[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
MARITIME TRANSPORTATION REGULATORY ISSUES
=======================================================================
(115-14)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MAY 3, 2017
__________
Printed for the use of the
Committee on Transportation and Infrastructure
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee, ELEANOR HOLMES NORTON, District of
Vice Chair Columbia
FRANK A. LoBIONDO, New Jersey JERROLD NADLER, New York
SAM GRAVES, Missouri EDDIE BERNICE JOHNSON, Texas
DUNCAN HUNTER, California ELIJAH E. CUMMINGS, Maryland
ERIC A. ``RICK'' CRAWFORD, Arkansas RICK LARSEN, Washington
LOU BARLETTA, Pennsylvania MICHAEL E. CAPUANO, Massachusetts
BLAKE FARENTHOLD, Texas GRACE F. NAPOLITANO, California
BOB GIBBS, Ohio DANIEL LIPINSKI, Illinois
DANIEL WEBSTER, Florida STEVE COHEN, Tennessee
JEFF DENHAM, California ALBIO SIRES, New Jersey
THOMAS MASSIE, Kentucky JOHN GARAMENDI, California
MARK MEADOWS, North Carolina HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT PERRY, Pennsylvania Georgia
RODNEY DAVIS, Illinois ANDRE CARSON, Indiana
MARK SANFORD, South Carolina RICHARD M. NOLAN, Minnesota
ROB WOODALL, Georgia DINA TITUS, Nevada
TODD ROKITA, Indiana SEAN PATRICK MALONEY, New York
JOHN KATKO, New York ELIZABETH H. ESTY, Connecticut,
BRIAN BABIN, Texas Vice Ranking Member
GARRET GRAVES, Louisiana LOIS FRANKEL, Florida
BARBARA COMSTOCK, Virginia CHERI BUSTOS, Illinois
DAVID ROUZER, North Carolina JARED HUFFMAN, California
MIKE BOST, Illinois JULIA BROWNLEY, California
RANDY K. WEBER, Sr., Texas FREDERICA S. WILSON, Florida
DOUG LaMALFA, California DONALD M. PAYNE, Jr., New Jersey
BRUCE WESTERMAN, Arkansas ALAN S. LOWENTHAL, California
LLOYD SMUCKER, Pennsylvania BRENDA L. LAWRENCE, Michigan
PAUL MITCHELL, Michigan MARK DeSAULNIER, California
JOHN J. FASO, New York
A. DREW FERGUSON IV, Georgia
BRIAN J. MAST, Florida
JASON LEWIS, Minnesota
------ 7
Subcommittee on Coast Guard and Maritime Transportation
DUNCAN HUNTER, California, Chairman
DON YOUNG, Alaska JOHN GARAMENDI, California
FRANK A. LoBIONDO, New Jersey ELIJAH E. CUMMINGS, Maryland
GARRET GRAVES, Louisiana RICK LARSEN, Washington
DAVID ROUZER, North Carolina JARED HUFFMAN, California
RANDY K. WEBER, Sr., Texas ALAN S. LOWENTHAL, California
BRIAN J. MAST, Florida ELEANOR HOLMES NORTON, District of
JASON LEWIS, Minnesota, Vice Chair Columbia
BILL SHUSTER, Pennsylvania (Ex PETER A. DeFAZIO, Oregon (Ex
Officio) Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Rear Admiral Paul F. Thomas, Assistant Commandant for Prevention
Policy, U.S. Coast Guard....................................... 3
Hon. Michael A. Khouri, Acting Chairman, Federal Maritime
Commission..................................................... 3
Todd Schauer, President, American Salvage Association............ 3
Steven Candito, Board Member, Former President and Chief
Executive Officer, National Response Corporation............... 3
Nicholas J. Nedeau, Chief Executive Officer, Rapid Ocean Response
Corporation.................................................... 3
Norman ``Buddy'' Custard, President and Chief Executive Officer,
Alaska Maritime Prevention and Response Network................ 3
Thomas A. Allegretti, President and Chief Executive Officer,
American Waterways Operators................................... 3
John W. Butler, President and Chief Executive Officer, World
Shipping Council............................................... 3
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Hon. Peter A. DeFazio of Oregon.................................. 48
Hon. John Garamendi of California................................ 51
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Rear Admiral Paul F. Thomas...................................... 54
Hon. Michael A. Khouri........................................... 63
Todd Schauer..................................................... 73
Steven Candito................................................... 82
Nicholas J. Nedeau............................................... 113
Norman ``Buddy'' Custard......................................... 116
Thomas A. Allegretti............................................. 123
John W. Butler................................................... 148
SUBMISSIONS FOR THE RECORD
Rear Admiral Paul F. Thomas, Assistant Commandant for Prevention
Policy, U.S. Coast Guard:
Response to request for information from Hon. John Garamendi,
a Representative in Congress from the State of California.. 10
Responses to questions for the record from the following
Representatives:
Hon. Garret Graves of Louisiana.......................... 60
Hon. Mark Sanford of South Carolina...................... 61
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MARITIME TRANSPORTATION REGULATORY ISSUES
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WEDNESDAY, MAY 3, 2017
House of Representatives,
Subcommittee on Coast Guard and Maritime
Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:14 a.m. in
room 2167 Rayburn House Office Building, Hon. Duncan Hunter
(Chairman of the subcommittee) presiding.
Mr. Hunter. The subcommittee will come to order. Good
morning. This is our second hearing in the 115th Congress,
where we will review maritime transportation regulatory issues
through two panels of witnesses. I ask unanimous consent that
Members not on the subcommittee be permitted to sit with the
subcommittee at today's hearing and ask questions.
Without objection, so ordered.
The question is on the motion.
All those in favor, signify by saying aye.
All those opposed, signify by saying nay.
In the opinion of the Chair, the ayes have it, and the
motion is agreed to.
Our second order of business is to welcome new Members,
since our last hearing was interrupted and, although rushed due
to House floor votes, there was not time to properly welcome
the new Members to the subcommittee.
I welcome to the subcommittee Mr. Randy Weber, Sr.,
Representative for the 14th District of Texas, who joins us
from the gulf coast. He is not here, so we are not going to
introduce him any more.
Brian Mast, not here, not going to introduce him.
Mr. Jason Lewis, our vice chairman? Not here.
I will now yield to Ranking Member Garamendi to recognize
his new Members.
You are recognized.
[Laughter.]
Mr. Garamendi. We note the Democrats present, and Alan
Lowenthal down at the other end, representing the great port of
Long Beach and part of L.A. Port.
OK, would you like to make a 20-minute statement on the
value of the Port of Long Beach?
[Laughter.]
Mr. Lowenthal. A bit later. I will defer----
Mr. Garamendi. OK. We will defer. Welcome.
Mr. Hunter. The LBC, right? Long Beach County. Home of
Sublime. It is a great place.
I will now move on to opening statements. Since we have a
full slate of witnesses, I am going to go through the topics
fairly quickly.
The Oil Spill Pollution Act requires vessel owners and/or
operators to have vessel response plans which address oil
spills and salvage and firefighting response measures. The act
requires vessel response plans to meet the national planning
criteria, but there are areas of the country that, due to low
population or vessel traffic, cannot, and therefore use an
alternative planning criteria.
The Coast Guard's view is that alternative planning
criteria is a temporary solution to reaching the national
planning criteria, however long that might take.
Another issue with the alternative planning criteria is
whether or not it should cover the geographic area of the
captain of the port zone.
I am interested to hear from the witnesses on these issues.
The Coast Guard implements the International Convention on
Standards of Training, Certification, and Watchkeeping, which
is designed to ensure seafarers are properly trained and
certified. The Coast Guard will update us on their progress
implementing this International Maritime Organization
convention.
While commercial fishing vessel exams are somewhat
controversial with the industry, the Coast Guard will give us
an update on where they are with the mandated program.
The towing vessel inspection program may get the award for
the longest ever regulatory process, lasting over 12 years.
Having finally issued the rule last year, the Coast Guard will
discuss its implementation.
Lastly, U.S. industry has concerns with the Federal
Maritime Commission's recent review of ocean carrier
agreements. I commend the Commission for deciding not to
approve an agreement for the companies that are in the process
of merging, to not extend prematurely antitrust immunity.
The Commission and industry representatives will discuss
this important issue today.
I will now yield to Ranking Member Garamendi.
Mr. Garamendi. Mr. Chairman, thank you. Given that our--I
think I will ask that my statement be entered into the record.
And, without objection, so ordered.
Mr. Hunter. Without objection, so ordered.
Mr. Garamendi. Thank you. And simply say that there are
some very, very important things going on here with regard to
the regulation. I am looking forward to this hearing.
Of particular interest is the Federal Maritime Commission
and their implementation of the Shipping Act, as it revolves
around the issue of the alliances and the impacts that that may
have on providers of services.
And finally, obviously, the Coast Guard, just to echo what
you said--not echo it, just say yes, you are on track. We need
to hear from the Coast Guard on the regulatory issues.
Obviously, it is very, very important that these regulations be
done in a timely and proper way.
And, with that, I yield back.
Mr. Hunter. I thank the ranking member.
Pursuant to rule 1(a)1 of the rules of the Committee on
Transportation and Infrastructure, I move that the chairman be
authorized to declare recesses during today's hearing.
The question is on the motion.
All those in favor, signify by saying aye.
All those opposed, signify by saying no.
In the opinion of the Chair, the ayes have it, and the
motion is agreed to.
On our first panel we will hear from Rear Admiral Paul
Thomas, Assistant Commandant for Prevention Policy of the Coast
Guard, and Mr. Michael Khouri, Acting Chairman for the Federal
Maritime Commission.
Admiral Thomas, you are recognized to give your statement.
TESTIMONY OF REAR ADMIRAL PAUL F. THOMAS, ASSISTANT COMMANDANT
FOR PREVENTION POLICY, U.S. COAST GUARD; HON. MICHAEL A.
KHOURI, ACTING CHAIRMAN, FEDERAL MARITIME COMMISSION; TODD
SCHAUER, PRESIDENT, AMERICAN SALVAGE ASSOCIATION; STEVEN
CANDITO, BOARD MEMBER, FORMER PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL RESPONSE CORPORATION; NICHOLAS J. NEDEAU,
CHIEF EXECUTIVE OFFICER, RAPID OCEAN RESPONSE CORPORATION;
NORMAN ``BUDDY'' CUSTARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ALASKA MARITIME PREVENTION AND RESPONSE NETWORK;
THOMAS A. ALLEGRETTI, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AMERICAN WATERWAYS OPERATORS; AND JOHN W. BUTLER, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, WORLD SHIPPING COUNCIL
Admiral Thomas. Thank you and good morning, Chairman
Hunter, Ranking Member Garamendi, distinguished members of the
subcommittee. It is an honor for me to be here with you this
morning to update you on the status of the Coast Guard maritime
regulatory program.
Mr. Chairman, on behalf of Coast Guard's men and women
everywhere, thank you for your leadership of this committee and
continued strong support of our United States Coast Guard.
As you know, the Coast Guard offers truly unique and
enduring value to our Nation. As the only branch of the U.S.
armed services within the Department of Homeland Security, the
Coast Guard is uniquely positioned to help secure the border,
protect the homeland, and safeguard America's national and
economic security.
But, as our Commandant discussed with you during his April
4th hearing, increasing mission demands, years of fiscal
constraint, and diminishing purchasing power of our operating
funds has eroded our ability to simultaneously execute the full
set of missions and be prepared to respond to global
contingencies.
Secretary Kelly understands this, and he fully supports the
President's call to rebuild all of our Nation's armed services.
Prudence demands that we invest in and rebuild Coast Guard
capacity, including the capacity of our marine safety and
regulatory programs, as they are key components to the Coast
Guard's national and economic security missions.
Our Nation's Marine Transportation System supports over
$4.5 trillion of economic activity and hundreds of thousands of
American jobs. The Coast Guard's governance of this system
ensures that it remains safe, secure, environmentally sound,
and productive, particularly with regard to shared critical
infrastructure that our Nation relies on for national security,
border security, and economic prosperity.
Regulations are one tool by which the Coast Guard shapes
the environment in which we operate, and manages the risks in
the Marine Transportation System. When we do regulate, we do so
in response to congressional mandates, international
obligations, and demand from industry and the public. And we
are always mindful of the need to facilitate commerce, not
impede it.
Coast Guard regulations provide the certainty required to
encourage investment in innovation, and the level playing field
needed to ensure fair competition and free market solutions.
In addition, a unified Federal regulatory regime adds
consistency, and reduces the burden that can be associated with
multiple, often contradictory State regulations, particularly
for a global industry like shipping.
Coast Guard regulations are developed in full compliance
with the Administrative Procedure Act, and with all
administration directives and Executive orders. We work in
close coordination with the regulated industry, science and
academic communities, the interagency, the public, and our
international counterparts to develop risk-based performance
standards that provide the regulated industry flexibility in
the development of their compliance strategies.
The Coast Guard is unique among Federal regulators, because
we operate in the environment we regulate. And we know
firsthand how maritime operations are impacted by regulations.
For this reason, the Coast Guard is focused on practical
implementation and measured enforcement of regulations,
particularly in the case of new regulatory regimes, like the
subchapter M towing vessel inspection, or the salvage and
marine firefighting regulations that require both the regulated
industry and the servicing industries to develop capacity and
capability over time, before full implementation can be
achieved. This fully informed, commonsense approach to the
development and implementation of regulations enhances our
ability to manage all risks in the increasingly complex
nationally vital Marine Transportation System.
Thank you again, Mr. Chairman, for your strong support of
the Coast Guard, and for the opportunity to testify today. I
ask that my written statement be entered in the record, and I
look forward to your questions.
Mr. Hunter. Thanks, Admiral Thomas. And we just figured out
we have another panel that is going to be discussing oil spill
and fire salvage issues, and we would ask if you could stick
around for that panel, if you have time. We just asked Joanne
behind, Commander----
Admiral Thomas. If Joanne says it is OK, sir, I will----
[Laughter.]
Mr. Hunter. OK. Thank you, Admiral.
Mr. Khouri, you are recognized.
Mr. Khouri. Thank you, Chairman Hunter, Ranking Member
Garamendi, and members of the subcommittee. Good morning, and
thank you for the opportunity to testify today. I would like to
address issues, several Shipping Act and Federal Maritime
Commission issues of current interest.
The FMC is a competition agency charged by Congress to
prevent anticompetitive behavior by competitor collaborations
in the international ocean liner industry, and protect
competition.
This industry transports 65 percent of our Nation's
waterborne international imports and exports. We are also
charged with a mission of ensuring that pro-competitive
efficiencies and cost savings are obtained for U.S. consumers.
On a broad scale, the Shipping Act provides full authority
to the Commission to effectively carry out its mission.
The competition standard used by the Commission to review
carrier agreements is section 6(g) of the act. It is, in all
relevant respects, the same standard used by the Department of
Justice and the Federal Trade Commission when they review
mergers, acquisitions, and competitor collaborations. Congress,
however, specifically designed our competition standard to
apply to the ocean transportation industry.
