Determination of Fair and Reasonable Guideline Rates for the Carriage of Less-Than-Shipload Lots of Bulk and Packaged Preference Cargoes on U.S.-Flag Commercial Liner Vessels

DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 383

[Docket No. R-156]

RIN 2133-AB16

Determination of Fair and Reasonable Guideline Rates for the

Carriage of Less-Than-Shipload Lots of Bulk and Packaged Preference

Cargoes on U.S.-Flag Commercial Liner Vessels

AGENCY: Maritime Administration, DOT.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The regulations at 46 CFR part 383 (``Rule'') specify the

procedures for the calculation of fair and reasonable guideline rates

for certain preference cargoes carried in U.S.-flag vessels employed in

a liner service. Currently, the rule applies only to less-than-shipload

lots of dry bulk preference cargoes on U.S.-flag vessels. The United

States Department of Agriculture (USDA) and the Agency for

International Development (AID), the major U.S. government shipper

agencies, have requested that the Maritime Administration (MARAD)

provide them with guideline rates for bagged and packaged agricultural

commodities and to clarify MARAD's policy for prioritization of U.S.-

flag shipping services for compliance with the cargo preference

requirements of the Cargo Preference Act of 1954. MARAD provides

guideline rates for such commodities on bulk vessels, under a similar

regulation for bulk vessels at 46 CFR part 382, but does not now

provide guideline rates for bagged or packaged cargoes in less-than-

shipload lots on vessels in a liner service. This amendment will extend

the scope of the rule to cover bagged or packaged agricultural

commodities in parcels of 5,000 tons and greater on vessels in a liner

service. Prioritization is outside the scope of these regulations;

MARAD will address this issue separately at a later date.

[[Page 20070]] DATES: Comments on the proposed rule must be received

on or before June 23, 1995.

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

Secretary, Maritime Administration, Room 7210, 400 7th St., SW.,

Washington DC 20590. To expedite reviewing the comments the agency

requests, but does not require, submission of an additional ten (10)

copies. All comments will be made available for inspection during

normal business hours at the above address. Commenters wishing MARAD to

acknowledge receipt of comments should enclose a stamped self-addressed

envelope or postcard.

FOR FURTHER INFORMATION CONTACT: Michael P. Ferris, Director, Office of

Costs and Rates, Maritime Administration, Washington, DC 20590,

Telephone (202) 366-2324.

SUPPLEMENTARY INFORMATION: Section 901(b) of the Merchant Marine Act,

1936, as amended, cited as the Cargo Preference Act of 1954, requires

that, with respect to certain cargoes which could be described as

``government-impelled,'' such as food donation programs administered by

the State Department or the Department of Agriculture, the cognizant

government agency or agencies must take appropriate steps to assure

that at least 50 percent of the gross tonnage of such cargoes

transported on ocean vessels will be ``transported on privately owned

United States-flag commercial vessels, to the extent such vessels are

available at fair and reasonable rates for United States-flag

commercial vessels'' (46 App. U.S.C. 1241(b)). Section 901b of the Act,

cited as the Food Security Act of 1985, increased the 50 percent

carriage requirement to 75 percent for agricultural commodities or

products shipped under certain food donation programs (46 App U.S.C.

1241f). The rule (46 CFR part 383) was promulgated to govern the

determination of ``fair and reasonable rates'' (also referred to as

guideline rates) for the carriage of dry bulk preference cargoes, in

less-than-shipload lots, on U.S.-flag vessels employed in a liner

service. It was originally issued on and became effective November 9,

1987. It was subsequently modified, effective January 2, 1992 (57 FR

21036).

Liner operators provide important services to the public as well as

shippers of packaged agricultural commodities, for example,

consolidations of cargo, intermodal movements and scheduled services.

These services are frequently needed and sought by shippers of

government impelled cargo. USDA's Commodity Credit Corporation (CCC)

through a system of monthly invitations for the purchase of

agricultural products and transportation services is the major

government contractor of agricultural liner cargo. U.S.-flag liner

operators offer transportation bids for the carriage of certain liner

cargoes, and the cargo is allocated as to load and discharge ranges

based on product prices and these bids. The CCC may then seek lower

bids from U.S. liner and bulk operators for the 75% allocation or book

the cargo at the rates originally bid.

In general, liner services have complex cost and operating

structures which frequently make the determination of guideline rates

difficult and impractical. When the Rule was originally proposed in

1986, liner operators carrying most agricultural preference cargoes

operated in this more structured environment carrying a wide variety of

cargoes to and from numerous domestic and foreign ports. It was also

believed, since packaged liner preference cargoes were generally

transported under conference freight tariffs filed with the Federal

Maritime Commission, that the rates charged were subject to sufficient

competition to assure reasonableness. Additionally, the numerous types

of parcels in a wide variety of sizes, many below 1,000 metric tons,

shipped to various locations would pose substantial administrative and

technical problems if guideline rates calculations were to be

attempted.

