[The Regulatory Plan and Unified Agenda of Federal Regulations]
[Federal Maritime Commission Regulatory Plan]
[From the U.S. Government Printing Office, www.gpo.gov]


FEDERAL MARITIME COMMISSION (FMC)

Statement of Regulatory Priorities.
The Federal Maritime Commission's regulatory objectives are guided by 
the agency's basic mission. The Commission's mission is to be able to 
take the actions necessary to ensure that the shipping statutes it 
administers operate as effectively as possible to provide an efficient, 
economic, and nondiscriminatory ocean transportation system, in an 
environment free of unfair foreign maritime trade practices. Commission 
regulations are designed to implement each of the various statutes the 
agency administers in a manner consistent with this mission and in a 
way that minimizes regulatory costs, fosters economic efficiencies, and 
promotes international harmony.
Proposed legislation pending in Congress could alter significantly the 
regulatory scheme regarding ocean commerce. This same legislation could 
also affect the continued existence of the Commission. The Commission 
will be monitoring this legislation closely, as it obviously would 
affect the agency's regulatory planning and priorities, and depending 
on the effective date(s) of its provisions, could require regulatory 
action during the coming year. Until any such legislation is enacted 
and an implementation schedule is determinable, the principal objective 
or priority of the agency's current regulatory plan will be to continue 
to assess its major existing regulations for continuing need, 
effectiveness, burden on the regulated industry, fairness, and clarity. 
The Commission has under review, inter alia, regulations regarding 
passenger vessel operator financial responsibility, co-loading 
arrangements between non-vessel-operating common carriers, possible 
guidelines for Commission review of substantially anticompetitive 
agreements between common carriers by water in foreign commerce, and 
requirements for the filing of service contracts.
Review of the above-mentioned passenger vessel financial responsibility 
regulations represents an important regulatory action and serves as an 
example of the Commission's objective to regulate fairly and 
effectively while imposing a minimum burden on the regulated entities, 
following the principles stated by the President in Executive Order 
12866. Passenger vessel financial responsibility regulations are issued 
pursuant to the provisions of Public Law 89-777, 46 U.S.C. app. 817e 
and 817d. These regulations set forth the procedures whereby owners or 
operators of vessels having berth or stateroom accommodations for 50 or 
more passengers and embarking at U.S. ports shall establish their 
financial responsibility to indemnify passengers for nonperformance of 
transportation to which they would be entitled and to meet any 
liability which may be incurred for death or injury to passengers or 
other persons on voyages to or from U.S. ports. The Commission's review 
of its current regulations in this area is for the purpose of assuring 
that the Commission's requirements provide adequate coverage for 
passenger vessel customers in regard to performance and casualty, while 
not imposing an undue burden or cost on the passenger vessel industry.
_______________________________________________________________________
FMC

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                            FINAL RULE STAGE

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160. FINANCIAL RESPONSIBILITY REQUIREMENTS FOR NONPERFORMANCE OF 
TRANSPORTATION AND INQUIRY INTO ALTERNATIVE FORMS (DOCKET NOS. 94-06 
AND 94-21)
Priority:


Other Significant


Reinventing Government:


This rulemaking is part of the Reinventing Government effort. It will 
revise text in the CFR to reduce burden or duplication, or streamline 
requirements.


Legal Authority:


 5 USC 552 to 553; PL 89-777 (46 USC app 817e); 46 USC app 841a; 46 USC 
app 1716


CFR Citation:


 46 CFR 540.5; 46 CFR 540.9


Legal Deadline:


None


Abstract:


Action would amend financial responsibility requirements regarding 
nonperformance by passenger vessel operators by eliminating the $15 
million unearned passenger revenue ceiling and revising the existing 
sliding scale for coverage. Comment also is sought on an alternative 
sliding scale. Action also would remove self-insurance as an option for 
coverage. This action has been held in abeyance pending a Notice of 
Inquiry into alternative methods of establishing financial 
responsibility.


