[Federal Register Volume 65, Number 89 (Monday, May 8, 2000)]
[Rules and Regulations]
[Pages 26506-26513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11338]


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FEDERAL MARITIME COMMISSION

46 CFR Parts 515, 520, 530 and 535

[Docket No. 99-10]


Ocean Common Carriers Subject to the Shipping Act of 1984

AGENCY: Federal Maritime Commission.

ACTION: Final rule.

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SUMMARY: The Federal Maritime Commission is amending its regulations 
implementing the Shipping Act of 1984 to clarify the definition of 
``ocean common carrier'' to reflect the Commission's interpretation of 
the term. As a result, only common carriers that operate vessels in at 
least one United States trade will be subject to these rules.

DATES: This rule becomes effective August 7, 2000.

FOR FURTHER INFORMATION CONTACT: Thomas Panebianco, General Counsel, 
Federal Maritime Commission, 800 North Capitol Street, N.W., Room 1018, 
Washington, D.C. 20573, (202) 523-5740.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Maritime Commission initiated this proceeding by Notice 
of Proposed Rule (``NPR'') published in the Federal Register on June 
25, 1999. 64 FR 34183. The NPR noted that the Commission was proposing 
to amend several of its regulations to clarify the definition of 
``ocean common carrier'' contained in section 3(16) of the Shipping Act 
of 1984 (``Shipping Act''), 46 U.S.C. app. Sec. 1702(16), as amended by 
the Ocean Shipping Reform Act of 1998 (``OSRA''), P.L. 105-258, 112 
Stat. 1902, to reflect the Commission's then-interpretation of that 
term. In essence, the proposed rule defined ``ocean common carrier'' to 
include only common carriers that operate vessels serving ports in at 
least one United States trade.
    The NPR solicited comment on the proposed rule from the public, and 
the Commission received comments from: (1) The Ocean Carrier Working 
Group (``OCWG''); (2) Maersk, Inc.; (3) Samskip Hf (``Samskip''); (4) 
the Council of European & Japanese National Shipowners' Associations 
(``CENSA''); (5) the Calcutta, East Coast of India and Bangladesh 
Conference and Waterman Steamship Corporation (``India Carriers'');(6) 
the National Industrial Transportation League (``NITL''); (7) the 
American International Freight Association & Transportation 
Intermediaries Association (``AIFA/TIA''); and (8) Ocean World Lines, 
Inc. (``OWL'').

The NPR

    The NPR noted that the Commission had previously proposed a new 
definition for the term ``ocean common carrier'' in the context of the 
rulemaking governing agreements which was undertaken to implement OSRA. 
Docket No. 98-26, Ocean Common Carrier and Marine Terminal Operator 
Agreements Subject to the Shipping Act of 1984, 64 FR 11236, March 8, 
1999. However, the Commission received only two comments on that 
particular proposal and subsequently decided to provide the public an 
additional opportunity to comment through this proceeding. The NPR then 
stated that the heart of the matter was how to distinguish between 
ocean common carriers (``OCCs'') and non-vessel-operating common 
carriers (``NVOCCs''). The distinction is significant under the 
Shipping Act because only OCCs can enter into and file agreements with 
the Commission and receive antitrust immunity therefor. In addition, 
only OCCs can offer service contracts to shippers, although NVOCCs can 
enter into service contracts as shippers.
    The NPR conceded that at first glance the defining of an OCC as a 
``vessel operator'' does not appear to be ambiguous. However, the 
Commission stated that its staff has encountered

[[Page 26507]]

several complex situations in attempting to apply the term, e.g., where 
and when vessels operated and what type of vessels are employed. In 
this regard, the NPR noted that various bureaus have interpreted the 
Shipping Act to require that an OCC must operate a vessel calling at a 
U.S. port, and that if a carrier is an OCC in one trade, it should be 
considered an OCC for all U.S. trades. The proposed rule therefore 
codified this approach and stated:

    Ocean common carrier means a common carrier that operates, for 
all or part of its common carrier service, a vessel on the high seas 
or the Great Lakes between a port in the United States and a port in 
a foreign country, except that the term does not include a common 
carrier engaged in ocean transportation by ferry boat, ocean tramp, 
or chemical parcel-tanker.

    The NPR noted that this multi-trade approach avoids making 
interpretations as to a carrier's status on a trade-by-trade basis, 
which would be administratively impractical and might prompt a less 
efficient redeployment of vessels. The proposal was also intended to 
clarify that companies that operate vessels solely outside the U.S. are 
not deemed to be OCCs. The NPR suggested that the proposal was 
consistent with legislative intent that a ``vessel operator'' be one 
whose vessels call at U.S. ports and all other common carriers should 
be classified as NVOCCs.
    The NPR further stated that if the definition of OCC included 
carriers that operate vessels only in foreign-to-foreign trades, it 
could expand the scope of antitrust immunity and also remove certain 
carriers from NVOCC financial responsibility requirements in U.S. 
trades even though they have no vessels or assets in the U.S. Lastly, 
the NPR concluded, based on principles of statutory construction, that 
when Congress used the term ``vessel'' in the definition of OCC, it 
likely was referring to those vessels specified in the definition of 
``common carrier,'' i.e., those that operate on the high seas between 
the U.S. and a foreign country.

