46 C.F.R. Subpart C—Calculation of Subsidy Rates
Title 46 - Shipping
Title 46: Shipping
PART 282—OPERATING-DIFFERENTIAL SUBSIDY FOR LINER VESSELS ENGAGED IN ESSENTIAL SERVICES IN THE FOREIGN COMMERCE OF THE UNITED STATES
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Subpart C—Calculation of Subsidy Rates
§ 282.20 Amount of subsidy payable.
(a) Daily Rates. Daily ODS rates shall be used to quantify the amount of ODS payable. The daily ODS rate represents the cost differential between the subsidized vessel and its foreign-flag competition. A daily rate shall be calculated for each subsidized item of expense identified in the ODSA, and the total of all items is the daily amount of ODS payable for approved vessel operating days, excluding reduced crew periods.
(b) Reduced Crew Periods. For reduced crew periods, as defined in §282.3 of this part, a man-day reduction amount, calculated separately for officers and unlicensed crew members, shall be used to reduce the daily wage ODS rate to conform to the complement remaining on the vessel. The man-day reduction amounts shall be determined by dividing the daily wage ODS for officers and unlicensed crew members by the number of subsidizable crew members in each category. For each day of a reduced crew period, the man-day amount shall be multiplied by the number of crew members missing for that day, and the resulting product shall be deducted from the daily ODS rate. The difference shall be the ODS payable for such day. (See illustration in Schedule D at §282.31 of this part.)
(c) Review of Rates. Daily subsidy rates shall be reviewed every six months. For the item “wages of officers and crews,” the daily rate shall be calculated for fiscal periods July 1 through June 30, in accordance with provisions of the Act. During the period January through June, adjustments—paid as a lump sum or as a daily amount—shall be made to wage ODS so that the correct amount of ODS for the full fiscal period is received by the operator. For other subsidizable items of expense, the daily rate shall be calculated for calendar years.
(d) Negative Rates. When an ODS rate in any category is less than zero, indicating that the subsidized operator is at an advantage rather than a disadvantage in such category, the negative rate shall be deducted from positive rates in determining the daily ODS amount payable.
(e) Operator Comments. The operator shall have the opportunity to comment on each subsidy rate as calculated by the Maritime Administration. The operator and contracting officer shall make every effort to resolve disagreements that arise. In the event of a disagreement that cannot be resolved, comments received from the operator and the contracting officer's recommendation shall be presented to the Maritime Administrator for consideration in determining subsidy rates.
§ 282.21 Wages of officers and crew.
(a) Definitions. When used in this part.
(1) Base period. The first base period under the wage index system, as provided in section 603 of the Act, is the period beginning July 1, 1970 and ending June 30, 1971. Thereafter, base period means any annual period beginning July 1 and ending June 30, with respect to which the Maritime Administrator establishes a base period cost. At intervals of not less than two years, nor more than four years, the Maritime Administrator shall establish a new base period. Base periods shall be announced by the Maritime Administrator prior to the December 31 date that would be included in the new base period.
(2) Base period cost—(i) Initial base period. For the initial base period of subsidized service, the term base period cost means the collective bargaining cost as of January 1 of that base period.
(ii) Subsequent base periods. For base periods subsequent to the initial base period, the term base period cost means the averaged of the collective bargaining cost as of January 1 of such fiscal year, and the base period cost of the previous base period, indexed to January 1 of the new base period by an index compiled by the Bureau of Labor Statistics. This index shall consist of the average annual change in wages and benefits placed into effect for employees covered by collective bargaining agreements, with equal weight to be given to changes affecting employees in the transportation industry (excluding the off-shore maritime industry) and to changes affecting employees in private non-agricultural industries other than transportation. However, such base period cost shall not be less than a minimum, nor more than a maximum amount, determined as a percentage of the collective bargaining cost computed for January 1 of such base period in accordance with the following schedule:
------------------------------------------------------------------------ Minimum Maximum (percent) (percent)------------------------------------------------------------------------Base period following a: 2-year cycle.................................. 97\1/2\ 102\1/2\ 3-year cycle.................................. 96\1/4\ 103\3/4\ 4-year cycle.................................. 95 105------------------------------------------------------------------------
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(3) Collective bargaining cost (CBC) means the annual cost, calculated on the basis of the per diem rate of expense, as of January 1 of the annual fiscal periods July 1 through June 30, of all items of expense required by the operator through a collective bargaining or other agreement, covering the employment of the approved manning complement of the subsidized vessel, including payments required by law to assure old-age pensions, unemployment benefits or similar benefits, and taxes or other governmental assessments on crew payrolls.
