As honeymoons go, newly appointed Federal Maritime Commission Chairman Mario Cordero’s was decidedly short.
Barely three months after being tapped by President Obama, Cordero is drawing the ire of many in the industry over his push to overhaul regulations for forwarders and non-vessel-operating common carriers — a push that also has spurred calls for a congressional investigation.
Cordero, a former Port of Long Beach commissioner, defends the consideration of an overhaul of ocean transportation intermediary rules as a continuation of the regulatory agency’s mission to maintain a “credible licensing process” and remove bad actors in the industry.
The drive for OTI changes comes after years of complaints against handlers of personal household goods.
“We are looking to tighten up the licensing process, so that it comes very clear to those operating without a license that the message is: We are going to enforce the Shipping Act,” said Cordero, who took over leadership of the FMC in April after serving two years as a commissioner. “No. 2, it is my hope that we have a renewal process to protect the shipping public and to make sure people are licensed and bonded as required.”
Under the proposed rule changes, licensed intermediaries would have to renew their licenses every two years, and some foreign-based NVOCCs could be required to have a U.S.-based full-time staff. The FMC also would be able to review the characters of a qualifying individual and reject anyone who violated shipping laws. The proposed rules, which the FMC is seeking comments on through the end of the month, could affect some 5,700 domestic and foreign-based NVOCCs and forwarders.
If the rules take effect, financial responsibility levels would increase by $25,000 for forwarders, to $75,000, and from $75,000 to $100,000 for domestic NVOCCs. Registered foreign-based NVOCCs would see their financial responsibility levels increase to $200,000 from $150,000. Bonds, insurance or surety would have to be restored to the required amount within 60 days after paying a claim from the instrument. A new three-tiered payment priority system for claims against the financial responsibility instrument would give shipper and consignee claims priority over common carriers, ports, terminals and others.
Opponents say the move would unfairly burden OTIs even though the majority of them aren’t involved in the shipment of personal household goods overseas. The FMC has found only two recent instances where an NVO has gone bankrupt, and the proposed new financial responsibility levels wouldn’t have prevented them, said Peter Friedmann, executive director of the Agriculture Transportation Coalition. “They are trying to solve a problem that doesn’t exist,” he said. “The FMC is acting like a bureaucratic bully by picking on small companies.”
The proposed changes to OTIs’ financial responsibilities go beyond that required by Congress through the surface transportation bill, known as MAP-21, passed last year. Through the bill, freight brokers and forwarders are required to have a $75,000 surety bond and renew their licenses every four years.
“There is certainly no justifiable reason for this little agency to decide that it can outthink Congress and go beyond what Congress did to make an ever-integrating industry more parallel. This is not an industry of modal stovepipes any more,” said Bob Voltmann, president and CEO of the Transportation Intermediaries Association.
Another staunch critic, the Association of Independent Property Brokers & Agents, filed a lawsuit in U.S. District Court last week to repeal the bond provision of MAP-21.
FMC commissioners aren’t united in their support for the new OTI rules. In May, commissioners Rebecca Dye and Michael Khouri voted against moving forward with the proposed OTI rules. The agency, Dye said, “cannot presume that additional regulatory requirements and changes will be effective and justified without an analysis to support that conclusion.”
She said the agency’s regulatory purview should focus on compliance costs, encouraging supply chain security efficiency and boosting the competitiveness of U.S. companies in the global market. “Adding additional layers of regulatory requirements and costs on American small businesses, like our ocean transportation intermediaries, is going in the wrong direction,” Dye wrote in an e-mail.
The FMC doesn’t have the resources to handle the increased work that would be generated by the overhaul in OTI rules, said Ed Greenberg, general counsel of the National Customs Brokers and Forwarders Association of America. The FMC’s aim to streamline the licensing process is misguided because the proposal will only “make the process more complicated,” he said.
Responding to doubts the agency could handle more work, Cordero said, “We are a small agency and as we are speaking, we are dealing with budget issues that any small agency has to address. It’s important that Congress understands that if there ever was an example of an agency that can operate on a lean budget, the FMC is one.”
The staff-driven proposal comes as the FMC tries to carve out a larger role amid a tight budget climate and after a recent report by the Partnership for Public Service found the FMC to be one of the worst federal agencies to work for, Voltmann said. The TIA and other industry groups have called on the new House special panel on freight issues and House watchdog Rep. Darrell Issa, R-Calif., who has investigated the commission in the past, to look into the proposed OTI rules changes.
“They are an agency in search of a mission,” Voltmann said. “It might be time for this agency to sunset.”
Obama’s proposal to increase the FMC’s budget by 3.8 percent to $2.1 million in fiscal 2014 has rankled some House Republicans, including California’s Duncan Hunter. The chairman of the subcommittee on Coast Guard and Maritime Transportation said the plan to boost the FMC’s budget sent the wrong message amid a tight fiscal environment.
Cordero responded by pointing out the agency already has reduced its budget and that 95 percent of its expenses are tied to payroll and benefits. The FMC also is proceeding with an overhaul of its information technology system aimed at helping it handle paperwork faster and more effectively.
FMC critics point to the proposed OTI rules as the latest way the agency is trying to shore up its role in Washington. The FMC proposed the creation of an agriculture index to help exporters last year, only to receive a lukewarm response from shippers and a harsh rebuke from the World Shipping Council, whose members operate about 90 percent of global container line capacity. Former FMC Chairman Richard Lidinsky had planned to reintroduce the agriculture index this spring, but Cordero said only discussion of the topic, not action, was in the cards for this year.
“I am certainly interested in what the industry thinks. But one thing we have for sure is this whole issue of volatility of rates. Whatever we can do to mitigate that I think should be up for discussion,” Cordero told The Journal of Commerce. “What is interesting to see from the carrier perspective is that I haven’t seen any specific carrier totally dismiss this concept.”
Dye is against creating an agriculture index because she doesn’t think the FMC has the “authority to use confidentially filed service contract information for this purpose.” She added that she isn’t aware of a way to aggregate rates by commodity so that the statutory confidentiality of services contracts would be violated.
Dye said she would rather the agency focus on reforming or eliminating certain filing requirements for service contracts, particularly those tied to amendments. The process of filing service contract amendments is one of the largest administrative burdens for shippers and carriers — the FMC received about 47,700 new service contracts and nearly 488,000 contract amendments last year.
“Many of these amendments are for minor contract revisions,” Dye said. “Coupled with the requirement that the amendment must be filed before cargo is moved, this requirement imposes additional costs and often frustrates the commercial desires of shippers and carriers.”
To the criticism that the FMC is mistakenly reaching for a larger role, Cordero said the agency has shown its effectiveness in fulfilling its mission to ensure the U.S. has “a responsible transportation system in regard to international containers.” He pointed to how the FMC’s study of Canadian container diversions helped inform Harbor Maintenance Tax reform language passed in the Senate’s version of the Water Resources Development Act and is expected in the House version.
Despite Cordero’s determination for the FMC to take a more active role in maritime issues, including addressing ports’ infrastructure needs, how much more the agency can do is unclear. How could the FMC, for example, help port authorities, as Cordero advocates?
“With regard to our specific regulatory purview, we need to be very cognizant of practices, agreement and policies that raise costs and rates,” Cordero said. “As it relates to the issue of infrastructure, I think it’s ever more important for the FMC to comment on these issues as a stakeholder.”
Clarification: An earlier version of this story incorrectly implied that the FMC's proposed OTI overhaul spurred a federal lawsuit brought by the Association of Independent Property Brokers & Agents and misstated the share of FMC's budget that is tied to payroll and benefits.