FMC commissioner addresses changing container-shipping landscape and ongoing investigations.
The U.S. Federal Maritime Commission’s purpose is clear: “Ensure a competitive and reliable international ocean transportation supply system that supports the U.S. economy and protects the public from unfair and deceptive practices.” Commissioner Rebecca Dye, one of the agency’s longest-serving commissioners, is an ardent advocate of protecting the competitiveness of American shippers, albeit with a limited regulatory hand. She believes the commission should intervene in ocean shipping industry matters only after free-market forces fail to deliver corrective measures. Dye recently sat down with the Adam Smith Project to discuss the FMC’s metamorphosis as a regulatory agency, the impacts of a changing container-shipping landscape, latest investigations and goals for the remainder of her term as commissioner.
Q: The container-shipping industry has long had a love/hate relationship with the FMC. How do you think that dynamic has changed over the years? Is it the result of changes within the industry or the FMC itself? Who comes to the FMC most often these days with complaints and concerns?
A: I don’t know if any stakeholder ever actually has a love relationship with a law enforcement agency, and we are primarily a competition law enforcement agency.
The freight-delivery system in this country is too important to our American economy and the competitiveness of the nation not to have an agency like the FMC that sees itself as making sure that system works to the benefit of the American consumer.
The commission in the past focused mostly on ocean carriers. But over time that’s changed, and it’s changed because our dynamic industry has changed. Now we focus as much on carrier alliances as we do on competition among ports, among port terminals, as well as carriers. We have these interesting new port alliances, like Seattle/Tacoma, Georgia/Virginia, that are doing exciting things.
Of course now, most recently shippers and truckers have engaged the Federal Maritime Commission. Examples like the recent VGM (verified gross mass) resolution [for container weights], where the exporters came to us and asked us to become involved, and we, in turn, engaged the Coast Guard and worked together with them for a resolution on that issue.
The truckers originally came to the FMC and prevailed on us to become involved in port congestion. Of course, the [Supply Chain Innovation] Teams were a new level of FMC engagement on port congestion.
Finally, Fact Finding 28, from the Coalition for Fair Port Practices petition, is my latest endeavor. So I think that’s a good assessment of the range of entities who have engaged the FMC and our responses. I hope that our regulated industry appreciates the openness of the commission, the expertise of our staff [and] the ability to go to a regulatory law enforcement agency, where they can have confidence that their business realities will be understood by individuals who have a level of sophistication about their businesses.
Q: At the start of the Trump presidency, an executive order was issued to eliminate two outdated regulations for every new regulation generated. The FMC responded with its plan for regulatory reform of existing FMC rules. What does the FMC hope to accomplish with this plan in 2018, and in your view, what aspects of the FMC’s operations can be further modernized?
A: During my career, my brand has been hard deregulation. In 1995, I joined the Subcommittee on Coast Guard and Maritime Transportation in the House of Representatives, as staff direct at counsel. I handled many significant pieces of Coast Guard legislation and maritime legislation but most relevant to these was the Ocean Shipping Reform Act (OSRA) of 1998.
A lot of people don’t realize that there is a backstory there. I worked very closely with the Department of Justice to develop an approach to that legislation that would increase competition in ocean shipping. The bottom line was to enact individual, confidential service contracts, and it worked. As we all know, the conferences were disbanded very quickly and pricing competition increased.
I’m confident that the commission will take the next steps to continue significant deregulation. One of the most important parts of OSRA was a liberalization of the commission’s exemption authority. And I know that working with my colleagues at the FMC, we’re going to be able to move forward, under President Trump’s executive order, and the [Regulatory Reform] Task Force that the commission has organized to move toward significant pieces of deregulation.
Q: You’re a proponent of improving efficiency within container shipping, with as minimal regulation as possible. I think this was best reflected in the results of your report based on the work last year, of the supply chain innovation teams. What is the status of those recommendations, especially the call to develop a national port information system? Will you be holding additional round tables throughout the country?
A: This is my personal favorite. I had ideas built around the small team process. Not to simply sit around the table, informal settings and allow different individuals to discuss talking points, but to lead a team made up of industry leaders who would directly engage toward a goal.
I had hoped that I would get one team. We got three and decided to stop there and get them working. I was delighted by their efforts. … And as you know, each of the teams agreed that the biggest bang for the buck would be to increase supply chain visibility among all the major actors in the system.
I applaud the L.A., now the L.A.-Long Beach GE System as they are endeavoring to roll out their pilot system, I believe starting in July and then later on in Long Beach. I know they’re talking to others around the country and we’re watching that with interest. Of course, the Federal Maritime Commission has no particular identification with any ports or any company, but we are very interested in the success of this project and the changes that it could make for the system.
I talked to a group of truckers [April 30] and I said, “Think about it this way. Right now we are flying blind. It’s worse than that. We are blindly colliding into each other. But if we can find a way that everybody knows what he needs to know when he needs to know it, that will end, and we can have an American freight delivery system that will be a competitive asset for the United States.”
And so, that’s why I’m thrilled about their project, and we wish them all the best.
Q: How do you view the consolidation in container shipping and the general industry worries of reduced competition and apparent service deterioration?
