[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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



 
   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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