1 May 2002
Source:
http://usinfo.state.gov/cgi-bin/washfile/display.pl?p=/products/washfile/latest&f=02043003.elt&t=/products/washfile/newsitem.shtml
US Department of State
International Information Programs
Washington File
_________________________________
30 April 2002
(Initiative would identify high-risk containers) (4080)
The Federal Maritime Commission (FMC) is working on a container
security initiative proposed by the U.S. Commissioner of Customs to
help make America more secure from terrorists, according to FMC
Chairman Harold J. Creel.
According to Creel, the initiative would pre-screen containers before
shipment, identify high-risk containers, use technology to pre-screen
high-risk containers, and require the use of "smart and secure"
containers.
In an April 25 speech at the Second International Gwangyang Port Forum
in Gwangyang, Korea, Creel called for a "new international security
standard for sea containers," noting a case in which a suspected
al-Qaeda terrorist used a container to get from one country to
another.
Citing remarks by the U.S. Commissioner of Customs, Creel said
enhanced security begins with the "mega-ports" of the world -- such
trading centers as Hong Kong, Singapore, Rotterdam, Bremerhaven,
Tokyo, Genoa, and Pusan in South Korea -- and urged the creation of a
system or database that would ensure that cargo is secure from its
point of origin to its final delivery destination.
An important part of such a system, he said, would be the ability to
have complete information about vessels and their cargo "long before
they enter port."
Creel told forum attendees that a key part of the U.S. effort to
secure its ports from the threat of international terrorists would be
"the accurate and timely flow of information."
Creel called for rapidly transferring manifest information by carriers
to ports of entry in advance of a vessel's arrival, rather than
constricting the flow of goods into the country.
With such quick information-sharing, Creel said, risks can be quickly
identified and targeted without delaying transit of containers posing
little or no risk.
Increased transparency from the filling of a container with cargo,
through the loading of that container on a ship, to the offloading of
that container "is the best way to go about keeping our ports open,
efficient, and secure," Creel said.
If such efforts are to be successful, he added, the United States will
need to rely on "the support and cooperation" of foreign governments
and ocean carriers.
Creel said Congress "is now taking steps to turn these initiatives
into funded mandates" and noted that Congress has already made
available more than $93 million in grant funding to ports for
improving security.
The Senate has also passed port security legislation that would
provide additional resources for the Coast Guard, Customs and the
Maritime Administration, he said.
"That legislation would also create a Port Security Task Force, and
require that new regulations be developed to protect the public from
maritime threats, Creel said, noting that the proposed legislation
would also provide funding for maritime security training.
"Similar legislation has been introduced in the House of
Representatives, but not yet passed, that would require the Coast
Guard to conduct port vulnerability assessments for U.S. ports and to
approve vessel and facility antiterrorism plans," Creel said.
The House bill would also direct the Coast Guard to establish
antiterrorism teams to protect vessels, ports, facilities, and cargo,
and call upon the Coast Guard "to assess antiterrorism measures at
foreign ports from which vessels depart to the United States," Creel
said. Creel noted that the proposed legislation would give the Coast
Guard "the authority to deny entry or prescribe conditions of entry
for vessels coming from any foreign port that does not maintain
effective security measures."
Under the proposed House bill, Creel went on, "(c)argo identification
and screening systems would be developed. Carriers would be required
to provide passenger and crew manifest information for incoming
vessels. And all vessels would be required to provide 96 hours notice
prior to entering the 12 mile territorial sea of the United States."
The FMC Chairman cautioned, however, that the proposed legislation has
not yet become law.
Creel said the FMC intends "to assist in the homeland defense effort
by coordinating information we collect with information held by other
agencies on suspect individuals and entities. Hopefully, the end
product will be a database that is effective in screening any cargo
that presents a threat to our security."
The FMC has been involved "from the beginning, helping the agencies
with primary responsibility for maritime security to develop this new
security framework," he said.
Creel added that the FMC is prepared to use all of its existing
authorities "to address this serious threat and to take on any new
responsibilities" with which it may be tasked.
