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, Transportation.

ACTION: Final rule

-----------------------------------------------------------------------

SUMMARY: This amendment to the cargo preference regulations of the

Maritime Administration (MARAD) provides that, for a one-season trial

period corresponding to the current Great Lakes shipping season when

the St. Lawrence Seaway System is in use, which began on April 5, 1994,

MARAD will consider the legal requirement for the carriage of bulk

agricultural commodity preference cargoes on privately-owned

``available'' U.S.-flag vessels to have been satisfied where the cargo

is initially loaded at a Great Lakes port on one or more U.S.-flag or

foreign-flag vessels, transferred to a U.S.-flag commercial vessel at a

Canadian transshipment point outside the St. Lawrence Seaway, and

carried on that U.S.-flag vessel to a foreign destination. This

amendment will allow Great Lakes ports to compete for agricultural

commodity preference cargoes during that one-season trial period.

EFFECTIVE DATE: This final rule is effective on August 8, 1994.

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 at 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, 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.'' The Secretary

of Transportation is desirous of administering that program so that all

ports and port ranges may participate. MARAD is amending its cargo

preference regulations to facilitate the ability of 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. This final rule reflects

MARAD's review of comments submitted by nine parties in response to the

publication of a notice of proposed rulemaking (NPRM).

Reason for Rule

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

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

cargoes subject to the cargo preference laws are not loaded on U.S.-

flag vessels at Great Lakes ports, resulting in significantly less

cargo for these ports than for ports on other United States coasts.

MARAD will allow cargoes to be counted toward the preference

requirements if they are loaded initially on foreign-flag vessels at

U.S. 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 to a foreign destination. When all-U.S. service is not

available, the registry (``flag'') of a vessel loading the cargo on the

Great Lakes and carrying it through the Seaway would not be relevant.

This rule will be in effect during a trial period corresponding to the

current Great Lakes shipping season when the St. Lawrence Seaway System

is in use, which began on April 5, 1994.

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.

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 are significant shipping changes. 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. 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.

As shown by a table appearing in the interim final rule, no

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 hereinafter. 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.

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 export nationwide by non-liner vessels of USDA and

USAID agricultural assistance program cargoes subject to cargo

preference in the 1992-1993 cargo preference year (the latest program

year for which figures are available) amounted to 6,297,015 metric

tons, of which 4,923,244, or 78.2 percent, was transported on U.S.-flag

vessels. (Source: Maritime Administration database.)

In 1993 a unique movement of agriculture commodity preference cargo

out of the Great Lakes occurred, 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 oceangoing 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.

Proposed Rule and Comments

For the purpose of allowing Great Lakes ports to have the

opportunity to compete for agricultural commodity preference cargoes

and to assess the results, MARAD issued a NPRM (59 FR 24390, May 11,

1993), proposing to amend its cargo preference regulations at 46 CFR

Part 381. That amendment relates to compliance by Federal shipper

agencies, pursuant to section 381.8, with applicable cargo preference

requirements for programs that they administer. The NPRM proposed to

add a new section 381.9, providing that, when direct U.S.-flag service

is not available at fair and reasonable rates from U.S. Great Lakes

ports, for a one-season trial period, (1) 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 port on the Gulf of St. Lawrence to carry to the ultimate

(foreign) destination bulk agricultural commodity cargoes subject to

the cargo preference laws, that were initially loaded at 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.

MARAD stated in the NPRM that, based on experience during the one-

season trial period, it will consider whether to make the rule

permanent or to extend it for a period longer than the one-season trial

period. A comment period of 20 days applied to the one-season trial

period.

The nine commenters represent U.S. Great Lakes port and shipping

interests, the grain industry, maritime labor and two Federal agencies

which administer agricultural commodity assistance programs that are

subject to cargo preference requirements. All commenters expressed

approval of MARAD's determination that, for a trial period, the

transshipped bulk agricultural commodities meet the legal requirement

that preference cargoes be carried on privately owned ``available''

U.S.-flag vessels. Four of the commenters, noting that the one-season

trial period cannot, as a practical matter, begin before July 1994,

allowing only a shortened season, recommended extending the trial

period through the 1995 Great Lakes season, while two commenters

specifically limited their approval to a one-season trial period.