Comments on Proposed Rule

A. OCWG

    The OCWG agrees with the Commission that the distinction between 
OCCs and NVOCCs is significant. It also supports continuation of the 
Commission's past practice that a common carrier that operates a vessel 
in one U.S. trade is an OCC for all U.S. trades. It contends that this 
practice is consistent with the Shipping Act and, as a practical 
matter, has worked well in the past, presenting no problems.
    The OCWG submits that the proposed rule would require members of 
vessel sharing agreements (``VSAs'') to deploy vessels in the U.S. 
solely to meet regulatory requirements, something the Commission has 
indicated it wishes to avoid, citing the NPR at 5. The OCWG asserts 
that various types of VSAs have grown significantly, and offer more 
efficient and frequent service at lower cost. It contends that it is 
possible, for a variety of operational factors, that the parties may 
decide that all of the vessels of a member be deployed in non-U.S. 
trades and it will only serve the U.S. via the vessels of its fellow 
members. The OCWG concludes that such a carrier would not be considered 
an OCC and would have to withdraw from the U.S. portion of the 
agreement or restructure its service.
    The OCWG therefore suggests a modified definition. It would 
allegedly preserve the ability of VSAs to function efficiently, while 
at the same time maintaining a distinction between carriers that commit 
assets to a service in U.S. trades and those that do not.
    Next, the OCWG argues that the proposed definition should not 
change the applicable law regarding transshipment agreements. It 
contends that for over 50 years the Commission has held that a person 
may be an OCC, within the meaning of the Shipping Act and its 
predecessor legislation, without having a vessel call directly at a 
U.S. port, citing Restrictions on Transshipment at Canal Zone, 2 
U.S.M.C. 675 (1943). It notes further that in adopting OSRA, Congress 
did not change the statutory definition of ``common carrier'' and 
contends, therefore, that there is no statutory basis for the change in 
law being proposed by the Commission.
    In addition, the OCWG maintains that the proposed change would 
overturn longstanding Commission precedent that a carrier providing a 
portion of a through vessel service to or from the U.S. qualifies as an 
OCC even though its vessels do not call at a U.S. port, citing 
Transshipment & Apportionment Agreements from Indonesian Ports to U.S. 
Atlantic & Gulf Ports, 10 F.M.C. 183 (1964); and Transshipment and 
Through Billing Arrangements Between East Coast Ports of South Thailand 
and U.S. Atlantic and Gulf Ports, 10 F.M.C. 201 (1966). These carriers 
therefore urge the Commission to clarify in the supplemental 
information that a common carrier offering a through bill of lading to 
or from the U.S. that operates a vessel on which part of the service is 
provided meets the definition of OCC, even if its vessels do not call 
directly at a U.S. port. The OCWG further notes that these carriers 
would be subject to tariff publication and other regulatory 
requirements of the Shipping Act and would maintain the distinction 
between carriers that commit assets to a service to or from the U.S. 
and those that do not. Lastly, the OCWG argues that the proposed 
approach would have the effect of removing all transshipment agreements 
from the scope of the Commission's jurisdiction and require the 
Commission to repeal 46 C.F.R. Sec. 535.306.

B. Maersk

    Maersk observes that the Commission's proposed definition would 
exclude feeder operators providing foreign-to-foreign transportation 
from the definition of OCC. It suggests that the final rule should 
accommodate such activity. In addition, Maersk believes that a carrier 
signatory to a vessel sharing agreement (``VSA'') should be considered 
an OCC when another carrier participating in the agreement contributes 
ships making U.S. port calls.

C. Samskip

    Samskip, a self-defined vessel-operating common carrier, argues 
that the proposed rule overturns Commission precedent that carriers 
providing a portion of vessel service to or from the U.S. qualify as 
OCCs even though their vessels do not actually call at U.S. ports. It 
suggests, therefore, that the supplemental information to the final 
rule state that a common carrier which offers a through bill of lading 
and operates a vessel on which part of the service is provided is an 
OCC, even if the vessels it operates do not call directly at a U.S. 
port. Lastly, Samskip urges the Commission to adopt a definition of OCC 
that provides that a common carrier that becomes an OCC by virtue of 
carriage in a transshipment situation should be considered an OCC for 
purposes of entering into slot chartering and vessel space sharing 
agreements with other OCCs.

D. CENSA

    CENSA supports that portion of the proposed rule that states that a 
carrier operating a vessel in one U.S. trade is an OCC for all U.S. 
trades. However, CENSA believes that the requirement that a carrier 
must have at least one vessel calling at a U.S. port may exclude two 
categories of carriers--those involved in VSAs and transshipment 
arrangements.
    CENSA contends that most OCCs are parties to one or more forms of 
VSAs--space charters, slot charters, and alliances--many of which are 
global in

[[Page 26508]]

scope. CENSA submits that it is possible that a VOCC member of a VSA 
will deploy its vessels in non-U.S. trades, but will serve the U.S. via 
the vessels of the agreement members. CENSA believes that under the 
proposed definition such a carrier would not be an OCC and would 
consequently have to withdraw from the U.S. portion of the agreement or 
restructure its service to have a vessel call at a U.S. port. It 
suggests amending the definition to include a VOCC that contributes 
vessels to a VSA.
    CENSA further asserts that longstanding Commission precedent holds 
that carriers that provide a portion of vessel service to or from the 
U.S. qualify as OCCs even though their vessels do not call at U.S. 
ports. CENSA suggests that there is no need to overrule this precedent 
and that Congress is presumed to have been aware of it when it adopted 
the definition of ``common carrier'' in OSRA.

