[Federal Register Volume 62, Number 40 (Friday, February 28, 1997)]
[Proposed Rules]
[Pages 9143-9153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5017]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 382

[Docket No. R-158]
RIN 2133-AB19


Determination of Fair and Reasonable Guideline Rates for the 
Carriage of Bulk and Packaged Preference Cargoes on U.S.-Flag 
Commercial Vessels

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The regulations at 46 CFR part 382 prescribe the 
administrative procedures and methodology for determining fair and 
reasonable rates for the carriage of dry and liquid bulk and packaged 
preference cargoes on United States commercial cargo vessels. MARAD 
proposes to amend those regulations to prescribe cost averaging as the 
methodology used for

[[Page 9144]]

determining rates and to implement conforming procedural changes. MARAD 
also intends to request approval of a reduced information collection 
under these regulations.

DATES: Written comments on this rule, including information collection 
requirements, are requested, and must be received on or before April 
29, 1997.

ADDRESSES: Comments may be mailed or otherwise delivered to the 
Secretary, Maritime Administration, Room 7210, Department of 
Transportation, 400 Seventh Street S.W., Washington, D.C. 20590. All 
comments will be made available for inspection during normal business 
hours at the address above. Commenters wishing MARAD to acknowledge 
receipt of comments should enclose a stamped, self-addressed envelope 
or postcard.

FOR FURTHER INFORMATION CONTACT: Michael P. Ferris, Director, Office of 
Costs and Rates, Maritime Administration, Washington, D.C. 20590, Tel. 
(202) 366-2324.

SUPPLEMENTARY INFORMATION: Section 901(b)(1) of the Merchant Marine Act 
of 1936 (the Act), as amended (46 App. U.S.C. 1241(b)), cited as the 
Cargo Preference Act of 1954, requires that at least 50 percent of any 
equipment, materials or commodities purchased by the United States or 
for the account of any foreign nation without provision for 
reimbursement, or acquired as the result of funds or credits from the 
United States, shall be transported on privately owned U.S.-flag 
commercial vessels, to the extent that such vessels are available at 
fair and reasonable rates. In 1985, section 901 was amended to exclude 
certain programs from the application of cargo preference and to raise 
the U.S.-flag share to 75 percent on certain others. Upon request, 
MARAD provides fair and reasonable rates (also referred to as guideline 
rates) to U.S. shipper agencies. Section 901(b)(2) of the Act provides 
the authority for MARAD (by delegation from the Secretary of 
Transportation) to issue regulations governing the administration of 
section 901(b)(1). In 1989, MARAD issued regulations at 46 CFR Part 382 
(``Rule''), that initially became effective on January 1, 1990. The 
Rule contains regulations that govern the calculation of fair and 
reasonable rates.
    Under the current Rule, MARAD establishes fair and reasonable 
rates, so-called guideline rates, which apply to the waterborne portion 
of cargo transportation and consist of four components: (1) Operating 
costs; (2) capital costs; (3) port and cargo handling costs; and (4) 
brokerage and overhead. The operating cost component of the guideline 
rate for each participating bulk vessel reflects actual vessel 
operating costs that are based on historical data modified to the 
current period by utilizing escalation factors for wage and non-wage 
costs. All eligible annual operating costs are added together for each 
vessel and divided by the total number of operating days for that 
vessel to yield a daily operating cost. The cost is escalated to the 
current year and multiplied by estimated total voyage days to provide 
the operating cost segment for the voyage.
    There is a fuel cost segment of the operating costs that MARAD 
calculates for each vessel on the basis of actual reported fuel 
consumption at sea and in port. The actual fuel consumption of each 
vessel is multiplied by the corresponding projected number of voyage 
days at sea and in port to calculate total units of fuel consumed. 
Current fuel prices are applied to fuel consumed to produce the fuel 
segment of the operating cost component. MARAD then adds the totals of 
the fuel and non-fuel operating cost segments to produce the operating 
cost component for the voyage.
    The capital cost component is presently calculated individually for 
each participating bulk vessel and consists of an allowance for 
depreciation and interest, plus a reasonable return on investment. 
Depreciation is calculated by the straight-line method, based on a 20-
year economic life and utilizing a residual value of 2.5 percent. 
However, if the owner acquired an existing vessel, the vessel is 
depreciated by the straight-line method over the remaining period of 
its 20-year economic life, but not fewer than 10 years. Capitalized 
improvements are depreciated straight-line over the remainder of the 
20-year period, but not fewer than 10 years.
    For the purpose of calculating interest expense, MARAD assumes that 
original vessel indebtedness is 75 percent of the owner's capitalized 
vessel cost and that principal payments are made in equal annual 
installments over a 20-year period. To compute the interest cost, the 
owner's actual interest rate is applied to the constructed outstanding 
debt on the vessel. Where the owner has a variable interest rate, MARAD 
uses the owner's rate prevailing at the time of calculation, and if 
there is no interest rate available, MARAD selects an appropriate 
interest rate.
    MARAD allows a return on capital cost (investment), with two 
components, return on equity and return on working capital. The rate of 
return is based upon a five-year average of the most recent rates of 
return for a cross section of transportation industry companies, 
including maritime companies. Equity in the vessel is assumed to be the 
vessel's constructed net book value less constructed indebtedness. 
Working capital is the dollar amount necessary to cover operating and 
voyage expenses. The annual depreciation, interest, return on equity 
and return on working capital are divided by 300 operating days to 
determine a daily amount. The total of these elements is multiplied by 
estimated voyage days to determine the capital cost component used in 
the fair and reasonable rate calculation.
    The port and cargo handling cost component of the guideline rate is 
determined for each voyage on the basis of the actual cargo tender 
terms for the commodity, load and discharge ports, and lot size. Costs 
used to determine the port and cargo cost component are based on the 
most current data from all available sources and verified from data 
received on completed cargo preference voyages. The brokerage and 
overhead component of the guideline rate is the aggregate of the cost 
components for operating, capital and port and cargo handling, 
multiplied by an 8.5 percent allowance for broker's commissions and 
overhead. The total of these four components is now divided by cargo 
tons (which cannot be less than 70 percent of the vessel's cargo 
deadweight) to determine the guideline rate.
    Under existing regulations, whenever a vessel carries preference 
cargo and subsequently transports additional cargo prior to its return 
to the United States, MARAD reexamines the guideline rate that it 
calculated for the preference voyage. This reexamination may result in 
the recalculation of the original guideline rate, incorporating the 
additional voyage itinerary, costs and revenues which occurred as a 
result of the carriage of the additional cargo. If a vessel is scrapped 
or sold after discharging a preference cargo, MARAD now adjusts the 
guideline rate to reflect the termination of the voyage after 
discharge. If the rate received by the operator for the preference 
cargo exceeds the adjusted guideline rate for the one-way voyage, MARAD 
informs the shipper agency who may then require the operator to repay 
the difference in the ocean freight.

