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HQ 116713

August 31, 2006

VES-3-17-RR:BSTC:CCI 116713 IDL


Wayne R. Rohde
Sher & Blackwell, LLP
Suite 900
1850 M Street, N.W.
Washington, DC 20036

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

Dear Mr. Rohde:

This is in response to your letter, dated August 14, 2006, on behalf of your clients, a vessel sharing consortium of four 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, Hamburg Sudamerikanische Dampfschifffahrts-Gesellschaft KG, of Germany (“HSDG”), Maruba S.C.A., of Argentina (“Maruba”), Compania Chilena De Navegacion Interoceanica, S.A., of Chile (“CCNI”), and Compania Sud Americana de Vapores, S.A., of Chile (“CSAV”) have entered into a vessel sharing agreement (VSA) named the “West Coast USA-Mexico & Canada Vessel Sharing Agreement” (“the Agreement”), for the purpose of promoting “efficient utilization of vessels and equipment and to provide efficient, reliable and stable liner shipping service in the Trade” (operating “between United States Pacific Coast ports [in the range from San Diego, California to Seattle, Washington, inclusive], and U.S. inland and coastal points served via such ports, on the one hand, and ports on the Pacific Coasts of Mexico and Canada, and inland and coastal points served via such ports, on the other hand and vice versa, including the carriage of cargo for transshipment to or from other destinations/origins.”

You have stated that the vessels to be deployed under the Agreement fly the flags of Antigua and Barbuda, Cyprus, and Malta, all of which are listed in section 4.93(b)(1) of the Customs and Border Protection Regulations (19 CFR 4.93(b)(1)) as nations granting reciprocal privileges to U.S.-flagged vessels, insofar as the coastwise movement of empty containers is concerned.

Under the terms of the Agreement, the parties will initially operate three dedicated vessels. HSDG and Maruba will contribute one vessel each, and CCNI and CSAV will contribute a vessel together (CCNI may provide a fourth vessel). The parties are entitled to space allocations on each vessel, and a party may not be refused space allocated to it on a vessel due to any prior commitment by another party to carry the cargoes of other shippers.

Furthermore, the Agreement authorizes the parties to discuss and agree upon a number of operating issues. The parties agree upon when, where, and which vessels to operate. Thus, the deployment of vessels, sailing schedules, service of frequency, ports to be served, and port rotation are jointly established, as are size, speed, and numbers of vessels to be used in the service. The parties are also authorized to discuss and agree upon standards and procedures for maintaining performance of the vessels and correcting any deficiencies.

In addition, the vessels shall utilize the same terminal facilities and stevedores at ports served under the Agreement. Accordingly, the parties are authorized to jointly negotiate and enter into leases, licenses, or assignments of terminals, and contracts for stevedoring, terminal or other port or ocean services or supplies. The Agreement also authorizes the parties to interchange containers, chassis, and other equipment with one another no such terms and conditions as they may from time to time agree.


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-flagged vessels or foreign-flagged 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 VSA presented in this case, particularly Article 5, subsections (a), (c), (d), (e), and (f), 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 of the VSA, as described above, establish that the parties to the Agreement 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, any party to the Agreement may transport aboard any of the vessels to be deployed empty shipping containers, owned or leased by any other party to the Agreement, for the purpose of handling the cargo of another party in the foreign trade without consequence under the Sixth Proviso to 46 U.S.C. App.


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 to be deployed under the Agreement without consequence under the Sixth Proviso to 46 U.S.C. App. § 883.


Glen E. Vereb

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