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

DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 381

[Docket No. R-165]

RIN 2133-AB25

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

Commercial Vessels

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Final rule.

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SUMMARY: This amendment to the cargo preference regulations of the

Maritime Administration (MARAD) provides that during the five year

period beginning with the 1996 Great Lakes shipping season when the St.

Lawrence Seaway is in use, MARAD will consider the legal requirement

for the carriage of bulk agricultural commodity preference cargoes on

privately-owned ``available'' U.S.-flag commercial 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 provision will allow U.S. Great Lakes ports to

compete for certain bulk agricultural commodity preference cargoes

under agricultural assistance programs administered by the U.S.

Department of Agriculture (USDA) and the U.S. Agency for International

Development (USAID). This rule will extend that policy for an

additional five years, after which the Agency would assess the merits

of making the rule permanent. MARAD issued substantially identical

rules in 1994 and 1995 related to the Great Lakes Shipping season for

each of those years, respectively.

EFFECTIVE DATE: May 17, 1996.

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

Administrator for Inland Waterways and Great Lakes, Maritime

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

SUPPLEMENTARY INFORMATION: United States law at sections 901(b) and

901b, Merchant Marine Act, 1936, as amended (the ``Act''), 46 App.

U.S.C. 1241(b) and 1241f, requires that at least 75 percent of certain

agricultural product cargoes ``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 for United States-

flag commercial vessels, in such manner as will insure a fair and

reasonable participation of United States-Flag commercial vessels in

such cargoes by geographical areas.'' The Secretary of Transportation

wishes to administer that program so that all ports and port ranges,

including U.S. Great Lakes ports, may participate in the carriage of

preference cargoes under five programs administered by the United

States Department of Agriculture (USDA) and United States Agency for

International Development (USAID), pursuant to Titles I, II and III of

the Agricultural Trade Development and Assistance Act of 1954, as

amended; P.L. 480 (7 U.S.C. 1701-1727); the Agricultural Act of 1949,

as amended (7 U.S.C. 2791(c)); and the Food for Progress Act of 1985,

as amended (7 U.S.C. 1736).

Prior Rulemakings

On August 18, 1994, MARAD published a final rule on this subject in

the Federal Register (59 FR 40261). That rule stated that it was

intended to allow U.S. Great Lakes ports to participate with ports in

other U.S. port ranges in the carriage of bulk agricultural commodity

preference cargoes. It stated that dramatic changes in shipping

conditions have occurred since 1990, including the disappearance of any

all-U.S.-flag commercial ocean-going bulk cargo 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 contributed to the disappearance of any all-U.S.-flag service.

No bulk grain preference cargo has moved on U.S.-flag vessels out

of the Great Lakes since 1989, with the exception of one trial shipment

in 1993. 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 the Great Lakes shipping seasons of 1986, 1987, 1988 and

1989. That ``set-aside'' expired in 1989, and was not renewed by the

Congress. The disappearance of

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Government-impelled agricultural cargo flowing from the Great Lakes

coincided with the expiration of the Great Lakes ``set-aside.''

At the time of the opening of the 1994 Great Lakes shipping season

on April 5, 1994, the Great Lakes did not have any all-U.S.-flag ocean

freight capability for carriage of bulk preference cargo. The absence

of any all-U.S.-flag ocean freight capability on the Great Lakes

continues to this day. In contrast, the total export nationwide by non-

liner vessels of USDA and USAID agricultural assistance program cargoes

subject to cargo preference in the 1994-1995 cargo preference year (the

latest program year for which figures are available) amounted to 6.2

million metric tons, of which 4.9 million (78 percent) was transported

on U.S.-flag vessels.

As predicted by numerous commenters, the timing of the 1994 final

rule, published on August 18, 1994, did not allow for a true trial

period since it actually extended for less than one-half of the 1994

Great Lakes Shipping season. Because of the long lead time required for

arranging shipments of bulk agriculture commodity preference cargoes,

there apparently was no real opportunity for U.S.-flag vessel operators

to make the necessary arrangements and bid on preference cargoes.

Accordingly, MARAD proposed to extend this policy to the 1995 Great

Lakes shipping season and issued a final rule that was published in the

Federal Register on May 9, 1995 (60 FR 24560).

Great Lakes participation in cargo preference shipments under the

five programs administered by the USDA and USAID could be significantly

improved if foreign-flag feeder vessels were authorized to transport

bulk grain commodities from Great Lakes ports to Canadian transshipment

points for export on oceangoing U.S.-flag bulk carriers to the final

destination port. MARAD issued its 1994 and 1995 final rules to

authorize the use of foreign-flag feeder vessels for the transportation

of bulk agricultural commodities cargoes from the Great Lakes ports to

Canadian transshipment ports outside the St. Lawrence Seaway during the

1994 and 1995 Great Lakes shipping seasons, respectively. Outside the

St. Lawrence Seaway, the cargo will be transferred to a U.S.-flag

vessel for delivery to its foreign destination.

