[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
UPDATE ON FEDERAL MARITIME
COMMISSION'S EXAMINATION OF VESSEL CAPACITY
=======================================================================
(111-126)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
June 30, 2010
__________
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 VERNON J. EHLERS, Michigan
JERROLD NADLER, New York FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida JERRY MORAN, Kansas
BOB FILNER, California GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas HENRY E. BROWN, Jr., South
GENE TAYLOR, Mississippi Carolina
ELIJAH E. CUMMINGS, Maryland TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania SAM GRAVES, Missouri
BRIAN BAIRD, Washington BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West
TIMOTHY H. BISHOP, New York Virginia
MICHAEL H. MICHAUD, Maine JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin PETE OLSON, Texas
STEVE COHEN, Tennessee TOM GRAVES, Georgia
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
ELIJAH E. CUMMINGS, Maryland, Chairman
CORRINE BROWN, Florida FRANK A. LoBIONDO, New Jersey
RICK LARSEN, Washington DON YOUNG, Alaska
GENE TAYLOR, Mississippi HOWARD COBLE, North Carolina
BRIAN BAIRD, Washington VERNON J. EHLERS, Michigan
TIMOTHY H. BISHOP, New York TODD RUSSELL PLATTS, Pennsylvania
STEVE KAGEN, Wisconsin PETE OLSON, Texas
MICHAEL E. McMAHON, New York, Vice
Chair
LAURA A. RICHARDSON, California
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Dye, Rebecca F., Commissioner, Federal Maritime Commission....... 3
Lidinsky, Richard A., Chairman, Federal Maritime Commission...... 3
PREPARED STATEMENT SUBMITTED BY MEMBERS OF CONGRESS
Richardson, Hon. Laura, of California............................ 16
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Dye, Rebecca F................................................... 21
Lidinsky, Richard A.............................................. 27
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HEARING ON UPDATE ON FEDERAL MARITIME COMMISSION'S EXAMINATION OF
VESSEL CAPACITY
----------
Wednesday, June 30, 2010
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Coast Guard and Maritime Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:03 p.m. in
room 2167, Rayburn House Office Building, Honorable Elijah E.
Cummings [Chairman of the Subcommittee] presiding.
Mr. Cummings. This hearing will come to order.
The Subcommittee comes together today because back on March
14th, the Subcommittee convened to consider the shortage of
shipping services and of shipping containers available to carry
U.S. trade, particularly exports.
I convened that hearing because shippers were reporting
rapidly rising rates and surcharges and they reported numerous
instances when cargo was left on the docks even when a signed
contract was in place.
Our last hearing gave us a good opportunity to develop a
comprehensive view of the state of the shipping industry in
recent months and many of the complaints that had been raised
to the Subcommittee were confirmed by the testimony that we
heard. In 2008 and 2009, the world economy suffered a severe
downturn. Imports to and exports from the United States
experienced a decline that mirrored overall reductions in world
shipping volumes and shipping companies responded to steep
declines in rates by laying up ships and sailing more slowly to
conserve fuel. Demand for U.S. exports began an unexpected rise
late in 2009 and recent statistics indicate that import demand
also began to rise in the early part of 2010.
That said, at the time of our last hearing, there was not
enough data to determine any clear trend in imports or exports,
and the shipping lines appeared to be wary of restoring
capacity too quickly lest the small increases that had been
observed in trade proved to be unsustainable. As a result,
although some ships were reentering trading routes, capacity
remained tight and rates were quickly rising.
That said, while the volatility that has characterized the
overall economy, and by extension the shipping industry, has
been of great significance to U.S. exporters and importers.
Many of the recent trends in shipping services are at least
partially the result of what had been unprecedented upheavals
in our domestic economy and, indeed, in the world economy.
As the economy continues to rebound and as clear trade
trends emerge, capacity will respond, as appears to be
happening right now. Put simply, ships will go where they can
get the cargo. Perhaps of greater concern over the longer term
is the impact of our Nation's expanding trade deficit on the
very shipping services we need to reduce the deficit.
During our March hearing, Mr. Robert F. Sappio, Senior Vice
President with APL Limited, testified that the facts are that
because of some structural differences in the trade or
structural facts that exist in the trade, imports pay more
historically because they are manufactured goods, fashion
goods, consumer electronics and so forth, and the physical
makeup of these goods is that they are light, so you can load a
lot of them on a ship.
The witness continued by saying, I believe for most
carriers the economics are such that the imports are going to
drive the deployment of additional ships and containers. In
essence, the witness's perspective is that United States
exports are essentially hostages to shipping capacity that is
made available as a result of the carriage to the U.S. of
foreign imports. Put simply, ships will go where they can get
the cargo, but they will go first where they can get the best-
paying cargo. And if that isn t the United States, our export
cargo will not receive priority service.