As with DOJ and FTC, we assess industry concentration using
the Herfindahl-Hirschman Index. Collaborations that do not
result in concentrated markets under HHI are unlikely to
produce adverse competitive effects. Key elements in any
antitrust analysis are ease of entry into a market, ease of
exit from the market, and availability of competitors able to
compete in the relevant market.
Note, all antitrust laws, including the Shipping Act,
protect competition, not individual competitors. The act
provides for public comment. Together with our competition
analysis, the Commission considers the public's views in
determining how to address anticompetitive concerns.
The ``Prohibited Act'' section of the act mirror remedies
found in other competition statutes. They provide the FMC with
additional tools to address improper conduct, such as price-
fixing, market allocation, unreasonable practices,
discrimination in price or accommodation, refusals to deal,
retaliation, boycotts, predatory practices, and discrimination
based on shipper affiliation.
The ocean liner industry has undergone consolidation.
However, by the end of 2018, there will still be 13 major
shipping lines operating in the international trades. The
number of major carrier alliances serving the U.S. trades has
decreased from four to three. These two developments raise new
issues and concerns for the FMC, and have changed the way we
approach carrier agreements.
Broad authorities and language acceptable for a world with
20 or more carriers and more numerous but smaller alliances
presented far fewer competitive concerns. With the increase in
size and market share of alliances, the FMC has insisted on
narrower agreement authorities and strict, clear, and definite
agreement language.
Importantly, we have strengthened the quarterly and monthly
monitoring information requirements. Alliances do provide ocean
carriers with operational flexibility, efficiencies, and
opportunities for cost savings. In a capital-intensive industry
they facilitate the survival of independent companies,
preserving industry competition and averting further industry
concentration.
Because of concerns about potential market power of larger
alliances, the FMC carefully analyzes and examines agreements
that request joint procurement authority. After that market
analysis, if the market shares and indicators fall within
generally accepted antitrust standards, then the FMC has no
legal basis to request an injunction in Federal court, where
we, the government, have the burden of proof.
Note, please, all U.S. competition laws, including DOJ and
FTC rules, and the Shipping Act, allow for joint collaboration
by competitors because they can benefit the end American
consumer.
To close, the Federal Maritime Commission, with its
industry expertise and experience, is well positioned to
understand the unique dynamics of the shipping industry and all
of its stakeholders to apply to the competition laws fairly in
this area, and to prevent anticompetitive behavior in these
carrier agreements, all to ensure maximum benefits for the U.S.
shipping public.
Thank you for your attention. I ask that my written
statement be entered into the record. I would be pleased to
answer any questions you may have.
Mr. Hunter. Thank you, Mr. Khouri. Without objection, it
will be entered into the record.
I am going to start. Chairman Young is not here. He is at a
doctor's appointment. So I am going to ask some questions on
his behalf, things that he is interested in that deal with
Alaska. So let's start with those.
Admiral, for over 20 years in Alaska, the approved
alternative planning criteria covered the entire Western Alaska
Captain of the Port Zone. Why did the Coast Guard approve
alternative planning criteria for two entities covering only a
portion of the Western Alaska Captain of the Port Zone?
Admiral Thomas. Thank you for the question, Mr. Chairman. I
know this is an important issue to Congressman Young. And he
has been in contact with the Coast Guard, and also with our
district commander, Rear Admiral Mike McAllister, on this
topic.
The regulations provide for alternative planning criteria
that will allow vessels transiting certain portions of Alaska
to meet the requirements by procuring services that are
specific to their transit routes.
And so, the alternative criteria that have been approved by
the Coast Guard are in full compliance with the regulations.
And we are working hard with the congressman to seek additional
solutions that will ensure coverage for the entire region.
Mr. Hunter. Is it the Coast Guard's expectation that the
equipment of all oil spill response organizations in western
Alaska will be available for any response in which an
individual OSRO is responsible, as stated in Mr. Custard's
testimony?
Do you believe OSROs which are not responsible to respond
will provide such equipment, despite their clear assertion that
they are not--that they will not respond?
Admiral Thomas. I absolutely believe that, in the case of a
spill, all equipment in the area will be available for the
Federal on-scene coordinator to leverage in response to that
spill. And, in fact, we have seen that in several recent cases
in Alaska, where we were able to bring to bear equipment from
OSROs, who were not the primary providers, in order to mitigate
a situation or, in some cases, prevent it from actually turning
into a spill.
So, we absolutely believe that the increased response
capability that the APC [alternative planning criteria] in
Alaska have brought to the region are a good thing, and the
total price of coverage has decreased, as a result.
Mr. Hunter. Could you explain to me the difference between
an oil--your oil vessel--oil spill response vessel and a
firefighting response vessel, according to Coast Guard
criteria?
Admiral Thomas. Well, they are certainly very different
capabilities. The oil spill response vessel typically brings
the capability to recover oil from--floating oil from the
water. Firefighting vessels will bring----
Mr. Hunter. So they have a big boom?
Admiral Thomas. They have a number of different
mechanical----
Mr. Hunter. To contain an oil spill?
Admiral Thomas. Contain it, sometimes to deliver
disbursements or other means of mitigating oil on the surface
of the water. The firefighting vessels bring the ability to put
foam and water on to a fire.
So there are different capabilities. Some vessels have
both.
Mr. Hunter. Some vessels do have both?
Admiral Thomas. Yes, sir. Some vessels have both.
Mr. Hunter. How many areas of the country cannot meet the
national planning criteria for vessel response plans under the
Oil Pollution Act?
Admiral Thomas. Well, there are a number of areas of the
country, mostly the remote areas, where we have approved
alternative planning criteria specifically because the national
planning criteria cannot be met. Alaska is one of them. Guam
would be another one.
But in mainland--you know, the continental U.S., the
national planning criteria is appropriate, and can be met.
Mr. Hunter. So you say--so, for instance, you have it in
the Gulf of Mexico, right? But you don't have planning criteria
that can meet the actual criteria.
Admiral Thomas. Yes, sir, particularly----
Mr. Hunter. In the gulf. But they can't in Alaska?
Admiral Thomas. Yes, sir. That is right. They cannot in
Alaska, mostly due to the expanse and the remoteness of the
area.
Mr. Hunter. So you issue waivers and give them the
opportunity to have alternative planning criteria in Alaska?
Admiral Thomas. The regulation, again--and this is a
perfect example of practical implementation of regulation--
allows for the issuance of alternative criteria when the
national planning criteria and the regulation cannot be met,
and that is a means by which we can grow with our national
capacity to respond, while still accommodating the needs of
commerce.
Mr. Hunter. Thank you. With that I would yield to Mr.
Garamendi--or Mr. DeFazio, if Mr. Garamendi would like to
yield.
Mr. Garamendi. The structure of the hearing brings Admiral
Thomas back a couple of times, so I am going to just move to
some things that I think are not likely to be covered in the
remainder of the hearing, and we will come back to the other
issues later.
One thing that we have wrestled with here all the time I
have been on this committee is the ballast water issue. It
remains an issue. Currently among the things that are of
concern--just some questions for Admiral Thomas--has the Coast
Guard been able to devote the necessary personnel and resources
to conduct effective oversight of the independent laboratories
that are conducting the ballast water management systems type
approval testing?
Admiral Thomas. Thank you for the question, Congressman.
And as always--and I think our Commandant is on the record that
our Nation needs more Coast Guard, and that extends to all of
our responsibilities--we do conduct oversight at the
independent labs. We do that in the process of first certifying
them as an independent lab and then, in the course of their
work, we visit them.
No doubt, though, that particularly as the number of labs
increase, and the workload at those labs increase, our ability
to provide the level of oversight that we would like to is
challenged by our lack of resources.
Mr. Garamendi. Well, certainly, if the 14-percent cut
actually goes through, that situation will get worse. But even
at this stable funding level of today, you are not able to do
the kind of oversight that you would--that you believe is
necessary.
Admiral Thomas. Our Commandant is on record saying that the
Nation needs a Coast Guard that has a--about a 4-percent
increase, annually, in our O&M funds, and about a $2 million
investment every year in our infrastructure. And that type of
budget would allow us to rebuild readiness across all of our
missions, sir, and fill the gaps, including the ones that you
are pointing out with regard to our oversight of independent
labs.
Mr. Garamendi. I didn't realize I had given you an
opportunity to advocate for your budget, but I think it just
happened.
[Laughter.]
Mr. Garamendi. Know that at least this member of this
committee remains concerned about the quality of the oversight,
and the independent testing laboratories. And, obviously, the
international standards, all of these things remain a concern.
It is a concern I know in California, from the various ports
and water quality issues within those ports and the
introduction of invasive species.
An old issue that seems not to go away is a very old, stern
paddlewheel steamer called the Delta Queen. Where are you with
regard to the issue of the exemption for the Delta Queen from
the fire safety standards?
Admiral Thomas. Congressman, thank you for that question,
as well. I am aware of some work in Congress on legislation
that would exempt Delta Queen from certain provisions,
particularly structural fire protection provisions. The Coast
Guard has not taken any action, independent of providing advice
on that particular legislation.
However, we do not support an exemption for any vessel that
would increase the risk, particularly of fire at sea.
Mr. Garamendi. So, the Coast Guard remains opposed to
exemptions from the fire safety standards for this vessel or
any other vessel. Is that correct?
Admiral Thomas. That is correct, Congressman.
Mr. Garamendi. Well, we will undoubtedly be wrestling with
that, as that piece of legislation comes around.
The backlog on regulations. I guess that goes back to the
14-percent proposed cut and the additional $2 billion that you
just requested.
So, have you received any new directives about the
regulations from the Secretary of Homeland Security?
Admiral Thomas. Well, Congressman, about the backlog, I
mean, we are proud of the fact that we have reduced our
regulatory backlog by over 40 percent since 2009. And we
currently have about 60 rulemakings always working--each of our
authorization acts adds, on average, 5 rulemakings to that
backlog. So we have been able to hold steady, make improvements
and hold steady.
We are currently studying and working with the Department
on the impacts of the Executive orders that have to do with
regulations, and particularly with regard to the requirement to
identify regulations to take off the books if additional ones
go on.
And we have--we are receiving some guidance from the
Department and some from OMB, as well. We haven't really
finished our assessment of what that will mean for our
regulatory program.
Mr. Garamendi. Yes, the two-for-one issue. The regulations
that you are required to update really are not new regulations.
They are updating existing regulations, for the most part, as I
look at those regulations.
So, you haven't yet figured out how to do the two for one,
two out and one in. So what--in your opinion, given this point,
given that Executive order, how then would you update the
remaining regulations that are before you? Where would you find
two to eliminate, as you update one?
Admiral Thomas. So, we are currently conducting a
comprehensive review of all the regulations. There are
certainly some regulations that are still on the books that are
outdated. And the reason we haven't taken them off the books is
because the effort required to do that really exceeds the
benefits, because there is really no one impacted by those
regulations.
So, for example----
Mr. Garamendi. I want to hone in on that. To get rid of a
regulation, it is the same process as establishing a
regulation. Is that correct?
Admiral Thomas. Yes, sir. And we are working hard to
understand exactly how that process would work, and
particularly how it would work in time with the process of
putting additional regulations on the books.
Mr. Garamendi. And the other issue has to do with some
30,000 vessels that you are required to examine. I am basically
giving you an opportunity to make a pitch for that $2 billion.
Would you like to comment on that piece of it, and get it on
the record as to what it takes to examine the 30,000 fishing
vessels and the 5,000 commercial towing vessels?
Admiral Thomas. Well, thank you for the opportunities,
Congressman. We are challenged, as our mission demands grow
across the Coast Guard's mission set and, in addition, with our
marine safety mission. And we--as the Commandant has said, we
need more Coast Guard.
The Commandant has identified, you know, growth in O&M and
in our infrastructure investment, which will allow us to close
our readiness gaps and meet the mission demands that the
Congress has put on us.
Mr. Garamendi. For the record, if you would, please,
provide us with more detail on what it would take to carry out
the specific responsibilities that you have on those
inspections: the number of personnel, the amount of money it
would take, and also the timeframe of trying to move through
those 30,000 vessels, given the present budget level.
Admiral Thomas. Yes, sir, be happy to provide that.
Mr. Garamendi. For the record, thank you.
Admiral Thomas. For the record.
[The information follows:]
For towing vessels, the Coast Guard would need 76 additional
billets at a recurring cost of $9,306,000 and it would take 4
years to complete issuing the initial Certificates of
Inspection (COIs) to the affected population of towing vessels.
For fishing vessels, the Coast Guard would need 60 additional
billets at a recurring cost of $7,540,000 and it will take 3
years to complete the current 5-year examination cycle of the
affected fishing vessel population.
In regard to Towing Vessels: The number of marine inspectors
required to verify compliance with the Subchapter M
regulations--``Towing Vessel Regulations,'' is directly related
to the number of vessels enrolled in the Towing Safety
Management System (TSMS) program. The TSMS program enables
Coast Guard approved Third Party Organizations (TPOs) to verify
compliance with the regulations, with the Coast Guard exerting
oversight. If a majority of operators use a TPO to verify
compliance, the Coast Guard's existing level of personnel
should be adequate to handle the initial round of inspections
for certification of the 5,000 towing vessels subject to
Subchapter ``M.'' Vessel owners and managing operators that
choose not to use the TSMS program will require a more indepth
annual exam from Coast Guard inspectors. To date, we do not
have a firm number of how many vessel owners or managing
operators will select the TSMS option. Once the initial round
of inspections is completed in 2021, the Coast Guard will have
sufficient records to assess the long-term personnel needs to
conduct inspections of towing vessels.
In regard to Fishing Vessels: The Coast Guard has been able to
meet the 5-year mandatory exam cycle requirements for the
approximately 20,000 fishing vessels that require an exam using
existing Coast Guard staff, qualified Third Party Surveyors/
Examiners, and Coast Guard Auxiliary personnel.
Mr. Garamendi. I yield back my time.
Mr. Hunter. I thank the gentleman.
I yield to Mr. Rouzer for 5 minutes.
Mr. Rouzer. Thank you, Mr. Chairman.
Admiral, with regard to salvage and marine firefighting,
what is the Coast Guard's position on where the response
industry is today with regard to providing response
capabilities for salvage and marine firefighting incidents?
Admiral Thomas. Thank you for the question, Congressman.
The congressional intent, when the Coast Guard implemented the
regulations, the salvage and marine firefighting regulations,
was to build our national capacity and capability to respond to
such incidents. Our view is that the regulation has succeeded
in that regard.
That said, there are certainly portions of the country
where we have not yet reached the capacity that is intended by
the regulation, and we are focused on ensuring that we continue
to build capacity in those areas.
Mr. Rouzer. Is the Coast Guard aware of any incidents where
a response vessel was not on scene within the required
timeframe for a vessel incident?
Admiral Thomas. I believe there have been a few incidents,
but the key to remember is that the standards and the
regulations are planning factors, not performance factors. And
there are often, very often, other things like weather, et
cetera, maybe multiple incidents at one time will make it
impossible for the actual performance, on-scene performance, to
match the planning factors that are required in the
regulations.
But we watch that very carefully. And when there is a
significant mismatch between the capability that we expected to
be available and that which is available, we will do some work
to determine why.
