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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
SHIPPING ACT OF 1984
THURSDAY, FEBRUARY 2, 1995
House of Representatives,
Subcommittee on Coast Guard and Maritime Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to call, at 10:03 a.m., in Room 2167, Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding.
Mr. COBLE. Ladies and gentlemen, I am told that there may well be a journal vote imminently, and we will play that by ear and see if that transpires. Well, let's proceed until we get the official word.
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We welcome all of you to the subcommittee on Coast Guard and Maritime Transportation. The subcommittee is meeting today to hear testimony on the Shipping Act of 1984.
As I announced at our earlier organization meeting, we will limit opening statements to the Chairman and to the Ranking Minority Member. Of course, if Mr. Shuster and Mr. Mineta come in, we will be glad to hear from them as well. Other Members, of course, may have their statements included in the hearing record.
As I said, we welcome each of you to the hearing today to discuss changes that may be made to the Shipping Act of 1984. I come to this hearing with an open mind, but I must admit at the outset I may need some convincing on the desirability to maintain the present system intact.
The Shipping Act of 1984 grants antitrust immunity to ocean shipping conferences in U.S. foreign commerce. These conferences set prices and control the capacity available for the transportation.
Government studies have concluded that the ocean cartels sanctioned under the Shipping Act of 1984 cost U.S. businesses two to three billion dollars a year. These cartels are dominated by foreign vessel operators which carry 80 percent of the value of the cargo moving between the United States and foreign ports.
I am, furthermore, concerned because thousands of U.S. businesses are paying higher shipping costs to benefit primary foreign flag vessel operators. Higher shipping costs act in many instances as hidden taxes on U.S. producers and consumers of manufactured goods and commodities. Reducing these costs would benefit the United States economy and create jobs in this country, it seems to me.
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There are several U.S. flag vessels that operate within this conference system. Unfortunately, the Shipping Act does not increase the number of U.S. flag vessels operating under the U.S. flag.
We obviously need to develop new approaches to strengthen our U.S. Merchant Marine.
Finally, I want to point out that although this may be our only hearing on issues surrounding the Shipping Act of 1984, this is not the first time these issues have been considered. A great deal of information was compiled by the Advisory Commission on Conferences in Ocean Shipping, which published a report in 1992. Although the Commission did not make recommendations for changes to the Shipping Act because of deep divisions of opinion on the issues, we will make available to the Members the information from the hearings conducted by the Commission. Of course, our staff will also be pleased to get any additional information that you may need.
I am now pleased to recognize my good friend, the distinguished gentleman from Ohio and the Ranking Minority Member, Jim Traficant.
Mr. TRAFICANT. Thank you, Chairman. Pretty good-sized crowd. Good to see the former Member—the great Member from Maryland, Mrs. Bentley, here. Good to see such a good turnout.
I thank you for calling the hearing. The issues before us today are vital to our Nation's industries and our country as a whole.
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Congress and the administration seem to be in a head-over-heels rush to dismantle certain government agencies, and I am not so sure if people are looking for trophies or what. But this is a significant charge, and within that whole scenario there must be some common sense to this madness.
For years, I supported efforts to reduce our bloated Federal bureaucracy and have supported pruning where it has been prudent. But what we are witnessing this year in some areas is an effort simply to be able to say to the American people that we have reduced because we have promised we have reduced and not necessarily to reduce and to make cuts where it is in the best interests of our country. And I am concerned that some of those cuts may have a spotlight and a knife pointed at programs that fall under the jurisdiction of this subcommittee.
I am very supportive of this Chairman. I think we are lucky. I think we have an outstanding Chairman, and I pledge to work with him, not in an effort to obstruct but to help our country. And as he succeeds our country will succeed. That is going to focus my general attitude.
In that regard, one of my principal interests as a Member of Congress has been our standing in the world trade picture and the disadvantage that our industries are put at by unfair and anti-competitive trade practices of other countries.
We have a $153 billion trade deficit. The President of United States did not even mention it in the State of the Union Address. I don't see how we can separate this trade picture from America's continuing slide to economic demise with budget deficits that are now so bad the Constitution is being called in.
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So, with that in mind, I say that the Federal Maritime Commission has had a very successful program of correcting problems in the ocean shipping and transportation arena. That fact should not be lost on the process to reduce government and bureaucracy.
I will be working with the Chairman throughout this process in an attempt to serve those goals and to protect and serve the interests of our shippers and our carriers. With that, that is basically my position.
I did not serve on this subcommittee nor committee in the last Congress. I am new. I will be learning as well. But our Chairman did. And we will work together, and I pledge that cooperation. And I would be glad to listen to the views and the concerns of others, especially those today that have been called before the hearing.
So I wish you the best in your charge, Mr. Chairman. And, with that, I ask that any other part of my statement that I have not addressed be incorporated into the minutes of this meeting.
Mr. COBLE. Without objection, that will be done.
[Mr. Traficant's prepared statement follows:]
[Insert here.]
Mr. COBLE. And I want to say to my friend from Ohio as I commence my maiden voyage as Chairman of this subcommittee I may well have committed a near fatal omission by having failed to formally recognize the lady from the harbor whom we affectionately—that was her affectionate nickname. Jim, I thank you for having recognized Helen Bentley.
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Helen, it is good seeing you again. As I said, that may end up being a near fatal mistake on my part. It is obvious you all know the lady from the harbor.
We had planned to hear from Chairman Hathaway of the FMC, Federal Maritime Commission, initially; but his schedule precludes his being here now. At Chairman Hathaway's request we will hear from him subsequently, probably in the afternoon, so at this time we will move on to the next scheduled panel which will be identified as Panel II.
And, prior to doing that, I will remind all Members that your opening statements, without objection, will be included in the record. It is good to have you gentlemen here as well.
So members of the second panel will come forward and take your seats at the panel table: Edward Emmett, George Hazzard, Robert Granatelli, Jil Morley, Roger Wigen and Don Schilling.
I extend a formal welcome again to the panel, and I would ask you all if you will work with Mr. Traficant and me to this end: We would like for each witness to confine your remarks to the 5-minute rule. Now no one is going to be hauled out of here in leg irons if you violate that rule, but when the red light appears at the table that is your signal that the 5 minutes have elapsed.
Your complete statements have been received and will be made a part of the record.
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TESTIMONY OF EDWARD M. EMMETT, PRESIDENT, NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE; GEORGE W. HAZZARD, MANAGER, INTERNATIONAL AND WATER TRANSPORTATION, MONSANTO COMPANY, ON BEHALF OF THE CHEMICAL MANUFACTURERS ASSOCIATION; ROBERT W. GRANATELLI, CHAIRMAN, ALLIANCE FOR COMPETITIVE TRANSPORTATION AND HIMONT, RESINS MANUFACTURER AND EXPORTER; JIL MORLEY, PRESIDENT, AGRICULTURE OCEAN TRANSPORTATION COALITION; ROGER W. WIGEN, MANAGER, TRANSPORTATION POLICY AND INDUSTRY AFFAIRS, MINNESOTA MINING AND MANUFACTURING COMPANY; AND DON SCHILLING, VICE PRESIDENT, WESCO INTERNATIONAL INC., ON BEHALF OF THE COALITION OF SUPPORTERS OF THE SHIPPING ACT
Mr. COBLE. Having said that, Mr. Emmett, President of the National Industrial Transportation League, we will be glad to hear from you.
Mr. EMMETT. Thank you very much, Mr. Chairman. Good morning, Members of the committee.
I am Ed Emmett. I am President of the National Industrial Transportation League which is the Nation's oldest and largest shippers' organization. Our members are responsible for the freight that moves by all modes, all kinds of freight in both interstate and international commerce.
I will not go through my written testimony with its rather voluminous appendices. Instead, I would like to highlight some of the reasons why the League supports elimination of the current heavy-handed economic regulation of the ocean liner industry.
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First, we believe it is unconscionable for ocean carriers to be able to collectively set rates and restrict capacity under a grant of antitrust immunity. Frankly, it has been embarrassing that U.S. shippers have found it easier to seek relief from the European Commission in Brussels than we have from the Federal Maritime Commission on North Capitol. The Federal Maritime Commission in this regard has not taken definitive action in 10 years.
Secondly, the current system as administered by the FMC prevents shippers and carriers from signing confidential contracts, the same kind of contracts that cover the purchase of products and services of all kinds both in this country and internationally and the same kind of contracts that the carriers can sign among themselves. But yet we can't have that kind of partnership between the carriers and the shippers.
And, third, the current tariff filing system is nothing more than a make-work project. It is not, however, merely a harmless make-work project because U.S. shippers' transportation costs are published, are available to their competitors overseas, but yet U.S. shippers don't get to see the transportation costs of their foreign competitors so it puts it at a distinct disadvantage.
I will leave it to the other panelists, the real-life shippers who are here from outside the Beltway rather than me as a Washington representative, to give you what might be called the blood-on-the-wall examples of what is actually going on. Instead, for the remainder of my time let me address some basics that come up in this policy debate.
First, modes of transportation exist to serve the needs of users, and such needs are usually defined by the users themselves. However, as recently as last night in a speech in New York City, we have witnessed the rather bizarre example of the supposedly unbiased Chairman of the Federal Maritime Commission saying that shippers do not know what is good for them. If this kind of agency reasoning had been around last century, I suppose shippers would still be reaping the benefits of the canal system and wagon trains.
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Second, all of us understand that change produces winners and change produces losers. The best example I can think of is the interstate highway system. All of us have gone through towns and cities and seen cafes, restaurants and gas stations that used to be on the main highway, used to be flourishing businesses and are no longer. The interstate highway system replaced those.
Perhaps those businesses could have banded together and said we have the best highway system the world has ever known and if you build that interstate highway system you are going to eliminate a lot of jobs. That argument would have been true, but would it have been in the best interests of this country to defeat the interstate highway system based on that?
What we are asking for today and throughout this debate is, if you will, the interstate highway system of global marketplace. We are still saddled with an ocean transportation system in a regulatory scheme that is out of date and growing more and more out of date just as that earlier highway system was.
You will hear today and in the days and weeks to come that the ocean liner industry is fundamentally different from other transportation modes because there are foreign competitors. Please remember, the ocean liner is a service industry. Many other U.S. service industries face foreign competitors, and they do it without special, archaic rules. And I ask each of you to also remember that the cartels, the conferences that we talk about, are already dominated by foreign policy carriers.
Another argument you will hear most often is that deregulation of the ocean liner industry will result in chaos that will eventually lead to higher rates. That same tired argument has been heard in every deregulation debate as recently as the deregulation of the intrastate trucking industry, and it simply does not hold up in any industry with open entry.
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Any time deregulation and maritime reform come up, you will also hear comments about preserving the U.S. flag fleet. All of us have heard, though, for years that the U.S. flag fleet is in trouble and diminishing under the present system. So why not try the remedy of competition?
And, speaking of competition, it is ironic that U.S. flag carriers seem to hold their own quite well in the completely deregulated intra-Asian market where they are not protected by any of these rules.
Will there be minor problems and adjustments? Of course. However, who needs a reliable ocean liner industry more than anyone else? The shippers, those who actually have freight that has to be moved.
Please, please—and I know you will listen when they tell you that there is no reason to maintain a system of regulation which stifles competition and hurts the overall U.S. economy and does not allow U.S. companies to serve their worldwide customers. Thank you very much.
Mr. COBLE. Thank you, Mr. Emmett.
And you took me literally when you—when I said that you would not be hauled out in leg irons, and you did not violate it badly. But, ladies and gentlemen, if you could comply with the 5-minute rule—the main reason I emphasize this, we are going to be here well into the afternoon, so if you could do that, it will certainly accelerate the format for the day.
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Mr. Hazzard, Manager, International and Water Transportation, Monsanto, for the Chemical Manufacturers Association.
Mr. HAZZARD. Good morning, Mr. Chairman and Members of the subcommittee.
I am George Hazzard, Manager of International and Water Transportation for Monsanto Company. I am appearing on behalf of the Chemical Manufacturers Association.
With your permission, I request that my written statement be inserted in the record; and I will proceed with my oral comments.
CMA appreciates the opportunity to appear with other shipper organizations today. The topic of this hearing, the Shipping Act of 1984, has been of concern to CMA members for many years.
CMA is a nonprofit trade association, whose member companies represent more than 90 percent of America's productive capacity for basic industrial chemicals. Having access to safe and efficient ocean transportation is critical for companies that seek to compete successfully in today's global market for chemical products.
The chemical industry contributes significantly to the general welfare of the Nation, employing 1.1 million highly skilled and well-paid American workers. The chemical industry is America's most competitive sector in markets around the world.
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To be specific, U.S. chemical exports were more than $50 billion in 1994, and the industry's trade surplus was $17 billion. Such consistently positive foreign trade results have placed the chemical industry ahead of all other sectors of the U.S. economy.
The ability to reach overseas customers is a critical factor in maintaining and improving the competitive strength of the chemical industry. The Shipping Act of 1984 regulated ocean common carriers, which are also referred to as liner operators. These carriers provide nonbulk service at regular intervals between named ports, typically carrying merchandise and shipping containers in break-bulk form. Common carrier liner services are available for hire by any shipper. Under provisions of the Shipping Act, liner operators must file tariffs detailing their freight rates in terms of service with the Federal Maritime Commission.
In liner service, a wide variety of chemical products are shipped in intermodal tank containers or dry cargo containers carrying chemicals in drums, bags and other packagings.
Member companies of CMA also ship products by bulk vessels and chemical parcel tankers. Chemical manufacturers have found that bulk maritime service, which is not regulated under the Shipping Act, functions in an orderly and economic manner. As I mentioned, CMA has repeatedly advocated significant reform of the Shipping Act of 1984.
My written statement responds to each of Chairman Coble's five specific questions. To summarize them for you, CMA's position on the Shipping Act is: Chemical exports means jobs. In terms of international trade competitiveness, the chemical industry is in the leading sector of the American economy. The U.S. chemical industry provides 1.1 million jobs and accounts for a trade surplus of $17 billion.
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Competitive liner service is essential. CMA Member companies must move many of their products to overseas customers by container vessels and liner service. Maritime transportation is the key link to our global markets. Uncompetitive freight costs or unresponsive carrier service often means the difference between making or losing the sale.
The Shipping Act of 1984 is anti-competitive. Under the Shipping Act, the FMC grants antitrust immunity to liner carriers to participate in cartels known as conferences. Collective decision-making on freight rates and liner services by these conferences promotes anti-competitive commercial practices. Indeed, the conference system prevents the development of the normal free market business relationships between chemical shippers and liner vessel operators.
In conclusion, CMA respectfully recommends that Congress amend the Shipping Act by making the following changes: end antitrust immunity for ocean carrier conferences, exempt contract carriage from conference control and from FMC jurisdiction, prevent conferences from interfering with any carrier's independent actions, and prohibit cargo and revenue allocation agreements that would cover the majority of the trade.
Thank you for letting me share CMA's views with the subcommittee, Mr. Chairman. I would be happy to answer any questions at this time.
Mr. COBLE. Thank you, Mr. Hazzard.
Mr. Robert Granatelli, Chairman of the Alliance for Competitive Transportation.
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Mr. GRANATELLI. Good morning, Mr. Chairman and Members of the subcommittee. I have submitted to the subcommittee earlier this week a copy of my testimony, and I request the statement be included in the hearing record in addition to my response this morning to the following questions in your invitation to the hearing.
I am Bob Granatelli, Manager of Transportation in North America for Himont. Himont is a manufacturer of plastic resin. Our international costs for year ending 1994 were a little less than $2 million. I am the small shipper here today.
I would like to thank you for the hearing because I feel very strongly that our ability to compete is affected by the Shipping Act of 1984. When I accepted my new responsibilities, my transportation background had strictly been domestic transportation. International transportation was a new challenge for me. I soon learned the major difference in ocean transportation. Unlike domestic rail and motor, the ocean carriers in the last hundred years simply went from sails to engines. Their commercial posture is unchanged.
I will now go through your questions, Mr. Chairman, and address them on a real-life basis on what it is for a small shipper to deal with the cartels and the current regulatory scheme.
In your first question you asked, is the conference system the best way to assure adequate availability of ocean transportation services? I say, absolutely not.
As an example, I will name the carriers B and G—B for bad, G for good. We had a situation where a conference had only two carriers. We had a contract. When the contract term needed to be extended for a new term, the carrier B, which gave us very poor transportation services and, more importantly, affected our relationship with our distant customer, blackmailed us and said they would veto the extension of the contract unless we gave them some business. A free market would not allow this to happen. We have to give business to carrier B to simply continue our arrangements with carrier G.
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In your second question, is the current broad exemption from the antitrust laws from the United States still required and what does it cost us? Well, down in the trenches here is another example.
I had a conference recently hide behind alleged FMC requirements to place an administrative burden on me stating some obscure portion of the 1984 Shipping Act. Fortunately, I may be a small shipper, but at one time I was a big shipper, so I had the wherewithal to send them a letter and mysteriously the alleged requirement disappeared.
I don't know what my counterparts would do, truly small shippers who didn't have the sophistication to challenge the cartels' strength. It simply can't be done.
On your third question, does the current antitrust immunity contribute appreciably to promotion of the U.S. flag industry? I think not. One only needs to look at the U.S. fleet how it has declined over the years.
And how burdensome, on question four, is the current tariff filing system and what are its benefits?
As a domestic shipper, we have the most sophisticated transportation system in the world. That changed dramatically upon the deregulation of the domestic modes.
A prime example of the outrageous, rigid behavior of carriers is we had our cargo moved from Texas to the West Coast, where the carrier essentially held it hostage. They, the carrier, did not use proper equipment to move the boxes from the railroad to the ship side. They got a ticket.
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Now, since my cargo happened to be in the ticket, through a stretch of their imagination and, more importantly, an obscure tariff rule in an FMC tariff, they would not release our bills of lading or move the cargo until we paid the fines. Now this would be like a trucker getting stopped on the road and trying to pass the fine on to me because my cargo happened to be accidentally in his truck.
I went to the General Counsel of the FMC and said this tariff item could not be enforced, and the carrier is using this as a foundation to squeeze our company. I have never heard back from the Federal Maritime Commission, and I don't want to hear from the Federal Maritime Commission because true commercial relationships would alleviate problems like this.
I see my 5 minutes is over. I welcome some questions to give you folks a real-life example on how the Shipping Act simply does not work. We have to serve our customers worldwide, and we can't do it.
Mr. COBLE. Thank you, Mr. Granatelli.
Jil Morley, President of the Agriculture Ocean Transportation Coalition.
Ms. MORLEY. Good morning, Mr. Chairman and Members of the committee.
The Agriculture Ocean Transportation Coalition, known as AG/OTC, is a coalition of individual companies, cooperatives, shippers' associations and national and regional associations involved in farm, food, fiber and forest products, collectively. There are about 27,000 agricultural shippers represented in the membership. Commodities represented include seed, cotton, forest products, dried fruits and nuts, rice, fresh fruit, poultry, et cetera.
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All of these shippers have an interest in efficient, cost-effective, reliable ocean transportation that will enable them to compete effectively in foreign markets. In many cases, export sales account for the majority of the our members' business. It is not——
Mr. COBLE. Could you pull the mike a little closer to you? Thank you.
Ms. MORLEY. In many cases, export sales account for the majority of our members' business. It is not an exaggeration then to say that many of us are dependent on our export sales.
Agriculture comprises the largest volume of exports in U.S. foreign commerce. As we know, exports have been largely responsible for keeping the U.S. economy above water in recent years. Export markets for U.S. products provide the greatest opportunity for future U.S. economic growth.
Agricultural products tend to compete in a world marketplace where many countries can source the same product. This means that margins are thin already, and substitution of foreign agricultural products is a constant threat. The transportation portion of the total cost, therefore, can be the critical factor in making or breaking an export sale and needs to reflect a fair market value.
All of our members' ocean export shipments are governed by the Shipping Act of 1984, and there are basically two things wrong with this act. It is unfairly tilted in favor of the steamship lines against shipper interest, and the steamship lines take this one step further and abuse their rights, largely unchecked by the Federal Maritime Commission.
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To illustrate these contentions, consider the following true stories:
In 1992, steamship lines in the North Atlantic interpreted the Act's bestowal of antitrust immunity to mean they could form a superconference, including formerly independent lines, so that now they can control upward of 80 percent of ship capacity from America to north Europe. This 800 pound gorilla tells its customers, the exporters, the way rates and service will be. The Shipping Act calls for conferences to negotiate with exporters, quote, in good faith. But faith is lacking with these lines since they have the law to back up their monopolistic behavior.
Several, if not all, AG/OTC members experienced rate increases at hands of this super cartel as high as 60 percent in the first 2 years. A 60 percent cost increase on a commodity that can be sold for less than a dollar a pound is outrageous and cannot by any stretch of the imagination be termed reasonable, which is what the Shipping Act legislates.
A four-person lumber exporting company found out after a year of shipments to Europe that their carrier had been rating the bills of lading incorrectly and now wanted an additional $7,000. In normal commercial law, the carrier would be bound by originally stated charges, but under the Shipping Act the exporter had to pay for the carrier's mistake. $7,000 on a four person company is quite an impact.
A frozen poultry exporter receives U.S. taxpayer support under the Export Enhancement Program so that Middle East buyers will buy American goods. However, the group of eight steamship lines which dictate virtually all capacity and rates to Mideast destinations have repeatedly upped the rates. Seven of the eight carriers are foreign flag so that, in essence, you have U.S. tax dollars supporting non-American carriers. It is hardly any wonder that foreign flag steamship lines are anxious for us to continue the present regulatory structure.
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Another distinct disadvantage to the agricultural exporter is that under the terms of the Shipping Act all rates and service contracts have to be publicly filed at the Federal Maritime Commission. A Chinese cotton exporter can negotiate a rate with the steamship line and only he and the line know the details. An American cotton exporter's ocean costs and arrangements are public knowledge, due to filing requirements, so that all his competitors here and abroad can learn this cost component. Only in the U.S. are exporters so disadvantaged, and this needs to change.
In the 1984 Shipping Act, the Federal Maritime Commission was charged with the responsibility for the reasonableness, fairness and justice of the tariff filing system. To date, 11 years later, not one injunction has been sought by the FMC despite clear cases of unreasonable increases in costs dictated by steamship lines to exporters. The system is not working and needs revamping.
Facilitating American exports to secure the advantages which accrue and the hundreds of thousands of jobs they create seems unquestionably the right place to focus government support. At the very least, the Shipping Act of 1984 which allows these foreign-dominated cartels to choke American exports must be amended.
Thank you, Mr. Chairman and Members of the committee.
Mr. COBLE. Thank you, Ms. Morley.
Roger Wigen, Manager of Transportation Policy and Industry Affairs, Minnesota Mining and Manufacturing Corporation.
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Mr. WIGEN. Chairman Coble and distinguished Members of the Coast Guard and Maritime Transportation Committee, it is my pleasure to appear before you today; and I thank you for the invitation to present testimony.
I have been involved in ocean transportation practices and policy on behalf of 3M for over 30 years, and I participated in the deliberations leading to the Shipping Act of 1984. And in April, 1991, I was appointed by President George Bush to the Advisory Commission on Conferences in Ocean Shipping.
3M is a $14 billion company with over 85,000 employees who create, manufacture and sell 60,000 products in 200 countries around the world. We serve an extraordinarily diverse group of markets from aerospace and the office to the construction site and a consumer's home. We are able to do this because we think of markets as customers. And we listen to them. Our job is simply to make customers' lives easier and better.
Almost all of our products are the result of combining 3M's core technologies in a way that solves customer problems. These technologies—and the imaginative application of them—are 3M's unique contribution to our customers' lives.
While 3M's markets and technologies are diverse, we are strong and united because of our shared values. Innovation and change, for example, is required at 3M. Thirty percent of each year's sales come from products less than 4 years old.
Of course, 3Mers aren't working alone. Cooperation is essential. We pride ourselves in forming innovative relationships within our own organization, with customers and suppliers, and between domestic and international business units—relationships that respect individual and cultural differences and result in products that add value and make life easier for all of us.
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Our international sales are nearing seven billion annually and 50 percent of our total sales, and we see tremendous opportunity for continued growth. Forty percent of our international sales come from products that are supplied from the U.S., and a significant percentage of our 85,000 employees are directly or indirectly involved with getting our products to international markets.
We have operations in 58 countries, 45 with manufacturing and 22 with laboratories. And in the U.S. we have operations in 38 States with over 50,000 employees.