Such business trends will only compound our trade deficit,
and regardless of our other economic developments, will make it
very difficult for the United States to achieve the doubling of
export over the next five years for which President Obama has
called. This reality has serious implications that urgently
need to be addressed by comprehensive policy responses, not
just in the maritime arena, but frankly in the industrial and
manufacturing arenas as well.
That said, we are here today to receive an update from the
FMC on current trends in ocean-going shipping capacity. At the
time of our last hearing, Mr. Richard Lidinsky, the Chairman of
the Federal Maritime Commission, announced that the FMC had
voted to initiate a fact-finding investigation to examine the
extent of space and equipment shortages. The fact-finding has
been led by Commissioner Rebecca Dye.
In response to Chairman Lidinsky's announcement, I promised
that the Subcommittee would reconvene to examine the result of
that fact-finding effort and here we are today as promised.
Chairman Lidinsky and Commissioner Dye are here to update us on
the result of their investigation. We anxiously look forward to
their testimony.
And with that, I yield to the distinguished Ranking Member,
Mr. LoBiondo.
Mr. LoBiondo. Thank you, Mr. Chairman.
And to our panel, thank you for being here.
As was stated last March, the Subcommittee initiated a
review of the conditions in the maritime trades which have
restricted opportunities for U.S. producers to export their
products by vessel. Following the hearing, the Federal Maritime
Commission established a fact-finding investigation to examine
vessel capacity equipment availability in the import and export
trades.
The Commission has provided the Subcommittee with its
preliminary results which suggest that capacity shortages are
likely to continue for some time. In recent years, the demand
for U.S. exports has significantly increased at the same time
that vessel capacity has been withdrawn to save operational
costs.
While some carriers have expressed their intent to place
more vessels into service in the U.S. foreign trades, the FMC's
report suggests that the capacity levels are not rising fast
enough to meet the demand for U.S. shippers. As a result, many
U.S. exporters are left in a situation where they cannot secure
space for their products aboard a vessel for weeks.
Additionally, many U.S. exporters face challenges in
obtaining shipping containers to transport their goods to port.
The FMC report notes there is a worldwide shortage in container
supply and manufacturing of new containers has largely been
suspended in Asia.
I commend the Commission for seeking solutions to this
problem and hope they will continue discussions with producers,
shippers and carriers to broaden the availability of maritime
containers which are a necessity in modern day trade.
Ultimately, vessel capacity levels will rise as the global
economy recovers and trade returns to normal levels. As we
prepare for these increases, it is in our national interest to
strengthen the capabilities of domestic producers and shippers
to quickly move their products to port and to sustain the
increase in American exports to the rest of the world.
I want to commend the FMC for the recommendations presented
in the preliminary report and I look forward to working with
the Commission and all segments of the maritime industry on
short and long-term solutions to these problems.
Thank you, Mr. Chairman.
Mr. Cummings. Thank you very much.
We will now hear from Mr. Richard A. Lidinsky, the Chairman
of the Federal Maritime Commission, and Commissioner Rebecca F.
Dye of the Commission.
Mr. Lidinsky, welcome back.
TESTIMONY OF RICHARD A. LIDINSKY, CHAIRMAN, FEDERAL MARITIME
COMMISSION; AND REBECCA F. DYE, COMMISSIONER, FEDERAL MARITIME
COMMISSION
Mr. Lidinsky. Time flew quickly from our hearings of St.
Patrick's Day to the 4th of July, and we are here and we thank
you both for your kind welcome.
The FMC appreciates this opportunity to update the
Committee on the critical issue of ocean vessel capacity and
shipping container availability since we last testified in
March. As in that previous hearing, I am joined today by
Commissioner Rebecca Dye and the Commission's General Counsel
Rebecca Fenneman. We also have Commissioner Michael Khouri in
the audience, as well as senior members of the staff and your
former colleague, Commissioner Joe Brennan is back manning the
ship, as we say, and sends his best regards.
At the hearing on March 17, we announced that Commissioner
Dye would be leading a fact-finding investigation into the
difficulties that plagued our industry at that time. During the
intervening three months, Commissioner Dye and her team have
done an impressive amount of work, including reviewing
extensive data and documentation, holding interviews with a
comprehensive array of representatives from all sectors of the
ocean shipping industry.
In March, President Obama also directed agencies to use
every available Federal resource to increase U.S. exports over
the next five years. That directive dovetailed with the
Shipping Act's goal for the FMC to promote the growth and
development of United States exports through the competitive
and efficient use of ocean transportation. As you survey the
Government-wide responses to the President's goal, I cannot
think of a better example than the extraordinary efforts of
Commissioner Dye and her team.
Today, the Subcommittee will receive an update on
Commissioner Dye's investigation and the current interim
recommendations she has made. But before I turn the microphone
over to her, I would like to share a few observations on what
has occurred since March.
