Cargo PreferenceU.S.-Flag Vessels; Available U.S.-Flag Commercial Vessels

DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 381

[Docket No. R-153]

RIN 2133-AB13

Cargo Preference--U.S.-Flag Vessels; Available U.S.-Flag

Commercial Vessels

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed amendment to the cargo preference regulations of

the Maritime Administration (MARAD) states that the requirement for the

carriage of preference cargoes on privately-owned ``available'' U.S.-

flag commercial vessels would be satisfied, during a one-season trial

period, by U.S.-flag commercial vessels calling at a Canadian

transshipment terminal outside the St. Lawrence Seaway, to load bulk

agricultural commodity cargoes subject to the cargo preference laws

that are transshipped from U.S. ports on the Great Lakes by U.S.-flag

or foreign-flag vessels; and determinations of ``fair and reasonable

rates for United States commercial vessels'' would include through

bills of lading for such available U.S.-flag commercial vessels. This

amendment would allow Great Lakes ports to compete for agricultural

commodity preference cargoes.

DATES: Comments on the one-season trial period for this rule must be

received on or before May 31, 1994, while comments on a permanent rule

or a rule of greater duration than the one-season trial period must be

received July 11, 1994.

ADDRESSES: Send an original and two copies of comments to the

Secretary, Maritime Administration, room 7300, 400 7th St., SW.,

Washington DC 20590.

FOR FURTHER INFORMATION CONTACT: John E. Graykowski, Deputy Maritime

Administrator for Inland Waterways and Great Lakes, Maritime

Administration, Washington, DC, 20590, Telephone (202) 366-1718.

SUPPLEMENTARY INFORMATION: United States law requires that at least 50

percent of cargo ``impelled'' by Federal programs (preference cargoes),

and transported by sea, be carried on privately-owned United States-

flag commercial vessels, to the extent that such vessels are available

at fair and reasonable rates. See sections 901(b) (the ``Cargo

Preference Act'') and 901b, Merchant Marine Act, 1936, as amended

(``the Act''), 46 App. U.S.C. 1241(b) and 1241f. The Secretary of

Transportation is desirous of administering that program so that all

ports and port ranges may participate. As discussed below, to achieve

these objectives, MARAD is proposing to amend its cargo preference

regulations to allow Great Lakes ports to compete for agricultural

commodity preference cargoes for a one-season trial period,

corresponding to the Great Lakes shipping season when the St. Lawrence

Seaway system is in use.

For a number of reasons, United States-flag commercial vessels in

foreign commerce do not serve the Great Lakes. Consequently, cargoes

subject to cargo preference are not loaded at Great Lakes ports,

resulting in significantly less cargo for these ports in comparison

with ports on other United States coasts. MARAD proposes to permit

cargoes to be counted toward the preference requirements if they are

loaded at Great Lakes ports for the trip along the St. Lawrence Seaway

and then transferred to United States-flag vessels for the ocean

portion of their carriage. The registry (``flag'') of the vessel

loading the cargo on the Great Lakes and carrying it through the Seaway

would not be relevant. This rule would be in effect during a trial

period corresponding to the current Great Lakes shipping season.

MARAD has issued a regulation governing compliance with cargo

preference requirements by shipper agencies, which is published at 46

CFR 381.8. This proposed rule would add a new section 381.9 to MARAD's

cargo preference regulations. It would state that: (1) For a one-season

trial period, the requirement for ``available'' U.S.-flag commercial

vessels under the Act would be satisfied by U.S.-flag commercial

vessels calling at a Canadian transshipment terminal outside the St.

Lawrence Seaway to carry bulk agricultural commodity cargoes subject to

the cargo preference laws, transshipped from U.S. ports on the Great

Lakes by U.S.-flag or foreign-flag vessels; and (2) determinations of

``fair and reasonable rates for United States commercial vessels''

under section 901(b) would include through bills of lading for such

available U.S.-flag vessels. Such combination foreign/U.S.-flag voyages

would not be allowed if, in the future, all-U.S.-flag carriage, at fair

and reasonable rates for U.S.-flag commercial vessel service, becomes

available to load bulk agricultural commodities at U.S. Great Lakes

ports.

Based on experience during the trial period, and after reviewing

comments on this rulemaking, MARAD will consider whether to make this

rule permanent, or extend it for a period of time longer than the one-

season trial period.

The need for this rulemaking arises due to changing shipping

conditions affecting U.S.-flag vessels operating in the Great Lakes,

resulting in the absence of all-U.S.-flag vessel availability for the

carriage of cargo between U.S. Great Lakes ports and foreign countries.

We do not believe that this proposal is precluded by any rulings of

the Comptroller General. Specifically, in 1960, the Comptroller General

examined a practice involving shipment of preference cargoes from U.S.

Great Lakes ports to Canadian St. Lawrence River ports on foreign-flag

vessels for ``topping off'' U.S.-flag ocean-going vessels which had

partially loaded at U.S. Great Lakes ports. No. B-140872, 39 Comp. Gen.