Advance Notice of Proposed Rulemaking

    MARAD decided that revisions to the Rule may be necessary to 
encourage development of a modern and efficient merchant marine and to 
reduce government-wide cargo preference

[[Page 9145]]

costs. As a result, on April 19, 1995, MARAD issued an Advance Notice 
of Proposed Rulemaking (ANPRM) (60 FR 19559), soliciting comments from 
the public. MARAD identified three alternative methodologies in the 
ANPRM, in addition to the current guideline rate methodology described 
above, that it is considering to reduce cargo preference costs. The 
three alternatives were:
    Foreign Market Differential--Under this methodology, MARAD would 
calculate the added costs associated with owning and operating a vessel 
under the U.S.-flag resulting from U.S. laws and regulations and the 
U.S. standard of living. This procedure would identify a modern and 
efficient target vessel or vessels available worldwide and estimate 
costs under foreign ownership and under U.S. ownership, if operated in 
the most efficient manner practical. The resulting cost differential 
would be prorated over specific voyages, as cargoes are tendered, and 
added to the foreign bids for such voyages to determine the fair and 
reasonable rate for U.S.-flag operators.
    Significant problems exist with this method, both in terms of 
economic impact on U.S.-flag ship owners and the legislative history of 
the Cargo Preference Act. First and foremost of these problems is the 
difficulty of identifying and quantifying all of the additional costs 
of U.S.-flag ownership. While some of these costs, including wages and 
benefits, are easily identified, such costs as the additional cost of 
meeting U.S. labor standards, safety and environmental requirements are 
not subject to quantification that would be undisputed. Secondly, since 
preference cargoes historically move between different geographic areas 
than commercial cargoes, a direct comparison with the ``foreign 
market'' may not be possible. Finally, the Cargo Preference Act of 1954 
intended that only rates for U.S.-flag commercial vessels are to be 
considered in the determination of what is fair and reasonable. See 
Comp. Gen. B-95832 (Feb. 17, 1955) (unpublished), cited in H.R. Rep. 
No. 80, 84th Cong., 1st. Sess., 18 (1955). Accordingly, MARAD cannot 
employ a foreign market-based system.
    Cost Averaging--A methodology utilizing vessel cost averaging would 
be constructed in much the same manner as the current Rule methodology, 
except that average vessel costs would replace individual vessel costs 
in the calculation of the fair and reasonable rate. There are three 
basic cost areas which would be the most likely candidates for 
averaging: Vessel operating costs, vessel capital costs, and fuel. Any 
one, or a combination of any of the three cost areas could be included 
in a cost averaging methodology.
    Market Based--Under a market based methodology, a vessel operator's 
bid would be considered fair and reasonable if it were submitted in a 
competitive environment. A competitive environment would be established 
if there were a required number of qualified bids made by independent 
and non-affiliated U.S.-flag vessel operators. A market-based 
methodology would actually be a combination of methodologies because a 
cost-based determination would be made in instances where an 
insufficient number of independent bids were received. The cost-based 
rate could be determined as prescribed in the existing Rule or by use 
of some other methodology like those described above. A review of the 
legislative history of the Cargo Preference Act of 1954, indicates that 
adoption by MARAD of a market based methodology may require additional 
enabling legislation.

Comments to ANPRM

    Seven sets of comments were received in response to the ANPRM. 
Commenters represented U.S. shipper agencies, operators and industry 
associations. Comments were offered in support of, and in opposition to 
all four alternatives, with no clear consensus. The U.S. Agency for 
International Development (USAID) also offered an alternative similar 
to Worldscale for use in determining guideline rates. Commenters 
generally supported the need for guideline rate reform and were 
unanimous that any methodology must encourage investment in efficient 
vessels.
    One commenter proposed an alternative method whereby rates for 
U.S.-flag operators would be capped at defined comparable foreign rates 
plus a fixed percentage premium. Theoretically, this would be a ceiling 
rate, and anything less than the ceiling would be fair and reasonable 
by definition. The foreign rates would be based on averaged foreign 
rates for comparable cargoes and cargo lots for any preceding calendar 
year. The basis for any premium would still be the additional costs of 
U.S.-flag ownership and operation.

Public Meetings

    After an initial review of the comments received on the ANPRM, 
MARAD believed it would be beneficial to meet with interested parties 
to explore further the need for change and potential methodologies. 
MARAD held two meetings. On July 12, 1995, members of the shipping 
community and other interested parties met with MARAD. The meeting 
generated considerable discussion on the topics of guideline rate 
alternatives and the added costs associated with owning and operating 
U.S.-flag vessels. Most persons present considered that an enumeration 
of the legal and regulatory costs imposed on U.S.-flag vessels would be 
very valuable. However, it was generally believed that it would be too 
difficult to construct a methodology accurately comparing the cost of 
operating under the U.S.-flag to the cost of operating under 
appropriate competitive foreign flags. With respect to a market based 
system, several attendees noted that the market should be left alone to 
regulate supply and demand. At the conclusion of the July 12 meeting, 
there was a consensus that what was needed were changes to (1) prevent 
abnormally high rate fixtures and (2) encourage efficiency. The 
averaging methodology was considered the best means to accomplish these 
goals.
    On July 14, 1995, MARAD met on the same subject with 
representatives of the United States Department of Agriculture (USDA) 
and the United States Agency for International Development (USAID), the 
major government shipper agencies. Many of the same issues which arose 
at the July 12, 1995 meeting were discussed at this meeting. The 
discussion centered on the foreign market differential and cost 
averaging methodologies. There appeared to be support for both of these 
methodologies, although the shipper agencies expressed some 
reservations concerning specific items, e.g., are there sufficient 
vessels available in each category to make averaging possible and 
whether or not a new vessel should serve as the target vessel of a 
market based evaluation.
    A question also arose regarding the effect that the proposed 
changes would have on the ability of the U.S.-flag commercial fleet to 
meet the preference reservations established by the cargo preference 
laws. Those laws currently require that 75 percent of specified 
preference cargoes be reserved for U.S.-flag participation. There is 
concern that the proposed changes would make it impossible for the 
commercial fleet to provide adequate availability to meet the statutory 
cargo reservation requirements. Although some high cost operators may 
be adversely affected, given current and foreseeable market conditions, 
sufficient U.S.-flag tonnage should be available to attain the 75 
percent participation level.

[[Page 9146]]

    As a result of MARAD's experience in determining guideline rates 
and the information received from the ANPRM and meetings with 
interested parties, MARAD is proposing to amend the Rule in order to 
improve the fair and reasonable rate-making process. The following is a 
discussion of proposed changes to 46 CFR Part 382.

Averaging

    One of the principal criticisms of the existing Rule, which is 
based on individual vessel costs, is that it fails to provide 
sufficient incentives for efficient vessels to operate in the cargo 
preference trade. Conversely, the current methodology has not 
adequately controlled the rates provided to the less efficient 
operators. Averaging costs would provide the same operating and capital 
cost allowances for all vessels competing for the carriage of a 
specific preference cargo, creating an incentive for vessels to operate 
more efficiently. The resulting lower guideline rates would prevent the 
government from paying excessive rates for the use of less efficient 
(more costly) vessels, especially in times of high market rates for 
vessels in the trade. Accordingly, MARAD proposes that the operating 
costs, including fuel consumption, capital costs and speed, used in the 
construction of the guideline rate be averaged for all vessels within 
specific size categories. The averages would be computed twice a year. 
MARAD would calculate the averages more frequently, if necessary. The 
impact of the change to averaging would be a reduction in the guideline 
rate levels calculated for less efficient vessels and an increase in 
the guideline rate levels of the more efficient vessels.