First, the maritime economy and trade have continued to
improve since that date. As we look at the statistics for cargo
growth, both imports and exports, our Nation's ports are
surging. The growth over 2009, which was admittedly a horrible
year of economic development, is quite impressive. In May of
this year, for example, the Port of Long Beach saw total
container volumes increase 25 percent; Seattle, 57 percent;
Savannah on this coast, 25 percent in May; New York-New Jersey,
18 percent in April. The list goes on.
I begin with these figures to remind us that we should keep
in mind that the problems that we face today are the
consequences of a broad recovery that was not at all certain
last year. In 2009, both ocean carriers and shippers would have
felt fortunate to be where we are today.
When we last met in March, and even as late as May, certain
ocean carriers were claiming that they were not sure that the
uptick in trade was just temporary or a restocking before its
second dip. Now, they appear to accept that the upturn is for
real and they have moved to impose peak season surcharges
earlier than normal, despite expressions of uncertainty. The
growing pains and problems that we confront are serious, but
they are far preferable to the severe economic pain that
preceded them.
Second, vessel capacity is returning and I believe in
thanks no small part to this Subcommittee's vigilant focus on
these issues since March. In the Nation's largest trade lanes,
the Transpacific between the U.S. and Asia, we are projecting
capacity for July to be 18.7 percent higher than when we
testified in March. Some of this increase is seasonal, but we
also notice peak harvest season is coming for exports so we
must continue to increase capacity.
On a year by year basis, July 2010 capacity in the
Transpacific will be 5.8 percent larger than the year before.
Whereas in March, capacity was still 7.8 percent below March of
2009. Capacity has not returned to 2008 levels. We project the
July 2010 capacity to be 3.5 percent below July 2008 levels.
Third, as capacity returns, the more pressing issue has
become shortage of containers. In March, much of the problem
was the location of empty containers. Agricultural exporters in
the upper Midwest and rural Pacific had trouble obtaining
containers bringing exports to our ports for large metropolitan
distribution centers. Now, this recurring problem of
positioning of empty containers has been exacerbated by a
worldwide container shortage.
During the recession in 2009, major container manufacturers
in China suspended production. During the past few months,
production has not ramped back up to keep pace with new orders
from ocean carriers and container leasing companies. Analysts
forecast the global output of containers this year to be only
at 1.5 million to 2 million 20-foot equivalent units, down from
4.2 million in 2007. As a result, we have seen reported prices
rise as high as $2,750 for 20-foot containers in China, the
highest price levels in 20 years.
I know that Commissioner Dye and her team have looked
closely at this issue, which I believe might eclipse the vessel
capacity issue in severity during the coming peak season.
On that same subject, I would like to give the Committee a
brief update on a project that I mentioned back in March: our
initial discussions with the U.S. Department of Agriculture and
a group of ocean carriers in the Westbound Transpacific
Stabilization Agreement, WTSA.
This was to develop a pilot project to give inland
agricultural exporters more information on locations and
availability of empty shipping containers. Since March, work on
this project has progressed at a good and steady pace. The FMC
has worked with the USDA, WTSA, and we have also had input from
the U.S. Army's experts on container tracking in the Surface
Deployment and Distribution Command.
At this point in time, a group of six agricultural
exporters and four ocean carriers has been assembled to provide
data and present what would be most helpful to the exporters.
The carriers have submitted a first round of data. The USDA has
run this data and exporters have submitted initial comments. We
will continue to assist USDA and the ocean carriers on their
project to give them more transparency regarding container
location. This is in addition to the FMC proposal on container
issues that Commissioner Dye will share with the Subcommittee
this afternoon.
With these preliminary thoughts, I will hand things over to
Commissioner Dye, who has been living and breathing these
issues with importers and exporters over the last few months.
After she shares her updates, we will be most pleased to answer
any questions you might have.
Again, thank you, Mr. Chairman, for this opportunity, and
Members of the Committee, thank you for allowing us to be here
today.
Mr. Cummings. Thank you very much.
Commissioner Dye?
Ms. Dye. Thank you, Mr. Chairman, Mr. LoBiondo, Mr. Coble.
Thank you very much for allowing me to appear before you today
to deliver to you our interim report on the Federal Maritime
Commission's Fact-finding Investigation Number 26.
I want to thank my colleagues on the Federal Maritime
Commission for their support and advice during these few months
that we have been investigating. I especially want to thank the
Chairman for his devoting substantial resources from the
Commission's budget to support this investigation because we
all agree it is a very high priority.
And of course, I want to thank the members of my staff who
are here today. My team, they have done a great job and we are
all going to continue to work on this and I am grateful to have
their support.
I especially want to thank the many American exporters and
importers who committed their time and resources to this
investigation so far. Many of them discussed not only their
current problems with ocean transportation, but also their
suggestions for improvements in the efficiency of the global
supply chain.
I also want to thank the executives of the ocean carriers
who participated in our investigation. They have provided us
with valuable information on current capacity problems and have
been forthcoming and cooperative in this investigation.