(4) Approved manning complement means the complement approved by the Board for subsidy.
(5) U.S. wage cost (WC) means the annual cost, calculated on the basis of the per diem rate of expense as of January 1 of the annual fiscal periods July 1 through June 30, of all items of expense required of the operator through a collective bargaining or other agreement, covering the employment of the normal manning complement of the subsidized vessel, including payments required by law to assure old-age pensions, unemployment benefits or similar benefits, and taxes or other governmental assessments on crew payrolls.
(6) Normal manning complement means the crew complement established by a collective bargaining or other agreement with the officers and unlicensed crew of the vessel. In cases where the complement may vary in number, the lowest number shall be the normal manning complement. When ratings of different salaries are in the same job during the year, the base wages of the rating carried most of the time shall be used.
(7) Subsidizable wage cost means, (i) with respect to a base period, the base period cost, and (ii) in any fiscal period other than a base period, the most recent base period cost, increased or decreased by the change from January 1 of the base period to January 1 of the non-base period in the index described above. The subsidizable wage cost shall not be less than 90 percent nor greater than 110 percent of the collective bargaining cost as of January 1 of such period.
(8) Unpredictably timed costs are collective bargaining costs that are not regularly incurred. Examples of unpredictably timed costs are such costs as severance pay, shortfalls, special assessments, and war zone bonuses.
(b) Method of calculating collective bargaining cost (CBC). CBC shall be determined by pricing out, for the approved crew complement, the per diem total of fixed costs specified in the collective bargaining agreement and adding a per diem total of variable costs obtained from the cost experience of the subsidized vessel during the first nine months of the preceding calendar year.
(1) Fixed Costs. The per diem total of fixed costs shall include all costs that are stated in specific or determinable amounts per time period and, based on operating experience, do not vary. In cases where a monthly amount is specified in the agreement, the per diem amount shall be determined by dividing the monthly amount by 30. When a daily amount is specified it shall be used. Example of fixed costs are:
(i) Base wages;
(ii) Non-watch pay;
(iii) Vacation pay (including contributions to vacation funds);
(iv) Tool allowance;
(v) Clothing and uniform allowances; and
(vi) Per diem contributions for pension, training, welfare, unemployment, including unallocated contributions placed in escrow.
(2) Variable costs. Variable costs are regularly incurred employment costs which vary with ship operating experience. The per diem aggregate of variable costs as of January 1 shall be determined by applying a ratio to the per diem aggregate of base wage costs as of January 1, the numerator of which shall be the total of variable costs for the first nine months of the preceding calendar year and the denominator of which shall be the total of base wage costs for the first nine months of the preceding calendar year. Variable costs include but are not limited to:
(i) Payroll taxes (including social security taxes);
(ii) Overtime and penalty pay;
(iii) Variable pension, training, welfare, unemployment, and vacation costs;
(iv) Pay in lieu of time off;
(v) Transportation and travel allowances;
(vi) Payments to relief officers and crews;
(vii) Wages and other expenses of USMMA cadets and extra messmen;
(viii) Board and lodging allowances;
(ix) Overlap in wages (a maximum of two days); and
(x) Penalty cargo bonuses.
(c) Method of calculating U.S. wage cost (WC) Two different calculations of WC are necessary—a per diem amount for every ship type on the service and a per month amount for the predominant ship type (most voyages) on the service. The purpose of the per month calculation is to make a comparison with the monthly foreign wage costs. The relationship of WC to foreign costs for the predominant ship is applied to the per diem WC for other ship types in the service to estimate comparable foreign costs for them.
(1) Calculation of per diem WC. The per diem WC shall be calculated by the same method that applies to CBC, except that the normal manning complement shall be used.
(2) Calculation of per month WC. The costs and manning level used in this calculation shall be the same as those used for the per diem WC.