758 (1960). The Comptroller General's opinion found no basis to

criticize a regulation of the Department of Agriculture holding that 50

percent of the cargo1 moving between the U.S. Great Lakes ports

and Canadian St. Lawrence River ports must move on U.S.-flag vessels.

It should be noted that at that time there was some all-U.S.-flag

service to U.S. Great Lakes ports.

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\1\The Comptroller General's 1960 decision predated the 75

percent requirement instituted by the Food Security Act of 1985.

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Dramatic changes in shipping conditions have occurred since 1960,

including the disappearance of any all-U.S.-flag commercial ocean-going

service to foreign countries from U.S. Great Lakes ports. The static

configuration of the St. Lawrence Seaway system and the evolving

greater size of commercial vessels is one significant shipping change.

In 1960, the average U.S.-flag general cargo vessel had a deadweight

tonnage of 10,976; while in 1993, the average U.S.-flag general cargo

vessel had a deadweight tonnage of 17,464.2 In addition, the

average size of U.S.-flag vessels used for the carriage of bulk

agricultural product cargoes has increased greatly during the past ten

years.

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\2\Source: Maritime Administration, Office of Trade Analysis and

insurance.

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The following table shows the total amounts of bulk agricultural

product preference cargo moving out of the Great Lakes, and the amounts

moving on U.S.-flag vessels out of the Great Lakes, during the years

1986-1993.

USDA Export Program Cargoes Emanating from the Great Lakes Subject to

Cargo Preference

[In metric tons]

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Percent

Calendar year American Foreign Total U.S.

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1986................ 10,518 225,708 236,226 4.5

1987................ 6,989 251,252 258,246 2.7

1988................ 97,581 124,360 221,941 44.0

1989................ 119,271 79,766 199,037 59.9

1990................ ........... ........... ........... ...........

1991................ ........... 26,405 26,405 ...........

1992................ ........... 14,505 14,505 ...........

1993................ 36,000 10,004 46,004 73.3

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Source: Department of Agriculture, Kansas City Commodity Office, Export

Operations Division.

For the period 1986 through 1993, total USDA controlled

agricultural export tonnage from the Great Lakes was 1,002,364 metric

tons. The total tonnage carried by U.S.-flag vessels was 270,359 metric

tons, or 27 percent. However, little preference cargo has moved on

U.S.-flag vessels out of the Great Lakes since 1989, with the exception

of the MORMACSKY trial in 1993, discussed below. At present, the Great

Lakes simply do not have any all-U.S.-flag ocean freight capability for

carriage of bulk preference cargo. In contrast, the total non-liner

export nationwide of USDA and AID agricultural assistance program cargo

subject to cargo preference in the 1992-3 cargo preference year (the

latest program year for which figures are available) amounted to

6,297,015 metric tons, of which 4,923,244 mt. or 78.2 percent was

transported on U.S.-flag vessels. (Source: Maritime Administration data

base.)

The disappearance of government-impelled cargo flowing from the

Great Lakes coincides with the expiration of the Great Lakes ``set

aside.'' Under the Food Security Act of 1985, Public Law 99-198,

codified at 46 App. U.S.C. 1241f(c)(2), a certain minimum amount of

government-impelled cargo was required to be allocated to Great Lakes

ports during calendar years 1986, 1987, 1988 and 1989. That ``set-

aside'' expired in 1989, and was not renewed by the Congress.

The 1993 results reflect a unique movement out of the Great Lakes

involving a U.S.-flag mother ship and two U.S.-flag feeder vessels. Two

U.S.-flag lake bulk carriers, the J. L. MAUTHE and the AMERICAN

MARINER, served as feeders bringing wheat from a U.S. Great Lakes port

to a Canadian transshipment point where the MORMACSKY, a U.S.-flag

ocean going vessel, loaded the cargo destined to Russia. All the

vessels were under the control of U.S.-flag carriers. Reportedly, the

demonstration was possible as a result of commodity prices in the

Midwest which favored the Great Lakes over other U.S. ports. However,

the MORMACSKY experiment has not been duplicated. The high cost of

U.S.-flag feeder carriage involved in such transshipment would normally

allow future transshipment only if foreign-flag vessels brought the

cargo to the Canadian transshipment point and resulted in the lowest

landed cost.

This rule would not establish a preference or set aside for the

Great Lakes. Availability of U.S.-flag service would continue to be

determined on a national basis. The amount of cargo reserved for U.S.-

flag vessels overall would not decrease because the cargo to be moved

on foreign-flag feeder vessels to Canadian transshipment points would

not be ``subtracted out'' from the 75 percent of cargoes reserved for

U.S.-flag carriage.

This proposed rule recognizes the operational limitations of the

St. Lawrence Seaway and makes it possible for U.S. ports situated on

the Great Lakes to compete with ports located on the other coastal

ranges of the United States for the shipment of bulk agricultural

product cargoes. It would not guarantee that cargoes will move through

Great Lakes ports, but would only allow the Great Lakes ports an

opportunity to compete for such cargoes. Movements out of the Great

Lakes would still be required to be cost competitive with U.S.-flag

service from the other coastal ranges in order to attract cargoes.