And finally, I want to thank the Burlington Northern Santa
Fe Railroad, the American Association of Railroads, and the
Surface Transportation Board, who have been very helpful to us
so far. We look forward to their continued participation as we
develop a solution to the inland container shortage.
The first phase of our investigation, Mr. Chairman, has
involved an intensive series of confidential interviews with
American exporters and importers. We also interviewed
executives of 14 ocean carriers which operate in the United
States-Transpacific trades.
In addition, we have interviewed shipper associations,
ocean transportation intermediaries, freight software
providers, chassis pool experts, container lessors,
transportation academics, and international ocean carrier
investment consultants. We talked to port officials and
railroad executives and consulted with certain other railroad
trade associations.
We conducted interviews in Portland, Oregon; San Antonio,
Texas; New York, New York; twice in San Francisco; and of
course, here in Washington, D.C. During our interviews,
shippers in the eastbound Transpacific trade expressed the
opinion that ocean carriers continue to withhold vessel
capacity from the market in a collective effort to raise prices
by leveraging access to scarce capacity and equipment. They
believe that carrier practices involving rolled cargo, canceled
bookings, and successive price increases were in conflict with
protections in their existing service contracts.
Carriers responded that they were making business decisions
on an individual basis, and were reluctant to bring vessel
capacity back into the United States trades quickly, given the
precariousness of their financial positions and the lack of
certainty that unanticipated increases in demand would be
sustainable. They believe the problems with rolled cargo and
canceled bookings were exacerbated by multiple bookings made by
shippers.
In the westbound transportation trade, our export trade,
shippers and carriers agree that U.S. exporterss face
additional problems obtaining capacity. In the Transpacific,
average freight rates are higher eastbound than westbound, as
you had mentioned, Mr. Chairman. For this reason, ocean
carriers deployed vessel capacity based upon demand for U.S.
imports.
Obviously, when available capacity for imports is limited,
U.S. exporters also experience higher levels of vessel capacity
shortages.
Another vessel capacity problem facing exporters concerns
the issue of vessels weighing out. U.S. exporters such as
forestry products and grain can weigh on average twice as much
as imports, and this weight disparity limits the number of
filled export containers that may be carried on an outbound
vessel.
During interviews, shippers and carriers agreed that export
container shortages exist throughout the Country for a number
of reasons, including the fact that many containers carrying
imports arrive at distribution centers that are far away from
export locations. There has been a virtual halt in container
manufacturing from late 2008 through 2009. Imports are
increasing trans-loaded into larger domestic containers near
ports of entry, increasing the likelihood that those empty
containers will be turned around and placed on ships empty back
to Asia for higher paying imports.
Finally, our investigation found that many shipper service
contracts did not contain provisions which adequately protected
them from many rate and surcharge increases. In certain cases
where shippers had negotiated rates and contracts that did not
allow the imposition of rate increases and surcharges, they
stated that some carriers still attempted to impose rate
increases or deny space.
Our interim report recommends approaches for timely action
to address the severe disruptions in the ocean leg of the
global supply chain. As you know, Mr. Chairman, the Federal
Maritime Commission does not have the statutory authority to
require ocean carriers to add vessel capacity. Also, unless the
parties agree otherwise, the exclusive remedy for breach of
contract under the Shipping Act is an action in an appropriate
court.
However, we believe there are actions that the Commission
can take immediately within our statutory authority to
intervene in this situation and produce positive results.
At the Commission meeting held on June 23rd, the Commission
took action in four areas. We established what we are calling
rapid response teams within the Commission's Office of Consumer
Affairs to quickly address and help resolve disputes between
shippers and carriers. These problems include canceled
bookings, rolled cargo, and container unavailability, and we
encourage shippers to call our Consumer Affairs Office. It is
located on our website, and we promise they will get a prompt
call back, and hopefully a prompt resolution.
We have also increased our Commission oversight of the
Transpacific Stabilization Agreement and the Westbound
Transpacific Stabilization Agreement. We increased oversight of
these agreements by requiring verbatim transcripts of certain
agreement meetings. And of course, our staff in our Bureau of
Trade Analysis had already increased its oversight of these
agreements.
We have also asked the staff to explore additional
oversight of the global alliances and get back to us as soon as
possible so we can act on that matter if the Commission so
decides.
We extended our fact-finding investigation to the end of
the peak shipping season so that we can continue to monitor the
capacity and price situation in the U.S.'s international ocean
transportation; and also to work on some additional solutions
within the confidentiality of the fact-finding investigation.
And as we develop what we think are good approaches, we can
then recommend them to the Commission for action.
We are going to organize what I call best practice
discussion pairs between one shipper and one carrier to
consider ways to resolve the most pressing problems with recent
carrier practices. The initial problems are booking
cancellations and cargo rolling.
