VES-3-17-OT:RR:BSTC:CCI H028460 JLB
Mr. Walter H. Lion
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
RE: Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; Empty Cargo Containers; 19 C.F.R. § 4.93
Dear Mr. Lion:
This letter is in response to your correspondence dated May 14, 2008, on behalf of your client, the CSAV Group, in which you request a determination that the parties to the vessel sharing agreement ("VSA") qualify as joint vessel operators within the meaning of 46 U.S.C. § 55107 and consequently, may transport each others’ empty containers in U.S. coastwise trade. Our ruling to your request follows.
FACTS
You represent the CSAV Group, which consists of Compania Sud Americana de Vapores S.A. (“CSAV”), a Chilean corporation, Companhia Libra de Navegacao, a Brazilian corporation, and Compania Libra de Navegacion Uruguay S.A., a Uruguayan corporation. The CSAV Group has entered into the CSAV Group/K Line USEC-ECSA Vessel Sharing Agreement [hereinafter referred to as the VSA] with Kawasaki Kaisen Kaisha Ltd. [hereinafter “K” Line], a Japanese corporation. The VSA provides for the joint operation of “vessels and the carriage of cargo via direct service or transshipment between ports on the East Coast of the United States (Eastport, Maine to Key West, Florida range inclusive), and inland and coastal points in the United States, served via such ports, on the one hand, and ports in Argentina, Brazil, Paraguay, Uruguay, and Venezuela, and inland and coastal points in the aforementioned countries and other Latin America and Caribbean countries served via such ports, on the other hand (“the Trade”).”
You submitted with your letter a copy of the subject VSA, as filed with the Federal Maritime Commission (“FMC”) on April 4, 2008 and currently in force, which contains operational details of the service.
ISSUE
Whether under the terms of the VSA entered into by the parties, as described above, both parties may be considered joint vessel operators transporting their owned or leased empty containers pursuant to 46 U.S.C. § 55107?
LAW AND ANALYSIS
The Jones Act, former 46 U.S.C. App. § 883 recodified as 46 U.S.C. § 55102, pursuant to P.L. 109-304 (October 6, 2006), states that “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port” unless the vessel was built in and documented under the laws of the United States and owned by persons who are citizens of the United States. (See also 19 C.F.R. §§ 4.80, 4.80b). Such a vessel, after it has obtained a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise qualified.” “Merchandise" is defined as "goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” See 19 U.S.C. § 1401(c). The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline.
Pursuant to 46 U.S.C. § 55107, formerly the Sixth Proviso to former 46 U.S.C. App. 883, recodified as 46 U.S.C. § 55107, pursuant to P. L. 109-304 (October 6, 2006), the prohibition contained within 46 U.S.C. § 55102 does not apply to the coastwise transportation of empty cargo vans, empty lift vans, or empty shipping tanks, and equipment for use with same. Further, the prohibition does not apply to empty barges specifically designed for carriage aboard a vessel and equipment (except propulsion equipment) for use with those barges, and certain empty instruments of international traffic. See also 19 C.F.R. § 4.93(a)(1). To qualify for the exemption from 46 U.S.C. § 55102, the aforementioned articles must be owned or leased by the owner or operator of the vessel, and transported for use in handling cargo in foreign trade. In addition, the prohibition does not apply to stevedoring equipment and material which is either owned or leased by the owner or operator of the vessel or by the stevedoring company having the contract for the loading or unloading of the vessel, so long as the stevedoring equipment and material are transported without charge for use in the handling of cargo in foreign trade.
The key issue in cases such as these, involving vessel sharing agreements, is whether the parties operating under the provisions of the subject VSA may be considered to be joint operators of a particular VSA vessel while it is engaged in transporting empty shipping containers. If both parties may be so considered, and if the containers transported are either owned or leased by those parties and are transported for use in moving cargo in the foreign trade, the transportation would be permissible under 46 U.S.C. § 55107 so long as the transporting vessel is documented as provided in 19 C.F.R. § 4.93. See Headquarters Ruling Letter 115402, dated August 10, 2001; Headquarters Ruling Letter 115734, dated September 23, 2002.
To determine whether the parties constitute joint vessel operators, it is necessary to analyze the degree of operational control of the vessels. See, e.g., Headquarters Ruling Letter H011299, dated October 4, 2007; Headquarters Ruling Letter 116713, dated August 31, 2006; Headquarters Ruling Letter 116276, dated August 26, 2004. 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 parties 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 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. Additionally, in other cases, the parties pooled shore-side chassis and made them available for any of the parties’ containers. See e.g., Headquarters Ruling Letter 115863, dated January 9, 2003; Headquarters Ruling Letter 116382, dated January 25, 2005.
Upon examining the VSA submitted in this case, we find that the parties make shared decisions, and share responsibilities in many significant areas. The parties have jointly agreed on the capacity, speed, number, port calls, round-trip voyage duration and itineraries of the vessels. Under the terms of the VSA, the parties will initially operate five (5) vessels of approximately 2,500 TEUs capacity, with authorization for up to ten (10) vessels, at a minimum guaranteed speed of 20.5 knots to ensure a round-trip voyage time of 42 days. Of these five (5) vessels, CSAV Group will contribute four (4) vessels and “K” Line will contribute one (1) vessel. Additionally, “K” Line, for the first year of the agreement, will have restricted port calls as it has been contracted that “K” Line is not entitled to load cargo to or from Puerto Cabello. The VSA indicates that “the parties may periodically discuss and agree upon the number and capacity of vessels employed, itineraries and sailing schedules and round-trip voyage duration with the aim of providing a competitive and cost effective service.”
The parties are authorized to buy and sell space on an ad hoc basis to and from one another on such terms as they agree to balance differences between slot allocation and slots actually provided, to dispose of unused slots and to respond to fluctuations in cargo demand and/or space availability among the carriers. The carriers also, under Article 5.e., agree to procedures for administrative matters relating to chartering and transportation. Article 5.f. indicates that the parties will discuss and agree upon standards for and may interchange, purchase, pool, lease, sublease, or otherwise cooperate in connection with the containers, chassis and other equipment. Additionally, under Article 5.g., the parties shall utilize the same terminal facilities, and may jointly negotiate with terminals and stevedores. Under Article 5.h., the parties may agree upon joint administrative and implementation of matters such as the rights, liabilities and indemnities of the VSA, particularly the failure to perform, force majeure, and insurance. These provisions in the VSA indicate that there are numerous shared responsibilities and that the parties will jointly function together in the operation of the subject vessels and the carrying of cargo.
Accordingly, we believe that the subject provisions establish that the parties intend to exercise joint administration and operational control in implementing the VSA, and thus, both of the parties constitute vessel operators. As such, one party to the VSA may transport aboard any vessel listed in the VSA empty shipping containers, owned or leased by another party to the VSA, for the purpose of handling the latter’s cargo in the foreign trade without violating 46 U.S.C. § 55107.
HOLDING
Under the terms of the VSA entered into by the parties, as described above, both parties are considered joint vessel operators within the meaning of 46 U.S.C. § 55107 and as such may transport each others’ owned or leased empty containers aboard any of the subject VSA vessels without violating 46 U.S.C. § 55102.
Sincerely,
Glen E. Vereb, Chief
Cargo Security, Carriers and Immigration Branch