The United States Agency for International Development (USAID)

suggested that additional consideration of the legal basis for the rule

is merited in two areas. First, USAID observed that MARAD failed to

state that the rule would further an objective recognized under the

Cargo Preference Act. Second, they questioned whether the rule is

consistent with several Comptroller General Opinions not cited by MARAD

in the NPRM.

This rule is being promulgated pursuant to MARAD's authority under

sections 204(b) and 901(b)(2) of the Act, 46 App. U.S.C. 1114(b) and

1241(b)(2). Any rule promulgated by MARAD under the Act must implement

the Act's statutory mandate. Independent U.S. Tanker Owners v. Lewis,

690 F. 2d 908, 917 (D.C. Cir. 1982). The Act was passed to foster an

efficient, modern, American-owned and operated merchant fleet, able to

carry a substantial portion of American export and import trade, and

able to serve as a naval auxiliary in time of war. See the Act's

Declaration of Policy, 46 App. U.S.C. Sec. 1101; Sea-Land Service, Inc.

v. Dole, 723 F. 2d 975, 976 (D.C. Cir. 1983).

The Cargo Preference Act, which amended the Act, was passed to

enhance promotion of the merchant fleet by assuring that at least 50

percent (now 75 percent for the agricultural export programs affected

by this rule) of Government-sponsored cargoes transported on ocean

vessels would be moved on privately-owned U.S.-flag commercial vessels.

46 App. U.S.C. Sec. 1241(b), e-o. Congress viewed the Cargo Preference

program as fundamental to maintenance of a thriving merchant marine,

because the program would assure that a baseline amount of cargo would

be available for carriage by the American fleet. S. Rep. No. 1584, 83rd

Cong. 2nd Sess. 1 (1954).

By allowing additional ports to participate in moving preference

cargoes, the NPRM would potentially benefit the American merchant

marine by helping to avoid situations where cargo is routed on foreign-

flag vessels due to non-availability of U.S.-flag vessels. Including

additional ports makes it more likely that U.S.-flag vessels would be

available when and where the preference cargo is set to move, thus

giving greater assurance that the mandated 75 percent U.S.-flag

carriage of agricultural commodity preference cargo will continue to be

achieved.

The NPRM discussed the import of the Comptroller General's decision

in B-140872, 39 Comp. Gen. 758 (1960), inasmuch as that decision

specifically addressed the issue of foreign-flag feeder vessels in the

Great Lakes. It explained that the factual basis underlying the

Comptroller General's decision had changed since 1960, leading to a

conclusion that the decision does not preclude promulgation of the rule

as proposed.

USAID requested that MARAD review the following additional

opinions: B-165421, 48 Comp. Gen. 429 (12/23/68); B-155185, unpublished

(11/17/69); B-145455, 49 Comp. Gen. 755 (5/5/70); B-136530, 55 Comp.

Gen. 1097 (5/12/76). Each of these decisions is predicated on providing

the protection to U.S.-flag vessels envisioned in either the 1904 or

1954 Acts. It should be noted that no comments were received on behalf

of any U.S.-flag vessel complaining that the proposed rule would reduce

or eliminate such protection of the U.S.-flag fleet.

In B-165421, the Comptroller General held that it was a violation

of the Cargo Preference Act of 1904, 10 U.S.C. 2631, to use foreign-

flag vessels operating from Great Lakes ports to transport military

troop support cargo overseas instead of using U.S.-flag vessels

operating from the U.S. East Coast, because cost or time and distance

considerations could not be used to avoid using U.S.-flag vessels,

unless the cost of using U.S.-flag vessels is excessive or otherwise

unreasonable. MARAD's NPRM is consistent with B-165421, as MARAD has

indicated no intention in the NPRM to allow foreign-flag vessels to

perform the entire voyage from Great Lakes ports.