Our annual transportation costs exceed $350 million and, of that, ocean transportation exceeds $25 million, with another $4 million to accommodate the inland U.S. intermodal movement.
The deregulation of U.S. air, motor carrier, rail and intermodal transportation has made it much easier for us to do our transportation business, to satisfy our customers, and to sustain sales growth. And we have been able to establish partnerships, alliances and contracts with inland carriers that directly includes them in our supply chain process. We actually have several employees of these carriers permanently domiciled on our premises to handle everyday tactical issues and to identify major value-added improvements in the process. The result has been a significant shared improvement in productivity and customer service.
The pace, diversity and worldwide competitiveness of our businesses require an ocean transportation system that is quickly responsive, flexible and easy to engage partnerships with carriers. The lines between shippers and carriers must be allowed to be made into a smooth, fluid process with no other objective than satisfying the customer and winning in the marketplace.
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It is our opinion that the Shipping Act of 1984 does not allow 3M and other companies to meet this objective, and it is from that viewpoint that I address the questions that accompanied your invitation to testify.
Is the conference system the best way to assure adequate availability of ocean shipping services?
The answer is no. The Shipping Act was to limit the power of conferences with the mandatory right of independent action by member carriers. This has not worked because conferences and agreements have gone well beyond the scope envisioned in 1984. In several trade lanes, the conference or agreement includes virtually all ocean carriers that set rates and that have considerably eroded competition.
It is essential to at least restore a strong presence of independent carriers and independent action by conference members that are not overinfluenced by the conference to fix rates and reduce capacity.
Is the current broad exemption from the antitrust laws of the U.S. still required? Again, the answer is no. The current system is not working because conferences have created a barrier to vital individual relationships between shippers and carriers which has been detrimental to the U.S. economy and have not allowed the full development of productivity and customer service enhancement.
We estimate at least 20 percent additional administrative costs and 15 percent higher rates from having to deal with conferences compared to one-on-one arrangements with ocean carriers and their inland U.S. affiliates to optimize the process.
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Does the current antitrust immunity contribute appreciably to the promotion of the U.S. flag maritime industry?
The answer is no, and the facts speak for themselves. The U.S. flag has declined significantly under the current system and is handling only 25 percent of U.S. exports—less than 25 percent of U.S. exports and imports, and they have recently been reflagging in other countries.
How burdensome is the current tariff filing system and what are its benefits?
It is especially burdensome on the filing of service contracts. Consider that a confidential contract from the U.S. via Canadian ports can be established for 5 years in several hours, while a nonconfidential contract for 1 year via U.S. ports takes 2 months. Consider that European and Japanese competitors know our rates, but we do not know their rates. Confidentiality protects both parties to the business contract by not disclosing terms of the agreement to the competitors of either party.
The economic regulation of the ocean liner transportation simply adds another layer of costs to U.S. business, including 3M and its carriers, that makes them less competitive in the world marketplace. All other transportation modes, both in domestic U.S. and international commerce, are mostly free from economic regulation. And only in the U.S. liner trade shipping does a Federal agency exist whose major purpose is to police commercial rates and contracts to ensure there is no deviation and to maintain at the taxpayers' expense an inventory of rates and contracts and a government staff to police the market, a policing that has proven to be fairly ineffective.
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In my opinion, the current system does not fulfill its purpose and is not adequate to foster current and future U.S. ocean shipping and trade. And economic deregulation of U.S. ocean lines industry would provide the following enhancements:
A more responsive and flexible transportation system of providers and processes; 15 to 20 percent increase in productivity; legitimate independent action; a 20 percent reduction in administrative costs; bona fide confidential and customized contracts and partnerships; and a 15 percent reduction in ocean transportation costs rates.
I strongly believe your subcommittee should consider changes in the 1984 Shipping Act; and, again, I thank you for an opportunity to testify today.
Mr. COBLE. I thank the gentleman.
Mr. Don Schilling, Vice President of Wesco International, Incorporated, for the Coalition of Supporters of the Shipping Act.
Mr. SCHILLING. Good morning, Mr. Chairman and Members of the subcommittee.
My name is Don Schilling, and my partner and I operate a small export company, Wesco International, Inc., in Seattle. Our primary business is the export of hay and straw from Washington and Oregon. Last year, we shipped over 3,100 containers of hay. And while we sell to customers in Hong Kong, Taiwan and Korea, the bulk of our business is with Japan. Access to competitive ocean freight is vital to our business, and I would like to thank you for the opportunity——
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Mr. COBLE. Mr. Schilling, perhaps in my advanced age my hearing is not good. If you would pull the mike a little closer.
Mr. SCHILLING. Access to competitive ocean freight is vital to our business, and I would like to thank you for the opportunity to testify before this subcommittee on so important a subject as the Shipping Deregulation Act of 1995.
My perspective is that of a small businessman who exports. Wesco only employs seven people, yet we shipped over 75,000 tons of hay last year. Our hay export business is nothing glamorous but, in 1994, it helped reduce the trade deficit with Japan by more than $15 million and gave over 100 farmers and hay processors an alternate market for their products.
I think it would surprise many people to know that hay exports account for 14 percent of containerized cargo being shipped to Japan from the West Coast. It is actually the single largest moving commodity measured in containers. The next largest commodity is forest products which account for only 7 percent of the total containers exported to Japan.
It is important to know that 85 percent of all exporters are small shippers, like Wesco, yet they generate 32 percent of our country's export sales. If you add small shippers and medium shippers together, they account for 95 percent of all exporters, and together they generate 57 percent of all export sales.
Again, from the perspective of a small businessman, I wholeheartedly support Congress' efforts to streamline and downsize government. But as I have followed the debate over the Shipping Deregulation Act I have grown increasingly worried over its impact.
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In theory, it sounds great: deregulate, downsize, simplify and reduce spending. Again, as a taxpayer and as a small businessman, I am in favor of all those goals. As small businessmen, we all know how necessary it is to run lean and efficient operations. Otherwise, we couldn't survive in the international marketplace.
But the Shipping Act of 1984 is not unnecessary regulation. It guarantees, as much as possible, a level playing field for small- and medium-sized exporters like us. We don't need preferential treatment, and we don't need government subsidies. We just need a fair chance to compete. The Shipping Act provides that level playing field, and the FMC ensures that everybody plays fairly.
With low revenue commodities like hay, ocean freight constitutes a disproportionate amount of selling price in Japan. While the price of our hay, including processing and trucking to the ports of Portland or Seattle, might only amount to $2,000 a container, ocean freight to Japan adds almost $1,400 to that price. And a little quick division will show that you ocean freight can constitute up to 40 percent of our selling price in Japan.
On most of our export shipments, we earn about $50 to $75 gross profit per container. Even a small advantage gained through a secret deal or a rebate in getting lower ocean freight from a steamship line would result in a much larger advantage when exporting to Japan.
If the Shipping Act of 1984 is repealed and the FMC eliminated, our market in Japan will be handed over to our competition. And by competition I don't mean U.S. competition. I am talking about foreign trading companies. Unless small shippers have access to the level playing field provided by the Shipping Act, we will soon cease to be exporters and become domestic suppliers to foreign trading companies.
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In the hay export business, there are over 30 different companies competing with one another, just like any other business. We compete on price, quality and service, each of us trying to offer our customers in Japan the best product at the lowest price while still earning a profit. The competition is pretty fierce, and it gets uncomfortable sometimes, but those are the rigors of the marketplace.
But we can't compete when secret deals and preferential treatment are allowed. As small shippers we simply can't compete with the clout and influence of multi-billion dollar Japanese trading houses like C.Itoh, Nichimen, Sumitomo, Mitsubishi, Mitsui, Tomen, Nissho-Iwai or Marubeni. These huge multinational conglomerates all trade in hay as well as every other product or commodity that the U.S. exports. Most American exporters are familiar with these companies regardless of what they sell, and any advantage given these foreign companies will sooner or later impact all small shippers.
The Shipping Act and the FMC insure that small U.S. exporters can still compete with foreign companies regardless of their size or influence. They establish an even playing field, and they define U.S. rules by which the game will be played. Given an even field and fair rules, small U.S. exporters can continue to play a vital role in the international trade of the United States.
By repealing the Shipping Act, you will force us to play on an uneven field, according to foreign rules. And I can tell you that small shippers will lose if we have to play by Japanese or Chinese or Korean rules.
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Please do not repeal the Shipping Act. Simplify it, perhaps, make the FMC run leaner, impose higher user fees or fines, make the institution more responsive, but please protect the vast majority of U.S. exporters from the secret deals and unfair advantages that are sure to follow the Shipping Deregulation Act of 1995.
Thank you very much.
Mr. COBLE. Thank you, Mr. Schilling.
I thank the entire panel for their testimony.
I will comply with the 5-minute rule during my questioning, and I would ask Members of the subcommittee if they would do likewise. It will keep us on schedule. After the first round of questioning, if Members of the subcommittee have additional burning questions we can go into a second round of questioning.
Mr. Emmett, permit me to put a general question to you. Has the FMC been responsive to the concerns of shippers over the years? That is a very general question, I will admit.
Mr. EMMETT. Mr. Chairman, it is a general question, but it can have a very specific answer. And a very specific answer is no.
Perhaps the best example of that—shippers for quite a while have been complaining about the Transatlantic Agreement, the cartel that operates in the North Atlantic that has been alluded to by many shippers. No action was taken for several years by the FMC. It took the shippers themselves——
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And I happen to have a copy. This is the filing that we had to make at the Federal Maritime Commission, verified statements to get them to launch an investigation. That investigation has now been going on for months. The shippers were all subpoenaed as witnesses. The carriers have yet to even have to testify, and now there is even a proceeding as to whether or not that investigation is going to go forward. In today's global market we have got to have quicker answers than that.
Mr. COBLE. I will put this question to any member of the panel. The next panel of witnesses, the ocean carriers, will testify that eliminating or repealing the 1984 Shipping Act will force the American shipping companies to move overseas. I would be happy to hear the response to that problem from any of you. Anybody want to put an oar in the water on this one?
Mr. SCHILLING. As a general comment, in the Pacific trade, the foreign flag carriers are certainly much more competitive than the U.S. flag carriers. They are a lot more aggressive.
And in the cases of controlled carriers like COSCO, which is owned by the government of the People's Republic of China, they can set prices and establish policies that really have no correlation to commercial practices or considerations. It is amazing sometimes the low rates that they are able to charge, and yet they are able to compete with U.S. flag carriers that are burdened by U.S. regulation where these other carriers are not.
Mr. COBLE. Anyone else? Yes, Mr. Wigen.
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Mr. WIGEN. Mr. Chairman, I don't think there is any reason for a U.S. flag carrier or an American carrier to move overseas. First of all, they have less than 25 percent of the market here, so there is still plenty of potential for them. Plus I think they have got a heavy investment there.
In addition to that, I think they have got the best network of any of the carriers that now play in the international marketplace in terms of an inland USA infrastructure that accommodates their ocean move. The two major U.S. carriers, APL and Sea-Land, both have great networks of inland railroad connections that help them reach any point in the United States.
And I think for those reasons there really isn't any reason for them to move elsewhere. The best market they have got is right here.
Mr. EMMETT. Mr. Chairman, a very quick answer. They already have reflagging proposals right now, and we have seen the decline of the U.S. flag under the present system. So a change in the system, if anything, would even improve their situation, not make it worse.
Mr. COBLE. Well, let me extend that question and perhaps use—put it to you a different way. Some will indicate, some have indicated, some will continue to indicate that eliminating the antitrust immunity for ocean conferences will result in chaos and instability in the international ocean shipping market. That is just an extension of my first question. How do you respond to that?
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Mr. GRANATELLI. This is Bob Granatelli, Mr. Chairman.
I think what we have here is a definitional problem. In the United States, North America and most of the world we have a very dynamic economy. Prices change daily. Customers seek new sources. And all of a sudden in the maritime industry it is called ruinous competition, and we are going to go out of business.
I think the market will have adjustments, but I think what we are looking at is a picture that is being painted that is painted in the worst possible manner.
We are simply looking at a competitive marketplace. And I find it hard to believe that Americans are saying they can't compete. Americans have always been able to compete. And they can, too.
Mr. COBLE. Thank you, sir.
My time has expired. I recognize the gentleman from Ohio.
Mr. TRAFICANT. Thank you, Chairman.
The Constitution says Congress shall regulate commerce with foreign nations, and evidently at the crux of previous years' hearings and internal struggles with an interest of the industry, regulations is at the heart of this whole matter. I find it interesting.
I would like to say to Bob Davis, former great Member here from Michigan, good to see you, Bob.
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My position is very clear. Our trade deficit is so bad that we will have to look at the impact of any change, as far as I am concerned, that would have any further effect, certainly negative, on that.
I am not going to ask you now any questions because in 5 minutes, if one of you gets long-winded, I won't really learn anything. I ask unanimous consent that my questions be distributed and delivered to all of the witnesses before us today and that their answers be submitted in writing with documentation to support your positions and that those responses to me be incorporated into and part of the minutes of this hearing and made available to all so interested. That I ask unanimous consent of, Mr. Chairman.
Mr. COBLE. Without objection.
Mr. TRAFICANT. With that, I yield back my time; and I wish you well.
Mr. COBLE. Thank you, Mr. Traficant.
[Responses may be found with prepared statements.]
Mr. COBLE. If it pleases the subcommittee, I will recognize Members in order of appearance. And, having said that, I recognize the gentleman from California, Mr. Baker.
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Mr. BAKER. Thank you, Mr. Chairman.
For Mr. Schilling, you are happy with the Act and seem to be protected as a small shipper, yet the agricultural shippers are charged different rates between almonds and cashews in the same bulk containers?
Mr. SCHILLING. Well, there used to be—first off, I would like to say I don't want to defend any carrier's pricing scheme. We fight—as a shipper, we fight tooth and nail with carriers to get the lowest possible ocean freight rate. Hay is—and we use this argument. Hay is one of the lowest value commodities shipped in containers. And ocean freight constitutes a far higher portion of our C&F costs than almost any other commodity. See, we bear a disproportionate burden of the cost of moving that ship overseas.
But, again, there used to be a pricing rationale that the higher the value of the cargo, the higher the value of the ocean freight, and now it is pretty much what the market will bear. Hay moves in such a large volume that carriers have to have it on their ship, and sooner other later they get around to a level of ocean freight that allows the hay to go to Japan.
Mr. BAKER. Do you use COSCO and other——
Mr. SCHILLING. Absolutely. Absolutely. There are 14 carriers that call at the port of Seattle, and in any given year we get around to using almost every one of them.
Mr. BAKER. Then why do you need this Act if companies not covered by the Act are serving you also?
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Mr. SCHILLING. It puts us—were it not for the Act and where it not for publicly filed tariffs and service contracts—because most of our cargo moves under service contracts—with independent carriers it would be possible—again, to use the example of a foreign trading company, it would be possible for a foreign trading company with billions of dollars worth of cargo and assets to negotiate a rate with a carrier and probably a non-U.S. flag carrier so much lower than rates that U.S. exporter could get that the U.S. exporter would not be able to export to his customer overseas. He would have to sell to the domestic office of a foreign company. They then would control the trade. They would control the traffic. And when the price of hay or whatever it is going to be in Canada is lower than it is in the United States or in Australia or in Southeast Asia, that trading house is going to move their operation over there.
And when we look at our responsibility as an exporter, it is with the farmers and processors back in the country that depend on us.
Mr. BAKER. Thank you.
Mr. Emmett, you mentioned the right of privacy in your contracting. In most common carriers, even trucking, the rates are pretty well known. Why do you need a secret rate?
Mr. EMMETT. It is not a question of a secret rate, Mr. Baker. It is a question of contract.
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Mr. BAKER. Suppose we abolish the Commission but made you publish with the Department of Transportation your rate agreements. What would be wrong with that?
Mr. EMMETT. It really speaks to Mr. Schilling's point but makes the opposite point from what he is making. The fact is that U.S. exporters have to publish their tariffs. The tariffs are known, what they are paying. You don't know what your foreign competitor is paying because there is no similar requirement in all the foreign countries. And so that is part of the problem.
The question of tariff filing was put in place a long time ago—you know, really before you had the kind of E-mail and the communications that we have today. And it was done to protect shippers. And what we now hear from shippers all over the country is it doesn't serve a purpose and, in fact, it makes it an uneven playing field because we have to show ours.
Mr. BAKER. In the seconds that are remaining to me—we are struggling to protect the small shippers and the American shippers and the small fleets and the American fleets. This act is protecting 80 percent foreign and fixing the prices. And some of us don't see a need for that, but we also don't see a need for any secret contracts or the squeezing out of American firms.
And I don't think the Act is working fairly now between shippers of nuts and shippers of hay, and it is very arbitrary and backed by a government bureaucracy. So you folks are going to have to help us unwind out of this mess not just by saying abolish it all because we have got a great deal coming. Some of us don't believe that.
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Mr. Granatelli.
Mr. GRANATELLI. If I may make a comment—there is a lot of emphasis put on the word secret agreement as if we have something out there lurking. In the commercial world, the only way you can strike an arrangement that makes sense is under a confidential agreement.
Remember that ocean transportation is only a small part of the commercial logistics transaction, and for us to serve our clients overseas in a nonconfidential fashion creates a very weak link in that transaction.
When a carrier or any vendor of a product or a service is offering his property or service, we and any company in this room offers a service or a product to a customer, it all differs a little. And the reason is because everyone has unique needs. If we had to disclose all of our arrangements with our hundreds of customers, I am afraid we would have a pretty bland economy.
Mr. BAKER. Well, it would be called competitive. Fire away, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Baker.
The gentleman from Minnesota, Mr. Oberstar.
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Mr. OBERSTAR. Thank you, Mr. Chairman. It is very useful to have these hearings.
It is good to be back in maritime affairs after an absence of a few years while I left the Merchant Marine and Fisheries Committee. But I have been at this business for about 20 years, and deregulation is a beguiling bumper sticker slogan to address a very complex subject.
I would observe that ocean shipping, next to the camel, is the oldest of transport methods, the oldest of commercial movement of goods and people, and that there is a long history of practice involved in the trade that is not written down in books but is in the bones and heart and soul of people who live in this and operate in this extraordinary commerce. And I would be extremely reluctant to have a wholesale immediate washout in a few days with hearings we will not be able to explore in depth. A subject of this complexity and antiquity needs to be explored and observed.
I would like to make just a few observations. Think about deregulation on aviation. The first few years, we had 22 new entrants, but within 8 years, only three of them remained. The others were bankrupt or absorbed or just vanished.
In this very committee room a few years ago we deregulated trucking with the promise there would be lots of competition, rates would go down, and it would be good for everybody. And what has happened is we have got lots of independent truckers. Those guys used to work for the big guys and were set off by themselves, said you go borrow some money, rent a rig, get on the road, fend for yourself. They have gone, too. We have a cutthroat, dog-eat-dog trucking industry out there.
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I would like to ask this panel, but it would take too long for them to answer, what is the number of U.S.—of ships in the U.S. fleet 40 years ago? Answer, 2,400. We had 16 million dead weight tons of shipping at the end of World War II. We were number one.
When I came to Congress in 1970, we had 850 ships. We were eighth in the world. That is dead last. The Polish fleet, Baltic Atlantic fleet, Russian fleet had 4,000 ships. Every major maritime country in the world subsidizes its shipping, subsidizes the construction and the operation. We tried to match that with the construction differential subsidy program and the operation differential subsidy program a few years ago. That has gone the way of budget cuts.
We had 21 shipyards in the United States at one time. Nineteen of them are in bankruptcy. Two are functioning. Now they are making ships for the military. We have 100 ships in our fleet.
There isn't going to be competition with American shippers. The foreign flag operators will continue to subsidize the construction and the operation of their fleets. They will continue to build vessels to below U.S. standards. They will continue to take markets away from us. And U.S. shippers will be at their mercy.
One of the reasons for having a construction and operation differential subsidy was to have a merchant fleet that could support the U.S. military in time of national necessity. And we also had the war risk insurance program to guarantee that U.S. shipping companies would be available. Not one of those companies that operated under foreign flags with war risk insurance was available during the Vietnam War. Go back and review the hearings that we had in the Merchant Marine and Fisheries Committee a few years ago on that subject. Not one.
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Total deregulation, as is argued by some, would further decimate the U.S. flag fleet, ultimately will raise costs for all of you shippers sitting there at the at that table, and it will be devastating to American commerce.
I guess that is about as how much I can say in 5 minutes, Mr. Chairman. I will have a few more words later on.
Mr. COBLE. Thank you, Mr. Oberstar.
The gentleman from Virginia, Mr. Bateman.
Mr. BATEMAN. Thank you, Mr. Chairman, for allowing me to be an interloper at your subcommittee of which I am not privileged to be a Member.
I am here this morning because I am and have been as long as I have been in Congress vitally concerned about the well-being and even the survival of the American Merchant Marine. From what I have heard at the witness table this morning, if you could confine it to just what has been talked about today, a strong case would be made for either the disappearance of the Federal Maritime Commission or certainly significant changes in the way that it operates. And I am certainly not of the view that how it operates cannot be improved upon.
But I share many of the concerns that were referred to by my colleague from Minnesota. There is a national security involvement. It is at the core of why we do for the American Merchant Marine something that this country as a matter of policy doesn't do for other segments of the economy.
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It is my general propensity to favor less regulation or total deregulation, not continued regulation. But we cannot look at this in a vacuum. There are those very, very substantial national security concerns that dictate that this country retain at least some core U.S. flag Merchant Marine.
Much has been made of the fact that we are protecting through the FMC 80 percent foreign shipping. That leads out of the equation why it is 80 percent foreign shipping. It leaves out of the equation why the overwhelming majority of all of the cargo that we generate is carried in foreign vessels.
It is because of those phenomenons and the disadvantages of American shipping lines in competing in an international marketplace redundant with every form of governmental assistance and subsidization by other countries that we have shrunk to where we carry so little of our commerce.
We do have these national security concerns. We can't look at this in a vacuum of a country that at this point continues to give operational differential subsidies to American flag vessels which clearly, if they are to be retained—and that may be subject, of course, to debate—but if retained under your premises have to be substantially increased if shipping rates are going to decline substantially.
We have a system of cargo preferences in this country all predicated upon the criticality of the American flag Merchant Marine to our national security and allocating a portion—a small portion of cargo to protect American flag shipping. If we are going to continue that policy, and I frankly think that unfortunately it is a necessary policy, the cost of cargo preference is very likely to be significantly impacted by the disappearance of the FMC.
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These are some of the concerns that I expressed. And I did not come here this morning with a mind closed to anything, but I think we do, throughout our discussion on this, have to bear certain overarching things in mind.
One, the national security aspects of this, that we are dealing here not with interstate commerce where all the players are going to be self-regulated under the norms of competition within these United States, but you are dealing with an industry or a segment of the economy where their competition comes not from rivals or competitors within our domestic economy but from rivals and competitors which are dominantly subsidized and controlled by foreign governments in the interests of foreign governments and where our liner operators cannot compete with the foreign governments.
These are among the things that we must bear in mind as we try to work through this, hopefully, very deliberately and very carefully and with the ultimate result that we improve our public policy and certainly that we do so in a very, very careful and reflecttive manner.
Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Bateman.
The gentleman from Alaska, Mr. Young.
Mr. YOUNG. Thank you, Mr. Chairman.
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I would like to recognize a former colleague, too, Helen Bentley, a Member and former Chairman of the Federal Maritime Commission who will testify later.
I will echo some of the comments made by the gentleman from Ohio and the gentleman from Virginia. I am deeply concerned about the effect upon my State, but I am served by two of the best carriers in the United States, Sea-Land and TOTE. We have good rates, and we are concerned about rates in our area because we are one of the furthest noncontiguous States and yet not the furthest away in the United States.
But the panel—all of you are involved with shippers. The FMC is what I am interested in, most of all; but they have—in fact, in the last 10 years, the Commission has initiated numerous actions against various countries including China, Korea, Japan, Taiwan, Colombia, Brazil and Ecuador on behalf of the shippers; and all those cases have satisfactorily reached a conclusion. If we were to eliminate the FMC, who would take on the task of regulating those foreign countries? Anybody can address that.
Mr. HAZZARD. If we would eliminate the FMC, I believe the Department of Trade could take that responsibility.
Mr. YOUNG. What do you mean, take it? It has to be a law. This is a congressional law. You are asking us to transfer that over to the Department of State or Department of Transportation?
Mr. HAZZARD. If they were bestowing our cargo preference laws or not allowing our carriers to participate in trucking operations in their countries, we could restrict their entry into the United States.