E. India Carriers

    The India Carriers contend that the proposed rule would classify a 
carrier which operates oceangoing vessels as an NVOCC, if the vessels 
did not call at U.S. ports. They believe that this contradicts the 
definition of NVOCC in the Shipping Act--i.e., a common carrier that 
does not operate the vessels by which the ocean transportation is 
provided. They further submit that an OCC that serves the U.S. trades 
by slot-chartering space on another carrier's vessels, but issues its 
own bills of lading, would be held to be a ``shipper'' under the 
proposed definition. This, they argue, could confuse the traditional 
liability relationship between shipper and carrier under the Carriage 
of Goods by Sea Act (``COGSA''), 46 U.S.C. 1310-1315.
    The India Carriers also argue that the proposed rule would exclude 
carriers that operate vessels as only part of their U.S. service, 
thereby overturning longstanding precedent. In addition, they contend 
that the rationalization of vessel space through various cooperative 
agreements allows carriers to provide service more efficiently and at a 
reduced cost. The proposed rule allegedly might prompt carriers to 
redeploy vessels solely to satisfy a regulatory requirement.
    The India Carriers note that vessels operating under slot charters 
or other VSAs are presently subject to the Commission's regulatory 
requirements, including that they publish tariffs. They also contend 
that FMC or court judgments could be enforced by requiring carriers who 
offer through service but do not call at U.S. ports to maintain a bond 
or other guarantee similar to that required of NVOCCs.

F. NITL

    NITL supports the interpretation that a carrier that operates a 
vessel in a single trade is an OCC in all trades. It maintains that the 
plain language of the statute does not require a trade-by-trade 
analysis and to do so would lead to inefficiencies. NITL is concerned, 
however, about the exclusion of carriers that do not offer direct port 
calls but instead offer indirect ocean transportation by way of VSAs or 
similar arrangements.
    NITL asserts that the proposed definition is narrower than the 
statutory definition, which simply defines an OCC as a ``vessel-
operating common carrier'' and does not restrict the trade lanes in 
which the vessel can operate. NITL contends that there is no support 
for the Commission's assertion that the ``vessel'' in the definition of 
OCC was likely the vessels specified in the definition of ``common 
carrier.'' NITL further states that under that definition a common 
carrier does not need to operate a vessel; it must merely ``utilize'' a 
vessel in U.S. trades for part or all of the transportation. It 
concludes that the ``other part'' of the transportation can be wholly 
outside the U.S., i.e., foreign-to-foreign. It further contends that 
the plain language of the statute, unchanged by the passage of OSRA, 
does not restrict the provision of OCC service to only those carriers 
that make direct calls at U.S. ports.
    NITL also finds the proposed definition inconsistent with the 
policy objective of OSRA, particularly section 2(4), which requires the 
FMC to administer the law in a manner that promotes competitive and 
efficient ocean transportation services and relies to a greater extent 
on the marketplace. It notes that carriers may decide that the U.S. 
market is more efficiently and economically served through a VSA and 
claims that the Commission's narrow definition of OCC would prevent 
some VOCCs from offering such services to shippers through service 
contracts.
    Ultimately, NITL believes the FMC should maintain the existing 
statutory definition of OCC in its regulations and should broadly 
construe it. It contends that there is nothing in the Shipping Act or 
OSRA that indicates that Congress intended a more narrow definition.

G. AIFA/TIA

    AIFA/TIA supports the proposed definition as providing necessary, 
clear, and precise guidance to the ocean transportation industry. It 
notes that the definition of ``common carrier'' in section 3(6) of the 
Shipping Act refers to a person who provides transportation by water 
and utilizes a vessel for all or part of that transportation, and that 
an OCC is defined simply as ``a vessel-operating common carrier.'' 
AIFA/TIA submits that the Commission should put these two definitions 
together and issue a statement that an entity that otherwise meets the 
definition of common carrier and operates a single vessel on a single 
route between a single U.S. port and a single foreign port, over either 
the high seas or the Great Lakes, must be treated as an OCC for all of 
its operations in U.S. trades. This interpretation would allegedly 
extend the status of OCC to the largest possible universe of operators.
    AIFA/TIA also does not object to proposals that carriers involved 
in nonexclusive transportation agreements also should be accorded OCC 
status even if they have no operations directly between a U.S. and 
foreign port.

H. OWL

    OWL, one of the largest NVOCCs in the world, proposes a significant 
change in the traditional carrier/shipper relationship between VOCC and 
NVOCC. Instead of obtaining space from a vessel owner by a service 
contract, OWL presents a scenario in which an NVOCC would obtain space 
via a slot charter with a VOCC. Under such circumstances, OWL argues 
that the NVOCC would no longer be a shipper, vis-a-vis the VOCC, and 
would instead be a co-venturer, who should likewise be permitted to 
hold itself out to the public as an OCC in the trade lanes. OWL thus 
suggests a bifurcated approach to the definition of OCC: (1) The 
Commission's multi-trade approach for vessel operators in one or more 
trade lanes; and (2) a trade-by-trade approach for NVOCCs slot 
chartering with VOCCs.
    OWL's proposal is premised on the assumption that a slot charter 
between a VOCC and an NVOCC provides the NVOCC with sufficient 
operational interest or nexus in the voyages to warrant classification 
as an OCC in that trade. If the Commission decides otherwise, then OWL 
asserts that the Commission should not allow a VOCC in one trade to 
become a VOCC in another by virtue of a slot charter. At the very 
least, OWL submits that the FMC should set out guidelines similar to 
those recently adopted by the U.S. Customs Service (``Customs'') which 
require a slot or time-chartering common carrier to have significant 
responsibility or involvement in the actual operation of the vessels 
before being considered a VOCC.