Mr. Rouzer. Have there been any incidents where a response
vessel has refused to respond, as required by contract? What
would prevent them from responding? You touched on that
slightly. And would this be a vessel of opportunity, or would
this be when a vessel of opportunity would be called to
respond?
Admiral Thomas. Again, in an actual event, as opposed to
when--meeting their planning requirements, we are going to--the
responsible party is going to use whichever resources are
immediately available and can provide the services needed at
the time.
There may be--there may have been times--and I am not
aware, personally, of specific incidents, though the next panel
may have some examples, where a resource or a vessel that has
been identified in a plan is unable to respond, as was
originally thought would happen, and therefore has refused
service, in which case a vessel of opportunity clearly can step
in and take that responsibility.
Mr. Rouzer. For the sake of time, Mr. Chairman, I yield
back.
Admiral Thomas. Thank you.
Mr. Hunter. I thank the gentleman. I would now like to
yield to the ranking member of the full committee, Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman. I want to continue
where we left off last time, Mr. Khouri.
You know, the issuance of the--to the folks of--you know,
authority to jointly negotiate with our marine service
providers, who are specifically precluded under U.S. law from
joining together to negotiate--so we are talking about, you
know, a conglomerate negotiating with individual service
providers in the U.S. Apparently, your staff did an economic
analysis. But the economic analysis has not been made
available. Why not?
Mr. Khouri. Thank you, Congressman. The Shipping Act
statute under section 6(j) specifically says that all of the
information provided by filing parties and all of the
information developed during the review process is, number one,
confidential; and, number two, is not subject to FOIA.
When we are--when the Commission is operating under this
particular area and authority, we are essentially doing a law
enforcement function, and these are the same types of rules
that would obtain if all of the information was submitted in a
normal situation at Justice, for example, under----
Mr. DeFazio. I--OK. If we could, so----
Mr. Khouri. May I----
Mr. DeFazio. Sir, you have given me an excuse, or a reason.
But here is the point I want to make. You have the foreign
entity joining together to negotiate singly with our service
providers. Our service providers, you know--how can you
conclude that they aren't put at a disadvantage in these sorts
of agreements? And what kind of analysis could you conduct that
would say--that is going to have confidential information?
What did you get that was confidential from the RO/RO
providers? Did they tell you what rates they were going to
bargain for? What did they give you that was confidential?
Mr. Khouri. If I could----
Mr. DeFazio. Well, just--what is confidential about the
fact a conglomerate is now going to be authorized to negotiate
singly with people who can't form a similar organization?
What--tell me what is confidential in there.
You may be--you know, you are going to cite the law, and
this and that, and this is all confidential. Your staff did an
analysis. The analysis was there would be no negative impact.
And you are saying that we can't see that analysis, the people
who are going to be negotiating, you know, are somehow provided
confidential information. What is the confidential information?
Mr. Khouri. What I have offered to the Members that I have
met with, and I offer to you today, Congressman, is, if I
continue, under section 6(j) we can produce that information
under a court order, or if Congress requests it.
Mr. DeFazio. OK.
Mr. Khouri. And we would welcome--that was my final part.
We would----
Mr. DeFazio. OK, great.
Mr. Khouri [continuing]. Welcome a request from Congress.
Mr. Hunter. I am pretty sure he just requested it. So there
you go. Congress just requested it. Go ahead.
Mr. Khouri. So we would be happy to bring that before you
in a confidential setting with you and your staff. Let us bring
our economist with us to that meeting, and lay out for you what
we were looking at when we--and please understand, Congressman,
it is a 2-step process.
It is--the authority that was given to the RO/RO group was
not to enter into an agreement. They were allowed to go and
begin a negotiation. And then, any agreement, as it was, has to
then be brought back to the Commission so we can complete a
full economic analysis back and forth. So, we are still at the
front end. The RO/ROs have never even started to do a single
negotiation.
All we said was when we looked at all of the ports going
around, it appeared that the market shares were sufficiently
low to say, OK, let's let them go ahead and have the right to
go talk, but not the right to contract. That is a second part
that would have to still be done when they come back and let us
look at very specific situations.
Mr. DeFazio. You are saying you have, your Commission, has
the authority to look at an individual contract between a
maritime service provider, domestic, and the foreign entity in
this case, the RO/ROs, and that you could then say, no, that
rate is too low, or somehow disallow it?
Mr. Khouri. No, we do not regulate rates whatsoever, in any
shape or fashion----
Mr. DeFazio. OK. Well, then, what would you--what would
they bring back to you that you would review?
Mr. Khouri. We would be looking at, from a well-accepted
antitrust standards, of what is the market power of the
purchasing entity. In this case it would be the RO/RO
agreement. What is their market share of the product being
purchased, which is tug assist.
Mr. DeFazio. All right. Well, the Justice Department, I
have read--there are two letters from Justice expressing
tremendous concern about this. But your--but the Commission is
saying, ``We don't have a concern,'' or, ``Thus far we don't
have a concern. We might have a concern after we see what
happens''? I don't--I am not quite following this.
And I think, again, Mr. Chairman--my time is up, but I
think this really points to the pressing need for Congress to
consider some legislation on this area.
Mr. Hunter. If you don't mind, keep going on this. I have
got a question.
You say you can't do anything, that they entered into
negotiations. So what actions can you take after they make an
agreement? What do you do after that?
So you allow them to go into negotiations, right?
Mr. Khouri. Correct.
Mr. Hunter. Then you step back after you allow that. And
what if they make an unlawful agreement? I mean what if their
agreement, as a consortium, is unlawful? Then what can you do?
Mr. Khouri. Then we would go into court with that evidence
before a Federal judge and seek an injunction saying----
Mr. Hunter. Well, let's make this easier. How do you
determine that they created an uncompetitive practice? How do
you make that determination to even take them to court?
Mr. Khouri. The standards are--have been gone over by the
Department of Justice and the Federal Trade Commission.
Mr. Hunter. Sure, but--all right, well, just tell us. How
do you make that determination, you, the FMC? Otherwise, why do
we have the FMC? Why not just have the Department of Justice
and the FTC?
Mr. Khouri. Well, I think--perhaps let me, if I can, just
go back to Congressman DeFazio's last statement to help fill in
exactly what you are trying to get to, Mr. Chairman.
The Federal--excuse me, the Department of Justice, in their
letter that you referenced, Congressman, they began with a
factual assumption that all of the alliances were, in effect,
mergers, and they say that they foreclose all competition
amongst the alliances.
And so, they started with a factual situation that is
simply not true. For each one of the alliances, we have
monitoring information that there is very active price
competition within each alliance, members within each alliance,
and there is very active separate decisionmaking going on as to
capacity coming in and out of all of those trades, both inside
of the alliance, and capacity by members outside of the
alliance.
Mr. Hunter. So let's just--so you have--let's say three or
four companies get together and form an alliance. You watch
them and make sure that they don't talk amongst themselves and
what they are going to charge the--or what they are going to
try to get the port to agree to as they come in? You guys know
that for a fact?
Mr. Khouri. We----
Mr. Hunter. These are foreign entities.
Mr. Khouri. We follow--they file monthly and quarterly data
on all of the revenue, on their boxes, on capacity coming in
and out. And we are looking for, on an active basis, to see if
there are parallel actions in the marketplace that would
indicate what you just put at the end of your question. And
what we continually find is there remains active competition on
a pricing basis and on a capacity basis inside of each
alliance.
If we found that they began to have parallel activity, I
can promise you, Mr. Chairman and Congressman DeFazio, that we
would be in court as quick as we could with that evidence
presented to a Federal judge, saying, ``Sir, this alliance is
now not operating the way it should. We want an injunction and
break it up.''
Mr. DeFazio. Mr. Chairman, could you just yield back for a
second?
Mr. Hunter. I yield back.
Mr. DeFazio. Because I just want to follow up on this
point. We are talking about one of these alliances--and again,
I am reading from the Justice Department letter. For example,
four companies, three of which are ocean carriers slated to
join the alliance, have pled guilty. Eight corporate executives
have been indicted or pled guilty in connection with worldwide
conspiracy involving price fixing, bid rigging, market
allocation among provides of roll-on/roll-off cargo shipping.
In addition, three companies, six individuals have pled
guilty or been convicted at trial in connection with a price-
fixing conspiracy among carriers of domestic freight between
the continental U.S. and Puerto Rico.
And that is not a problem? I mean this went on. They--you
know, substantial fines were assessed. Was that initiated by
FMC or by Justice?
Mr. Khouri. There are two different actions in the issue--
--
Mr. DeFazio. OK, so we have criminals, you know, running
these companies that are now getting limited antitrust
immunity. And they are going to negotiate fairly with U.S.
marine service providers who have to individually negotiate
with them, and these people aren't going to bring market clout
and put our people at a disadvantage?
I mean this is just extraordinary. It defies common sense
and also, you know, history, since we get a bunch of criminals
in these companies.
Mr. Khouri. The Puerto Rico trades that you mentioned,
Congressman, those operated under trade lanes regulated by the
Surface Transportation Board, not the Federal Maritime
Commission.
The second matter that you bring up, these were activities
by some carriers that they were operating without an agreement.
They did a separate--totally outside of the sight of any--there
was no agreement filed for which we could have monitored. So
they were acting totally outside of any regulatory scope, and
it was totally illegal, and they paid a heavy price for that.
Mr. DeFazio. But now some of them are in the alliance, and
the same people are running the companies. I mean that is who
you are dealing with.
Anyway, thank you, Mr. Chairman. Thank you for the time.
Mr. Hunter. I thank the gentleman. I yield to Mr. Graves
from Louisiana.
Mr. Graves of Louisiana. Thank you, Mr. Chairman. Admiral,
Chairman, I appreciate you both being here today.
Admiral, the Coast Guard issued a notice of proposed
rulemaking for electronic readers at certain facilities that
handle certain dangerous cargo, CDC. In the proposed rulemaking
there was a proposed nexus between facilities and maritime
access, where the electronic readers were going to be needed.
As you began to move forward in the rulemaking, in your
final rulemaking, you actually significantly expanded the scope
of the electronic reader to include any facility that could be
within a security site plan. And that was a fairly expansive
change within the rulemaking that was not part of the original
notice. Therefore, people--the Coast Guard didn't have the
benefit of comments.
I am concerned about the lack of tie-back to actual
maritime in this case, under the rule. The site security plan
is not necessarily--that is not necessarily--it doesn't
necessarily have a connection to maritime. A site could be
anything. Folks could have a site security plan upon an entire
facility, even though it could be walled off or prevented from
having access to maritime.
Can you give me a little bit of insight into why that
expansion occurred during the rulemaking, and why that wasn't
part of the notice of proposed rulemaking to begin with?
Admiral Thomas. Congressman, thank you for the question. I
am very familiar with that regulation, was involved in the
development and implementation of the regulation all the way
through, and I am very confused by your question.
When we published a notice of proposed rulemaking, the
population of impacted facilities that are regulated under the
Maritime Transportation Security Act was quite large. The final
rule, it was narrowed significantly. And normally, the question
that I get is how come that narrowing occurred, so I am
confused by your question.
But in addition, the Maritime----
Mr. Graves of Louisiana. Let me ask this. Did you remove
the vessel interface requirement? Wasn't that the whole thing,
is that when you finalize the rule you eliminated that vessel
interface requirement?
Admiral Thomas. Sir, and again, at the risk of maybe not
understanding your question, the Maritime Transportation
Security Act allows the facility operators to define for the
Coast Guard what is their regulated footprint in the facility.
And so, there is nothing about the TWIC reader rule that
changed that. What we--what the TWIC reader rule said was, at
the access points that you have defined in your approved
security plan, you must have TWIC readers. And if they define
those access points beyond the facility-ship interface place,
then that is where they--because that is the assessment that
they did, they were going to move their access points out--then
that is where the readers need to go.
But again, at the risk of maybe not understanding your
question, there is nothing in between the proposed rule and the
final----
Mr. Graves of Louisiana. I understand that the law
relegates the scope to site security plans. I understand that.
However, in the notice of proposed rulemaking, you limited the
geographic scope to the vessel-to-facility interface area.
In the final rulemaking, you no longer required that nexus,
or that interface. Therefore, the entire site security plan was
within the scope. So that is a growth of scope. And my point is
that site security plans for a company that may carry out
various activities, that may go--that site security plan may be
beyond the geographic scope of a vessel interface.
Admiral Thomas. All right----
Mr. Graves of Louisiana. And so, here is what my concern
is. My concern is that companies may come back and start
compartmentalizing site security plans--which I don't think is
to the benefit of overall security--in an effort to not have to
include electronic readers all over these huge facilities. Does
that make sense?
Admiral Thomas. Well, I would really like to offer you a
brief on this topic, but I agree with you. There are a number
of regulated facilities that have, by their own choice,
extended the regulated perimeter beyond what is required by the
law.
Mr. Graves of Louisiana. OK. So we agree on that point. Do
you agree that you removed the nexus for vessel-to-facility
interface in your final rulemaking when that was in the notice
of proposed rulemaking?
Admiral Thomas. Sir, I don't want to disagree with you on
that. Again, I don't----
Mr. Graves of Louisiana. If I am wrong, that is fine. Tell
me I am wrong, if I am wrong. Because that actually would sort
of be very helpful, and what I was going to ask you to do,
anyway.
Admiral Thomas. I am not clear enough that I understand
what you are saying that I can tell you that you are right or
wrong.
But again, this is--for me, this is totally----
Mr. Graves of Louisiana. Oh, come on. You were going down
such a good path.
[Laughter.]
Admiral Thomas. Well, that doesn't ring a bell to me, that
we removed the nexus. I think there is probably an
interpretation issue in that the law says you need a nexus
between the facility and the--you need to secure the area where
you have that nexus between the facility and the ship.
Many facilities, for a lot of different reasons, have
extended the regulated area beyond that. When they do their
risk assessment and they give us their plan, we approve the
plan, based on their assessment. And, in some cases, they have
extended the regulated perimeter way beyond what is required by
the law.
Mr. Graves of Louisiana. Would you be willing to issue a
clarifying statement that the rule applies to vessel-to-
facility interface areas that handle CDC in bulk? Is that the
intent?
Admiral Thomas. I would be certainly willing to make sure I
understand the issue, and then issue any clarifying statement
that is required. But right now, sir, I am really not
understanding this issue well enough to make you any
declarative promises.
Mr. Graves of Louisiana. Based upon the perhaps uncertainty
here--and again I will totally open up, and maybe I am not
understanding this correctly. But based upon my read, I think
that there was potentially a geographic expansion that occurred
here that perhaps wasn't intentional. Would you be willing to--
if we can determine that there is uncertainty here, would you
be willing to grant a longer compliance period, just so we can
help sort this out, rather than requiring these facilities,
many of which are in our district, to have to significantly
change their reader profile?
Admiral Thomas. Absolutely, sir. If there are unintentional
consequences to the regulations that we--certainly don't meet
congressional intent, we are all about practical implementation
of regulations.
Mr. Graves of Louisiana. Well, in additional to
congressional intent, I think that--something else that is
really important to me, and I am sure it is to you, as well, is
when you issue a notice of proposed rulemaking and you identify
scope, if you are going to go outside that scope, then the
Coast Guard is not going to have the benefit of the public
input on that broader scope. And I think that is an important
point to make, as well.