Following is the text of Creel's remarks, as prepared for delivery:
(begin text)
Remarks of Harold J. Creel
Chairman, Federal Maritime Commission
The 2nd International Gwangyang Port Forum
Gwangyang, Korea
April 25, 2002
Thank you for the kind introduction and thank you for inviting me to
participate in this forum here in the lively port city of Gwangyang
this year. My topic today is the state of the U.S. shipping industry
and the role of my agency, the Federal Maritime Commission (which I
will refer to as the FMC or the Commission). Needless to say, the past
few months have brought grave concerns and great change to both
industry and policy makers in the United States. However, to give you
the complete picture of the U.S. industry, let me take you back a few
years.
In 1998, the United States Congress passed legislation which
drastically amended our shipping laws. The result was a market-driven
liner shipping industry. (The Ocean Shipping Reform Act of 1998, or
"OSRA".) After years of effort, Congress was able to reach a
compromise between those who wanted minimal or no legislative reform,
and those seeking more or even complete deregulation. The legislation
went into effect in May of 1999.
OSRA brought about major changes and innovations to the U.S.
regulatory scheme. The most significant changes were in the areas of
service contracting, tariffs and group carrier activity. For example,
service contracts between shippers and carriers may be kept completely
confidential between the shipper and the carrier. Moreover, only a
limited amount of the essential terms need be published. There was
also the complete elimination of the "me-too" provision, the
requirement that mandated conferences and carriers to make the same
essential terms available to similarly situated shippers. While
service contracts still must be filed with the FMC confidentially,
important rate information remains private between the contracting
parties. Note that confidentiality is not required: if the parties
want to reveal rate information about their contracts, they are free
to do so, subject to whatever limits and understandings they agree on
together. This was clearly a deregulatory step, but not a total
elimination of all contract filing and adherence requirements as some
would have liked.
The elimination of the requirement that tariffs be filed with the FMC
was another innovation created by OSRA. While common carrier tariffs
are still required to be maintained, they can merely be published on a
website, and there are few substantive requirements as to format and
content. OSRA does mandate that tariffs be published accurately and in
a way that makes them easily accessible, and to this end, the
Commission monitors websites to ensure equitable, uniform compliance.
This too was a compromise, between those seeking continued
transparency and oversight, and those seeking complete elimination of
tariffs.
In the areas of group carrier activity, yet another compromise between
two opposing views was reached. Antitrust immunity for collective
activity, including pricing, remains but the scope of this immunity
has become more limited. The most significant change is that
conferences and agreements can no longer dictate service contract
terms or prohibit their members from offering service contracts.
Individual carriers have the right to negotiate and enter into
contracts with shippers or groups of shippers, regardless of whether
the carrier belongs to an agreement. However, Congress also allowed
carrier agreements to establish "voluntary guidelines" on service
contract matters. Unlike pre-OSRA conference rules which were
enforceable against carriers, now a carrier may choose whether it
wants to follow the guidelines.
It has now been almost three years since the implementation of OSRA --
enough time for the shipping public to adjust to the new regulatory
environment and for our agency to assess the legislation's overall
impact. In fact, last fall, the Commission released a report to
Congress and the public that detailed just how OSRA is doing. In
compiling the report, all segments of the industry participated-
shippers, carriers, intermediaries, labor and all other interested
parties- offering their views on how OSRA has affected their
operations. I am pleased to report that the general response has been
quite positive.
In service contracting, the number of service contracts and amendments
filed with the FMC has increased by 200% since May 1999. Statistics
from some of the major trade lanes show that shippers now are moving
approximately 98% of their cargo under service contracts. According to
members of the shipping industry surveyed, this increase was due
mainly to the change from conference control of service contracting to
more flexible individual service contracts. The industry also reports
that increased confidentiality has enabled shippers and carriers to
focus their attention on internal cost factors, individual service
requirements and achieving business objectives in contracts rather
than on matching the terms of competitors or meeting the market rate.
The post-OSRA trade environment has resulted in a stronger focus on
market evaluation. Carriers commented that contract accounts and rate
bids from shippers constitute their main sources of market
information. It appears that service contracting is now overwhelmingly
the primary method of rate setting.
