VES-3-17-OT:RR:BSTC:CCI H063595 JLB
Mr. Wayne R. Rohde
Sher & Blackwell
1850 M Street, NW
Suite 900
Washington, DC 20036
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. Rohde:
This letter is in response to your correspondence of May 27, 2009, on behalf of Hapag-Lloyd AG, Nippon Yusen Kaisha, Orient Overseas Container Line and Zim Integrated Shipping Services, 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
Hapag-Lloyd AG, Nippon Yusen Kaisha, Orient Overseas Container Line and Zim Integrated Shipping Services operate as ocean common carriers in the foreign commerce of the United States. Hapag-Lloyd AG, Nippon Yusen Kaisha, and the Orient Overseas Container Line shall act as a single party and are collectively referred to as the “Grand Alliance Lines.” They have entered into the Grand Alliance / Zim Transpacific Vessel Sharing Agreement, FMC Agreement No. 012063 (hereinafter “the Agreement”), which provides for the establishment of three shipping services operating between ports on the Atlantic and Pacific Coasts of the United States and ports in South Korea, Taiwan, the People’s Republic of China, Hong Kong, Thailand, Singapore, Japan, and Jamaica. This ruling relates to the vessels deployed in one of the three services operated under this Agreement, the South China East Coast Express (“SCE”) service. The vessels deployed in the SCE service under the Agreement fly the flags of Cyprus, Israel, Japan, Liberia, Marshall Islands, and Panama. You submitted with your letter a copy of the subject Agreement, as filed with the Federal Maritime Commission (“FMC”) on February 23, 2009 and became effective on April 9, 2009, which 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, 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 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, Israel, Japan, Liberia, Marshall Islands, and Panama.
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 shoreside 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 parties make shared decisions, and share responsibilities in many significant areas. The parties are authorized to discuss and agree upon vessel size, number, type, speed and other characteristics, the sailing schedule, port rotation, and the port calls for the new service. Under the terms of the Agreement, the parties will deploy eight (8) vessels in the SCE service out of the nineteen (19) vessels deployed in total. Of these eight (8) vessels with a nominal capacity of 3,400 to 3,800 TEUs, the Grand Alliance Lines will contribute five (5) and Zim will contribute three (3) vessels.
Pursuant to Article 5.3(a), space on each of the vessels deployed in the Service shall be allocated between the parties in proportion to the vessel capacity contributed by each party. The capacity allocated to the Grand Alliance Lines shall be divided among the carriers as they may agree from time to time in accordance with the terms of the Grand Alliance Agreement II, FMC No. 011602. The parties are authorized to sell space to each other on an ad hoc basis at such slot charter hire and on terms to which they agree upon periodically. Under Article 5.5, the parties are authorized to discuss and agree on the terminals to be used by the vessels with the Agreement providing several criteria in determining which ocean terminal is chosen at each port of call. Pursuant to Article 5.7, the parties are authorized to discuss and agree upon operational and administrative matters including recordkeeping, responsibility for loss or damage, insurance, and indemnification. The parties agree, under Articles 11, to the arbitration of all disputes. These provisions in the Agreement 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, all four of the parties constitute vessel operators. As such, a party to the Agreement may transport aboard any vessel listed in the Agreement 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, all four 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