Opinion ID: 454658
Heading Depth: 1
Heading Rank: 3

Heading: the rate decision

Text: 43 In Aeron, we directed the Board to balance Congress' dual intent to have subsidized ships carry preference cargoes and to have them do so at world rates. We therefore instructed the Board to consider a rate approaching world rates (i.e., one lower than premium rates) but high enough to provide reasonable incentives for subsidized vessels to enter the preference trade. See Aeron, 695 F.2d at 579; supra pp. 551-553. We did not, however, conclude that the Board must guarantee Aeron a profit in the preference trade notwithstanding the goals of the Act. 44 [B]ecause Aeron can continue to operate its ships in the nonpreference trades, an unprofitable rate for preference cargo would not raise any fifth amendment concerns. Thus, the question is purely one of statutory construction: What did Congress intend (or if it had no specific intent, what would it have wanted) the term fair and reasonable rates for United States-flag commercial vessels to mean as applied to subsidized bulk ships? 45 We do not decide that question today. On remand, the Subsidy Board should consider whether the rate it selects will allow Aeron to earn a reasonable profit. If not, it should explain why the language and legislative history of the Merchant Marine Act justify the chosen rate. 46 Aeron, 695 F.2d at 582. We thus directed the Board to consider a rate scheme that would effectuate Congress' desire to have subsidized vessels carry preference cargoes but to do so at relatively low rates and therefore reduce the overall cost of preference cargo carriage. See id. at 578-79. 47 On remand, the Board determined that subsidized vessels would not be attracted to the preference trade at world rates and that some form of cost-based or premium rate structure was therefore necessary to effectuate Congress' intent to have subsidized vessels carry preference cargo. See Tentative Order, 22 Ship.Reg.Rep. at 324. Accordingly, the Board and MarAd fashioned a rate structure for subsidized preference cargo carriage that allows Aeron to bid for preference cargo at cost-based rates, net of ODS, and requires government shipper agencies to augment an Aeron vessel's bid by an amount equal to the ship's expected ODS before comparing its bid to that of an unsubsidized shipper. 48 As MarAd explained, this scheme is intended to balance the competing goals of the 1970 amendments by both attracting Aeron to the preference trade and insuring that government preference cargo costs will be reduced if Aeron secures preference cargo contracts. 49 MarAd believes that this rule will produce a fair rate for subsidized operators, eliminate the potential economic advantage that subsidized vessels might have over unsubsidized carriers, and ensure use of the vessel with the lowest cost to the government. MarAd believes that the rule will promote competition by rewarding vessel operators who cut operating costs and reduce profits, instead of incidentally rewarding an operator because of its receipt of subsidy. This should mean somewhat lower costs to the agencies over the long-run. 50 Interim Rulemaking, 49 Fed.Reg. at 2899. MarAd thus reasoned that the rule furthered Congress' aim to reduce the overall government cost of the preference cargo program by accounting for both direct (ODS) and indirect (premium rate) subsidies. The rule ensures, in other words, that subsidized bulk carriers carry preference cargoes at a lower overall cost to the government than the premium rate charged by the unsubsidized operator. See id.; infra note 23. MarAd also stressed that, consistent with Congress' expectations, the rule protects unsubsidized shippers from virtual displacement in the preference trade during the transition to a direct subsidy program for bulk vessels by preventing a subsidized operator from winning a contract by bidding slightly below the premium rate while receiving the full amount of its bid plus ODS. See Interim Rulemaking at 2898-99. At the same time, the rule retains an incentive for subsidized carriers to carry preference cargoes by permitting them to charge a rate that includes a reasonable profit. See Tentative Order, 22 Ship.Reg.Rep. at 324. 