(d) Data submission requirements. For purposes of calculating CBC and WC the operator shall each year submit Form MA–790 and, as appropriate, current copies of all collective bargaining or other agreements, memoranda of understanding, and arbitration awards, which specify the fixed costs as of January 1. Schedule A of Form MA–790, which covers wage costs on voyages terminated during the first nine months of the previous calendar year, shall be submitted by January 1 of the subsidized year. Schedule B of Form MA–790—normal manning complement, rates of pay, and contributions in effect on January 1 of the current year—shall be submitted by January 31. Form MA–790, Schedules A and B, shall be submitted to the Director, Office of Ship Operating Costs, Maritime Administration, 400 Seventh Street, SW., Washington, DC 20590.
(e) Example calculation. The following is a sample of calculation of CBC and WC:
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ABC Steamship Company January 1, 1985, Collective Bargaining Costs (CBC) and U.S. Wage Cost (WC)------------------------------------------------------------------------ Per diem --------------------- WC CBC------------------------------------------------------------------------Crew complement................................... \1\ 35 \2\ 31Fixed costs as of January 1, 1985: Base wages and non-watch pay.................... $1,789.79 $1,571.60 Allowances (radio, telephone, clothing, etc.)... 5.75 5.75 Vacation pay.................................... 1,189.60 1,109.65 Pension, welfare, training, unemployment fund 1,280.80 1,171.75 contributions.................................. --------------------- Total fixed................................. $4,265.94 $3,858.75Variable costs as of January 1, 1985: Variable cost factor (based on 1984 cost 104.69 104.69 experience) (in percent)....................... Total variable costs (January 1, 1985, base $1,873.73 $1,645.31 wages x variable cost factor).............. --------------------- Total wage costs as of January 1, 1985...... $6,139.67 $5,504.06------------------------------------------------------------------------\1\ Normal manning complement.\2\ Approved manning complement.
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(f) Method of calculating foreign wage costs. The foreign wage cost (FC) of the principal foreign-flag competitors and the comparable WC of the subsidized vessel are matched as of January 1 of the last fiscal year preceding the subsidized fiscal year for purposes of determining the wage cost of the principal foreign flags. The following procedures are used:
(1) Manning. The foreign manning complement in number and nationality for the principal foreign-flag competitors shall be constructed for the subsidized vessel type using the manning scales and practices of the competitors as developed through an examination of alien crew manifests, payrolls, and other reliable information. The commonly used crew complement of the competitors shall be adjusted to fit the predominant vessel type, in recognition of differences in physical characteristics that would affect manning scales. Where the manning complement cannot be estimated with reasonable substantiation, it will be deemed to be identical with that of the subsidized vessel.
(2) Method. The method of calculating FC shall be the same as that used for WC, provided that it is possible to obtain foreign cost data on the same basis as wage cost data. Preference shall be given to pricing out for fixed costs and to cost experience for variable costs. Where applicable, foreign currencies shall be converted into U.S. currency equivalents by using the average of end-month exchange rates for the period July through June that includes the January 1 for which FC is calculated. The exchange rates shall be obtained from the publication, “International Financial Statistics,” published monthly by the International Monetary Fund. If exchange rates for particular foreign currencies are not available in this publication, they shall be obtained from the United States Department of the Treasury.
(3) Foreign wage costs. The per diem composite foreign wage cost is determined by multiplying the per diem WC for the U.S. ship type, calculated as of January 1 of the subsidized fiscal year, by the ratio of FC to WC, calculated as of January 1 of the last fiscal year preceding the subsidized fiscal year. The following is a sample calculation of the foreign cost percentage.
