Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; 19 CFR § 4.93; Empty Cargo Containers

HQ H071660 August 19, 2009 VES-3-17-OT:RR:BSTC:CCI H071660 GOB CATEGORY: Carriers Walter H. Lion, Esq. McLaughlin & Stern, LLP 260 Madison Avenue New York, NY 10016 RE: Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; 19 CFR § 4.93; Empty Cargo Containers Dear Mr. Lion: This letter is in response to your correspondence of August 6, 2009, in which you seek a determination that the parties to the agreement described below qualify as joint vessel operators within the meaning of 46 U.S.C. § 55107 and consequently may transport each others’ empty containers in U.S. coastwise trade. Our ruling on your request follows. FACTS: Your request is submitted on behalf of Compania Sud Americana de Vapores S.A. (“CSAV”), a Chilean corporation, Companhia Libra de Navegacao (“Libra”), a Brazilian corporation, and Compania Libra de Navegacion Uruguay S.A. (“CLNU”), an Uruguayan corporation (these three entities are hereinafter referred to jointly as the “CSAV Group”). CSAV, Libra, and CLNU entered into the MSC/CSAV Group Vessel Sharing Agreement (the “Agreement”) on July 24, 2009. The fourth party to the Agreement is MSC Mediterranean Shipping Company S.A. (“MSC”) of Geneva, Switzerland. The four parties to the Agreement are referred to jointly hereinafter as the “parties.” The Agreement was filed with the Federal Maritime Commission on July 28, 2009. The parties operate as ocean common carriers in the foreign commerce of the United States. Section 5.1 of the Agreement (“Vessel Sharing”) provides in pertinent part that: “The Parties shall supply vessels to the Trade as set forth herein and shall jointly utilize space on each vessel operated under this Agreement….Space received by the CSAV Group under this Agreement shall be divided among CSAV, Libra and CLNU as they may agree from time to time.” Section 5.2 of the Agreement (“Services and Vessel Schedules”) provides in pertinent part that: “The Parties shall operate one string providing a weekly service in the Trade using between six (6) and ten (10) vessels….The parties shall discuss and agree upon the port calls and pro forma schedule for the vessels operated hereunder, as well as corrective and/or punitive measures to be taken when a vessel is unable to maintain the schedule.” Section 5.3 of the Agreement (“Terminals and Stevedores”) provides that: “The Parties are authorized to discuss and agree on the joint and/or individual negotiation of appropriate contracts with terminal operators and stevedores, and to reach agreement on other issues relating to the loading and/or discharge of cargo. The Parties are authorized to share shoreside chassis and make them available for the other Parties’ containers.” Section 5.4 of the Agreement (“Inland Cooperation”) provides that: “Subject to any restrictions in the Shipping Act of 1984, as amended, and other applicable law, the Parties may discuss, jointly negotiate and agree upon the joint purchase of inland transportation services (motor, water, and/or rail).” Section 5.5 of the Agreement (“Operational and Administrative Matters”) provides in pertinent part that: “The Parties are authorized to discuss and agree on routine matters such as cargo claims and other liabilities, insurance, indemnifications, force majeure, general average, a cross party charter, joint working procedures, standards for containers and for the acceptance of breakbulk, oversized and dangerous cargo, and other operational/administrative issues to implement the terms hereof. The Parties are authorized to jointly lease office space and may establish a joint operations center. All decisions require agreement by all Parties.” ISSUE: Whether under the terms of the agreement entered into by the parties, as described above, the parties may be considered joint vessel operators transporting their owned or leased empty containers pursuant to 46 U.S.C. § 55107? LAW AND ANALYSIS: The Jones Act, former 46 U.S.C. App. § 883 recodified as 46 U.S.C. § 55102, pursuant to P.L. 109-304 (October 6, 2006), states that “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port” unless the vessel was built in and documented under the laws of the United States and owned by persons who are citizens of the United States. (See also 19 C.F.R. §§ 4.80, 4.80b). Such a vessel, after it has obtained a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise qualified.” “Merchandise" is defined as "goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” See 19 U.S.C. § 1401(c). The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline. Pursuant to 46 U.S.C. § 55107, formerly the Sixth Proviso to former 46 U.S.C. App. 883, recodified as 46 U.S.C. § 55107, pursuant to P. L. 109-304 (October 6, 2006), the prohibition contained within 46 U.S.C. § 55102 does not apply to the coastwise transportation of empty cargo vans, empty lift vans, or empty shipping tanks, and equipment for use with same. Further, the prohibition does not apply to empty barges specifically designed for carriage aboard a vessel and equipment (except propulsion equipment) for use with those barges, and certain empty instruments of international traffic. See also 19 C.F.R. § 4.93(a)(1). To qualify for the exemption from 46 U.S.C. § 55102, the aforementioned articles must be owned or leased by the owner or operator of the vessel, and transported for use in handling cargo in foreign trade. In addition, the prohibition does not apply to stevedoring equipment and material which is either owned or leased by the owner or operator of the vessel or by the stevedoring company having the contract for the loading or unloading of the vessel, so long as the stevedoring equipment and material are transported without charge for use in the handling of cargo in foreign trade. The exemptions for empty cargo vans, empty lift vans, or empty shipping tanks apply to vessels of foreign nations that are found to extend reciprocal privileges to the vessels of the United States. See 46 U.S.C. § 55107(c). Pursuant to 19 C.F.R. § 4.93(b)(1), the nations that are entitled to the privileges provided by 46 U.S.C. § 55107 include Chile and Brazil; the nations that are entitled to these privileges do not include Uruguay and Switzerland. The key issue in cases involving vessel sharing agreements (“VSA”) is whether the parties operating under the provisions of the subject VSA may be considered to be joint operators of a particular VSA vessel while it is engaged in transporting empty shipping containers. If the parties may be so considered, and if the containers transported are either owned or leased by those parties and are transported for use in moving cargo in the foreign trade, the transportation would be permissible under 46 U.S.C. § 55107 so long as the transporting vessel is documented as provided in 19 C.F.R. § 4.93. See e.g., HQ 115402, dated August 10, 2001; and HQ 115734, dated September 23, 2002.   To determine whether the parties constitute joint vessel operators, it is necessary to analyze the degree of operational control of the vessels. See, e.g., HQ H011299, dated October 4, 2007; HQ 116713, dated August 31, 2006; and HQ 116276, dated August 26, 2004. In reviewing prior VSAs, we note that there are several factors under which the agreements are formed and the parties are governed which indicate that the parties share the operational control of the designated vessels. For example, the VSA members would jointly agree upon when, where and which vessels they would operate. They also agree to cooperate in such matters as insurance, leases, sailing schedules, port calls, rate policies and the terms of service contracts, among other things. Additionally, in other cases, the parties pooled shoreside chassis and made them available for any of the parties’ containers. See e.g., HQ 115863, dated January 9, 2003; and HQ 116382, dated January 25, 2005. Upon examining the Agreement submitted in this case, we find that the parties make shared decisions and share responsibilities in many significant areas. Section 5.1 of the Agreement provides that the parties shall jointly utilize space on each vessel operated under the Agreement. Section 5.2 provides that the parties shall discuss and agree upon the port calls and pro forma schedule for the vessels operated under the Agreement. Section 5.3 provides that the parties are authorized to discuss and agree on the joint and/or individual negotiation of appropriate contracts with terminal operators and stevedores, and to reach agreement on other issues relating to the loading and discharge of cargo. Section 5.4 provides that the parties may discuss, jointly negotiate and agree upon the joint purchase of inland transportation services. Section 5.5 provides that the parties may discuss and agree on matters such as cargo claims and other liabilities, standards for containers and for the acceptance of breakbulk, oversized and dangerous cargo, and other operational and administrative issues. These provisions in the Agreement indicate that there are numerous shared responsibilities and that the parties will jointly function together in the operation of the subject vessels and the carrying of cargo. Accordingly, we believe that the subject provisions establish that the parties intend to exercise joint administrative and operational control in implementing the Agreement, and thus, all of the parties constitute vessel operators. As such, a party to the Agreement may transport empty shipping containers coastwise, which are owned or leased by another party or parties to the Agreement, for the purpose of handling the latter’s cargo in the foreign trade, without violating 46 U.S.C. § 55107, provided that all other requirements of 46 U.S.C. § 55107 and 19 CFR § 4.93 are complied with. These requirements include the condition that the transporting vessels be vessels of nations found to grant reciprocal privileges to the United States. See 46 U.S.C. § 55107(c), 19 CFR § 4.93(a), and the list of such nations in 19 CFR § 4.93(b)(1). We note, as indicated above, that vessels of Chile and Brazil are designated in 19 CFR § 4.93(b)(1); vessels of Uruguay and Switzerland are not so designated. HOLDING: Under the terms of the Agreement entered into by the parties, as described above, all parties are considered joint vessel operators within the meaning of 46 U.S.C. § 55107 and as such may transport empty shipping containers, owned or leased by another party or parties to the Agreement, for the purpose of handling the latter’s cargo in the foreign trade, without violating 46 U.S.C. § 55102, provided that all other requirements of 46 U.S.C. § 55107 and 19 CFR § 4.93 are complied with. These requirements include the condition that the transporting vessels be vessels of nations found to grant reciprocal privileges to the United States. See 46 U.S.C. § 55107(c), 19 CFR § 4.93(a), and the list of such nations in 19 CFR § 4.93(b)(1). Sincerely, Glen E. Vereb Chief Cargo Security, Carriers and Immigration Branch