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HQ 116613

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February 27, 2006

VES-3-17-RR:BSTC:CCI 116613 IDL

CATEGORY: CARRIER

Wayne R. Rohde
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 Mr. Rohde:

This is in response to your letter, dated January 24, 2006, on behalf of your clients, a vessel sharing consortium of two vessel operating common carriers, requesting confirmation that they qualify 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, 46 U.S.C. App. § 883. Our ruling on this matter is set forth below.

FACTS:

Your clients, Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft KG, of Germany (“HSDG”), and Compania Chilena De Navegacion Interoceania, S.A., of Chile (“CCNI”), have entered into a vessel sharing agreement (“VSA”) named the “Ampac Cooperative Working Agreement” (“Ampac Agreement”).

You submitted with your letter a copy of a Restatement of the Ampac Agreement currently on file with the Federal Maritime Commission (“FMC”). The documentation provides that HSDG and CCNI have agreed to provide each other with space on non-coastwise-qualified vessels contributed by each of them for joint operation in “the Trade” via any combination of direct, transshipment or intermodal service between U.S. Pacific Coast ports and U.S. inland and coastal points served via such ports; and between Pacific Coast ports of Canada, Mexico, Guatemala, Coast Rica, El Salvador, Honduras, Nicaragua, Panama, Colombia, Ecuador, Peru, and Chile, and inland and coastal points served via such ports.

You have stated that under the terms of the VSA, each party will commit vessels (“Ampac vessels”), with some of the costs relating to these vessels to be shared equally by the parties. The parties agree to make space on Ampac vessels available to each other under such terms that they may agree. Each party is entitled to agreed upon space aboard Ampac vessels, and cannot be denied space aboard an Ampac vessel due to commitments by the other party to other shippers. Each party is a vessel operating common carrier within the terms of the U.S. Shipping Act of 1984, as amended, and the FMC has permitted this agreement to become effective pursuant to the Act.

Furthermore, you have stated that the Ampac Agreement authorizes the parties to discuss and agree upon a number of operating issues. The parties will jointly establish the size, speed, number, sailing schedules, port calls, and itineraries of Ampac vessels. The parties are authorized to use common terminal facilities and jointly negotiate and enter into leases, subleases or assignments, and jointly contract for stevedoring and other shoreside services. The parties may discuss and agree upon terms and conditions for the interchange of containers, chassis, and other equipment, rates, charges, classification, rules, service items, freight forwarder and brokerage compensation, practices, or any other term or condition set forth in a tariff or service contract. The parties may jointly aggregate volumes of cargo of their customers for purposes of time-volume rates filed with the FMC, or exchange information regarding competition, trade flows, shippers, or other transportation conditions in the Trade. The parties are also authorized to enter into joint service contracts with customers.

Finally, you have stated that the agreement is essentially the same in its substance as a previously approved VSA.

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 (January 13, 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, one party to the Ampac Agreement may transport aboard any Ampac vessel empty shipping containers, owned or leased by the other party to the agreement, for the purpose of handling the latter’s cargo in the foreign trade without consequence under the Sixth Proviso to 46 U.S.C. App. § 883.

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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