Vessel Categories

    In order to administer a guideline rate system based on average 
costs effectively and fairly, MARAD would place vessels in categories 
where a minimal amount of distortion is evident from cost variations 
that are solely based on vessel size. For example, the maintenance 
costs for a 15,000 DWT vessel are less than the maintenance cost of an 
80,000 DWT vessel because, among other items, the 80,000 DWT vessel has 
more surface area to paint. In choosing size categories, MARAD examined 
the sizes and costs of vessels that have carried preference cargo, the 
number of vessels of similar size, and the cargo amounts carried on 
individual voyages in the preference trade. MARAD also considered the 
difference between vessel types (i.e., bulk carriers, tankers, tug/
barges, and general cargo), and trading patterns in arriving at the 
proposed vessel categories. As a result, MARAD proposes that vessels be 
placed in four categories on the basis of CDWT. The NPRM defines CDWT 
as Summer DWT less a five percent allowance for fuel, stores and other 
capacity reductions. MARAD proposes to specify the following vessel 
categories:

Category I--Less than 8,000 CDWT
Category II--8,000--19,999 CDWT
Category III--20,000--34,999 CDWT
Category IV--35,000 CDWT and over

    Tug/barge combinations would be included with other vessels of 
similar size in computing the average. Tug/barge combinations are often 
slower with lower per diem costs than self-propelled vessels. Vessel 
speed will also be averaged to place vessels and tug/barge units on a 
comparable basis. Since tug/barge combinations sometimes vary and costs 
for more tugs than barges are reported, MARAD proposes to match the 
costs of a single tug with a single barge based on the barge's 
operating history. To the extent tugs or barges are grouped in the data 
submission, MARAD would match classes of vessels. Cost categories would 
include an equal number of tugs and barges. As tug DWT is minimal and 
does not factor into cargo capacities, only the barge Cargo Deadweight 
Capacity (CDWT) would be used in determining the placement of tug/barge 
combinations in size categories. In the unusual case where more than 
one barge is towed by the same tug, the guideline would be based on the 
total tonnage carried.
    Since speed would be averaged across vessel types, the separate 
weather delay factors in Sec. 382.3(e)(6) would no longer be necessary. 
After reviewing actual vessel speeds on preference voyages, MARAD 
believes that a five percent delay factor is sufficient for all vessel 
types. With the weather delay factor being equalized, specific 
definitions to distinguish tug/barge units from other bulk vessels, 
including integrated tug/barge units, would no longer be necessary. 
Based on the above discussions, MARAD proposes to amend 
Sec. 382.3(a),(b) and (e)(6) to implement cost averaging as the new 
guideline rate methodology.
    Although other categories were suggested by commenters, MARAD 
believes the categories chosen best reflect the vessel size and cargo 
distributions of the existing U.S.-fleet serving the preference trade. 
Further, MARAD believes that the proposed categories better accommodate 
small cargo size shipments. In calculating guideline rates, MARAD will 
use costs from the vessel size category best suited for the size of the 
cargo.

Information Collection Requirements

    MARAD is proposing to reduce reporting and auditing requirements to 
the maximum extent possible while continuing to recognize the agency's 
need for accurate cost and financial information. MARAD is proposing 
two changes to reduce the amount of data reported or the frequency of 
reporting. This NPRM proposes that annual operating cost data for 
similar vessels within a category could be provided in the aggregate on 
a single schedule rather than individually for each vessel. Should the 
operators take advantage of this option, a substantial reduction in the 
time and cost of operator preparation is expected to occur. This 
proposal would also change the filing of post voyage reports from a 
voyage based requirement (60 days after each voyage) to a semi-annual 
requirement. Semi-annual reporting with a ninety day lag time (versus 
60 days) will reduce the paperwork burden on the operators. To 
implement these concepts, the agency proposes to amend Sec. 382.2(b)(8) 
to authorize aggregate schedule filings, and amend Sec. 382.2(c) to 
change post-voyage filing to a semi-annual requirement.
    Two changes are also proposed to reduce the audit burden on 
operators, the Department of Transportation, Office of the Inspector 
General (OIG), and MARAD. The first proposed change would allow an 
operator to have its submissions certified by an independent certified 
public accountant (CPA). This would alleviate the need for audit by the 
OIG. Audits of cargo preference submissions have proven to be a 
significant cost both to the operators and the government. Since many 
operators have other ongoing audit requirements, MARAD believes that 
the certification of the cost submissions would reduce the burden on 
most operators. The second change would provide a more exact 
requirement for the preparation of the accounting data used for cost 
submissions. Currently, submissions must be prepared in accordance with 
Uniform Financial Reporting Requirements (46 CFR Part 232), using 
generally accepted accounting principles (GAAP). Part 232 allows the 
operator to report to MARAD using an accounting basis that is different 
from the one it normally uses for financial reporting, so long as GAAP 
is used. Since GAAP allows different accounting treatments for certain 
types of expense, some operators are reporting costs to MARAD in the 
manner most advantageous to them. The choice can have a major impact on 
an individual vessel's guideline rate. For example, drydocking costs, 
which occur on a

[[Page 9147]]

multi-year cycle, can be accrued over the cycle (which includes more 
than one rate year) or expensed in the current reporting period. This 
interpretation has caused some problems with auditing the data, 
increasing costs to the operators and the government. MARAD proposes to 
require the operator to use the accounting treatment it already uses 
for its own records and audited financial statements. Accordingly, 
MARAD proposes to amend Sec. 382.2(a) to provide the alternative of 
certification by a CPA and to amend Sec. 382.2(d) to require the use of 
consistent accounting practices under GAAP.
    MARAD is also proposing to make three minor reporting changes: 
First, the Official Coast Guard Identification Number (official number) 
would be used to identify a vessel. Since vessels change names but the 
official number always stays with the vessel, it is a better 
identifier. Secondly, Sec. 382.2(b)(2) would be amended to clarify the 
DWT requirement as summer DWT in metric tons and eliminate the 
requirement for Suez and Panama Canal net register tons. The 
requirements for canal net register tons (CNRT) is not necessary. The 
original intent was to use CNRT to estimate canal tolls when 
calculating guideline rates, but to date no practical system has been 
developed for those estimations. Finally, Sec. 382.2(b)(9) would be 
amended to clarify the definition of ``operating day''. Days spent 
waiting, even when the vessel is seaworthy and fully manned, in 
anticipation of booking a cargo or waiting for laydays to begin, have 
never been considered operating days for the purpose of calculating 
guideline rates.
    Overall, MARAD estimates changes in information collection burden 
as follows:

------------------------------------------------------------------------
                      Current                             Proposed      
------------------------------------------------------------------------
                Responses                   Hours    Responses    Hours 
------------------------------------------------------------------------
250......................................    1,000          125      500
------------------------------------------------------------------------

New Vessel Allowance

    One goal of this rulemaking is to encourage newer and more 
efficient vessels to enter the cargo preference market. There are 
certain conditions which this regulation cannot affect, such as the 
three year waiting period before foreign-built vessels are eligible to 
carry preference cargo, irregular amount of cargoes available 
throughout the year, and depressed market conditions, which are 
primarily responsible for the lack of newer U.S.-flag vessels in the 
preference market. MARAD is proposing that newly constructed vessels, 
and vessels acquired prior to the fifth anniversary of their 
construction, receive an additional allowance for acquisition capital 
in the guideline rate that will continue for a period of five years 
after acquisition by the owner. The new vessel allowance would total 
ten percent of capitalized acquisition costs (reduced to a daily basis 
for use in the guideline rate based on a 300 day operating year) for 
the first year after acquisition. The amount would decline by one 
percentage point each subsequent year. No allowance will be included in 
the guideline rate after the fifth year following acquisition. MARAD 
believes this would offset any disincentives for newer vessel entrants 
in the proposed rule. Therefore, it is proposed that a new 
Sec. 382.3(b)(4) be added to the rule which provides a new vessel 
allowance.

Seventy Percent Limitation

    The current Rule provides that, for the purposes of calculating 
guideline rates, calculated cargo tonnage shall not be less than 70 
percent of the vessel's cargo capacity. This provision was intended to 
protect the Government from excessive rates in cases where a lone 
bidder with a large vessel bids on a small cargo lot. Experience has 
shown, however, that the actual result has been to limit competition. 
The proposed system is cargo size driven in that the category of costs 
used in determining the guideline rate will be based on the total 
amount of cargo carried. For example, if 30,000 tons of cargo is booked 
for carriage, costs from Category III will be used to calculate the 
guideline rate. As such, the guideline rate for the carriage of that 
cargo for a 30,000 CDWT vessel would be the same as a 50,000 CDWT 
vessel. In such a system, the 70 percent rule is not necessary, and 
MARAD proposes to eliminate that restriction.

Determination of Voyage Length

    One concern of the bulk operators has been the method for 
determining voyage length in Sec. 382.3(e)(1). One provision requires 
that a voyage be calculated on a round voyage basis. Another requires 
adjustment of the guideline rate to reduce allowable voyage days for 
purposes of rate calculation if a backhaul cargo is obtained. It has 
been MARAD's experience that, together, these requirements discourage 
full participation in the bulk preference cargo trades and do not 
consistently provide equitable treatment in the guideline rate 
procedures. These requirements do not reflect how bulk operations are 
conducted.
    In the U.S. preference trades, the majority of cargoes originate in 
the U.S. Gulf. As a result, vessels generally return to Gulf ports 
after completion of a voyage to await the next cargo opportunity. If 
that opportunity originates from a point of origin outside the Gulf, 
the vessel (1) must position for the cargo, and (2) will most likely 
return to the Gulf. In some instances a succeeding U.S. load 
opportunity will arise before the vessel returns to its original 
preference load port and it will divert directly to the load point for 
the successive cargo. In either event, a point-to-point round voyage 
does not occur.
    Bulk operators, particularly tankers, frequently bid on a 
preference cargo in consideration of obtaining a backhaul cargo. If 
there is a realistic prospect of carrying a backhaul cargo, the 
operator will likely bid lower than where there is no backhaul cargo. 
The prospect of profitable backhauls would also encourage the 
participation of more U.S.-flag vessels in the preference trades, 
resulting in more competition and lower fixture rates. However, with 
the backhaul disincentive in the existing rule, the Government could 
lose the benefit of the operator's incentive to bid low.
    Between May 1, 1990 and June 30, 1995, MARAD calculated 1,029 
guideline rates. Of these, only 30 resulted in recalculations because 
of backhauls. Because most backhauls are marginal in nature, they 
usually contribute very little revenue above their costs. As a result, 
only five of the 30 recalculated rates resulted in calculated 
recapture, i.e., a reduction in payments to the operator. Compared to 
the total revenue generated by the voyages for which backhauls were 
calculated, the total recapture has amounted only to four-tenths of one 
percent of total gross revenue. The expected benefits of recapture are 
outweighed by the administrative expense, higher fixture rates, and 
lost competitive opportunities. For these reasons, MARAD is proposing 
elimination of the backhaul adjustment provision.
    MARAD is proposing two changes to Sec. 382.3(e)(1) to conform the 
existing method of determining voyage length with the realities of bulk 
preference operations. First, instead of requiring that the rate be 
based on a round-trip voyage, MARAD would choose the most appropriate 
port range for the return leg based on the practices of the owner and 
the prospects for subsequent employment at the load port. The second 
change would be to eliminate the requirement for a rate adjustment when 
the operator obtains a backhaul cargo.

[[Page 9148]]

Capital Cost Component

    Five changes are being proposed within this cost category. The 
purpose of the proposed changes is to simplify or clarify rate 
calculations.
    Section 382.3(b)(2)(ii) refers only to vessels with a 20-year 
economic life in determining the interest amount in the capital cost 
component of a guideline rate. In practice, many vessels have been 
sold, reconstructed and/or improved, and periods of economic life vary 
from vessel to vessel. In these instances, the various depreciation 
periods used to determine the guideline rate were defined in paragraph 
(b)(2)(I) of that section, but were not explicitly mentioned in 
paragraph (b)(2)(ii), Interest. To clarify paragraph (b)(2)(ii), MARAD 
proposes to include therein a cross reference to paragraph (b)(2)(I) 
with respect to the periods of depreciation to be used in determining 
interest expense in the guideline rate.
    The second proposed change affects the method of determining 
depreciation. The current Rule uses a residual value of 2.5 percent of 
a vessel's initial book value as part of the depreciation calculation. 
For purposes of simplification and to conform to existing conditions 
for vessel scrapping, MARAD is proposing to eliminate use of the 
residual value in the calculation of depreciation.
    The third proposed change to the capital cost calculation concerns 
situations where interest rates are not available for certain 
capitalized items. When this occurs, the rule now specifies that a 
``current long term rate, the Title XI [Vessel Financing] rate if 
available,'' be used in the guideline rate for determining the capital 
component. MARAD has found that the ten-year Treasury-bill (T-bill) 
rate plus one percent is an appropriate and readily available 
substitute. Accordingly, MARAD proposes to amend Sec. 382.3(b)(2)(ii) 
to specify the ten-year T-bill rate plus one percent as the rate used 
in the fair and reasonable rate calculation when no interest rate is 
available or for vessels without mortgage debt.
    The fourth proposed change also relates to the interest rate used 
to calculate capital costs. Section 382.3(b)(2)(ii) specifies that, 
when variable interest rates are part of the mortgage, the rate ``at 
the time of the calculation * * * shall be used.'' To assist in the 
computation of more flexible guideline rates, MARAD proposes to use the 
interest rate in effect on the first business day of the year or the 
first business day on or after July 1, whichever is appropriate. 
Therefore, MARAD proposes to amend Sec. 382.3(b)(2)(ii) to specify 
January 1 and July 1 as the dates on which the interest rates in effect 
would be used in lieu of variable interest rates for the calculation of 
fair and reasonable rates.
    The final proposed change to capital costs is the provision 
pertaining to the return on working capital. A statement would be added 
to new Sec. 382.3(b)(3) noting that the return on working capital is a 
voyage related capital cost element.

Port and Cargo Handling Cost Component

    To conform to the proposed new averaging system, MARAD would amend 
Sec. 382.3(c) to specify that port and cargo costs will be determined 
by vessel category.

