VES-3-17-OT:RR:BSTC:CCI H103175 WRB
Mark E. Newcomb
Legal Counsel
CMA CGM (America) LLC
5701 Lake Wright Drive Norfolk, VA 23502-1868
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. Newcomb:
This letter is in response to your correspondence dated April 22, 2010, on behalf of CMA CGM S.A. and Compagnie Maritime Marfret S.A. (jointly, the “Carriers”), in which you seek a determination that the parties to the agreement described below 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 on your request follows.
FACTS
CMA CGM S.A. and Compagnie Maritime Marfret S.A. operate as ocean common carriers in the foreign commerce of the United States. The Carriers have entered into the CMA CGM/ Marfret Vessel Sharing Agreement, FMC Agreement No. 011931-002 (Third Edition) (hereinafter “the Agreement”), which provides for the establishment of shipping services between ports on the U.S. Atlantic Coast, on the one hand, and ports in the Caribbean (with the exception of the French West Indies) and Central America, and ports in North Europe, the South Pacific Islands, and Australia and New Zealand, on the other hand. All of the foregoing is referred to as the “Trade.” The vessels deployed under the Agreement are registered in the countries of Cyprus, Liberia, and Luxembourg, each of which is listed in 19 C.F.R. § 4.93 (b)(l) as nations granting reciprocal privileges to U.S.-flag vessels insofar as the coastwise movement of empty containers are concerned. Liberia and Luxembourg are also listed in 19 C.F.R. 4.93 (b)(2) as countries extending reciprocal privileges with respect to coastwise movement of equipment. You submitted with your letter a copy of the subject Agreement, as filed with the Federal Maritime Commission (“FMC”) on May7, 2010, which was originally effective on February 2, 2006, and contains operational details of the service.
ISSUE
Whether under the terms of the agreement entered into by the parties, as described above, the 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, formerly 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.”
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 exemptions for empty cargo vans, empty lift vans, or empty shipping tanks apply to vessels of foreign nations that are found to extend reciprocal privileges to the vessels of the United States. See 46 U.S.C. § 55107(c). Pursuant to 19 C.F.R. § 4.93(b)(1), the nations that are entitled to the privileges provided by 46 U.S.C. § 55107 include Cyprus, Liberia, and Luxembourg.
The key issue in cases involving vessel sharing agreements (“VSA”) is whether the parties operating under the provisions of the subject Agreement may be considered to be joint operators of a particular VSA vessel while it is engaged in transporting empty shipping containers. If the 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; Headquarters Ruling Letter H028460, dated July 1, 2008.
Upon examining the Agreement submitted in this case, we find that the Carriers make shared decisions, and share responsibilities in many significant areas. Under Article 5.1, the Parties are authorized to discuss and agree upon the number, size and characteristics of vessels to be deployed, and to operate a service of up to ten (10) vessels with a nominal capacity of up to 3,000 TEUs each. The Parties agree to initially operate six (6) vessels with a nominal capacity of between 2000-2500 TEUs each. CMA CGM will provide five (5) vessels, and Marfret will provide one (1) vessel. Pursuant to Article 5.1(b), all vessels deployed will be geared and have a minimum intake of 1650 TEUs and a maximum intake of 1950 TEUs. Vessels will be required to perform a service speed of 19.5 knots. All vessels will be capable of supplying 500 reefer plugs, but the Parties acknowledge that as a result of differing configuration of vessels, it may be necessary to agree on specific 20ft/40ft ratios on a case by case basis.
Under Article 5.1(d) a Party shall have the right to replace and/or substitute vessels throughout the life of the Agreement, providing the substitute ship meets the minimum specifications set out in Article 5.1 (b). Article 5.1(e) provides that each Party shall be at liberty to withdraw its vessels from service for routine maintenance and repairs including dry-dock, with reasonable provision of notice to the other Party of at least 90 days. Pursuant to Article 5.2(a) the Parties agree to maintain a reliable fixed day fortnightly frequency of service; in accordance with a schedule to be agreed. The Parties are authorized to discuss and agree upon criteria to measure adherence to the agreed-upon schedule and remedial actions/consequences in the event of non-adherence.
Pursuant to Article 5.3(a), slot and deadweight allocation on each southbound and northbound sailing shall be shared between the Parties in proportion to the aggregate agreed capacity that each Party provides within each cycle of six consecutive sailings. Article 5.3(d) provides that any Party may agree to sell any portion of its allocation to another Party at a pre-agreed slot rate. Any sale of slots to a non-Party is not permitted without the written consent of the other Party. However, any Party may make space available to any affiliated or wholly owned subsidiaries and shall not require the consent of the other Party to do so. The Parties also agree in Article 5.4(a), that, except in the French Pacific Islands where the Party providing the vessel will select the stevedore of its choice, the Parties agree to contract with a single terminal operator in each port, unless it is agreed otherwise.
Article 5.5 provides the Parties are authorized to discuss and agree on routine matters such as cargo claims and other liabilities, indemnifications, general average, a cross charter party, joint working procedures, standards for containers and for the acceptance of breakbulk, oversized and dangerous cargo, and other operational/administrative issues to implement the terms hereof. Under Article 12.1, the Parties agree to try and resolve all disputes through discussion.
If the dispute cannot be resolved by discussion, any Party may give the other Party fifteen (15) days' notice of its intention to refer the dispute to arbitration.
Accordingly, we believe that the subject provisions establish the intent to exercise joint administration and operational control in implementing the VSA, and thus, CMA CGM S.A. and Compagnie Maritime Marfret S.A. constitute joint vessel operators for the vessels, and all the parties may transport aboard any vessel empty shipping containers, owned or leased by another party or parties to the Agreement, 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, CMA CGM S.A. and Compagnie Maritime Marfret S.A. 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