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

HQ H206597 March 26, 2012 VES-3-17-OT:RR:BSTC:CCI H206597 WRB CATEGORY: Carriers Wayne R. Rohde, Esq. Cozen O’Connor The Army and Navy Club Building Suite 1100 1627 I Street, NW Washington, DC 20006-4007 RE: Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; Empty Cargo Containers; 19 CFR § 4.93 Dear Mr. Rohde: This letter is in response to your correspondence dated February 14, 2012, on behalf of Hapag-Lloyd AG (“HLAG”) and Hamburg Südamerikanische Dampfschifffartsgeselischaft KG (“HSDG”), the vessel operating common carrier parties to the HLAG/HSDG USWC-Mediterranean Vessel Sharing Agreement (the “Agreement”), 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 AG (“HLAG”) and Hamburg Südamerikanische Dampfschifffartsgeselischaft KG (“HSDG”), operate as ocean common carriers in the foreign commerce of the United States. The carriers have entered into the HLAG/HSDG USWC-Mediterranean Vessel Sharing Agreement, FMC No. 012146, (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 on the Pacific Coast of the United States and ports in Spain, Italy, France, Morocco, Panama, Colombia, the Dominican Republic, Canada, and Mexico. You submitted with your letter a copy of the subject Agreement, as filed with the Federal Maritime Commission (“FMC”), which was effective on December 30, 2011, 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 CFR §§ 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 CFR § 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 CFR § 4.93(b)(1), the nations that are entitled to the privileges provided by 46 U.S.C. § 55107 include Antigua and Barbuda, Bermuda, Cyprus, Hong Kong, Liberia, Marshall Islands, Panama, and Singapore. 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 CFR § 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 to operate a weekly service “using 10 vessels, each with an operational capacity of approximately 2,500 TEU to 2,800 TEU. Without further amendment hereto, the Parties are authorized to operate up to twelve (12) vessels, each with an operational capacity of up to approximately 4,000 TEU. Eight of the vessels shall be contributed by HLAG, and two of the vessels shall be contributed by HSDG.” Article 5.1 also provides that the parties are authorized to discuss and agree on the ports to be served, port rotation, and scheduling of the vessels. Article 5.2 of the Agreement provides for the sharing of vessel space on vessels provided by either party, saying: “Each Party shall receive space on the service in proportion to the amount of space it contributes to the service. Subject to availability, the Parties may sell/purchase space from within their respective allocations in such amounts and on such conditions as they may agree from time to time. Neither Party shall subcharter or assign space on any vessel subject to this Agreement to any ocean common carrier who is not a party hereto without the prior consent of the other Party. Joint negotiation of terminal, port and stevedore agreements, and authority to share shoreside equipment is supplied in Article 5.3 of the Agreement, which says: “The Parties are authorized to discuss and agree upon matters relating to the use of any terminal or port facilities, and may jointly contract for stevedoring services, and other related ocean and shoreside services. Nothing contained herein shall authorize the Parties to jointly operate a marine terminal in the United States.” Article 5.4 of the Agreement provides for joint administration of the agreement, allowing the parties to discuss and agree upon general administrative matters related to the implementation of the Agreement as may be necessary or convenient from time to time including, but not limited to, performance, and payment procedures, recordkeeping, responsibility for loss or damage, insurance, liabilities, claims, indemnifications, consequences for delays, force majeure, settlement of claims, and treatment of dangerous and hazardous cargoes. 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 AG (“HLAG”) and Hamburg Südamerikanische Dampfschifffartsgeselischaft KG (“HSDG”), 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, Hapag-Lloyd AG (“HLAG”) and Hamburg Südamerikanische Dampfschifffartsgeselischaft 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, 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