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

HQ H105202 May 26, 2010 VES-3-17-OT:RR:BSTC:CCI H105202 WRB CATEGORY: Carriers Mr. Wayne R. Rohde Sher & Blackwell 1850 M Street, NW, Suite 900 Washington, DC 20036 RE: Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; Empty Cargo Containers; 19 C.F.R. § 4.93 Dear Mr. Rohde: This letter is in response to your correspondence dated May 4, 2010, on behalf of Hapag-Lloyd Aktiengesellschaft (“Hapag-Lloyd”), Nippon Yusen Kaisha (“NYK”), Orient Overseas Container Line Inc., and various affiliates (together “OOCL”), Zim Integrated Shipping Services Limited (“Zim”), and Hamburg Südamerikanische Dampfschifffarhrts-Gesellschaft KG (“HSDG”) 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 Hapag-Lloyd, NYK, OOCL, Zim, and HSDG operate as ocean common carriers in the foreign commerce of the United States. The carriers have entered into the Grand Alliance/Zim/HSDG Atlantic Space Charter Agreement, FMC Agreement No. 012068-001 (Second Edition) (hereinafter “the Agreement”), which provides for the establishment of shipping services between North Europe (Hamburg – Le Havre area) and the United Kingdom, and ports on the Atlantic Coast of the United States. The vessels deployed under the Agreement fly the flags of Denmark, China, and Malta. You submitted with your letter a copy of the subject Agreement, as filed with the Federal Maritime Commission (“FMC”) on March 16, 2010, which became effective on April 30, 2010, and contains operational details of the service. 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, formerly 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.” 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 Denmark, China, and Malta. The key issue in cases involving vessel sharing agreements (“VSA”) is whether the parties operating under the provisions of the subject Agreement 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 Headquarters Ruling Letter 115402, dated August 10, 2001; Headquarters Ruling Letter 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., Headquarters Ruling Letter H011299, dated October 4, 2007; Headquarters Ruling Letter 116713, dated August 31, 2006; Headquarters Ruling Letter 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 shared 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 shore-side chassis and made them available for any of the parties’ containers. See e.g., Headquarters Ruling Letter 115863, dated January 9, 2003; Headquarters Ruling Letter 116382, dated January 25, 2005; Headquarters Ruling Letter H028460, dated July 1, 2008. Upon examining the Agreement submitted in this case, we find that the parties make shared decisions, and share responsibilities in many significant areas. Under Article 3, Hapag-Lloyd, NYK and OOCL are collectively referred to as the “Grand Alliance Lines,” and the Grand Alliance Lines and Zim are referred to collectively as “Party A.” Party A and HSDG are sometimes referred to individually as a “Party” and collectively as the “Parties.” Hapag-Lloyd, NYK, OOCL, ZIM and HSDG are sometimes referred to individually as a “Line.” Pursuant to Article 5 of the Agreement, the Parties are authorized to discuss and agree on the number, size, age and other characteristics of vessels to be operated, as well as the phasing-in and phasing out of vessels. The Parties are authorized to operate up to six (6) vessels, each with a capacity of up to 6,000 TEUs each. Initially the Parties shall operate four (4) vessels, each with a capacity of approximately 4,000 TEUs. Three vessels shall be provided by Party A, and one (1) vessel shall be provided by HSDG. Under Article 5.2, the parties are authorized to discuss and agree on the ports to be served, the port rotation to be followed, and the scheduling of vessels. Regular reviews, including operational efficiencies of the service, shall be conducted and changes shall be agreed and action taken where necessary, in order to maintain a high-quality product network covering the parties’ requirements. Article 5.3 provides that the Parties may continue to operate existing services within the trade and to modify such existing services from time to time. Where a Party wishes to introduce a new service in the trade, it may do so subject to the agreement of all other Parties, on the condition that it offers all the other Lines the opportunity of participating on terms as set out for the service. Space shall be divided on each vessel in accordance with the vessel capacity provided by each Party (i.e., 25% to HSDG and 75% to Party A). The Lines may sell space from within their allocations to/from one another. Unused space shall be made available to the other Lines for purchase. Any Line wishing to sell space to a non-party vessel operating common carrier shall first offer such space to the other Lines. Any Line wishing to purchase space from a non-party vessel operating common carrier shall first approach the other Lines to ascertain if they have unused space to sell. Pursuant to Article 5.6, the Parties are authorized to discuss and agree on the terminals to be used by the vessels. The Parties agree to work towards the use of one ocean terminal at each port of call. Article 5.8 provides that the Parties are authorized to discuss and agree upon operational and administrative matters including, but not limited to, recordkeeping, general average, war risk, responsibility for loss or damage, insurance, claims and settlement procedures and indemnification. Article 6.1 provides that the Agreement shall be implemented and administered by meetings and other written and oral communications among the Parties. The Parties are authorized to adopt written procedures and policies with respect to the day-to-day operational requirements of the service, as well as with respect to communications among themselves. 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 the intent to exercise joint administration and operational control in implementing the VSA, and thus, Hapag-Lloyd, NYK, OOCL, Zim, and HSDG constitute vessel operators for the vessels, and all the parties may transport aboard any vessel 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. § 55107. HOLDING Under the terms of the VSA entered into by the parties, as described above, Hapag-Lloyd Aktiengesellschaft (“Hapag-Lloyd”), Nippon Yusen Kaisha (“NYK”), Orient Overseas Container Line Inc., and various affiliates (together “OOCL”), Zim Integrated Shipping Services Limited (“Zim”), and Hamburg Südamerikanische Dampfschifffarhrts-Gesellschaft KG (“HSDG”) are considered joint vessel operators within the meaning of 46 U.S.C. § 55107 and as such may transport each others’ owned or leased empty containers aboard any of the subject VSA vessels without violating 46 U.S.C. § 55102. Sincerely, Glen E. Vereb, Chief Cargo Security, Carriers and Immigration Branch