Admiral Thomas. I would agree, sir.
Mr. Graves of Louisiana. Great. Thank you. But, look, I
want to make sure that we do schedule a followup meeting here
and try and track this down and figure out what steps the Coast
Guard should take, moving forward, if there is some
uncertainty.
Admiral Thomas. Happy to do that, Congressman.
Mr. Graves of Louisiana. Thanks, Admiral.
I yield back.
Mr. Hunter. I thank the gentleman. If we seem combative
today, we had the airline CEOs in yesterday, and we just--there
was a headline today that American Airlines cut their leg room
in economy class more, just to make the American people like
them more, I guess. They are cutting leg room to make us
happier. The airlines hate the American people, that is all I
am saying.
I would yield to the gentleman from the LBC.
Mr. Lowenthal. Thank you, Mr. Chair. And thank you both,
Admiral Thomas and also Chairman Khouri. And I do congratulate
you. I know you are the Acting Chair, or the Interim Chair. And
my dear friend, Mario Cordero, is now the new chair, or the
next executive director of the great Port of Long Beach. I
think it was an excellent choice, and I am sure it was because
of the great experiences he had at the FMC.
My first question, though, is for Admiral Thomas. And let's
go back to my concerns about the Ports of Long Beach and Los
Angeles, which really cover about 40 percent of the Nation's
containerized cargo. Now, we anticipate that that cargo will
increase over the next number of years. And so, how is this
going to--as the port--as trade continues to increase,
especially with greater mega-ships coming in, how is this going
to affect the Coast Guard?
You already began, I think, talking about kind of stretched
resources when you began. But as we see the growth in
containerized trade continue, how will that impact the Coast
Guard, and what additional resources to keep us safe do you
think you will need?
Admiral Thomas. Congressman, thank you for the question.
And certainly we have seen growth in the size of ships, but not
just the size, the complexity of systems that are used to move
cargo through our ports more efficiently. And that is
definitely a challenge for the Coast Guard, not just in L.A.
and Long Beach, but around the Nation.
We definitely--and our Commandant is on record as saying
that we need to invest in our people and our workforce, so that
we can remain agile and keep up with the technology that is
allowing our Nation to enjoy the prosperity that we see through
ports like L.A. We need to invest in the enterprisewide systems
that we use for managing data and an enterprisewide system we
use for managing our people.
And we need to invest in the infrastructure that we
currently use to service the marine industry, including the
service we provide through our aids to navigation, but also
that we provide at our National Maritime Center, where we
credential mariners, and our National Vessel Documentation
Center.
So, absolutely, the growth and demand through the ports
translates directly to the growth and demand for Coast Guard
resources.
Mr. Lowenthal. You know, we talk about national security,
and the need for national security, and we look at our--and we
take great pride in our military. But for me, who represents
the port areas, I cannot tell you how appreciative I am of the
Coast Guard. I mean I cannot overstate the importance of the
Coast Guard to our--to protecting our maritime interests and
protecting our citizens. It is just unbelievable on the west
coast. And so we applaud you.
Acting Chairman Khouri, you know, you have talked a lot
about how the increased consolidation is changing the work of
the FMC. Maybe you could tell us a little bit more how you see
the FMC changing. We have talked a little bit about the
consolidation and some of those issues, but how do you see the
work of the FMC changing with this tremendous consolidation
that is going on?
Mr. Khouri. I guess, number one, in our Bureau of Trade
Analysis, which is where all of our economists are housed, we
have had a great staff, and they have been hiring some new
terrific transportation economists--it is a specialized area.
The monitoring that I mentioned earlier has become,
according to the carriers, much more intrusive. And so that is
music to our ears, not--you know, that is unfortunate, but--for
them. But we have been quite insistent on, no, we need more
information on a much more regular and timely basis, so that we
can take all of this--and it is submitted to us confidentially,
per the statute, then we match it up with an awful lot of
commercially available information out there in the world,
liner industry. It is labor-intensive for highly specialized
people.
And I would say that is the main areas we have become more
and more--I don't want to use the word ``concerned,'' because
that would make it sound like we think something is going on.
It is just that the potential for activity that would be
prescribed by the Shipping Act or by other antitrust laws
grows.
So I think that is the best that I can respond to your
question. If--I look to the chairman and his experience. You
always had one Marine standing on the wall. We now have two
Marines. So that is, I think, the best answer I can provide for
that, sir.
Mr. Lowenthal. Thank you. And I will wait, and I will yield
back.
Mr. Hunter. I thank the gentlemen. With that, we are going
to move to the second panel. I just got a quick question for
Mr. Khouri.
How many times has the Commission weighed in after an
effective date of an agreement?
Mr. Khouri. I am sorry, sir?
Mr. Hunter. How many times has the FMC weighed in after an
agreement has been made?
Mr. Khouri. The way that actually works--and I have an
example in my hand, and I will start with that.
It should be no surprise that we have been in rather
pleasant or otherwise conversations with filing counsel for the
RO/RO agreement, and received a letter yesterday. And this is
an agreement in effect as we speak today. I am authorized to
share the content of the letter, but not the letter itself.
But I am just going to say they have committed, ``willing
to meet with the Commission staff to discuss possible
amendments to the agreement that might address concerns being
expressed with respect to the authority.'' So we expect them to
be in promptly to talk about amendments. And that is how the
process actually works, Mr. Chairman, is if there is something
going on, we bring them in. They don't want to go to court,
either, and that is how we obtain the constant update and
amendments to all of these agreements.
If I might say, also, we will work with you and schedule--I
am not aware of any time we have had to actually go into court,
but that is how the process works. We bring them in and say,
``This isn't working, we are going to change this.''
Mr. Hunter. Because--so just for the record, the Federal
Maritime Commission has never taken a consortium or anybody to
court.
Mr. Khouri. May I----
Mr. Hunter. Over anticompetitive practices.
Mr. Khouri. May I consult my general counsel and his staff,
and get back to you with a written answer to that?
Mr. Hunter. So, to your knowledge, zero? To your knowledge,
at this point in time.
Mr. Khouri. In the 7 years I have been there, no. But we
have been administering the Shipping Act for 100 years, so I
think it would be foolish for me to make a categorical
statement.
Mr. Hunter. So the problem----
Mr. Khouri. So we will come back to you.
Mr. Hunter. The problem here, which I think we are all
trying to get at, is you are here to protect American companies
and American interests. I mean that is why you exist, right?
Mr. Khouri. Absolutely.
Mr. Hunter. That is why you are here. The law makes it so
that you cover--you look more at the shippers, not the
tugboats, and not the port or terminal operators. That is what
you are looking at.
So, right now, you are not protecting the American
interests, because the only guys that are shipping are foreign
entities that are basically ganging up and forming these little
groups, to where we have almost no competition whatsoever. You
are not protecting the terminal operators because, by law, it
is not required. Or the tug operators.
So, all the American companies, that is--basically, in your
mind, as you follow the law and you quote law and cite law,
there is no law making it so that you have to watch--you have
to look out for the best interests of the American companies,
because the law says you look at shippers, and that is it. That
is what you are looking out for. And I think that is where we
are getting kind of tied around the axle here, is that that is
kind of hard to swallow for us, is that you are not there for
the American companies.
Mr. Khouri. Mr. Chairman, I believe a more, on one side,
broad and perhaps--and more correct statement is we, like any
other Federal competition agency, look to protect competition.
And within that, not competitors in any one area, because,
at the end of the day, at the end of the day, if full
competition is at work in the marketplace, the end of that
process is the American consumer. The American consumer is the
one who benefits with lower prices and their goods. The
American exporter, who has more reliable and the least
expensive available transportation for their export goods into
international markets.
So, I would, with all respect, say we are not singularly
focused on shippers in that regard. So----
Mr. Hunter. Thank you, gentlemen. Admiral Thomas, if you
will stick around, we are going to add a microphone and get on
to panel 2.
Mr. Khouri, thank you.
Mr. Khouri. Thank you so much.
Mr. Hunter. Mr. Khouri, do you mind sticking around, too?
We are just going to throw the staff into a tizzy, but do you
mind sticking around? Do you have time?
Mr. Khouri. I planned on staying to listen, so I would be
happy to.
Mr. Hunter. OK, thank you. Admiral Thomas, you can just
stay where you are, if you want to. Oh, they are moving you
over. OK.
[Pause.]
Mr. Hunter. OK, I think we are all together. And if I could
ask, too--I mean we want to get through this--obviously, this
is a giant panel now, because we combined three into two. I
guess we could have had you all there in the first place, but
that enabled us to focus on a couple of things. And now we will
go into this one.
So if you could keep your remarks brief, we can submit them
for the record, and we will start just talking back and forth.
I thank the first panel for being with us today--and you
are still here--and the second panel. The witnesses for the
second panel are Mr. Todd Schauer, president of the American
Salvage Association; Mr. Steven Candito, current board member
and former president and chief executive officer with the
National Response Corporation; Mr. Nicholas Nedeau, chief
executive officer of Rapid Ocean Response Corporation; Mr.
Norman ``Buddy'' Custard, president and chief executive officer
of the Alaska Maritime Prevention and Response Network; Mr. Tom
Allegretti, president and chief executive officer for American
Waterways Operators; and Mr. John W. Butler, president and
chief executive officer for the World Shipping Council.
Mr. Schauer, you are recognized for your statement.
Mr. Schauer. Good morning, Chairman Hunter, Ranking Member
Garamendi, and members of this subcommittee. I represent
American Salvage Association, known as the ASA. The ASA
represents 90 percent of the U.S. salvage capability. We
appreciate the chance to give an overview of the salvage
industry, and to discuss current issues. In the interest of
time, my submitted statement has been abbreviated.
Salvors are not ship scrappers. We are emergency responders
and problem-solvers for the shipping industry. Beyond search
and rescue, the Coast Guard does not have the assets to perform
salvage operations such as rescue towing, firefighting, or
other salvage services. Simply put, salvors respond to any
casualty, anywhere, at any time. This may include collisions,
fires, explosions, or groundings. It may involve tankers,
cruise ships, LNG carriers, offshore rigs, or any other vessel
type. This statement commitment may be hard to believe, but it
is quite true.
Salvors are extremely resourceful and dedicated. Most of
the companies are family-owned, multigenerational businesses.
Salvors operate in the most difficult conditions on the planet.
Some jobs are incredible feats of engineering. Most of you
probably recall the Costa Concordia job led by an ASA member in
Italy. Others are courageous acts of seamanship, such as
rescuing a disabled tanker in heavy weather. A member did this
just this past weekend off of Galveston.
Our members are the special forces of the marine industry,
maritime response. The ASA has a good working relationship with
the Coast Guard. Our operations teams respond together, and we
interact often on regulatory matters. While we have our
disagreements, we respect the capabilities and commonsense
nature of the U.S. Coast Guard.
Salvors are the first line of defense in preventing marine
pollution. Our objective is to keep the oil in the ship and out
of the water. Plugging all breach fuel from a stricken vessel,
or simply saving the ship from sinking is much more effective
than skimming spilled oil.
Regarding shipboard firefighting, the salvor has the
requisite experience and equipment. We work alongside municipal
fire teams, and we take the lead for all offshore fires.
Salvors will clear all blocked waterways to restore commerce,
whether caused by an accident or, God forbid, a terrorist
attack.
The U.S. Navy's global salvage capability depends on
response contracts with ASA members.
Due to the leadership of this subcommittee, the SMFF
[salvage and marine firefighting] regulations were promulgated
in 2008 for tankers, 2013 for nontankers. The result was
extremely positive. The salvors rapidly organized, we expanded
equipment inventories, and developed robust networks to comply.
Now, some third parties have recently questioned the
commitment and resources of the SMFF providers. Let me be very
clear. We will always respond. Our livelihoods depend on
salvage job income, and our Coast Guard-approved and pre-agreed
contracts with the shipowners will prevent any delays.
Now, providers rely heavily on subcontracted resources. Our
networks are comprised of major fleets of tugs and barges,
derrick barges, all variety of support vessels, and marine
services. We also have agreements with municipalities. For
example, the New York City Fire Department has pre-agreed to
support us during a vessel fire.
This system of combining salvor-owned, specialized assets
with extensive resource networks has proven effective in more
than 180 responses since the inception of the regulations.
Provider capability and compliance is verified by many layers
of oversight. These include drills and exercises, two separate
Coast Guard verification programs, owner and insurer vetting,
and direct approval of all actual operations by the Coast
Guard.
At the crux of the issue are nondedicated resources. Unlike
spill response, the diversity of the 19 salvage services
demands large networks of vessels of opportunity. There are no
two ways to look at it. Providers rely heavily on this system.
It includes more than 7,300 support vessels, alone. We also
utilize existing U.S. air, sea, and ground logistics modes,
arguably the most developed in the world. Duplicating all of
these resources of opportunity with dedicated assets would be
highly impractical, and overwhelmingly costly.
In closing, salvors will continue to respond quickly, grow
capacity, and comply with all required verifications. The
vessel of opportunity system works. Any attempt to duplicate it
will place undue financial burden on the shipping industry and
the consumer.
Thank you, and I request that my statement be submitted.
Mr. Hunter. Without objection, so ordered.
Mr. Candito?
Mr. Candito. Good morning, Chairman Hunter, Ranking Member
Garamendi, members of the subcommittee. I am Steven Candito,
former CEO of National Response Corporation, one of the
founders of 1 Call Alaska, along with Resolve Marine Group.
NRC and Resolve are leading oil spill removal organizations
and salvage and marine firefighting providers in the United
States. Joining me today are leadership from Resolve, NRC, and
senior members of 1 Call Alaska, the true local response
experts. They represent the core 1 Call Alaska emergency
response organization with the commitment and capability to
prepare for and respond to marine casualties in western Alaska.
I thank the subcommittee for the opportunity to address
response plans under the alternative planning criteria for
western Alaska.
I respectfully disagree with the need for section 107 of
H.R. 5978. It would stifle competition and hinder improvement
of oil spill response in Alaska. I will address the inaccurate
arguments advanced by organizations that support section 107.
They claim reducing competition is necessary, and that a
monopoly will better serve Alaska's interests. Specifically,
section 107 prevents achieving a key goal of the Oil Pollution
Act of 1990 to provide robust oil spill response capability
along all U.S. coasts.
Under the Coast Guard's implementation of APC, the response
industry is improving coverage, investing in vessels, aircraft,
and staging facilities, and hiring experienced manpower, most
of which is based in Alaska. Section 107 sets back progress
made by 1 Call Alaska, discouraging further investment needed
to move Alaska closer to the higher OPA [Oil Pollution Act]
standards in the lower 48.
The Exxon Valdez exposed how ill-prepared the U.S.
Government and the maritime industry were to respond to major
spills, particularly in Alaska. There was very limited ability
to respond to large, open-water spills. OPA jump-started the
massive investment in private sector national response industry
with four key provisions: first, clarifying chain of command
and responsibilities under the National Contingency Plan;
second, directing the private sector to provide the response
equipment and manpower; third, incentivizing private investment
by requiring vessel and oil facilities to contract with OSROs
with capacity to meet the requirements; and finally,
encouraging OSRO investment through responder immunity.