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ABC Steamship Company, Inc., Trade Route 21_January 1, 1985_Foreign Wage Cost (FC)---------------------------------------------------------------------------------------------------------------- United United United States Belgium States Germany Netherlands States Norway----------------------------------------------------------------------------------------------------------------Crew Complement.............. 35 35 35 23 ........ 22 35 28Base Wages................... \1\ \1\ \1\ \1\ ........ \1\ 23,127 \1\ \1\ 53,687 24,779 53,687 25,192 53,687 27,257Allowances................... \1\ \1\ \1\ \1\ ........ \1\ 3,097 \1\ \1\ 289 1,074 4,584 1,074 8,879 1,074Vacation Pay (leave)......... \1\ \1\ \1\ \1\ ........ \1\ 9,499 \1\ \1\ 35,681 13,009 35,681 9,912 35,681 11,976Pension and Welfare.......... \1\ \1\ \1\ \1\ 124 ........ \1\ 3,923 \3\ \1\ 124 38,407 2,065 38,407 36,342Social Security.............. \2\ \2\ \1\ \1\ ........ \1\ 4,584 \2\ \2\ 6,608 7,227 3,717 6,814 6,608 10,118Overtime and other variable \2\ \2\ \2\ \2\ ........ \2\ 7,021 \2\ \2\ costs (not elsewhere 48,732 10,944 48,732 10,325 48,732 12,389 included)...................Repatriation................. ........ ........ ........ ........ ........ ........... ........ \2\ 413 ----------------------------------------------------------------------------------Total wage costs............. 184,189 62,608 181,298 61,246 ........ 51,251 182,124 62,566Unweighted Percentage FC to ........ 33.99% ........ 33.78% ........ 28.27% ........ 34.35% WC..........................Competition Weight Factor.... ........ 22.1% ........ 19.6% ........ 19.1% ........ 39.2%Weighted Percentage.......... ........ 7.51% ........ 6.62% ........ 5.40% ........ 13.47%Composite Weighted Percentage ........ ........ ........ ........ 33.00%----------------------------------------------------------------------------------------------------------------\1\ Based on Jan. 1 priced out cost.\2\ Based on cost experience.\3\ Excludes training costs_foreign data not available.
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(g) Determination of daily wage rate. The foreign wage cost is deducted from subsidizable wage costs to determine the daily wage subsidy rate. Table 1 is an example calculation of a daily wage subsidy rate using the procedures described in this section.
(h) Unpredictably timed costs (UTC) are subsidized by calculating costs incurred during the previous six months and converting them into a daily rate or, in the alternative, a lump sum amount will be paid for special lump sum assessments or for per man-day increases to benefit plans which become effective during the six months following the establishment of the daily rate. In either case, the percentage subsidy rate—which is the differential percentage between the subsidizable wage cost and the foreign wage cost—is used to establish the amount of subsidy payable for UTC incurred.
(1) UTC expenses such as severance pay and area bonuses are eligible for subsidy payment without obtaining prior approval and subsidy shall be paid as a lump sum amount.
(2) Expenses such as shortfalls in benefit fund contributions, special assessments for benefit funds, and retroactive wage increases may be treated as UTC if the cost increase was not negotiated. Such costs must be approved as UTC by the Director, Office of Ship Operating Costs. To the extent such expenses qualify for UTC, the Director shall determine the appropriate method of paying subsidy—added to the per diem wage subsidy rate and/or as a lump sum amount treated separately.
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Table 1_ABC Steamship Co., Inc., Trade Route 21 [Calculation of wage subsidy rates*]------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Averaging in base Wage Wage U.S. Collective Application of BLS index to periods Base Subsidizable Composite Composite subsidy subsidy Base period Interim period wage bargaining base period cost (4)+(5) Appropriate limits period wage cost weighted foreign daily percentage cost cost ----------- cost percentage wage cost rate rate 2 (12)+(9)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------1981.............. .................. 4,162.60 3,850.29 ........................... ......... ................... 3,850.29 3,850.29 32.99 1,373.24 2,477.05 64.33 1982.............. 4,578.24 4,230.15 3,850.29x1.0845=4,175.64 ......... .9x(4)=3,807.14 ......... 4,175.64 32.98 1,509.90 2,665.74 63.84 1.1x(4)=4,653.17 1983.............. 5,013.80 4,560.38 3,850.29x1.1816=4,549.50 ......... .9x(4)=4,104.34 ......... 4,549.50 36.15 1,812.49 2,737.01 60.16 1.1x(4)=5,016.42 1984.............. 5,539.40 4,966.90 3,850.29x1.2992=5,002.30 ......... .9x(4)=4,470.21 ......... 5,002.30 34.77 1,926.05 3,076.25 61.50 1.1x(4)=5,463.591985.............. .................. 6,139.57 5,504.06 3,850.29x1.4044=5,407.35 5,455.71 .95x(4)=5,228.86 5,455.71 5,455.71 33.00 2,026.06 3,429.65 62.86 1.05x(4)=5,779.26------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------*This computation is based on a new vessel entering subsidized service in May 1981.
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[51 FR 34609, Sept. 30, 1986, as amended at 54 FR 5088, Feb. 1, 1989] § 282.22 Maintenance (upkeep) and repairs.
