HQ 115402 - Coastwise trade; Sixth proviso; Empty cargo containers; Vessel Sharing Agreement; 46 U.S.C. App. 883 - United States International Trade Commision Rulings

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HQ 115402

August 10, 2001

VES-3-RR:IT:EC 115402 RSD

CATEGORY: CARRIER

Mark J. Fink, Esq.
Heather M. Spring, Esq.
Sher & Blackwell
1850 M Street, N.W.
Suite 900
Washington, D.C. 20036

RE: Coastwise trade; Sixth proviso; Empty cargo containers; Vessel Sharing Agreement; 46 U.S.C. App. 883

Dear Mr. Fink and Ms. Spring:

This is in response to your letter dated June 15, 2001, received via facsimile transmission which forwards for our review and consideration a copy of a vessel sharing agreement filed with the Federal Maritime Commission on behalf of the Zim Israel Navigation Company Ltd. and Italia d’Navigazione S.p.A, vessel consortium. You seek our review in relation to the transportation of empty cargo containers under the terms of the Sixth Proviso to the Jones Act.

FACTS:

Two foreign-flag shipping lines known as Zim Israel Company Ltd. (Zim) and Italia d’Navigazion S.p.A. (Italia) have entered into a so-called “East Coast Vessel Sharing Agreement” (VSA). The VSA was filed with Federal Maritime Commission on June 1, 2001, and became effective on July 16, 2001. Under the VSA, Italia will be authorized to move its empty containers on the vessels, which will be provided by Zim.

Zim and Italia had previously requested confirmation of their status as joint operators under a predecessor agreement (the Zim/Italia-d’Amico Space Charter Agreement). In a letter dated July 20, 2000, we determined that the necessary indicia of joint operational control were not present in that agreement to convey the status of vessel operator on the signatories. However, we also stated that the proposed vessel sharing agreement could be revised in order to include the necessary operational and control elements required for qualification to transport empty shipping containers between coastwise points under terms of the Sixth Proviso to 46 U.S.C App. 883. Accordingly, we did not issue a ruling on the validity of the proposed vessel sharing agreement. Instead, we encouraged you to revise the proposed vessel sharing agreement. Apparently, this request is a follow up to our suggestion.

Under the terms of the revised East Coast VSA under consideration, the parties have agreed to share space and otherwise engage in cooperative activities with respect to vessels operated in the trade between France, Italy, Spain and Greece, on the one hand and ports on the Atlantic coast of the United States on the other (the Trade). Aside from moving their cargo on agreement vessels, Italia also wishes to reposition its empty containers on cargo agreement vessels, including Zim’s on various routes including those in U.S. coastwise locations.

ISSUE:

Whether under the terms of the VSA entered into by the parties, both partners might at all relevant times be considered to be vessel operators transporting their owned or leased empty shipping containers for purposes of satisfaction of the Sixth Proviso to the Jones Act.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883), commonly called the Jones Act, provides, in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by citizens of the United States. Section 883 was amended by the Act of September 21, 1965 (Pub. L. 89-194, 79 Stat. 823), which added the sixth proviso, and by the Act of August 11, 1968 (Pub. L. 90-474, 82 Stat. 700), which amended that proviso.

The 1965 Act exempted from the provisions of section 883 the coastwise transportation of empty cargo vans, empty lift vans, and empty shipping tanks in non-coastwise-qualified United States-flag vessels or foreign-flag vessels, on a reciprocal basis, when the vans and tanks are owned or leased by the owner or operator of the transporting vessels and are being transported for use in the carriage of cargo in foreign trade. The 1968 Act added equipment for use with cargo vans, lift vans, and empty shipping tanks, empty barges specifically designed for carriage aboard a vessel, and certain empty instruments of international traffic to the articles included within the sixth proviso. These articles and the articles covered by the 1965 Act were required by the 1968 Act to be owned or leased by the owner or operator of the transporting vessel and transported for his use in handling his cargo in foreign trade.

The 1968 Act also added stevedoring equipment and material to the articles included within the sixth proviso. To qualify for exemption from section 883 under the sixth proviso, the stevedoring equipment and material must be owned or leased by the owner or operator of the transporting vessel or owned or leased by the stevedoring company contracting for the lading or unlading of the vessel and the stevedoring equipment and material must be transported without charge for use in the handling of cargo in foreign trade.

