and we will bring it back half empty. Our fuel costs have gone 
up so rapidly, just 25 percent since the beginning of the year, 
that to send a container ship from the United States' west 
coast round trip on a 28-day voyage to Asia costs more than $4 
million in fuel alone. So if we are going to be here, we have 
also got to be very careful and make sure that we use our 
assets efficiently and effectively. So there is the weight 
constraint, the operational constraint, and the economic 
constraint.
    Mr. LaTourette. Right. I get all that, and I think my 
concern is these empty containers. And I have heard what you 
said. I am not unmindful of the difficulties that you have, but 
there is something wrong in the trade of balance equation when 
we have got all this stuff coming in and it is more cost 
effective for your shippers to take empty containers back than 
it is to load them with American goods and send them back over 
to Asia.
    And on the fuel we are having a rather spirited discussion 
here on Capitol Hill about the cost of energy, and I expect it 
will continue on. And I can just tell you on this $4 million 
for a voyage, I was with the Commandant of the Coast Guard on 
Monday. He was kind enough to come to Ohio, and he indicates 
that, as a result of some of the melting of the polar ice cap, 
we may have a trans-Siberian route opening up in the near 
future that could save you $2 million. So I hope, should that 
occur and you are now able to sail more directly and save 2 
million bucks in gas, that you take some more American-made 
stuff and less empty containers.
    But thank you, Mr. Chairman.
    Mr. Cummings. Thank you.
    I only have a few questions.
    Mr. Sher, outside of the possible need for the ability to 
engage in collective discussions regarding the rationalization 
of certain services, under what basis and justifications should 
Congress maintain antitrust exemptions?
    Mr. Sher. I think there are a number of considerations.
    One--and I go back to--I think it would be very informative 
to see what the FMC study is of the European system versus 
ours, so you may get some benefit from that. But, beyond that, 
I would say this:
    First of all, I think, one, there is a question of comity. 
That is that our major trading partners, except for Europe--all 
over the world. I am talking about Australia. I am talking 
about China. I am talking about Japan, Canada--all maintain an 
exemption. So there still the balance tips in favor of comity.
    I would say the other thing to weigh is that the antitrust 
immunity is not just for carriers. You have heard the marine 
terminal operators in the United States have an antitrust 
immunity and want to maintain it. The ports, U.S. ports, that 
have filed a statement with the Subcommittee have an antitrust 
immunity and want to maintain it.
    But I think that my principal argument would be that it has 
created a competitive, robust environment and that before one 
changes something that is working you ought to look very 
carefully at what the reason is, what the grounds are, and what 
you expect to get.
    I think that, in terms of the immunity itself, one also has 
to look at what we are really talking about. And that is, as 
the Maritime Commission pointed out and we pointed out to some 
extent in our testimony, there must be 200 or 300 antitrust-
exempt agreements on file with the Maritime Commission, and I 
would say probably less than 15 have to do with rates.
    So the antitrust immunity does not just deal with rates. It 
deals with a number of other things. One of the things it deals 
with is--and the ocean carriers probably have 200 of these on 
file. They deal with what I would call asset-sharing 
agreements. These are efficiency promoting agreements, and this 
is the exemption that the Europeans have continued.
    So, Mr. Chairman, in response to your question, what I 
would say is that one aspect of the antitrust immunity which is 
very important is it promotes efficiency in terms of providing 
broader multipurpose services; and I would say, without that 
exemption, our problem with U.S. exporters would be worse, not 
better.
    Mr. Cummings. All right.
    Mr. Froelich, you have argued in your testimony that 
antitrust immunity remains critical for marine terminal 
operators; is that right?
    Mr. Froelich. Yes, sir.
    Mr. Cummings. Couldn't that antitrust immunity be retained 
for terminal operators even if the antitrust immunity for ocean 
common carriers were removed?
    Mr. Froelich. It could. And NAWE's position certainly is 
the two need to be considered separately. Again, the economic 
issues, the legal issues are very different when it comes to 
terminals located in the United States versus ocean common 
carriers that obviously travel the world.