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Mr. YOUNG. We could do that; but, right now, that has been done by the FMC. Is that correct?
Mr. HAZZARD. That is correct, but that——
Mr. YOUNG. You do support that effort.
Mr. HAZZARD. I definitely do, but that doesn't mean it has to stay with the FMC.
Mr. YOUNG. Go ahead, Mr. Emmett, you want to address that.
Mr. EMMETT. Mr. Young, the NIT League has a series of proposals that we are floating around as ideas, and we support retaining that authority but moving it to the Secretary of Transportation's office rather than the U.S. Trade Rep for the specific reason that we think it is a specific transportation function and could best be done by the Secretary of Transportation.
The idea of eliminating the Federal Maritime Commission really stems from a policy consideration, not a consideration of, gee, we have got to get rid of this agency, but more looking at all the policies they do and can they be done by someone else in a more efficient manner. And we believe moving those to the Secretary of Transportation would make some sense.
Mr. YOUNG. Well, the only thing—I am not going to defend the Merchant Marine and FMC totally, but I would suggest respectfully if you watch the Department of Transportation you have hopes beyond anyone's imagination. And you may want that, by the way.
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I will be serious about that because this is a small agency, one of the smallest in the United States, that costs seven million dollars. In fact, in the last 2 years they have contributed money back to the Treasury. So I tell my colleagues if you are looking upon this issue to cut back on big government this is not where we cut back on it. In fact, you might want to look at the Department of Transportation and Amtrak and a few other things.
So my concern—and I will be right up-front with all of you, and I will listen to the smaller shipper there. I don't want domestic carriers picked off by foreign shippers. I don't want foreign countries to be setting arbitrary decisions on shippers that are domestic into their ports. And that has happened or FMC would not be involved in it.
I have no love for the foreign shipping industry. Every log that ever left my State was on a foreign bottom ship with a foreign crew—no domestic shipping. And I think what has happened to this industry is a travesty.
I understand all the brokerage offices, and I understand all the shippers, and I understand the agriculture arguments. I understand all those arguments. But what we have done to the shipping industry is wrong, and I am not about to put another pin into this voodoo doll to make sure that the shippers that we have left are gone.
I want to make sure before we move into this, Mr. Chairman, that we know what we are doing. If the FMC is not working correctly, let's review it; but again you go back—I don't trust the Department of Transportation.
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Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Young.
And we will start a second round. I think Members have other—Mr. Tucker has joined us. The gentleman from California. Do you have questions, Mr. Tucker?
Mr. TUCKER. Thank you, Mr. Chairman.
My understanding is that you all are in favor of deregulation and in favor of getting rid of the FMC, is that correct?
Mr. SCHILLING. That is not correct.
Mr. EMMETT. All but one.
Mr. SCHILLING. I am not favor of getting rid of the FMC.
Mr. TUCKER. Is that true for the rest of you all?
All right, with the exception of Mr. Schilling. And why is it that you favor the elimination of the FMC?
Mr. SCHILLING. I have some personal experience as a small shipper with the FMC, and I could use as an example a case that occurred during Desert Storm. At that time, on the West Coast, there was a sudden shortage of containers. The U.S. flag carriers were, of course, supporting our effort in Saudi Arabia and Kuwait; and I called the Japanese flag carrier to make a booking.
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Now, space and containers were tight; and I got an inexperienced clerk who said to me, well, let me see if you are on the approved list. And I said, who is on that approved list? And she proceeded to read to me 10 names, 10 Japanese companies that were on the approved list to receive bookings for hay.
And ever since I have been in this business I have had a copy of the Shipping Act on my desk because it is in cases like that where you say thank you very much and you call up the manager and you say, you have a very inexperienced clerk that just informed me that I was not on the approved list. Now according to the FMC and to the Shipping Act that is illegal, do you realize that?
I have had situations where I have said—I haven't gotten resolution to that. And I have called the Office of Informal Investigations at the FMC and—merely saying to a carrier, do you realize that what you are doing is illegal and that I have recourse to the FMC?
I can pick up the phone, and I can call Joe Farrell or whoever answers the phone at the Office of Informal Investigations, and he will hear my story. And he will say, well, I don't think you have a leg to stand on or he will say, that is very interesting. Who said that? What exactly did they say? And could you please send me a letter?
When I say that to the carrier—and they are invariably foreign flag carriers—all of a sudden you either get space, get equipment or get a response. And I am deathly afraid that without an FMC, who in my direct experience has been very responsive, without an FMC, that carriers are going to be able to say to me, with impunity, I am sorry, Mr. Schilling. There is no space for you on our ship. Or we can't give you a container for the next 3 months. While I watch my competitor, my foreign competitor, get space and equipment with impunity and call me up and say, could you sell me that stuff that you can't get on that ship because I can get on the ship. That is what I am afraid is going to happen.
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Mr. TUCKER. I certainly appreciate that story.
For the rest of you panelists, would the elimination of the FMC expedite or enhance the flow of commerce and cargo or would it have the opposite effect?
Mr. GRANATELLI. I am the other small shipper in the room, sir. And I think the elimination or the changes that we propose in the Shipping Act of 1984 would clearly advance the case of exports in the United States—whether it be a small shipper or big shipper. It is hard to make the case as a small shipper that we have leverage against foreign-controlled cartels.
The issue here today really goes beyond the Shipping Act. The issue today is why can't America compete in foreign markets. It is no wonder. Foreign-controlled cartels control the market reach of our products.
Let's look at our export products. There is hay, there are Jil's products, there are forest products, and there is plastic resin—all of which have very high transportation costs per the value of the product. If some miracle happened and we were able to produce VCRs and TVs at attractive manufacturing costs, do you think these foreign cartels would give us freight rates to reach their markets? I think not.
As a small shipper, I must be a wallflower because my experience with the FMC has not been as terrific as his. I don't want a third party in my business relationships; I want a normal business commercial relationship. I don't want a third party controlling me.
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And when you look at how they allegedly treat small shippers, the Pacific conference requires a minimum of 5,000 containers to even begin to talk about a contract. The playing field is not level. I would rather have a commercial-level playing field than a cartel-controlled playing field.
Mr. TUCKER. Mr. Chairman, thank you.
Mr. COBLE. Thank you, Mr. Tucker.
I have a couple of quick questions I will put to all members of the panel.
Do service contracts and the right of independent action provide sufficient market safeguards against unreasonable actions of the conferences? Anyone can respond to that.
Mr. HAZZARD. I would like to cover the point of independent action.
And I say, no, are not sufficient safeguards as far as the shippers are concerned. I have been told by a member of the TACA, once the TAA, in the North Atlantic, that their membership at the top management level has joined together to restrict independent action and that if anyone took independent action they are subject to fine. And this is, of course, contrary to the Shipping Act of 1984 if this statement is, in fact, true.
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And the other question was—I am sorry.
Mr. COBLE. That was the question.
Anyone else want to respond to this? Mr. Schilling.
Mr. SCHILLING. Mr. Chairman, most of our cargo is shipped under service contract. We have—right now, we have service contracts with five different steamship lines. And out of the 14—out of the 15 that actually called the Pacific Northwest ports of Seattle and Tacoma, eight are in the conference. So that the conference really doesn't even control most of the ocean freight that goes to the Far East. The conference, as a whole, is balanced by the independents who have more tonnage than the conference; and within the conference itself there is right of independent action which is exercised regularly on behalf of the shippers. I have direct experience with that.
Mr. GRANATELLI. I have very unpleasant experiences with the alleged right of independent action.
Two points: On the Pacific, the two American flag carriers are members of the cartel. Again, 5,000 container limit before they will even make a discussion. So if I wanted to give my business under contractual arrangement with the American flag carriers I am foreclosed from doing so.
Second, in a trade lane where I mentioned the B and G carriers, there is one independent; and he came out for our business. I soon learned that he is not a member of the conference; but he is a member of the talking agreement, which is he sits outside and agrees in the hallway to follow the same rules and procedures they have. So, hence, my competition doesn't really exist on a practical basis.
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Mr. COBLE. One—my final question. Most of you have testified that the tariff filing system gives an unfair advantage to your international competitors by requiring you to make your shipping costs public. How would you ensure that all shippers and specifically small shippers are being treated fairly without tariff filing?
Mr. GRANATELLI. I believe the marketplace will treat me a lot more fairly than any tariff filing system. The tariff filing system in fact today, sir, is a mechanical nightmare. And, in fact, any tariff filing system, when it was in truck and in rail, what you will find is carriers spend a lot of time becoming clever, putting items in tariffs, in a sense disguising what they are doing for certain shippers.
So to equate tariff filing with a level playing field, I don't think the day-to-day reality is there. It is not there.
And also, again, we have to serve our customers. If it requires a carrier X number of days, either 10 days or 30 days to change a tariff, our market is gone.
I am also responsible for transportation out of Canada where it is an opposite regulatory environment than we have. The same carrier—sir, I can pick up the phone and say we have a quote to XYZ country in the world; and in 5 minutes that same carrier says, I can do it for this much and sends me a letter, a fax and says, here is the guaranteed price; make the booking. That same carrier who is a cartel member can take 30 days to confirm that price. Again, we as Americans can't compete shackled with this regulatory scheme.
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Mr. COBLE. One final response. The red light illuminates, but I will hear one more answer.
Mr. EMMETT. I will try to be very quick, Mr. Chairman.
Two points: Tariff filing as it currently exists really is an enforcement mechanism for cartels so they can check up on their members and be sure that everybody is charging what they are supposed. And, second, tariff filing and all other services—let me use a hotel example.
If I go to visit my daughter at Davidson College, they have a rate that everybody is charged. That is the posted tariff. It doesn't take a government agency to hold that. Likewise, if Davidson College wants to sign a contract for a block of rooms then you can get it at a lower rate, but that doesn't negate that there is a tariff for everybody to go by.
Mr. COBLE. Thank you. The gentleman from Minnesota.
Mr. OBERSTAR. I don't know where you pulled that Davidson College out of the hat there, but you know that is in the Chairman's State.
Mr. COBLE. If the gentleman would yield—I am also a Presbyterian.
Mr. EMMETT. So am I, Mr. Chairman.
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Mr. OBERSTAR. You get two points, all right.
We have noticed in shipbuilding and ship operations over the last two decades a number of efficiencies built into the modern vessels which have lowered operational costs, improved the delivery of goods, lowered crew sizes and, therefore, lowered overall cost of operation. Mr. Granatelli, has this lowered your cost of doing business?
Mr. GRANATELLI. I don't believe any industry directly passes on costs of manufacturing and cost of service automatically on to their customer. It is the market that makes the adjustments to the buyer of the product or the service.
Mr. OBERSTAR. You are saying that these improvements in shipping costs are not passed on. They remain with the liner operator in the form of profit?
Mr. GRANATELLI. Any cost in the industry, any incremental gain you make always will stay with the person who makes the incremental gain unless the market forces you to give part of that gain back to the customer.
And in ocean transportation you see some really strange situations when it costs you $100 a ton of plastic resin to go from Houston to Venezuela and it costs you lower than $70 a ton to go from Houston to Hong Kong. Ocean transportation charges are is not linear with distance. Ocean carriers charge on what they believe they can extract from you.
Mr. OBERSTAR. What differences are there in costs of shipping between U.S. carriers—the few that are remaining and holding on by their fingernails—and those with our foreign competitors, say Greek shipping companies or Liberian or Panamanian registry or European registries?
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Mr. GRANATELLI. You mean their actual costs?
Mr. OBERSTAR. Their costs of goods shipped compared to the cost of goods shipped for U.S. carriers.
Mr. GRANATELLI. The cost to me or their operating costs?
Mr. OBERSTAR. Do you have any different costs—lower costs by using a foreign carrier than a U.S. carrier?
Mr. GRANATELLI. I have a different cost if I use an independent carrier, whether it be a U.S. flag carrier or a foreign flag carrier.
Mr. OBERSTAR. A nonconference carrier.
Mr. GRANATELLI. That is correct. I will have a different cost.
Mr. OBERSTAR. Lower cost.
Mr. GRANATELLI. It will be a lower cost.
Mr. OBERSTAR. What registry are those independent carriers?
Mr. GRANATELLI. Sir, I don't have a clue. There are very few U.S. carriers that are independent in the trade lanes we do business in. But, sir, again, out of the Canada——
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Well, I can give you a prime example even better out of Mexico, a U.S. carrier who—always, the ship went from Mexico to Houston and then into a Mediterranean country. They would not do anything about the cost to keep us in the marketplace from Houston because they are a cartel member. Yet out of Mexico, where they were not a cartel member, they sent me a letter in 15 minutes which would enable us to source the product from Mexico and keep us in that foreign country.
Mr. OBERSTAR. I gather this panel at least wants to see the continuation of common carrier system and in ocean carriage, but you want to do away with tariff filings, is that correct?
Mr. SCHILLING. I don't favor that.
Mr. OBERSTAR. Except for Mr. Schilling whose testimony was eminently clear and sensible.
Mr. EMMETT. The short answer is yes.
Again, not to berate the hotel example and all other services, that is exactly what you have. You have a price list. And then if you want to contract for a different price you are allowed to do that, and that is true of any other service or product you buy, except for ocean shipping.
Mr. OBERSTAR. What will happen to the U.S. fleet if we do that, if we unilaterally disarm?
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Mr. EMMETT. Well, it is not a unilateral——
Mr. OBERSTAR. You will have foreign operators that aren't going to play by our rules.
Mr. EMMETT. Well, it is currently in effect in Asia. Right now, it is completely deregulated; and U.S. flag carriers are doing fine there. And, in fact, I would submit the current system—the litany you presented of the decline of the U.S. flag I think argues for change more than anything else we could be presenting today.
Mr. OBERSTAR. Well, I think that the reasons for the decline in the fleet have less to do with their rates than with the way in which foreign governments operate their fleets, their shipyards, subsidize their shipping companies and indeed the manufacture of goods, even.
Well, incredibly, my time is up here.
Mr. COBLE. Thank you, Mr. Oberstar.
The gentleman from California, Mr. Baker.
Mr. BAKER. The problems that we are hearing now are trade problems, not shipping problems. Is there anything we can do at the congressional level to enforce the preferred list as the gentleman referred to he wasn't on in Japan?
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European—as I heard earlier, the common market is abandoning their price fixing because it is hurting their own shippers. Why should we hang on to ours? And what can we do at the trade level to open up the markets in foreign countries that hurt our carriers, not our shippers?
The reason I am asking these of you, you are shippers. You are not carriers. They come next. But we are going to be asked to dismantle what they have described as the last, best protective hope for national defense in the few remaining carriers we have. Are there other ways we can give them protection other than price fixing and cartel behavior?
Mr. EMMETT. Well, Mr. Baker, I believe that the way to address that is whether it ends up in the Trade Rep's office or in the Secretary of Transportation or even in a slimmed down FMC as a direct trade matter. Rather than trying to do that through some kind of economic regulation, I would refer back to the question of trucking. And, admittedly, there is a slight difference there, but prior to deregulation of trucking there were 16,000 carriers registered. Today, there are 45,000 carriers registered. They are doing much better.
Yes, the rates have come down, but what happens is the product base increases. The example Mr. Granatelli gave you means that U.S. companies are moving to places like Mexico to produce product and that, in fact, is devastating to our entire trade balance that was referred to earlier. We need to make it easier for products to be produced in this country and shipped from this country. And shippers and carriers need to form partnerships, not be up here fighting each other all the time over whether or not there is a cartel or not.
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Mr. BAKER. What we are trying to do is disarm the cartels everywhere. Go ahead.
Mr. GRANATELLI. I would just like to make an observation. If there is anything vital to our national interests it is our energy supply or oil supply. That entire shipping business is completely deregulated. The oil buyers and the oil suppliers here in the United States buy that oil, buy the ships, more importantly, on an open market. There is no regulation controlling the movement of oil tankers to the United States. And so, if there is a vital interest, we have a market that is working quite well in terms of the ocean shipping. We don't regulate that. We don't—there are no cartels in oil transportation.
Mr. BAKER. I wouldn't mention that in this town too loudly. There will be a movement to do it.
Jil.
Ms. MORLEY. There has been a lot of talk this morning about how modifying the Shipping Act will somehow be the end of the U.S. flag carriers. I think it is important to point out that none of the shippers here want to see the U.S. flag carriers go. But on the basis of whether it is a defense and security issue, I think it is very telling that the Department of Defense in the last 2 or 3 years where the U.S. flag carriers have been trying to implement the next round of subsidies, the Department of Defense has been completely silent.
Mr. BAKER. What did you want them to do? Did you want the Department of Defense to offer higher shipping rates?
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Ms. MORLEY. The implication is you get people looking at a bunch of exporters such as ourselves and saying you should support U.S. flag carriers. If it is a security issue, every American should support the U.S. flag carrier; and, therefore, it should come out of the general fund and probably out of the defense budget.
Mr. BAKER. Great idea, Jil.
Mr. OBERSTAR. Would the gentleman yield?
Mr. BAKER. Yes, I certainly would.
Mr. OBERSTAR. Two points: One is that the European Economic Commission has not yet deregulated. They have a draft proposal for maritime deregulation which has a lot of steps to go through.
Mr. BAKER. I recall earlier testimony said it was easier to get flexibility out of the European common cartel, if you will, than our own. That is what I am referring to.
Mr. OBERSTAR. They are moving in the direction of deregulation, but they have not taken that step.
Mr. BAKER. Then we must, also. But some of us aren't quite ready to throw the entire kit and caboodle out, and I am trying to get 90 percent.
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Mr. OBERSTAR. Another point to consider also is, while goods can move on foreign vessels for military purposes, they won't move a box if they don't have war risk insurance provided by the U.S. Government. And we provided an awful lot of that in the Gulf War because we didn't have the shipping capacity. That is a cost to the U.S. taxpayer.
Mr. BAKER. I was talking about tort reform very shortly. I thank the gentleman.
The gentleman from California, Mr. Tucker.
Mr. TUCKER. No questions at this time, Mr. Chairman.
Mr. COBLE. No questions.
I thank the panel. You are excused. Thank you again for coming with us.
Panel number three will appear at the table.
Mr. BAKER [presiding.] It is my pleasure to introduce Mr. Paul Bijvoets—he is the CEO of Nedlloyd Lines; John Clancey, President and CEO of Sea-Land Corporation; Timothy J. Rhein, President and CEO of APL Land Transport Services; and William P. Verdon, Vice President and General Counsel of Crowley Maritime. And I welcome you.
I thank the panel for their testimony and remind the Members they are limited to 5 minutes.
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TESTIMONY OF V. L. (PAUL) BIJVOETS, CEO, NEDLLOYD LINES; JOHN P. CLANCEY, PRESIDENT AND CEO, SEA-LAND SERVICE; TIMOTHY J. RHEIN, PRESIDENT AND CEO, APL LAND TRANSPORT SERVICES; AND WILLIAM P. VERDON, VICE PRESIDENT AND GENERAL COUNSEL, CROWLEY MARITIME CORP.
Mr. BAKER. I would like to now recognize Mr. Bijvoets. And if you have a preferred order——
Mr. CLANCEY. In the order that we are sitting, if you would oblige us.
I am John Clancey, President and CEO of Sea-Land.
As the subcommittee considers the proper role of the FMC and the statute it implements, I would commend to the subcommittee Chairman, Howard Coble, the statement in the January 19th issue of the Journal of Commerce.
Congressman Coble said that we would like to consider ways to encourage the private sector to invest in a strong United States presence in the international and domestic maritime trades. I submit that is exactly the correct objective.
We believe that the Shipping Act of 1984 was one of the Reagan administration's great successes. It established a system recognizing acceptable routes of international commerce in a world that is witnessing significant change and globalization of all industries. It provided the stability for ourselves and our competitors to invest billions of dollars in a business that is very capital intensive, in a business that is an outdoor sport subject to civil unrest and things like the catastrophe that took place in Kobe resulting in significant costs to the carriers.
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The Act has also increased service, reliability and frequency—that certainly has been true over the last 10 years—and provided the shipping public with significant innovations in terms of double track transportation in North America, rail and truck services throughout the world, I.T. and others. And the industry accomplished this in an environment where market forces are certainly alive and well.
Sea-Land's average revenue per container in 1994 was less than it was in 1993. In fact, it was less than it was in 1992. Earnings in the industry—and it is a well-known fact—have been inadequate and are inadequate today. There have been allegations that if our industry was completely deregulated that the shipping public in the United States would save billions of dollars. Collectively, in the global basis, I don't think the industry makes one billion dollars; so I really don't know where all that money would come from.
We believe that abolishing the FMC and the antitrust immunity would promote significant rate instability and definitely discourage investment in a business that historically has had a lot of risk. People are not going to put their capital at play when the risk is as high as our industry has demonstrated over the last 100 years.
Comparing us to trucking and rail I think is somewhat unfair. They are all based in the United States. They all play by the same set of rules. They all have one government and one law governing their activities.
In the international environment, we operate in over 80 countries around the world, and we have to deal in a much different environment. We deal with governments that own and support their carriers, with shippers and carriers working closely with government in terms of industrial policy.
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I think the analogy of the airline business is also somewhat unfair because they have landing rights negotiated on a bilateral basis between government to government.
Our business has free and open access. Intense inquiries in the 1910s, the 1930s and 1960s reconfirmed the wisdom of the approach that we are taking today. At the same time, the industry is committed to free trade, and the free trade is obvious to the price competition and open access.
This industry also has, we believe, special characteristics, very, very fixed costs in a seasonable basis with no barriers to entry, with surplus capacity. And we have no production flexibility. When a container ship sails, if the cargo wasn't there it has to sail at the appointed time with an empty container or a loaded container to keep the worldwide network going.
Any comparison to moving oil, again, is difficult. Most of the major oil companies own their own ships, so that is a totally different set of circumstances than common carriage.
All of these factors lead to marginal pricing in contested markets. This industry doesn't earn the cost of capital, but most of our major shippers in this continent do. The Shipping Act has succeeded in addressing a number of key issues while at the same time encouraging the introduction of innovative and significantly improved service while maintaining competitive prices. The Act has also encouraged rationalization between carriers to share assets.
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And, also, no single government can dictate a stable international market or unilaterally impose regulatory regime across the board. Again, Sea-Land operates in 80 countries and territories around the world.
I thank you, Mr. Chairman.
Mr. COBLE [presiding.] Thank you, Mr. Clancey.
Mr. Bijvoets.
Mr. BIJVOETS. Thank you, Mr. Chairman. Good morning.
I am Paul Bijvoets. I am the Chief Executive Officer of Nedlloyd Lines.
Nedlloyd Lines is part of the Royal Nedlloyd Group headquartered in the Netherlands. We provide shippers around the world with complete, integrated transportation service on land, sea and air. We serve 14 ports in the States, 300 ports around the globe, and we are a Dutch company with a long maritime history.
We are a public company. We are certainly not subsidized. Many of our shareholders are in the States. Our U.S. headquarters is in Atlanta, Georgia, a location which doesn't see the sea, but that shows you that modern ocean transportation is completely integrated with other modes of transport.
I thank you for inviting me to appear here today. I will enlarge not on my written statement but make a few major points which are contained in there.
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International ocean liner transport has become a truly global activity. Both the carriers and our customers, also the U.S. customers, operate complex global networks.
For example, we serve U.S. companies who are not only trying to get their products to and from the States but also from Asia to Europe, South America to Europe, et cetera. These U.S. shippers should not be subject to wholly different transportation regulations in the various trade lanes in the world. Neither should we as shipping companies.
The global complexity of distribution has forced enormous capital investments by carriers in order to meet our customers' needs for fast and reliable transit, frequent sailings and low cost per unit. The Shipping Act of 1984 has permitted these elements. In fact, ocean transport is a bargain. Transport costs are a very small part of the retail price of most goods sold or purchased in the United States.
Innovations and massive investments by the industry under the current regulatory requirements have improved the cost structure of the international industry, in general, and we can prove it in the records if that is necessary. Compared to 10 years ago, service levels have improved. Ocean rates have fallen dramatically—certainly in real terms. International trade has expanded also in and out of the United States, and all that has returned on capital on carriers has been modest if not insufficient.
My third point is that the global nature of international shipping requires trading nations to seek compatibility of legal and regulatory regimes. The ship cannot be legal when it leaves one port in one part of the port and become illegal when it arrives at its destination.