In B-155185, the Comptroller General held that whether the cargo

type (urea in that shipment) normally moves in commercial channels

already bagged, or in bulk, the Cargo Preference requirements may not

be avoided through the ``simple device'' of either the buyer or seller

choosing where the essential item being procured is to be packaged. The

holding in B-155185 is not applicable to this NPRM because the 1954 Act

is not being avoided.

In B-145455, the Comptroller General held that where service by

U.S.-flag vessels is not available for the entire distance between the

U.S. port of origin and the overseas destination, the 1904 Act requires

transportation by sea aboard U.S.-flag vessels, with transshipment to

foreign land carriers to be preferred over transportation by sea aboard

U.S. vessels, with transshipment to foreign-flag feeder ship. The

Comptroller General was concerned that allowing the option of foreign-

flag feeders under the 1904 Act in that circumstance could lead to a

reduction in the use of U.S.-flag vessels. 57 Comp. Gen. 531, 537.

Here, the rule would not lead to reduction in the use of U.S.-flag

vessels because a U.S.-flag vessel would still be needed for the line

haul portion of the voyage.

In B-136530, the Comptroller General held that LASH (Lighter Aboard

Ship) services to be performed with U.S.-flag vessels and partly with a

foreign-flag FLASH (Float On/Float Off LASH vessel) system to deliver

Government-sponsored cargoes to the port of Chittagong in Bangladesh

contravenes the 1954 Act because there was direct service to

Chittagong. MARAD's rule is consistent with the holding in B-136530,

inasmuch as foreign-flag feeders will not be permitted if U.S.-flag

vessels begin to call at Great Lakes ports.

MARAD has the discretion to determine availability of U.S.-flag

vessels to carry preference cargo. The NPRM indicated MARAD's

determination that if U.S.-flag oceangoing vessels do not call at Great

Lakes ports, ``available'' U.S.-flag vessels would include U.S.-flag

vessels calling at a Canadian transshipment terminal outside the St.

Lawrence Seaway that carry bulk agricultural commodity cargoes

transshipped from the Great Lakes by foreign-flag feeder vessels. While

USAID suggested that additional consideration of the legal basis was

merited, no commenter disagreed with MARAD's conclusion that there is

sufficient legal authority for promulgation of the proposed rule.

USAID also commented that it was concerned that MARAD's rule

``might be interpreted as a requirement that even where total U.S.-flag

service is unavailable, USAID-financed purchasers or suppliers would

have to utilize partial U.S.-flag service,'' thus restricting that

agency's flexibility for financing agricultural commodities under its

Commodity Import Programs (CIPs). Although USAID presently has no CIPs

financing bulk cargoes, it has requested MARAD to consider amending its

rule to refer specifically to P.L. 480 cargoes and related programs in

order to avoid any confusion in this regard. It is emphasized that this

rule will be in effect during an abbreviated one-season trial period

limited to the Great Lakes. USAID has not explained how this rule will

impair its flexibility under its CIPs and MARAD is not aware of

potential difficulties that this rule might present.

MARAD stated in the discussion of the NPRM that it would not

interfere with the concept of ``lowest landed cost'' contained in the

regulations, at 7 CFR 1496.5, of the Department of Agriculture's (USDA)

Commodity Credit Corporation (CCC), providing 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

combined transportation originating at Great Lakes ports would compete

on the basis of lowest landed cost (cost of freight plus cost of

commodity) with U.S.-flag vessel availability from the other port

ranges.

As for determining a ``fair and reasonable'' rate for the 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, if the U.S.-flag carrier offers mixed carriage.