[[Page 26509]]

    OWL concedes that slot charters would be inherently risky for 
NVOCCs, but it is willing to face those risks in order to be able to 
offer service guarantees (i.e., service contracts) to its underlying 
shipper clients. It contends further that the enhanced competition of 
new entrants would outweigh any possible adverse impact of possibly 
broadening the scope of antitrust immunity. OWL also believes that the 
Commission's concerns about its and shippers' ability to arrest or 
attach a vessel are unfounded. It suggests that the best way to protect 
shippers is by requiring adequate insurance or a surety bond, such as 
it already possesses.
    OWL contends that there is no statute, code or policy that would 
prohibit it from obtaining space on vessels by means of space charters, 
and the fact that such space charters are not within the scope of the 
Shipping Act does not mean they are prohibited. In this regard, OWL 
references a decision of the European Commission (``EC'') relating to 
the Trans-Atlantic Conference Agreement (``TACA''). Commission Decision 
of 16 September 1998 Relating to a Proceeding Pursuant to Articles 85 
and 86 of the EC Treaty. (Case No. I/35.134) (``EC Decision''). That 
decision discussed two types of NVOCCs--(1) those that operate vessels 
in another trade, and (2) those that do not operate vessels anywhere. 
The EC stated that neither type competes with VOCCs in terms of quality 
of service, but the first is able to compete on price. OWL further 
asserts that the EC Decision recognizes three types of common carriers: 
(1) A VOCC in the trade; (2) VOCCs in another trade; and (3) NVOCCs. It 
submits that the critical distinction is not that the second owns 
vessel in another trade, but that it has the ability to compete with 
VOCCs on price through its space charter arrangements. OWL seeks this 
ability to compete on price by means of space charters and be deemed an 
OCC.
    OWL further contends that the term ``vessel operator'' is growing 
increasingly ambiguous in light of vessel sharing and consortia 
agreements. It submits that the Commission has not faced the difficult 
question of what degree of involvement is required to be considered a 
vessel operator and has instead taken a rudimentary approach of 
defining a VOCC as a common carrier that operates a vessel somewhere in 
the U.S.
    OWL notes that Customs has struggled with the definition of VOCC 
for the past 25 years in the context of the Sixth Proviso to the Jones 
Act, 46 U.S.C. app. 883, that exempts coastwise movements of empty 
containers owned or leased by the ``owner or operator'' of a vessel 
transporting those containers for its own use in the foreign commerce 
of the U.S. In this regard, Customs has issued several rulings dealing 
with carriers involved in slot charter agreements. In 1977, Customs 
purportedly issued a ruling holding that a time charterer was not a 
vessel operator and, in 1983, expanded this position to slot 
charterers. In that case, Customs allegedly looked at one trade lane 
without reference to status in other lanes. In 1999, Customs reviewed a 
joint service agreement between Italian Line and d'Amico Line. It 
determined that both were VOCCs because they shared operational control 
under the agreement.

The Final Rule

General Discussion

    For the reasons set forth below, and in full consideration of all 
of the comments, the Commission has decided to adopt the proposed rule 
as the final rule. As a result, the term ``ocean common carrier'' will 
include only those common carriers who actually operate a vessel in at 
least one United States trade. In addition, if a common carrier is an 
ocean common carrier in one U.S. trade, it can act as an ocean common 
carrier in all U.S. trades.
    This decision is fully supported by a straightforward reading of 
the relevant definitions contained in the Shipping Act. Section 3(16) 
of the Shipping Act defines an ``ocean common carrier'' as ``a vessel-
operating common carrier.'' And, section 3(6) of the Shipping Act 
defines a ``common carrier'', in part, as:

    * * * a person holding itself out to the general public to 
provide transportation by water of passengers or cargo between the 
United States and a foreign country for compensation that--
    (A) assumes responsibility for the transportation from the port 
or point of receipt to the port or point of destination, and
    (B) utilizes, for all or part of that transportation, a vessel 
operating on the high seas or the Great Lakes between a port in the 
United States and a port in a foreign country. * * *

When these two definitions are read together, it is logical to conclude 
that the vessels operated by an ocean common carrier are those 
referenced in the common carrier definition, i.e., those ``operating on 
the high seas or the Great Lakes between a port in the United States 
and a port in a foreign country.''
    The Commission recognizes that the definition of common carrier 
refers to one who ``utilizes, for all or part of that transportation'' 
a vessel operating between the U.S. and a foreign country. Congress 
employed the word ``utilize'' so that the definition of common carrier 
could encompass both ocean common carriers and NVOCCs; the very 
definition of ocean common carrier as ``vessel-operating common 
carrier'' indicates that Congress intended ocean common carriers 
actually to operate, not merely utilize, vessels. The reference to 
``all or a part of the transportation'' simply reflects the fact that a 
common carrier can offer port-to-port transportation or point-to-point 
through transportation, using inland carriers for the latter.
    The final rule is also consistent with Congress' intent to 
delineate between ocean common carriers and NVOCCs. In adopting the 
Shipping Act, Congress clearly wanted to distinguish between those 
common carriers that operate vessels and those that do not. The former 
are ocean common carriers and the latter are NVOCCs. As the House 
Committee on Merchant Marine and Fisheries noted with respect to H.R. 
1878:

    The Shipping Act does not contain a definition of ``non-vessel-
operating common carrier.'' One is added to this bill so that the 
distinction may be made between those carriers that operate vessels 
and those that do not. Both types are included in the term ``common 
carrier.''
    The term ``ocean common carrier'' is based on the definition of 
``common carrier by water in foreign commerce'' in section 1 of the 
Shipping Act with the added provision that the carrier must operate 
the vessel providing the transportation by water.