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Destructions to trade caused by incompatibility can be profoundly injurious to the industry. The Shipping Act of 1984, unlike its predecessor, has proved compatible with the regimes of major U.S. trading partners. Seventy-seven countries in the world are signatories to the line conferences and, therefore, exempt conferences from antitrust exposure under their country's competitive competition laws. Also, in Brussels, the contest in Brussels is not on the law itself but for the scope of the law.
There are unique economic factors governing ocean transportation that dictate some degree of cooperation be permitted. The Shipping Act of 1984 allows an adequate degree of cooperation to carriers but also subjects carriers to significant offsetting requirements and have maintained a high degree of competition within the industry. Moreover, customers have access to substitute modes of transport and independents.
The international ocean is an imperfect market for many reasons described in my written testimony. It is subject to the influence of a number of governments and cannot be viewed in the fashion of other markets. The normal theories of market economies simply do not apply to international shipping.
To review, your undertaking is important and extremely complex. Nedlloyd will be pleased to provide you with information to promote your deliberations and so will other shipping companies in Europe, no doubt.
As a final point, my testimony is intended to provide you with information from the vantage point of a carrier who operates globally and who has learned both by mistakes and successes that no part of the international network of transportation services can stand alone. Whatever decision you make will have global ramifications.
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With this in mind, I encourage you to move with deliberation and thoroughness in order to protect your shippers' and consumers' interest in an efficient maritime transportation system that does deliver efficiency to its customers. If you do, Nedlloyd suspects you will find a great deal of evidence that supports the Shipping Act of 1984 and other similar acts that are prevalent in the world today.
I would be happy to address any questions you may have. Thank you very much.
Mr. COBLE. Mr. Bijvoets, I apologize to you. I did not introduce you by title.
Mr. Clancey, I apologize to you for my abrupt departure. I had to go to the Judiciary Committee very briefly, and I thank the gentleman from California for having relieved me momentarily.
Our next witness is Mr. William Verdon, Vice President and General Counsel for the Crowley Maritime Corporation. Mr. Verdon.
Mr. VERDON. Good morning, Mr. Chairman, Members of the committee.
My name is William Verdon. I am General Counsel of Crowley Maritime Corporation.
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Crowley was founded over 100 years ago by Thomas Crowley, the grandfather of the current president of the company today. We have been in many aspects of the shipping business since the Jones Act between Puerto Rico and the United States and Alaska, as well as the international business in South and Central America. Indeed, surprising as it may seem, we are the only U.S. flagship plying the South American routes today. We are privately held, and we were not subsidized by the U.S. Government.
Let me get right to the heart of the matter, if I can, in the short period of time that I have here. I would like to talk about the misnomer of deregulation within the context of the Federal Maritime Commission.
At the outset of any discussion, we have to recognize that the Federal Maritime Commission is truly special and not under—not under any other law except ours, but yet it is accepted worldwide. It has been, through its predecessors, in existence in service since not before 1984 but, in effect, in service before 1916 or right after 1916 when Congress passed the Shipping Act of 1916.
During the last 80 years, the FMC as well as the Shipping Act regime has been accepted by all international importers, exporters, carriers and, most importantly of all, by the foreign governments that we do business with. U.S. law passed by this very House has been accepted universally as the law of the world.
We cannot overemphasize the importance of one unique system that governs all of us, and that includes not only the carriers, with our foreign counterparts, but I think it is a by-product that is very helpful for the American shippers, importers and exporters. We all have one rule of law to look to for answers when we need them.
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The Shipping Act that we are dealing with today was negotiated in 1984, and it was a compromise between the shippers and the carriers, the Department of Transportation, and the Federal Maritime Commission and even the Department of Justice. It was an effort by everybody after a long, antagonizing period of several years trying to come up with very simple answers to very difficult questions.
That Act built into it a 5-year study program that was called the ACCOS study that began in 1991 and took 2 years to complete and that was congressionally mandated. And that study is found in the book which you referred to, Mr. Chairman, earlier on. And behind this book there is a series of exhibits that are as high as this table all laying out the facts. And I think it is imperative before we rush to judgment and deregulate an industry and end an industry we all study that very carefully for the facts that are in there because they will tell you a lot of the story that we don't have time to tell you today.
The misnomer of deregulation, which I call it, is as follows: We say we are going to deregulate and do away with the Shipping Act and do away with the Federal Maritime Commission. In reality, what we are doing to the U.S. flag carrier is we are reregulating and moving these systems backwards—not back to the 1916 Act but all the way back to prior to 1916 where we will be subject to a domestically oriented antitrust law that just doesn't fit into the international community. It was recognized it doesn't fit in 1916. It was recognized when they amended it in the 1930s—rather, it was recognized that it didn't fit in 1984. And it still doesn't fit today.
That is only the first part of the badness, that we don't get deregulated. We get reregulated under a much more burdensome set of rules and regulations. The worst part of it is that the foreign competitors that we have today do get totally deregulated, and that is they will be free to do whatever they want.
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A legitimate question might be, well, how would that be if the law is changed? Doesn't it apply to everybody? That answer lies in the issue of enforcement. We will have the laws enforced against us because our assets are here and we are U.S. citizens living here. We will be subject to criminal indictment. We will be subject to treble damage suits and everything else that goes with violating the antitrust laws.
Our foreign competitors will continue to meet in foreign conference rooms with foreign shipping companies, and they will with impunity—have immunity under the antitrust laws because there is no doubt that the Department of Justice, who has recognized this problem, will not be able to enforce those laws. In fact, the foreign shipping companies governments not only have said that they won't apply the antitrust laws of the United States to their own citizens but they have specifically rejected those laws.
That will leave us—in conclusion, that will leave us in a position where we will be quickly a nonplayer. We will not be able to compete in the marketplace. When those foreign competitors get together it will take about 5 minutes to figure out how to take Crowley Maritime out of business in our trade and Sea-Land and APL and the others out in their trades.
The testimony before the ACCOS Commission showed there will be a temporary but drastic reduction in rates. There will be a shakeout of the American carriers. And later, with only foreign carriers left, there will be an increase in rates and a reduction of in service; and the ones who will be hurt will be us and the shippers.
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Thank you very much.
Mr. COBLE. Thank you Mr. Verdon.
Mr. Timothy J. Rhein, President and CEO, American President Lines Transport Services, American President Companies, Limited. Mr. Rhein.
Mr. RHEIN. Thank you, Mr. Chairman. And thank you for allowing us to be heard this morning.
I am presently the President and Chief Executive Officer of APL Transport Services which is a domestic operating company involved in rail and truck transportation, an entirely deregulated environment where I have been working for the last 5 years. Prior to that, I was President of American President Lines, Ltd.—one of the companies that is directly impacted by to the issue that is on the table today.
In listening to the testimony thus far, Mr. Chairman, it appears to me that we are dealing with an issue that is moving very rapidly, and is on the edge of becoming an issue of throwing the baby out with the bathwater.
There are issues, I believe, that the shipping community as a community needs to deal with involving the Federal Maritime Commission and the Shipping Act, but the rapid pace with which we are moving really gives me some concern. I will attempt to explain why.
First of all, as an American carrier, what we are talking about doing could very, very quickly and decisively wipe us out as a viable business.
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We are presently able to operate successfully in the U.S. foreign trades with the benefit of the Shipping Act and the Federal Maritime Commission. The Shipping Act is a balanced, well-accepted and highly respected American law that is observed by all the carriers. It levels the playing field. Its enforcement is strong and quick, and both malpractices and nontariff barriers have been minimized.
And the issue of nontariff barriers has not received any detailed discussion in this debate, but I have personal experience in the countries of Taiwan, Japan, Korea and China where American carriers were clearly disadvantaged because of customs and local preference for the national carriers in those countries.
In addition, with the elimination of Federal Maritime Commission and the Shipping Act, the American carriers not only will be gone but what be left will be carriers controlled by foreign governments, keiretsu, interlocking directorates and national policies that are adverse to the interests of the American shipping industry and the American importing and exporting industry. We will be subjected to dumping and cutthroat competition that has nothing to do with the cost structure of transportation.
Now, at this point, when we talk about the American shipping industry ceasing to exist, we have to deal with the very, very important issue of national security. It is difficult to relate the role of American carriers during World War II, Korea and Vietnam—I just don't have time to go through all the history—we would be happy to provide it. Let's just deal with Desert Storm. The U.S. Government must be able to supply U.S. troops, deployed with the munitions, fuel, food and other supplies needed to fight and win overseas.
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Today, modern container ships and domestic transportation and infrastructure operated by American shipping companies are a vital part of the U.S. military logistics system. American carriers in Desert Storm alone carried over 70,000 container loads of provisions, sustenance and other supplies. Nearly all containerized cargo to the Middle East was carried on American bottoms. Based on that experience, the DOD is increasing its reliance on containerized cargo and the intermodal networks, the American carriers.
Although the military may prefer U.S. flag carriers, at the very least, the U.S. must have American-owned and controlled shipping companies if it expects to rely upon their ships, their worldwide infrastructure and global transportation management systems for defense purposes. It will cost the American government an estimated $6 billion to $18 billion over the next 10 to 15 years simply to provide the same capability to supply U.S. troops overseas that is now available from American container shipping companies.
As part of my experience in the 30 years in shipping, I was in Vietnam, and I was the recipient of the supplies and provisions that came in on the American carriers. And I want to tell you firsthand that is one of the most important morale and effectiveness issues for the American military overseas.
I would like now briefly, to mention that the American carriers that we are talking about are not the weak—they were not the old highway system that is standing in the way of the interstate highway system. American carriers have been innovators and leaders for many, many years—decades. Containerization was invented by an American carrier. Intermodalism was developed by an American carrier, modern terminals and non-Panama ships that carry 3 to 5,000 20-foot equivalent units developed by American carriers.
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With collectively investing the $5 billion to $7 billion, depending on whose math you use, just in the last 10 years in this industry and in revitalizing ourselves and becoming successful, we have generated new services, opened new markets and provided a common carriage that has benefited all United States shippers, exporters and importers with equal access and a level playing field primarily from our own innovation, creativity and competitiveness and also with the assurance that there was a level playing field through the Federal Maritime Commission and the Shipping Act of 1984.
Just in the decade of the 1980s, our own service doubled through our investment. We saw our rates in real terms reduced by over 30 percent during that period.
Finally, the issue of common carriage is very, very critical to the growth in jobs and the expansion of trade. Common carriage means that you set up the system of regular service open to everyone. Despite the narrowly based issues brought on the table here this morning by some large shippers, that are looking for an added advantage or a preference over all other shippers, the future, in my opinion, of the U.S.-foreign trade is in the small- and medium-sized shipper that needs access to the services that we provide.
If we move to a contract carriage, I can assure you the services are not going to be there. The investment is not going to be there. There are not going to be regularly provided services covering a multitude of ports, including north, south, east and west and all the intermodal points in the United States. At that point, our shipping and our trade is going to be in the hands of foreign carriers that really have a different agenda.
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I would suggest that before this goes too much further we spend the time and energy to deliberate on this issue and get the real facts before we rush to judgment in what could be a disastrous change in the law.
Thank you very much.
Mr. COBLE. Thank you, Mr. Rhein.
Mr. COBLE. Thank you, gentlemen, for your appearance.
Mr. Clancey and Mr. Rhein, you all have stated in the past, I believe, that you will take your operations from under the U.S. flag without a renewal of the operational subsidy program. Would that still be your position?
Mr. CLANCEY. Mr. Chairman, Sea-Land is not subsidized.
Mr. COBLE. Mr. Rhein.
Mr. RHEIN. APL is subsidized through 1997, Mr. Chairman. And we are prepared to take our ships to foreign registry as an American-owned company if need be.
Mr. COBLE. Well, all right. Let me extend that question. Is this not the type of subsidy that would be a more direct way to benefit U.S. flag operators than the conference system which appears to benefit primarily the foreign members of the conference?
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Mr. CLANCEY. Mr. Chairman, if I could, the subsidy of the maritime program only addresses the cost of operating under a U.S. flag versus that of a foreign flag. It is that differential of a crew of Americans versus a crew of Indonesians. After that, in the carrier's case that is subsidized, he has only brought his costs somewhat in line with a foreign competitor.
Mr. RHEIN. Mr. Chairman, Mr. Clancey is correct. The subsidy, historically was for national defense purposes and maintaining American crews on American ships. Without it, there is no economic justification for continuing to operate as a U.S.-flag carrier.
Mr. COBLE. Mr. Verdon.
Mr. VERDON. Mr. Chairman, Crowley Maritime is not subsidized. I can tell you that the subsidy reform program that we spoke about last year would have given Crowley about $12 million to $14 million in subsidy. That would pale in comparison to the damage we would have if the Shipping Act is repealed and the FMC is terminated.
We are looking—based on the economic testimony before the ACCOS Commission, that could be a 15 to 20 to 25 percent drop in rates artificially driven by the foreign competitors once the antitrust immunity—limited antitrust immunity is taken away from us. If we do $800 million worth of gross revenue in the international trades, 20 percent of that gets a lot higher than the $10 million to $12 million direct subsidy. And that is all bottom-line dollars, so they really are total apples and oranges in that situation.
Mr. COBLE. Thank you, sir.
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Mr. Bijvoets, in your testimony you indicated that—the conference system as being competitive today—strike that.
No, okay. We will leave that as is.
If that is, in fact, the case, why would you need to continue operating in a conference system that permits you or even encourages you to fix the rates?
Mr. BIJVOETS. I am sorry?
Mr. COBLE. Yes, sir, Mr. Bijvoets. I am sorry.
Mr. BIJVOETS. The system, as we have here in the States, gives transparency, which means that we can operate as competitors within the conference on a level playing field. And by filing rates we have total transparency.
Mr. COBLE. Anyone else want to respond to that?
Mr. CLANCEY. We have 167,000 customers, I think, around the world. Obviously, the large percentage of those were small- to medium-sized shippers. Transparency works for them. They are concerned about the big person with a traded commodity having an advantage that is hidden from them. And they find themselves unable to compete, and they exit the market. They feel that that transparency allows them to play in a level playing field.
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Mr. VERDON. If you take a look at the Commission's report and the documents behind it, you will see that in the surveys that were done, the issue on tariff filing and transparency, the shippers themselves were not anywhere near unified. And just as we heard today in the panel before us and the dispute between the two small shippers, that is typical of the dispute that existed between all of the shippers. And indeed more than—more rather than less shippers supported the Shipping Act of 1984 with the exact program that we have today.
Mr. COBLE. Thank you.
Mr. Rhein.
Mr. RHEIN. Mr. Chairman, just one final comment on that question.
This hearing agenda came up quickly and, to be perfectly honest, we have been unable to generate all the data in the short time we had. But, as an example of the kind of data that is out there, I have with me 17 testimonials from shippers, in the San Diego area of California, that were generated in 2 days, who do not agree with deregulation of the Shipping Act and elimination of the Federal Maritime Commission, and who want to keep the system that is in place today with modification.
There are areas that can be fixed and improved in the Shipping Act. But to eliminate it, in the eyes of these 17 shippers—and that is just a small sample of we have generated so far—who have not been represented by some of the shippers here on the panel today, it is not such an unworkable and weak environment. In their opinion, it is very important.
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Mr. COBLE. I thank the gentleman.
My red light illuminates. I ask you to comply with the same. I will do likewise.
I yield to the gentleman from Minnesota.
Mr. OBERSTAR. Thank you, Mr. Chairman. I would ask unanimous consent that those 17 testimonials, if they are not too voluminous, be included in our committee hearing record and available for committee Members to review.
Mr. COBLE. Without objection. So ordered.
[The information received follows:]
[Insert here.]
[Mr. Oberstar and Mr. Bijvoets conversing in Dutch.]
Mr. OBERSTAR. We are just having a little private conversation here. A short one. I am about to run out of my Dutch.
Mr. BIJVOETS. We are all not here to avoid all the water that you are experiencing. At least my feet are keeping dry.
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Mr. OBERSTAR. Very great difficulty in places like Knamiindg and elsewhere that are being obliterated by water.
We heard from the previous panel in response to a question I asked that while there have been efficiencies in operation of vessels, reduced crew numbers and other lower costs of vessel operation that those costs—that those cost savings have not been passed on to shippers.
And the second part of their thesis is that the only way to get reduced costs is to have increased competition by getting rid of the rate-setting entities called conferences.
I would like the panel to respond to that briefly because our Chairman is awfully sticky about that red light, and I want to do some things.
Mr. CLANCEY. In the last 10 years the average transit time from foreign destination to points in the United States has been reduced. The frequency of service has increased significantly to almost every day and from Hong Kong every hour. We have—with many customers, we provide just-in-time delivery within six hour time frames in the middle of United States from both Asia and Europe. And, in many cases, the rates that are charged today are lower than they were 4 or 5 years ago without adjusting for inflation.
Mr. OBERSTAR. Would you submit for the record backup data on those points?
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Mr. CLANCEY. Yes, sir, I would be glad to.
[The information received follows:]
[Insert here.]
Mr. BIJVOETS. If I may answer. If you look at all major shipping companies in the world, of which we are one, all our strategies are based on cost-cutting leadership. Because we feel all these advantages which are reached are efficiencies in productivity which are necessary to go on to compete. If you look at our rates, they have come down in real terms. We don't worry about it because we feel that the efficiencies are there in order to get to those rates.
There is not one shipping company in this world who makes business plans for his shareholder based on tariff increases at this point in time, and if he does he is a fool.
Mr. RHEIN. If I may, just one quick comment. All the innovations, efficiency and productivity that have been brought to the shipping industry in the last 30 years have been passed on to the shipping public. In real terms, the cost of transportation is roughly 30 percent less than it was just 10 years ago. As a percentage of the total landed cost or, better yet, the market value of the commodities that are imported and exported is a diminishing percentage and the biggest bargain in the world. It only costs 50 percent more to move an article of clothing or commodity from Hong Kong to New York as it costs to move it from Los Angeles to New York.
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Mr. VERDON. We would echo the fact that they are passed on, the benefits were. In fact, you can look at our rates in South America from 1984 to 1994. 10 years later, they are passed on big time with very severe rate reductions and that comes as a result of the ability to cut our own costs.
But one thing you did mention at the end, Mr. Congressman. You mentioned, are they not passed on because of the anti-competitive aspect of a conference system? It should be remembered that we are speaking incorrectly when we say that we have total antitrust immunity. The Shipping Act is nothing more than an antitrust scheme or mechanism fit into the international marketplace. We are still prohibited from collective boycott, collective refusal to deal, predatory pricing. And, indeed, anything we do do has to be within the four corners of an agreement approved by the Federal Maritime Commission. And so there is a scheme that is present, and we just don't have the right to do whatever we want to do.
Mr. OBERSTAR. I understand that, and I think a lot of people don't. It is important to point that out, and I would like you to submit information about your rates to South America and in the Pacific.
Mr. VERDON. We will do that.
Mr. OBERSTAR. This is a very interesting comparison of costs to ship across the country versus across the Pacific. I think it would be very helpful.
[The information received follows:]
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[Insert here.]
Mr. OBERSTAR. If we unilaterally disarm by abolishing the Commission, eliminating the rate conferences, abandoning antitrust in rate setting, what—and the Europeans don't, and they are the oldest operators of cartels—with all due respect to the Dutchmen who invented shipping, I think—what will happen to the U.S. flag carriage?
Mr. CLANCEY. If we were completely deregulated and we had no antitrust immunity and all of our competitors had antitrust immunity in their own countries——
Mr. OBERSTAR. And they do.
Mr. CLANCEY. ——and they would and they all do today and they operated in conferences, the only carriers that wouldn't be present would be American flag carriers, and I really don't think they would spend a lot of time thinking about our welfare. I think it would be just the opposite. I think that they would do everything they could to ensure that we no longer existed.
Mr. VERDON. I would support that, as I said in my direct testimony. I think we would be a nonplayer, and it would be a very short time before we are either out of business or forced to sell to one of our competitors. There is no way we could compete as long as the antitrust laws applied to us.
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Mr. OBERSTAR. How long a period of time do you think that would take? Two years? Three years?
Mr. VERDON. I think it would be done within a year. It would be a question and a function of what the volume of trade was at that given moment. If the volume of trade was terrific, if there was—it would be one thing. If it were in a down cycle in trade, it would be another thing. But it would be very short-lived, and it would be no capital—you would be a fool to invest any money in capital improvements, and you would be in an end game strategy.
Mr. OBERSTAR. I think you are quite right. I have looked at the synergies and the comparisons of other modes of transportation and what has happened, and this is unique. Maritime is extraordinarily unique. And I think 1 year after deregulation occurred and abolition of the Maritime Commission we would hold another hearing, but it would be a requiem service.
Thank you, Mr. Chairman.
Mr. VERDON. If I may, as a follow-up to that, take a look at what has happened since 1984. China ocean shipping. The Peoples Republic of China has a shipping company in the American scene that didn't exist. In 1992, when ACCOS had its study, it was essentially coming on stream. Today, it is the largest shipping company in the world with trillions of dollars of backing.
They don't worry about a quarterly report. They don't worry about an annual report. They have a lot of staying power. And there is no way, Congressman, that Crowley Maritime or anyone else can have the staying power once they decide we are not going to be a player unless we have the protection of the American government.
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Mr. COBLE. The gentleman from California, Mr. Baker.
Mr. BAKER. Thank you, Chairman.
Mr. Clancey, you stated you are for free trade. And that other witnesses stated we shouldn't rush into anything and change this Act too precipitously. Isn't it true the 1984 Act was a halfway house, if you will, to deregulation and it was moving off the original? And that the ACCOS study that came after 5 years had no major recommendations because the shippers and the carriers couldn't agree? So are we not now in our 11th year of studying this issue and trying to move towards a freer market?
Mr. CLANCEY. The statement that all the shippers are unhappy with it, I don't know if that is accurate. I think there are a number of small- and medium-sized shippers that would support the Act, and Mr. Rhein is going to introduce testimony by 17 shippers just in one town. Mr. Schilling testified to the importance of the Act to them.
The Act may not be perfect, but the Act certainly hasn't retarded trade. International trade to and from the shores of this country has grown geometrically, and it continues to. Rates are competitive, and services have improved. I cannot view the Shipping Act of 1984 as a failure. We think it was a success.
Mr. BAKER. We continue to try to reach some accord that leads to a free market. And with 90,000 shippers and less than 30 carriers, if it becomes a political issue here we may not reach the right accord. Yet when shippers were appointed to the Presidential Commission and carriers they couldn't reach agreement, so I would contend that they aren't happy and that these witnesses we had before you were a rather large group of people.
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Let me ask Mr. Bijvoets a question. You mentioned the U.N. cartel, but most major carriers and shippers don't belong to that cartel. They do belong to the European cartel. Does your firm also?
Mr. BIJVOETS. Yes, it does, sir.
Mr. BAKER. So you belong to every cartel?
Mr. BIJVOETS. We have always been conference carriers because we feel it provides stability which is necessary to make the necessary investments.
Mr. BAKER. Yet as long as they have been in existence an upstart country like China can come in and still prosper. Does that not tell you that something is wrong with our system here? That we continue to lose business to foreign competition?
Mr. BIJVOETS. Well, I think that is China. But that, of course, will be difficult to prove. But, as my colleagues said, they are not playing according to the same rules as we have amongst ourselves within the conference.
Mr. BAKER. And Japan, as we heard earlier in the testimony, doesn't either.
Mr. BIJVOETS. Japan has also, in many trades, have been very good conference colleagues of ours.
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Mr. BAKER. Yet they have their preferred shipping list of which every name on is Japanese.
Mr. CLANCEY. Excuse me. But that I think is why the Shipping Act has worked well, the small- and medium-sized shippers. It has protected that. Without the Act, the preferred list would still exist. Mr. Schilling may not be shipping hay to Asia.
Mr. BAKER. It does exist. It just isn't public. Cheaters are going to cheat even under this cumbersome regulatory environment.
Mr. CLANCEY. Well, I don't think the regulatory environment addresses the industrial policy of Japan, Taiwan, Korea or whatever other country. That would happen with or without it. The Act allows us to somewhat deflect it and to try to be competitive.
Mr. BAKER. I am just suggesting to you if it comes to a shooting war there are more shippers than carriers, and we perhaps ought to allow the participants to negotiate the end of this overbureaucratic regulatory climate that we are in rather than us because we often don't do the right job.
There are playing fields that need leveling. One is between you the carriers and your foreign competition. The other is between you and your customers. And we are being asked to referee in this game not having the background and skills to do it successfully.
Yet we gave you a study where all the players were appointed by the President. You sat down and stonewalled each other for 5 years. And since 1984, it has been 11 years. So don't come to us when we start to deregulate and say, well, you are acting precipitously. How can you do this? Because we are tired of having the complaints from the shippers that they are being priced out unfairly because of a government monopoly.
