766 F.2d 545 (D.C. Cir. 1985), 84-5381, American Maritime Ass'n v. United States

Docket Nº:84-5381, 84-5502 and 84-5503.
Citation:766 F.2d 545
Party Name:AMERICAN MARITIME ASSOCIATION, et al. v. UNITED STATES of America, et al. Aeron Marine Shipping Company, et al., Appellants. AMERICAN MARITIME ASSOCIATION Phoenix Bulkship I, Inc., et al., Appellants, v. UNITED STATES of America, et al. AMERICAN MARITIME ASSOCIATION, Appellant, Phoenix Bulkship I, Inc., et al., v. UNITED STATES of America, et al.
Case Date:July 02, 1985
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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766 F.2d 545 (D.C. Cir. 1985)



UNITED STATES of America, et al.

Aeron Marine Shipping Company, et al., Appellants.


al., Appellants,


UNITED STATES of America, et al.


I, Inc., et al.,


UNITED STATES of America, et al.

Nos. 84-5381, 84-5502 and 84-5503.

United States Court of Appeals, District of Columbia Circuit

July 2, 1985

Page 546

[Copyrighted Material Omitted]

Argued March 19, 1985.

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Appeals from the United States District Court for the District of Columbia (Civil Action No. 84-249).

Michael Joseph, Washington, D.C., with whom Mark P. Schlefer, Thomas L. Mills and Timothy Trushel, Washington, D.C., were on the brief, for Aeron Marine Shipping Co., et al., appellants in No. 84-5381 and appellees in Nos. 84-5502 and 84-5503.

Joseph A. Klausner, Washington, D.C., with whom Allan A. Tuttle and Ralph G. Steinhardt, III, Washington, D.C., were on the brief, for American Maritime Ass'n, appellee in Nos. 84-5381 and 84-5502 and appellant in No. 84-5503. Michael D. Esch, Washington, D.C., entered an appearance for American Maritime Ass'n in Nos. 84-5381, 84-5502 and 84-5503.

Anne E. Mickey, Washington, D.C., with whom Jeffrey R. Masi, Washington, D.C., was on the brief, for Phoenix Bulkship I, Inc., et al., appellees in Nos. 84-5381 and 84-5503 and appellants in No. 84-5502.

Michael J. Ryan, Asst. U.S. Atty., Washington, D.C., with whom Joseph E. diGenova, U.S. Atty., Royce C. Lamberth, Asst. U.S. Atty., and James F. Ford, Counsel, Dept. of Justice, Washington, D.C., were on the brief, for the United States of America, et al., appellees in Nos. 84-5381, 84-5502 and 84-5503.

Before WALD, EDWARDS and BORK, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

The various appeals and cross-appeals in these consolidated cases constitute the latest round in the efforts of the Maritime Subsidy Board (the Board) and the Maritime Administration (MarAd) of the Department of Transportation to implement Congress' 1970 amendments to the Merchant Marine Act, 46 U.S.C. Secs. 1101-1295g (the Act). Those amendments provided direct subsidies to certain U.S.-flag bulk vessels and envisioned that such "subsidized" vessels would carry foreign bulk preference cargoes at low world rates as the existing service provided by "unsubsidized" shippers became inadequate. 1 In 1978, the Board concluded that existing service in the preference trade was inadequate and determined that two of the seven subsidized bulk vessels operated by the Aeron Marine Shipping Company (Aeron) should be allowed to bid on preference cargo contracts. In Aeron Marine Shipping Co. v. United States, 695 F.2d 567 (D.C.Cir.1982), this court concluded that the Board must admit all of Aeron's subsidized vessels into the preference trade given its finding that existing service was inadequate by an amount greater than the capacity of all seven Aeron ships. We further directed the Board to reconsider the appropriate rate structure for those ships.

While Aeron was under submission to this court, the American Maritime Association (AMA), which represents unsubsidized shippers in competition with Aeron for preference cargo contracts, and Phoenix Bulkship I, Inc. (Phoenix), an individual unsubsidized carrier, petitioned the Board to reconsider its 1978 inadequacy finding in light of intervening changes in the shipping industry. On remand from Aeron, the Board concluded that our decision precluded any reconsideration of its 1978 adequacy finding and, through several orders and a rulemaking, established a complex regulatory structure for Aeron's carriage of bulk preference cargo. Although the Board decided

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to allow Aeron to bid for preference cargoes at relatively high cost-based rates, it adopted a rule requiring government shipper agencies to account for Aeron's subsidies when evaluating its bids for such cargoes (the bid augmentation rule). The Board also determined that Aeron must forgo a portion of its government subsidy if it derives more than half of its annual gross revenues from preference cargo carriage (the subsidy abatement scheme).