(a) Basis for subsidy. The fair and reasonable maintenance and repair costs not compensated by insurance, if eligible for subsidy under the ODSA and the regulations in 46 CFR part 272, shall be used for determining the daily amount of subsidy. The U.S.-foreign cost differential shall be determined from price estimates of representative items of maintenance and repair work and by using the repair practices of the foreign-flag competition.
(b) U.S.-foreign cost differential. MARAD shall use the following procedures for calculating the U.S.-foreign cost differential for M&R.
(1) Cost Survey. MARAD shall select a sample of jobs which are representative of the various types of maintenance and repair work—drydocking and underwater repairs, machinery repairs, hull and deck repairs, electrical repairs, exterior painting and interior painting, etc. The jobs shall be described fully and combined into a standard set of specifications based on a particular type of vessel. The same specifications shall be used for obtaining all price estimates. MARAD shall request reliable and mutually acceptable ship repair cost experts to ascertain the U.S. and foreign M&R prices. MARAD shall survey foreign countries during a three-year cycle. The survey year prices shall be adjusted in the years between surveys by price adjustments estimated by the ship repair cost experts.
(2) Country cost differential. A country cost differential shall be determined for each country where work was performed on the competitive vessels. The country cost differential shall be 100 percent minus the ratio of the estimated foreign price to the U.S. price estimate. The U.S. price estimate shall be representative of the coastal area included in the subsidized service (for example East Coast) or, if more than one coast is served, the coast where the company is home based. For example:
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Determination of Country Cost Differential_Year_1985_U.S. East Coast_Foreign Country_United Kingdom------------------------------------------------------------------------ Foreign Repair category price U.S. price------------------------------------------------------------------------Drydocking & Underwater Repairs........... $49,598 $70,662Boiler Repairs................................ 18,938 20,287Machinery Repairs............................. 33,004 36,193Hull and Deck Repairs......................... 16,729 20,853Electrical Repairs............................ 11,868 11,117Exterior Painting............................. 5,456 7,974Interior Painting............................. 681 1,162 ------------------------- Estimate Totals......................... $136,274 $168,248Foreign/U.S. Price Ratio_81%Country Cost Differential (100-81)_19%.------------------------------------------------------------------------
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(3) Distribution of repairs. The distribution of repairs refers to the countries where M&R work was performed on the vessels of the foreign-flag competitor. When data on the repairing practices are obtained directly from the foreign competitor, they be used. If information about such practices is unavailable—or only partially available—data, published by the classification societies and Lloyd's Voyage Record, reporting the dates and localities of drydocking and completion of the various types of vessel surveys, shall be used for determining the geographical distribution of the unknown repairing practices. For diesel vessels, there are three basic types of surveys—drydocking, machinery, and hull. For steam vessels, there is a fourth survey—boiler—in addition to the other three surveys. Since these surveys may be performed in different countries, they are weighted in order to determine the distribution of repairs. The weighting factors shall be: drydocking—20 percent, machinery—40 percent (10 percent allocated to boiler survey on steam vessels), and hull—40 percent.
(4) Proportionate cost differential. A proportionate cost differential for each principal foreign-flag competitor shall be determined by multiplying the percentage distribution of repairs for each country where repair work was performed by the country cost differential for that country and by adding the resulting weighted percentages for all countries where repair work was performed.
(5) U.S.-foreign cost differential. The U.S.-foreign cost differential shall be determined by multiplying the proportionate cost differential for each principal foreign-flag competitor by the competition weight factor for that competitor, and by adding the resulting differentials for all principal foreign-flag competitors, as shown in the following example.
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ABC Steamship Company, Inc._Trade Route_X_U.S.-Foreign Cost Differential for Maintenance (Upkeep) and Repairs Subsidy Rate_1985---------------------------------------------------------------------------------------------------------------- (1) Distribution of (3) repairs (2) Country Proportionate (4) (5) Weighted ---------------------------- cost cost Competition differential Principal competitors differential differential weight (3) x (4) Country (Percent) (percent) (1) x (2) factor (Percent) (percent) (Percent)----------------------------------------------------------------------------------------------------------------Japan....................... Japan.......... 85 36.21 30.78 U.S............ 15 0 0 ----------- --------------- ............... 100 ............ 30.78 23.4 7.20 =========== ===============Norway...................... Norway......... 15 44.72 6.71 Netherlands.... 20 43.23 8.65 Japan.......... 45 36.21 16.29 U.S............ 20 0 0 ----------- --------------- ............... 100 ............ 31.65 31.1 9.84 =========== ===============United Kingdom.............. U.K............ 80 19.00 15.20 Hong Kong...... 15 50.35 7.55 U.S............ 5 0 0 ----------------------------------------- ............... 100 ............ 22.75 45.5 10.35 =========== ===============--------------------------U.S.-Foreign Cost ............... ......... ............ ............. ........... 27.39 Differential. =========== ================----------------------------------------------------------------------------------------------------------------
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(c) Calculation. The appropriate U.S.-foreign cost differential shall be applied to the subsidizable and audited maintenance and repair costs for the three-year period, discussed in paragraph (c)(1) of this section, to establish a relationship of the cost differentials between M&R and wages. This relationship shall be used to establish the M&R subsidy on a current basis by applying the percentage relationship to the per diem wage subsidy rate.