One-Way Rates

    Section 382.3(e)(1) provides for a one-way rate when a vessel is 
scrapped or immediately sold after discharge of the preference cargo. 
The term ``immediately'' has created some confusion. MARAD proposes to 
amend this paragraph by striking ``immediately'' and adding ``and does 
not return to the United States as a U.S.-flag vessel.'' This language 
specifies the conditions under which MARAD considers a voyage to be 
one-way, will assure that an operator selling or transferring a vessel 
foreign is not compensated by a cargo preference program intended to 
promote U.S.-flag vessels.

Total Revenue Rates

    On numerous occasions more than one cargo has been booked on a 
vessel subject to the guideline rate regulations. Also, there have been 
occasions when there have been multiple load and/or discharge ports. 
These situations often make the calculation of individual rates for 
particular parcels and/or destinations, as required by Sec. 382.3(f) 
and (g), impossible. Accordingly, when this occurs, MARAD proposes to 
calculate a ``Total Revenue Rate''. The guideline rate would be 
calculated normally, but the final rate would be expressed as gross 
revenue for the total voyage, rather than as a rate per ton. So long as 
the revenue from the sum of the individual parcels does not exceed the 
total revenue calculated in the guideline, the individual rates would 
be considered fair and reasonable. Section 382.3(f) would be modified 
to remove the references to individual rates for separate parcels 
carried on the same voyage. Paragraph (g) of that section would also be 
modified by including language to allow the use of either a cost per 
ton or other measure that MARAD determines appropriate.

Administrative Practices

    MARAD is also proposing to change certain of its administrative 
practices for prescribing guideline rates. While these changes do not 
necessitate actual changes in the regulations, MARAD is seeking 
comments with respect to its proposals. These changes will (1) allow 
differentiation between cargo tender terms when determining delay 
factors (for delays in port and days not worked) to more appropriately 
reflect the risk of delay inherent in the terms; (2) expand the 
applicability of an initial guideline rate calculation to cover most 
substitute vessels.

Delay Factors

    Section 382.3(e)(3) includes in the calculation of voyage days in 
port a factor to account for delays and days not worked. It has been 
MARAD's practice not to differentiate between cargo tender terms in 
arriving at an appropriate delay factor. In reality, different cargo 
terms have different levels of risk of delay associated with them. For 
example, Free In and Out (FIO) terms have defined load and discharge 
rates, generally with payment of demurrage and despatch by the 
charterer and vessel owner, respectively, while FBT (Full Berth Terms) 
carry unlimited risk of delay without compensation. MARAD proposes to 
change its practices to provide delay factors which more appropriately 
reflect the risk of delay inherent in the cargo tender terms. For 
example, a guideline rate calculated for an FIO cargo where the tender 
included demurrage and despatch premiums could use the load and 
discharge guarantee rates included in the tender; for an FBT voyage, 
historical experience or current conditions may require using delay 
factors in the load or discharge ports.

Guideline Rate Requests

    On average, MARAD calculates two guideline rates for each cargo 
actually fixed. This is generally the result of substitutions, voyage 
variations, add-on cargoes, audits and similar recalculations. It is 
currently MARAD's practice to provide a guideline rate when requested 
by a shipper agency. MARAD intends to substantially reduce the 
incidence of these calculations and determine only one guideline rate 
for each preference cargo which is based on the initially requested 
vessel and cargo. That guideline rate would also be applicable to all 
other vessels that might actually carry the cargo and for amounts plus 
or minus five percent of the

[[Page 9149]]

original request, except in the case where there is a substitution of a 
vessel eligible to receive the ``new vessel allowance'' for an older 
vessel, or vice versa. Rates would also be recalculated, if requested, 
for add-on preference cargoes which increase cargo size by more than 
five percent. MARAD will not recalculate a rate for add-on commercial 
cargo.

Revised Rate Methodology

    The guideline or fair and reasonable rates proposed to be 
established by MARAD would apply only to the waterborne portion of 
cargo transportation, to consist of four components: (1) Operating 
costs; (2) capital costs; (3) port and cargo handling costs; and (4) 
brokerage and overhead. The operating cost component of the fair and 
reasonable rate would reflect average vessel operating costs for 
vessels within the specified size categories previously discussed, 
based on the historical data submitted in accordance with Sec. 382.2 of 
this rule. MARAD would modify the operating costs to the current 
period, utilizing escalation factors for wage and non-wage costs. To 
the extent vessels are time chartered or leased, operators would submit 
both operating and capital costs, including all capitalized costs and 
interest rates for vessels subject to capital leases.
    All eligible annual operating costs for vessels within a category 
would be added together and divided by the total number of operating 
days for those vessels to yield a daily operating cost. The cost would 
be indexed to the current year and multiplied by estimated total voyage 
days to yield the operating cost segment for the voyage. The amount of 
cargo fixed would be the basis for selecting which vessel category of 
cost averages would be used in calculating a guideline rate.
    Fuel consumption would be figured on the basis of actual reported 
fuel consumption at sea and in port for vessels within the same 
category. The average fuel consumptions of vessels in the category 
would be multiplied by the corresponding projected number of voyage 
days at sea and in port to yield total fuel consumed. MARAD would 
obtain from published sources current spot market fuel prices, at 
bunkering ports consistent with sound commercial practice, and apply 
them to fuel consumed to produce the fuel segment of the operating cost 
component. The total of the fuel and non-fuel operating cost segments 
would be added together to yield the operating cost component for the 
voyage.
    The capital cost component would be based on participating vessels 
in the applicable size category. It would consist of an allowance for 
depreciation and interest and a reasonable return on investment. 
Depreciation would be straight-line based on a 20-year economic life. 
However, if the owner acquired an existing vessel, the vessel would be 
depreciated on a straight-line basis over the remaining period of its 
20-year economic life, but not fewer than 10 years. Capitalized 
improvements would be depreciated straight-line over the remainder of 
the 20-year period, but not fewer than 10 years, commencing with the 
capitalization date for those improvements.
    For the purpose of calculating interest expense, MARAD would assume 
that original vessel indebtedness is 75 percent of the owner's 
capitalized vessel cost and that principal payments are made in equal 
annual installments over the economic life of the vessel. To compute 
the interest cost, the owners' actual interest rates would be applied 
to the vessel's outstanding constructed debt, using the depreciation 
schedule in Sec. 382.3(b)(2)(ii). Where the owner has a variable 
interest rate, the owner's rate prevailing at the time of calculation 
of the average capital cost component would be used. In cases where 
there is no interest rate available, and for operators without vessel 
debt, MARAD would use the ten-year T-bill rate plus one percent.
    As in the existing Rule, return on investment would have two 
components, return on equity and return on working capital. The rate of 
return would be based upon a five-year average of the most recent rates 
of return for a cross section of transportation industry companies, 
including maritime companies. Equity would be assumed to be a vessel's 
constructed net book value less constructed principal amounts. Working 
capital would be voyage based and is the dollar amount necessary to 
cover operating and voyage expenses.
    A new vessel allowance would be included in the capital component 
of newly built vessels and vessels acquired when five years of age or 
less. The new vessel allowance would be paid for the first five years 
following construction or acquisition. This allowance would equal ten 
percent of the vessel's capitalized costs during the first year 
following construction or acquisition, and would decline by one 
percentage point each of the subsequent four years. To arrive at the 
voyage allowance, the annual amount would be divided by 300 operating 
days and multiplied by estimated voyage days.
    The average annual depreciation, interest, and return on equity for 
vessels in the category would be divided by 300 operating days to 
determine a daily amount. The total of these elements would be 
multiplied by estimated voyage days and added to the return on working 
capital and the new vessel allowance to determine the capital cost 
component used in the fair and reasonable rate calculation.
    The port and cargo handling cost component would be determined for 
each voyage on the basis of vessels in the category and the actual 
cargo tender terms for the commodity, load and discharge ports, and lot 
size. The costs would include applicable fees for wharfage and dockage 
of the vessel, canal tolls, cargo loading and discharging, and all 
other voyage costs associated with the transportation of preference 
cargo. Costs used to determine the port and cargo cost component would 
be based on the most current data from all available sources and 
verified from data received on completed cargo preference or commercial 
voyages.
    To determine the brokerage and overhead component of the fair and 
reasonable rate, MARAD would add the cost components for operating, 
capital, and port and cargo handling and multiply that sum by an 8.5 
percent allowance for broker's commissions and overhead. The total of 
these four components, expressed as total revenue or as a rate per ton, 
whichever is most applicable, would be the fair and reasonable rate.
    If a vessel is scrapped or sold after discharging a preference 
cargo, and the vessel does not return to the United States as a U.S.-
flag vessel, the guideline rate would be adjusted to reflect the 
termination of the voyage after cargo discharge. If the rate received 
by the operator for the preference cargo exceeds the adjusted guideline 
rate for the one-way voyage, the operator would be required to repay 
the difference in ocean freight to the shipper agency.
    In special circumstances, certain procedures prescribed in this 
rule may be waived, so long as the procedures adopted are consistent 
with the Act and with the intent of these regulations.