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Mr. CLANCEY. I think your comments are very fair, and I think a number of my colleagues and myself would admit that the Shipping Act is not perfect. And everything has to change in time, and certainly we would be willing to address that issue.
Mr. BAKER. When? Okay. Don't answer that.
Back to you, Chairman Coble.
Mr. COBLE. Thank you, Mr. Baker.
I have one or two brief questions, yes, to either of the four or all of the four. Are conference prices above market rate?
Mr. BIJVOETS. In many instances, conference prices are market rate or certainly close to them.
Mr. COBLE. Well, I guess what I am getting to is, why do we need to cooperate in a conference system that would be—I guess that would be the second part of the question.
Mr. BIJVOETS. It provides stability of services——
Mr. COBLE. Mr. Bijvoets, a little closer to the mike. As I say, my old hearing impairment is cropping up again.
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Mr. BIJVOETS. It provides stability in which the services—the continuity services being guaranteed to shippers, it doesn't change every month or so, that we have more or less sailings as our whim will take us.
It also gives stability for us to invest, and that is one thing because trade has been growing also from the U.S. quite dramatically. There has been continuous investment by all of our companies in new ships. And we will continue to do that.
Mr. COBLE. I have no further questions. But you, Mr. Rhein, want to add something.
Mr. RHEIN. I just wanted to add one thing to that, Mr. Chairman.
The conference, in addition to establishing some stability and some rationality to the services and prices that are, becomes market, really establishes the floor. There are several tiers of pricing that go on outside of that. For example, conference membership is not mandatory. It is totally voluntary. In the Pacific, roughly half of the trade is not in the conference.
The other level of pricing is independent action which was mandated in the Shipping Act of 1984. In a good year, there are between 100 to 150,000 independent actions that all of us take when it suits us and when customer needs require it.
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So the conference control and setting of nonmarket rate issue are really a false issue. Competition is alive and well in the conference environment. There are—you can find your own spot in the price structure, based on your needs.
Mr. COBLE. The gentleman from Minnesota.
Mr. OBERSTAR. Thank you, Mr. Chairman.
I have a couple of questions, and maybe I will fold them into one. And I would like you to give your answer and then think about it a little bit and maybe elaborate upon it in writing for the committee.
I think reform is coming. It is like one of your minor vessels moving on the ocean. It is hard to turn it around. If I recall, the Queen Mary couldn't make a turn in less than a mile swath. But it is coming. So let's think about what we could do that would be useful and not devastate a U.S. Merchant Marine. Because we will live to regret it—the absence or the demise of the U.S. Merchant Marine.
Supposing we were to craft language that would require the U.S. Government, in one fashion or another, to press foreign governments to divest themselves of government-owned or government-controlled carriers. I am taking that as parallel from aviation which is my principal field of expertise, I would say.
We are pressing the European Community, we are pressing other governments through bilaterals to move into an open skies agreement, free unfettered trade, where the government has divested itself of ownership. And the Netherlands government has been the leader in this field. They are the first of the European carriers—first of the European governments to divest themselves of all of their carriers. They have a free, open mirror regime with us, and aviation trade between the U.S. and the Netherlands is vastly expanded. I don't mean to make a total parallel, but I am just drawing some ideas from aviation.
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Second, keep antitrust immunity except for service contracts—that is, those contracts that are outside the conferences—and continue tariff filing.
What would be your reaction to those ideas as a centerpiece of a reform proposal?
Mr. CLANCEY. As you said, Congressman, we probably need some time to think of our response. Part of it is very attractive. Certainly, we would love to see our foreign competitors' governments get out of that business, particularly in terms of investment and tax assistance. In the issues on service contracts and tariff filing, I think needs some further airing.
Mr. BIJVOETS. I think it certainly merits consideration, and I also echo the words of the government-subsidized carriers as we are not.
Mr. RHEIN. I think your suggestions are creative, and I think we need to do some homework. Perhaps, more importantly, we need to establish a dialogue with the shipper community.
Mr. OBERSTAR. They only exist for the moment on this pad of paper that I have written down in the course of this hearing, and in my judgment we need much more time to explore this matter.
I certainly hope that after we have had this introductory session that the committee would schedule another perhaps briefer session to get shipping community, maritime community reaction to specific legislative proposals. We are operating right now just in a very general regime of exploring questions about changes in the maritime structure.
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I think you need to proceed very carefully and thoughtfully. And I throw those ideas out, and I hope you will think about them further and respond.
And I know that some of the shippers are still here, and they have heard what they said, and they may want to respond to those ideas as well.
Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Oberstar.
[The information received follows:]
[Insert here.]
Mr. COBLE. The gentleman from California, Mr. Baker.
Mr. BAKER. I am very well satisfied. I am glad that you are all here today.
Mr. COBLE. Thank you to the gentleman. I appreciate your attendance and your testimony.
As we say in the rural south, it is dinner time. This hearing will stand in recess until 2 o'clock.
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[Whereupon, at 12:35 p.m., the subcommittee recessed, to reconvene at 2:00 p.m. the same day.]
Mrs. FOWLER [presiding.] The Subcommittee on Coast Guard and Maritime Transportation will come to order. Have we got all our members of the panel? We are missing one member.
I would like to introduce then the members from Panel IV that we are hearing from this afternoon: The Honorable Helen Bentley, former Chairman of the Federal Maritime Commission; the Honorable Robert Quartel, former Commissioner of the FMC; we have James J O'Brien, Director of Port Everglades, Florida, for the AAPA; Paul Unsworth, President of the International Freight Association; Laurie Zack-Olson, Executive Director of the NVOCCs; and we have Mr. Peter Powell, Sr., Chairman of the Freight Forwarding Committee, National Customs Brokers and Forwarders Association of America.
TESTIMONY OF PAUL UNSWORTH, EXECUTIVE VICE PRESIDENT, UNSWORTH TRANSPORTATION INTERNATIONAL, INC., AND PRESIDENT, AMERICAN INTERNATIONAL FREIGHT ASSOCIATION; JAMES J. O'BRIEN, DIRECTOR OF PORT EVERGLADES, FL, ON BEHALF OF THE AMERICAN ASSOCIATION OF PORT AUTHORITIES; HON. D. ROBERT QUARTEL, JR., FORMER MEMBER, U.S. FEDERAL MARITIME COMMISSION; PETER POWELL, SR., CHAIRMAN, FREIGHT FORWARDING COMMITTEE, NATIONAL CUSTOMS BROKERS & FORWARDERS ASSOCIATION OF AMERICA; LAURIE ZACK-OLSON, EXECUTIVE DIRECTOR, INTERNATIONAL ASSOCIATION OF NVOCCs; HON. HELEN DELICH BENTLEY, FORMER CHAIRWOMAN, FEDERAL MARITIME COMMISSION
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Mrs. FOWLER. I want to thank you all for being here with us this afternoon. I remind you that there is a 5-minute limit on each person's testimony, but we would be more than happy to take your complete written statements for the record. So we will go ahead and I will take testimony from each member of the panel, and then we will go to questions for everyone.
So we will go through the testimonies first, and I will just start down here with Mr. Unsworth.
Mr. UNSWORTH. Thank you, Madam Chair. My name is Paul Unsworth. I am the Executive Vice President of Unsworth Transport International, UTI, an ocean freight forwarder and non-vessel-operating common carrier based in Linden, New Jersey. UTI is a family-owned business which has been in operation in the U.S. foreign trades since 1947.
I am also the President of AIFA, a trade association of transportation intermediaries known in the U.S. as NVOCCs and freight forwarders. AIFA is the U.S. member of the International Federation of Freight Forwarders Associations, FIATA, and I serve as vice president of FIATA as well. FIATA is the largest trade association in the transportation industry. FIATA's regular members include the national trade associations of transportation intermediaries in more than 70 countries and associated members in more than 50 countries without national associations. I am appearing today on behalf of the combined membership of AIFA and FIATA, which includes more than 35,000 freight forwarders.
Department of Commerce statistics show that 85 percent of our companies active in freight forwarding are small businesses each billing less than $50 million per year. An even more telling statistic is that 96 percent of these small businesses bill less than $10,000 per year. According to the 1987 census of transportation, two-thirds of the companies in the U.S. freight forwarding business have fewer than 10 employees. The same is true of our industry in other countries trading with the U.S. We are an industry made up mainly of small businesses.
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Our clientele consists primarily of small- to medium-sized companies. These customers, who make up more than 96 percent of the exporting companies in the United States according to the census, individually do not have the volume of export cargo or the resources to enable them to have in-house the expertise needed to complete an international shipping transaction. Instead they look to our industry for help.
So our industry arranges transportation of our customers' cargo. We arrange for the delivery of their cargo to their customers, the consignee. We also prepare export documentation, handle customs clearance; in fact, today a forwarder must be prepared to assist our customers in all facets of international transactions. The most critical part of our job is to ensure we provide competitive transportation.
We must be able to deliver our customers' orders to their foreign buyer at the most competitive landed price. Otherwise, there will be no future orders to be shipped; the foreign buyers will look elsewhere in the world for sources of supply. The American sellers, our clients, will lose their markets and there will be no transportation for us to arrange.
Ocean shipping rates are critical to our business, but it has become much more difficult in recent years to negotiate competitive rates in most trades. To have any real semblance of real negotiation, there must always be competition and two willing parties to negotiate. If competition is absent, then there is no reason for the seller of transportation services, the ocean shipping line, to negotiate. Why should anyone reduce a rate or increase service if they are the only game in town?
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The increase in conferencing and decrease in the number of independent carriers has left most trades without any real competition. I have been told countless stories by our members of their being presented with take-it-or-leave-it proposals or outright refusals to deal by the shipping lines. For example, we heard this morning about the wonderful transportation system developed by Sea-Land, but Sea-Land and the other so-called structured members of the trans-Atlantic cartel refuse even to discuss service contracts with us.
The carriers testifying this morning say that the 1984 act is needed to provide small shippers a guarantee for service and for rates. Nevertheless, despite our repeated appeals to the Federal Maritime Commission for help, the situation does not improve. However, a for small- to medium-sized shipper to stay competitive, it must improve.
The regulatory environment in the U.S. does not give us relief in what we need to secure competitive rates for the U.S. shippers. Instead it imposes a myriad of laws and government bureaucracies to regulate us not found in any other country. Our industry is dangerously overregulated.
The cost to our industry of NVOCC tariff filing alone is estimated to cost $25 million to $30 million annually and I have yet to find in my career a single shipper who has ever paid a tariff service to consult a NVOCC tariff to check rates, not when we gladly quote rates to our customers on a sales call or over the telephone.
Mrs. FOWLER. If you could summarize, because the light is on. Thank you.
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Mr. UNSWORTH. Yes, ma'am.
We have worked out a solution for this which we feel is equitable. What we are proposing is that we abolish the legal distinction between NVOCCs and freight forwarders and eliminate NVOCC tariff filing to save money: allow a single entity, a freight forwarder with a single license and a single bond to act as an agent or principal, depending on the needs of its customers; prohibit ocean carriers from discriminating against freight forwarders, as they do now, strictly on the basis of the forwarder's status as a transportation arranger, rather than the owner of cargo; and require them to negotiate with us in good faith.
Thank you very much, Madam Chair.
Mrs. FOWLER. Thank you very much. I appreciate that.
Now we will go to Mr. O'Brien.
Mr. O'BRIEN. Thank you, Madam Chair. Good afternoon. I am here today representing the American Association of Port Authorities. Virtually every major U.S. public port agency belongs to the AAPA. In addition, we have members from Canada, Latin America and the Caribbean, but today my testimony reflects only the views of the United States delegation of AAPA.
There are two points I would like to make first. One is that U.S. ports serve all the involved parties subject to the Shipping Act, U.S. flag and foreign flag lines alike, whether or not conference members or independent, as well as exporters and importers of all sizes, freight forwarders and non-vessel-operating common carriers. Therefore, reaching a U.S. port industry policy position has been a challenge.
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Second, U.S. ports are the component of ocean transportation whose assets are not mobile. They are literally sunk in the ground. Therefore, stability in the ocean liner trades is critical to the future of the U.S. port industry.
U.S. public ports believe that the Shipping Act of 1984 should remain in place as presently constituted and that the regulatory authority of the Federal Maritime Commission should continue to ensure appropriate enforcement of that statute.
The deep draft commercial ports of this country handle over 95 percent of the Nation's international trade. Port activities create substantial economic and international trade benefits for the Nation, as well as the local port community and the regional economy. According to a report by the U.S. Department of Transportation in 1992, the overall economic impact of U.S. commercial ports created over 15 million jobs, made a contribution of $780 billion to the gross domestic product and generated personal income of $523 billion.
Shore-side cargo handling facilities, financed almost entirely through the use of public monies, are calculated to have been over $12 billion between 1946 and 1992. It is projected that an additional $5.5 billion of public funds will be spent over the next 5 years.
In 1994, AAPA members identified facility development and capital requirements as the number one major issue facing ports in North America. Historically, the ports of the United States have been developed locally, utilizing public funding at the State, the county or municipal level or through the mechanism of State-approved special districts. Port investment at the local level provides a national asset.
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Ports are also critical to our national defense. The mobilization of troops and supplies for defense purposes was recently demonstrated, first in Desert Shield/Desert Storm and more recently in Haiti. More than 50 U.S. ports have in place agreements with the Federal Government under the Federal Port Controller program to make our facilities readily available in times of national emergency.
The issues before this committee are not new. They have been the subject of extensive investigation and study. As a member of the Advisory Commission on Conferences in Ocean Shipping, I spent a year examining the regulation of ocean shipping, and I can tell you that it is a complicated and difficult issue. I have heard the arguments on all sides; there is no answer that will please everyone. However, it was my conclusion that the compromise represented by the Shipping Act of 1984 is working as intended and should not be dismantled.
Modifications certainly require a great deal of study and examination. Unlike the U.S. domestic transportation industry, where market forces can operate and the U.S. antitrust laws can be applied, ocean shipping is an international industry which includes numerous foreign flag lines, some government-owned or subsidized.
The conference system provides a level of stability in rates and service that benefits U.S. shippers as well as U.S. ports. U.S. laws affecting conferences are quite stringent, requiring independent action, open conferences, tariff filing, nonconfidential service contracts and fair trade practices.
A typical container terminal today of 100 acres can cost over $1 million per acre to develop. It is the view of the U.S. ports that the ocean conference system is an essential mechanism needed to bring a reasonable level of stability to international trade. Without such stability, the risk affecting continued investment of local public funds and port facilities increases dramatically.
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Mrs. FOWLER. Mr. O'Brien, are you about at the end?
Mr. O'BRIEN. Yes.
Given the nature of the U.S. port system, it is critical that a common uniform regime be in place to allow the dialogue to continue. Without the statute and the regulatory process of the Federal Maritime Commission, instability and competitive pressures could lead to predatory pricing and eventually the decline of public investment in new port facilities. Such a scenario is not in the national interest.
Thank you, Madam Chair.
Mrs. FOWLER. Thank you, Mr. O'Brien.
Mr. Quartel.
Mr. QUARTEL. Thank you Madam Chairwoman. I am Rob Quartel. For 2 years, I served as a member of the U.S. Federal Maritime Commission during the Bush administration. Nearly three-and-a-half years ago, while still a member, I testified before the Presidential Advisory Commission on Conferences in Ocean Shipping (ACCOS), on which Jim and others who testified today sat. I told the members of that commission in 1991 that we should eliminate tariff filing, abolish antitrust immunity for conferences, allow confidential contracting between lines and their customers and, most importantly, that we should abolish the Federal Maritime Commission itself and transfer its functions to other agencies.
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That testimony which I have included today needs a little updating on the numbers but it is as valid today as it was then. I would also, as have others, recommend you read the ACCOS report. As has been suggested, they heard from thousands—literally 600,000 shippers, if you count their representatives—who testified against the Act and in favor of the kinds of changes that you have before you today. Their recommendations were ignored, largely because the carriers dominated the committee and the shippers decided they didn't want to take a vote under those unfair circumstances. I think you should read it.
Well, what was radical a couple of years ago is not quite so radical today in a Congress of change, and I am here to also support the National Industrial Transportation League's recommendations. There are a few things I would change about it. My testimony goes over that and I would like to submit the full testimony for the full record.
Among drafting changes to the NIT League proposal, we need to be careful as we really don't want a return to the 1916 regime. We need to specifically delineate the kinds of activities that carriers may engage in, some of them like the Europeans'. We need to eliminate certain now-illegal activities like rebating.
You know, ''rebating'' as an illegal activity is one of the more bizarre quirks of the law. We talk about the FMC rebates as if they are something evil. But, they are really just discounts. They are given to customers, Americans, by the carriers. FMC from time to time spends as much as a third of its staff chasing down rebates so Americans cannot get discounts. What the fmc's anti-rebate activity really is is a mechanism that combined with tariff filing system gives the United States Government the ability to collude with the colluders. It is the way the government enforces the conference cartel agreements.
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I can't go into every detail here on every aspect of the Act so what I would like to go into some of the myths you have heard or will hear here. The carriers and their supporters have told you if we abolish antitrust immunity we will stand alone among the world's trading countries. That is patently false. Only Japan has a regime as onerous and as broad as the United States. Canada, Australia, New Zealand don't; they prohibit price fixing. We are the only ones who enforce tariff filing. Statements to the contrary are absolutely false, and you can find the facts in the ACCOS report.
They will say the Justice Department cannot enforce our antitrust laws overseas, but that somehow the FMC can. They are wrong. They accept too little in the way of results from the FMC in the case of unfair trade practices and grant too little to the Justice Department, which intervenes on behalf of American shippers and industries all around the world all the time. They will tell you that it the 1984 Act is a careful and negotiated compromise, but it is odd that only the carriers seem to think it was a compromise. You would never hear it from the shippers. They will say that the 1984 Act was intended to provide an open and fair system of transportation, that the shippers you heard today are the big guys and the small shippers will suffer. They are wrong on each count.
Common carriage about which they are speaking is a sham under the 1984 Act. It is a Potemkin's village. The big guys can always get a contract—not a very good contract. They don't always have market power, but they can get out of the tariff if they work hard enough at it. The small guys who don't have a representative, like a forwarder or an NVO, who are then stuck in the pjblished tariff, pay the highest rates.
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The carriers and the FMC will tell you that we need international comity. I find their position laughable, but that is ''comity'' not ''comedy.'' The fact is that for 4 years the United States, under the FMC, has been the odd-man-out as European and Asian shipper councils and the European governments have declared the very cartel which the FMC sanctions to be illegal and anticompetitive.
They will tell you that cartels are in the American interest. They don't always tell you that 80 percent of the membership, as others have pointed out, is foreign. They also won't tell you that the very small budget costs of this agency, 18 million dollars, translates into from 2 to 4 billion dollars by my count, by 10 times as much by other economists' counts, in terms of excess costs to American shippers.
The carriers will also no doubt tell you that—they will tell you their rates are no higher today than they were in 1984 which is a supposed sign of their efficiency and of insufficient profits. One president went so far as to say that ''some'' rates were lower. The fact is that rates in every other service sector in this economy have gone down over the last decade or decade and a half. In transportation, they have gone down 30 percent for rail, adjusted for inflation, and 20 to 30 percent for trucking, adjusted for inflation.
I will be quick.
There will be others who will claim this will bring about cataclysm and nightmarish trade wars. If there are trade wars, American shippers and American trade will benefit. Yes, there will be, no doubt, consolidations. Foreign carriers may yet go out of business, but new opportunities will occur.
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What this is about, Madam Chairwoman and Members of the committee—it is not about the Nation's defense as some others will tell you, it is about trade. There are other issues that relate to the abilities of the carriers to get capital or not get it, to defend or not defend to be engaged in that end of the business.
It is time for a change. The 1984 Act codified a 19th century practice in responding to a 1960's problem. It was out of date when it was passed. It is time to get rid of it. Thank you.
Mrs. FOWLER. Thank you, Mr. Quartel.
Mr. Powell.
Mr. POWELL. Madam Chair, I am Peter Powell of C. H. Powell Company of Peabody, Massachusetts, Chairman of the National Customs Brokers & Forwarders Association of America Freight Forwarding Committee. It is an honor to appear before you today to present our views on the Shipping Act of 1984.
Our point of view takes a middle path avoiding the extremes of status quo on the one hand or massive overhaul on the other. We nonetheless believe that reform is critical and that the time has come for these changes.
While it is certainly true that the major industrial corporations of exporters companies do not handle sufficient volumes of export cargo to economically justify sinking their scarce resources, they rely on the services of ocean forwarders to handle these commercial and logistics requirements. As an essential part of this complex process, our shipping customers have benefited from the unique American system of common carriage, a system that is designed to permit shippers to compete on a level playing field without secret rebates or kickbacks to large competitors possessing the market power to demand special treatment. Common carriage has permitted American exporters, even in the presence of a shrinking U.S. Merchant Marine to obtain competitive rates and assured space and service from all liners that call at U.S. ports, thus guaranteeing their access into all international markets.
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Since a great deal of cargo moves in smaller lots called LCL, less-than-container load, another intermediary in the transport process is the NVOCC. A non-vessel-operating common carrier currently is required to pay the burden and the costs of filing tariffs and adhering to the formalities this system requires.
Of greater and more publicized significance is the issue of the conference system and antitrust immunity. Simply stated, the TransAtlantic Agreement and the methods by which those carriers have implemented their market power over the past several years simply cannot be defended. Significant change is essential for the health of both large and small exporters.
That is not to say, however, that antitrust immunity is inherently wrong or that it of necessity adversely affects U.S. shippers. As representatives of the smaller exporters, we are concerned that a total elimination of antitrust immunity would so destabilize liner service as to lead to a massive disruption to the business of the overwhelming majority of U.S. shippers. We simply do not believe it is in anyone's interest to require the steamship lines to immediately dissolve all of their consortium arrangements or to engage in the type of dog-eat-dog competition that has been visited upon the trucking industry.
Nor do we see the wisdom of compelling the liners serving this country, regardless of where they may be flagged, to constantly be threatened with antitrust litigation when other trading partners either bestow safe havens in this field, as does the European Union, or just do not scrutinize collective activity to any significant degree.
Five areas:
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Antitrust immunity: the current system of conferences possessing virtually unlimited market share with no effective right or obligations of independent action needs to be changed immediately. A variety of alternatives to ensure more competitive and responsive bargaining for ocean transportation could include limits on conference market share, enforcement of the right of independent action for both general and service contract cargo, and elimination of the right to have those both rate fixing and capacity rationalization powers in the same conference and more stringent oversight to eliminate abuse.
Common carriage: preserve the system of tariffs for vessel operating carriers but carve out in specific statutes or utilize the exemption authority already existing under section 16 of the Act to exempt specific classes of traffic or other arrangements from relative tariff positions. Some groups could be eliminated from this—as an example, the chemicals groups and NVOCCs.
And my red light is on. I am through.
Mrs. FOWLER. Thank you, Mr. Powell. I appreciate that. We have your whole statement for the record. I was just reading through it. Thank you very much.
Ms. Zack-Olson.
Ms. ZACK-OLSON. Good afternoon, Madam Chairperson. My name is Laurie Zack-Olson. I am Executive Director of the International Association NVOCCs, or we will call it from here the IANVOCC. The IANVOCC was formed in 1972 to represent the interests of non-vessel-operating common carriers. It oldest such organization in this country.
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We appreciate the subcommittee's invitation to submit these comments on the Shipping Act of 1984, but before doing so, I think it would be useful to briefly describe what NVOCCs are, what they do, and how they fit into the commercial context of the ocean shipping industry.
NVOCCs are companies that take responsibility for the carriage of goods, but do not operate the vessels on which the goods are carried. Because they accept responsibility for the transportation, NVOCCs are principals in relationship to their customers. In this respect, NVOCCs differ from ocean freight forwarders which function as agents of shippers in arranging for transportation.
As with any commercial entities, NVOCCs exist to fill an economic need. NVOCCs consolidate small quantities of cargo into larger lots to negotiate volume rates with the vessel-operating carriers. This enables small shippers to easily obtain international transportation at a reasonable cost.
NVOCCs are true entrepreneurs. Because they do not own or control the physical means of transport, the ships, they must strive to be more efficient, more imaginative, and more closely attuned to the needs of their customers. There are currently more than 2,100 NVOCCs operating in the United States. Therefore, the industry is brutally competitive and constantly undergoes destructive rate wars. Yet it has continued to grow. By our estimates, in the major U.S. trade lanes NVOCCs transport from 20 to 30 percent of overall cargo volumes.
