[Congressional Record (Bound Edition), Volume 156 (2010), Part 11]
[Extensions of Remarks]
[Pages 16272-16273]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        THE SHIPPING ACT OF 2010

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                     Wednesday, September 22, 2010

  Mr. OBERSTAR. Madam Speaker, today I have introduced the ``Shipping 
Act of 2010''. This bill has its roots in the Shipping Act of 1916, 
which provided the foundation for the regulation of international 
shipping in the United States.
  In the 94 years since that law was enacted, shipping has changed 
greatly. Most significant was the development of the intermodal 
shipping container in the late 1950's, which allows for cargo to be 
loaded into standardized containers for shipping rather than on pallets 
put on a ship using cargo nets. Use of these containers has transformed 
the manufacturing and distribution of goods throughout the world by 
increasing the productivity of our global intermodal transportation 
system by having a container that can be loaded on a truck chassis, 
easily transferred on to a ship, and then transferred again on a rail 
car. This bill will modernize the regulation of that transportation 
system by increasing competition and improving services for the 
movement of those goods.
  First, it eliminates antitrust immunity for ocean carrier agreements, 
which currently allows ocean common carriers to get together to 
discuss, fix or regulate transportation rates. Although parties to the 
carrier agreements are not required to adhere to the rates set by the 
conference when they are contracting, oftentimes they use the 
collectively set rate as the basis for negotiations. The carrier's 
tendency to use the agreed upon rates as a floor for negotiations has 
made it difficult for shippers to negotiate more favorable terms for 
transportation.
  Antitrust immunity for these agreements was initially granted to 
enable carriers to stabilize their economic position through 
controlling rates and capacity. In fact, Congress has long been 
concerned about the anticompetitive impact of these conference 
agreements and, in the Shipping Act of 1916, put a regulatory structure 
in place to monitor their activities. Currently, the conferences must 
submit their agreements to the Federal Maritime Commission (FMC), who 
reviews them for compliance with the statutory requirements including 
whether or not the agreement is likely, by a reduction in competition, 
to produce an unreasonable reduction in transportation services or an 
unreasonable increase in transportation costs.
  However, even under the current regulatory scheme, immunity for such 
agreements has long outlived its usefulness, and stifles competition. 
In 2007, the Antitrust Modernization Commission (Commission) report 
stated that ``free-market competition is the foundation of our economy, 
and the antitrust laws stand as a bulkwark to protect free-market 
competition.'' The Commission found that there is questionable 
justification for continuing conference exemptions from the antitrust 
laws in the Shipping Act and that there is nothing unique about ocean 
carriers that warrant an exemption from the antitrust laws. A survey 
cited by the Commission found that ``the steepest declines in observed 
freight rates have coincided with a generalized decrease in conference 
power in the face of competition from strong independent operators and 
the implementation of competition-enhancing legislation in the United 
States trades.''
  On March 17, 2010, the Committee on Transportation and Infrastructure 
held a hearing on the challenges faced by U.S. importers and exporters 
in moving cargo by the international container lines. The Committee 
received testimony from importers, exporters, agricultural shippers, 
manufacturers, retail stores, and raw products exporters. In that 
hearing, shippers complained that ocean carriers do not have enough 
capacity in the market to meet the demands of U.S. shippers and that 
rate increases imposed through new service contracts have skyrocketed. 
Many believe that these rate increases reflect the desire of carriers 
to recoup their losses of the past year. Moreover, these shippers 
expressed concern that there is no willingness on the part of 
conference agreement participants to negotiate independent rates. This 
has significantly increased the costs of U.S. exports and made it