The language of the proviso regarding containers which requires that they be owned or leased by the owner or operator of the transporting vessel and transported for his use in transporting his cargo in foreign trade, has collided with contemporary business practice in the vessel industry. Newly emergent limited-purpose alliances of vessel owners have blurred the clear boundaries of the proviso in terms of its application. Whereas even arms-length dealings used to be too close for comfort in the industry, an examination of the current landscape reveals numerous betrothals, if not outright marriages, in the form of “Vessel Consortia”, “Vessel Sharing Agreements”, and “Joint Service Agreements.”

The question presented for resolution is whether, under the terms and intent of the merchandise transportation statute, the particular parties operating under the provisions of the Agreement may be considered to be joint operators of a particular Agreement vessel while it is engaged in transporting the empty shipping containers of members to the agreement. If both parties may be so considered, and if the containers transported are either owned or leased by those parties and are transported for their use in moving their cargoes in the foreign trade, the transportation would be permissible under the Sixth Proviso so long as the transporting vessel is documented as provided in section 4.93 of the Customs Regulations (19 C.F.R. §4.93).

Historically, administrative cases involving interpretation of the Sixth Proviso have involved questions concerning the character of vessel charter arrangements. It has been our long-standing position that slot or space charter arrangements do not fulfill minimal statutory ownership or operational requirements, whereas those requirements are met under the terms of a standard bareboat or demise charter agreement. The present matter involves less a question of charter characteristics and more a consideration of degree of operational control under the terms of this new generation of agreement. We are left to determine whether such agreements as presently under consideration contain sufficient indicia of operational vessel control so as to qualify the members as vessel operators.

Various factors mitigate in favor of finding the members to be vessel operators, as there are a number of provisions in the revised vessel sharing agreement that were not present in the original agreement that indicate that there is joint operational control. In the prior agreement, the party operating the relevant vessel service determined the number of sailings, schedules, port calls and the frequency of port calls. In contrast, under Article 5.1(a) of the revised VSA, the parties together must agree to charter, exchange or otherwise make space and slots available to and from one another on vessels used in the trade. Furthermore, Zim also agrees to commit vessels for use under the agreement and to provide an agreed upon amount of space thereon to Italia. In addition, Article 5.2 of the VSA authorizes the parties to consult and agree upon the deployment and utilization of the vessels, including without limitation, sailing schedules, service frequency, ports to be served, port rotation, type and size of vessels to be utilized and the addition or withdrawal of capacity from the trade. The parties may also consult and agree upon the number, type and capacity of vessels to be operated by each of them in all or any portion of the trade.

Another important distinction in the two agreements concerns the use of stevedoring and port services. Under the previous agreement, the each party was responsible for its own agreements and payments with stevedores and terminal and port services. The revised VSA is different because it provides that the parties may also consult and agree upon the use of terminal facilities and may jointly negotiate and enter into leases, subleases or assignments of such facilities. The parties may also contract for stevedoring services, terminal, and other related ocean and shore side services and supplies, with each other or jointly with third parties in the United States or elsewhere. (Article 5.3(a)). In addition, Article 5.3(b) further provides that the parties may discuss and agree upon terms and conditions for the interchange, lease or sublease of, return of, and may otherwise cooperate in connection with containers, chassis and other equipment. The parties may also decide to operate joint maintenance and repair facilities or establish joint equipment pools at such locations as they may agree upon.

Additionally, Article 5.4(b) of the revised VSA allows the parties to discuss and agree upon operating issues and matters related to implementation of the agreement including such matters as force majeure, insurance liability for cargo damage, handling of claims, bills of lading, and treatment of hazardous cargo. The parties are also authorized to form a steering committee or take such other action as necessary and appropriate to effectuate the purposes and provisions of the agreement.

We believe that these provisions of the vessel sharing agreement demonstrate that the parties share joint operational control over the designated vessels. Consequently, we have determined that in light of all the factors discussed, the agreement under examination does convey the status of vessel operator upon both of the individual signatories and that, as such, their cargoes may be transported aboard any of the qualified vessels involved without consequence under the Sixth Proviso. The cargoes to which this opinion applies are empty shipping containers which are either owned or leased by an agreement member, which containers are being transported for the purpose of handling that member’s cargo in the foreign trade.

HOLDING:

We have determined that the vessel sharing agreement between Zim and Italia under consideration does, for the reasons specified in the Law And Analysis portion of this ruling, convey the necessary operational and control elements required for qualification to transport empty shipping containers between coastwise points under the terms of the Sixth Proviso to 46 U.S.C. App. 883.

Sincerely,

Larry L. Burton

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