In sum, NVOCCs are a major benefit to U.S. trade and to the U.S. transportation industry because they provide the means for the multitude of American small- and medium-sized businesses, the businesses that form the backbone of the American economy, to participate in world trade on reasonable terms and at reasonable prices.
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As to the questions formulated by the subcommittee, we have the following comments. First, the IANVOCC believes that the conferences have ceased to be of value to the shipping public. The rationale for conferences has been that they are the best means to ensure adequate shipping services at stable and predictable price levels. While these points may have been valid in the past, they are highly questionable today.
For NVOCCs, who constantly operate in an environment of cutthroat competition and fluctuating rates, the argument that the ocean shipping industry cannot function in such an environment makes little sense. Today U.S. imports and exports represent at least 22 percent of the gross domestic product. Much of this trade requires ships and most of that, the bulk trades, is already unregulated.
Further, with the existence of service contracts, there is already a mechanism in place for shippers and carriers to agree on stable rate levels. With the magnitude of the need for ocean shipping, it is almost certain that the market will continue to provide these services whether or not conferences exist.
With respect to the need for antitrust immunity, the IANVOCC believes that there are some types of carrier agreements that serve useful purposes. These are agreements that make the carriers more efficient and more responsive to their customers' needs. It is questionable, however, whether such agreements need exemption from the antitrust laws. The antitrust laws, after all, only prohibit concerted activities that are unduly anticompetitive. In our view, it would make sense to have all carrier agreements tested under this antitrust standard. Thus, they would be allowed, if they contribute to the efficient provision of shipping services to the public, but rejected if they merely serve to further a restraint of trade.
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The third question is whether the current antitrust immunity contributes to the promotion of the U.S. flag maritime industry or U.S. jobs. The answer has to be no. In the past 30 years, while the antitrust immunity has been in place, the number of U.S. flag vessels has shrunk, as has the number of U.S.-based shipping companies. The U.S. jobs supported by these extinct companies have also ceased to exist.
Of far more importance than the antitrust exemption to U.S. flag operators are such issues as the existence of operational subsidies, the Jones Act, the cargo preference laws, and the U.S. vessel manning and safety requirements. In short, there are more direct ways to provide aid to the American flag fleet. The antitrust immunity is not efficient to accomplish this purpose and is harmful to the interests of shippers.
The subcommittee has also asked whether the current tariff filing system makes sense. The IANVOCC has traditionally regarded tariff filing as a cost and responsibility of being a carrier and has encouraged tariff enforcement as a regulatory policy. This belief has been premised on the idea that NVOCCs receive regulatory benefits that balance the costs. It may be that the Shipping Act of 1984 could be administered to achieve this balance. Regrettably, that has not been our experience. On issue after issue, we believe that the interests of NVOCCs and their customers have taken a second chair to those of the vessel operators. Further, given the large number of NVOCCs and the FMC's limited staff, enforcement of NVOCC tariff filing has been inconsistent and has fallen most heavily on U.S.- based NVOCCs.
We do have comments on common carriage, but I see I am short of time, so I thank you for hearing our comments.
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Mrs. FOWLER. Thank you, Ms. Zack-Olson. We do have the whole statement for the record which we will certainly review carefully, too.
I want to give a special welcome to a former colleague and former chairman of the Federal Maritime Commission, Helen Bentley.
Mrs. BENTLEY. Thank you, Madam Chairwoman, and other distinguished Members of this important subcommittee for allowing me to appear today at this hearing which is so crucial to the future stability of international trade moving in and out of American ports. What is at stake as the subcommittee considers radical changes to our 80-year-old regulatory scheme for international liner shipping is no less than our vital economic and national security interests.
I respectfully submit that the subcommittee keep one other fact of life of international liner shipping life in mind: Our international trades are also the international trades of our trading partners. And I might say that the European Community has its own regulatory scheme which is not always in harmony with ours. Should the FMC and our regulatory scheme be abolished, our trades will be governed by the laws, rules, and regulations of the European Community, and the United States will have only the status of an outsider if we wish to change the rules or complain about their administration.
In this regard, it is significant to note that prior to the passage of the Shipping Act of 1984, when the Department of Justice snuck in under the tent of the Shipping Act of 1916, the cases that it filed were against the American lines because it could not get at the foreign lines. Now, is that what we want, only an agency that can attack the American lines while the foreign lines are protected by their own status?
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While on the subject, I want to point out that not too long ago when the FMC went after the Russian steamship line, the Baltic. On a subpoena issue, the Russians were adhering to the tariffs that they had on file, and the FMC wanted those steamship records. Well, Russia said no. They resisted it and do you know what? Our own State Department went on record to support the Russian position. I have always said our State Department needs to have an American desk there.
Madam Chairwoman, almost 400 years ago Sir Walter Raleigh wrote, ''Whoever commands the sea commands the trade. Whoever commands the trade of the world commands the riches of the world, and consequently the world itself.'' So those proponents of deregulation who would say it does not matter if there is no U.S.-flag Merchant Marine to carry a substantial portion of our cargo ought to ponder the words of Sir Walter Raleigh. It would be economic suicide for the world's largest trading nation to leave the export and import of its goods and commodities solely dependent on the foreign policy and commercial whims of foreign countries who may be our friends today, but spit upon us tomorrow.
Madam Chairwoman, the effects of scrapping the FMC and our regulatory scheme would not only affect U.S. flag operators, it would also seriously harm our small- and middle-sized shippers and ports.
One really doesn't have to be an economic genius to realize that giant shippers will be able to leverage vessel operators in terms of rates and service in a way that no small shippers or groups of shippers can. So that will be the end of the common carrier principle that has characterized ocean shipping for almost 100 years. And guess who loses? If the U.S. flag fleet disappears and our trades become unstable, fewer vessels will call at our ports, and that in turn will have a harmful effect on our ports which have a tremendous investment in infrastructure, as Mr. O'Brien said.
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Having just returned from a trip to Europe on behalf of the Port of Baltimore, I particularly wanted to appear today to pass on the concerns that were expressed to me last week by both American and foreign shippers who said, is Congress really going to do this? Do you know what this is going to do to your shipping system? Without exception, all of those interests under both U.S. and foreign flags, as well as the shippers, predicted utter chaos in the international trading arena with the most negative results resulting in the U.S. trade.
Madam Chairwoman, what I heard in Europe was an expression of concern by those who know firsthand how things work in the real world of international shipping. I know that the advocates of deregulation will say that the alarm that is being expressed is only the self-serving declaration of those who have a vested economic interest in the status quo of the present system.
Madam Chairwoman, I do not have such an interest. I do have an expertise acquired through 24 years as maritime editor of the Baltimore Sun, including 15 years as a television producer and hostess of a television series dealing with international trade and ports, 6 years as Chairman of the Federal Maritime Commission, the longest term for any Chairman in the post-war period, a businessperson who was involved with exports and imports for 10 years, and then as a Member of this prestigious body for another 10 years while serving on the House Merchant Marine and Fisheries Committee.
I will close off by just saying, Madam Chairwoman, we need to study this. We do not need to send a truck down a hill without any brakes. Let's sit back. Let's look at this. Every committee in the past has looked at it very carefully. We need to do that.
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I ask permission for my entire statement to be included.
Mrs. FOWLER. Thank you, Mrs. Bentley. Your entire statement will be included in the record.
That concludes the official statements of our panel, and I will go now to questions and remind our two Members here, you and me, Mr. Oberstar, we are limited to 5 minutes each for questions. Oh, good.
Mr. Baker, thank you for joining us. I appreciate your being with us.
I would like to start out with a couple of questions and then I will turn to our Members. And this is one any member the panel would like to answer.
In your opinion, does the antitrust immunity in the 1984 Shipping Act contribute appreciably to promotion of our U.S. flag maritime industry or does it not?
Mr. QUARTEL. Madam Chairwoman, I would say it does not. One of the ironies of the Act is that the two U.S. flag carriers are probably the two most efficient carriers in the entire world: APL and Sea-Land. Crowley itself is a very good company; they testified.
What the Act does and what happens in the conferences is that those who are efficient share their efficiencies with those who are not. So the U.S. carriers in fact give their—the rents they gain from added efficiency, they give some of that to the people who have less of it. The U.S. carriers would be better off and this industry would be better off in the absence of the conference system.
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If I may tell one quick anecdote, Mrs. Fowler, Hayes Watkins, who was Chairman of CSX, which owns Sea-Land, told me several years ago when I first called for elimination of the FMC and everything else, he said, you know when I was Chairman of CSX and they tried to deregulate the rail industry, only John Snow and I among the directors were for it and everybody else had to be dragged kicking and screaming into deregulation. It is the best thing that happened for them, and it will be the best thing that happens for this industry.
Mrs. FOWLER. Thank you.
Mrs. BENTLEY. Madam Chairwoman, let me just consider what he just said. The railroads are a domestic service. They compete against each other in the United States of America within the boundaries of this country and it is domestic.
We are talking about an international trading situation where the lines are competing against not only foreign flag lines but also against foreign governments, and until that is resolved, until you get all of the governments abroad out of their shipping business, and we can honestly feel that way, then we have to protect our own.
Mr. QUARTEL. Can I make one point? COSCO is the only shipping line owned by a foreign government that has a substantial role. The Chinese are the only ones that have a ship in this fight. And they are probably going to be prioritized.
Number two, the only country that has direct operating subsidies in the entire world in the liner industry is the United States.
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Mrs. FOWLER. Thank you.
Does any other member of the panel wish to comment on that question? I had another question.
Mrs. BENTLEY. That is not true and you know it.
Mrs. FOWLER. I know, Mr. Powell, you and your testimony have suggested some suggestions to find a middle ground, and I am just wondering, would it be feasible if Congress abolished tariff filing and enforcement, could they still prohibit our carriers from charging what are unjust or discriminatory rates to shippers? Is there a way to find a middle ground here?
Mr. POWELL. Well, that would answer the question of common carriage, but I think—unless I misunderstood you, you are saying government regulates the rates at a level?
Mrs. FOWLER. Would there be a way to do that?
Mr. POWELL. Well, I think that then steps right on the throat of competition, which I think would probably create a bigger problem than what it would fix. We just feel that the carriers filing their tariffs, having it available to the smaller exporter is very important. If we believe what we read, that GATT is going to create all these new jobs and new business, how are they going to get goods to market if shippers can't get a rate to be competitive? That is very important.
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Mr. QUARTEL. You know, I said in my testimony that one of the myths of this whole thing was common carriage. The only guys who are stuck in the published tariffs are the about 2 or 3 percent of small shippers who don't have an agent—and several of their agents are here, that represent literally millions of shippers. They pay the highest rates of all. It is because they are in common carriage tariffs. The other guys get to do contracts, not great contracts, but they get to do contracts.
The middle ground, Madam Chairwoman, would be to eliminate tariff filing and enforcement and anti-rebating policies and to eliminate the ability to price fix and the ability to collude, to restrict capacity in a lane. That is how they really hold control over all of this.
Mrs. FOWLER. Does anybody else wish to comment?
Mrs. BENTLEY. I would like to add one line. If you give that situation and the foreign governments allow it on their end, then, again, the American shippers and the American lines are down the hill.
Mr. UNSWORTH. If I may, Madam Chairwoman, the freight forwarders in this country, the NVOCCs, have worked to pool various small shippers' cargos together, and by putting the cargo together, have negotiated rates on their behalf as a group and have then passed on much of the savings to them. And so the small shipper does have an advocate and that is the NVOCCs, freight forwarders.
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Mrs. FOWLER. Thank you. Before I ask any of my questions, I would rather go to Members of the subcommittee.
Mr. Oberstar, would you like to go ahead and ask your questions?
Mr. OBERSTAR. Thank you, Madam Chairwoman.
Mr. ''Cartel,'' you say—did I pronounce that wrong?
Mr. QUARTEL. It is Quartel, not cartel.
Mr. OBERSTAR. You said——
Mr. QUARTEL. The last person to do that was a sea captain.
Mr. OBERSTAR. You said that the existing system results in $2 to $4 billion a year in higher freight costs. I assume you have got some information to back that up.
Mr. QUARTEL. Yet when I was Commissioner, one of the conferences in the Pacific——
Mr. OBERSTAR. What years were those when you were Commissioner?
Mr. QUARTEL. That particular year, when it was first calculated, was 1991. TWRA, which was a Pacific conference, flat out publicly announced that they charged $100 more per box for their customers than anybody else. At the time, they were carrying 750,000—I forgot what the number is, but depending on whether it is FEUs or TEUs, it is between 750,000—$750 million and $1.5 billion and then we did the same calculations looking at other conferences. One carrier here today said—Crowley said their rates in conference are 10 to 15 percent higher than market rate, so you can make the calculations very easily.
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Mr. OBERSTAR. What they said is that the conference rate is the market rate. They didn't say it is higher.
Mr. QUARTEL. It is when they control 60 percent of the market.
Mr. OBERSTAR. Don't put words in their mouth, though.
What would happen to the U.S. fleet—you have studied this subject a long time—if we deregulated, and let's say the European Union waits for us to act. They don't deregulate.
Mr. QUARTEL. The European Union already has a regime which is well ahead of ours. Essentially——
Mr. OBERSTAR. What they have is a draft. They have a draft document.
Mr. QUARTEL. With all due respect, you were incorrect about that. Your staff was.
Mr. OBERSTAR. No. I followed that subject very well.
Mr. QUARTEL. The European Union consortium——
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Mr. OBERSTAR. It has not been adopted by the Council of Ministers.
Mr. QUARTEL. I believe you are speaking about what is related to TACA and the other conference that they were looking at. European policy under the EU allows conference carriers essentially to do efficiency enhancing activities. They can share ships; they can share equipment; they can share facilities. I think they can do schedule activities. But they aren't allowed to do as many anticompetitive activities as we are in this country, which is why the American shippers went to Europe to get relief from the North Atlantic Conference, as they told you. It is very different. We are way behind them.
What would happen—your question——
Mr. OBERSTAR. I asked the question, is it all going to seek foreign flag refuge.
Mr. QUARTEL. The problem for the American flag fleet is not this Act. This Act contributes to some loss of profits, in my view, a loss of efficiency, as I told how it is shared in the conference. Their problems are the onerous U.S. laws. We have the Coast Guard in a different regime for ships than international law. We in this country don't let them sell or move their ships or their assets. That is a U.S. law. They have to use U.S. labor, under which the average U.S. merchant mariner makes four times the earnings of the average American paying his taxes.
The U.S. is probably the single most hostile regulatory regime in the entire world for ships and shipping, and their problem is something else, not the Act.
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Mr. OBERSTAR. So your scheme would mean lower wage rates——
Mr. QUARTEL. No, I think it means they will able to compete.
Mr. OBERSTAR. Just a minute. Let's have a useful dialogue. You have some information. You have a point of view. I respect the experience you have had. But don't be so dogmatic and don't be so assertive. And I can be just as assertive as you.
Mr. QUARTEL. I understand. Okay. But what is the question?
Mr. OBERSTAR. Let's get back to the point, which—I am trying to develop some ideas here and you can be helpful. What happens to American mariner wages in a deregulated environment, then? You said that is one of the impediments to competition for U.S. carriers.
Mr. QUARTEL. I think the two are totally disconnected. The wages are not controlled by the 1984 Act. The wages of the mariners and the issues of labor law and how they deal with their assets and maritime administration regulation are totally different issues. That is the 1936 Act, and I don't mean to be—I am not trying to sound smart about it; it is really a different issue.
The 1984 Act—I will be brief here—I think if it were deregulated this industry would be able to compete better because some of their competitors would go out of business.
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Mr. OBERSTAR. Madam Chairwoman, I would like to come back in a second round of questioning here and have a little more engagement, if the Chair will permit.
Mrs. FOWLER. I will permit that.
Mrs. BENTLEY. I would like to point out, and I think this is the point you were getting at, if American shipping lines are forced to drastically reduce their revenue, they are not going to be able to pay decent wages to Americans or anybody on their ships. They have to have a decent revenue base in order to survive as a corporation and in order to keep the American flag flying.
I mean, it is one or the other. You can't have both. And I don't think Mr. Quartel understands this.
Mr. OBERSTAR. I think Mr. Quartel understands it very well. First he linked and then he delinked the two issues. But I would yield to Mr. Baker; then I would like to come back.
Mrs. FOWLER. Yes.
Mr. OBERSTAR. This can be a very interesting discussion this here.
Mr. Baker.
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Mr. BAKER. Well, I was a little late. I was attending bible study and the first thing we learned is be quick to listen and be slow to speak. So we have forgotten that lesson already.
And moving right along here, Mr. Quartel, there seems to be some argument over whether foreign countries subsidize their fleets and fix prices. Could you comment on that?
Mr. QUARTEL. Well, I have a book here published by the Maritime Administration called Maritime Subsidies, which the committee could have if they would like it. The only country that actually directly subsidizes an operating carrier is the United States. They indirectly subsidize carriers through cargo preference.
For example, Sea-Land asserted it wasn't subsidized, but the GAO has said that cargo preference has within—anywhere from a 15 to a 40 percent subsidy. Again, that is not the 1984 Act.
Mrs. Bentley has said I don't understand the manning issue. I probably understand it all quite—very well. I am the only person who does not have a dog in this fight. I don't represent the Port, as she does, of Baltimore or carriers oranyone else. I'm here because I was an AMC commissioner.
On the labor issue, the Department of Transportation tried to study this issue, spent a lot of money on it, came up with a study that showed exactly what those disparities were, right out of MIT; and that study has been twice hidden from the public domain. They have specifically covered it up because what it says is, you know, theat on competitors are not earning slave wages. The Europeans don't. The principal competitors, Japanese don't earn slave laborer wages. Our average merchant mariner doesn't.
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Again, it is a different issue. It is part of the equation—as Congressman Oberstar said, it is part of the equation outside of this. American merchant marines earn three to four times what the working American does and the Europeans earn maybe twice, so it is a bit disingenuous to mix that up in here.
Mrs. BENTLEY. Mr. Baker, may I add something on that?
Mr. BAKER. Let me ask a question, because I am going to hear what you have to say even if I don't want to.
Mrs. BENTLEY. I would like to add on that.
Mr. BAKER. I am going to let you, but my question to you is, if it is true, with the protection of this Commission, we have continued to lose American carriers, and if part of the reason is, it is a wage scale that is two to four times greater, what can we do either to improve efficiency or close that gap? Otherwise, it doesn't matter how much regulation we have and how much price fixing and how much cartelism, we are going to continue to lose American carriers and punish shippers.
What can we do in reality about this problem?
Mrs. BENTLEY. Well, one thing that Mr. Quartel was right and the only thing I will agree with him on is that we are talking about two different things here on the wages and on the Shipping Act of 1984. That is over here. And the Shipping Act of 1936 and 1970 and the other, the Shipping Act of 1984 concerns regulation. So when this committee takes up the whole Merchant Marine program, if it comes before this subcommittee, that is the issue that should be handled there.
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It needs to be, there need to be some changes all around. I am not saying there shouldn't be any changes at all. There need to be some, but not throwing the whole thing out wholesale, throwing the baby out with the bathwater.
Mr. BAKER. I understand. You called for going slow. The problem is this, the costs that are dysfunctional or that great a difference, it doesn't matter much government control we have, we are going to still continue to lose business.
Mrs. BENTLEY. Mr. Baker, I don't think the costs are that far apart these days. Unless you are comparing an American ship cost with a Chinese ship cost. Yes, the differences there are great, but we have learned over the period of time that the labor costs on the European ships and on the Japanese ships are not too far from what ours are today.
He was talking about the subsidies of other countries and saying that we are the only ones. Well, other countries have a far different way of subsidizing and supporting their shipping.
For example, Japan. No, they don't give subsidies, but Japanese industry only buys from everywhere in the world by sea and—by FOB. They purchase goods from the United States or from Europe FOB. That means free on board. They designate the ship on which that cargo is going to go to Japan. They sell only C&F, that means cost and freight. That means they designate the ship on which that cargo is going to go to its consignee. That is a big difference in how it is done. That is the way they control.
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Mr. BAKER. Thank you.
Mrs. FOWLER. Thank you, Mr. Baker.
Mr. Oberstar, you said you wanted to pursue your line of questioning there.
Mr. OBERSTAR. If the Chair has some more?
Mrs. FOWLER. Go ahead. I will come to mine in a minute. I knew you were pursuing on with that one.
Mr. OBERSTAR. The port authorities generally argue for continuing the system of conferences. What modifications in the current system of conferences would you suggest in facing the reality that something is going to happen, there is going to be some sort of deregulatory action taken here?
Mr. O'BRIEN. Congressman, I think the primary concern of the U.S. port industry——
Mr. OBERSTAR. You can summarize here and then amplify in writing because obviously we haven't much time.
Mr. O'BRIEN. ——is the question of the stability in the trade. Over the long term, if our clients are not financially viable, that will have a negative impact not only on the present port facilities which have been a matter of very heavy public investment but will certainly raise the risk, in my opinion, of ports continuing to make the level of capital improvements, the $5.5 billion, over the next 5 years which is presently earmarked by local ports for facility improvement and development. And so I think any change that might be considered should be considered against that perspective. Will it have the effect of maintaining a reasonable level of stability in the trade? Because if it does not, and we start to see a fallout of shipping lines, a concentration of fewer lines with more market power, then the risk for the public ports to continue to make this commitment for further investment becomes much greater.
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Mr. OBERSTAR. Mr. Unsworth.
Mr. UNSWORTH. Not on that, no. Thank you.
Mr. OBERSTAR. Does have any comments for ports? Are you speaking for ports, also?
Mr. QUARTEL. He is. There is an issue there—he doesn't speak for ports either—which is stability of the carriers which he spoke for. One of the big myths of the Act in tariff filing is that it brings about stability in prices. It has never done that in the entire history of the Act.
John Clancy eloquently spoke about the problems of the carriers earning profits on 400 and some—roughly $400 billion of trade worldwide. They only—worldwide, they made 20 percent of that, which is about $200 million. So nothing here seems to be contributing to the health of the industry. It is not a very healthy industry is my point.
Mr. OBERSTAR. I would like to propose to this panel some ideas that I proposed to the last panel this morning as a matter of reform for the United States Government to, one, engage our trading partners in a commitment to deregulate by removing government ownership and control of shipping lines.
Keep the antitrust provisions as we have seen them in the past and today. Except for service contracts, that is the big volume, single commodity, long-term shipping operations which function outside of conferences. Retain tariff filing, but modify independent actions which are now permitted. This is an additional and further thought I have had since this morning.
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Now, as I recall the practice, independent actions are permitted. There is a 10-day window of opportunity, the carrier announces that the carrier will not follow the tariff agreed to by the conference and in that 10-day period other carriers can either match it or coerce the renegade into compliance—either shorten that time frame or eliminate it.
Mr. Quartel is chomping at the bit to answer that question.
Let me start with Mrs. Bentley.
Mrs. BENTLEY. Mr. Oberstar, I think what you have laid out here is a good beginning of some discussions that could take place between the carriers and the shippers. And it is that type of a dialogue that we need to get going so we can eliminate this antagonism that exists at the present time.
At the same time, what you are saying is, we are not going to just toss everything out of the window.
Let's sit down and see what we can do, and I think what you have provided here is a useful platform on which to begin.
Mr. OBERSTAR. Thank you.
Mr. O'Brien.
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Mr. O'BRIEN. Thank you, Congressman. It certainly is the framework of a proposal that I would take back to the AAPA and discuss it with them in great depth.
I would like to just make one observation—I am not sure it is totally relevant, but when we talk about trading partners and then subsidies—and subsidies can take quite a spectrum of types of arrangements—I think one thing just to keep in mind is that there are shipping lines out there which are state controlled, whose currencies are not convertible in the world market, who are building their own vessels with their own currencies, paying their crews with their own currencies, but are then trading in the U.S. trades in order to obtain hard currency dollars; and so they are not necessarily driven by the same market forces that their competitors are.
Mr. UNSWORTH. With respect, we live in a very, very complicated, regulated environment in our industry. To facilitate the movement of cargo from one place in the world to another point of world, I have to have an NVOCC tariff; I have to have a bond to support that. I have to have an FMC license; I have to have a bond to support that. I have to have an officer of my company licensed personally. My corporation has to have one. I have to have permits in every port that I want to do customs work.