To work with our rapid response teams, we are going to ask
our carriers to designate representatives who will be available
to work directly with our staff to quickly address capacity
problems and other urgent problems.
We have already developed some model contract terms that we
are going to share with the shipping public to help them
address some of the most pressing contract issues. We want to
provide improvements in ocean service contracting and allow
shippers and carriers to enjoy the full benefits of contracting
envisioned in the Ocean Shipping Reform Act.
One of the most important solutions that we want to
develop, Mr. Chairman, is to organize an Export Capacity
Working Group. We are going to establish a group of shippers
and carriers to meet with the Commission and discuss
availability of vessel capacity for U.S. exports. These
discussions will be held regularly, but only under the
direction of the Commission. The working groups appear to be
one of the more promising approaches to assure enough capacity
for export cargo.
Finally, we have already started organizing a working group
on container availability. Based upon our discussions with
ocean carriers, shippers, intermediaries, chassis pool experts
and railroad representatives, we are going to organize an
Intermodal Group to meet at the Commission very soon to address
the chronic unavailability of export containers.
Today, Mr. Chairman, freight rates from Asia to the United
States have rebounded to close to where they were at the high
point in August, 2008. U.S. export rates exceed 2008 levels. A
number of carriers have recently announced decisions to
increase vessel capacity in several U.S. trade lanes,
particularly the U.S.-Asia trades. Transpacific capacity, as
the Chairman had mentioned, has increased at least 17 percent
since January.
Nevertheless, growth in demand for container imports and
exports in the upcoming peak shipping season may strain current
vessel capacity. Container availability for export cargo in
some regions of the Country likely will continue to be
difficult and expensive to arrange.
Mr. Chairman and Members of the Subcommittee, we realize
that we have laid out an extremely ambitious agenda for the
next few months for ourselves. As you know, Mr. Chairman, we
only have 130 people, but we are committed to this endeavor. We
will keep you and your staff informed of our progress in these
areas.
Thank you so much for your continued involvement and
support. I will be glad to answer any questions you may have.
Mr. Cummings. Thank you very much.
First of all, I want to thank you and your staff for all
that you have done. We really appreciate it.
Let me just ask you, Commissioner Dye, do you believe that
the Chinese are intentionally holding back on the production of
shipping containers to drive rates higher?
Ms. Dye. I can't speak to their intention, Mr. Chairman.
What we have discovered is that the plants shut down at one
point, completely. Whether or not they are moving fast enough
to retool, we don't know. We don't know why or what exactly is
happening. But let me say we do believe it is not fast enough
for our American businesses who need the equipment.
Mr. Cummings. Now, Chairman Lidinsky, while Commissioner
Dye's investigation continues, exporters and importers are
continuing to report cargo rolling, cancelled bookings,
container shortages, and attempts to force charges that were
not agreed in contracts that were just executed last month.
What else can the FMC do to address these problems?
Mr. Lidinsky. Thank you, Mr. Chairman. We have heard these
unfortunate reports of occurrences where contracts were
negotiated just a month ago and changes have already been made.
I think the Commission can do two things. One is that we work
within the confines of what Commissioner Dye has described, but
we also have an open door for those shippers who have
experienced these unfortunate incidents so that we can go
directly to the carriers and try to get them resolved.
The ultimate solution, though, I believe is a legislative
one, and this complements Commissioner Dye's study. We have to
change the Shipping Act's exclusive remedy provision for these
service contract issues to initially go to the Commission. Let
the Commission mediate and arbitrate these disputes
immediately. Don't put an importer and exporter in a position
where they have to wait 18 months for a decision to come from a
court, and then come to the Commission for relief.
So I think if we work to that goal, we can resolve much
more quickly these issues that shippers are confronting.
Mr. Cummings. Commissioner Dye just said that you are
working with 130 people. Let's say the Congress were to give
you that kind of authority and that kind of responsibility,
would you be able to carry that out with the present staff that
you have now?
Mr. Lidinsky. We would not, Mr. Chairman, because I would
see that we would virtually have to double the size of our
Consumer Affairs Division, create a hearing officer, a
situation where we would have people, expert at arbitrating,
mediating, and we might look at an increase of possibly another
20 employees for that function.
Mr. Cummings. And I take it that because you would then be
able to resolve these issues quickly so that commerce might
flow, I take it that it is your belief, and I am not trying to
put words in your mouth; I am just curious, that the
expenditure would be worth it to try to accomplish that?
Mr. Lidinsky. Absolutely, Mr. Chairman, because again, we
are all working towards the goal of the President of doubling
our exports. We are particularly committed to exports. And to
the extent that anyone leaves the export business out of
frustration over treatment by an ocean carrier, that is a loss
for the Country. So any investment we make in speeding these
cases along is an investment well made.