A: As we know, the market for liner shipping services has changed substantially in the past several years. We have the alliances consolidated from four to three, midsized lines merged or were acquired by larger lines, and we had one major line succumb to a traumatic bankruptcy. Now we have the seven major lines among the three alliances and also Yang Ming and Hyundai Merchant Marine.
Since the FMC is first and foremost a competition agency, our view of alliances focuses on the distinction between consolidation, that is, operational cooperation among lines that continue to price and market separately versus industry concentration. Concentration is what causes a competition official to stay up at night because that involves the actual elimination of rival sellers by merger or bankruptcy.
Now, alliance members, under their FMC-filed agreements, remain price competitors, and so we continue to monitor their cooperative behavior by requiring detailed reporting and annual meeting updates. We have four approaches that we use. Most of them are very similar to our Department of Justice merger guidelines, so all of our folks who are competition officials speak the same language as the guys from the Department of Justice. When they call us, their first question is always, “What’s the market? And what are the numbers? Is it concentrated?”
Concerns have been raised about the alliances of course, about the possible impact on the reduction on pricing, customer service, terminal operations and the relationship between the alliances and the TSA (Transpacific Stabilization Agreement). We are all watching and encouraging the alliances to get the bugs out and improve customer service and their other terminal operational challenges.
Now, as you know, the TSA ended its 29-year history on Feb. 8 and declared that its mission was no longer viable. That event eliminated the previous concerns about the overlapping membership with alliances. As things stand today from a competition perspective, the formation of the three alliances has not increased market concentration. Competition among member lines remains strong because the individual members continue to market and price separately. We also know that alliance members continue to add and withdraw vessels through trades both inside and outside their alliances, and showing that competition remains in vessel capacity decisions as well as on pricing.
Q: The concerns from shippers and intermediaries about the assessment of unfair to demurrage and detention charges as a result of situations out of their control, as we know, bubbled into a significant investigation for the FMC that started this year. In your view, how important is it for the FMC to find a balanced and fair resolution to this matter?
A: First of all, we are working on gathering huge amounts of information from the carriers and terminals from the major container ports around the country. We’ve cast our net a little more widely because if the commission decides to act in this area, we want to make sure that we have a broad input of information because anything that we would do would affect every carrier and every port in the country.
We’re doing a real deep dive into port operations with this endeavor. I see it as really a continuation of the supply chain innovation team’s goals. As I said at the [FMC’s] hearing, anything that we do should be a process enhancement that would strengthen the international freight delivery system in the country, while at the same time make sure that there is still a strong incentive to move cargo. And so I am encouraging shippers as well as our carriers to fully participate in the project.
We want volume as well as quality of participation and I even had some little cards made up [to hand out at the National Customs Brokers and Forwarders Association of America conference May 2].
Because we need to understand the extent of this problem as well as the intricacies, I have taken this on with a great sense of humility. Nobody knows everything. … [However,] within the federal government, I am convinced that we have the greatest understanding of the businesses involved in the freight delivery system. Regardless, we are going to be careful and considered and make sure that everyone is consulted, including our carriers and our terminals.
Q: The FMC has routine contact with other countries’ maritime industry regulators, and you recently were in China. Beyond exchanging information about current regulatory practices and industry issues, what value do these relationships bring to the agency and the U.S. container-shipping industry at large?
A: Shipping is an inherently international business and I always appreciate the opportunity, certainly appreciated the opportunity to be in China as part of the American delegation.
Although there is standardization operationally around the world, there are several key regulatory regimes, and of course we have most regular contact with those regimes. But we are an American law enforcement agency, and we regulate our stakeholders according to those rules and regulations. We don’t have the ability to get outside those authorities.
Q: You have served as a commissioner since 2002 and now across three administrations. No doubt, you are one of the longest-serving commissioners in the FMC’s 57-year history. What are your goals at the agency for the remainder of your current term, which expires June 30, 2020?
A: Of course, the first [goal] is to complete the merge and detention investigation. I’ve committed to an ambitious schedule, an interim report in September and file report in December. I’m also dedicated to completing the regulatory reforms, final rules in NSAs and NRAs (NVOCC Service Agreements and Negotiated Rate Agreements). We have some very important carrier and MTO (marine terminal operator) agreement rules. We’re looking at the PierPass 2.0 agreement, for example.
Longer-term goals, of course, deregulate where possible and where it will make a difference. On Capitol Hill, I was the person you called if you needed to make a change, and I have continued that in the commission. Of course, the law enforcement role is much different from the legislative role because you are bound by your statutory authority. But I think that if I could continue to distinguish the Federal Maritime Commission as the preeminent competition agency for ocean transportation and the preeminent expert on the freight delivery system, I will be gratified.
I’m interested in encouraging the next generation of experts, the real talent, our leadership team at the Federal Maritime Commission, our economists, our chief of staff, our general counsel, our managing director, my counsel, I could go on and on, and they’re great and they’re getting better.
No one else in the United States government can do the work the commission does. In all candor, no other agency is as interested or as well-positioned to understand our supply chain, our freight delivery system and its viability as a competitive asset for the United States.