[[Page 16273]]

difficult for U.S. importers to price their products.
  Eliminating the antitrust immunity for these conference agreements 
will increase competition by requiring ocean carriers to compete in the 
marketplace with the best price and service to get shippers' business. 
That will benefit the industry as a whole. Moreover, the bill will 
require carriers to continue to file service contracts with the FMC and 
to have tariffs be available for FMC review. This information will 
allow the FMC to determine whether or not carriers are colluding after 
their antitrust immunity has been eliminated.
  However, this bill does preserve some antitrust immunity for ocean 
carriers so that they can enter into vessel sharing agreements. A 
vessel sharing agreement is an agreement among carriers to share space 
on each others vessels. This will allow carriers to offer shippers 
service five days a week on their ship or one of their partners' ships. 
However, under this bill, this authority is limited so that it ensures 
that there is still adequate competition in a particular trade. The 
European Union limits a vessel sharing agreement to 30 percent of the 
capacity in a trade. That is a reasonable place to begin.
  In addition, this bill deals with the carriers' practice of imposing 
surcharges, seemingly at will. Currently, shippers enter into 
negotiations with carriers for transportation service contracts at 
fixed prices. Once the transportation price is negotiated, the shipper 
then develops a pricing scheme for its customers. However, we have 
heard complaints that ocean carriers often decide at the last minute to 
levy surcharges, which are not necessarily based on their own increased 
costs (for example, the cost of buying fuel). This impacts the shippers 
business because the U.S. exporter or importer has already signed a 
contract with their customer for a fixed price. If the carrier 
increases the cost of a shipper's goods by imposing a surcharge and the 
shipper has already advertised the price for selling those goods, where 
is the increased cost going to come from? The shipper's profits? To 
ensure that a shipper can adequately price his product, this bill 
requires that any surcharge imposed by a carrier needs to accurately 
reflect increases in the carrier's cost.
  Elimination of antitrust immunity for ocean carrier agreements may 
not be enough to spur the carriers to improve their customer service. 
One major area that needs to be addressed is dispute resolution. The 
Shipping Acts of 1916 and 1984 were not designed to facilitate dispute 
resolutions between shippers and carriers. In fact, the only remedy 
authorized under the Shipping Act to resolve a dispute in a service 
contract is to go to court. The delay oftentimes associated with 
pursuing a case in court results in a major disadvantage to shippers. 
This is because a large volume of the cargo that shippers carry is 
perishable and those goods may be destroyed by the time a District 
Court ever hears the case. Under this bill, the FMC will be empowered 
to help resolve service contract disputes quickly through mediation and 
arbitration, so that the freight can keep moving.
  We have also heard from export shippers that carriers refuse to ship 
containers that are not owned by that ocean carrier. This results in 
many shippers being left without an alternative to ship their goods 
unless they agree to pay a steep price to the ocean carrier. I do not 
understand how a carrier can refuse to supply a shipper with a 
container at a reasonable price, and then refuse to move a shipper's 
goods if they are in a container provided by someone else. There needs 
to be transportation network neutrality so that shippers can have their 
cargo moved by an ocean carrier supplied container or one provided by a 
third party that meets internationally accepted container safety 
standards. This bill provides that neutrality by prohibiting carriers 
from discriminating against a shipper that provides their owner 
container or other equipment.
  It also addresses the practice of bumping or rolling containers, in 
which a carrier decides that there is not enough room on a ship for a 
container which they have already been contracted to transport. The 
bill prohibits ocean carriers from engaging in deceptive practices, 
including the unreasonable failure to provide transportation services 
as agreed to in a negotiated service contract. The FMC is then tasked 
with developing remedies and penalties for carriers that engage in such 
deceptive practices.
  President Obama has announced that he wants to double U.S. exports in 
the next 5 years. I am committed to helping him accomplish that goal by 
reforming our shipping laws to help the ocean carriers be more 
responsive to their customers. This bill is a pro-competitive bill that 
will help facilitate U.S. imports and exports. In 2007, the European 
Union eliminated the antitrust immunity that ocean carriers had from 
their laws. I am not aware of any ocean carriers being put out of 
business because of the loss of that exemption. Under the ``Shipping 
Act of 2010'', carriers will have to compete based on price and 
services in the same way as all other major industries in the United 
States.

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