To start to again, with respect, to tinker with it and to think of more complicated—or just to change from one complicated scenario to another, I don't think we are achieving anything and I think what we have to do is get back to simplifying and spending less money on all this regulation, and stop doing unproductive things.
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Mr. OBERSTAR. Essentially my proposal is not going to affect significantly your sector.
Mr. QUARTEL. Congressman, I think what is significant about your proposal is that you made it. I can't speak for shippers. I am a consumer and I am a taxpayer, and as either one of those, I am outraged that my goods come to me at prices created by cartels, foreign cartels, and I think most Americans would feel the same way if you went back to the district and ask them, do they like it. Most don't know it.
The problem in this industry is that someone earlier said it has been gridlocked. I think it was Bill Verdon or one of them. Yes, it has been gridlocked, but that gridlock has been created by the carriers and the 1984 Act. The carriers will not discuss this. They are here now because they are scared, because there is a move to cut excess government waste and bureaucracies and other things, and it may well be too late.
I believe that what shippers want is the elimination of unbridled unlicensed cartel behavior, price fixing and capacity restrictions. I believe what they want is the right to deal directly with their carrier or through an agent with a carrier through a contract. They don't want to have some foreigner looking over their shoulder through a tariff.
I believe what they want is less regulation and less overhead and less government. And one of them said it very clearly, ''I don't want a third party in the middle.'' That is the reaction. I think it is a beginning. I think if you add all those other things then I think you might find some support.
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Mr. OBERSTAR. Thank you. It is a proposal, those are ideas that have occurred to me in the course of the testimony and the course of my several years of experience in this business, and I think we need to have more dialogue on the subject. As Mr. Unsworth said, this is a very complex field. I stated so in our morning session. Probably no area of commerce that is more arcane, whose roots are more deeply anchored in history and practice than the shipping industry and I think we need to proceed with deliberation. And that is why I set forth this proposal. I think further testimony and more details, more facts aren't going to much change this. We need to come to a dialogue on how to change.
Mrs. FOWLER. Thank you.
Mr. Baker. I know you have another question.
Mr. BAKER. Thank you, Madam Chairwoman.
Mrs. Bentley, I just had an observation. I have enjoyed listening to this entire testimony and many of our goals is to support American shipping, but by doing it through regulation—tell me if I am wrong here—if the marketplace and the market price is not the same as it is fixed by cartels, as we know it isn't, then we are creating a subsidy for American shippers which—80 percent goes to foreign carriers. So the subsidy then is not directly helping American firms, but it is helping those people in the cartel, so we are indirectly helping foreign carriers.
What is your response to that?
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Mrs. BENTLEY. Mr. Baker, if we didn't have the system that we have today and you had a free-falling market, I predict that you wouldn't have an American shipping line left, and I predict that you would have the rates by the foreign carriers so high that their profits would be much more than they are today because they would have nothing to hold them down.
Mr. BAKER. But noting that, then, we are asking the shippers, the American manufacturers to subsidize the American carriers, but 80 percent of it is falling out of the basket, so could you target your aid a little more carefully and give us some ideas?
Mrs. BENTLEY. I will give you some ideas, Mr. Baker. I won't do it right now. I will give you some ideas, I would be happy to. I will spend some time doing it. I will be very thoughtful and very detailed on it.
Mr. BAKER. Did you serve at the same time as Mr. Quartel?
Mrs. BENTLEY. No, I didn't, thank God.
Mr. BAKER. I was going to say, before you beat me to it, I was going to say lucky for his life.
Mrs. BENTLEY. I served for 6 years under Presidents Nixon and Reagan. And I will say that during that time the shippers and the shipping lines were both given prompt service on any complaint they ever had. I don't think at any time were the shippers ever delayed because we didn't respond to them. I have a very proud record during that time. We had a great administration.
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Mr. BAKER. I have no doubt about that. But don't forget who was the last person that tried to fix wages and prices to a disastrous result.
Mr. QUARTEL. Mrs. Bentley, she had a very long distinguished service and while we disagree, we agree on a few things—I won't mention them in here, it would probably ruin our reputation—but she actually left the commission 10 years before the 1984 Act was written.
Mrs. BENTLEY. That is right. Nine years.
Mr. QUARTEL. Her experience is relevant, but the Agency then was different. And you know some people have thought it was better.
I would like to just address one quick thing you mentioned which is, if they leave the country, they won't be American carriers anymore. It is a great myth in these halls; frequently you hear among lobbyists and others speaking for the American flag fleet that they are the only American industry in the shipping area. In fact over two times as many tons are owned by Americans not under the U.S. flag as under the flag. So whether Sea-Land flags, whatever, flags out, Sea-Land is still American. Its assets are here; its employees are here; its base is here. Twenty percent of the entire world's shipping market is here.
Whether APL flags out or not, it is American. Sea-Land is already half flagged out. These are American companies.
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Mr. BAKER. Say that again, Sea-Land?
Mr. QUARTEL. Half of their ships are foreign flags anyhow.
Mr. BAKER. Are they Liberian?
Mr. QUARTEL. EUSC probably.
Mr. BAKER. Other than wages, we shouldn't control the differential there. Are there other things the government does that hurt American shipping that we could improve on?
Mr. QUARTEL. There is a great long list. Foreign companies—they are allowed to keep foreign-earned income overseas without taxation until they repatriate it to build ship. Our companies used to have that, but the maritime unions lobbied and got rid of the so-called subpart F in order to bring the American flags back. What happened is that they kept leaving; they left twice as fast.
There are Coast Guard rules that are onerous and out of synch with international rules. American Carriers can't move their assets to another country. They can't sell their ships without permission of the United States Government. There are a whole raft of rules, and it is really incredible.
The 1984 Act deregulation proposed here stands on its own bottom. It is a good thing by itself, but you ought to do more for the carriers on the other committee that takes care of it.
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Mrs. FOWLER. I just have a couple of questions and I know the Chairman of the Federal Maritime Commission has arrived.
Mr. Quartel, this has been alluded to by you. I am not quite clear, so I want to get your answer. If we abolish our ocean conferences and trades, is it your opinion then that the rest of the world is going to follow in this? It has been briefly alluded to here, but I wanted to get your opinion on this.
Mr. QUARTEL. Yes. You know, this is a very complicated business. There is no one, as I said earlier, except the Japanese, who as as onerous and as broad an antitrust exemption as the United States. The Europeans, it used to be said they were behind us; now they are ahead of us.
When I was Commissioner, I had a number of conversations in Europe with members of the EU and with other parties over there, and I absolutely believe that if the United States deregulated, you would see the Atlantic deregulated, you would see the EU go along. And I think, in the long run, deregulation is good for business, and I think you will eventually see it on the other side of the Pacific.
But you know, it is no more or less speculation, anymore than what Mrs. Bentley or others say, the fleet would decline. You know, the fleet has been mythologized, eulogized, and euthanized so many times. It has just declined. There is almost no fleet left tens of billions business in subsidies and all we have done to protect it. It is time to change it. It can't get worse.
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Mrs. FOWLER. One last question of Mr. Powell.
When I was reading your testimony, you had a statement in there that carriers refuse to negotiate fair terms on service contracts and interfere with the right of independent action. Could you explain this somewhat?
Mr. POWELL. I am sorry. I didn't catch the second half of your question.
Mrs. FOWLER. You state that carriers refuse to negotiate fair terms on service contracts and interfere with the right of independent action.
Mr. POWELL. First of all, there are minimums established for service contract signings. So, when we talk with a small exporter—we could talk to a fellow that has 100 pounds a month or the fellow that has five containers a month. Neither of those last two really have any might with a particular carrier as far as the service contract is concerned because carriers set minimums of 2,500–5,000 containers before they will open discussion with you on contracts.
As to the right of independent action, carriers go with, or customers go with, an increase in their export business for a given period of time. They are not allowed to take ad hoc action if they are a preferred carrier for an exporter, if the volume has increased or slightly decreased. In other words, independent action doesn't just happen. The conference decides that this is what the category is and this is what the rate is, and even though there is a preferred category, because it is a shorter transit time, better unloading facilities, whatever the criteria may be, they do not get really the independent action from the carriers that theoretically was agreed to.
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Mrs. FOWLER. Thank you. I know we need to move on.
Mr. Oberstar had a final statement he would like to make.
Mr. OBERSTAR. Thank you, Madam Chair. I would like this panel, as I have asked the previous panel, to respond, if you will, in writing. I don't need a thesis and I don't need legislative language, but I would like you to respond to the initiative I set out, whether you think it would work and what further modifications you might suggest.
Thank you.
Mrs. FOWLER. I want to thank the members of this panel for their time and for their testimony this afternoon. We do appreciate it. We look forward to continuing to work with you on this. If you could submit it to the clerk over here, they will get your testimony, then.
Mrs. BENTLEY. Madam Chairwoman, I have been asked to request that you include in the record a letter from our former colleague Tom Campbell who also served on the President's Overview Committee concerning the 1984 Act.
Mrs. FOWLER. We would be glad to include that in the record. Thank you.
[The information received follows:]
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[Insert here.]
Mrs. FOWLER. If the witnesses could go ahead and take a seat so we can start our next panel.
If the members of the last panel could go ahead and be seated, then we will go ahead and start our next panel here.
For our last panel this afternoon I want to welcome Mr. William Hathaway, the Chairman of the Federal Maritime Commission.
We are so pleased to have you with us this afternoon, Mr. Hathaway, and we will go directly to your testimony then.
TESTIMONY OF HON. WILLIAM D. HATHAWAY, CHAIRMAN, FEDERAL MARITIME COMMISSION
Mr. HATHAWAY. Thank you very much, Madam Chairwoman, Members of the subcommittee. I want to thank you first for indulging me as I was out of town this morning and could not make it here until afternoon time. I appreciate your waiting for me.
I make this statement at the risk of detracting from what the former Chairman, Helen Bentley, said. I don't think I could make a better case than she did, but with that in mind I will proceed.
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Madam Chairwoman, I would like to have my entire statement put in the record and I will just give a brief summary of it.
Mrs. FOWLER. Thank you, it will be printed as submitted. Thank you.
Mr. HATHAWAY. First of all, I would like to correct a statement that was made in the Journal of Commerce this morning; that we have 210 employees, and 200 of them were working on tariff filings. Those other 10 must be doing an awful lot of work. We have 200 employees, but only 30 of them are working on tariff filings, and the rest are occupied with many other chores, which I would be glad to submit to you for the record.
[Information may be found on page ———.]
It is my understanding, Madam Chairwoman, this subcommittee really has two missions. One is to cut spending for the agencies over which it has some jurisdiction. I don't mean in appropriations, but in your authorization, and second, to curb unnecessary regulation. The Federal Maritime Commission proposes to help this subcommittee in regard to both of these missions.
I know this sounds like the story about, ''I am from the Federal Government, I am here to help you,'' but it is true, the Maritime Commission does intend to cooperate with the subcommittee in regard to both of these missions.
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On the first mission, we can accelerate the user fee program which we initiated this year at the request of OMB, so that, I believe, we can work to reduce the appropriation that is necessary from the Congress to zero. I am not sure of that right at this moment, but I will be sure of it sometime next week when we have completed our entire survey of all that we do and what additional charges can be made.
We were under the gun last year by OMB to come up with a $10 million saving. We did not have time to explore all of the user fees that could be employed with respect to our enforcement program and came up with only a $1.7 million user fee goal. We were kind of reluctant to impose user fees for certain activities because it was the first time it had ever happened. We were going to impose user fees on people that have to file tariffs. It seemed to us, offhand, requiring somebody to pay a user free when they have to file a tariff is like imposing a user fee on people for filing their income tax. So we took it a little bit easy the first year with the full intention that, as the years went by, we would increase fees until we fully covered our costs through user fees. Now, with the gun to our head, we are happy to accelerate that process and, as I say, attempt to bring that appropriation down to nothing.
With respect to the second mission of the subcommittee, to curb unnecessary regulation, I have talked with both shippers and carriers and hope that both sides can get together and come up with some kind of a compromise for an amendment to the 1984 Act that will satisfy both of them.
I don't believe that a repeal of the 1984 Act, in particular the antitrust exemption, is very realistic. In the first place, we need the antitrust exemption for our national defense. I mean, if we want to keep the American lines here and have them available, as we did in Desert Storm—and I believe this morning that the carriers did testify as to the extensive use to which they were put during that exercise—if we want to do that, then it is ludicrous, really, to repeal the antitrust exemption, because, unlike what Mr. Quartel said, they are not going to just flag out. They are going to go out.
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They are going to be out of business. We won't have any American liners that we can count upon, and we don't know what other liners will come to our rescue at the time because we don't know what all the foreign policy considerations would be in whatever emergency comes up next.
We always say we can count on our traditional allies. Maybe we can, maybe we can't. We know from past experience in various matters in which we have been involved that our allies don't necessarily support us. In the war in Vietnam, for example, neither Canada nor Great Britain supported us; and we don't know for the next exercise what support we can count on. So we need to count on American bottoms to satisfy the demands that we are going to have in an international emergency.
In the second place, to repeal the antitrust exemption seems to me to be entirely unrealistic in another respect. All of the foreign countries that I know of, anyway—all have some kind of conference system, some kind of antitrust immunity for their liners and they do it for the purposes that I just outlined; they do it for national security purposes. They also do it to promote their own industry.
Now, are we, the United States, going to tell all of these nations, no, you can't do this anymore? We don't care whether it is for your national security purposes. We don't care if it is for your trade. You can't do it anymore because we tell you to; at least you can't do it as far as American trade is concerned. And for many of these nations the American trade is the big trade. I think that would start a very chaotic situation between the United States and all of the other nations in the world.
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Could you imagine telling the EC, the European Union, that they could longer endorse conferences in U.S. trade? It seems to me to be absolutely ridiculous, and it sounds to me to be heavy-handed on our part to even think of that.
In the third place, even if we could in some way get these various nations to give up their conferences and to subject themselves to some kind of a free enterprise system, we would have to police this system. The Antitrust Division of the Department of Justice would have to police the system worldwide.
Now, you talk about the cost of regulation. I mean, the cost of the Federal Maritime Commission would be like a lunch at McDonald's compared with the bill that the Antitrust Division of the Department of Justice would submit to Congress to cover that tremendous expense. I mean, it isn't just like us monitoring discrimination by variation nations in the world against our people. In most of those, the factual situation is already in place and we know what has happened, and the countries admit it; and all we have to do really is give them time to come into compliance.
But an antitrust case is a very complicated matter. We are going to run into blocking statutes by foreign nations. There are always a lot of factual determinations that have to be made. We know from history, of antitrust actions that are taken here, where accessibility to records and to testimony is a lot easier than it would be overseas; and some of those actions take as long as 10 years to finally resolve. So I think it would be ridiculous to think that we could actually police the world with respect to antitrust violations and have a free, open, competitive situation.
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If we could have a free, open, competitive situation, the rates would be lowered and we would be better off; but I think it is unrealistic to think we could ever achieve that.
In the first place, I think that even if we were able to, as I mentioned earlier, get the nations to give up their conferences and that we have this kind of competition that is envisioned by some of those who have testified here today, with the elimination of antitrust immunity, I think that we would have a rate war which would bring down the rates, and certainly in the first year or so the rates would be lowered, but a lot of the carriers would be driven out of business.
And then the big carriers, the ones with the deep pockets, the COSCOs that are owned by their country, China, and other carriers throughout the world, they would come and they would buy up the other ships and they would take over. And they would be in the driver's seat. They would be able to charge whatever rates they wanted to charge.
They would be after the big ticket items. The small shippers, the medium-sized shippers would suffer. There would be rank discrimination.
Do you think Japan is going to carry our goods to Japan at the same price that they carry their own goods to us? Of course not. But under the system we have today, they would have to do that. There would be a disastrous situation which would occur if the antitrust exemption were removed.
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Now, all of this was covered about 80 years ago by the Alexander Commission, which preceded the 1916 Act; and as George Santayana said, those who don't remember history are doomed to repeat it. Why should we go through that whole argument again? The situation isn't any different now than it was then. All people have to do is to read that report to know what I just stated would be the case.
The Alexander Commission very thoroughly examined the world shipping situation, and they came up with the conclusion that we needed some kind of conference system in order to protect shipping. And that has worked very well since 1916.
It was looked into again in 1936. It was looked into again in 1962. It was revised in 1984. It was looked into again by the ACCOS Commission in 1992, and it was blessed by that Commission. At least there were no recommendations that any changes would be made.
Now, I don't say that no changes in the Act should be made. I think any act of Congress, as the Chairman and Members of the subcommittee well know, needs to be looked at from time to time; and maybe in this case, some changes are warranted. I can think of one myself. Under section 6(g)—which is the anticompetitive section, I think that the shippers should have a right of action to proceed against a carrier and take the case to the district court if they so desire.
Under the law as it is now, only the Commission could do that, but I know that that has been a complaint of the shippers, and they are probably justified. Maybe some modifications could be made in the service contract provision of the Act, and hopefully the shippers and carriers will get together soon and come up with some recommendations as to the modifications that should be made.
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In line with this, I think we should continue with the Federal Maritime Commission as an independent agency for the predictability, the stability and the perception by the foreign governments that the maritime laws of this Nation are not being run by the White House, are not being run by an Executive agency, but they are being run by an independent agency which looks at things objectively.
If we have a situation, for example, where we have to proceed against China, and if this proceeding was not governed by the Federal Maritime Commission but by an Executive agency, you might very well have the White House say, let's not proceed against China right now because we are now concerned about China's violation of copyright laws, and we don't want to get them upset about it.
I am sure both shippers and carriers would rather have this objectivity of an independent agency than they would be subject to the whims of another—of an executive agency.
So in closing, Madam Chairwoman, I thank you for the time that you have given me. Let me say that we are prepared, through user fees, to reduce the appropriation for the Federal Maritime Commission to zero and that we are willing to mediate a carrier-shipper compromise that would make the 1984 Act a little more realistic, but we certainly aren't in favor of repealing the 1984 Act and, in particular, the antitrust exemption.
Mrs. FOWLER. Thank you, Chairman Hathaway. I appreciate your being with us in your testimony this afternoon.
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We have been buzzed for a vote, but I think we will try to proceed on for a while until we get a little closer to that, if it is all right with Mr. Oberstar. We can maybe get through this and you don't have to wait.
I have about two questions. During this afternoon and this morning we heard a lot of criticism from the shippers about this whole system, the Ocean Conference System, the Federal Maritime Commission and this whole problem with the Act.
Why do you think that the shippers are considering the Federal Maritime Commission to be unresponsive to their concerns? Because that is what we seem to be hearing.
Mr. HATHAWAY. Well, Madam Chairwoman, we meet with the shippers, large groups at least once or twice a year and we meet with them individually just any time they want to come to see us. A lot of their objections I have found over the 5 years I have been on the Commission—I would say 99 percent of their objections are matters that can only be handled by the Congress. They have objected that they can't have confidential service contracts; well, the law doesn't permit confidential contracts. They object to other sections of the Act that we have no control over whatsoever, and we have listened to their concerns and told them that they are problems with the Congress and to go to the Congress and see if they can't get them changed.
There were a lot of complaints with respect to the TAA or why we didn't take action against the TAA and why we approved the TAA. Well, we don't actually approve these agreements. After 45 days, they go into effect automatically under the law. Unless we need more information, we can extend it another 45 days, but we keep our eye on them and make sure that they don't violate the standard set forth in section 6(g) of the Act.
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And we did keep our eye on this agreement for all of the years that it was in effect, and now we have taken some action in the recent past, starting last July with our Fact-Finding 21. And why did we wait that long? We waited that long because we didn't have any evidence that would indicate that we had a strong enough case to proceed.
We asked the shippers time and time again to give us some evidence, that we would proceed, and our doors were always open to them, and we didn't get the requisite amount of evidence, in our judgment, to proceed until last July. So I think that is some of the reason that the shippers think that we have been unresponsive to them.
Mrs. FOWLER. One other question, Mr. Chairman, and you just made reference to Fact-Finding 21 as regards actions under the TAA. Could you just give us information as to the status of that investigation and when it might be completed?
Mr. HATHAWAY. When it might be completed? Well, right now, Madam Chairwoman, we have a request by the carriers that involves due process issues. We have initiated three actions against them and they are questioning our continuing with the fact-finding proceeding as a violation of due process with respect to the cases that we are involved with them. We have not completed our study of that issue.
Once we do, we will be prepared to state our conclusion. I assume we are not going to stop the fact-finding. It may be delayed for some time as it is now, but they may have some merit to their argument that if we continue with the fact-finding, it is a violation of due process with respect to their cases.
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Mrs. FOWLER. So you do not have a time frame when you are going to make a determination as to their success of their claim.
Mr. HATHAWAY. The Commission divides itself up in a case like this. All of the commissioners sit as judges and we are not supposed to know what is going on right at the present time with the Hearing Counsel and the respondents, or the carriers, in this case. That is up to them. We wait until the Hearing Counsel comes to us and says, well, we have to have a full-fledged hearing on this or we have made this settlement with the Commission, approve it. So I do not know for that reason.
Mrs. FOWLER. Thank you.
Mr. Oberstar, do you want to start or do you want to just go—I know you have several questions if, Mr. Chairman, if you do not mind waiting.
Mr. HATHAWAY. Not a bit.
Mrs. FOWLER. We will both rush over and vote and we will come right back. Since it is just the two of us, we can do it fairly quickly and we will come right back, because Mr. Oberstar does have some questions that he wants to ask.
So we will recess for the next 15 minutes and then we will be back.
[Recess.]
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Mrs. FOWLER. The subcommittee will come back to order.
Chairman Hathaway, we appreciate your staying.
And I will now turn it over to Mr. Oberstar for his questions.
Mr. OBERSTAR. Thank you, Madam Chairwoman.
Mr. Chairman, glad you are where you are, with a seasoned voice of experience and a real respect for the Commission and the responsibilities that are yours to carry out, and with the understanding that you have had from service in the Congress, as well as from your own State, of the significance of shipping in the American economic spectrum.
Mr. HATHAWAY. Thank you.
Mr. OBERSTAR. I appreciate your thoughtful comments borne of that experience. I would like to explore a few things with you.
We have heard earlier today both sides of the issue, that if deregulation or repeal of antitrust authority occurs, the American maritime fleet would expand, shippers will have their costs reduced, it will be a great boon to the American economy. And the other side of the coin is that if deregulation occurs, the American fleet will disappear, go overseas, we will lose jobs, and, ultimately, we will be at the mercy of foreign cartels.
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You tried to address that matter. Does the truth lie in between or more on one side than the other in that equation?
Mr. HATHAWAY. Congressman Oberstar, thank you for your complimentary remarks, and I have to tell you that I am 100 percent sure in my own mind that the latter will be the case; that it would be a disaster.
Mr. OBERSTAR. Second, we have had testimony today that alleges that other countries do not have—that engage in maritime commerce—do not own their fleets, with one exception of China, and we have heard that that may be divested, privatized. But there is certainly the matter of control. And I have been away from the subject for some time now, serving on Budget Committee and Foreign Affairs Committee, so I did not have enough time to prepare for this hearing or I would have those facts myself. But in the real world, there certainly is control, if not outright ownership, by foreign governments of their merchant fleets.
Would it not be useful for the United States to engage those governments in a process of privatization and relinquishing of government control; and what would become the benefit for us if we could do that?
Mr. HATHAWAY. Well, the benefit for us would be that they would not be able to charge excessively lower rates. Although under section 9 of the 1984 Act, the controlled carrier provision, we do have authority to make sure that those lines—and there are actually 37 of them, and not just China, although China is the most active—make sure that those lines charge reasonable rates so that they cannot lower their rates to capture our market.
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Of course, we would be much better off if they did not own their lines and they did privatize, then we would not have to watch over them all the time and they would be more competitive.
Mr. OBERSTAR. Does the Commission have a listing of countries that——
Mr. HATHAWAY. Yes.
Mr. OBERSTAR. That have significant control and ownership.
Mr. HATHAWAY. Yes, we do have a list of them.
Mr. OBERSTAR. Would you submit that for the hearing record?
Mr. HATHAWAY. Yes, I shall.
[Information may be found on page ———.]
Mr. OBERSTAR. We have heard also allegations about higher costs to domestic shippers. I have made note of the allegations by the various witnesses earlier today.
Does the Maritime Commission analyze and compare rates from U.S. common carriers and those of foreign carriers and how do they compare?
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Mr. HATHAWAY. We do analyze them very carefully, Mr. Chairman. I cannot tell you offhand how they compare. I would have to submit a rate study for the record.
[Information may be found on page ———.]
