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 H131665 February 23, 2011 VES-3-17-OT:RR:BSTC:CCI H131665 WRB CATEGORY: Carriers Walter H. Lion, Esq. McLaughlin & Stern, LLP 260 Madison Avenue New York, New York 10016 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. Lion: This letter is in response to your correspondence dated November 3, 2010, on behalf of Compania Sud Americana de Vapores S.A. (“CSAV”), a Chilean corporation, and CMA CGM S.A. of Marseille, France (“CMA CGM”) 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 Compania Sud Americana de Vapores S.A., and CMA CGM S.A. operate as ocean common carriers in the foreign commerce of the United States. The carriers have entered into the CMA CGM / CSAV Victory Bridge Vessel Sharing Agreement, FMC No. 012103, (hereinafter “the Agreement”), which provides for the joint operation of vessels and the carriage of cargo via direct service or transshipment in the trade between ports and inland and coastal points served via such ports in the (a) North Europe (North Cape, Norway to Bayonne, France range, including the United Kingdom) and ports (b) on the Atlantic and Gulf Coasts of the United States (Eastport, Maine to Brownsville, TX range) and ports on the Atlantic and Gulf Coasts of the United States and (c) ports on the Gulf and Caribbean Coast of Mexico. You submitted with your letter a copy of the subject Agreement, as filed with the Federal Maritime Commission (“FMC”) on June 30, 2010, which was effective on the date of filing, 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 France, and Chile. 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. Article 2 of the Agreement specifically states that the purpose of the Agreement is to authorize the parties to share vessels. Article 5 of the Agreement sets forth when, where and which vessels the parties will operate, including the authority of the parties in Article 5.1(a) to jointly deploy up to “five (5) vessels, each with a nominal capacity of 2,750 TEU and an agreed operational practical capacity of 2,300 TEUs at an average weight of 12 metric tons gross per TEU with an agreed declared reefer capacity of 300 plugs, and with an average service speed of 20 knots at scantling draft.” Articles 5.1 (b) and (c) of the Agreement provide for agreement on port rotation and various other operational matters such as scheduling, saying: (b) The Parties shall discuss and agree on the ports to be served by vessels operated under this Agreement. Initially, the port rotation of the service shall be as follows: Le Havre -Antwerp -Rotterdam -Bremerhaven -Charleston –Miami WB* Veracruz -Altamira -Houston -Miami EB* -Le Havre. *Parties agree to review, after 9 months calling at Miami, the possibility to replace Miami by Port Everglades (FIT). Such modification shall be mutually agreed i.e. without any mutual consent (not to be unreasonably withheld) the Service will continue to call Miami. The foregoing rotation may be revised without further amendment heretoupon mutual agreement of the Parties . . . . ( c) The Parties shall discuss and agree on a long-term schedule (“LTS”) for the Service, which may be revised or amended from time to time. The Vessel Provider shall be responsible for adherence to the LTS. The Slot User shall cooperate in good faith to maintain the LTS. Each Party shall inform the other of any deviation by one or more of its vessels from the LTS, and Vessel Provider shall be responsible for proposing a rescheduling plan for any vessel which requires ad hoc rescheduling measures. If the Parties cannot agree on such rescheduling measures, the Vessel Provider will decide on the appropriate and reasonable measures, always trying to mitigate the impact of such measures on the Parties. The Parties are authorized to discuss and agree on financial and operational responsibility for the omission of ports and other measures taken to correct scheduling problems, as well as cancelled voyages, shut-out containers, and vessel dry-dockings and repairs.  Article 5.2 of the Agreement provides for the sharing of vessel space on vessels provided by either party: CSAV shall receive a basic slot allocation of920 TEUs @12 tonnes average gross weight per TEU or 11,040 tonnes (whichever is used first) on each of the 3 vessels CMA CGM provides to the service operated hereunder. CMA CGM shall receive a basic slot allocation of 1,380 TEUs @12 tonnes average gross weight per TEU or 16,560 tonnes (whichever is used first) on each of the 2 vessels CSAV provides to the service operated hereunder. There shall be no payment for the foregoing slot allocations. The basic slot allocation is equivalent to the tonnage provided by each Party within a cycle and spread over each vessel within the fleet. Article 5.2(g) of the Agreement permits the Parties to charter additional space from each other on an ad hoc basis as agreed from time to time. Joint negotiation of terminal, port and stevedore agreements, and authority to share shoreside equipment is supplied in Article 5.3 of the Agreement: 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, such as but not limited to overtime, stand-by time. Article 5.5 of the Agreement provides for joint administration and implementation of administrative matters and other terms and conditions concerning the implementation of the Agreement, including performance procedures and penalties; port omission arrangements; stowage planning; record-keeping; responsibility for loss or damage; insurance; force majeure; general average and salvage; the handling and resolution of claims and other liabilities; indemnification; documentation and bills of lading; and the treatment of hazardous and dangerous cargoes. Accordingly, we believe that the subject provisions establish the intent to exercise joint administration and operational control in implementing the VSA, and thus, Compania Sud Americana de Vapores S.A. (“CSAV”) and CMA CGM S.A. of Marseille, France (“CMA CGM”) constitute vessel operators for the vessels, and 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, Compania Sud Americana de Vapores S.A. (“CSAV”), a Chilean corporation and CMA CGM S.A. of Marseille, France (“CMA CGM”) 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, George Frederick McCray Supervisory Attorney-Advisor/Chief Cargo Security, Carriers and Immigration Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection