[Federal Register Volume 59, Number 151 (Monday, August 8, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-19383] [[Page Unknown]] [Federal Register: August 8, 1994] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Maritime Administration 46 CFR Part 381 [Docket No. R-153] RIN 2133-AB13 Cargo Preference--U.S.-Flag Vessels; Available U.S.-Flag Commercial Vessels AGENCY: Maritime Administration, Transportation. ACTION: Final rule ----------------------------------------------------------------------- SUMMARY: This amendment to the cargo preference regulations of the Maritime Administration (MARAD) provides that, for a one-season trial period corresponding to the current Great Lakes shipping season when the St. Lawrence Seaway System is in use, which began on April 5, 1994, MARAD will consider the legal requirement for the carriage of bulk agricultural commodity preference cargoes on privately-owned ``available'' U.S.-flag 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 amendment will allow Great Lakes ports to compete for agricultural commodity preference cargoes during that one-season trial period. EFFECTIVE DATE: This final rule is effective on August 8, 1994. FOR FURTHER INFORMATION CONTACT: John E. Graykowski, Deputy Maritime Administrator for Inland Waterways and Great Lakes, Maritime Administration, Washington, DC 20590, Telephone (202) 366-1718. SUPPLEMENTARY INFORMATION: United States law at sections 901(b) (the ``Cargo Preference Act'') and 901b, Merchant Marine Act, 1936, as amended (the ``Act''), 46 App. U.S.C. 1241(b) and 1241f, requires that at least 50 percent of cargo ``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.'' The Secretary of Transportation is desirous of administering that program so that all ports and port ranges may participate. MARAD is amending its cargo preference regulations to facilitate the ability of Great Lakes ports to compete for agricultural commodity preference cargoes for a one- season trial period, corresponding to the Great Lakes shipping season when the St. Lawrence Seaway System is in use. This final rule reflects MARAD's review of comments submitted by nine parties in response to the publication of a notice of proposed rulemaking (NPRM). Reason for Rule For a number of reasons, United States-flag commercial vessels in foreign commerce do not now serve the Great Lakes. Consequently, cargoes subject to the cargo preference laws are not loaded on U.S.- flag vessels at Great Lakes ports, resulting in significantly less cargo for these ports than for ports on other United States coasts. MARAD will allow cargoes to be counted toward the preference requirements if they are loaded initially on foreign-flag vessels at U.S. Great Lakes ports for the trip along the St. Lawrence Seaway and then transferred to United States-flag vessels for the ocean portion of their carriage to a foreign destination. When all-U.S. service is not available, the registry (``flag'') of a vessel loading the cargo on the Great Lakes and carrying it through the Seaway would not be relevant. This rule will be in effect during a trial period corresponding to the current Great Lakes shipping season when the St. Lawrence Seaway System is in use, which began on April 5, 1994. The need for this rulemaking arises due to changing shipping conditions affecting U.S.-flag vessels operating in the Great Lakes, resulting in the absence of all-U.S.-flag vessel availability for the carriage of cargo between U.S. Great Lakes ports and foreign countries. Dramatic changes in shipping conditions have occurred since 1960, including the disappearance of any all-U.S.-flag commercial ocean-going 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 are significant shipping changes. In 1960, the average U.S.-flag general cargo vessel had a deadweight tonnage of 10,976, while in 1993, the average U.S.-flag general cargo vessel had a deadweight tonnage of 17,464. In addition, the average size of U.S.-flag vessels used for the carriage of bulk agricultural product cargoes has increased greatly during the past ten years. As shown by a table appearing in the interim final rule, no preference cargo has moved on U.S.-flag vessels out of the Great Lakes since 1989, with the exception of the MORMACSKY trial in 1993, discussed hereinafter. The disappearance of Government-impelled cargo flowing from the Great Lakes coincides with the expiration of the Great Lakes ``set aside.'' 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 calendar years 1986, 1987, 1988, and 1989. That ``set-aside'' expired in 1989, and was not renewed by the Congress. At present, the Great Lakes simply do not have any all-U.S.-flag ocean freight capability for carriage of bulk preference cargo. In contrast, the total export nationwide by non-liner vessels of USDA and USAID agricultural assistance program cargoes subject to cargo preference in the 1992-1993 cargo preference year (the latest program year for which figures are available) amounted to 6,297,015 metric tons, of which 4,923,244, or 78.2 percent, was transported on U.S.-flag vessels. (Source: Maritime Administration database.) In 1993 a unique movement of agriculture commodity preference cargo out of the Great Lakes occurred, involving a U.S.-flag mother ship and two U.S.-flag feeder vessels. Two U.S.