With all of this talk of service contracting, one would think that the
days of the tariff are over. The tariff is not completely dead,
however. Tariffs are used not only to publish freight rate
information, but also to link ocean carriers' service contracts to
basic terms and conditions that are provided for in tariffs -- such as
surcharges and accessorial charges. This new use of tariffs spares
carriers the necessity of repeating common service contract provisions
in each new contract. While carriers are satisfied with the tariff
publication requirements, non-vessel operating-common carriers or
"NVOCCs" are not so enthusiastic. Their general sentiment is that they
are disadvantaged by the tariff publishing requirement and service
contracting because while vessel operating common carriers ("VOCCs")
are permitted to offer individual service contracts to shippers,
NVOCCs are not. Also, because most of the active VOCC rates are
contained in confidential service contracts rather than in tariffs,
they are not able to review them. In addition, VOCCs, unlike NVOCCs,
have access to specific commercial information through their
discussion groups and other types of agreements. In order to be put on
equal-footing with the VOCCs, they want the tariff requirement to be
completely abolished and to have the right to offer service contracts.
In the area of carrier activity, the increase in individual service
contracting has no doubt altered the industry's structure. It appears
that the high demand for individual contracts has led to the
termination of major conference agreements in the transpacific and
South America trades. Carriers have reformed their collective
associations under discussion agreements with the voluntary rate
authority and service provisions that I mentioned earlier. The FMC
received a mixed bag of reactions from the industry regarding this
topic. In the area of discussion agreements, carriers stressed their
importance because of the benefits they bring about a more stable
environment for shippers, and for carriers, security to make
additional financial investments. On the other hand, shippers
expressed concerns that the anti-competitive effects of discussion
agreements should be closely scrutinized by the Commission. They claim
that the voluntary service contract guidelines are not so voluntary,
and in reality, these guidelines are used by carriers to increase
freight rates. Shippers also contend that discussion agreements run
contrary to the market-driven objectives of OSRA. To balance industry
concerns regarding antitrust immunity abuse, the FMC thoroughly
reviews all agreements, particularly discussion agreements.
It is important to remember that OSRA is still in its infancy. OSRA's
impact on liner shipping will continue to take shape over the next few
years. And as it does, and as the US ocean shipping industry further
acclimates to the new trade environment, OSRA's impact will be easier
to ascertain. It is true that issues of concern remain that require
ongoing FMC assessment, but we are confident that these issues will be
ironed out with time. After three years of operating under this
statute, the general consensus appears to be that OSRA is achieving
its objectives.
I would like to turn, for a moment, to another important statutory
authority of the Federal Maritime Commission. One of the Commission's
unique authorities is contained in Section 19 of the Merchant Marine
Act of 1920. If the laws or regulations of a foreign country create
conditions unfavorable to shipping in the U.S. foreign trade for any
carrier in that trade -- not just U.S. carriers -- then the FMC may
take action against vessels of the offending country. I would like to
emphasize that there can be no preference shown for U.S. carriers over
non-U.S. carriers. So, for example, if Hanjin were to encounter
problems in shipping between China and the U.S. because of
restrictions placed on them by Chinese laws, then Hanjin may come to
the Commission and seek help in addressing those restrictions that
create unfavorable shipping conditions. The object of the law is to
keep trade to and from the United States free and open.
The Commission's sanction authority is very broad and may include
limiting sailings or types of cargo carried, suspension of tariffs or
service contracts, the imposition of fees or any other measure
necessary. This is a very powerful authority in that it is solely
within the FMC's discretion whether such action should be taken --
approval by the President is not necessary. However, the Commission
may consult with other Government agencies. In carrying out these
duties, the FMC has instituted two proceedings here in Asia in recent
years with which I am sure you must be familiar.
In 1996, the Commission issued an order which required that reports be
filed by Japanese and U.S. carriers on restrictive port practices in
Japan. We were concerned at that time particularly with a system under
which even the simplest carrier operation activities required
negotiation and pre-approval of the Japan Harbor Transportation
Association. The Commission found that this system suppressed
competition and resulted in unreasonably high costs and
inefficiencies. In September of 1997, after attempts at diplomatic
resolution, the Commission took retaliatory action and imposed
sanctions on Japanese liner operators of $100,000 per voyage. When
Japanese carriers refused to pay, the Commission announced its intent
to bar or detain Japanese vessels at U.S. ports. Extensive bilateral
negotiations followed, and Japan soon made a far-reaching commitment
to reform Japanese port practices. The FMC continues to monitor port
practices and regulations in Japan, and recently ordered carriers to
report on the effects of changes to Japanese law and regulations which
went into effect in November 2000.