This proposed rule would not interfere with the concept of ``lowest

landed cost'' contained in the regulations of the Commodity Credit

Corporation (CCC), a unit of the Department of Agriculture responsible

for obtaining agricultural products for shipment under various foreign

aid programs. The CCC regulations, at 7 CFR 1496.5, provide that the

lowest combined total cost of the commodity, plus transportation

charges to the port of destination calculated on the basis of U.S.-flag

rates and availability, will prevail with regard to awarding contracts.

The proposed combined transportation originating at Great Lakes ports

would compete on the basis of lowest landed cost with U.S.-flag vessel

availability from the other port ranges.

As for determining a ``fair and reasonable'' rate for this mixed

carriage, the U.S.-flag component would be considered under the

existing regulations at 46 CFR part 382 or part 383, as appropriate,

with the cost for the foreign-flag component incorporated into the

U.S.-flag component in the same way as the cost of foreign-flag vessels

used in lightening operations in the recipient country's territorial

waters.

Rulemaking Analyses and Notices

This rulemaking has been reviewed under Executive Order 12866 and

Department of Transportation Regulatory Policies and Procedures (44 FR

11034, February 26, 1979). It is not considered to be an economically

significant regulatory action under section 3(f) of E.O. 12866, since

it has been determined that it is not likely to result in a rule that

may have an annual effect on the economy of $100 million or more or

adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities. Since this rule would affect other Federal agencies, is of

great interest to the maritime industry, and has been determined to be

a significant rule under the Department's Regulatory Policies and

Procedures, it is considered to be a significant regulatory action

under E.O. 12866. The abbreviated time for comment on the one-season

trial period is necessitated by the opening of the St. Lawrence Seaway

System on April 5, 1994.

MARAD projects that this rule would allow the movement of up to

250,000 to 300,000 metric tons of agricultural commodities from Great

Lakes ports, with a reduction in the shipping cost to the sponsoring

Federal agencies of up to $2 to $3 per metric ton ($500,000 to

$900,000).

This rule has been reviewed by the Office of Management and Budget

under Executive Order 12866.

Federalism

The Maritime Administration has analyzed this rulemaking in

accordance with the principles and criteria contained in Executive

Order 12612 and has determined that these regulations do not have

sufficient federalism implications to warrant the preparation of a

Federalism Assessment.

Regulatory Flexibility Act

The Maritime Administration certifies that this rulemaking will not

have a significant economic impact on a substantial number of small

entities.

Environmental Assessment

The Maritime Administration has considered the environmental impact

of this rulemaking and has concluded that an environmental impact

statement is not required under the National Environmental Policy Act

of 1969.

Paperwork Reduction Act

This rulemaking contains no reporting requirement that is subject

to OMB approval under 5 CFR Part 1320, pursuant to the Paperwork

Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

List of Subjects in 46 CFR Part 381.

Freight, Maritime carriers.

Accordingly, MARAD proposes to amend 46 CFR part 381 as follows:

PART 381--[AMENDED]

1. The authority citation for Part 381 would be revised to read as

follows:

Authority: 46 App. U.S.C. 1114(b), 1122(d), and 1241; 49 CFR

1.66.

2. A new Sec. 381.9 would be added to read as follows:

Sec. 381.9 Available U.S.-flag service for 1994.

For purposes of shipping bulk agricultural commodities from U.S.

Great Lakes ports during the 1994 shipping season, if direct U.S.-flag

service, at fair and reasonable rates, is not available at U.S. ports

in the Great Lakes, a joint service involving a foreign-flag vessel(s)

carrying cargo no farther than a Canadian port(s) on the Gulf of St.

Lawrence, with transshipment via a U.S.-flag privately owned commercial

vessel to the ultimate destination, will be deemed to comply with the

requirement of ``available'' commercial U.S.-flag service under the

Cargo Preference Act of 1954. Shipper agencies considering bids

resulting in the lowest landed cost of transportation based on U.S.-

flag rates and service shall include within the comparison of U.S.-flag

rates and service, for shipments originating in U.S. Great Lakes ports,

through rates incorporating a foreign-flag leg from U.S. Great Lakes

ports to a Canadian port on the Gulf of St. Lawrence and a U.S.-flag

leg for the remainder of the voyage. The ``fair and reasonable'' rate

for this mixed service will be determined by considering the U.S.-flag

component under the existing regula- tions at 46 CFR part 382 or 383,

as appropriate, and incorporating the cost for the foreign-flag

component into the U.S.-flag ``fair and reasonable'' rate in the same

way as the cost of foreign-flag vessels used to lighten U.S.-flag

vessels in the recipient country's territorial waters.

Dated: May 4, 1994.

By order of the Maritime Administrator.

James E. Saari,

Secretary, Maritime Administration.

[FR Doc. 94-11133 Filed 5-10-94; 8:45 am]

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