Statement of Need:


The Federal Maritime Commission (FMC) administers section 3, Public Law 
89-777, 46 USC app. 817e. Section 3 requires certain passenger vessel 
operators (PVOs) to establish financial responsibility for 
nonperformance of transportation. (Section 3 provides in pertinent 
part: ``(a) No person in the United States shall arrange, offer, 
advertise, or provide passage on a vessel having berth or stateroom 
accommodations for fifty or more passengers and which is to embark 
passengers at United States ports without there first having been filed 
with the Federal Maritime Commission such information as the Commission 
may deem necessary to establish the financial responsibility of the 
person arranging, offering, advertising, or providing such 
transportation, or, in lieu thereof, a copy of a bond or other 
security, in such form as the Commission, by rule or regulation, may 
require and accept, for indemnification of passengers for 
nonperformance of the transportation.'') The Commission's regulations 
implementing section 3, contained in 46 CFR 540, Subpart A, generally 
provide that a PVO may evidence its financial responsibility by one or 
more of the following methods: a guaranty, escrow arrangement, surety 
bond, insurance or self-insurance. The amount required must equal 110 
percent of the PVO's highest unearned passenger revenue (UPR) over a 2-
year period. (UPR is defined under 46 CFR 540.2(i) as: ``. . . that 
passenger revenue received for water transportation and all other 
accommodations, services, and facilities relating thereto not yet 
performed.'') The maximum coverage amount currently required is $15 
million, subject to a sliding scale.
The Commission monitors activity of PVOs subject to Public Law 89-777 
and by rule requires semiannual UPR reports. Additionally, the 
Commission periodically surveys PVOs' future U.S. cruise schedules and 
fare structures. Developments since the Commission's actions in Dockets 
Nos. 92-19 (Revision of Financial Responsibility Requirements for Non-
Performance of Transportation (57 FR 51887, September 14, 1992)) and 
92-50 (Financial Responsibility Requirements for Nonperformance of 
Transportation: Revision of Self-insurance Qualification Standards, 
Final Rule (57 FR 62749, December 31, 1992)) prompted the Commission to 
reconsider existing UPR coverage requirements with regard to the 
sliding scale, the ceiling, and self-insurance. One development 
concerns the involuntary bankruptcy of a cruise line. Another is the 
extent to which some PVOs' UPR now exceeds the current $15 million 
ceiling, leaving an estimated $700 million in passengers' deposits and 
prepaid fares without coverage. Further, with regard to self-insuring 
PVOs that are not State or Federal entities, the Commission is 
concerned that sufficient funds may not be available to indemnify 
passengers for nonperformance of transportation.
To narrow the coverage gap which has emerged, the Commission has 
proposed to remove the current ceiling, and to revise the sliding scale 
to require coverage for 110 percent of unearned passenger revenue up to 
$25 million per operator, and coverage of 90 percent for amounts 
exceeding $25 million.
The Commission also proposed to reconsider section 3 self-insurance for 
passenger vessel operators that are not State or Federal entities. 
Presently, only net worth at 110 percent of the highest unearned 
passenger revenue over the past 2 years must be maintained. In the 
event of a default, other interests with potentially superior claims on 
a passenger vessel operator's assets--such as a vessel's crew, 
shipyards, provisioners, and mortgage holders--could leave insufficient 
funds available to fully indemnify passengers for deposits and prepaid 
fares. Even if the Commission were to reinstate its former requirement 
for both net worth and working capital, the Commission is concerned 
that there still might be insufficient assets readily available to 
fully indemnify the traveling public. These concerns do not, however, 
appear to militate against accepting State or Federal entities as self-
insurers.
While the proposed rule would discontinue self-insurance for commercial 
entities, it would afford a 1-year transitional period for commercial 
operators who are presently self-insured, at the end of which they 
would be required to provide other evidence of financial 
responsibility.
Industry-wide, for the approximately $1 billion in current UPR, the 
Commission's staff has estimated that the proposed rule would increase 
coverage from the current $300 million to $850 million.
It is important to note that the proposed rule only relates to 
passenger revenue which has not yet been earned by the involved PVO. 
The changes set forth in the Proposed Rule were deemed necessary to 
ensure that cruise passengers are adequately protected in the event of 
nonperformance of transportation.