    Mr. Cummings. Ms. Muoio, vessel-sharing agreements have 
generally been viewed as positive for importers and exporters 
because they allow a carrier to offer a service every day of 
the week, even if it is not on a carrier's own ships but is 
instead on a ship owned by someone in the agreement. For 
example, in the aviation world, this is called "co-chairing." 
Do you think that these types of agreements are good or do they 
ultimately limit the best and increase prices?
    Ms. Muoio. We actually support anything that will lead to 
efficiencies, Mr. Chairman.
    However, with respect to antitrust immunity, we see that 
there is certainly an opportunity for negative consequences to 
come out of this, that being opportunities for setting prices, 
limiting competition, driving down service to the United 
States, which could actually exacerbate the container shortage 
situation.
    We also find in our sphere of the world that it has the 
result of driving up the prices for the NVOCCs.
    Mr. Cummings. Now, Mr. Friedmann and Mr. Berzon, just one 
quick question. Are there some activities by carriers in 
conferences for which antitrust immunity should be retained 
because they benefit importers and exporters, such as the 
ability to charter space on each other's vessels?
    Mr. Friedmann. This is something that gets a little bit 
closer to your initial point in your opening statement that I 
think gets us to a pathway. We have talked to the Justice 
Department. We have talked to the Judiciary Committee. They 
have been involved in it. Last week, we had our meeting and we 
had the soy and specialty grain exporters from the Midwest, and 
we talked about all these issues.
    The fact of the matter is you can do joint ventures without 
having antitrust immunity. Anybody who is familiar with any of 
the transportation modes under the jurisdiction of this 
Committee or construction and so forth can have joint ventures. 
So these efficiency enhancing initiatives, which are very 
good--vessel sharing and slot charters and all the rest--fine. 
Good. And they can clearly function without antitrust immunity. 
You see that in all industries, and the Justice Department and 
the Judiciary Committees here on the Senate side will confirm 
that.
    So, yes, efficiency enhancing is good, but it doesn't 
request antitrust immunity. Antitrust immunity is needed to 
collectively get everybody together to fix the prices, to 
discuss the terms, even the terms that find their way into the 
so-called confidentially negotiated service contracts. And all 
you need to do is read the press releases from the ocean 
carrier agreements to see exactly what they agree on doing and 
then you can judge for yourself whether you want them to do 
that.
    Mr. Cummings. Mr. Berzon.
    Mr. Berzon. I agree with what Mr. Friedmann has said. We 
feel that the ocean carriers should be able to make money. I 
mean, if they make money, then they can invest in ships. They 
have got to, at the very least, earn their cost of capital. And 
it is capitalism, and it is the way American business thinks. 
We have no problem with that.
    What we have a problem with, though, is price fixing, 
fixing the service terms, the surcharges, and other 
ancillaries. And what happens is that when the--even with 
contracts, as long as the ocean carriers have the opportunity 
to get together and talk about these issues of----
    Let's take the fuel surcharges, for instance. There is no 
question that the price of fuel is going up, but do the 
carriers need to have benchmarks to then use when they come to 
the shipper to write contracts? We think they should not be 
able to do that.
    We want to work one on one. We want to be fair. There is no 
question about that. But we don't want the carriers to come in 
with a benchmark that four or five or how many of them have put 
together. We want to negotiate that from scratch.
    Mr. Cummings. Mr. LaTourette.
    Mr. LaTourette. Thank you, and I will be brief.
    But, Mr. Friedmann, on my container question, I had to 
leave the room to meet some constituents. Did you have an 
observation about empty containers that you wanted to make?
    Mr. Friedmann. Yes. The world changes. For the last 20 
years, imports have been flooding into this country. That was 
the "head haul". The ocean carriers allocated containers--
allocated ships to this service to handle the imports. Whatever 
exports went on the way back, that was fine.
    Things have changed. It may well soon be--and we had 
exactly this discussion with the Midwest grain exporters--that 
the head haul may soon be the exports. And if you see the 
dramatic increase in the costs being agreed to or charges being 
agreed to by the agreements, by the conferences, cartels, 
whatever you want to call them, that generate increases and the 
fuel surcharges, and you see upon whom those are being imposed, 
they are being imposed on U.S. exporters more than they are 
being imposed on the importers.
