"Now Hear Ye!"

Congressional hearings are a good way to find out what's really going on in Washington.

Now Hear Ye

By Joe Cox 2017-08-24 15:56:17

(This article was originally published in the 2017 July/August edition)

In early May the Subcommittee on Coast Guard and Marine Transportation, part of the House of Representatives’ Committee on Transportation and Infrastructure, held a hearing on “Maritime Transportation Regulatory Programs.” There were two topics: One concerned agreements that ocean carriers can enter into, which are reviewed by the Federal Maritime Commission (FMC). The other involved the recondite matter of salvage and marine firefighting response.

In both cases, competing parties based their positions on existing legislative language and the application of that language by the government agencies involved.

Carrier Agreements

The agreement issue is of some importance. When the Shipping Act of 1984 was debated and during its subsequent amendment by the Ocean Shipping Reform Act in 1998, there were numerous ocean carriers acting on what they perceived to be their own best interests. The legislation allowed carriers to enter into agreements that were expected to have economic benefits to consumers while also providing a weather eye for anticompetitive implications through review and acceptance by the FMC.

The two Acts included operations and procurement elements although the selection of areas to be included in agreements is not detailed, leaving to carriers the opportunity to be creative in their level of cooperation. The major change between the language in the legislation and the situation today is the development of major carrier alliances. When the Acts were written, there was activity among ocean carriers and each could enter into arrangements with others on vessel calls at ports, sharing spaces on board ships and other operational matters, all under the review mechanism of the FMC. This was a major and welcome legislative change for the ocean carriers.

The recent creation of major alliances elevates the degree of cooperation to the point that anticompetitive alarm bells begin sounding, more loudly for some than others. From the testimony at the hearing, a change in what the alliances wish permission to do may have been the trigger for the hearing on this topic.

Some agreements filed by the alliances seek permission to negotiate with service providers. While such negotiations have been allowed before on a limited basis, the scope of the new agreements would go further. Tugboat companies, container lessors and other service providers are concerned that agreements filed with the FMC essentially allow ocean carriers to negotiate on the specifics of procurement of services beyond current practice.

Ocean carriers contend they have the ability under the laws to apply for such negotiating permission and, they note further, the agreements are subject to FMC review. The FMC review is the government mechanism established to protect the American public from anticompetitive behavior. In this case, the FMC reviews the proposed alliance activity with an eye toward identifying potential negative effects on alliance members’ customers, i.e., cargo interests.

The alliances contend the law allows them to also negotiate with service providers, thus covering negotiations with both their customers and those providing them services. Those opposed note an ancillary problem in addition to the impact of a larger alliance seeking negotiations. They note that the alliance agreements, if approved, place them at a disadvantage in that they will be negotiating with a party that has antitrust immunity while they are subject to domestic antitrust laws.

In other words, the ocean carriers may negotiate with antitrust impunity while domestic service providers are proscribed from the same type of activity due to their status as domestic companies to which the antitrust laws apply.

FMC vs. DOJ

Like most situations in which government agencies are in a review/approval position, the system relies on the professionalism and perseverance of government employees to resolve disputes. The organization at the center of this dispute is the FMC. It has the responsibility to review any agreements filed, and its usual process is to discuss the draft agreements and suggest amendments to alleviate any anticompetitive concerns. Whatever protocols are utilized in the review, it is important that there be sufficient time for all interested parties to be informed and heard.

There may, however, be another government agency with concerns – the Department of Justice (DOJ). The hearing record contains letters from the DOJ to the FMC with comments about FMC activity respecting agreements. DOJ notes the parallel authority shared by DOJ and FMC with the FMC’s authority “protecting the public from agreements that will result in an unreasonable increase in price and reduction of service” and DOJ’s authority covering “…agreements that unreasonably increase market power, that is, the power to increase price or reduce output.”

DOJ further notes that “The Department has long taken the position that the general antitrust exemption for international ocean shipping carrier agreements is no longer justified.” FMC testimony at the hearing contained several mentions of the unique experience of the FMC in judging acceptable practices in the maritime industry. Given DOJ’s statements, it’s not surprising that the FMC emphasized its more specific responsibilities – and perhaps, by implication, its superior suitability – for reviewing maritime ventures versus the broader responsibilities of DOJ.

Firefighting and Salvage Response

The issue of marine firefighting and salvage response has an interesting and potentially costly impact on the maritime community. The genesis of this issue started in 1989 when the Exxon Valdez grounded and spilled a large portion of her cargo into Prince William Sound. After numerous hearings, Congress passed the Oil Pollution Act, which became law in 1990 (OPA 90).

Among a host of requirements, OPA 90 required that regulations be developed to respond to the “worst case possible spill.” A subsequent decision describing what this meant resulted in a determination that it is the loss of a complete cargo in a single catastrophic event. The U.S. Coast Guard, noting the implications of such a determination, decided to pursue the regulation in a novel yet administratively permissible manner.

The Coast Guard instituted a Negotiated Regulatory project. The essence of the project allowed participants to take part in the development of a proposal from a privileged position, i.e., participating in the negotiation of a proposed rulemaking that is normally a government-only process. The public participants are obligated to not comment negatively on the proposed rule once it is published for public review.

After months of consultation and interaction, a regulation was published which, among other requirements, established the amount of spill response equipment required, including types and geographical sites around the nation. The proposed rule became regulation with little negative comment from industry or environmental participants.

In general, the maritime industry was satisfied. The oil industry, accepting the inevitability of a requirement for spill response equipment, had already formed a consortium called the Petroleum Industry Response Organization. When OPA 90 became law and the rules were in place, the organization segued into the Marine Spill Response Corporation, which operates today. Equipment was stationed in areas around the country in places and at levels detailed in the regulation.

Planning vs. Performance

One of the main difficulties in developing the equipment and placement requirements during the negotiated rulemaking process was the potential for an incident to require use of the equipment, thereby reducing the amount available for response. It became a dictum during development that equipment and staging were planning requirements and should not be deemed performance requirements.

Several years later, the Coast Guard developed requirements for salvage and marine firefighting response that were similar to the spill response equipment requirements although individual vessel owners were also required to have contracts for salvage and marine firefighting response. Key to the similarity between the spill and salvage/marine firefighting response was the dictum of planning and not performance requirements.

The hearing essentially noted the planning nature of the salvage/marine firefighting requirements against the contention by some parties that the equipment was not satisfactory as detailed in the regulation and should be changed to require stationing of salvage and firefighting capability rather than the current contract arrangements. Those proposing change based their position on the details of two salvage/firefighting cases in which the reaction did not meet planning requirements.

Lessons Learned

While one hearing does not a problem make, it does bring into question the dictum of planning versus performance, which could expand beyond the subject of the hearing and include the current stationing and use of spill response equipment. In terms of spill response, firefighting and salvage, the Deepwater Horizon incident provides a clear example of how the current system works. Virtually all response capability was utilized in that event.

In addition, the U.S. salvage community is developing an international reputation for capability and was instrumental in the Costa Concordia salvage. Any changes to the acceptance of planning requirements would have cost implications for the industry. Unknown is whether any change would bring improvement or perhaps something else.

There are no indications the May hearing will result in further hearings or in legislative changes, although it does bring to mind a statement found on a statue at the entrance to the National Archives Building in Washington: “Eternal vigilance is the price of liberty.” MarEx