The Coast Guard has provided the necessary flexibility and
competitive environment to accommodate challenges in complying
with OPA's standards in western Alaska, while driving
improvements in coverage. Section 107 type legislation impedes
expansion of resources by excluding competition from the very
companies with the most experience and the largest inventory of
assets already in Alaska.
Such legislation is premised on false assertions: one,
competition will drive up fuel prices; two, there will be a
price war ultimately ending in an unsustainable price of zero;
and, three, competitors provide duplicative resources, driving
up costs. I will address each of these contentions separately.
But, as a general matter, competition ultimately drives down
prices, while increasing resources. The fallacy is that a
nonprofit monopoly provides the most resources at the lowest
cost.
With regard to fuel prices, our written testimony includes
a fuel price report by Alaska's Department of Commerce,
Community, and Economic Development, published in January 2017,
reviewing the previous year. This report concluded heating fuel
and gasoline prices in most regions of the State are at their
lowest since early in 2009, and most survey communities have
seen significant declines.
With regard to the remote communities, the report noted
remote communities have higher shipping costs, resulting in
fuel prices that are significantly higher than the statewide
average. However, since most communities receive at least one
fuel delivery a year, they are continuing to benefit from the
lower cost of fuel. Thus, the primary fuel cost drivers are the
price per barrel, the fixed cost per shipment, and infrequency
of delivery, rather than any minimal APC market pressure.
Secondly, I can confirm 1 Call Alaska has not participated
in a price war. Our pricing is dependent on our cost of
operations and number of customers. That scale has largely
remained steady as of now, and we are the most expensive
provider. In actuality, it is the nonprofit, which consistently
undercuts our prices, seeking to compete, which they should not
be doing, given their nonprofit status.
Finally, with regard to the assertion multiple providers
duplicate resources, I note the significant number of resources
we included and specific investments in Alaska. Simply put, the
main reason an APC is needed is that currently the resources
are insufficient to meet OPA standards. Thus, competition has
caused us to add personnel and equipment. Further, the
resources we added are not the same type that existed.
Since inception, 1 Call Alaska represents a $44 million
investment in aircraft, equipment, vessels, and facilities.
Resolve and NRC also employ full-time more than 100 Alaskans.
Further, over the last year alone we cooperated with the Coast
Guard to save 100-plus lives and prevent the discharge of
millions of gallons of oil.
Importantly, most of the casualties we responded to were
not customers of our APC. In fact, our services were called
upon out of a necessity, as the entities advocating could not
effectively respond to our customers' spills.
In closing, 1 Call Alaska is proud to announce plans to
expand to the entire Western Alaska Captain of the Port Zone.
Whether it is a stricken 4.2-million-gallon tanker, a disabled
fishing vessel from Dillingham with 100 souls on board, or
flying our aircraft, 1 Call Alaska endeavors to prevent,
prepare for, and respond to marine casualties in western
Alaska. Thank you.
Mr. Hunter. Thank you.
Mr. Nedeau? And I am saying that right, correct?
Mr. Nedeau. Nedeau. That is close.
Mr. Hunter. Nedeau? OK. You are recognized.
Mr. Nedeau. Chairman Hunter, Ranking Member Garamendi, and
members of the Subcommittee on Coast Guard and Maritime
Transportation, thank you for giving me the opportunity to
testify and provide information on the gap between marine
salvage and firefighting requirements, and the actual services
contracted for by vessel owners. The gap places the marine
environment and vessel crews in considerable jeopardy.
My name is Nicholas Nedeau. I am the CEO of Rapid Ocean
Response Corporation. Rapid Ocean Response provides high-speed,
dedicated vessels for offshore firefighters and surveyors, as
required pursuant to the salvage and marine firefighting
regulations. The salvage and marine firefighting regulations
are derived from the Oil Pollution Act of 1990. That statute
reads, in relevant part, that tank vessels ``identify, and
ensure by contract or other means . . . the availability of,
private personnel and equipment necessary to remove . . . a
worst-case discharge (including a discharge resulting from fire
or explosion), . . .''
The clear import of that provision is that Congress
intended that when a fire or similar incident occurs offshore,
marine salvage and firefighting resources be identifiable and
ensured by contract to be available to respond. As my testimony
will explain, neither of those requirements are currently being
met.
In terms of the implementation of the salvage and marine
firefighting regulations, the Coast Guard was surprisingly
patient. Over a period of 23 years, the effective date of the
regulations was repeatedly pushed back. The reason the Coast
Guard usually provided for the delay was that more time would
be needed to allow the resource providers to build the vessels
necessary to achieve compliance with the rules. Unfortunately,
the dedicated network the Coast Guard envisioned has not been
established.
Looking at the salvage and marine firefighting regulatory
requirements, it is clear that these requirements cannot be met
consistently without a dedicated network. The regulations
require ``A planholder must ensure by contract or other
approved means that response resources are available to respond
. . .'' Instead of building the dedicated resources the
regulations required, the regulating community attempted to
achieve compliance using a vessel of opportunity approach.
Under this strategy, a vessel owner lists numerous vessels
in his vessel response plan, in the hopes that one might be
available to respond. This approach is both legally and
operationally deficient. Legally, of the four qualified
resource providers, three conditioned the response on the
availability of their vessels. All resource providers rely
heavily upon subcontractors, whose contracts provide they will
respond, if available.
Operationally, the vessel of opportunity approach also
cannot achieve compliance consistently. Because nondedicated
vessels are often engaged in other work, they must first
disengage and return to port. There these vessels load the
necessary equipment and personnel and are retrofitted with
firefighting pumps. It is unlikely these activities can be
accomplished and mount a compliant response within the 6-, 12-,
or 18-hour timeframes.
The obvious question is how could these serious
deficiencies not have come to the attention of the Coast Guard.
The salvage and marine firefighting regulations provide a very
specific list of mandatory exercises and drills. Unfortunately,
the Coast Guard has not required vessel owners to provide proof
of these exercises.
There are real-life examples of these compliance issues. On
March 14, 2015, the Grey Shark lost power off the Coast of New
Jersey. On the 15th, fire broke out. On the 17th, she arranged
a tow back to New York Harbor, where the New York Fire
Department put the fire out on the 18th. During that time the
Grey Shark utilized a vessel-of-opportunity approach to
compliance. She contacted over 200 vessels. None were available
to respond.
The Caribbean Fantasy, a cruise ship, caught fire within 2
miles of the entrance to San Juan Harbor. Although a very
successful evacuation was performed, according to Coast Guard
commander Janet Espino-Young, the active firefighting component
of the vessel response did not meet the criteria as required by
the regulations. That is within 2 miles of a major port.
In 2015, RORC [Rapid Ocean Response Corporation] submitted
an application to build a nationwide dedicated salvage and
marine firefighting response network. That network, comprised
mainly of harbor pilot groups, utilizes high-speed, oceangoing
pilot boats to transport fire teams and surveyors. These pilot
boats were to be used until custom-built fire boats could be
placed in service. RORC provided examples of lack of compliance
and operational deficiencies in each captain of the port zone.
On March 14th, the Coast Guard responded, explaining that
the Coast Guard could not approve RORC's application without
first determining that a gap in compliance existed. On March
17, 2016, Admiral Paul Brown announced a verification process
to determine whether gaps in compliance did exist.
Inexplicably, this process has not come to fruition.
In closing, the congressional mandate that salvage and
marine firefighting resources be identifiable and ensured by
contract to be available to respond has not been achieved. I
ask the Oversight Committee to press the Coast Guard to reject
vessel response plans that do not provide evidence of the
required drills and exercises. Without requiring proof of
compliance, Congress' clear intentions will remain unfulfilled.
Thank you, and I ask that my written statement be adopted
to the record.
Mr. Hunter. Without objection. This is interesting, too,
because Mr. Schauer and Mr. Nedeau are talking about the same
issues. Mr. Candito and Mr. Custard are going to be talking
about the same issue on different sides.
So, Mr. Custard, you are recognized.
Mr. Custard. Thank you, Mr. Chairman. Good morning,
Chairman Hunter, Ranking Member Garamendi, and members of the
subcommittee. The Alaska Maritime Prevention and Response
Network, a nonprofit organization, administers the only Coast
Guard-approved, nontank vessel APC program that covers the
entire Western Alaska Captain of the Port Zone. The Network
supports over 450 maritime companies from around the globe
operating in and transiting through western Alaska. I
appreciate the opportunity to discuss the implementation of
alternative planning criteria in western Alaska.
By way of background, the area referred to as western
Alaska has long been of interest to the U.S. Congress. As the
committee knows, western Alaska includes the U.S. Arctic region
and other areas of critical national interest in western
Alaska, including the unique environment and critical habitat,
the largest and most valuable commercial fishing industry in
the United States, and unique cultural interests.
In short, Congress has a long and valued history in
recognizing and addressing the many challenging issues that are
unique to this area for the benefit of all Americans. As an
Alaskan, I very much appreciate Congress' efforts in that
regard.
The Western Alaska Captain of the Port Zone comprises over
1 million square miles of ocean. Because this exceptionally
large area has little infrastructure, the national planning
criteria used to meet the requirements of the Oil Pollution Act
of 1990 in the continental United States have been very
difficult and challenging to obtain there. Instead, vessel
owners and operators have been using alternative planning
criteria, or APC. The Network has concerns on several major
issues.
The Coast Guard has deviated from the longstanding practice
of managing the vessel response plan regulations in western
Alaska on a captain-of-the-port-wide basis, creating confusion
among the maritime industry and undermining the ability to
sustain and enhance oil spill preparedness in western Alaska.
The current management practice, as well as the proposed
guidance by the Coast Guard, will, over time, continue to lower
response capability and capacity. They will weaken the oil
spill safety net in western Alaska, undermining environmental
protection and putting the livelihood of fishing vessels in
Alaska, Washington, Oregon, and California in jeopardy.
The Coast Guard recently imposed competition on APC
providers in western Alaska, but the terms were not clear,
equitable, or consistently enforced. All APC providers should
cover the entire captain of the port zone, and should position
and build out, not minimize, equipment within Alaska, so that
resources are readily available, rather than being a continent
away, taking days to deliver and put in place. By then, the
damage from the spill is done.
There has been no objective economic analysis completed by
the Coast Guard. The independent economic assessment we
provided to the Coast Guard validates a downward trend we are
witnessing in sustaining response capabilities in western
Alaska. We are now witnessing a decline in greater intensity
and velocity than predicted by that study.
The claim that there is more equipment in western Alaska
with multiple APC providers is a mischaracterization of
reality, because it assumes all APC providers make their
equipment available for any vessel during a response. But the
only equipment a planholder can rely on is what is available
through their individual APC provider.
As Congress examines a path forward, and to the extent that
changes are made to the way APC is implemented in Alaska, we
request that the following principles be considered: APC
providers must cover the entire Western Alaska Captain of the
Port Zone; continued fragmentation of the captain of the port
zone will continue to result in reduced capacity to protect
western Alaska and the Arctic.
Reducing the risk of oil spills must be an essential
component of an APC program. The economic ramifications of how
the Coast Guard is implementing APC in western Alaska must be
analyzed and understood. Accountability is paramount. When an
oil spill happens, Alaskans want assurance that vessels in an
APC program have the resources in Alaska readily available to
respond to a spill.
Unlike now, the Coast Guard must be able to consistently
apply and enforce whatever rules it develops. Waivers should be
the exception, not the rule.
Regular order must be adhered to in regulating industry.
Regulations by administrative policy allows the Coast Guard to
change the rules without notice or an opportunity for comment,
and without analyzing the economic impact.
Up until recently, the Coast Guard managed oil spill
prevention and response on a captain-of-the-port-wide basis in
western Alaska. The result was a long-term, sustainable build-
down of response resources for the benefit of the entire
region. Congress should provide policy directives that result
in continuity and predictability, and resolve the ambiguities
in the regulations that allowed the Coast Guard to unilaterally
depart from the successful approach, and direct the Coast Guard
to return to an areawide APC requirement in western Alaska and
the Arctic.
These principles are offered to restore order to the
process of regulating the maritime industry in western Alaska.
More importantly, they will ensure that oil spill response is
administered in a fair and balanced manner, and will ensure
that a robust and sustainable oil spill prevention and response
program protects all of western Alaska, including the U.S.
Arctic region.
The Network stands ready to work with the committee, the
Coast Guard, and all stakeholders to craft a long-term solution
that works for western Alaska.
Mr. Chairman, I appreciate the subcommittee's examination
of this important issue. I ask my written remarks be entered
into the record. Thank you.
Mr. Hunter. Without objection. Thank you.
Mr. Allegretti, you are recognized.
Mr. Allegretti. Good morning, Chairman Hunter, Ranking
Member Garamendi, and members of the subcommittee, thank you
for holding the hearing today. I am here to ask for your
assistance in averting an existential threat to the health and
the viability of AWO [American Waterways Operators] members in
the ship-docking business.
Over the past year, international ocean carrier alliances
have filed agreements five times with the Federal Maritime
Commission, seeking authorization to negotiate collectively
with tugboat operators and other domestic service providers who
have no counterbalancing ability to take such action under U.S.
antitrust laws.
In three of the cases, the parties to the agreement
eventually withdrew the collective negotiation provision. But
in January, a group of foreign car carriers filed an amendment
that allows alliance members to negotiate jointly with American
tugboat operators. Over AWO's objections, and without a
thorough analysis of the injurious impact on the tugboat
industry, the FMC allowed the amendment to take effect.
AWO believes that both the letter of the Shipping Act and
congressional intent in enacting that statute prohibit
collective negotiation of rates with domestic service
providers. We foresee an egregious competitive imbalance and
grave harm to American companies if foreign ocean carrier
alliances are allowed to negotiate collectively with the U.S.
tugboat operators. We have laid out the legal and the practical
reasons for our concerns in multiple submissions to the FMC and
in meetings with FMC Commissioners and staff.
We are gratified that both the Department of Justice and
the bipartisan leadership of this subcommittee and the full
committee have voiced similar concerns to the FMC. But frankly,
we are astonished that a majority of the FMC Commissioners do
not share them.
Because the FMC allowed the car carrier group to
collectively negotiate with U.S. companies, we were not
surprised when, in March, a group of Japanese ocean carriers
filed yet another agreement that would authorize the parties to
negotiate collectively with tugboat operators. The FMC had
signaled a green light for this provision. AWO and other
service providers have registered strong opposition, but the
offending provision was never removed from the agreement.
This series of events leads us to three basic conclusions,
all of which are very troubling to us.
First, that foreign ocean carriers of ever-greater size and
market power will continue to seek authority to negotiate
collectively with American tugboat operators who enjoy no
ability under the antitrust laws to take similar action.
Second, that the FMC is either unwilling or unable to halt
and reverse this unfair and anticompetitive situation.
And third, that the FMC intends to extend its regulatory
review over the tugboat industry, an authority Congress has not
conferred. In the process, it will eviscerate the
confidentiality of our commercial contracts with our customers.