Subsequently, USDA indicated that section 406(b)(4) of P.L. 480

regulating the payment of freight by USDA for shipments under Title II,

Section 416(b) and the Food For Progress Act of 1985, negatively

impacted on suppliers that bid on Great Lakes cargoes to be transhipped

to Canadian shipping points. USDA indicated that these provisions

prevent them from paying for freight on commodities shipped from a

Canadian port. The P.L. 480 Title I program is not affected by this

provision. As a consequence, the Great Lakes region has been, in

effect, prohibited from utilizing the rule and participating during the

past two years in the shipment of bulk cargo under Title II of P.L.

480, Section 416 of the Agricultural Act of 1949 and the Food for

Progress Act of 1985 programs.

USDA proposed an amendment to Section 406 in the 1996 Farm Bill

which would allow USDA to pay the cost of the foreign-flag Great Lakes

transit leg and for the transshipment from Canadian ports.

MARAD proposed in a new NPRM to extend its policy stated in the

1994 and 1995 rules for an additional five years, after which it would

reassess the merits of making the rule permanent, consistent with the

USDA legislative proposal (61 FR 9670; March 11, 1996). The amendment

proposed by the USDA is included in the Federal Agriculture Improvement

and Reform Act of 1966, Pub. L. 104-127, 110 Stat. 888. It amends

Section 406(b)(4) of the Agricultural Trade, Development and Assistance

Act of 1954, 7 U.S.C. 1736, to accomplish USDA's proposal, above.

Comments on 1996 NPRM

MARAD received 12 comments on this NPRM from 11 commenters

representing business, trade associations, State and local port

authorities, and State Transportation Departments. All commenters were

in favor of the policy stated in the NPRM, without reservation. One

commenter supporting the proposal to establish a five-year trial period

stated, ``Similar rulemakings in the 1994 and 1995 years provided too

limited of a window of opportunity to truly test this concept.'' That

commenter referred to the current common practice in the private sector

of exporting bulk agricultural commodities from Great Lakes ports in

foreign-flag feeder vessels to transshipment points east of the St.

Lawrence Seaway, concluding that ``transshipping Government

agricultural exports should, on occasion, be cost effective.''

Another commenter stated that taxpayers, food aid recipient

countries and vessel owners will benefit from this competition. From

the perspective of U.S. maritime labor, one commenter stated,

``International cargoes are the lifeblood of Great Lakes longshoremen

and return of P.L. 480 cargoes to the Great Lakes will generate

thousands of manhours for dockworkers in virtually every Great Lakes

port.'' Another commenter was hopeful that the trend of increased

international trade ``to the Lakes via the Seaway in the past three

navigation seasons will continue because of this rulemaking.''

One commenter, while acknowledging that the proposed rule offers

some possible relief for Great Lakes-originated cargo, requested MARAD

to issue a rule which allows shipment of bulk agricultural commodities

from Great Lakes ports for the entire voyage from origin to destination

on foreign-flag vessels where U.S.-flag vessels are not available for

such voyages from Great Lakes ports. Unless U.S.-flag vessels are

unavailable from any port range in the United States, MARAD lacks the

authority to issue such a rule under the cargo preference laws of the

United States.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review)

This rulemaking is not considered to be an economically significant

regulatory action under section 3(f) of Executive Order 12866. Also, it

is not a major rule under Pub. L. 104-121, 5 U.S.C. 804, or a

significant rule under the Department's Regulatory Policies and

Procedures. Accordingly, it has not been reviewed by the Office of

Management and Budget.

MARAD projects that this rule will allow the annual 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 of up to $2 per metric ton ($600,000). MARAD will evaluate the

results of this rulemaking over a five-year trial period before

determining whether to issue a rule to make this provision permanent.

Since the 1996 Great Lakes shipping season opened on March 29,

1996, a delay in the effective date of this rule for 30 days would be

conterproductive to the accomplishment of the purpose of this rule to

allow U.S. Great Lakes ports to compete effectively for agricultural

commodity preference cargo shipments. Accordingly, pursuant to section

553(d) of the Administrative Procedure Act, 5 U.S.C. 553(d), MARAD

finds that good cause exists for the rule to become effective on

publication.

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

[[Page 24897]]

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 continues to read as

follows:

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

CFR 1.66.

2. Section 381.9 is revised to read as follows:

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

For purposes of shipping bulk agricultural commodities under

programs administered by sponsoring Federal agencies from U.S. Great

Lakes ports during the 1996-2000 Great Lakes shipping seasons, if

direct all-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, and

MARAD will determine fair and reasonable rates accordingly.

Dated: May 10, 1996.

By Order of the Maritime Administrator.

Joel Richard,

Secretary, Maritime Administration.

[FR Doc. 96-12188 Filed 5-16-96; 8:45 am]

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