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review); DOT Regulatory 
Policies and Procedures; Public Law 104-121.

    This rulemaking is not considered an economically significant 
regulatory action under Section 3(f) of E.O. 12866. It is not 
considered to be a major rule

[[Page 9150]]

for purposes of Congressional review under Public Law 104-121. It is 
anticipated that savings to the Government of less than $1 million per 
year will result. Accordingly, the program will not have an annual 
effect on the economy of $100 million or more. While this rule does not 
involve any change in important Departmental policies, it is considered 
significant under DOT Regulatory Policies and Procedures and E.O. 12866 
because it addresses a matter of considerable importance to the 
maritime industry and may be expected to generate significant public 
interest. Accordingly, the Office of Management and Budget has reviewed 
this rule.
    MARAD has estimated the potential economic impact of this 
rulemaking. To determine what effect the proposed changes would have 
had on guideline rates, 167 rates were recalculated for the years 1992 
through 1995 using the revised methodology. This sample represented 25% 
to 30% of the total fixtures for each of the four years. The rate 
sample chosen was reflective of the operators and countries in the 
complete data base. For 1992 and 1993, the recalculated rates were 
below the original guideline rates 54% of the time. In 1994 and 1995, 
the ratio of recalculated rates falling below original guideline 
calculations rose to 60%.
    The rates calculated for the sample were compared to actual cargo 
fixture rates to evaluate the ability of averaging to reduce program 
costs. The chart included below summarizes the results of the sample 
data. Using averaging, twelve percent of the rates in the sample were 
lower, while only 10 percent rose. The dollar cost reduction for the 
rates compared equates to about one million dollars over the period. 
Assuming the relationship holds constant over the remainder of the 
rates calculated in the period, a savings of $3.3 million could have 
been realized.

       Guideline Rate Changes Under Averaging Method comparison of Historical Guideline Rates to Proposal       
----------------------------------------------------------------------------------------------------------------
                                                 Preference revenue                        Direction of change  
              Year                Sample  -------------------------------- Net savings -------------------------
                                   size       Original         Revised                      Down          Up    
----------------------------------------------------------------------------------------------------------------
1992...........................        53     $82,929,000     $82,434,000     $495,000            5            4
1993...........................        67     137,344,000     136,812,000      532,000           14           13
1994...........................        36      50,607,000      50,607,000            0            0            0
1995...........................        11      15,985,000      15,982,000        3,000            1            0
                                --------------------------------------------------------------------------------
      Total....................       167     286,865,000     285,835,000    1,030,000           20           17
                                                                                       =========================
      Total percentage of                                                                                       
       change..................  ........  ..............  ..............  ...........           12           10
----------------------------------------------------------------------------------------------------------------

    The data for 1994 and 1995 also demonstrate how a bad market 
depresses the rates offered for preference cargoes. Even though rates 
calculated using the averaging method fell below the original guideline 
rate 60% of the time, actual fixture rates during that period were 
still below recalculated guidelines. This result is neither unexpected 
nor undesirable. In fact, it validates the category cost averaging 
method as being able to hold rates down in a very good market while not 
being responsible for pushing the rates to the level of a bad market. 
Even though reducing program costs is a goal of this proposed new 
method, it is important that rates still be fair to an efficient 
operator.

Federalism

    The Maritime Administration has analyzed this rulemaking in 
accordance with the principles and criteria contained in Executive 
Order 12612 and has determined that it would not have sufficient 
federalism implications to warrant the preparation of a Federalism 
Assessment.

Regulatory Flexibility Act

    The Maritime Administration certifies that this regulation would 
not have a significant economic impact on a substantial number of small 
entities. There are approximately twenty-five vessel operators that 
participate in this program, none of which are small entities.

Environmental Assessment

    This regulation does not significantly affect the environment. 
Accordingly, an Environmental Impact Statement is not required under 
the National Environmental Policy Act of 1969.

Paperwork Reduction Act

    This proposed rulemaking reduces the current requirement for the 
collection of information. The Office of Management and Budget (OMB) 
has reviewed and approved the information collection and record keeping 
requirements (approval number 2133-0514) in the current rule under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
    In accordance with the Paperwork Reduction Act of 1995, this notice 
announces the Maritime Administration's (MARAD's) intentions to request 
extension of approval for three years of a currently approved 
information collection. Copies of this request can be obtained from the 
Office of Costs and Rates.
    Title of Collection: Determination of Fair and Reasonable Rates for 
the Carriage of Bulk Preference Cargoes (46 CFR Part 382).
    Type of Request: Extension of currently approved information 
collection.
    OMB Control Number: 2133-0514.
    Form Number: None.
    Expiration Date of Approval: 9/30/97.
    Summary of Collection of Information: Two different types of data 
are required: Vessel Operating Costs and Capital Costs--Part 382 
requires U.S.-flag vessel Operators to submit this data to MARAD on an 
annual basis. The costs are used by MARAD in determining fair and 
reasonable guideline rates for the carriage of preference cargoes on 
U.S.-flag vessels. Voyage costs and voyage days--(Post Voyage Report)--
This information is required to be filed by a U.S.-flag operator after 
the completion of a cargo preference voyage.
    Need and Use of the Information: The information collected is used 
by MARAD to calculate fair and reasonable rates for U.S.-flag vessels 
engaged in the carriage of preference cargoes. If the information is 
not collected, the fair and reasonable rates could be inaccurate thus 
leading to a lack of adequate protection of the government's financial 
interest in obtaining the lowest possible U.S.-flag cost for shipping 
government cargoes.
    Description of Respondents: U.S.-flag vessels are owned and 
operated by U.S. citizens under the U.S.-flag. The vessels

[[Page 9151]]

consist of tug/barges, dry bulk vessels, break bulk liner vessels, 
LASH, and tankers.
    Annual Responses: 125 (total)--50 filings of vessel operating costs 
and capital costs from U.S. operators; 75 filings of Post Voyage 
Reports.
    Annual Burden: 500 hours--This rule would not impose any unfunded 
mandates.