My central message to you is this: It is fundamentally
unfair, anticompetitive, and detrimental to the U.S. maritime
industry to skew the playing field in favor of massive
international shipping conglomerates, which include foreign,
State-owned enterprises, and entities that have paid criminal
fines for anticompetitive behavior, at the expense of American
tugboat companies.
If the FMC lacks the will or the ability to act swiftly and
decisively to stop and reverse this growing trend, then AWO
members call upon Congress to amend the Shipping Act to
unequivocally prohibit joint negotiation with domestic service
providers. It is unconscionable to us that an agency of the
U.S. Government would sanction the disadvantaging of an
essential American industry in favor of foreign shipping
alliances. Congress should act to rectify this injustice where
the FMC has failed to do so.
Thank you very much for your attention. I look forward to
your questions.
Mr. Hunter. Thank you, Mr. Allegretti.
Mr. Butler, you are recognized.
Mr. Butler. Chairman Hunter, Ranking Member Garamendi,
members of the subcommittee, my name is John Butler, and I am
the president and CEO of the World Shipping Council. I
appreciate the opportunity to testify today. I have submitted
written testimony that I would ask be included in the record.
I would like to make two points about the liner shipping
industry, and then I would like to address the issue of joint
purchasing.
The first point is that the liner shipping industry is a
critical link in our Nation's international trade, and it is a
major driver of the economic vitality of this country. Whether
our members are carrying consumer goods to retailers in the
United States, supplying parts to automobile manufacturers, or
carrying U.S. agricultural goods to foreign markets, liner
shipping touches almost every part of the U.S. economy.
The second important point about liner shipping is that the
industry is in a period of substantial change. The market for
international containerized shipping services is intensely
competitive. The result of that competition has been
historically low ocean transportation rates for U.S. importers
and exporters almost continuously since the global recession in
2008.
Persistent low freight rates have caused carriers to seek
efficiencies in every part of their operations, and that
includes tremendous investments in a new generation of highly
fuel-efficient container ships. There have also been structural
changes. A number of carrier mergers closed last year, and we
will see several more that are likely to be completed this
year. However, even after those mergers are completed, the
liner shipping market will remain unconcentrated.
As the committee has discussed already, vessel sharing
agreements or alliances are one of the tools that carriers use
to make sure they get the best operational efficiency out of
their vessel fleets. Sharing vessels allows carriers to serve
more ports worldwide, which improves choices for shipper
customers and increases competition. All carrier agreements
must be filed with the Federal Maritime Commission, and the
Commission may seek changes to carrier agreements based on
concerns that the Commission may have, as well as concerns that
may be raised by the public and interested parties.
As Mr. Allegretti referred to, in the case of the three
major alliance agreements, for example, tug operators raised
concerns about the authority of ocean carriers to jointly
negotiate for tug services. And the carriers in those three
agreements changed the language to clearly state that there
would be no joint negotiation for tug services in the United
States.
The staff summary for this hearing mentions two carrier
agreements that contain some joint purchasing authority. The
Commission, just yesterday, has decided that it does not have
jurisdiction over one of those agreements. The only remaining
agreement in question with general joint purchasing authority
requires the parties to go back to the FMC before they take any
actual concrete action under that authority. That means nothing
happens under that agreement until the FMC gets another look at
it, and the public has an opportunity to comment.
It is unclear at this stage whether and to what extent
carriers in the future may wish to pursue joint purchasing of
services and vessel supplies in the United States. What is
clear is that any agreements with that authority will be
subject to strict scrutiny. That is in line with the full
committee's recent instructions to the FMC, and it is
consistent with the FMC's actions to date. I think the message
has been received on the carrier end, as well.
The one thing that I would respectfully ask of the
subcommittee, of the FMC, and of service providers is not to
take a categorical view about joint purchasing. The Department
of Justice, the Federal Trade Commission, the Department of
Transportation, and the Supreme Court have all said that joint
purchasing can be pro-competitive. And, whether in a given
situation those activities should be allowed, or they should be
challenged, depends on the specifics of that particular
situation.
As the shipping industry works through the current economic
and operational challenges, there may be need for different
types of business arrangements, including joint purchasing. And
some of those activities may be beneficial, both to service
providers and to service buyers. Let's not foreclose
potentially useful tools without first making sure we
understand how those tools might operate in the market.
I thank you for the opportunity to testify. I would be
happy to answer any questions.
Mr. Hunter. I thank you, sir. I am going to yield to Mr.
Larsen over there. I don't think he got a question during the
first panel.
Do you have a question? Please.
Mr. Larsen. Sure. This question is really with regards to
this--the firefighting issue. And I was wondering if--for
Admiral Thomas, if the regulations, the SMFF regulations,
delineate elicit exercises and drills that vessel owners are
required to conduct.
Are those vessel operators conducting those required
drills?
Admiral Thomas. Thank you for the question, Congressman.
Yes, the regulations do specify, as was testified to, a number
of different verification processes, including exercises and
drills. The Coast Guard has limited resources to oversee all
those, but we do oversee the ones that we can.
I think this is really a question about our capacity to
verify compliance with the SMFF regulations. And, as I
testified to in the earlier panel, we are limited in our
capacity across our Coast Guard. But we do have a robust
verification currently underway. That--the verification process
itself, sir, is limited by some legal requirements, in terms of
how much information we can ask for from regulated entities. So
we are conducting that verification in the course of required
plan renewals.
Mr. Larsen. So what kind of legal requirements are there
if, in fact, the law says that you are supposed to verify that
these drills are taking place?
Admiral Thomas. Well, sir, so we--for example, we can
attend and oversee the drills that are required by the law. But
what we are limited in is our ability to ask for additional
information that we might use for verification outside of the
normal cycle in which a regulated entity would normally be
proving that information to the Coast Guard.
I think a key thing to understand here is that these
regulations do not regulate anybody at this table, at least not
the four gentlemen to my left. They regulate vessel operators.
And those operators are compelled to comply with the
regulations by procuring services from the likes of the
gentleman to my left. And that is, I think, really, one of the
fundamental issues here.
Mr. Larsen. Much like the OSRO model?
Admiral Thomas. Much like the OSRO model. The salvage
model, business model, developed differently for a lot of
reasons that Mr. Schauer touched on. But it is very similar, in
terms of the legal and regulatory construct.
Mr. Larsen. OK. Is it Nedeau? Nedeau?
Mr. Nedeau. Nedeau, thank you.
Mr. Larsen. Nedeau, sorry. All right. You said that
earlier, thank you.
What would a successful verification process look like, in
your opinion?
Mr. Nedeau. Well, I think it is--a comprehensive and robust
verification process for the response resources that we address
would simply identify a vessel crossing within the 50-mile
barrier falling within the jurisdiction of salvage and marine
firefighting, and asking that vessel where its response
resources are, and then determining whether they have contracts
with those resources, which require them to respond.
If the contract provides that they will respond if they are
available, it does not meet the legal requirements. If the
vessels are 600 nautical miles away, or not in the captain of
the port zone, it does not meet those requirements,
operationally. And we provided evidence of that to the Coast
Guard in 2015, with our application for an alternative planning
criteria, evidence of the operational and legal deficiencies in
every captain of the port zone, and they responded saying they
would do a robust verification to determine if, in fact, those
deficiencies were apparent. That has not come to fruition.
Admiral Thomas, by the way, is a man of unquestioned
integrity, and tremendous leadership, and we have great respect
for him. However, this program has not been reporting to him.
So I do not believe he is as knowledgeable about the lack of
verification. And his response to your question about whether
they are conducting or requiring the mandatory drills and
exercises, to my knowledge I am not aware of one shipping
company that is required to provide those.
Mr. Larsen. That is a--thank you. I think we need to
explore that a little further. I appreciate it, thanks a lot. I
yield back.
Mr. Hunter. I thank the gentleman.
Mr. Graves?
Mr. Graves of Louisiana. Thank you, Mr. Chairman. I
appreciate it. I continue to have concerns about some of the
vessel response that has been discussed today.
For example, I am concerned about the timing it is going to
take for these vessels to get to some of the potential
accidents that occur. Representing south Louisiana, I had the
chance to spend a good bit of time on Deepwater Horizon
activities, the oil spill in the Gulf of Mexico in 2010, and I
am curious about how a tug that is traveling at 10 knots is
going to have the capability to get out there in any reasonable
period of time to provide the response time that we need in a
disaster.
Admiral, do you care to comment on that?
Admiral Thomas. Thank you, Congressman. The performance
requirements, or planning requirements, are delineated in the
regulations, in the national planning criteria, and they do
specify response times that are required. The process of
determining those times was subject to, you know, robust
analysis and comment through the rulemaking process.
I think one of the real keys here--and I would like to take
this opportunity to correct--the law, and therefore, the
regulation, never envisioned dedicated resources. It is not
required. And, in the course of the regulatory analysis and,
most importantly, in the economic----
Mr. Graves of Louisiana. I just want to make sure--you said
it never required dedicated resources? Is that what you said?
Admiral Thomas. Yes, sir, that----
Mr. Graves of Louisiana. OK.
Admiral Thomas. That is what I said. And, in fact, the
economic analysis--which, as you know, is required for every
rulemaking--we would not have been able to support a cost-
benefit analysis, had we required dedicated, under-contract
resources.
So, the planning factors, they identify and procure, in one
way or another, you know, make an arrangement with resources
that can meet these planning factors. But as I explained
earlier, those are not performance factors when it comes to
actual response.
So there is a misunderstanding, in terms--in other words,
if the Coast Guard were to require dedicated resources for this
purpose, the law would have to be very specific, so that our
regulation could be equally prescriptive.
Mr. Nedeau. If I could address this, this is a common
misunderstanding, I believe.
Mr. Graves of Louisiana. Sure, but quickly. I have got some
other questions.
Mr. Nedeau. I think, as to the nondedicated resource
question, it appears in the Federal Register at page 80634,
Vol. 73, No. 251: ``One commenter suggested that the use of
nondedicated resources is a viable and commercially acceptable,
cost-effective way of conducting emergency-response business,
and therefore should be utilized to establish appropriate
salvage and firefighting standards. The Coast Guard disagrees.
This rulemaking has been designed to mirror the success that
the OSROs and planholders have had with pre-arranged contracts
as required in 33 CFR part 155. This will ensure that both
industry and resource providers are clearly aware of who will
respond on scene, and in what timeframe they are capable of
arriving . . .''
Mr. Graves of Louisiana. So we got a fight on our hands
now.
Mr. Nedeau. I would also like to address the planning
standards if I could that were referenced by Admiral Thomas.
The regulation is very specific. It provides that, in this
instance, ``Compliance with the regulations''--I am quoting
from 155.4010(c)--``Compliance with the regulations is based
upon whether a covered response plan ensures that adequate
response resources are available, not on whether the actual
performance of those response resources after an incident meets
specified arrival times . . .''
The availability requirement that you have a contract with
resources that are available and ensures that by contract is
the legal requirement. It is true that planning standards don't
kick in. Compliance is determined on whether you have a
contract that ensures the resources are available. Thank you.
Mr. Graves of Louisiana. Should we let the two folks in the
middle move out of the way and let you all fight? Would that be
better?
[Laughter.]
Mr. Graves of Louisiana. All right. Let me go back to--I do
want to hear your comment, but I want to make sure I understand
something that you commented on, Admiral. You said that, under
a cost-benefit analysis, you determined that a dedicated vessel
was not appropriate. Is that what we learned about last week,
this Paperwork Reduction Act consideration that occurred that
we recently again just learned about last week? Is that what
you are referring to?
Admiral Thomas. No, sir, I don't believe so. I think that
that particular act is what is making it more difficult for us
to conduct the verification on the timeline that we would like
to do. So we are really forced to do the verification on a
timeline that is in synch with the normal industry requirement
to renew their plans with us.
Remember that regulated entity here is the vessel operator.
It is none of these services.
Mr. Graves of Louisiana. When did that termination occur on
the verification that would--as I understand from last week, we
were briefed that it was based upon the Paperwork Reduction
Act.
Admiral Thomas. When did it occur, sir?
Mr. Graves of Louisiana. Yes. When did that termination of
verification occur?
Admiral Thomas. We have not terminated the verification. We
have just adjusted the timeline on when we can reasonably
expect to get a good-enough representational data set to make a
determination on whether or not the APC that has been requested
is justified.
Mr. Graves of Louisiana. OK.
Admiral Thomas. We are still actively verifying.
Mr. Graves of Louisiana. OK. So then, with--so it is being
enforced, but you said the timeline is the issue right now.
Admiral Thomas. Yes, sir. So we will conduct verification
in the course of plan renewal--that is required already by the
regulation--as opposed to going out to the planholders in
between their renewal process and asking for additional
information.
Mr. Graves of Louisiana. OK. So your compliance process is
what, again, then?
Admiral Thomas. As--similar to what was described. But
essentially, we will take a vessel's plan and we will impose a
scenario on it, and we will freeze in time where that vessel is
when it occurs, and where all their response resources are, and
see how well they can meet the planning standards.
Mr. Graves of Louisiana. Please, briefly, we are----
Mr. Schauer. Yes. Thank you, Congressman. Just to extend
the logic of Mr. Nedeau here, if we extend this logic
throughout the system that we use, salvage and marine
firefighting, every 200 miles on the coast you would have a
large ocean tugboat, dedicated, not able to do anything else, a
derrick barge, you would have supply boats, crew boats,
firefighting vessels. You would have air--charter cargo
aircraft, dedicated cargo aircraft parked, because those can't
be of opportunity, either. You would have trucks parked, you
would have--basically, all of the services that we provide are
provided at the existing networks.
So, if you are going to say they ought to be dedicated,
then throw all that out and let's build a new system. It is
sort of ridiculous, when you look at the cost of it.
So now, we are commonsense folks. We think the Coast Guard
is. There are layers--there are regions where probably less
redundancy. There are places where there is a lot. In fact, the
Gulf of Mexico, it is a resource-rich environment down there.
We get a response there, it is easy. OK? Other places have
less.
So it is a process we have to go through, and we have to
look at the areas of--that, you know, need the most focus, and
continue to grow capacity. Our industry has been growing
capacity for--since our inception. So we have no problem doing
that.
Mr. Graves of Louisiana. I just--I want to caution you in
using the term ridiculous when we are talking about this here,
because we are potentially talking about lives. And response
time and capabilities are very important because, potentially,
we have lives at risk. And I want to remind you Deepwater
Horizon we lost 11 people, the biggest part of that tragedy.
Can you go back? Just one thing that you mentioned earlier,
you mentioned the New York Fire Department being part of your
response capabilities. How does that work? And are you being
compensated for the capabilities of the New York Fire
Department? How does that----
Mr. Schauer. They have signed an agreement to be a resource
provider to the SMFF providers.
Mr. Graves of Louisiana. And do you pay them, or no?
Mr. Schauer. Yes, sir, if they--for their services, they
are compensated for their services.
Mr. Graves of Louisiana. OK, OK. And so--and they have
complementary capabilities to yours, or----
Mr. Schauer. Basically, if--a fire at the dock is the
jurisdiction of the local fire department. So we support them
at a fire at the dock. If the fire moves away from the dock
into the port, offshore, it switches. We take the lead
offshore. So we have a mutual aid agreement. We support them
when the fire is at the dock. They support us as it moves away
from the dock.