H.R. Rep. No. 53, 98th Cong., 1st Sess. 29 (1983) (``House Report''). 
See also, S. Rep. No. 3, 98th Cong., 1st Sess. 20 (1983) (``Senate 
Report''). In addition, Congress wanted to ensure that carriers 
operating solely through ports of contiguous nations not be included in 
the definition of ``common carrier.'' See, House Report at 29; Senate 
Report at 19. Congress' concern not to establish the Commission's 
jurisdiction over carriers operating through ports in countries 
contiguous to the United States reflects its overall determination not 
to expand the Commission's jurisdiction, and with it, the conferring of 
antitrust immunity, to carriers operating solely between foreign ports.
    As noted in the preamble to the NPR, Congress viewed vessel 
operators as those whose vessels call at U.S. ports and classified all 
other common carriers in U.S. commerce as non-vessel-operating common 
carriers. For example, in its report on the Shipping Act, the Senate 
Commerce, Science, and Transportation Committee observed:


[[Page 26510]]


    The Committee strongly believes that it is in our national 
interest to permit cooperation among carriers serving our foreign 
trades to permit efficient and reliable service. * * * Our carriers 
need; a stable, predictable, and profitable trade with a rate of 
return that warrants reinvestment and a commitment to serve the 
trade; greater security in investment. * * *

Senate Report at 9. We continue to believe that Congress intended to 
provide antitrust immunity and other special privileges and protections 
only to those carriers that have made the financial commitment to 
provide vessel service in United States trades.
    The importance of the distinction between OCC and NVOCC was noted 
in the preamble to the proposed rule: an OCC can be a party to 
agreements filed with the Commission and receive antitrust immunity 
therefor, and can enter into service contracts with shippers. An NVOCC 
can do neither. Moreover, NVOCCs are subject to a financial 
responsibility requirement, with foreign NVOCCs subject to higher 
amounts under the scale promulgated by Commission regulation. Thus, 
there is ample incentive for NVOCCs to characterize themselves as OCCs, 
and this could inure to the detriment of their shipper customers who 
would otherwise have been protected by an NVOCC's financial 
responsibility.
    The Commission continues to be concerned about the effect of the 
definition of ocean common carrier on the scope of antitrust immunity 
envisioned by Congress under the Shipping Act. If the definition of OCC 
somehow included carriers that operated vessels only in foreign-to-
foreign trades, this could substantially expand the scope of antitrust 
immunity beyond that contemplated by Congress. In this regard, we note 
the longstanding judicial policy of narrowly construing antitrust 
exemptions. See, Federal Maritime Commission v. Seatrain Lines, Inc., 
411 U.S. 726, 733 (1973).

Vessel Sharing Arrangements

    Several of the commenters (Maersk, CENSA, OCWG, India Carriers and 
NITL) suggest that the definition of OCC should be extended to include 
shipping lines who are parties to VSAs serving U.S. ports but who 
themselves do not call at U.S. ports. While the term VSA is undefined 
by the commenters, they suggest it is virtually any cooperative 
arrangement among OCCs. These commenters note that VSAs have grown over 
the years and are likely to continue to grow. These arrangements often 
permit carriers to offer more efficient and frequent service to the 
shipping public and at a lower cost. The OCWG further contends that a 
variety of operational and other factors will dictate how a member of a 
VSA will deploy its vessels in non-U.S. trades and that such a carrier 
may choose to serve U.S. trades solely with vessel space obtained on 
its partners' ships.
    Some commenters suggest that the proposed definition could 
discourage the formation of VSAs or prevent the parties from maximizing 
the benefits of such cooperation by redeploying vessels out of U.S. 
trades. Maersk, CENSA and the OCWG thus propose an exception to the 
proposed definition for a vessel operating common carrier that 
contributes vessels to a VSA that serves the U.S. NITL likewise 
believes that VSAs should be encouraged, but suggests that this could 
be accomplished simply by maintaining the existing statutory definition 
and by broadly construing it. Lastly, OWL argues that if the Commission 
does not adopt its proposal concerning NVOCC space chartering, then 
parties to VSAs should be considered OCCs only if they have significant 
responsibility or involvement in the actual day-to-day operations of 
the vessels.
    While the intended benefit of the exception urged by some of the 
commenters is to facilitate formation and operation of efficient VSAs, 
there are several problems with this approach. First, it appears to 
address a mostly theoretical concern. Commenters do not identify, nor 
is the Commission aware of, any instances where entities are planning 
to operate major VSAs with parties who are not in the U.S. trades, or 
where current, vessel-operating members of VSAs are contemplating 
withdrawing vessel service from U.S. trades and proposing to serve the 
U.S. only through space-sharing arrangements with fellow VSA members. 
In addition, this type of arrangement would expand the reach of 
antitrust immunity well beyond that envisioned by Congress when it 
recently passed OSRA. Since 1984, the only carriers that could enter 
into agreements subject to the Act and receive antitrust immunity were 
``ocean common carriers.'' The inclusion of VSA participants in the OCC 
definition would effectively confer antitrust immunity to carriers who 
do not make a commitment to serve the U.S. trades by operating their 
own vessels.
    In addition to these very serious policy-based concerns, the 
carriers' proposal raises other technical or legal problems, and may 
generate further confusion or ambiguity. Since the term VSA is 
undefined, but seems to include an almost unlimited range of carrier 
relationships, the proposed exemption would appear to encompass a broad 
and indefinite class of foreign companies. Also, it refers to a vessel 
sharing agreement that ``operates'' vessels. However, VSAs do not 
collectively operate vessels--their individual carrier members do so. 
Moreover, if the members are subject to an arrangement that covers more 
than the U.S. trades, those non-U.S. portions of the arrangement would 
not be in the VSA and filed with the Commission.\1\ The Commission 
could be left unable to determine the full extent of any such 
arrangement or ascertain whether the carrier involved is a vessel 
operator in some non-U.S. trade, and not an NVOCC or some other entity 
unlawfully seeking VOCC status. Lastly, this proposal provides no 
protection to the shipping public who might use the services of such a 
carrier in its U.S. service. The carrier would have no attachable 
assets in the U.S. and might not have an agent for service of process 
in the U.S. to receive the claims of injured parties. This too would 
appear to contravene OSRA's general objective of providing more, not 
fewer, protections to U.S. interests utilizing foreign entities, as 
reflected in the strengthened ocean transportation intermediary 
(``OTI'') and controlled carrier provisions, for example.
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    \1\ In Transpacific Westbound Rate Agreement v. Federal Maritime 
Comm'n, 951 F.2d 950 (9th Cir. 1991), the court upheld the 
Commission's decision that it did not have jurisdiction over 
foreign-to-foreign portions of agreements that also had U.S.-to-
foreign portions. As a result, foreign-to-foreign portions of 
agreements are generally not filed with the Commission, even for 
informational purposes.
---------------------------------------------------------------------------

