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

Federal Register / Vol. 61, No. 231 / Friday, November 29, 1996 / The
                            Regulatory Plan

[[Page 62208]]

FEDERAL MARITIME COMMISSION (FMC)
Statement of Regulatory Priorities
The Federal Maritime Commission's (Commission or FMC) regulatory 
objectives are guided by the agency's basic mission. The Commission's 
mission is to administer the shipping statutes 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, and co-loading 
arrangements between non-vessel-operating common carriers.
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 Pub. L. 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. 
A more detailed description of this important significant regulatory 
action is contained in section B of this plan.
_______________________________________________________________________
FMC

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                            FINAL RULE STAGE

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166. FINANCIAL RESPONSIBILITY REQUIREMENTS FOR NONPERFORMANCE OF 
TRANSPORTATION AND INQUIRY INTO ALTERNATIVE FORMS (DOCKET NO. 94-06; 
FURTHER NOTICE OF PROPOSED RULEMAKING)
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; 46 USC app 817d to 817e; 46 USC app 841a; 46 USC app 
1716


CFR Citation:


 46 CFR 540.5; 46 CFR 540.9


Legal Deadline:


None


Abstract:


This further proposed rule would amend financial responsibility 
requirements regarding nonperformance by passenger vessel operators by 
eliminating the $15 million unearned passenger revenue ceiling. It 
would be replaced by sliding scale coverage requirements keyed to 
operators' financial rating, length of operations in U.S. trades, and 
satisfactory explanation of any claims of nonperformance. For self-
insurers, the rule proposes to reestablish a working capital 
requirement and require third-party coverage for 25 percent of unearned 
passenger revenue. The action also proposes to require applications for 
Certificates (Performance) to be filed at least 90 days prior to 
advertising, arranging, or providing transportation. Suggestions for 
alternative approaches also are solicited.


Statement of Need:


The Federal Maritime Commission (Commission or FMC) administers section 
3, Public Law 89-777, 46 U.S.C. app. 817e (section 3). 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 
two-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 Docket 
Nos. 92-19 (Revision of Financial Responsibility Requirements for 
Nonperformance of

[[Page 62209]]

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. The Commission has proposed to amend 
its rules to: (1) replace the ceiling with sliding-scale coverage 
requirements keyed to a passenger vessel operators' financial rating, 
length of operation in United States trades and satisfactory 
explanation of claims for nonperformance of transportation; and (2) 
require third-party coverage for 25 percent of unearned passenger 
revenue for self-insuring passenger vessel operators and to require 
self-insurers to present evidence with regard to working capital in 
addition to the current requirement concerning net worth. The 
Commission has also proposed a revision to its escrow agreement 
guideline to make clear that escrow funds are not debtor's property and 
should be made available to passengers. Finally, the Commission has 
proposed revising its rules to require that, in the absence of good 
cause shown, applications be filed at least 90 days (instead of the 60 
days currently required) prior to the arranging, offering, advertising, 
or providing of any water transportation or tickets in connection 
therewith.
Industrywide, 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 further notice of proposed rulemaking 
only relates to passenger revenue which has not yet been earned by the 
involved PVO. The changes set forth in the further notice of proposed 
rulemaking 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 passenger vessel operators (POVs) to establish 
financial responsibility for nonperformance of transportation.


Alternatives:


The further notice of proposed rulemaking is based on alternatives 
previously proposed by the Commission. Moreover, the further notice of 
proposed rulemaking again solicits suggestions for other alternatives 
to consider under its Public Law 89-777 program.
The initial proposed rule in this proceeding 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. There, 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, while still 
providing appropriate protection for the cruising public, the 
Commission had placed the initial proposed rule in this proceeding 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 5233, 
October 26, 1994 (Inquiry). Two such approaches are set forth in the 
Inquiry. The first is the concept of voluntary associations; the second 
is retained but strengthened self-insurance requirements. The further 
notice of proposed rulemaking in this proceeding is based upon the 
Commission's assessment of the record developed in the Inquiry.


Anticipated Costs and Benefits:


The further notice of proposed rulemaking 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 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 program or 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 travelling public. Ultimately, the proposed rule 
would reduce the exposure of the travelling 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

[[Page 62210]]

NPRM Comment Period End                                        05/02/94
Comment Period E59 FR 23182                                    06/10/94
Comment Period E59 FR 30567                                    06/24/94
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
Further NPRM (Do61 FR 33059-06)                                06/26/96
Discontinuance o61 FR 39940g for Docket No. 94-21              07/03/96
Further NPRM Com61 FR 33059 End                                08/26/96
Comment Period E61 FR 43209                                    09/25/96
Comment Period E61 FR 50265                                    10/15/96
Final Action                                                   01/00/97
Final Action Effective                                         07/00/97
Small Entities Affected:


None


Government Levels Affected:


None


Agency Contact:
Bryant L. VanBrakle
Director, Bureau of Tariffs
Certification and Licensing
Federal Maritime Commission
800 North Capitol Street NW.
Washington, DC 20573
Phone: 202 523-5796
Fax: 202 523-5830
RIN: 3072-AB80
BILLING CODE 6730-01-F