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HQ 116654

July 6, 2006

VES-3-07-RR:BSTC:CCI 116654 IDL


Walter H. Lion
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016

RE: Coastwise Trade; Sixth Proviso; Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. App. § 883

Dear Mr. Lion:

This is in response to your letter, dated May 12, 2006, on behalf of your clients, which are part of a vessel sharing consortium of five vessel operating common carriers, requesting confirmation that they qualify as joint vessel operators for purposes of the U.S. coastwise movement of empty containers on non-coastwise-qualified vessels, pursuant to the Sixth Proviso of the Jones Act, 46 U.S.C. App. § 883. Our ruling on this matter is set forth below.


Your clients, Compania Sud Americana de Vapores, S.A., of Chile, Companhia Libra de Navegacao, of Brazil, and Montemar Maritima S.A., of Uruguay have entered into a vessel sharing agreement (“VSA”) named “HSDG/ALIANCA/ CSAV/LIBRA/MONTEMAR” with Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft KG, of Germany, and Alianca Navegacao e Logistica Ltda. e CIA, of Brazil.

You submitted with your letter a copy of the VSA, as filed with the Federal Maritime Commission (“FMC”) on April 4, 2006 and currently in force, and a pro forma copy of the “Administrative Agreement,” which contains operational details of the service. You have stated that the VSA “provides for the sharing of vessel capacity in the trade between ports on the U.S. East Coast (Eastport, Maine to Key West, Florida range [sic]) and inland and coastal points served via such ports, on the one hand, and ports in Argentina, Brazil, Uruguay and Venezuela and inland and coastal points served via such ports, on the other hand (the ‘Trade’).”

Your letter further provides that the VSA sets forth “when, where and which vessels the Parties will operate, including the authority of the Parties to jointly deploy two strings of vessels, each string providing a weekly service in the Trade. The number of vessels to be operated by the Parties is agreed[to be] six vessels in one string and five in the second. Joint negotiation of terminal and stevedore agreements, and authority to share shoreside chassis is [covered]. The common terminal arrangements are further detailed. Joint administration and implementation of matters involving cargo claims, insurance, force majeure, general average, joint working procedures, oversized and dangerous cargoes and other operational/administrative issues [is covered]. The Parties are authorized to jointly lease office space and may establish a joint operations center. All decisions require agreement by all Parties. [The] Appendicesprovide for the initially agreed sailing schedules and port rotations, slot cost allocations and purchase provisions, and charter party terms. [Each Party agrees] to participate in the Sea Carrier Initiative and the C-TPAT programs administered by [U.S. Customs and Border Protection].”

The vessels named in the VSA as “first string” are listed as follows:


The vessels named in the VSA as “second string” are listed as follows:



Whether, under the terms of the VSA entered into by the parties, as described above, the parties might at all relevant times be considered to be vessel operators for transporting their owned or leased empty shipping containers for purposes of satisfaction of the Sixth Proviso to the Jones Act?


Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883), commonly called the Jones Act, provides, in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by citizens of the United States. Section 883 was amended by the Act of September 21, 1965 (Pub. L. 89-194, 79 Stat. 823), which added the Sixth Proviso, and by the Act of August 11, 1968 (Pub. L. 90-474, 82 Stat. 700), which amended that proviso.

The 1965 Act exempted from the provisions of section 883 the coastwise transportation of empty cargo vans, empty lift vans, and empty shipping tanks in non-coastwise-qualified United States-flag vessels or foreign-flag vessels, on a reciprocal basis, when the vans and tanks are owned or leased by the owner or operator of the transporting vessels and are being transported for use in the carriage of cargo in foreign trade. The 1968 Act added equipment for use with cargo vans, lift vans, and empty shipping tanks, empty barges specifically designed for carriage aboard a vessel, and certain empty instruments of international traffic to the articles included within the Sixth Proviso. These articles and the articles covered by the 1965 Act were required by the 1968 Act to be owned or leased by the owner or operator of the transporting vessel and transported for his use in handling his cargo in foreign trade.

The 1968 Act also added stevedoring equipment and material to the articles included within the Sixth Proviso. To qualify for the exemption from section 883 under the Sixth Proviso, the stevedoring equipment and material must be owned or leased by the owner or operator of the transporting vessel or owned or leased by the stevedoring company contracting for the lading or unlading of the vessel and the stevedoring equipment and material must be transported without charge for use in the handling of cargo in foreign trade.

Regarding containers, the language of the proviso that requires that they be owned or leased by the owner or operator of the transporting vessel and transported for its use in transporting its cargo in foreign trade, has collided with contemporary business practice in the vessel industry. Historically, administrative cases involving interpretation of the Sixth Proviso have involved questions concerning the character of vessel charter arrangements. Limited-purpose alliances of vessel owners have blurred the clear boundaries of the proviso in terms of its application. An examination of the current landscape in the shipping industry reveals numerous betrothals, if not outright marriages, in the form of “vessel consortia”, “vessel sharing agreements”, and “joint service agreements.” The present matter involves less a question of charter characteristics and more a consideration of degree of operational control under the terms of this new generation of agreement. We are left to determine whether such agreements as presently under consideration contain sufficient indicia of operational vessel control so as to qualify the members as vessel operators.

In reviewing prior VSAs, we note that there are several factors under which the agreements are formed and the parties are governed which indicate that the members shared the operational control of the designated vessels. For example, the VSA members would jointly agree upon when, where and which vessels they would operate. They would also agree to cooperate in such matters as insurance, leases, sailing schedules, port calls, rate policies and the terms of service contracts, among other things. In addition, in other cases, the parties also pooled shore-side chassis and made them available for any of the members’ containers.

In Headquarters Ruling Letter 114560 (January 13, 1999), we stated that the above factors will be considered, together with generally accepted principles, and that, if possible, the law should be interpreted in a dynamic and forward-looking manner which takes into account changes and evolving practices which were not contemplated at the time of a statutory enactment.

Upon examining the provisions of the VSA presented in this case, particularly Articles 5.1(a), 5.2(b), 5.3 and 5.4 cited in your letter, we find that the basic facets of joint operation control are present in the agreement. Accordingly, we believe that the provisions establish that the parties intend to exercise joint administration and operational control in implementing the VSA, and thus, convey the status of vessel operator upon the individual parties.

As such, one party to the VSA may transport aboard any vessel listed in the VSA empty shipping containers, owned or leased by another party to the VSA, for the purpose of handling the latter’s cargo in the foreign trade without consequence under the Sixth Proviso to 46 U.S.C. App. § 883.


The VSA under examination, as described above, would convey the status of vessel operator on each of the individual signatories and, as such, their empty containers may be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C. App. § 883.


Glen E. Vereb

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