Honolulu-based ocean carrier Matson said two of APL’s vessels should not be eligible for Maritime Security Program payments.
Arguments are scheduled next week in federal court on a challenge Matson Navigation Co. is making to a decision by the U.S. Maritime Administration (MarAd) to allow APL to receive payments under the Maritime Security Program (MSP) for two vessels in the trade with Guam and Saipan.
MSP is one of the principal programs the federal government has for the U.S. Merchant Marine participating in foreign trade.
Matson, which competes with APL in the Guam and Saipan trade, argued in court papers filed with the U.S. Court of Appeals for the District of Columbia Circuit that the two APL vessels “do not meet the statutory ‘foreign commerce’ and ‘commercially viable’ requirements for participation in the MSP, and MarAd’s contrary determinations were arbitrary and capricious.”
The hearing on Matson’s challenge is scheduled for April 12.
The two vessels are the 1,100-TEU APL Guam and 1,600-TEU APL Saipan.
Both are deployed on APL’s weekly Guam Saipan Express (GSX) service to the U.S. territory of Guam and Saipan, which is the largest island of the Northern Mariana Islands, a U.S. commonwealth.
APL said the GSX service links “the islands to the U.S. mainland and the world via their connections to APL’s global network in Yokohama and Busan.” That includes APL’s U.S.-flag Eagle Express (EX1) between Los Angeles and Asia.
APL is owned by the French carrier CMA CGM, the third largest container shipping company in the world.
MarAd explained how the MSP “maintains a core fleet of U.S.-flag, privately-owned ships operating in international commerce which are also available under agreement to provide capacity needed to meet Department of Defense (DOD) requirements during war and national emergencies.”
It added how the MSP “is designed to provide sustainment sealift for national emergencies at minimal cost” and that “without the MSP fleet, the United States would have assured access to very few U.S.-flag commercial vessels to support Department of Defense operations.”
In testimony to Congress earlier this year, U.S. Maritime Administrator Mark Buzby noted the decline in U.S.-flag ships involved in international trade.
“Over the last 25 years, the number of U.S.-flagged vessels sailing in the international trade has varied from 183 ships in 1992 to 82 as of December 2017,” Buzby said. “There was a rise and decline in the number of U.S.-flagged vessels beginning in 2001 triggered by military operations in Iraq and Afghanistan and the subsequent drawdown.”
His testimony included U.S. Census data that showed how based on cargo weight, the share of foreign trade handled by U.S.-flag ships fell from 2.32 percent in 2005 to 1.54 percent in 2015.
MSP provides up to $300 million in payments – $5 million per ship – to the operators of 60 ships to offset the higher cost of operating U.S.-flag ships with U.S. mariners in foreign trade. The companies operating the ships receive the funds for agreeing that they can be used by the U.S. in times of war or national emergency.
In addition to the two ships in service to Guam, APL has seven other ships enrolled in the MSP. The entire MSP roster can be found here.
Financial support for the MSP program is far from certain. Last May, the Consolidated Appropriations Act, 2017 and the Omnibus Spending Bill approved last month slated funding for the MSP at $300 million in fiscal 2017 and $298 million in fiscal 2018, respectively, even though the president’s budget requested just $210 million in each year.
In his current budget, for fiscal 2019 (beginning Oct. 1, 2018), President Trump has once again requested far less than the $300 million – just $214 million.
In October 2015 and December 2016, MarAd found that two ships in APL’s GSX service were eligible for the MSP program. MarAd said that for a ship to be in the MSP fleet, it must “be operated exclusively in the foreign commerce or in mixed foreign commerce and domestic trade” and “not otherwise be operated in the coastwise trade.”
MarAd approved the transfer of the MSP subsidy to the first of the two GSX ships, APL Guam, in 2015. APL said the ship would be operated in conjunction with its EX1 service and that it specifically would be used to transport cargo from the U.S. mainland to “Palau, Micronesia, the Marshall Island and New Guinea,” and between Guam and Asia.
APL added that $13.6 billion in new infrastructure and military facilities in Guam would create a need for increased carrier service to the island.
The following year, MarAd allowed APL to transfer the MSP subsidy to the APL Saipan when APL explained foreign shippers and larger retailers were demanding more frequent service to Guam.
Matson competes with APL in the Guam trade. Its China-Long Beach Express service calls Guam on its eastbound leg, and from there, it offers connecting service to Saipan, Palau, the Federated States of Micronesia, the Marshall Islands and Okinawa.
Matson is asking the circuit court to review MarAd’s award of the MSP subsidies to the two ships, saying their reason for being “is the transportation of goods between the U.S. mainland and Guam and Saipan – domestic commerce.”
Matson told the court, “While there is ample reason to conclude that the vessels engage in the ‘domestic’ part of ‘mixed foreign commerce and domestic trade,’ the necessary ‘foreign’ component is not established by the administrative record. Instead, the portions of the record relied on by MarAd and APL confirm that any foreign trade is merely speculative.”
APL noted how a large portion of Guam’s inbound cargo does not originate in the U.S. mainland. The Port of Guam said in the fiscal year ending Sept. 30, 2017, 738,686 revenue tons of domestic containerized cargo and 301,542 revenue tons of foreign containerized cargo was handled at the port in Apra Harbor. In addition, 56,705 revenue tons of domestic breakbulk cargo and 113,803 revenue tons of foreign breakbulk cargo was handled in Apra.
The port said it handles over 90 percent of the island’s total imports. “The United States provides some 60 percent of Guam’s imported goods, with the balance of Guam’s trade coming from the Asian and Pacific markets of Japan, Taiwan, the Philippines, Hong Kong, and – to a lesser extent – Australia, New Zealand and the islands of Micronesia,” the port said.
Matson said that in the National Defense Authorization Act for fiscal year 2018, “Congress made clear that vessels cannot receive MSP subsidies for ‘transportation of cargo between points in the United States and its territories either directly or via a foreign port.’”
For that reason, it said the two APL vessels in the GSX service “were and remain statutorily ineligible to participate in the MSP fleet.”
Matson also said that, “MarAd, nevertheless, maintains that APL’s vessels are eligible for subsidies because they are engaged in ‘mixed’ foreign commerce and domestic trade permitted under their registry endorsements. But, the registry endorsement exception does not include trade with Saipan. Because both APL vessels call Saipan, they are ineligible for the MSP fleet as a matter of law.”
It’s not clear if the court will even get to the meat of the dispute.
MarAd said it rejected the appeal because its regulations “limit administrative review of the agency’s determinations only to program participants” and that the D.C. Circuit Court of Appeals lacks jurisdiction to review APL’s petition.
It also said that Matson waited too long to challenge the ruling.
Matson to square off with MarAd over APL vessels