Mr. Cummings. Now, Commissioner Dye, do all carriers try to
work with shippers whose cargo is being bumped to help ensure
that the shipper's transportation needs can be met? Or have
some carriers just bumped cargo without regard to the shipper's
needs to get their imports or exports delivered on time? What
have you found?
Ms. Dye. When we started this investigation, Mr. Chairman,
I described the import and export trades as chaotic. Why that
occurred, we don't know. But we heard situations in which there
were multiple cargo rollings. Carriers normally must overbook
their vessels because of what they call the fall-down rate of
exports can be on average 30 percent.
So sometimes there is a need to roll some cargo, but what
we had heard described was unacceptable. Part of what we want
to explore in best practices is for us to be able to listen to
the interchange between shippers and carriers, and hopefully
get to a resolution that we can institutionalize at the Federal
Maritime Commission in some way, and allow shippers more
transparency in the situation, and plan for any cargo rolling
that may occur for one vessel in one week.
Normally, it has worked out. In the past, it has been my
understanding, that that has been worked out with a fair
resolution between a carrier and a shipper. Whether or not it
is the economic situation or the inefficiencies in the system,
we are not sure.
Mr. Cummings. Before we get to Mr. LoBiondo, let me just
ask you this, Mr. Lidinsky. Carriers have been implementing
surcharges for cargoes moving under service contracts. Have all
of these surcharges been based on increased carrier costs such
as an increase in fuel costs? Or has some of the surcharge has
been non-cost based, perhaps in an attempt to increase revenues
to offset their losses from the past year? Should surcharges
only reflect actual changes in the carrier costs for which the
surcharge is being assessed, such as increased fuel costs?
Mr. Lidinsky. Mr. Chairman, surcharges should be for the
specific purpose for which they are made, for the fuel
increase, and for other purposes. Now, when the service
contract is formed, the shippers have an opportunity to protect
themselves against certain surcharge increases and
unfortunately a lot of times they don t. So the carriers, in an
attempt to make up lost revenue, have imposed additional
surcharges to bring them back to where they wanted to be from
two years ago.
But the core of the issue remains this, that service
contracts have been around for about a dozen years now in their
present form. Nobody doubts they have been a success in terms
of numbers. There are over two million of them on file today,
individual deals between the importer-exporter and the
carriers. Both sides are responsible for the state of being
where they have not fully taken advantage of these
opportunities in the service contract to negotiate provisions
to insulate against surcharges, or for carriers to protect
themselves against phantom bookings by shippers.
So if Commissioner Dye's Best Practices Committee can form
a model service contract, we can have that in place, encourage
people to use that as a model, and then change the law to say
that when a dispute arises, come directly to the FMC. We will
deal with it and we will solve the issue immediately. So I
think that is the path ahead for the surcharge, for rolling
cargo, for auctioning cargo, and for other problems that exist.
Mr. Cummings. And what kind of training would those folks
have to have, the people that you talk about resolving the
issues? Would they be more like administrative judge type folk?
Mr. Lidinsky. No, I don't think you need to be that level
of expertise. I think you need to have worked within the
Commission or within the industry. I would envision people who
have worked for carriers, who have worked for shippers, worked
for port authorities, who understand the transition and the
process of cargo movement so that they can read a service
contract and apply what is the fair solution.
So we don't need Ph.Ds. in the arbitration dispute area,
but we need people who have common sense and who can quickly
resolve the issue.
Mr. Cummings. Mr. LoBiondo?
Mr. LoBiondo. Thank you, Mr. Chairman.
A couple of the questions I had you have asked. I am going
to yield my time to Mr. Coble.
Mr. Coble. I thank the gentleman from New Jersey for
yielding.
Chairman, Commissioner, Counsel, it is good to have you all
with us.
In your report, you note that many shippers believe that
carriers were withholding capacity despite surging demand to
raise rates to collectively determined amounts. You furthermore
note that many carrier groups have or have attempted to impose
rate increases and surcharges even when the contracts appeared
to have precluded their use.
Do you see signs or evidence or indicators that carriers
are working with each other to establish uniform price levels?
Ms. Dye. Mr. Coble, we did not actually design this
investigation with that sort of focus in mind. But I can say
that we have no evidence that the carriers are actually
exceeding the authority that they currently have in their
agreements.
But we have already increased our oversight to make sure
that we have done everything that we could do to make sure that
that is not going on.
Mr. Coble. Mr. Chairman?
Mr. Lidinsky. Mr. Coble, back in March, this issue was
touched on by one of the shipper witnesses. And we have said
our door is open, we are anxious to talk to anybody who can
bring us evidence of collusion or other illegal activities and
we will certainly work with them to stop it.
Mr. Coble. I thank you both.
In your report, you further recommended that the FMC
explore ways with carriers and shippers to solve chronic
unavailability of containers for U.S. exporters. What can the
FMC do in cooperation with shippers and carriers to enhance the
availability of containers to areas far from major ports?