(1) Historical period. The relationship of calendar period M&R subsidy to fiscal period wage subsidy shall be measured for the three-year period commencing five years prior to January 1 of the subsidized year. The M&R subsidy and the wage subsidy shall be expressed as an amount per voyage day for purposes of establishing the relationship. This ratio shall be established for each subsidized service and applied to the per diem wage rate of each ship type in the service to factor a daily amount of subsidy for M&R. The following is an example of the determination of the relationship and the daily amount of subsidy for M&R.
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Determination of Daily Amount of Subsidy For M&R---------------------------------------------------------------------------------------------------------------- Calender Year Calender Year Calender Year T.R. 98 item 1980 1981 1982 Total----------------------------------------------------------------------------------------------------------------M&R C.Y. Expenses........................... $1,700,000 $2,000,000 $1,900,000Subsidy Rate.................................... 40.00% 44.00% 50.00%Subsidy......................................... $680,000 $880,000 $950,000 $2,510,000Voyage Days..................................... 1,100 1,225 1,175 3,500 Average Subsidy Per Voyage Day ($2,510,000÷3,500 days)=$717.14 Fiscal Year Fiscal Year Fiscal Year Total 1980 1981 1982Wages F.Y. Per Diem Rate........................ $7,700 $8,050 $8,200Voyage Days..................................... 1,180 1,230 1,060 3,470Subsidy......................................... $9,086,000 $9,901,500 $8,692,000 $27,679,500 Average Subsidy Per Voyage Day ($27,679,500÷3,470 days)=$7,976.80 Ratio M&R ODS to Wage ODS $717.14÷$7,976.80=8.99%----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------- Ratio M&R to T.R. 98 ship type Daily wage ODS 1/1/ wage ODS Daily M&R ODS 1/ 85 (percent) 1/85----------------------------------------------------------------------------------------------------------------C4-A................................................ $9,000 x 8.99 $809.10C5-B................................................ $9,300 x 8.99 $836.07C6-C................................................ $9,600 x 8.99 $863.04----------------------------------------------------------------------------------------------------------------
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(2) Data submission requirement. The operator is required to submit annually a certified statement of eligible and audited M&R expenses, segregated by service, for the historical period referred to in paragraph (c)(1) of this section. The report shall be submitted to the Director, Office of Ship Operating Costs no later than January 1 of the subsidized year. § 282.23 Hull and machinery insurance.
(a) Subsidy items. The fair and reasonable net premium costs (including stamp taxes) of hull and machinery, increased value, excess general average, salvage, and collision liability insurance against risks and liabilities covered under the tems and conditions of policies approved as to form and coverage by MARAD, less lay-up returns, shall be eligible for subsidy and used for determining the U.S.-foreign cost differential. Port risk premiums are eligible for subsidy but not for determining the U.S.-foreign cost differential.
(b) U.S.-foreign cost differential. A U.S.-foreign cost differential shall be calculated for each service. Due to the difficulty of comparing forms and costs of hull and machinery insurance coverages, the following assumptions shall be used for estimating the composite premium cost of the foreign-flag competitor.
(1) Coverage. The foreign competitive vessels have the same types and amounts of insurance coverages and deductible averages as the subsidized vessels.
(2) Premium rate. The foreign competitive vessels are insured in the British market and the rate for such vessels is the same as the British market rate for the subsidized vessels. If the operator carries all of its insurance in the American market, the American market rate shall be assumed to be the same as the British market rate.