Mr. Graves of Louisiana. OK. Because in the case of the
Grey Shark, I think it took 4 days in that case to put that one
out. And obviously, that kind of timeframe, if that were a
vessel with passengers, would be incredibly concerning.
Mr. Schauer. The Grey Shark started about 200 miles
offshore, outside of the jurisdiction of everything. It was--I
don't really want to talk specifically about cases, I am an
elected officer of the ASA, but I am also--I work directly for
one of the providers. So it was a competitor company, they
responded to that. I am not going to address that specifically.
But it started 200 miles offshore, outside the jurisdiction
of the regulations. It was towed in. It was handled--the New
York Fire worked together with the provider, and that is how it
is supposed to work.
Mr. Graves of Louisiana. Thank you----
Mr. Nedeau. If I could just say one thing, my comments have
been limited to the response requirements, not the other 19
services provided by the salvage companies. I have limited my
comments to those first three requirements, rapid response for
firefighters and surveyors. That is what the subject of the
alternative planning criteria I submitted to the Coast Guard
addresses.
Mr. Graves of Louisiana. Thank you.
Thank you, Mr. Chairman.
Mr. Hunter. I thank the gentleman. And just to be clear,
before I yield to Mr. Garamendi, I think the gentleman's point
was that fire that occurred on the Grey Shark, they towed it
back to the dock for 4 days, and then the fire department put
out the fire at the dock. Right? So the salvors didn't put the
fire out, I think is what he is saying, in the ocean. They
brought it all the way back as it burned, and then the New York
Fire Department put it out at the dock, like they put out a
house fire. Is that right?
Mr. Schauer. That is correct. And again, it is--again, the
specifics of the case I don't want to get into, but that is not
an uncommon thing.
Mr. Hunter. OK.
Mr. Schauer. To work on a fire that is at a place of safety
where you can----
Mr. Hunter. Sure. Admiral Thomas, is that what you--is that
why the regulation is there, so that that happens?
Admiral Thomas. Well----
Mr. Hunter. I mean is that what the Coast Guard envisioned
when they put this in?
Admiral Thomas. As Mr. Schauer mentioned, that particular
incident occurred outside the jurisdictional limit of the law
and the regulation in this case. So----
Mr. Hunter. OK. Say that it happened 20 miles offshore. Is
it still your--is it the Coast Guard's intent, then, that you
tow in the boats to the closest fire department at the dock, as
opposed to putting the fire out in the ocean?
Admiral Thomas. Coast Guard regulations are not as
prescriptive as to tell the salvage professionals the best way
to put a fire out on a ship. There may be situations where that
is, in fact, the best response, and there are others where the
salvage professionals would determine bringing response
resources to the vessel is best.
But the regulations specify resource capabilities and
timelines, but they are not prescriptive on which resources
should be used when, and who--and how those decisions are made.
That is made in consultation with the captain of the port as
the situation evolves.
Mr. Hunter. OK. I yield to the ranking member.
Mr. Garamendi. Mr. Chairman, thank you for scheduling such
an informative and necessary hearing. We have gone through this
rapid response issue thoroughly. I have some questions--and I
may ask them for the record--with regard to that.
But I would like to focus, instead, on this alliance
business and the FMC response to it. It seems to me that what
has happened here is there has been a very significant change
in the nature of the industry since the last amendment to the
Ocean Shipping Act, and that the FMC's authority and
responsibilities no longer fit the reality of the industry. The
emergence of all of the alliances and the significant power
they have as a result of those alliances raises a question of
antitrust, anticompetitive activity.
I noticed, Mr. Butler--I was reading your testimony here,
and you kindly gave us the specific sections of the alliance
agreements, and you helpfully underlined those sections, or
those particular sentences that are to your benefit.
For example, ``The parties shall negotiate independently,''
and the next 50 words are underlined, ``independently with . .
. stevedores, tug operators,'' and so on and so forth. And then
there is this word, ``provided, however,'' that specifically
gives the alliances the opportunity to share information that
is necessary to collude. And I am going ``something is wrong
here,'' because the specific--``provided, however, . . . the
Parties are authorized to discuss, exchange information, and/or
coordinate negotiations with'' the providers of services.
The bottom line in all of this is the law is not up to date
with the realities of the industry, as it exists today. Our
task is to address changes in the law, as well as
implementation of the law. It seems to me that the FMC can
correctly argue that they are simply carrying out the law. We
can debate whether that is or is not the case, and whether they
are carrying it out correctly. But I think there is no doubt in
my mind that the current law is out of date, and has to be
changed. So, my specific questions go to that task that we have
of writing law.
I want to start with Mr. Allegretti. How would you change
the law to address the concerns that you have so ardently
expressed to this committee?
Mr. Allegretti. The problem, Mr. Garamendi, with the
current interpretation of the law, is the Shipping Act has an
explicit and express prohibition against foreign ocean carriers
negotiating collectively with domestic service providers,
except that it does exactly what you just said. And then it
says, ``except or provided that it doesn't otherwise violate
the antitrust laws.''
The problem with that in the real world is who is going to
determine that these negotiations have violated the antitrust
laws? Is the tugboat operator supposed to sue his customers
under the antitrust laws to push back on this? Shall we rely on
the Department of Justice to do it? Should we rely on the FMC
to do it? These are not going to happen in the real world. And
the result is that, in fact, the express prohibition in the law
will be routinely violated in the marketplace.
Mr. Garamendi. So what change?
Mr. Allegretti. Then the change would be to take that
provision out of the current statute that says, ``provided that
it doesn't otherwise violate the antitrust laws.''
Mr. Garamendi. OK. So the removal of a specific section of
law.
Mr. Allegretti. It is a phrase at the end of that section
that has the express prohibition in it.
Mr. Garamendi. Mr. Khouri? Same question.
Mr. Khouri. Congressman, I would have to take some time
with our general counsel and with my fellow Commissioners. I
can't individually speak on behalf of the FMC.
I don't have a formed opinion as to whether that would be a
bad idea or not. I don't have a current opposition to
considering it, but I would want to have a reasoned amount of
input from all parties to see might there be some unintended
consequences with that. But I can't say, as I sit here and give
testimony today, Congressman, that I am opposed to that as a
solution.
So, you know, it is not that any of us--and I said this,
you know, when we had a private meeting the other day--at the
Commission, you know--the only degree I have on my wall is my
United States Merchant Marine Officer's License as a Master and
First Class Pilot----
Mr. Garamendi. I appreciate that. We really----
Mr. Khouri. And we have others. So, you know, we have the
sympathy----
Mr. Garamendi. Well, let me put----
Mr. Khouri [continuing]. But, as you say, we have to work
with the law.
Mr. Garamendi. Excuse me for interrupting, but I would like
the--like your opinion, and I would like the opinion of the
Commission as to how to address this problem of competition or
lack thereof. So if you could respond to that question----
Mr. Khouri. We will promptly prepare answers to all the
committee----
Mr. Garamendi. We are probably less than a month away of
writing the new law for the Coast Guard maritime. And so I
would appreciate that in the next 2 weeks, if you would please
provide that.
Mr. Butler, the same question to you.
Mr. Butler. Mr. Garamendi, obviously, if the Congress
wishes to amend the law, we would be pleased to work with you
at looking at language. That is the prerogative of the Congress
to make that policy and make the law.
I would offer the perspective that the existing Shipping
Act, as it was amended in 1998, did contemplate the kinds of
activities that are going on today. I am not so sure that we
are in a position where we need to look at a major rewrite of
the Shipping Act. I think there is enough authority and
flexibility to deal with these issues.
I would just note that the issue Mr. Allegretti has raised
is very specific, and I understand you to be talking about
perhaps broader issues. I think it is important to make that
distinction.
Mr. Garamendi. Well, let me be very specific. Mr.
Allegretti has proposed a specific change in the law that a
certain clause be eliminated. Have you--I assume you have not
had the opportunity to opine on that, but take a run at it.
Mr. Butler. Well, I want to talk to Mr. Allegretti about
what he is trying to----
Mr. Garamendi. Well, if I----
Mr. Butler [continuing]. To accomplish. And we have had a
conversation. And as I understand it--and he will set me right
if I get this wrong--I think what he is trying to have is a
flat prohibition on joint negotiation for tug services. And
if----
Mr. Garamendi. Mr. Allegretti?
Mr. Allegretti. Can I try to put a more specific and
practical perspective on what the problem is? There is a lot of
conversation about law and analysis and competition. But here
is the effect of what will happen if we don't change the law,
and let me give you a practical example.
You are a tugboat operator in a port somewhere in the
United States. You have three major customers, and they each
constitute, let's say, 25 percent of the business that you have
in that port. Those three customers form an alliance, and they
are given authorization by the FMC to come to you and jointly
negotiate their rate.
The first thing they do is they share the rate information,
and they determine that one of them was paying $1,000, one was
paying $1,500, one was paying $2,000. Well, the immediate thing
they will ask that tugboat operator for is, ``Give us all of
the work at $1,000.'' Once they have done that, perhaps they
will say, ``And you know what? This is 75 percent of the
business. Maybe you ought to give it to us at $800.''
So, if you are the tugboat operator, and you are faced with
this dilemma, you are now faced with either taking work at a
noncompensatory rate that doesn't allow you to meet the cost of
capital for your $15 million tug, for the crew that you provide
family wages to, or the loss of 75 percent of the business that
you enjoy in this port. We should not allow that to happen, Mr.
Garamendi.
Mr. Garamendi. I very much appreciate your argument. It is
clear to me--and I think to many members of this committee--
that we have a situation evolving in which oligarchic power is
in existence and can be used to the detriment of competition,
pricing, and a competitive environment.
It seems to me that we need to modify the law, which is now
almost 30 years old so that we recognize the realities of the
industry as it exists today. I am particularly troubled by the
language in the alliance, as Mr. Butler has presented to the
committee, that allows the alliances to provide amongst
themselves all the information they need to collude--
independently, but nonetheless, collude, prior to independent
negotiations. I think that is wrong. I think we need to change
the law.
Mr. Allegretti, you have made a specific proposal as to how
that might be done. I intend to pursue that. We will be writing
a new authorization for the Coast Guard maritime in the next
month or so, and it would be my intent to try to address this
issue by changing the law to require--or to set up a balance
that would create competition and eliminate collusion. Now,
that would be my intent.
And I would appreciate, Mr. Khouri, if you and the FMC
Commissioners would opine on that, and specifically on the
language that Mr. Allegretti has proposed.
Mr. Butler, if you would do the same, it would be very
helpful.
I yield back my time.
Mr. Hunter. I thank the ranking member. So let me just go
through this really quick. There are three issues here. One is
firefighting and oil response. The second is the Western Alaska
Captain of the Port Zone--and let me apologize for Don Young
not being here. Otherwise, Mr. Custard and Mr. Candito would be
much more--you would be much more involved. I have been to
Alaska once when I was 13, I went fishing with my dad. So we
are going to work on this and be in touch. Then the third is
the FMC and collusion between shippers, shipping companies.
So let's start with that one first, and then we will go to
the oil--fire response. I am just trying to drill down, because
what the law says is that the FMC is required--it is basically
you are looking out for consumers. So as long as the rates are
low, and the stock at Walmart doesn't rise in price because of
shipping prices, then you are happy, right?
I mean that is, by law, what you care about. It is--because
the law doesn't mention ports or tugs or terminals or any of
that. It just mentions the shipping companies, right? And your
job is to make sure that those prices stay low for the American
people.
Mr. Khouri. It is both price and service. So, you know,
adequate service to the consuming public is included in that,
Mr. Chairman.
Mr. Hunter. And that means the availability of ships to
export and to import, right?
Mr. Khouri. Well, yes. But, you know, we do also regulate
terminals, and they are common--they produce common tariffs, et
cetera, and they also fall within our jurisdiction. So----
Mr. Hunter. But when it comes to this case, by law you are
looking at the availability of the ships to export and import,
and low prices for the American people.
Mr. Khouri. To see--as long as there is open competition,
competition will obtain the best result. Yes, sir.
Mr. Hunter. OK. So I think, in the end, that is what we are
going to need to look at changing, if we are to make changes to
this, so that the law can then prescribe to you that you are
allowed to take in the interests of the American maritime
industry, which is why you exist.
I mean you brought up the FTC, the Department of
Transportation, the DOJ. I mean if we have all that, then why
do we really need the FMC? I mean the reason you have an FMC is
to look after--in my opinion, and I think in the ranking
member's too--is to look after American interests when it
concerns the maritime industry.
Mr. Khouri. I----
Mr. Hunter. But we are wrong, because that is not what the
law says. That is just what we want.
Mr. Khouri. I will be happy to look at that. You know,
again, the sympathy is with the sentiment that you express.
If I could just take a second to make sure where we are
moving from. Mr. Allegretti put together a hypothetical. Not to
get back down into the weeds, but to be clear, if the
hypothetical was--that he gave on the record today--was
presented to us, I could look at my general counsel out there.
It is 12:20. I bet you he could have an injunction on that
hypothetical out of the U.S. District Court here in the
District of Columbia before 5 o'clock today.
What he described was a very clear abuse of market power.
So it is not that we don't have power to address those issues
when presented. So----
Mr. Hunter. Yes, am I correct, though--am I correct in
basically saying what the law allows you to do and prescribes
for the FMC?
Mr. Khouri. That is correct, sir.
Mr. Hunter. OK, OK. So that is what we needed to drill down
on.
To Admiral, let's get to the response vessel plan, vessel
response plans. If an oil-carrying rig off of Alaska gave you a
vessel response plan that was a plan that included vessels of
opportunity, some of which might not even have oil containment
or oil-fighting, oil-dispersion capability, would you accept
that?
Admiral Thomas. Well, we would look at the plan to ensure
that it meets, in the case of western Alaska, the alternative
planning requirements that have been approved. That may include
some vessels of opportunity that meet some of the 19 functional
requirements. But we would have--in the case of oil spill
response, we would have to make sure they meet the requirements
in one way or the other. It may include vessels of opportunity,
but, quite honestly, that is the case throughout the U.S., not
just in western Alaska.
Mr. Hunter. OK. Let's say in the gulf, where they drill for
oil, would you be--the Coast Guard would accept vessels of
opportunity for those oil response plans?
Admiral Thomas. For the purpose of salvage or oil----
Mr. Hunter. For the purpose of oil spills, for cleaning it
up and stopping fires and oil stuff.
Admiral Thomas. Absolutely. We will look--we verify that an
OSRO who is listed on a vessel's response plan has the
capability that is required by the law. If they provide that
capability through vessels of opportunity, you know, that is
common.
Mr. Hunter. OK. So let's go back and make this simple for
me. You are saying if the vessels of opportunity have the
correct gear on them to deal with an oil spill, and you verify
that, then that is acceptable?
Admiral Thomas. Well, again, there are many different
functional requirements in the regulations. Mechanical recovery
of oil is one. Those are specialized vessels, and those would
have to be, you know, specifically identified, and not
necessarily used as a vessel opportunity.