    For the reasons stated above, the Commission is not adopting the 
carrier proposal concerning VSAs. This does not mean that a VSA member 
without ships calling at a U.S. port would be precluded from offering a 
common carriage service to the U.S. However, it would simply have to 
offer its service as an NVOCC. It could then enter into service 
contracts with OCCs, but could not offer its own service contracts or 
fix rates with other vessel operators in a trade.
    The Commission is fully cognizant of the new policy objective added 
to the Shipping Act by OSRA--i.e., promoting the growth and development 
of United States exports through competitive and efficient ocean 
transportation and by placing a greater reliance on the marketplace. 
The Commission further believes that there may be arrangements between 
common carriers that offer more efficient and rationalized services, 
while at the same time providing shippers with more service options and 
lower costs for their ocean

[[Page 26511]]

transportation, and that some of these arrangements may be precluded by 
the final rule as a result of specific statutory constraints limiting 
the Commission's flexibility in interpreting the Shipping Act. We 
appreciate commenters' arguments regarding efficient operations. We 
fully support and wish to encourage arrangements and operations that 
enhance efficiency and competition. However, we do not think it 
appropriate to adopt an overly broad exception to address what, to 
date, is only a hypothetical problem. We would remind the carriers that 
the Commission would, as always, give serious consideration to any 
petition for rulemaking, reconsideration of this rule, or an exemption.

Transshipment Arrangements

    Transshipment agreements are arrangements between ocean common 
carriers by which one carrier serving a port of origin and the other 
carrier serving a port of destination provide transportation between 
such ports via an intermediate port at which the cargo is transferred 
from one carrier to the other. See 46 CFR 535.306(a). Nonexclusive 
transshipment agreements are exempt from the filing requirements of the 
Shipping Act, 46 CFR 535.306(b),\2\ but exclusive transshipment 
agreements must still be filed with the Commission.
---------------------------------------------------------------------------

    \2\ Nonexclusive transshipment agreements do not prohibit either 
carrier from entering into similar agreements with other carriers.
---------------------------------------------------------------------------

    Several commenters have raised concerns about the effect of the 
proposed rule on the status of vessel operator parties to transshipment 
agreements who do not directly serve the United States. They contend 
that the rule would overturn longstanding Commission precedent that 
such carriers are considered to be OCCs. As a result, Maersk has 
proposed an additional exception to include feeder operators in the 
rule, while Samskip and the OCWG suggest that the Commission can 
address the issue in the supplemental information to the final rule 
without further amending the actual definition.
    Beginning in 1943, in the Canal Zone case, the Commission's 
predecessor found that ocean carriers moving cargo from Colombia or 
Ecuador to the Canal Zone and then transferring that cargo to carriers 
moving it to the U.S., under through bills of lading, were ``engaged in 
the transportation by water of property between the United States and a 
foreign country'' and consequently were ``common carriers by water'' 
subject to the Shipping Act, 1916. This position was reaffirmed and 
further explicated by the Commission in 1966, in the two Transshipment 
Cases. In the first case, the Commission found carriers moving cargo 
from Indonesian outports to the U.S. under a through bill of lading who 
transshipped the cargo at a base port to be common carriers by water, 
and stated:

    Where there exists a unitary contract of affreightment such as a 
through bill of lading by which two or more carriers or conferences 
of carriers hold themselves out to transport cargo from a specified 
foreign port to a point in the United States with transshipment at 
one or more intermediate points from one carrier to another, each of 
the carriers so involved is ``engaged in'' transporting cargo by 
water from a foreign country to the United States.

10 F.M.C. at 191. The Commission reached a similar conclusion in the 
second Transshipment case, 10 F.M.C. 201 (1966), where carriers moving 
cargo from Thailand to Singapore were also held to be subject to the 
1916 Act.
    The Commission does not believe that these cases are controlling 
today. The Transshipment cases were decided under the 1916 Act, which 
defined ``common carrier by water in foreign commerce'' to mean ``a 
common carrier engaged in the transportation by water of passengers or 
property between the United States * * * and a foreign country.'' When 
Congress enacted the Shipping Act it chose different language to define 
``common carrier'' in section 3(6), 46 U.S.C. app. 1702(6), and 
separately defined ``ocean common carrier'' and ``non-vessel-operating 
common carrier.'' In light of the fact that the Commission decided the 
Transshipment cases prior to the statutory distinction being drawn 
between NVOCCs and OCCs, the Commission finds that the Transshipment 
cases are non-controlling as to these issues and declines to adopt the 
commenters' recommendations with regard thereto. As noted in the House 
Report, the difference between a ``common carrier by water'' and an 
``ocean common carrier'' is that the latter has ``the added provision 
that the carrier must operate the vessel,'' a significant distinction. 
Thus, the Transshipment cases are probably controlling as to whether 
someone is a ``common carrier,'' but irrelevant to ``ocean common 
carrier'' status.