-flag lake bulk carriers, the J.L. MAUTHE and the AMERICAN MARINER, served as feeders bringing wheat from a U.S. Great Lakes port to a Canadian transshipment point where the MORMACSKY, a U.S.-flag oceangoing vessel, loaded the cargo destined to Russia. All the vessels were under the control of U.S.-flag carriers. Reportedly, the demonstration was possible as a result of commodity prices in the Midwest which favored the Great Lakes over other U.S. ports. Proposed Rule and Comments For the purpose of allowing Great Lakes ports to have the opportunity to compete for agricultural commodity preference cargoes and to assess the results, MARAD issued a NPRM (59 FR 24390, May 11, 1993), proposing to amend its cargo preference regulations at 46 CFR Part 381. That amendment relates to compliance by Federal shipper agencies, pursuant to section 381.8, with applicable cargo preference requirements for programs that they administer. The NPRM proposed to add a new section 381.9, providing that, when direct U.S.-flag service is not available at fair and reasonable rates from U.S. Great Lakes ports, for a one-season trial period, (1) the requirement for ``available'' U.S.-flag commercial vessels under the Act would be satisfied by U.S.-flag commercial vessels calling at a Canadian transshipment port on the Gulf of St. Lawrence to carry to the ultimate (foreign) destination bulk agricultural commodity cargoes subject to the cargo preference laws, that were initially loaded at U.S. ports on the Great Lakes by U.S.-flag or foreign-flag vessels; and (2) determinations of ``fair and reasonable rates for United States commercial vessels'' under section 901(b) would include through bills of lading for such available U.S.-flag vessels. MARAD stated in the NPRM that, based on experience during the one- season trial period, it will consider whether to make the rule permanent or to extend it for a period longer than the one-season trial period. A comment period of 20 days applied to the one-season trial period. The nine commenters represent U.S. Great Lakes port and shipping interests, the grain industry, maritime labor and two Federal agencies which administer agricultural commodity assistance programs that are subject to cargo preference requirements. All commenters expressed approval of MARAD's determination that, for a trial period, the transshipped bulk agricultural commodities meet the legal requirement that preference cargoes be carried on privately owned ``available'' U.S.-flag vessels. Four of the commenters, noting that the one-season trial period cannot, as a practical matter, begin before July 1994, allowing only a shortened season, recommended extending the trial period through the 1995 Great Lakes season, while two commenters specifically limited their approval to a one-season trial period. The United States Agency for International Development (USAID) suggested that additional consideration of the legal basis for the rule is merited in two areas. First, USAID observed that MARAD failed to state that the rule would further an objective recognized under the Cargo Preference Act. Second, they questioned whether the rule is consistent with several Comptroller General Opinions not cited by MARAD in the NPRM. This rule is being promulgated pursuant to MARAD's authority under sections 204(b) and 901(b)(2) of the Act, 46 App. U.S.C. 1114(b) and 1241(b)(2). Any rule promulgated by MARAD under the Act must implement the Act's statutory mandate. Independent U.S. Tanker Owners v. Lewis, 690 F. 2d 908, 917 (D.C. Cir. 1982). The Act was passed to foster an efficient, modern, American-owned and operated merchant fleet, able to carry a substantial portion of American export and import trade, and able to serve as a naval auxiliary in time of war. See the Act's Declaration of Policy, 46 App. U.S.C. Sec. 1101; Sea-Land Service, Inc. v. Dole, 723 F. 2d 975, 976 (D.C. Cir. 1983). The Cargo Preference Act, which amended the Act, was passed to enhance promotion of the merchant fleet by assuring that at least 50 percent (now 75 percent for the agricultural export programs affected by this rule) of Government-sponsored cargoes transported on ocean vessels would be moved on privately-owned U.S.-flag commercial vessels. 46 App. U.S.C. Sec. 1241(b), e-o. Congress viewed the Cargo Preference program as fundamental to maintenance of a thriving merchant marine, because the program would assure that a baseline amount of cargo would be available for carriage by the American fleet. S. Rep. No. 1584, 83rd Cong. 2nd Sess. 1 (1954). By allowing additional ports to participate in moving preference cargoes, the NPRM would potentially benefit the American merchant marine by helping to avoid situations where cargo is routed on foreign- flag vessels due to non-availability of U.S.-flag vessels. Including additional ports makes it more likely that U.S.-flag vessels would be available when and where the preference cargo is set to move, thus giving greater assurance that the mandated 75 percent U.S.-flag carriage of agricultural commodity preference cargo will continue to be achieved. The NPRM discussed the import of the Comptroller General's decision in B-140872, 39 Comp. Gen. 758 (1960), inasmuch as that decision specifically addressed the issue of foreign-flag feeder vessels in the Great Lakes. It explained that the factual basis underlying the Comptroller General's decision had changed since 1960, leading to a conclusion that the decision does not preclude promulgation of the rule as proposed. USAID requested that MARAD review the following additional opinions: B-165421, 48 Comp. Gen. 429 (12/23/68); B-155185, unpublished (11/17/69); B-145455, 49 Comp. Gen. 755 (5/5/70); B-136530, 55 Comp. Gen. 1097 (5/12/76). Each of these decisions is predicated on providing the protection to U.S.