(3) Repairs. Insurable repairs of the foreign competitive vessels are performed in the same countries and in the same distribution as non-insurable repairs, and the cost differential for such repairs shall be the same as the maintenance and repair percentage differential.
(4) Particular average. The percentage of particular average repair claims for the foreign competitive vessels is the same as the percentage of particular average repair claims for the subsidized vessels. The particular average portion of the premium cost for the subsidized vessels shall be determined as follows:
(i) Percentage. The particular average portion of the premium cost shall be determined by applying a percentage to the hull and machinery premium cost after deducting the estimated total loss premium. The percentage is based on insured claims experience. The percentage shall be determined by dividing the total of underwriter's absorptions for particular average domestic repair claims paid and estimated by the total of underwriter's absorptions for all claims paid and estimated (excluding total loss and constructive total loss claims) under the hull and machinery portion of the insurance coverage, except that such percentage shall not exceed eighty-five (85) percent. The percentage is based on the claims experience of the subsidized vessels for the five (5) calendar year period preceding the subsidized year. For subsidized operators that do not have five years of claims experience, the average percentage of particular average domestic repair claims for all similar subsidized vessels shall be used unless the operator can submit data to substantiate its own claims cost experience on similar vessels.
(ii) Data submission requirement. The operator shall submit the five year claims experience, invoices showing net premium costs and coverages for the subsidized year, and lay-up returns for the previous year to the Director, Office of Ship Operating Costs, not later than sixty (60) days after the cost of each calendar year.
(c) Calculation. In calculating the subsidized premium cost, the following steps shall be taken:
(1) The particular average portion of the premium cost shall be adjusted in order to give effect to the repair cost differential for the foreign competitive vessels by applying the complement of the maintenance and repairs percentage cost differential (100 percent minus the differential) to the particular average portion of the premium cost. The adjusted particular average foreign premium cost shall be added to the net premium cost excluding the particular average portion to determine the composite foreign premium cost.
(2) The foreign premium cost shall be substracted from the operator's total premium cost to determine the difference in dollars. The percentage differential is detemined by dividing the dollar difference by the operators' total premium cost. An example calculation is included in Table 2.
(3) The net premium cost of the subsidized vessels shall be divided by the number of days in the calendar year and the resultant daily insurance cost shall be multiplied by the U.S.-foreign cost differential percentage applicable to the most recent year to determine the daily amount of subsidy for hull and machinery insurance.
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Table 2_ABC Steamship Company, Inc.; Cargo vessels_Trade Route_X, U.S./Foreign Cost Differential for Hull and Machinery Insurance [1985] ----------------------------------------------------------------------------------------------------------------1. COMPOSITE FOREIGN PREMIUM COST: A. Hull and Machinery, Total coverage.................... $92,741,996 Average Premium Rate in British Market............... 1.00966% Premium Cost in British Market................... ............... $936,379 (Estimated Total Loss Payment $92,741,966@ .46500% \1\. $431,250) B. Increased Value, Total Coverage....................... $1,083,325 Average Premium Rate in British Market............... .32550% Premium Cost in British Market..................................................... $3,526 C. Excess Liability, Total Coverage...................... None ------------------ D. Total Premium Cost if Insured 100% in British Market.. $939,905 E. Deduct Particular Average Portion: $936,379 Less $431,250=$505,129x62% \2\.......... 313,180 F. Net Premium Cost Exclusive of Particular Average...... $626,725 -------------------------------------------------- Trade Route Trade Route Trade Route No. X No. X No. X Line A Line B LIne C -------------------------------------------------- Particular Average Adjustment: P/A Portion of Premium Cost.......................... $313,180 $313,180 $313,180 M & R Subsidy Rate Complement \3\................ 84.48% 86.63% 87.34% -------------------------------------------------- Adjusted P/A Foreign Premium Cost.................... $264,574 $271,308 $273,531 Add: Net Premium Cost (Excluding P/A)................ $626,725 $626,725 $626,725 --------------------------------------------------2. Composite Foreign Premium Cost............................ $891,299 $898,033 $900,2563. TOTAL PREMIUM COST TO SUBSIDIZED OPERATORS................ $1,068,998 $1,068,998 $1,068,998 --------------------------------------------------4. DIFFERENTIAL IN DOLLARS \4\............................... 177.699 170,965 $168,742 ==================================================5. COMPOSITE WEIGHTED DIFFERENTIAL \5\....................... 16.62% 15.99% 15.79% --------------------------------------------------6. U.S._FOREIGN COST DIFFERENTIAL............................ 16.62% 15.99% 15.79%----------------------------------------------------------------------------------------------------------------\1\ Estimated gross total loss rate adjusted for broker's discounts, policy tax and other costs, as necessary.\2\ Percentage of particular average.\3\ 100% minus M&R subsidy rate of the same calendar year.\4\ Line 3 less line 2.\5\ Line 4 divided by line 3.