Avoidance of OTI Responsibilities

    The NPR raised concerns about permitting vessel operators in 
foreign-to-foreign trades to be considered OCCs in U.S. trades by 
virtue of VSA or transshipment arrangements. In particular, it noted 
that this could remove certain companies from the scope of the NVOCC 
bonding requirement even though they have no vessels or assets in the 
U.S. that can be attached to satisfy a Commission or U.S. court 
judgment. NPR at 6. As noted earlier, there is a very strong incentive 
under the Shipping Act, as modified by OSRA, for NVOCCs to want to be 
considered OCCs. They can then offer confidential service contracts to 
their shipper customers and avoid the costs of maintaining a bond as 
required by the Act and the Commission's regulations. Some NVOCCs are 
likely to engage in complex machinations to be considered OCCs under 
some of the proposals suggested by certain commenters. This is not some 
idle threat or hypothetical fear--even before passage of OSRA many 
NVOCCs were simply holding themselves out as OCCs.\3\ Now, post-OSRA, a 
review of the carriers holding themselves out as VOCCs on the 
Commission's web page reveals that many of these carriers may well be 
NVOCCs, a matter for probable enforcement action. In addition, it 
appears that some carriers that may have at one time served U.S. ports 
with their own vessels are continuing to hold themselves out as OCCs 
even though they have withdrawn these vessels from service.
---------------------------------------------------------------------------

    \3\ In Docket No. 98-31, Publication of Inactive or Inaccurate 
Ocean Common Carrier Tariffs, order served May 19, 1999, the 
Commission found that 13 NVOCCs operating in the Far East trades 
held themselves out to be VOCCs.
---------------------------------------------------------------------------

Multi-trade Approach

    Almost all of the commenters support the Commission's multi-trade 
approach to determining OCC status--if a carrier is an OCC in one U.S. 
trade, it will be considered an OCC for all U.S. trades. NITL suggests 
that this approach is supported by the plain language of the statute. 
The OCWG notes that this is simply a continuation of past Commission 
practice and avoids having to make status determinations on a trade-by-
trade basis. It further argues that making such determinations on a 
trade-by-trade basis would be impractical and inefficient. As reflected 
by the endorsement of the commenters, the Commission's position in this 
regard is a sound one, and the Commission will continue the multi-trade 
approach to determining OCC status in the final rule.

OWL's Proposal

    OWL's proposal to consider NVOCCs who space charter from VOCCs to 
be considered OCCs on a trade-by-trade basis is most problematic. At 
the very

[[Page 26512]]

least, such a proposal is outside the scope of the proposed rule and 
would require additional notice and comment were the Commission 
inclined to pursue such an approach. But, more importantly, OWL's 
proposal does not appear to be a proper matter for a rulemaking 
proceeding. OWL is not asking that the Commission explicate some 
statutory or regulatory provision. Instead, it is asking the Commission 
to rewrite the Shipping Act to give certain NVOCCs the ability to offer 
service contracts to their shipper customers. Regardless of whether 
this is sound policy, Congress recently and very consciously chose not 
to permit such activity when it enacted OSRA. The Commission will not 
now do what Congress declined to do.

Effective Date

    It appears that there may be some vessel operators currently 
holding themselves out as ocean common carriers even though they do not 
operate vessels that directly serve U.S. ports. The Commission 
understands that these carriers may have been confused about the 
legitimacy of such services, in light of the Commission's pre-1984 
policies implementing the 1916 Shipping Act. Regardless of the validity 
of this position, the Commission appreciates the situation these 
carriers are in and desires to give them sufficient time to restructure 
their services in accordance with the final rule. As a result, the 
final rule will not become effective for 90 days. And, of course, the 
rule will not be enforced retroactively as to such carriers.
    It is also possible that some of these carriers operating as OCCs 
may have entered into service contracts with shippers that may still be 
effective. At the very least, our decision here should operate as the 
type of force majeure situation that would warrant the termination of 
such contracts without any penalty to the shipper. If the parties to 
such contracts wish to continue operating under them, the Commission 
believes that this would not be possible since the carrier would no 
longer be considered an ocean common carrier, but rather would be an 
NVOCC. However, a similar arrangement might possibly be reflected in 
the common carrier's tariff rates or perhaps as a time/volume rate.

Amendment to Part 515

    In the final rule of Docket No. 98-28, Licensing, Financial 
Responsibility Requirements, and General Duties for Ocean 
Transportation Intermediaries, adding section 515 to part 46 CFR, the 
Commission stated in the supplementary information section that payment 
against financial responsibility should only be made on ``final'' 
judgments; however, it mistakenly failed to add the word ``final'' in 
the actual language of Sec. 515.23(b)(2). In response to petitions for 
reconsideration of the final rule in 46 CFR 515, the Commission ordered 
the correction of this oversight to be made in the instant rulemaking 
proceeding in order to preserve resources. Therefore, in accordance 
with the Commission's decision in Docket No. 98-28, we are amending 46 
CFR 515.23(b)(2) to add the word ``final.''
    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., the Chairman of the Federal Maritime Commission has certified to 
the Chief Counsel for Advocacy, Small Business Administration, that the 
rule will not have a significant impact on a substantial number of 
small entities. In its Notice of Proposed Rulemaking, the Commission 
stated its intention to certify this rulemaking because the proposed 
changes affect only ocean common carriers and passenger vessel 
operators, entities the Commission has determined do not come under the 
programs and policies mandated by the Small Business Regulatory 
Enforcement Fairness Act. As no commenter refuted this determination, 
the certification remains unchanged.