-flag vessels envisioned in either the 1904 or 1954 Acts. It should be noted that no comments were received on behalf of any U.S.-flag vessel complaining that the proposed rule would reduce or eliminate such protection of the U.S.-flag fleet. In B-165421, the Comptroller General held that it was a violation of the Cargo Preference Act of 1904, 10 U.S.C. 2631, to use foreign- flag vessels operating from Great Lakes ports to transport military troop support cargo overseas instead of using U.S.-flag vessels operating from the U.S. East Coast, because cost or time and distance considerations could not be used to avoid using U.S.-flag vessels, unless the cost of using U.S.-flag vessels is excessive or otherwise unreasonable. MARAD's NPRM is consistent with B-165421, as MARAD has indicated no intention in the NPRM to allow foreign-flag vessels to perform the entire voyage from Great Lakes ports. In B-155185, the Comptroller General held that whether the cargo type (urea in that shipment) normally moves in commercial channels already bagged, or in bulk, the Cargo Preference requirements may not be avoided through the ``simple device'' of either the buyer or seller choosing where the essential item being procured is to be packaged. The holding in B-155185 is not applicable to this NPRM because the 1954 Act is not being avoided. In B-145455, the Comptroller General held that where service by U.S.-flag vessels is not available for the entire distance between the U.S. port of origin and the overseas destination, the 1904 Act requires transportation by sea aboard U.S.-flag vessels, with transshipment to foreign land carriers to be preferred over transportation by sea aboard U.S. vessels, with transshipment to foreign-flag feeder ship. The Comptroller General was concerned that allowing the option of foreign- flag feeders under the 1904 Act in that circumstance could lead to a reduction in the use of U.S.-flag vessels. 57 Comp. Gen. 531, 537. Here, the rule would not lead to reduction in the use of U.S.-flag vessels because a U.S.-flag vessel would still be needed for the line haul portion of the voyage. In B-136530, the Comptroller General held that LASH (Lighter Aboard Ship) services to be performed with U.S.-flag vessels and partly with a foreign-flag FLASH (Float On/Float Off LASH vessel) system to deliver Government-sponsored cargoes to the port of Chittagong in Bangladesh contravenes the 1954 Act because there was direct service to Chittagong. MARAD's rule is consistent with the holding in B-136530, inasmuch as foreign-flag feeders will not be permitted if U.S.-flag vessels begin to call at Great Lakes ports. MARAD has the discretion to determine availability of U.S.-flag vessels to carry preference cargo. The NPRM indicated MARAD's determination that if U.S.-flag oceangoing vessels do not call at Great Lakes ports, ``available'' U.S.-flag vessels would include U.S.-flag vessels calling at a Canadian transshipment terminal outside the St. Lawrence Seaway that carry bulk agricultural commodity cargoes transshipped from the Great Lakes by foreign-flag feeder vessels. While USAID suggested that additional consideration of the legal basis was merited, no commenter disagreed with MARAD's conclusion that there is sufficient legal authority for promulgation of the proposed rule. USAID also commented that it was concerned that MARAD's rule ``might be interpreted as a requirement that even where total U.S.-flag service is unavailable, USAID-financed purchasers or suppliers would have to utilize partial U.S.-flag service,'' thus restricting that agency's flexibility for financing agricultural commodities under its Commodity Import Programs (CIPs). Although USAID presently has no CIPs financing bulk cargoes, it has requested MARAD to consider amending its rule to refer specifically to P.L. 480 cargoes and related programs in order to avoid any confusion in this regard. It is emphasized that this rule will be in effect during an abbreviated one-season trial period limited to the Great Lakes. USAID has not explained how this rule will impair its flexibility under its CIPs and MARAD is not aware of potential difficulties that this rule might present. MARAD stated in the discussion of the NPRM that it would not interfere with the concept of ``lowest landed cost'' contained in the regulations, at 7 CFR 1496.5, of the Department of Agriculture's (USDA) Commodity Credit Corporation (CCC), providing that the lowest combined total cost of the commodity, plus transportation charges to the port of destination calculated on the basis of U.S.-flag rates and availability, will prevail with regard to awarding contracts. The combined transportation originating at Great Lakes ports would compete on the basis of lowest landed cost (cost of freight plus cost of commodity) with U.S.-flag vessel availability from the other port ranges. As for determining a ``fair and reasonable'' rate for the mixed carriage, the U.S.