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

Heading: The Unsubsidized Shippers' Challenges

Text: 57 In Aeron, we left open the possibility that a reasonable accommodation of the conflicting goals embodied in the 1970 amendments could result in world rates, despite our concern that an unprofitable rate would prevent the subsidized carriage of preference cargoes. See Aeron, 695 F.2d at 582 ([If the Board chooses an unprofitable rate,] it should explain why the language and the legislative history of the Merchant Marine Act justify the chosen rate.). Phoenix now argues that the entire rate decision must be remanded because the Board mistakenly read our Aeron mandate to bar world rates and therefore failed to give serious consideration to a world rate structure. In support of this contention, Phoenix points to language in the Board's first (and tentative) order on remand suggesting that the Board thought itself precluded from adopting world rates after Aeron. See, e.g., Tentative Order, 22 Ship.Reg.Rep. at 324 (In light of the appeals court decision, the only possible alternative by the Board is to allow the carriage of preference cargo with ODS at premium rates.) 27 58 We believe that Phoenix has mischaracterized the Board's overall treatment of the world rate issue. In their comments on the Tentative Order, both Phoenix and the AMA vigorously urged the Board to adopt a world rate structure for Aeron's carriage of preference cargoes. See Final Order, 22 Ship.Reg.Rep. at 607 (discussing those comments). The Board clearly considered the unsubsidized shippers' comments and just as clearly determined that a cost-based rate structure was the best practical means of accommodating Congress' conflicting goals as discussed in Aeron. See id. In its attempt to balance those goals, the Board specifically found, for example, that world rates have failed to encourage the subsidized carriage of preference cargoes and have thus thwarted Congress' expectation that subsidized vessels would carry preference cargoes once existing service became inadequate. See id. (Experience of more than four years has shown that [Aeron] has not been sufficiently attracted to the preference trades at world rates.) Accordingly, the Board explicitly determined that Congress' intent to have subsidized vessels carry preference cargoes at world rates could best be met by a cost-based rate structure that drives Aeron's rates in the direction of world rates. See Tentative Order, 22 Ship.Reg.Rep. at 324; see also Interim Rulemaking, 49 Fed.Reg. at 2898-99. 28 Our decision in Aeron did not place on the Board any special burden of explaining why world rates were not appropriate for the subsidized carriage of preference cargoes. Instead, we directed the Board to consider whether its chosen rate will allow Aeron a profit and, if not, to justify the rate in light of the Act and its legislative history. See Aeron, 695 F.2d at 582. Given this mandate, we are confident the Board exercised its full discretion in selecting the rate structure that, in its view, struck the most reasonable balance between the conflicting goals committed to the agency's care by statute. 59 The AMA's challenge to the rate decision is somewhat more technical, though no more persuasive. The AMA contends that Congress has allowed only two options for the carriage of preference cargoes: subsidized carriage at rates approximating world rates or unsubsidized carriage at premium rates. Under this view, the Board must require subsidized vessels to charge world rates or a close approximation if they are to be allowed to carry preference cargoes. While it recognizes that the bid augmentation rule forces subsidized vessels to bid substantially below premium rates, and therefore constitutes a step in the direction of world rates, the AMA argues that the rate structure does not go far enough. Specifically, the AMA reasons that a bid augmentation rule could only approximate a world rate structure if Aeron's bids are adjusted to account for all government subsidies--CDS as well as ODS. The AMA contends, in other words, that CDS must be considered a direct cost of preference cargo carriage and that premium rates are only permissible under the Act if a subsidized shipper's bid is augmented by the amount of both its ODS for the relevant contract and a proportional share of its CDS. 60 As we noted, in Aeron, however, Congress did not place the agency in any such regulatory straightjacket. Instead, Congress accorded MarAd and the Board broad authority to establish the rate for preference cargo carriage in light of the 1970 amendments. See Aeron, 695 F.2d at 575-77. Given that discretion, we believe that MarAd could reasonably respond to the AMA's complaint by noting that CDS, unlike ODS, is normally treated as a one-time subsidy to shipyards and shipbuilders to encourage American-built vessels rather than as an ongoing payment to ship operators to offset the cost of preference cargo carriage. In States Marine International v. Peterson, 518 F.2d 1070 (D.C.Cir.1975), cert. denied, 412 U.S. 912, 96 S.Ct. 1108, 47 L.Ed.2d 316 (1976), for example, this court expressly recognized that CDS and ODS serve distinct purposes under the Act and that MarAd can rationally distinguish between the two for the purposes of administering subsidy programs. 61 The Report of the House Committee on the 1970 amendment made it clear that CDS has an entirely different purpose than ODS: [T]he construction subsidies are subsidies to the shipyards, not to the shipowners. 62 The purpose of the CDS program is to subsidize shipyards of this country to enable them to compete effectively with foreign shipyards.... The only restrictions on payment of CDS listed in [the Act] are that the ship receiving subsidy be registered in the United States and be engaged in foreign commerce. Congress made no distinction between domestic purchasers who could or could not avail themselves of CDS. Instead, the section provides that all ship purchasers who qualify may buy ships which are eligible for CDS payments. The Act does not distinguish between those carrying preference cargo and those not carrying such cargo. 63 Id. at 1083 (quoting House Report at 30) (emphasis added); cf. American Maritime Ass'n v. Stans, 329 F.Supp. 1179, 1185-86 (D.D.C.1971), aff'd, 485 F.2d 765 (1973). We think the reasoning of the States Marine court fully applicable here. Because Congress designed ODS and CDS subsidies to serve substantially different purposes, MarAd could reasonably decline to regard CDS as a direct cost of preference cargo carriage. Although augmenting a subsidized vessel's bid by a CDS factor might further drive its rates in the direction of world rates, we do not believe that MarAd was required to do so under the statutory scheme. 29 64 We therefore reject both Phoenix's suggestion that we remand for further consideration of whether world rates are appropriate and the AMA's argument that MarAd is required to adjust Aeron's bid to account for its receipt of CDS as well as ODS.