[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]



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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

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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