-flag component would be considered under the existing regulations at 46 CFR part 382 or part 383, as appropriate, with the cost for the foreign-flag component incorporated into the U.S.-flag component, in the same way as the cost of foreign-flag vessels used in lightening operations in the recipient country's territorial waters, if the U.S.-flag carrier offers mixed carriage. Comments concerning the determination of ``fair and reasonable'' guideline rates during the trial period were received from the United States Department of Agriculture (USDA). USDA inquired whether MARAD would be willing to provide guideline rates in advance of the commodity award. USDA was concerned that after the commodity was purchased no bidder would be found available at a ``fair and reasonable'' rate, and USDA or the importing country would find itself unable to arrange substitute foreign-flag ocean carriage, except at very high rates. In situations where the commodity is to be shipped directly from a U.S. Great Lakes port, and the U.S. ocean shipper is arranging the interlake transportation, MARAD is prepared to provide shipper agencies with a determination of availability at ``fair and reasonable'' rates prior to commodity purchase. However, the change made in the final rule allows the customary practice of offering U.S. produced commodities FOB Canadian transshipment port or point. The situation under these circumstances will not be appreciably different from those where USDA buys a commodity for shipment from most other U.S. port ranges. USDA and other shipper agencies recognize that, in order for MARAD to provide this guidance in a timely and reliable manner, the shipper agency must provide MARAD with all responsive bids meeting the above criteria at the time they are offered. MARAD will then calculate the appropriate guideline rates and determine if at least one of the offerors is available at a fair and reasonable rate. Since the timing of requests for guideline rates is an administrative matter between Government agencies, no change in the final rule is necessary. As published, the NPRM would appear to make the shipowner responsible for arranging both the Seaway transportation as well as the transshipment onto a U.S.-flag vessel in Canadian waters. Three commenters noted that this requirement is inconsistent with current practice wherein the supplier arranges the commodity delivery to the deeper water transshipment point. For example, when suppliers offer FOB U.S. Gulf ports, the price of the barge freight down the Mississippi River is included. For purposes of consistency, grain suppliers should be able to offer FOB Canadian transshipment point. In addition to causing higher freight costs, this inconsistency with current practice places an intermodal contracting burden on the shipowners which they may not wish to assume. If the shipowners do not have the option to offer a rate from a Canadian transshipment point the purpose of the rulemaking, which is to give competitive parity to all ports, would be negated. These respondents requested that the NPRM be amended to allow, alternatively, the commodity supplier to offer FOB Canadian transshipment point. MARAD supports this recommendation because it reflects current commercial practice, would enhance the ability for all ports to compete equally to ensure the lowest cost to the U.S. Government, is consistent with previous implementation of the Great Lakes set-aside and is already covered by USDA regulations. The final rule has been modified to clarify that the supplier may offer the cargo FOB Canadian transshipment point as an alternative to through bills of lading issued by the U.S.-flag carrier covering Great Lakes to final destination. Rulemaking Analysis and Notices This rulemaking has been reviewed under Executive Order 12866 and Department of Transportation Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). It is not considered to be an economically significant regulatory action under section 3(f) of E.O. 12866, since it has been determined that it is not likely to result in a rule that may have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. However, since this rule would affect other Federal agencies, is of great interest to the maritime industry, and has been determined to be a significant rule under the Department's Regulatory Policies and Procedures, it is considered to be a significant regulatory action under E.O. 12866. MARAD projects that this rule would allow the 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 up to $2 to $3 per metric ton ($900,000). This rule has been reviewed by the Office of Management and Budget under Executive Order 12866. 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 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 is revised to read as follows: Authority: 46 App. U.S.C. 1101, 1114(b), 1122(d) and 1241; 49 CFR 1.66. 2. A new Sec. 381.9 is added to read as follows: Sec. 381.9 Available U.S.-flag service for 1994. For purposes of shipping bulk agricultural commodities under programs administered by sponsoring Federal agencies from U.S. Great Lakes ports during the 1994 shipping season, if direct 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. Fair and reasonable rates will be determined accordingly. Dated: August 4, 1994. By Order of the Maritime Administrator. Joel C. Richard, Acting Secretary, Maritime Administration. [FR Doc. 94-19383 Filed 8-5-94; 8:45 am] BILLING CODE 4910-81-P