Ms. Dye. Yes, Mr. Coble, we have already started, actually.
We have an intermodal working group with the railroads,
software providers and the carriers to discuss ways to serve
areas like the Pacific Northwest and the upper Midwest. And I
am very encouraged by the solutions that they have proposed.
We don't want to interfere with any business relationships
that are working. To the extent that people are being served,
we want to stay out of their way.
Mr. Coble. How are costs associated with the transport of
the container to the point of loading and to the port of
departure split between the producer on the one hand, the
shipper on the other hand, and finally the carrier which
ultimately transports the cargo?
Ms. Dye. The carrier usually arranges the delivery of the
container to the shipper to the agreed upon destination. The
problem is that the containers usually arrive at population
centers far removed from where the export cargo is located. And
it is expensive to get the container relocated where it is
needed.
Mr. Coble. Has there been a change recently in how the
costs are shared for containerized vessel exports?
Ms. Dye. There has been an increase in the types of cargo
that is carried in containers such as increased use of
containeers by agricultural products. As far as the costs go,
the expense is shared by the carrier and the exporter. But in
difficult economic times, the carrier expects the export
shipper to pay more of those relocation costs. And sometimes
these costs are too much for the export shipper to bear.
Mr. Coble. And finally, Mr. Chairman, one final question.
And Mr. Chairman, I don't mean to be cutting you out. You
feel free to put your oars into these waters as well.
Finally, how can the Federal Government and United States
importers and exporters influence foreign operators plans to
better suit domestic trade needs? And I ask this question
because much of the shipping is done by foreign-based vessels.
Mr. Lidinsky. Thank you. Let me respond to that.
I think we have to stress, first of all, that this is the
foreign waterborne commerce of the United States. And a report
that was done two years ago for the Congress pointed out that
our importers and exporters should be first served by those
shipping lines that freely choose to come to this Country.
Now, let me give you a couple of examples, Mr. Coble. First
of all on this increasing export box use. I think we can work
through vehicles like the USDA project I talked about to
increase the visibility of boxes. I think we can stress to
exporters they have to pay their fair share for positioning and
other costs associated with moving that box inland and moving
it back to the port area.
Another factor is, and I was very troubled to learn this,
that a number of carriers refused to take what we call third
party boxes. Now, this is a situation where a leasing company
may own a box and a shipping line will come to that leasing
company and say I need extra boxes for this move. They will
take those boxes. The exporter then says, ``I need a box''. The
line says sorry, we don't have a box. The exporter says I will
go to a leasing company and get the same box to put on the
ship. The ship says we don't want that box on our ship.
So now, the exporter has been discouraged in two ways. He
has been told he doesn't have a box, and if he goes out and
gets a box he is refused. So I think we have to clarify our
regulations or maybe clarify the law that that carrier must
take that box in our trade.
When you come to these shores as a foreign carrier, you
have to honor the Coast Guard regulations, Customs, and other
things. I think you should honor the exporter's needs.
Mr. Coble. Sounds not unreasonable to me, Mr. Chairman.
I thank the gentleman from New Jersey and I yield back, Mr.
Chairman.
Mr. Cummings. It doesn't sound unreasonable to me either.
Mr. Lidinsky, this reform that you are calling for, this is
major stuff.
Mr. Lidinsky. Well, I think it would depend on how we
approach it, Mr. Chairman. In other words, we could fine tune
or we could wait a bit and look at a possible list of other
changes and put them in under a sort of re-regulation bill of
the year. So I think it is up to the Committee's wisdom how we
should proceed, but we are certainly willing in the context,
again, of Commissioner Dye's report, to come back to the
Committee with a shopping list of what we feel is needed to fix
the bill.
Mr. Cummings. Well, I would appreciate it if you would do
that.
I would like to see both approaches, the fine tuning and
what you think that fine tuning would yield, sort of like an a
la carte sort of thing. And then the big fix. We just have to
figure it out. Up here things move very slowly and sometimes in
order to get something done you have to do it in pieces,
although it might make sense to do the bigger deal.
Do you follow me?
Mr. Lidinsky. I understand you completely.
Mr. Cummings. So we would like to hear from you on that.
How soon can I hear from you on that, with regard to that?
Mr. Lidinsky. Well, I think we could be back to you within
a month with the preliminary list.
Mr. Cummings. That would be fine.
Now, you indicated, Mr. Lidinsky, that the FMC has
continued to work with the USDA and other partners to discuss
the best way of tracking available containers. Will a central
registry be developed to report the location of empty shipping
containers? And if so, when? Because that seems like one of
those tweaking things that you talked about. I am just
wondering.
Mr. Lidinsky. Well, again, this project, Mr. Chairman, as I
outlined it, is of course paid for and being directed by the
Department of Agriculture. There is no FMC funds in it. But my
understanding is once the pilot project is underway, it takes
additional testing, but sometime later this summer there will
be established a central registry where agricultural exporters
can look at that. And then whether it is broadened, of course,
will be a judgement of the USDA as to whether it is worth
broadening.
