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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-19383

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** August 8, 1994

## Text

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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-19383. Public record. Not legal advice.