The AMA, Phoenix and Aeron each sought review in district court. While the district court upheld the rate decision and the subsidy abatement scheme, it concluded that the Board had erroneously read our mandate in Aeron to bar any further consideration of its 1978 adequacy finding. It therefore remanded to the Board for a determination of whether that adequacy proceeding should be reopened. Both Aeron and the unsubsidized shippers have appealed various aspects of the district court's order. We now affirm the district court's ruling that the Board must determine whether to reconsider the adequacy finding and its conclusion that the Board's rate decision constitutes a reasonable accommodation of the conflicting policies committed to the agency's care by statute. Although we also believe that a subsidy abatement scheme is authorized by the Act, we conclude that the Board failed to offer an adequate explanation for the particular abatement formula it adopted for bulk vessels. We therefore reverse the district court on this single issue and instruct the court to remand to the Board for further proceedings consistent with this opinion.


  1. The Statutory and Regulatory Framework

    This dispute involves the interaction of several provisions of the Merchant Marine Act of 1936, ch. 858, 49 Stat. 1985 (codified as amended at 46 U.S.C. Secs. 1101-1295g), its 1970 amendments, Merchant Marine Act of 1970, Pub.L. No. 91-469, 84 Stat. 1018 (codified at scattered sections in 46 U.S.C.), and various acts which establish preferences for U.S.-flag ship carriage of certain cargo. See Aeron, 695 F.2d at 569-70; Aeron Marine Shipping Co. v. United States, 525 F.Supp. 527, 531-33 (D.D.C.1981). Congress enacted these statutes to create a strong domestic merchant marine capable of competing with foreign carriers in the world market, and each act recognizes that foreign subsidies and high domestic labor costs place American-built and American-operated ships at a competitive disadvantage with foreign vessels in the absence of government assistance. See, e.g., S.Rep. No. 1721, 74th Cong., 2d Sess. 4-5 (1936).

    The 1936 Act established an elaborate system of merchant marine subsidies, two aspects of which are relevant here. First, the Act provided for both operating differential subsidies (ODS) and construction differential subsidies (CDS) for U.S.-flag liner vessels in an attempt to offset the lower operating and construction costs enjoyed by foreign liner operators. See Merchant Marine Act of 1936, Secs. 601-606 (codified as amended at 46 U.S.C. Secs. 1171-76) (ODS); id. Secs. 501-511 (codified as amended at 46 U.S.C. Secs. 1151-1161) (CDS). The 1936 Act, however, did not establish a comparable direct subsidy program for bulk carriage vessels. 2 Instead, Congress has from time to time extended indirect subsidies to U.S.-flag bulk vessels by reserving certain cargoes, called preference cargoes, for those ships and by allowing domestic bulk operators to bid for preference cargoes at rates well above world rates. In particular, the Cargo Preference Act of 1954, ch. 936, 68 Stat. 832 (codified at section 901 of the Act, 46 U.S.C. Sec. 1241), requires government agencies to contract with domestic ships to carry at least half of all government-sponsored cargoes destined for foreign ports as

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    long as those vessels are "available at fair and reasonable rates for United States-flag commercial vessels." 46 U.S.C. 1241(b)(1). 3 Such rates, called premium rates, constitute the maximum allowable charges for a particular ship's carriage of preference cargo and allow unsubsidized bulk vessels to bid for contracts at rates equivalent to the actual costs incurred on a particular voyage plus a reasonable profit. See Payment of Subsidy for Carriage of Preference Cargoes, 13 Ship.Reg.Rep. (P & F) 44 (M.S.B.1972). In practice, premium rates can amount to more than twice the world rates charged by foreign-flag carriers in the worldwide commercial market. See H.R.Rep. No. 1073, 91st Cong., 2d Sess. 26 (1970), U.S.Code Cong. & Admin.News p. 4188 [hereinafter House Report]; Aeron, 695 F.2d at 569. The ability of unsubsidized bulk shippers to carry preference cargoes at premium rates thus provided those operators with a substantial and costly indirect government subsidy.

    This combination of direct subsidies for liner vessels and premium rates for otherwise unsubsidized bulk ships did not encourage the construction of a competitive U.S.-flag merchant marine. In 1936, liner vessels conducted most foreign shipping. By 1970, however, the majority of foreign commercial commerce was carried by bulk carriers, and efficient U.S.-flag bulk vessels, not liner vessels, were thus needed to compete in the world market. See House Report at 38; 116 Cong.Rec. 32,511 (1970) (statement of Sen. Griffin). At that time, Congress recognized that the premium rate structure had failed to induce the construction of U.S.-flag bulk vessels capable of competing in the world market, see House Report at 121, and that the existing, World War II vintage bulk ships could only turn a profit by carrying non-commercial preference cargoes at premium rates, see id. at 38; 116 Cong.Rec. 16,607 (1970) (statement of Rep.Dent). Faced with these disappointing results, Congress amended the Act in 1970 to extend direct subsidies--ODS and CDS--to domestic bulk vessels. See Merchant Marine Act of 1970, Pub.L. No. 91-469, Sec. 14, 84 Stat. 1018, 1023 (amending 46 U.S.C. Sec...

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