But there are other functional requirements----
Mr. Hunter. OK, so--but--so let's just stop there. So just
that 1 out of the 19, that would require the vessel to be a
specialized vehicle for oil response stuff, right?
Admiral Thomas. Well, I don't want to confuse the salvage
and marine firefighting regulations with the oil spill recovery
regulations. They are both in OPA, but they are----
Mr. Hunter. Right, but I am--we are not talking fire, we
are talking oil.
Admiral Thomas. OK. So the 19 functional requirements are
specified in the salvage and marine firefighting rules.
Mr. Hunter. And----
Admiral Thomas. So the oil spill regulations say you have
to identify your worst-case discharge and the resources
required to, you know, respond to that.
So, for example, there may be a requirement to deploy boom.
Deployment of boom is not going to require a highly specialized
vessel, and that is a perfect opportunity for vessels of
opportunity, particular, for example, vessels that are normally
in a port working that port to be identified in the plan as the
resource which will deploy the boom.
Now, the resource that will conduct mechanical recovery, if
that is actually required by the plan, is usually a very highly
specified or highly specialized resource, and that would have
to be identified, and we would have to confirm that it is
reasonably available in the timeline required.
Mr. Hunter. OK, and do you go by--do you look at--those
vessel response plans on oil spills, do you look at those as
planning requirements or performance requirements?
Admiral Thomas. It is a planning requirement, sir. It is a
worst-case discharge planning requirement, and identify the
resources that would be required----
Mr. Hunter. So they can say, ``here is our plan,'' and
then, when it comes down to it, they don't really have
anything, but that is OK, because they had it--they had a plan
for----
Admiral Thomas. No----
Mr. Hunter [continuing]. Between performance and planning
requirements----
Admiral Thomas. Well, so we require that you provide us a
plan that meets certain planning factors, and that you identify
the resources that would be available to meet that plan. The
difference is, when it actually comes time to deploy those
things, we don't go out and say, ``Your plan said it would be
here in 6 hours; it took 7 hours,'' right, because the
performance didn't meet the plan.
If it was--in our judgment, when we approved the plan, you
reasonably identified the resources and had the contracts in
place to meet the performance requirements. We don't then come
back and say, well, you know, it was 7 hours because there was
traffic on I-95.
Mr. Hunter. So is there a difference in your mind, then--so
now let's confuse the two, the oil spill and firefighting.
Admiral Thomas. It is easy to do.
Mr. Hunter. Right? So what is the difference between the
requirements, planning, and performance requirements between
those two? Or do you kind of see those the same way?
Admiral Thomas. Well, with regard to oil spill response,
you have to plan for a worst-case discharge from your facility,
from your vessel, et cetera. And that drives the planning
requirements, because it says what kind of product am I
carrying, how much might spill, et cetera.
With regard to salvage and marine firefighting, you have to
plan for the 19 functional requirements that are in the
regulations, things like deep-sea towing, firefighting, you
know, et cetera, removal--wreck removal.
Mr. Hunter. So that means, then, that the vessels that you
choose, they have to have those capabilities, right?
Admiral Thomas. Yes. Yes, absolutely. In the case--yes.
Mr. Hunter. Go ahead, Mr. Garamendi.
Mr. Garamendi. Thank you, Mr. Chairman. If I might, I had a
meeting, a conversation, about a week ago with this--with the
response organization for San Francisco Bay. And they had
completed, within the last month or so, a drill in which they
tested the response for an oil spill and a fire within the bay.
I think that is, if I recall from my experience as head of
the State Lands Commission in California, that is uniform
throughout the ports and some of the coast of California. As
you get into the more remote areas, I don't think that is the
case. But they do have a response plan, and they do exercise on
a regular basis that response program. So I think it goes to
the issue of both the plan and the capabilities.
Now, I can't speak for anywhere outside of the ports of
California which I am familiar with that happening. And I think
the question that we are trying to get to here is that--is it
in other parts of the marine environment subject to American
control sufficient planning and then response as a result of
that planning? And does the Coast Guard have the capability of
having some reasonable level of assurance that it does exist?
Admiral?
Admiral Thomas. So the regulatory requirements are
consistent, you know, throughout the U.S., and including in
western Alaska. And that includes the requirements for the
planholders to conduct exercises like those that you have had
the opportunity to observe.
The Coast Guard will oversee those exercises when our
resources permit. But the fact remains that the responsibility
to comply with that portion, with the exercise portion of the
regulation, remains with the regulated entity, or the
planholder. That includes both facilities and vessels. And that
is a uniform requirement.
The question about whether or not the Coast Guard uniformly
verifies compliance with both the exercise requirement and
whether or not we uniformly verify compliance with the
availability of the identified resources, absolutely, we are
resource-constrained in our ability to do that. And we are also
constrained in some ways by some legal requirements. But we are
working hard to work our way around the country right now and
complete those verifications.
Mr. Garamendi. I appreciate that. And my last 30 seconds
here--because I think I know I have to go--I share the concerns
with Mr. Young about what is happening in Alaska, and the way
in which the western zone has been divided up, and the effect
that that would have on providing services in those areas that
are not directly related to the Prince William Sound. So, I
will let it go at that, share that comment with you.
For those I said specifically--I asked specifically for
three people to respond to Mr. Allegretti's point, and anybody
else that wants to chime in, here we are. I look forward to
that.
Mr. Chairman, a most useful committee hearing. Thank you so
much.
Mr. Hunter. I thank the ranking member. And we will--this
has been a marathon sitting here, so we will finish really
quickly. I just--back to the firefighting response stuff.
Admiral, I just read--John showed me the 155.4030(b). You
do put in there--you have timeframes, right? You say you have
to have fire suppression, do on-site assessment, and then you
have timeframes for inside of 12 miles or inside of 50 miles,
and you have to have external vessel firefighting systems and
external firefighting teams, right? That is what you--that is
what is in--that is Coast Guard regulation, right?
Admiral Thomas. Yes, sir.
Mr. Hunter. OK. So when you established that, what was--
just walk me through this. So you have that. Then you say,
``However, if you don't have that, and just have a good plan,''
and you list vessels of opportunity that may or may not have
this capability, that may or may not be able to meet this
timeframe, walk me through--then that is OK, because it is just
for planning purposes, and it is not oil spill stuff, it is
just a fire.
Admiral Thomas. So I will try to clarify, Congressman. I am
sorry that I confused this issue.
When we review a plan, we review the plan to ensure that
they have made provisions--the contract or otherwise--for the
resources that are required by the regulation and the response
times that are required by the regulations.
In other words, their plan says, ``Here is how I meet that
6-hour requirement for firefighting, and here is who is going
to provide that service for me,'' and we review the plan, we do
what we can to establish that these arrangements are, in fact,
true. And in the case of salvage and marine firefighting, most
of those come through the four big agreements that are out
there.
And then, so that is how we approve the plan. So it--we do
make sure that they have, in fact, identified a vessel that can
fight fire.
Mr. Schauer. Chairman?
Mr. Hunter. Yes, please.
Mr. Schauer. Thank you, Chairman. Just to clarify how--now
we are operational guys. A fire is fought in a certain way. The
way we look at it, similar to oil spill response, we use
specialized equipment. We can't part--because we can't afford
200 fire boats everywhere, it would--cost prohibitive--we take
specialized equipment, portable equipment, large-capacity
pumps, large-capacity monitors, storages of foam, we put them
in depots around the country, 25 depots. We have a big fire
offshore? OK. We have the specialized people and equipment to
do the fire. We just need something to transport it out there.
OK?
We need--and the problem that is being presented is that it
is trying to do two things at once. Carrying passengers and
being set up to handle a big fire are two different things.
Carrying the people offshore, that is taxicab service, OK? Not
a big deal. We are concerned about, when we get there, having
assets--taking those big pumps, big monitors--we can put remote
monitors on top of the wheel houses of big tug boats, big
offshore supply vessels, and direct the foam and water on the
fire. That is effective operational response.
So it is not about just one little taxicab with a fire
pump. It is about the system we use. And that is how we do it,
that is how we do it cost effectively, with the portable
specialized equipment loaded on vessels of opportunity.
Mr. Hunter. Mr. Nedeau, go ahead.
Mr. Nedeau. If I could comment, I think that the question
that you posed is a very, very good one, and I want to go back
to something you said earlier. You were concerned that it took
4 days to put out the fire on the Grey Shark. I should point
out that it also took 4 days to put out the fire on the
Caribbean Fantasy. That fire broke out within 2 nautical miles
of the pierheads in San Juan, and the San Juan Fire Department
put that fire out, as well.
I think, if you go back to the transcript of the hearings
that were held in San Juan with the National Transportation
Safety Board and the Coast Guard, you will find that the
firefighting response was wholly inadequate. I cited in my
comments that the Coast Guard has already concluded it was not
compliant. And the reason it is not compliant is, again,
relying on a vessel of opportunity works in some instances.
However, in this instance, if your plan cites certain vessels
of opportunity to respond, and they do not--they are transient,
and they are not in the captain of the port zone, for example,
then you do not have an adequate plan, from my perspective.
And my criticism of the Coast Guard is they haven't gone
back to verify that a vessel entering a harbor--let's say
Charleston--lists 30 vessels as its vessels of opportunity to
respond, however none of those are located within the captain
of the port zone. I do not think that is an adequate plan. And
because the Coast Guard, as Admiral Thomas has pointed out,
lacks the resources to do this type of verification, we have,
time and time again, instances where the resources simply
aren't available.
We bring spent plutonium into Charleston under the MOX
Treaty. In that instance, you would think that we would have at
least a dedicated resource or ensure that resources are within
the captain of the port zone to address that, in the event of a
fire. And I am surprised that the Coast Guard has not taken it
upon themselves to review our alternative planning criteria,
where we do propose to provide a high-speed fire boat.
Mr. Schauer is correct. The high-speed fire boats that we
have proposed in the 20 largest ports in the United States
would not necessarily put the fire out. We need the salvage
community, we need them to bring those heavy assets. But to
meet the response requirements in these strict timeframes that
you alluded to, Chairman, that would require a high-speed,
special-purpose fire boat, which we have proposed to provide in
the 20 largest ports in the United States. Thank you.
Mr. Hunter. Admiral, so let's end with you on this. What
is--I guess put it this way. Is the Coast Guard happy with the
way that things are? Because there is a clear delineation
between what you require for oil spills, which might kill some
fish, and fires, which may kill some people. I guess that is
what I am trying to get to, because you require all this stuff
for oil spills, because we all love the climate and it is--you
know, the ocean is great.
But when it comes to people, you require whatever could be
available at any--whatever is available, basically. And you do
make that difference.
Admiral Thomas. Sir, I think the Coast Guard would like to
see more robust response capability around our Nation for both
oil and salvage and marine firefighting. And it is clear that
the congressional intent, when we were directed to implement
the regulations, was to build that capacity.
Mr. Hunter. The author of the regulation is here, by the
way.
Admiral Thomas. And I would say that we are achieving that
goal. Probably not as fast as some in this room would like to
see.
The Coast Guard, as you know, is constantly in the position
of balancing the need to ensure that ships can continue to move
in and out our ports, and that we raise the bar with regard to
safety and environment, et cetera. This is a case where our
measured implementation and our measured compliance or
enforcement is helping to build the capacity envisioned by
Congress. But we can't turn it on overnight.
In the case of the Fast Response Boats, there is nothing in
our regulation or in the law that prevents them from entering
the market, from offering that service to a regulated entity--
in this case a ship operator. What they are asking us to do,
essentially, is to require that product be purchased by a
regulated entity.
And we may, in fact, get to that point if, in the course of
our verification, we determine that the salvage assets that are
out there really don't meet the national planning criteria and
so, as requested, we are going to lower those criteria in a way
that then would allow the regulated ship--planholders to meet--
to be in compliance by purchasing this substitute service. But
we haven't gotten there yet, sir.
Mr. Hunter. Tell me. But why do you differentiate between
oil spills and fires on ships in the types of vessels, the
specialized vessels that you require to be on hand, on stand-
by?
Admiral Thomas. I think that the type of assets that are
required for oil spills are different. The regulatory regimes
were put in place on different timelines. The industries
matured differently. In fact, it is one of the reasons why the
salvage industry was so anxious to get these regulations in
place, because they saw what OPA did, in terms of our national
capacity to respond to oil spills, and thought that that is
what the Nation needs for other contingencies, as well.
Mr. Hunter. Yes, sir?
Mr. Schauer. Chairman, just maybe a quick clarification.
Salvage and firefighting, 19 different services, it is wholly
different than responding to an oil spill. Responding to an oil
spill is pretty--we all pretty much understand what you do. You
contain it and you skim it out of the water. You could have a--
you know, for salvage and firefighting, it is any manner of
casualties. I described some of them. It could be fires,
explosions, sinking vessels, fuel underwater, removing the
wreck, even big, heavy-lift assets.
So it is--the diversification of what we have to do is so
large, that it is not really comparable, because it is--oil
spill you can pretty much focus down on what you need and, OK,
we will dedicate most of them. It is too big. It is too big a
problem. And it is--we are trying to meet it by best use of
specialized assets versus--alongside of the vessels of
opportunity.
Mr. Hunter. So I guess, getting down to it, why--the last
question. The really, really last question. Why do you have
these in there, the planning standards, if there is no real
requirement for someone to perform to them?
Admiral Thomas. Well, sir, the way the regulation is
construed is--or constructed is to require--or is intended to
build our--a capacity to respond by requiring the regulated
entity--in this case, mostly foreign vessel operators--to
contract with service providers. It is not intended to regulate
those service providers.
In other words, we are not going to go after the salvor and
say, ``You said you would be there in 6 hours, you didn't get
here. Here is your ticket.''
Mr. Hunter. I understand.
Admiral Thomas. So I think that is a key difference. But,
really, what this boils down to, sir, is our capability to get
out there and verify with some degree of robustness that the
capability identified by the regulated entity actually exists.
And if it doesn't, to hold them, the planholder, the ship
operator, responsible. But we have to do that in a way, sir,
that doesn't all the sudden stop vessel traffic in the U.S. And
I think that is why you are seeing a measured approach to our
verification.
And then we will come up with the best solution, in terms
of how to build the capacity intended by the regulation. It
might be an alternative planning criteria. But, quite honestly,
that would lower the national standard. I am not sure why we
would want to do that. But we are in the course of really
working through those issues.
Mr. Hunter. Why--I mean every ship that goes out is
insured. Why don't--in your opinions, why don't the insurers
require that planning criteria really be performance criteria
to save your asset?
Admiral Thomas. I think one of the reasons--and I think
that most of the panel members here would agree--is because the
Coast Guard has not been aggressively the compliance----
Mr. Hunter. But just in the marketplace why don't they
care, the insurers?
Admiral Thomas. I can't answer that question, sir.
Certainly I know they begin to care when the Coast Guard begins
to hurt them by holding their ship up, et cetera. And that is
what aggressive enforcement will do.
Mr. Hunter. OK. I think that is it for me. Everybody, thank
you very much. Thanks for being here, and thanks for your
patience.
The hearing is adjourned.
[Whereupon, at 12:39 p.m., the subcommittee was adjourned.]
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