But I think this could be of great advantage to exporters
in the agricultural area, but also other areas as well. We
could focus it on States that are not getting served. And it is
an opportunity for both the carriers and the exporters for
additional business.
So it is certainly worth pursuing and we are working very
closely with USDA to make sure it moves quickly as possible.
Mr. Cummings. And so you anticipate that if that proved to
be effective and efficient, that I guess it would be your
recommendation to the USDA that they expand that.
Mr. Lidinsky. Yes, expand it. But again, it is their
judgment call. I think it is not a solve all problems issue
because as most things in life, it gets us part of the way
there, but it is certainly better than what we have today. And
we have encouraged them, we have praised them for these
efforts. We praised the carriers for their efforts because they
are the key people putting these numbers into the system.
Mr. Cummings. Now, you indicated in the hearing that
members of the Westbound Transpacific Stabilization Agreement
were to meet in a forum on April 19. Is that right?
Mr. Lidinsky. That is correct.
Mr. Cummings. To discuss U.S. exporter needs and that the
FMC was to participate in the meeting. Did they?
Mr. Lidinsky. They did. The way the meeting was held, Mr.
Chairman, was that I believe Commissioner Khouri, and I am not
sure whether Commissioner Dye was there or not.
Ms. Dye. I was not there.
Mr. Lidinsky. She was not there. We attended the opening of
the session and heard the luncheon address. We then left and
left senior staff there to work with some of the details of
that meeting. But I understand it was a very good exchange, and
again to the extent that dialogue takes place to explain the
situation and efforts are made to reconcile problems, it was a
very worthwhile meeting and we commended them for that meeting.
Mr. Cummings. I am intrigued by this whole resolution
situation. You indicated that FMC's Office of Consumer Affairs
and Dispute Resolution Services can assist shippers and
carriers in resolving service disputes. How many disputes has
the office helped to adjudicate this year? And what are the
typical types of cases brought for adjudication?
Mr. Lidinsky. Well, I couldn't give you an exact number,
and we will provide that for the record, but there are many,
many cases that have been brought to us. And it would be things
as simple as misunderstanding contract terms, containers being
delivered to the wrong place. Cargo rolling issues have come to
them where the staff has called the carrier, and worked to
reconcile these issues.
When the carrier gets a call from the FMC, they are quickly
going to respond, as opposed to a call from the shipper. So it
is sort of like a hotline kind of approach. And if we get the
authority to be the first party to come to, we would see these
cases multiply dramatically and we would be up to handling
them.
Mr. Cummings. Mr. LoBiondo?
Mr. LoBiondo. I have nothing else.
Mr. Cummings. Mr. Coble, did you have something else?
Mr. Coble. No, sir.
Mr. Cummings. All right. I just have two more questions.
Ms. Dye. Yes, sir.
Mr. Cummings. Commissioner Dye, you stated in your written
testimony that the FMC has voted to increase oversight of the
Transpacific Stabilization Agreement and the Westbound
Transpacific Stabilization Agreement by requiring verbatim
transcripts of certain agreement meetings.
Ms. Dye. Yes, sir.
Mr. Cummings. How can you ensure that you receive verbatim
transcripts if the meetings are held in foreign countries and
are not attended by FMC reps?
Ms. Dye. Well, we don't have any reason to doubt that they
will comply, Mr. Chairman, but I can assure you if we do have
any indication that they are not fully complying, then we would
move to the next step.
Mr. Cummings. So the Pacific conferences, they don't hold
their meetings in the United States. Is that right?
Ms. Dye. They do not, as a rule.
Mr. Cummings. Do you think that is on purpose?
Ms. Dye. I think that is probably for their convenience,
Mr. Chairman.
Mr. Cummings. What did you say?
Ms. Dye. I think that is for their convenience.
Mr. Cummings. Oh, I see. All right.
Again, we want to thank you all for doing a great, great
job. I thank you all for also having me to celebrate the 50th
anniversary. I was very pleased to be there.
And I want to thank you, Mr. Chairman, for bringing a lot
of morale to your institution there. I have gotten a number of
emails from folks who after I spoke there who said some very,
very kind things. And so I want to thank you. And please let
everybody know there that we truly appreciate their work.
We are going to be calling you back so that we can get
those recommendations. OK?
Mr. Lidinsky. Very good.
Mr. Cummings. I may not do it in the form of a hearing, but
I want to see if we can get it within a month. Do you believe
that will give you enough time to do what you need to do?
Mr. Lidinsky. I think it will do for us, Mr. Chairman.
Mr. Cummings. All right. Thank you very much.
Mr. Lidinsky. Thank you for your continued support.
[Whereupon, at 2:52 p.m., the Subcommittee was adjourned.]
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