However, MARAD now believes that a significant portion of the

bagged and packaged agricultural preference cargoes are carried on

voyages in large parcel lots, frequently a consolidation of several

small parcels. In these instances, where large parcel lots are being

carried, the liner voyage often takes on enough of the pricing

characteristics of a bulk voyage that it should be treated on an equal

basis with bulk voyages. Also, many of the administrative and technical

restraints are eliminated or minimized when guideline rates are only

determined for large parcels. As such, it is appropriate and feasible

that MARAD furnish a shipper agency with a guideline rate for large

parcels when it is requested.

MARAD also recognizes that certain sizes or amounts of cargo are

well suited for carriage by a vessel in a common carrier liner service,

while larger amounts are better suited for carriage outside the liner

service system. This recognition, which was expounded in the

Administration's proposed maritime reform legislation, has resulted in

the decision to calculate a fair and reasonable guideline rate when a

vessel carries a 5,000 ton parcel of preference cargo. Parcels smaller

than 5,000 tons pose administrative and technical restraints that

prevent calculation of rates that can be reliably termed fair and

reasonable, so these parcels will continue to be subject only to the

common carrier rate process.

Since U.S. shipper agencies may consolidate two or more distinct

cargoes from the same port or region to the same discharge port or

region, and those cargoes may individually be less than 5,000 metric

tons, but collectively exceed 5,000 metric tons, a clear definition of

the term ``parcel'' is required. To determine the most functional

definition, MARAD evaluated over 2,000 bills of lading, pertaining to

over 1.0 million metric tons of agricultural liner parcels shipped by

U.S. shipper agencies during the period October 1, 1992 to September

30, 1993. The data showed that various agricultural preference cargoes

destined for the same country were frequently carried on the same

voyage.

In analyzing this sample, MARAD consolidated preference cargoes

into parcel lots under three different definitions for a parcel, all of

which were at least 5,000 metric tons. The first, equal to

approximately one-third of the sample, was preference cargo in parcel

lots shipped on voyages from a single U.S. port to a single foreign

port. The second definition used an expanded load range which included

all the ports within a U.S. load port range (i.e., U.S. Gulf) to a

single foreign port. This expansion increased the amount of sample

tonnage covered to about 45 percent of the sample cargo. The third

definition used a further expansion to include a discharge range of all

ports of the recipient country. This third definition of parcel covered

over two-thirds of the cargo analyzed.

As part of the analysis, MARAD reviewed the three options for

complexity of determining guideline rates and for their conformity with

MARAD's policy goals of providing guideline rates that are reasonable

for the shipper agencies and fair to an efficient U.S.-flag operator.

The first option, parcels over 5,000 metric tons shipped from a single

load to a single discharge port, would involve the simplest ratemaking

but would have the least impact on the number of shipments subject to

fair and reasonable guideline rate calculations. The third option,

parcels over 5,000 metric tons shipped from a single U.S port range to

a port or ports within a single discharge country, would have the

greatest level of cargo coverage but results in a slightly more

complicated ratemaking process. [[Page 20071]] The second option falls

between the other options in both considerations. MARAD believes that

it would be feasible within the current regulations to determine fair

and reasonable guideline rates under any of the three options. Since

the third option provides guideline rate coverage to the largest amount

of cargo and is most consistent with MARAD policy goals stated above,

this definition for parcel is being proposed.

As a result of this analysis, for purposes of this rulemaking a

parcel will be defined as any group of cargoes subject to cargo

preference laws offered by a U.S. shipper agency, host country and/or

Private Voluntary Organization (PVO), individually or in combination,

loaded in a port or ports within a single U.S. coastal port range (U.S.

Gulf coast, U.S. East coast, U.S. West coast, U.S. Great Lakes, Alaska

and Hawaii) and discharged at a port or ports of a single foreign

country or destined for a single foreign country.

Accordingly, this rulemaking proposes to change the scope of the

Rule to include bagged and packaged preference parcels of 5,000 metric

tons and greater which are offered for carriage to U.S.-flag operators.

In addition, certain conforming changes will be necessary to parts of

the existing regulation to administratively facilitate the proposed

amendment.

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review)

This regulation 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 will not result in an annual effect on

the economy of $100 million or more or adversely affect in a material

way the economy, productivity, competition, jobs, the environment,

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

communities.