In August of 1998, the Commission issued demands for information to
vessel-operating carriers of the U.S. and China for information on
Chinese policies and practices regarding port access, the licensing of
multimodal transport operations, and the establishment of
representative and branch offices there. Responses to the FMC
inquiries indicated that Chinese laws and regulations discriminate
against and disadvantage U.S. carriers and other non-Chinese shipping
lines with regard to a variety of maritime-related services. For
example, non-Chinese carriers are barred from opening wholly-owned
companies or branch offices in the PRC in locations where carriers'
vessels do not make monthly calls; thus, non-Chinese carriers must
rely on Chinese agents (who are affiliates of the state-owned Chinese
shipping lines) to solicit business, book space, accept goods, and
perform other functions in many port cities and inland locales.
Non-Chinese carriers also are subject to high minimum capital
requirements, and are barred by Chinese law from performing a number
of vessel agency services for themselves, such as arranging for entry,
departure, customs clearance, consignment, transshipment and
multimodal transport.
The Commission also expressed concerns at that time about: Chinese
restrictions on non-Chinese carriers' freight forwarding operations;
requirements that ocean carriers obtain governmental permission before
beginning or changing international vessel services; and proposed
rules that could require the disclosure of confidential service
contract rates or terms, and further restrict non-Chinese carriers'
ability to offer multimodal transport services in China.
To address these restrictions, the FMC directed its staff to prepare a
formal proposal for action under section 19 of the Merchant Marine Act
of 1920. As I discussed earlier, the Commission has the authority to
take actions including: limitations on sailings; suspension of
tariffs; suspension of regulated agreements; imposition of fees not to
exceed $1,100,000 per voyage, or any other measure necessary and
appropriate to address the unfavorable conditions.
The Commission continues to supplement the record in this proceeding
as the Chinese market and Chinese laws continue to evolve. The
Commission has recently learned that the PRC issued a new law
effective January 1, 2002, and is expected very soon to promulgate
implementing regulations for operators in international shipping
generally. The new law and regulations may significantly affect the
Commission's review of potentially restrictive practices. It appears
that U.S. ocean transportation intermediaries, or OTIs, carriers and
other providers of transportation services may face serious
restrictions in obtaining the necessary licenses and permissions to do
business in China. Indeed, it appears that wholly foreign-owned NVOCCs
continue to be completely barred from engaging in a number of
commercial activities, such as offering through transportation as an
NVOCC. Other types of services may be permitted, but only if a foreign
firm enters a joint venture with a Chinese entity.
A U.S. delegation met with the Chinese Authorities at the end of March
and we now have indications that the new law may not be as troublesome
as it seems upon its face. However, we will continue to monitor
closely the Chinese implementation of this new law. We have sent
requests for information to carriers and OTIs operating in the
U.S./China trade asking them about the effect of the new regulation on
their operations. And we are dedicated to ensuring that U.S. and other
non-Chinese carriers are not subject to discrimination in China.
The slowdown in the U.S. economy and fluctuations in the global
economy since the terrorist attacks of September 11th have had a
significant impact on the shipping world, as well as the Federal
Maritime Commission's fiscal year. As most of you already know, the
weak conditions present in many trades before 9/11 were made worse by
the events of that day. Reduced U.S. consumer spending on imports has
had far-reaching consequences for carriers. Particularly, carriers in
the transatlantic and transpacific trades are facing a situation in
which there is excess vessel capacity combined with depressed and
decreasing freight rates. Industry analysts predict further carrier
consolidation resulting from another round of mergers, acquisitions
and possible bankruptcies.
The events of September 11th also quickly catapulted the issue of
maritime security to the forefront. President Bush acted quickly to
establish the Office of Homeland Security to address the domestic
security issues. That Office, the U.S. Coast Guard, and the U.S.