51 Although the Board's rate structure allows Aeron to bid for preference cargoes at cost-based or premium rates, then, both the bid augmentation rule and the exclusion of ODS-covered costs from a subsidized vessels' cost base ensure that the actual preference cargo rates paid to Aeron will be substantially lower than the premium rates paid to unsubsidized operators. The bid augmentation rule, for example, clearly operates to drive Aeron's bids substantially in the direction of world rates. Because its bids are augmented by an amount equal to its ODS, Aeron must bid at an amount substantially below an unsubsidized operator's unaugmented bid in order to win any particular preference cargo contract. Cf. Final Rulemaking, 49 Fed.Reg. at 39,849. 23 Similarly, because ODS costs are excluded from its cost base, a subsidized vessel will have a lower fair and reasonable rate ceiling than an unsubsidized vessel with comparable costs. See Tentative Order, 22 Ship.Reg.Rep. at 324. 24 Thus MarAd and the Board designed a rate structure that drives Aeron's rates in the direction of world rates but retains sufficient incentives for Aeron to enter the preference trade. Cf. id. (Although this action will not eliminate premium rates [for subsidized ships], it will lower those rates thus conforming in part with the intentions of Congress at the time of the passage of the 1970 Act.). 52 We must, of course, accord substantial deference to an interpretation of a statute forged by the officers or agency charged with its administration. See, e.g., Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Aeron, 695 F.2d at 575. Where, as here, Congress has conferred broad discretion on an agency to implement possibly conflicting legislative goals, see Aeron, 695 F.2d at 575-77; supra pp. 10-11, we must accept the agency's interpretation unless manifestly unreasonable. See, e.g., Aeron, 695 F.2d at 575. In this case, we believe that MarAd's augmentation rule reasonably accomplishes Congress' aim to lower the overall government costs of the preference cargo program and that the overall rate structure strikes a permissible balance between the competing interests of unsubsidized and subsidized shippers and between Congress' dual intent to have subsidized ships carry preference cargoes but to do so at world rates. Given the limited scope of our review, we therefore conclude that MarAd's attempt to implement the 1970 amendments represents a reasonable accommodation of the conflicting policies that were committed to the agency's care by the statute. Chevron, U.S.A. v. Natural Resources Defense Council, --- U.S. ----, 104 S.Ct. 2778, 2783, 81 L.Ed.2d 694 (1984) (quoting United States v. Shimer, 367 U.S. 374, 383, 81 S.Ct. 1554, 1560, 6 L.Ed.2d 908 (1961)). 53 Both Aeron and the unsubsidized shippers nonetheless argue that the rate decision is inconsistent with one or another of the conflicting congressional goals behind the 1970 amendments. In effect, Aeron complains that the Board's rate structure is unreasonably low given Congress' expectation that subsidized vessels would take over the preference trades. Both the AMA and Phoenix counter that Aeron's rates are impermissibly high in light of Congress' intent to have subsidized vessels carry preference cargoes at world rates or a close approximation thereof. We discuss, and reject, each challenge in turn.
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.
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.
65 At bottom, then, we find that MarAd and the Board acted within their discretion in concluding that a cost-based rate structure plus the bid augmentation rule would strike a reasonable balance between Congress' dual objectives to have subsidized ships carry preference cargos and have subsidized ships carry those cargos at world rates. Aeron, 695 F.2d at 579. Both Aeron's and the unsubsidized shippers' challenges to the rate decision seize on a single aspect of those competing objectives. Aeron emphasizes Congress' expectation that subsidized vessels would take over the preference trade, while Phoenix and the AMA focus on Congress' assumption that they would do so at world rates. Given the present realities of the bulk shipping market, however, neither goal can be attained without sacrificing the other. The Board and MarAd accordingly developed a compromise position: Aeron can carry preference cargoes at cost-based rates that allow for a reasonable profit, but it must bid substantially below the premium rates charged by unsubsidized shippers in order to secure preference cargo contracts. This result fairly meets our call in Aeron for rates that, so far as practicable, approach world rates ... [but are] high enough to provide reasonable incentives for subsidized operators to carry [preference] cargos. Id. In light of the Board's discretion, we cannot say that the compromise rate structure is unreasonable.