List of Subjects in 46 CFR Part 382

    Agricultural commodities, Confidential business information, 
Government procurement, Loan programs--foreign relations, Maritime 
carriers, Reporting and recordkeeping requirements.

    Accordingly, 46 CFR Chapter II is hereby proposed to be amended by 
revising Part 382, to read as follows:

PART 382--DETERMINATION OF FAIR AND REASONABLE RATES FOR THE 
CARRIAGE OF BULK AND PACKAGED PREFERENCE CARGOES ON U.S.-FLAG 
COMMERCIAL VESSELS

Sec.
382.1  Scope.
382.2  Data submission.
382.3  Determination of fair and reasonable rates.
382.4  Waiver.

    Authority: 46 App. U.S.C. 1114, 1241(b); 49 CFR 1.66.


Sec. 382.1  Scope.

    The regulations in this part prescribe the type of information that 
shall be submitted to the Maritime Administration (MARAD) by operators 
interested in carrying bulk and packaged preference cargoes, and the 
method for calculating fair and reasonable rates for the carriage of 
dry (including packaged) and liquid bulk preference cargoes on U.S.-
flag commercial vessels, except vessels engaged in liner trades, as 
defined in 46 CFR 383.1, pursuant to section 901(b) of the Merchant 
Marine Act, 1936, as amended, 46 App. U.S.C. 1214(b).


Sec. 382.2  Data submission.

    (a) General. The operators shall submit information, described in 
paragraphs (b) and (c) of this section, to the Director, Office of 
Costs and Rates, Maritime Administration, Washington, D.C. 20590. To 
the extent a vessel is time chartered, the operator shall also submit 
operating expenses for that vessel. All submissions shall be certified 
by the operators. A further review and certification by an independent 
Certified Public Accountant (CPA) is recommended. Submissions not 
certified by an independent CPA are subject to verification, at MARAD's 
discretion, by the Office of the Inspector General, Department of 
Transportation. MARAD's calculations of the fair and reasonable rates 
for U.S.-flag vessels shall be performed on the basis of cost data 
provided by the U.S.-flag vessel operator as specified herein. If a 
vessel operator fails to submit the required cost data, MARAD will not 
construct the guideline rate for the affected vessel, which may result 
in such vessel not being approved by the sponsoring Federal agency.
    (b) Required vessel information. The following information shall be 
submitted not later than April 30, 1998, for calendar year 1997 and 
shall be updated not later than April 30 for each subsequent calendar 
year. In instances where a vessel has not previously participated in 
the carriage of cargoes described in Sec. 382.1, the information shall 
be submitted not later than the same date as the offer for carriage of 
such cargoes is submitted to the sponsoring Federal agency, and/or its 
program participant, and/or its agent and/or program's agent, or 
freight forwarder.
    (1) Vessel name and official number.
    (2) Vessel DWT (summer) in metric tons.
    (3) Date built, rebuilt and/or purchased.
    (4) Normal operating speed.
    (5) Daily fuel consumption at normal operating speed, in metric 
tons (U.S. gallons for tugs) and by type of fuel.
    (6) Daily fuel consumption in port while pumping and standing, in 
metric tons (U.S. gallons for tugs), by type of fuel.
    (7) Total capitalized vessel costs (list and date capitalized 
improvements separately), and applicable interest rates for 
indebtedness (where capital leases are involved, the operator shall 
report the imputed capitalized cost and imputed interest rate).
    (8) Operating cost information, to be submitted in the format 
stipulated in 46 CFR 232.1, on Form MA-172, Schedule 301. Operators are 
encouraged to provide operating cost information for similar vessels 
that the operator considers substitutable within a category, as defined 
in Sec. 382.3(a)(1), in the aggregate on a single schedule. Information 
shall be applicable to the most recently completed calendar year.
    (9) Number of vessel operating days pertaining to data reported in 
paragraph (b)(8) of this section for the year ending December 31. For 
purposes of this part, an operating day is defined as any day on which 
a vessel or tug/barge unit is in a seaworthy condition, fully manned, 
and either in operation or standing ready to begin pending operations.
    (c) Required port and cargo handling information. The port and 
cargo handling costs listed in this paragraph (c) shall be provided 
semi-annually for each cargo preference voyage terminated during the 
period. The report shall identify the vessel, cargo and tonnage, and 
round-trip voyage itinerary including dates of arrival and departure at 
port or ports of loading and discharge. The semi-annual periods are as 
follows:

Period/Due date

April 1-September 30--January 1
October 1-March 31--July 1

    (1) Port expenses. Total expenses or fees, by port, for pilots, 
tugs, line handlers, wharfage, port charges, fresh water, lighthouse 
dues, quarantine service, customs charges, shifting expenses, and any 
other appropriate port expense.
    (2) Cargo expense. Separately list expenses or fees for stevedores, 
elevators, equipment, and any other appropriate expenses.
    (3) Extra cargo expenses. Separately list expenses or fees for 
vacuvators and/or cranes, lightering (indicate tons moved and cost per 
ton), grain-to-grain cleaning of holds or tanks, and any other 
appropriate expenses.
    (4) Canal expenses. Total expenses or fees for agents, tolls (light 
or loaded), tugs, pilots, lock tenders and boats, and any other 
appropriate expenses. Indicate waiting time and time of passage.
    (d) Other requirements. Unless otherwise provided, operators shall 
use generally accepted accounting principles and 46 CFR Part 232, 
Uniform Financial Reporting Requirements, for guidance in submitting 
cost data. Notwithstanding the general provisions in 46 CFR 232.2(c) 
for MARAD program participants, each operator shall submit cost data in 
the format that conforms with the accounting practices reflected in the 
operator's trial balance and, if audited statements are prepared, the 
audited financial statements. Data requirements stipulated in paragraph 
(b) of this section that are not included under those reporting 
instructions shall be submitted in a similar format. If the operator 
has already submitted to MARAD, for other purposes, any data required 
under paragraph (b) of this section, its submission need not be 
duplicated to satisfy the requirements of this part.
    (e) Presumption of confidentiality. MARAD will initially presume 
that the material submitted in accordance with the requirements of this 
part is privileged or confidential within the meaning of the Freedom of 
Information Act (FOIA), 5 U.S.C. 552(b)(4). In the

[[Page 9152]]

event of a subsequent request for any portion of that data under the 
FOIA, MARAD will inform the submitter of such request and allow the 
submitter the opportunity to comment. The submitter shall claim or 
reiterate its claim of confidentiality at that time by memorandum or 
letter, stating the basis for such assertion of exemption from 
disclosure, including, but not limited to, statutory and decisional 
authorities. The Freedom of Information Act Officer, or the Chief 
Counsel of MARAD, will inform the submitter of the intention to 
disclose any information claimed to be confidential, after the initial 
FOIA request, or after any appeal of MARAD's initial decision, 
respectively.

(Approved by the Office of Management and Budget under control number 
2133-0514)


Sec. 382.3  Determination of fair and reasonable rate.