While this rulemaking does not involve any change in important

Departmental policies, it is considered significant because it

addresses a matter of considerable importance to the maritime industry

and may be expected to generate significant public interest. MARAD has

estimated the potential economic impact of this rulemaking based on a

sample of approximately 2,000 individual liner parcels totalling over

1.0 million metric tons booked during the period October 1, 1992 to

September 30, 1993. Based on this data, MARAD estimates that guideline

rates for approximately 700,000 metric tons could have been calculated

and proffered to the responsible shipper agency. If guideline rates

were calculated using this rulemaking and the actual fixture reduced to

guideline rate, when appropriate, freight charges paid by the

government would have declined resulting in a reduction in shipper

revenue and government expenditures of approximately 2 to 4 percent.

During this period, estimated freight charges paid by government

agencies for agricultural liner cargoes were about $200 million. Under

market conditions characterizing the study period, total savings are

estimated to be $4 to 8 million annually. Because the economic impact

should be minimal relative to the total freight costs for agricultural

preference cargoes, further regulatory evaluation is not necessary.

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 regulation will not

have a significant economic impact on a substantial number of small

entities.

Environmental Assessment

This regulation does not significantly affect the environment. An

Environmental Impact Statement is not required under the National

Environmental Policy Act of 1969.

Paperwork Reduction Act

This proposed regulation does not significantly change the current

requirement for the collection of information. The Office of Management

and Budget (OMB) has reviewed the current regulation under the

Paperwork Reduction Act (44 U.S.C. 3501 et seq.), and has approved it

under OMB Approval Number 2133-0515.

List of Subjects in 46 CFR Part 383

Agricultural commodities, Cargo vessels, Government procurement,

Grant programs--foreign relations, Loan programs--foreign relations,

Water transportation.

MARAD hereby proposes to amend 46 CFR part 383, as follows:

1. The authority citation for part 383 would continue to read as

follows:

Authority: 46 App U.S.C. 1114(b), 1241(b), 49 CFR 1.66.

2. The heading is proposed to be revised to read as follows:

PART 383--DETERMINATION OF FAIR AND REASONABLE RATES FOR THE

CARRIAGE OF LESS-THAN-SHIPLOAD LOTS OF BULK AND PACKAGED PREFERENCE

CARGOES ON U.S.-FLAG COMMERCIAL LINER VESSELS

3. Section 383.1 is proposed to be revised to read as follows:

Sec. 383.1 Scope.

Part 383 prescribes regulations applying to the waterborne

transportation of bulk and packaged preference cargoes in less than

full shiploads on U.S.-flag commercial liner vessels. Full shiploads of

preference cargo and preference cargoes carried by vessels not operated

in the liner trades are covered under 46 CFR Part 382. These

regulations contain the method that the Maritime Administration (MARAD)

shall use in calculating fair and reasonable rates, and the type of

information that shall be submitted by liner operators interested in

carrying such preference cargoes. For the purpose of these regulations

the term less-than full shipload shall include: All cargoes in bulk;

or, bagged and/or packaged parcels greater than or equal to 5,000

metric tons and up to the full deadweight capacity of the specific

vessel. A U.S.-flag commercial liner vessel is any vessel used by the

operator which has previously carried cargo (except newly purchased or

constructed vessels) in the liner trades and will carry the subject

preference cargo in a liner trade previously established by the

operator. For these purposes, liner trades is defined as service

provided on an advertised schedule, giving relatively frequent sailing

between specific U.S. ports or ranges and designated foreign ports or

ranges; parcel is defined as any group of cargoes subject to cargo

preference laws offered by a U.S. shipper agency, host country or

Private Voluntary Organization (PVO), singularly or in combination,

loaded in a port or ports within a single U.S. coastal port range and

discharged at a port or ports of a single foreign country or destined

for a single foreign country.

Sec. 383.2 [Amended]

4. Section 383.2 Data Submission is proposed to be amended in

paragraph (a) General, in the first sentence, by removing the term

``dry bulk''. [[Page 20072]]

5. Section 383.3 is proposed to be amended by revising paragraph

(g) to read as follows:

Sec. 383.3 Determination of fair and reasonable rates.

* * * * *

(g) Total rate. The operating cost component, capital cost

component, fuel cost component and port and cargo handling cost

component shall be added together to yield a total cost element. This

total shall be multiplied by 13.5 percent to yield an allowance for

broker's commissions, and general and administrative expenses. This

allowance shall be added to the total cost element and divided by the

cargo tonnage to yield the guideline rate, generally expressed as a

cost per ton, except in those circumstances where a cost per ton rate

is not appropriate; for example, where two or more cargoes are carried

on the same voyage at differing rates per ton. In the event a cost per

ton rate is inappropriate, the rate shall be expressed in terms

appropriate to the circumstance.

By order of the Maritime Administrator.

Joel C. Richard,

Secretary.

[FR Doc. 95-10016 Filed 4-21-95; 8:45 am]

BILLING CODE 4910-81-P