HQ 116276 - 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 116276

August 26, 2004

VES-3-17:RR:IT:EC 116276 IDL

CATEGORY: CARRIER

Marc J. Fink, Esq.
Wayne R. Rohde, Esq.
Sher & Blackwell, LLP
Suite 900
1850 M Street, N.W.
Washington, DC 20036

RE: Coastwise Trade; Sixth Proviso, Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. App. 883

Dear Sirs:

This is in response to your letter dated July 14, 2004, on behalf of your client “Libra / Lykes / TMM”, requesting confirmation of the regulatory status of a “Space Charter and Sailing Agreement” as joint vessel operators for purposes of the U.S. coastwise movement of empty containers on non-coastwise-qualified vessels, pursuant to the Sixth Proviso of the Jones Act. Our ruling on this matter is set forth below.

FACTS:

Three vessel operating common carriers, Companhia Libra de Navegacao (“Libra”), Lykes Lines Limited, LLC (“Lykes”), and TMM Lines Limited (“TMM”) have entered into a vessel sharing agreement (“VSA”). Lykes and TMM, although separate legal entities and separate ocean common carriers, are affiliated companies.

You submitted with your letter copies of the implementing agreement, with appendices, and a Restatement of Agreement filed with the Federal Maritime Commission. The documentation provides that Libra, Lykes, and TMM have agreed to provide each other with space on non-coastwise-qualified vessels contributed by each of them for joint operation in the trades between the Atlantic Coast of Florida and the U.S. Gulf Coast (including Puerto Rico) and ports in Brazil, Argentina, Paraguay, Uruguay, Venezuela, Columbia, the Dominican Republic, Trinidad and Tobago, and Mexico. Aside from moving their cargo per the VSA, the parties wish to reposition their empty containers between U.S. ports using such vessels.

You have stated that under the terms of the VSA, each party agrees upon the initial and subsequent contribution, deployment and utilization of vessels in the trade including, without limitation, sailing schedules, the number and character of their sailings at ports in the Trade, port rotations, ports to be served, and type of vessels to be utilized. Each party is entitled to agreed-upon space aboard all VSA vessels. Any chartering or subchartering of space on vessels to other common carriers requires unanimous consent of the parties. Each party is authorized to consult and agree to interchange or establish pools of empty containers and other equipment, and to contract jointly with stevedores, terminals, ports, inland depots, and suppliers of equipment. Each party is authorized to consult and agree on terms and conditions of joint development, use, implementation and interchange of documentation, data systems, information and data and other operating equipment control or other systems, including computerization and joint communication. The parties are authorized to discuss and agree upon operating issues and matters related to the implementation of the VSA, including such matters as performance procedures and penalties, procedures for allocating space, forecasting, terminal operations, stowage planning, schedule adjustments, the establishment and operation of individual or joint tonnage centers, force majeure, insurance, liability for cargo damage, handling of claims, bills of lading, and treatment of hazardous cargo. An operating committee, consisting of two representatives from each party, is responsible for the "“efficient management and operation” of the service.

ISSUE:

Whether under the terms of the VSA entered into by the parties, as described above, the parties might at all relevant times be considered to be vessel operators for 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 the 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 its use in transporting its cargo in foreign trade, has collided with contemporary business practice in the vessel industry. Historically, administrative cases involving interpretation of the Sixth Proviso have involved questions concerning the character of vessel charter arrangements. Newly emergent limited-purpose alliances of vessel owners have blurred the clear boundaries of the proviso in terms of its application. An examination of the current landscape in the shipping industry reveals numerous betrothals, if not outright marriages, in the form of “vessel consortia”, “vessel sharing agreements”, and “joint service agreements.” 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.

In reviewing prior VSAs, we note that there are several factors under which the agreements are formed and the parties are governed which indicate that the members shared the operational control of the designated vessels. For example, the VSA members would jointly agree upon when, where and which vessels they would operate. They would also agree to cooperate in such matters as insurance, leases, sailing schedules, port calls, rate policies and the terms of service contracts, among other things. In addition, in other cases, the parties also pooled shore-side chassis and made them available for any of the members’ containers.

In Headquarters Ruling Letter 114560, dated January 14, 1999, we stated that the above factors will be considered together with generally accepted principles and that, if possible, the law should be interpreted in a dynamic and forward-looking manner which takes into account changes and evolving practices which were not contemplated at the time of a statutory enactment.

Upon examining the VSA presented in this case, we find that the basic facets of joint operation control are present in the agreement. Accordingly, we believe that the provisions of the VSA, as described above, establish that the parties intend to exercise joint administration and operational control in implementing the VSA, and thus, convey the status of vessel operator upon the individual parties. As such, empty shipping containers, owned or leased by any of the agreement members and being transported for the purpose of handling the member’s cargo in the foreign trade, may be transported aboard any of the qualified vessels involved without consequence under the Sixth Proviso.

HOLDING:

The VSA under examination, as described above, would convey the status of vessel operator on each of the individual signatories and, as such, their empty containers may be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C. App. 883.

Sincerely,

Glen E. Vereb
Chief

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