    Fair and reasonable rates for the carriage of preference cargoes on 
U.S.-flag commercial vessels shall be determined as follows:
    (a) Operating cost component--(1) General. An operating cost 
component for each category, based on average operating costs of 
participating vessels within a cargo size category, shall be 
determined, at least twice yearly, on the basis of operating cost data 
for the calendar year immediately preceding the current year that has 
been submitted in accordance with Sec. 382.2. The operating cost 
component shall include all operating cost categories, as defined in 46 
CFR 232.5, Form MA-172, Schedule 301, Operating Expenses. For purposes 
of these regulations, charter hire expenses are not considered 
operating costs. MARAD shall index such data yearly to the current 
period, utilizing the escalation factors for wage and nonwage costs 
used in escalating operating subsidy costs for the same period.
    (2) Fuel. Fuel costs within each category shall be determined based 
on the average actual fuel consumptions, at sea and in port, and 
current fuel prices in effect at the time of the preference cargo 
voyage(s).
    (3) Vessel categories. (i) Vessels shall be placed in categories by 
cargo deadweight capacities (CDWT), as follows:

Group I--under 8,000 CDWT
Group II--8,000--19,999 CDWT
Group III--20,000--34,999 CDWT
Group IV--35,000 CDWT and over

    (ii) For purposes of paragraph (a)(3)(i) of this section, CDWT is 
defined as Summer DWT less five percent.
    (b) Capital component--(1) General. An average capital cost 
component shall be constructed, at least twice yearly, consisting of 
vessel depreciation, interest, and return on equity.
    (2) Items included. The capital cost component shall include:
    (i) Depreciation. The owner's capitalized vessel costs, including 
capitalized improvements, shall be depreciated on a straight-line basis 
over a 20-year economic life, unless an owner purchased or 
reconstructed the vessel when its age was greater than 10 years old. To 
the extent a vessel is chartered or leased, the operator shall submit 
the capitalized cost and imputed interest rate. In the event these 
items are not furnished, MARAD will construct these amounts. When 
vessels more than 10 years old are acquired, a depreciation period of 
10 years shall be used. Capitalized improvements made to vessels more 
than 10 years old shall be depreciated over a 10-year period. When 
vessels more than 10 years old are reconstructed, MARAD will determine 
the depreciation period.
    (ii) Interest. The cost of debt shall be determined by applying the 
vessel owner's actual interest rate to the outstanding vessel 
indebtedness. MARAD shall assume that original vessel indebtedness is 
75 percent of the owner's capitalized vessel cost, including 
capitalized improvements, and that annual principal payments are made 
in equal installments over the economic life of the vessel as 
determined in accordance with paragraph (b)(2)(i) of this section. 
Where an operator uses a variable interest rate, the operator's actual 
interest rate at the time of calculation of the average capital cost 
component shall be used. The ten-year Treasury bill (T-bill) rate plus 
one percent on the first business day of the year or the first business 
day on or after July 1 shall be used for operators without vessel debt 
and when the actual rate is unavailable.
    (iii) Return on equity. The rate of return on equity shall be 
computed in the same manner as described in paragraph b)(3) of this 
section. For the purpose of determining equity, it shall be assumed 
that the vessel's constructed net book value, less outstanding 
constructed principal, is equity. The constructed net book value shall 
equal the owner's capitalized cost minus accumulated straight-line 
depreciation.
    (3) Return on working capital. For each voyage a return on working 
capital shall be included as part of the capital cost element. Working 
capital shall equal the dollar amount necessary to cover 100 percent of 
the averaged operating costs and estimated voyage costs for the voyage. 
The rate of return shall be based on an average of the most recent 
return of stockholders' equity for a cross section of transportation 
companies, including maritime companies.
    (4) New vessel allowance. Newly constructed vessels and vessels 
acquired during or before their fifth year of age will receive an 
additional allowance for acquisition capital as part of the capital 
cost element. For the first year following construction or acquisition 
by the operator, a daily amount equal to ten percent of capitalized 
acquisition costs, divided by 300 operating days, shall be included. 
This amount shall be reduced by one percent of capitalized acquisition 
costs each subsequent year. No allowance shall be included after the 
fifth year following construction or acquisition.
    (5) Voyage component. The annual depreciation, interest, and return 
on equity shall be divided by 300 vessel operating days to yield the 
daily cost factors. Total voyage days shall be applied to the daily 
cost factors and totaled with the return on working capital and new 
vessel allowance for the voyage to determine the daily capital cost 
component.
    (c) Port and cargo handling cost component. MARAD shall calculate 
an estimate of all port and cargo handling costs on the basis of the 
reported cargo tender terms. The port and cargo handling cost component 
shall be based on vessels in the category and the most current 
information available verified by information submitted in accordance 
with Sec. 382.2(c), or as otherwise determined by MARAD, such as by 
analysis of independent data obtained from chartering agencies.
    (d) Brokerage and overhead component. An allowance for broker's 
commission and overhead expenses of 8.5 percent shall be added to the 
sum of the operating cost component, the capital cost component, and 
the port and cargo handling cost component.
    (e) Determination of voyage days. The following assumptions shall 
be made in determining the number of preference cargo voyage days:
    (1) The voyage shall be round-trip with the return in ballast to a 
port or port range selected by MARAD as the most appropriate, unless 
the vessel is scrapped or sold after discharge of the preference cargo 
and does not return to the United States as a U.S.-flag vessel. In this 
event, only voyage days from the load port to the discharge port, 
including time allowed to discharge, shall be included.
    (2) Cargo is loaded and discharged as per cargo tender terms 
interpreted in accordance with the ``International Rules For the 
Interpretation of Trade

[[Page 9153]]

Terms'' (INCOTERMS) published by the International Chamber of Commerce.
    (3) Total loading and discharge time includes the addition of a 
factor to account for delays and days not worked.
    (4) One extra port day is included at each anticipated bunkering 
port.
    (5) An allowance shall be included for canal transits, when 
appropriate.
    (6) Transit time shall be based on the average speed of vessels in 
the category plus an additional five percent to account for weather 
conditions.
    (f) Determination of cargo carried. The amount of cargo tonnage and 
the category of costs used to calculate the rate shall be based on the 
tender offer or charter party terms. In instances when separate parcels 
of preference cargo are booked or considered for booking on the same 
vessel, whether under a single program or different programs, a 
guideline rate shall be provided based on the combined voyage.
    (g) Total rate. The guideline rate shall be the total of the 
operating cost component, the capital cost component, the port and 
cargo handling cost component, and the broker's commission and overhead 
component. The fair and reasonable rate can be expressed as total 
voyage revenue or be divided by the amount of cargo to be carried, as 
prescribed in paragraph (f) of this section, and expressed as cost per 
ton, whichever MARAD deems most appropriate.


Sec. 382.4  Waiver.

    In special circumstances and for good cause shown, the procedures 
prescribed in this part may be waived in keeping with the circumstances 
of the present, so long as the procedures adopted are consistent with 
the Act and with the intent of this part.

    By Order of the Maritime Administrator.

    Dated: February 24, 1997.
Joel C. Richard,
Secretary.
[FR Doc. 97-5017 Filed 2-27-97; 8:45 am]
BILLING CODE 4910-81-P