    So the stuff coming in from China, the manufactured parts 
coming in from China, may not be paying all the fuel surcharges 
that the collectors have agreed to being imposed. They may not 
be paying them all, but the U.S. exporters are paying them.
    So we don't know exactly what the revenues are; and, 
frankly, we don't care to know what the carriers collectively 
are doing. We want to deal with an individual carrier. Let them 
each decide how much fuel should be charged and so on.
    Now, on the containers going out, we believe that this 
long-term trend, this is not--you talk to your agriculture 
folks throughout the country. None of them believe this is due 
to the temporary blip of the dollar going down. The dollar 
comes up, and this demand will continue for a long time, 
therefore justifying more revenue to the carriers because the 
people in this country will be willing to pay.
    Now, here is our problem with the conference deal 
collectively, and we heard it just 2 days ago when the largest 
cotton exporters out of this country said, do you know what I 
want? I want to talk to my ocean carrier one on one, and I want 
to tell him how much more I would be willing to pay, if that is 
more.
    And we took a survey in our workshops. We asked exporters, 
how many of you would be willing to pay more, 50 percent, 100 
percent more, if you could get the containers, the vessels? You 
know what? Virtually every hand went up. But you know what? The 
carriers acting at the conference agreements aren't talking to 
the individual exporters. The individual carriers aren't 
talking. It is the conference talking. And they set sort of a 
benchmark, and they don't know what the demand is for your 
exporters for a space. And if they did, we believe there would 
be more containers and more ships allocated to this trade if 
they could talk individually without going back.
    Mr. LaTourette. Thank you for that.
    And, Mr. Chairman, I think I need to ask you to respond to 
that. Because if Mr. Friedmann is accurate, that troubles me. 
Are shippers charging American exporters more in tariffs, fuel 
surcharges, other fees to send our stuff overseas than you are 
to bring it into the country?
    Mr. Sher. Categorically not. The facts are these. What Mr. 
Friedmann has just said, as far as I am concerned, is something 
I have never heard; and I don't relate to it all.
    First of all, it doesn't make any sense. All these 
contracts are negotiated one on one, the shipper and the 
carrier. They sit down together, and they negotiate. I cannot 
believe, as it runs contrary to common sense, if a shipper 
comes to one of our carriers and says I want to pay 50 percent 
more and what does our carrier say? No? I mean, I don't 
understand that.
    Mr. LaTourette. I hear you. That doesn't make sense to me 
either, but I think their observation----
    Mr. Sher. But let me give you the facts.
    Mr. LaTourette. Let me just finish my thought. I think 
their observation is that that is right, that there is a 
contract negotiated but everybody has gotten together ahead of 
time and set the floor, maybe not the ceiling but the floor. 
That's the allegation I heard.
    Mr. Sher. Let me go back and mention one point. Because 
this discussion, as I indicated before, where I thought it was 
good for the FMC or somebody who was studying to get the facts 
because we get these sweeping generalizations without the 
facts--the facts are the last time I looked at it the average 
rate coming inbound to the west coast for the imports, the 
average rate was in the $2,000 category; and in the outbound 
the export rate, the average rate was in the $1,000 category. 
So $1,000 differential or 100 percent, depending on how you do 
your math. The rates are not higher going out than they are 
coming in. That hasn't been the case for at least a decade.
    Mr. LaTourette. Thank you very much.
    Mr. Chairman, I guess I know why they are seated at the 
opposite ends of the table.
    Mr. Sher. You noticed that.
    Mr. Cummings. Ladies and gentlemen, we are bringing this 
hearing to an end. We want to thank all of you for your 
presentations. There may be some follow-up questions to some of 
you, if not all of you.
    We will continue to be vigilant. If you have heard anything 
during this hearing that you want to add--in other words, if 
there are things you need to add to what you have already said, 
we welcome your comments.
    The hearing is adjourned.
    [Whereupon, at 5:05 p.m., the Subcommittee was adjourned.]

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