Summary of the Legal Basis:


This proposal is made pursuant to section 3 of Public Law 89-777, which 
requires certain PVOs to establish financial responsibility for 
nonperformance of transportation.


Alternatives:


The proposed rule requested comments on an alternative approach of 
requiring 110 percent coverage for up to $25 million in UPR per 
operator; coverage of 75 percent for UPR between $25 million and $50 
million per operator; and 50 percent coverage for UPR over $50 million 
per operator. The Commission also invited the PVO industry and other 
interested parties to suggest alternative proposals to ensure adequate 
financial responsibility coverage for UPR subject to section 3. Twelve 
comments generally critical of the proposed rule were received.
To ensure full consideration of other approaches potentially more 
acceptable to the industry, the Commission placed the Proposed Rule in 
abeyance pending an Inquiry into the viability of other approaches, 
Docket No. 94-21, Inquiry into Alternative Forms of Financial 
Responsibility for Nonperformance of Transportation (59 FR 52133, 
October 26, 1994) (1994 Inquiry). Two such approaches are set forth in 
the 1994 Inquiry. The first is the concept of voluntary associations; 
the second is retained but strengthened self-insurance requirements.


Anticipated Costs and Benefits:


The proposed rule represents a significant Commission action. It may 
not, however, ultimately be within the ambit of a ``significant 
regulatory action'' as defined under section 3(f) of Executive Order 
12866. The proposed rule will probably not have an annual effect on the 
economy of $100 million or more or adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. The net effect of the rule would be to 
require an additional $700 million in financial responsibility 
coverage, which should not cost $100 million in today's financial 
markets. Moreover, inasmuch as the Commission is the sole administrator 
of the involved section of the underlying statute (section 3 of Public 
Law 89-777), the proposed rule would appear unlikely to create any 
inconsistency or other interference with an action taken or planned by 
another agency. In addition, the proposed rule would not appear to have 
any budgetary impact whatsoever on entitlements, grants, user fees, or 
loan programs or on the rights and obligations of recipients thereof. 
Finally, the proposed rule does not appear to raise novel legal or 
policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in Executive Order 12866.
As background, the Commission undertook this rulemaking proposal as a 
consequence of its concern that some PVOs' UPR now greatly exceeds the 
current $15 million ceiling--in some instances by a factor of several 
times the current ceiling, leaving some $700 million in UPR without 
section 3 coverage. Under the Proposed Rule, every dollar in additional 
coverage obtained by a PVO will result in an additional dollar's 
protection to the traveling public. Ultimately, the proposed rule would 
reduce the exposure of the traveling public's deposits and prepaid 
fares to loss by 80 percent--from the current level of approximately 
$700 million to $138 million--with a corresponding reduction in 
uncovered UPR from 70 percent to 14 percent. The alternative proposal 
would reduce this exposure by 62 percent--from $700 million to $268 
million--with a corresponding reduction in uncovered UPR from 70 
percent to approximately 27 percent.


Risks:


Docket No. 94-06 does not involve risk reduction efforts involving 
health, public safety, or environmental concerns. The proposal does, 
however, contemplate a substantial reduction in potential risk exposure 
for passengers' deposits and prepaid fares for unperformed 
transportation.


Timetable:
_______________________________________________________________________
Action                                 DFR Cite

_______________________________________________________________________
NPRM            59 FR 15149                                    03/31/94
NPRM Comment Per59 FR 15149                                    05/02/94
Comment Period E59 FR 2318206/10/94                            05/05/94
Comment Period E59 FR 3056706/24/94                            06/14/94
Notice of Inquir59 FR 52133o. 94-21)                           10/14/94
Clarification of59 FR 54878Inquiry                             11/02/94
Comment Period E59 FR 52133ce of Inquiry                       11/28/94
Final Action                                                   03/00/96
Final Action Effective                                         04/00/96
Small Entities Affected:


None


Government Levels Affected:


None


Agency Contact:
Robert D. Bourgoin
General Counsel
Federal Maritime Commission
800 North Capitol Street NW.
Washington, DC 20573
Phone: 202 523-5401
Fax: 202 523-5830
RIN: 3072-AB80
BILLING CODE 6730-01-F