Mr. OBERSTAR. That would be very helpful.
Mr. HATHAWAY. Of course, many of them are conference rates, you understand.
Mr. OBERSTAR. Yes, where an American liner may be in the conference and that would be paying the same—charging the same rate as all the other conference members.
Mr. BATEMAN. Would the gentleman yield?
Mr. OBERSTAR. Yes, I yield to the gentleman from Virginia.
Mr. BATEMAN. Thank you, I just joined you. I think it would also be useful if you could give us some data on the trend line of rates over the past 10 years, or certainly since the last amendments to the Shipping Act in 1984, I think. I think that would be helpful.
Mr. HATHAWAY. I should be glad to, Congressman Bateman.
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There was some testimony that Sea-Land's rates have gone down from 1991 to 1994. But that is just one line. We would be glad to furnish the trend lines for all of them.
[Information may be found on page ———.]
Mr. BATEMAN. Let me say, if I might, how much I regret the fact I was not here for your testimony, Mrs. Bentley and others, but the nature of the schedule prevented it. But I am certainly intensely interested in the subject.
Mrs. FOWLER. We are pleased to have you join us, Mr. Bateman.
Mr. Baker, do you have any questions.
Mr. BAKER. Thank you, Madam Chairwoman.
There is a perception that the Federal Maritime Commission is influenced more by carriers than shippers. Could you comment on that?
Mr. HATHAWAY. I agree with you that there is that perception, but I do not think that it is correct. I think the perception probably dates back to the time when the Maritime Commission was joined with Maritime Administration, before 1962, and both the policy-making and the regulating commissions wrer together. And it was an unfortunate marriage, because the policymakers were awarding the subsidies to the carriers and then turning around and fining them for some infraction, didn't make too much sense because they were just taking back some of the money that they just gave them. And the impression was, and it was a distinct one, that the Commission was in favor more of the carriers. But I think since 1962 that has not been the case.
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I think, as I mentioned earlier in my testimony, a lot of shippers feel the law is more in favor of the carriers than in favor of the shippers and maybe they have an argument. They have come to us——
Mr. BAKER. The 1984 law.
Mr. HATHAWAY. The 1984 Act, yes. And we have told them to take their complaints to Congress, which I presume they have, but nothing has been done.
Mr. BAKER. I think maybe that is why we are sitting here. Competition is very important, and it is not just among the transportation industry or the shippers versus carriers, but among manufacturing, and they in international competition have a tough road also. Part of their costs are transportation costs. Do you have any idea what could be done to lower transportation costs?
Mr. HATHAWAY. What has been done?
Mr. BAKER. So that the United States could be more in the ball game in international trade.
Mr. HATHAWAY. Well, the trend lines that we will submit to you, I think, will indicate that rates have come down in the recent past, since the 1984 Act has been passed. That will give you a better picture, Congressman, of——
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Mr. BAKER. We have a dual role here, being politicians in America. We would like to keep American shipping, and the labor rates are a little out of whack, and there are other regulations, including Coast Guard regulations that may hinder carriers.
Can you think of anything positive we could do to bring their costs down? Any regulations we are imposing that we could repeal?
Mr. HATHAWAY. Well——
Mr. BAKER. You heard my argument, we are subsidizing through this cartel at the expense of manufacturers and shippers to the carriers, but only 20 percent of that subsidy is going to America.
Mr. HATHAWAY. Well, that might be true, but it is 20 percent of a fairly low cost. I do not think the cost of shipping for most items—I am talking about grain or something that is a very low cost item—is a very large percentage of the total cost of the goods. In some cases, less than 1 percent. So if you say 80 percent is really for the foreigners and only 20 percent for us, the Americans, there is not much difference.
Mr. BAKER. I am speaking of the disparity between real market costs of shipping and what the cartel sets that portion at, and then 80 percent goes to foreign carriers.
Mr. HATHAWAY. It is difficult to determine what the real market is, though. Maybe in Economics 101 you can say that the free enterprise system would bring about a lower rate. But when you look at the world the way it is, the chances of getting that kind of a utopia are fairly remote.
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I mentioned in my testimony that it would be difficult for them to have a comparison basis. What kind of model would they have?
The model would be that every nation in the world would drop its support of the so-called cartels or conferences and that you would have free, open competition with knowledge by all the participants in it. But that is an unreal world. We will not have that.
Mr. BAKER. I will give my observation after just one day of being an expert here. We are having our lunch eaten by China even though we have the cartels and there is always going to be a new kid on the block. In steel, it was Japan, then it became Korea and then Taiwan, and in the series we had to become more competitive. That is why I think we are going to make some changes.
I would like to hear your thoughts on how we can change to make our U.S. carriers more competitive. Because we cannot just sit here in a vacuum saying it is all swell, the antitrust is swell, the price-fixing is swell, we can repel all of this foreign invasion in shipping or in carriers. We cannot, and I think the Chinese are proving it.
Mr. HATHAWAY. I do not know whether that was a question or a statement, Congressman.
Mr. BAKER. With politicians, it is often hard to tell. If you care to answer, though, if you have any thoughts, I would be happy to receive them.
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Mr. HATHAWAY. Are you asking how we can make the American carriers more competitive with the others?
We could pass maritime reform legislation that would help them with their operating costs. That was a bill that was before Congress last year. It did not get anywhere and now I think it is before the Congress again this year.
Mr. BAKER. Your idea of reform is give them money; continue the fact that their wage rates are four times higher than the world market and give them a check from the U.S. Treasury. So we subsidize them from the shippers side and the taxpayers side.
Mr. HATHAWAY. We have to keep on the countries they are competing with. A lot of the countries have nowhere near the high-tax structures that we have here. That is one of their big costs, in addition to the wage cost. The wage cost is probably justified and they get a lot better workers on their ships than other countries do.
We have safety standards here that cost our carriers a lot more money than some of the foreign carriers but, yet, I do not think anyone will question the safety standards.
Mr. BAKER. My time is up, but I would be very interested in hearing about taxes on carriers that we could help lower. Very difficult for them to buy any equipment if we are stealing 50 percent of their income every time they make a dollar.
Mr. HATHAWAY. Right.
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[Information may be found on page ———.]
Mrs. FOWLER. Thank you, Mr. Baker. I will go back to Mr. Oberstar. He had a few more questions.
Mr. OBERSTAR. Thank you, Madam Chairwoman.
Bill, I earlier today proposed some changes in the existing structure of our maritime conference system, and I would like to have your reaction. We would maintain antitrust protection with exception for the service contracts and retain tariff filing with exception for the independent actions.
In the current practice, as you are well aware, any carrier can except itself, it has 10 days before that rate can go into effect and which other carriers can match the tariffs or coerce the renegade into coming back into compliance with the conference rate.
Without addressing manning requirements and safety requirements and financing and all the rest, just dealing with this issue, what is your initial reaction?
Mr. HATHAWAY. First, on the service contracts.
Mr. OBERSTAR. Service contracts, tariff filing, with some adjustment.
Mr. HATHAWAY. TACA's reduction in the number of days for independent action?
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Mr. OBERSTAR. Yes, or eliminate——
Mr. HATHAWAY. Yes, they already have reduced that. I think it is now 5 days. It may be less than that. And I would favor something like that. You want to have some notice provisions so that the other carriers or the conference can go along with the new rate that is being suggested by the carrier. So you do not want to cut it too short. I think a 3- to 5-day period probably would be long enough.
But I say that without knowledge of what the carriers or the conferences might say to that. They may have some other obstacles I have not thought of. But with respect to TACA, they are able to do that, so I suppose they can do it on a worldwide basis.
With respect to your suggestion regarding service contracts, I think some modification can be made with respect to service contracts. I think it is important that the Commission be able to look at the contracts and not have what they call confidential contracts, because who knows whether they are contracts or not if the Commission does not look at them. And sometimes it is just a way to dodge the tariff rate, is to have the confidential contract. We have had contracts come into us that were labeled as service contracts and turned out they were not contracts at all, because there was no real mutuality of obligation.
Mr. OBERSTAR. How long does it take to review those?
Mr. HATHAWAY. We have to see those. One of the items that——
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Mr. OBERSTAR. Let me stop you there. How long does it take your staff to review service contracts?
Mr. HATHAWAY. I would have to get back to you on that, Congressman. I do not know how long it takes. Depends on what the workload is, I suppose. But we do, in our tariff department, look at all the service contracts that come in and examine them very closely.
The time required to review an individual service contract and its corresponding statement of essential terms varies depending on length. Generally, it took one hour to review each of the 15,000 service contracts and amendments (and associated essential terms) received by the Commission in fiscal year 1994.
Mr. OBERSTAR. You should have a fairly short turnaround on time.
Mr. HATHAWAY. I think it is a fairly short turnaround, so they know right away whether the service contract is a valid one or not. And, of course, one provision in the law, the ''me too'' provision, I assume you would want to keep, so that the essential terms of the contract are publicized and anyone who is similarly situated can take advantage of that contract.
I think one thing we might do in that regard, is that just keep that notice open for the 30 days.
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So I think that answers your two questions.
Mr. OBERSTAR. Very good.
In the airline sector, you know the airlines are now required to, if they are going to change a rate, they have to do it overnight. They used to be able to have a long period of time to file, this rate will take effect 6 weeks from now or a month from now or 2 weeks from now, and when they change that rate now, it has to be done overnight. So it has really affected the way airlines do business. Our carriers are sure competing very favorably against foreign airlines.
I don't want to draw a parallel, because they are two vastly different modes of transportation, and I understand that.
Thank you very much for your remarks. We will maybe want to come back to you later and put this idea in writing and get your response.
Mr. HATHAWAY. Fine.
Thank you.
Mr. OBERSTAR. Thank you Madam Chair.
Mrs. FOWLER. Thank you.
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Mr. Bateman.
Mr. BATEMAN. Thank you, Madam Chairwoman.
Welcome, Mr. Chairman, and pleased to have you before the committee and, again, I thank you for letting me be an interloper at your proceedings.
Under the 1984 Act, something described as quote, ''independent action'' unquote, is permitted. Is that a provision that is often or frequently or just very seldom resorted to?
Mr. HATHAWAY. I think it is used quite often. We can also supply you some figures on that, Congressman Bateman. We are keeping track of it very carefully with respect to all of the trades and I know that we have data that could be made available to you.
Mr. BATEMAN. I raise the question, because in this context, independent action is an independent action to charge a lower tariff than the conference schedule or rate would otherwise dictate. I think if we are going to have a true dimension of what the problems are, we need to know how frequently that recourse has had to be used and to what extent that mitigates what might appear to have a higher than necessary conference rate.
We have heard throughout the time that I have been able to be at the hearing, references to what we are doing, basically, is to give benefit and comfort to 80 percent of the shippers who are foreign. I am interested in another aspect of that equation in the context of, would it be more than 80 percent foreign shippers involved but for the fact that we have given some advantages to the American ship operators through the shipping acts of 1984?
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Mr. HATHAWAY. Would there be more?
Mr. BATEMAN. Yes.
Mr. HATHAWAY. I presume there would be.
Mr. BATEMAN. There would be a greater incidence of carriage of our goods by foreign carriers if we did not have the Act of 1984?
Mr. HATHAWAY. That is correct. As the U.S.-based carriers testified today, without the level playing field that the 1984 Act provides they would be forced to move their operations overseas, or sell off their assets. That being the case, virtually all American goods would move foreign lines we did not have the 1984 Act.
Mr. BATEMAN. All right. If the Maritime Commission were to go away and the attendant loss of antitrust exemption and the authority to set rates through conferences, would you still have shipping lines who operated, in essence, as common carriers, who were obligated to carry anyone's freight without discrimination and not to turn them away and provide them the same service as they provided to anyone else?
Mr. HATHAWAY. No, you would not. That is maybe even a bigger evil than the fact that prices would fluctuate so much that no one would be guaranteed their goods would go. I am sure that the big shippers, the largest 25 in the country, they will make out under any system, but the vast majority of shippers, 90 percent of them, the small and the medium ones would have no guarantee whatsoever that their freight would be taken or carried.
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Mr. BATEMAN. So what you lose by being purest, in terms of antitrust law, by repealing this exemption, would probably lead to a greater amalgamation of economic power among large shipper interests at the potential, if not very realistic, disadvantage of smaller shippers?
Mr. HATHAWAY. Absolutely.
Mr. BATEMAN. Well, thank you, Mr. Chairman.
And Madam Chairman, thank you. I may have further questions I would like to submit for the record after I have had the opportunity to go over the testimony.
Mr. HATHAWAY. Fine. We will be glad to answer them.
Mrs. FOWLER. Thank you, Mr. Bateman. Thank you for joining us this afternoon.
I will go back now to Mr. Baker.
Mr. BAKER. Just a follow-up to Mr. Bateman's questions.
What percentage of the goods shipped from America are large manufacturing goods versus the less than carload folks that amalgamate their shipping? I heard a figure here that 60 percent were small shippers.
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Mr. HATHAWAY. Congressman, I would have to get back to you on that. I don't have the figures on the top of my head.
Mr. BAKER. The theory Mr. Bateman proposes will wipe out the small guy if we get rid of this antitrust exemption, but only a fool would ignore 60 percent of the market.
Mr. HATHAWAY. Well, the high-value goods are the ones that are going to move, if you have elimination of the 1984 Act. What that shakes down to percentage-wise, I cannot tell you offhand, but it does not take much to see that if you are not required to take the small shipper, or the low-cost items, and you could make out on the big ones, you will take the big ones. All of the lines will be able to take the cream, and you cannot blame them for that. But, now, under common carriage——
Mr. BAKER. Unless we are producing more cream, they cannot all take all cream. Somebody will have to take the less than cream.
Mr. HATHAWAY. A lot of those will be driven out in the first year you get rid of the antitrust exemption.
Mr. BAKER. You mentioned the cream versus the others. Earlier in testimony was mentioned the disparity that hits rate-making. For instance, you could have two items that are almost identical yet have wildly different prices. Shipping a case or crate, or whatever, of cashews, versus the same amount of almonds, with one of them being priced at 60 cents a pound and the other at 30 cents a pound; how do we excuse that?
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Mr. HATHAWAY. We should not, and I think that is something the Commission should look into more carefully. A lot of the carriers have too many different categories so that they can ship things or carry things—a blue shirt will cost more than the white shirt. And it should not.
I know that Crowley Lines has reduced its categories down to about 100 different categories. The late Senator Magnuson said they should reduce them to 12. I think probably somewhere in between they could reduce them, because there is always the argument a container is a container is a container.
But you have to take into consideration that some are low-cost items and you have to have a little differential on them. So that I think there should be some categories, and I think the Commission should examine very closely whether they are charging a different rate for what is essentially the same goods. You are correct.
Mr. BAKER. Earlier in the hearing, when you were not able to be with us, we kind of mentioned, I mentioned, that it would be nice if the carriers and the shippers got together and settled their differences. We had a 5-year study of ACCOS, where they basically restated their positions after 5 years, and did not come up with any conclusions. It has been 11 years since 1984. Now the government, which created this problem, is being asked to come in and fix it. I think those people who know the problem and know the answers, ought to fix it.
So I hope you will become part of the solution also with your expertise and not try to stonewall it, because it is going to come just like the Chinese competition is coming. There was an election in November, we are not going to be passing out subsidy checks. We are going to balance the budget and there is going to be competition. But we are struggling to protect or help American shipping. So I hope you will help us to find that fair, halfway line.
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But to say everything is fine, we are going to be able to go ahead and keep the antitrust exemption and the marketplace in the world will ignore us and we will stay strong, is just fiction.
I appreciate your testimony.
Mr. HATHAWAY. I pledge my own efforts and those of the Commission to working with this subcommittee and the full committee in an effort to find some middle ground.
Mr. BAKER. Great.
Mr. HATHAWAY. And, hopefully, we can very soon.
Mr. BAKER. Well, I appreciate your testimony.
Mr. HATHAWAY. Thank you.
Mrs. FOWLER. Thank you, Mr. Chairman.
Are there any further questions?
I want to welcome my Chairman, Mr. Coble here.
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Do any other Members of the subcommittee have any questions?
If not, I want to thank Chairman Hathaway for his valuable testimony and the Members for their questions.
The Members of the subcommittee might have some additional questions for the witnesses, so we will ask you, if so, to respond in writing. The hearing record will be held open for 2 weeks for these responses.
And if there is no further business before the subcommittee, the Chairman again thanks the Members of the subcommittee and our witnesses, and the committee stands adjourned.
Mr. HATHAWAY. Thank you very much, Madam Chairwoman.
[Whereupon, at 4:15 p.m., the subcommittee was adjourned.]
[Insert here.]
SHIPPING ACT OF 1984
(104–2)
HEARING
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BEFORE THE
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
FEBRUARY 2, 1995
Printed for the use of the
Committee on Transportation and Infrastructure
SHIPPING ACT OF 1984
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88–0012CC
1995
SHIPPING ACT OF 1984
(104–2)
HEARING
BEFORE THE
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
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FEBRUARY 2, 1995
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
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JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
BILL MARTINI, New Jersey
NORMAN Y. MINETA, California
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
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JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
JAMES A. HAYES, Louisiana
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
MIKE PARKER, Mississippi
GREG LAUGHLIN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA–ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
NATHAN DEAL, Georgia
JAMES A. BARCIA, Michigan
BOB FILNER, California
WALTER R. TUCKER III, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
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HOWARD COBLE, North Carolina, Chairman
TILLIE K. FOWLER, Florida, Vice Chairwoman
DON YOUNG, Arkansas
SUSAN MOLINARI, New York
VERNON J. EHLERS, Michigan
BUD SHUSTER, Pennsylvania
(Ex Officio)
JAMES A. TRAFICANT, Jr., Ohio
WALTER R. TUCKER III, California
BILL K. BREWSTER, Oklahoma
JAMES L. OBERSTAR, Minnesota
NORMAN Y. MINETA, California
(Ex Officio)
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CONTENTS
TESTIMONY
Bentley, Hon. Helen Delich, Former Chairwoman, Federal Maritime Commission
Bijvoets, V. L. (Paul), CEO, Nedlloyd Lines
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Clancey, John P., President and CEO, Sea–Land Service
Emmett, Edward M., President, National Industrial Transportation League
Granatelli, Robert W., Chairman, Alliance for Competitive Transportation and Himont, Resins Manufacturer and Exporter
Hathaway, Hon. William D., Chairman, Federal Maritime Commission
Hazzard, George W., Manager, International and Water Transportation, Monsanto Company, on behalf of the Chemical Manufacturers Association
Morley, Jil, President, Agriculture Ocean Transportation Coalition
O'Brien, James J., Director of Port Everglades, FL, on behalf of the American Association of Port Authorities
Powell, Peter, Sr., Chairman, Freight Forwarding Committee, National Customs Brokers & Forwarders Association of America
Quartel, Hon. D. Robert, Jr., Former Member, U.S. Federal Maritime Commission
Rhein, Timothy J., President and CEO, APL Land Transport Services
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Schilling, Don, Vice President, WESCO International Inc., on behalf of the Coalition of Supporters of the Shipping Act
Unsworth, Paul, Executive Vice President, Unsworth Transportation International, Inc., and President, American International Freight Association
Verdon, William P., Vice President and General Counsel, Crowley Maritime Corp
Wigen, Roger W., Manager, Transportation Policy and Industry Affairs, Minnesota Mining and Manufacturing Company
Zack-Olson, Laurie, Executive Director, International Association of NVOCCs
PREPARED STATEMENT SUBMITTED BY MEMBER OF CONGRESS
Traficant, Hon. James M., of Ohio
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Bentley, Hon. Helen Delich
Bijvoets, V. L. (Paul)
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Clancey, John P
Emmett, Edward M
Granatelli, Robert W
Hathaway, Hon. William D
Hazzard, George W
Morley, Jil
O'Brien, James J
Powell, Peter, Sr
Quartel, Hon. D. Robert, Jr
Rhein, Timothy J
Schilling, Don
Unsworth, Paul
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Verdon, William P
Wigen, Roger W
Zack-Olson, Laurie
SUBMISSIONS FOR THE RECORD
Bentley, Hon. Helen, Former Chairwoman, Federal Maritime Commission:
Letter to Rep. Coble from Tom Campbell, Professor of Law and California State Senator, January 27, 1995
Response to Rep. Oberstar's proposals concerning the Shipping Act of 1984
Clancey, John P. President and CEO, Sea-Land Service, chart, Sea-Land Transpacific Service Route Comparison 1984-1994
Emmett, Edward M., President, National Industrial Transportation League:
Responses to post hearing questions from Mr. Traficant
National Performance Review: Draft Recommendations
Letter to Hon. Al Gore, Vice President of the United States, August 13, 1993
Wall Street Journal, ''Al Gore's Right Track'', August 16, 1993
A U.S. Policy for Modern Ocean Transportation, report
Draft legislation submitted by Mr. Emmett, ''Shipping Deregulation Act of 1995:
Summary
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Bill
Section by section analysis
Section by section comparison of the Shipping Act of 1984 and the ''Shipping Deregulation Act of 1995
Granatelli, Robert W., Chairman, Alliance for Competitive Transportation and Himont, Resins Manufacturer and Exporter, responses to post hearing questions questions from Rep. Traficant
Hathaway, Hon. William D., Chairman, Federal Maritime Coalition, responses to questions regarding:
Work force in tariff filing
Controlled carriers, list, statement and charts
Liner freight rates: 1976–1994
Taxes affecting U.S.-flag lines in the foreign and domestic trades
Statistics on cargo exported by small and medium size U.S. shippers
Independent actions, statement and chart
Hazzard, George W., Manager, International and Water Transportation, Monsanto
Company, on behalf of the Chemical Manufacturers Association:
Position of the Chemical Manufacturers Association on amendment to the Shipping Act of 1984
Responses to post hearing questions from Rep. Traficant
Morley, Jil, President, Agriculture Ocean Transportation Coalition, responses to post hearing questions from Rep. Traficant
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O'Brien, James J., Director, Port Everglades, FL, on behalf of the American Association of Port Authorities, letter to Rep. Oberstar, February 24, 1995
Rhein, Timothy J., President and CEO, APL Land Transport Services:
Testimonials from Shippers
Analysis of Rates, statement and charts
Response to Rep. Oberstar's proposals concerning the Shipping Act of 1984
Quartel, Hon. D. Robert, Jr., Former Member, U.S. Federal Maritime Commission:
Responses to post hearing questions from Rep. Traficant
''Here's How to Save the Fleet'', editorial, Journal of Commerce, November 17, 1994
''America's Welfare Queen Fleet'', article, CATO Review of Business and Government, Summer 1991
''Al Gore's Battle of the Bizarre'', article, Newsweek, September 27, 1993
Schilling, Don, Vice President, Wesco International, Inc., on behalf of the Coalition of Supporters of the Shipping Act, responses to post hearing questions from Mr. Traficant
Unsworth, Paul, Executive Vice President, Unsworth Transportation International, Inc., and President, American International Freight Association:
Statement of Chairman Koch on NVOCC tariff filing
''Koch's Parting Advice'', article, American Shipper, 1993
''Decontrol of Small Forwarders Dead in the Water at FMC'', article, Journal of Commerce, August 19, 1992
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A Profile of United States Exporters: Initial Findings from the Exporter Data Base, report by U.S. Department of Commerce, September 1993
Wigen, Roger W., Manager, Transportation Policy and Industry Affairs, Minnesota Mining and Manufacturing Company, responses to post hearing questions from Rep. Traficant
ADDITIONS TO THE RECORD
Baldwin, Charles S. III, Manager, Import/Export Services, R.J. Reynolds Tobacco Co., letter to Rep. Coble, January 30, 1995
Booz, Allen & Hamilton, Inc., Transportation Consulting Division, Bethesda, MD, study, ''A Review of the Section 18 Study of the 1984 Shipping Act'', May 29, 1991*
Capito, C. Howard, Vice President, NationsBank, letter, January 27, 1995
National Customs Brokers & Forwarders Association of America, Inc., statement
National Industrial Transportation League, Petition for Investigation and Relief from the Anticompetitive Activitives of the Trans-Atlantic Agreement
Ocean Common Carrier Coalition (OCCC), statement
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Patti, C. James, President, Maritime Institute for Reseach and Industrial Develpoment (MIRAID), letter, February 2, 1995
Schilz, Edward J., President, Beverage Importers Freight Association, and Co-Chairman, Coalition of Supporters of the Shipping Act, statement
Shelly, Van, on behalf of the Jones Act Repeal Coalition, statement
*Retained in subcommittee file
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