List of Subjects

46 CFR Part 515

    Exports; Freight forwarders; Non-vessel-operating common carriers; 
Ocean transportation intermediaries; Licensing requirements; Financial 
responsibility requirements; Reporting and recordkeeping requirements.

46 CFR Part 520

    Common carrier; Freight; Intermodal transportation; Maritime 
carriers; Reporting and recordkeeping requirements.

46 CFR Part 530

    Freight; Maritime carriers; Reporting and recordkeeping 
requirements.

46 CFR Part 535

    Administrative practice and procedure; Maritime carriers; Reporting 
and recordkeeping requirements.


    Therefore, for the reasons set forth above, Parts 515, 520, 530, 
and 535 of Subchapter C of Title 46 Code of Federal Regulations, are 
amended as follows:

PART 515--LICENSING, FINANCIAL RESPONSIBILITY REQUIREMENTS, AND 
GENERAL DUTIES FOR OCEAN TRANSPORTATION INTERMEDIARIES

    1. The authority citation continues to read as follows:

    Authority: 5 U.S.C. 553; 31 U.S.C. 9701; 46 U.S.C. app. 1702, 
1707, 1709, 1710, 1712, 1714, 1716, and 1718; Pub. L. 105-383, 112 
Stat. 3411; 21 U.S.C. 862.


    2. In Sec. 515.2 revise paragraph (m) to read as follows:


Sec. 515.2  Definitions

* * * * *
    (m) Ocean common carrier means a common carrier that operates, for 
all or part of its common carrier service, a vessel on the high seas or 
the Great Lakes between a port in the United States and a port in a 
foreign country, except that the term does not include a common carrier 
engaged in ocean transportation by ferry boat, ocean tramp, or chemical 
parcel-tanker.
* * * * *

    3. Revise Sec. 515.23(b)(2) to read as follows:


Sec. 515.23  Claims against an ocean transportation intermediary.

* * * * *
    (b) * * *
    (2) If the parties fail to reach an agreement in accordance with 
paragraph (b)(1) of this section within ninety (90) days of the date of 
the initial notification of the claim, the bond, insurance, or other 
surety shall be available to pay any final judgment for damages 
obtained from an appropriate court. The financial responsibility 
provider shall pay such judgment for damages only to the extent they 
arise from the transportation-related activities of the ocean 
transportation intermediary ordinarily within 30 days, without 
requiring further evidence related to the validity of the claim; it 
may, however, inquire into the extent to which the judgment for damages 
arises from the ocean transportation intermediary's transportation-
related activities.
* * * * *

PART 520--CARRIER AUTOMATED TARIFF SYSTEMS

    1. The authority citation for part 520 continues to read as 
follows:

    Authority: 5 U.S.C. 553; 46 U.S.C. app. 1701-1702, 1707-1709, 
1712, 1716; and sec. 424 of Pub. L. 105-383, 112 Stat. 3411.


    2. In Sec. 520.2 revise the definition of ocean common carrier to 
read as follows:

[[Page 26513]]

Sec. 520.2  Definitions

* * * * *
    Ocean common carrier means a common carrier that operates, for all 
or part of its common carrier service, a vessel on the high seas or the 
Great Lakes between a port in the United States and a port in a foreign 
country, except that the term does not include a common carrier engaged 
in ocean transportation by ferry boat, ocean tramp, or chemical parcel-
tanker.
* * * * *

PART 530--SERVICE CONTRACTS

    1. The authority citation for part 530 continues to read as 
follows:

    Authority: 5 U.S.C. 553; 46 U.S.C. app. 1704, 1705, 1707, 1716.


    2. In Sec. 530.3 revise paragraph (n) to read as follows:


Sec. 530.3  Definitions.

* * * * *
    (n) Ocean common carrier means a common carrier that operates, for 
all or part of its common carrier service, a vessel on the high seas or 
the Great Lakes between a port in the United States and a port in a 
foreign country, except that the term does not include a common carrier 
engaged in ocean transportation by ferry boat, ocean tramp, or chemical 
parcel-tanker.
* * * * *

PART 535--AGREEMENTS BY OCEAN COMMON CARRIERS AND OTHERS SUBJECT TO 
THE SHIPPING ACT OF 1984

    1. The authority citation for part 535 is amended to read as 
follows:

    Authority: 5 U.S.C. 553; 46 U.S.C. app. 1701-1707; 1709-1710, 
1712 and 1714-1718; Pub. L. 105-383, 112 Stat. 3411.


    2. Revise Sec. 535.101 to read as follows:


Sec. 535.101  Authority.

    The rules in this part are issued pursuant to the authority of 
section 4 of the Administrative Procedure Act (5 U.S.C. 553), sections 
2, 3, 4, 5, 6, 7, 8, 10, 11, 13, 15, 16, 17 and 19 of the Shipping Act 
of 1984 (``the Act''), and the Ocean Shipping Reform Act of 1998, Pub. 
L. 105-258, 112 Stat. 1902.

    3. In Sec. 535.104 revise paragraph (u) to read as follows:


Sec. 535.104  Definitions.

* * * * *
    (u) Ocean common carrier means a common carrier that operates, for 
all or part of its common carrier service, a vessel on the high seas or 
the Great Lakes between a port in the United States and a port in a 
foreign country, except that the term does not include a common carrier 
engaged in ocean transportation by ferry boat, ocean tramp, or chemical 
parcel-tanker.
* * * * *

    By the Commission.
Bryant L. VanBrakle,
Secretary.
[FR Doc. 00-11338 Filed 5-5-00; 8:45 am]
BILLING CODE 6730-01-P