Comments concerning the determination of ``fair and reasonable''

guideline rates during the trial period were received from the United

States Department of Agriculture (USDA). USDA inquired whether MARAD

would be willing to provide guideline rates in advance of the commodity

award. USDA was concerned that after the commodity was purchased no

bidder would be found available at a ``fair and reasonable'' rate, and

USDA or the importing country would find itself unable to arrange

substitute foreign-flag ocean carriage, except at very high rates. In

situations where the commodity is to be shipped directly from a U.S.

Great Lakes port, and the U.S. ocean shipper is arranging the interlake

transportation, MARAD is prepared to provide shipper agencies with a

determination of availability at ``fair and reasonable'' rates prior to

commodity purchase. However, the change made in the final rule allows

the customary practice of offering U.S. produced commodities FOB

Canadian transshipment port or point. The situation under these

circumstances will not be appreciably different from those where USDA

buys a commodity for shipment from most other U.S. port ranges.

USDA and other shipper agencies recognize that, in order for MARAD

to provide this guidance in a timely and reliable manner, the shipper

agency must provide MARAD with all responsive bids meeting the above

criteria at the time they are offered. MARAD will then calculate the

appropriate guideline rates and determine if at least one of the

offerors is available at a fair and reasonable rate. Since the timing

of requests for guideline rates is an administrative matter between

Government agencies, no change in the final rule is necessary.

As published, the NPRM would appear to make the shipowner

responsible for arranging both the Seaway transportation as well as the

transshipment onto a U.S.-flag vessel in Canadian waters. Three

commenters noted that this requirement is inconsistent with current

practice wherein the supplier arranges the commodity delivery to the

deeper water transshipment point. For example, when suppliers offer FOB

U.S. Gulf ports, the price of the barge freight down the Mississippi

River is included. For purposes of consistency, grain suppliers should

be able to offer FOB Canadian transshipment point. In addition to

causing higher freight costs, this inconsistency with current practice

places an intermodal contracting burden on the shipowners which they

may not wish to assume. If the shipowners do not have the option to

offer a rate from a Canadian transshipment point the purpose of the

rulemaking, which is to give competitive parity to all ports, would be

negated. These respondents requested that the NPRM be amended to allow,

alternatively, the commodity supplier to offer FOB Canadian

transshipment point.

MARAD supports this recommendation because it reflects current

commercial practice, would enhance the ability for all ports to compete

equally to ensure the lowest cost to the U.S. Government, is consistent

with previous implementation of the Great Lakes set-aside and is

already covered by USDA regulations. The final rule has been modified

to clarify that the supplier may offer the cargo FOB Canadian

transshipment point as an alternative to through bills of lading issued

by the U.S.-flag carrier covering Great Lakes to final destination.

Rulemaking Analysis 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. However, 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.

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

300,000 metric tons of agricultural commodities from Great Lakes ports,

with a reduction in the shipping cost to sponsoring Federal agencies up

to $2 to $3 per metric ton ($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 it has been 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 hereby amends 46 CFR part 381 as follows:

PART 381--[AMENDED]

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

follows:

Authority: 46 App. U.S.C. 1101, 1114(b), 1122(d) and 1241; 49

CFR 1.66.

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

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

For purposes of shipping bulk agricultural commodities under

programs administered by sponsoring Federal agencies 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. Great

Lakes ports, a joint service involving a foreign-flag vessel(s)

carrying cargo no farther than a Canadian port(s) or other point(s) on

the Gulf of St. Lawrence, with transshipment via a U.S.-flag privately

owned commercial vessel to the ultimate foreign 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 (if offered) to a Canadian port

or other point 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 regulations 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. Alternatively, the supplier of

the commodity may offer the Cargo FOB Canadian transshipment point.

Fair and reasonable rates will be determined accordingly.

Dated: August 4, 1994.

By Order of the Maritime Administrator.

Joel C. Richard,

Acting Secretary, Maritime Administration.

[FR Doc. 94-19383 Filed 8-5-94; 8:45 am]

BILLING CODE 4910-81-P