Opinion ID: 454658
Heading Depth: 2
Heading Rank: 1

Heading: Aeron's Challenge

Text: 54 Aeron first argues that MarAd cannot, as it does in the bid augmentation rule, treat ODS as a cost incurred by the government to finance preference cargo carriage because ODS is awarded to subsidized operators whether they carry preference cargoes or other cargoes. Accordingly, Aeron argues, the bid augmentation rule irrationally assumes that the government will save ODS if Aeron's preference cargo bids are unsuccessful and Aeron continues to carry commercial (i.e., nonpreference) cargoes. As MarAd pointed out, however, the rule makes no such assumption. Instead, the rule attempts to account for the total government-wide costs that are reasonably related to the carriage of individual preference cargoes. Aeron's argument, by contrast, assumes that the only relevant preference cargo costs are the indirect subsidies paid by shipper agencies in the form of premium rates, not the ODS subsidies independently paid to bulk vessels by MarAd. Congress clearly thought otherwise: it believed that the costs of subsidized preference cargo carriage (i.e., direct ODS costs) would be lower than the costs of the premium rate system. See, e.g., House Report at 38. In light of Congress' appreciation that ODS would constitute a subsidy for preference cargo carriage, Aeron cannot seriously argue that the government does not incur a preference cargo cost when it pays subsidized vessels ODS for, among other things, transporting preference cargoes. It was therefore indubitably rational of MarAd to treat the ODS received by subsidized vessels as a cost of preference cargo carriage. 55 The gist of Aeron's claim, however, is that, regardless of whether it lowers government costs, the bid augmentation rule thwarts Congress' intent to have subsidized vessels carry preference cargoes with the full advantage of ODS. Because Congress determined that subsidized vessels should carry all preference cargoes once existing U.S.-flag service became inadequate, Aeron reasons, any rate structure that discourages them from doing so to the fullest extent possible is unlawful. 25 If the 1970 amendments were only designed to displace immediately the unsubsidized carriage of preference cargoes, Aeron would have a strong argument: MarAd's rate structure clearly prevents subsidized operators from underbidding unsubsidized suppliers at relatively high rates in all circumstances. Yet Congress' desire to have subsidized vessels take over the preference trade was tempered by several competing goals, each of which is served in part by the bid augmentation rule. First, Congress quite specifically envisioned that subsidized vessels would eventually carry preference cargoes at world rates, not premium rates, and the bid augmentation rule clearly operates to drive Aeron's rates in the direction of world rates. See supra pp. 559-560. Likewise, Congress clearly intended the 1970 amendments to reduce the government cost of preference cargo carriage; that goal will only be achieved if subsidized operators carry preference cargoes, as they must under MarAd's rate scheme, at rates substantially below the premium rates paid to unsubsidized carriers. See id. Congress also sought to protect existing unsubsidized carriers during the transition to the direct subsidy program, see supra, pp. 550-551, and the bid augmentation rule accomplishes that purpose by preventing subsidized vessels from consistently winning preference cargo contracts by bidding a few dollars below premium rate. See supra p. 559. Finally, Aeron's challenge also ignores the central purpose of the 1970 amendments--to encourage the construction of U.S.-flag bulk vessels capable of competing with foreign-flag carriers in the worldwide commercial market. See supra pp. 549-550. Allowing Aeron to bid for preference cargoes at high premium rates without adjustment for ODS might well encourage Aeron to abandon the commercial market in search of higher profits in the preference trade. Congress certainly did not intend the 1970 amendments to displace U.S.-flag unsubsidized bulk service in the preference trade at the cost of further weakening the competitive status of U.S.-flag bulk vessels in the world market. 26 56 On balance, then, we cannot say that MarAd's attempt to balance the competing goals of the 1970 amendments resulted in an unreasonably low rate for the subsidized carriage of preference cargoes.