Customs Service acted quickly as well to build a coalition of federal
agencies responsible for maritime transportation to develop a new
framework for security. The goal from the beginning has been to find a
way to secure our country's ports and waterways without halting the
flow of commerce. While much of the effort has, obviously, focused on
the shipments entering the U.S., the United States is also working to
ensure the safety of shipments initiated in our country.
Scenarios abound for how a shipping container might be used in a
terrorist attack. In one instance, for example, a suspected Al Qaeda
member actually used a container as a passenger vessel. We can assume
that terrorists have used containers to transport arms and other
supplies. We can only imagine what would happen if a container was
used to transport weapons of mass destruction. But, what is clear, is
that commerce by sea would be gravely impaired if such weapons entered
the U.S. in a container.
The U.S. Commissioner of Customs has proposed a container security
initiative which would pre-screen containers before shipment, identify
high-risk containers, use technology to pre-screen high-risk
containers, and require the use of "smart and secure" containers. He
proposes concentrating first on the "mega-ports" of the world,
including Hong Kong, Singapore, Rotterdam, Bremerhaven, Tokyo, Genoa,
and yes, Pusan, to begin to build, in his words, "a new international
security standard for sea containers." His concept is to push the
border outward to ensure that cargo is secure from the point of
origin, and to have complete information about incoming vessels long
before they enter port.
Crucial to the United States effort to secure our ports, will be the
accurate and timely flow of information. Instead of clamping shut our
borders, the fast transfer of manifest information by carriers to the
port of entry in advance of the arrival of a vessel will mean that
risks can be quickly identified and targeted without delaying transit
of containers which pose little or no risk. I firmly believe that
increased transparency from the point of stuffing to the point of
loading to the point of offloading is the best way to go about keeping
our ports open, efficient, and secure.
Needless to say, if our efforts are to be successful, the United
States will need to rely on the support and cooperation of foreign
governments and ocean carriers.
The United States Congress is now taking steps to turn these
initiatives into funded mandates. First, Congress has made available
over $93 million in grant funding to ports for improving security.
Second, the U.S. Senate passed port security legislation in December
that would provide additional resources for the Coast Guard, Customs
and the Maritime Administration. That legislation would also create a
Port Security Task Force, and require that new regulations be
developed to protect the public from maritime threats. It would also
provide funding for maritime security training.
Similar legislation has been introduced in the House of
Representatives, but not yet passed, that would require the Coast
Guard to conduct port vulnerability assessments for U.S. ports and to
approve vessel and facility antiterrorism plans. The House legislation
would require the Coast Guard to establish antiterrorism teams to
protect vessels, ports, facilities, and cargo. In addition, it calls
for the Coast Guard to assess antiterrorism measures at foreign ports
from which vessels depart to the United States. The Coast Guard would
have the authority to deny entry or prescribe conditions of entry for
vessels coming from any foreign port that does not maintain effective
security measures. Cargo identification and screening systems would be
developed. Carriers would be required to provide passenger and crew
manifest information for incoming vessels. And all vessels would be
required to provide 96 hours notice prior to entering the 12 mile
territorial sea of the United States.
Again, this legislation has not yet become law. We shall see what the
final product looks like as it makes its way through our legislative
process.
What does the FMC have to contribute to the maritime security effort?
We have been involved from the outset. It is the responsibility of the
FMC to license ocean transportation intermediaries, otherwise known as
ocean freight forwarders and non-vessel operating common carriers. As
part of the licensing process we investigate the applicant's
character. We intend to assist in the homeland defense effort by
coordinating information we collect with information held by other
agencies on suspect individuals and entities. Hopefully, the end
product will be a database that is effective in screening any cargo
that presents a threat to our security.
The FMC has been involved from the beginning, helping the agencies
with primary responsibility for maritime security to develop this new
security framework. We are prepared to use all of our existing
authorities to address this serious threat and to take on any new
responsibilities with which we may be tasked.
Thank you very much for the opportunity to address you today. I am
particularly appreciative of Mayor Kim's personal invitation to
participate in this important event in a country and a city that are
so important to worldwide shipping and international trade.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)