§ 282.24 Protection and indemnity insurance.
(a) Subsidy items. Items eligible for determination of subsidizable costs and the U.S.-foreign cost differential are:
(1) Premiums. The fair and reasonable net premium costs (including stamp taxes) of protection and indemnity, excess insurance, second seamen's insurance, “tovalop” or other forms of pollution insurance, bumbershoot (only that portion identified as applicable to P&I insurance), cargo liability if excluded from the primary policy, supplemental calls against liabilities covered under the terms and conditions of policies approved as to form and coverage by MARAD, less lay-up return premiums, shall be eligible for subsidy and used for determining the U.S.-foreign cost differential.
(2) Deductibles. The fair and reasonable cost of crew claims paid by and pending with the operator under the deductible provision of the protection and indemnity insurance policy approved as to form and coverage by MARAD, to the extent that such cost would have been paid by the insurance underwriter under the terms of the policy, except for the fact that it did not exceed the deductible provision of the policy, shall be eligible for subsidy. For subsidy purposes, the deductible absorption shall not exceed $50,000 for each accident or occurrence, provided however, that benefits paid on unearned wages, if excluded from coverage under the protection and indemnity insurance policy, shall be eligible, notwithstanding that the deductible provisions of the policy may be exceeded.
(b) Assumption made in calculation. For purposes of determining subsidy for protection and indemnity insurance, it shall be assumed that the cost differential between the subsidized vessels and the foreign competitive vessels is limited to those portions of premium costs and deductible absorptions which are related to crew liability and that the cost of all other liabilities is the same for both the subsidized vessels and the foreign competitive vessels.
(c) Calculation. The following is the method of calculating the U.S.-foreign cost differential for premiums:
(1) General. A differential shall be calculated for each subsidized service of the vessel. Since the premium cost for all other liabilities is assumed to be the same for both the U.S. and foreign competitive vessels, the calculation of the differential for protection and indemnity insurance premiums is in effect based on the difference between U.S. and foreign premium costs for crew liabilities. Premium costs are determined in costs per gross registered ton (GRT).
(2) Reporting Requirement. The operator shall submit the total premium cost for the subsidized year, plus any supplemental calls and lay-up return premiums not previously reported, to the Director, Office of Ship Operating Costs, not later than 60 days after the beginning of such year. The data shall be supported by invoices from the insurance underwriter.
(3) U.S. crew liability cost. The crew liability portion of the total premium cost shall be determined by applying a percentage to the total premium cost based on five (5) years of claims experience for the five years commencing six years prior to January 1 of the subsidized year. The percentage shall be determined by dividing the total of underwriter's absorptions for crew claims, paid and estimated, by the total of underwriter's absorptions for all claims, paid and estimated. The crew claims portion shall be limited to eighty-five (85) percent unless the operator can substantiate a higher percentage as a result of having crew liability and all other liabilities insured with different underwriters. The operator shall submit the five-year claims experience not later than 60 days following the close of each calendar year.
(4) All other liabilities cost—U.S. and foreign. The all other liabilities portion of the U.S. premium cost shall be determined by subtracting the crew liability portion from the total premium cost. The same cost shall be used for the all other liabilities portion of the foreign-flag competitor's premium cost.
(5) Foreign crew liability cost. The crew liability cost of each principal foreign-flag competitor shall be used, if reliable cost data can be obtained. If such data cannot be obtained for a principal competitor, and it is determined that such competitor has a non-national crew, the crew liability cost for similar vessels registered under the flag of the crew's nationality may be used, at the Maritime Administrator's discretion, provided reliable cost data are obtained. If no reliable cost data are obtained for a competitor, the crew liability cost for that competitor shall be estimated by multiplying the subsidized operator's crew liability portion of the total premium cost by the ratio of that competitor's wage costs (FC) to the subsidized operator's wage costs (WC), as determined in the calculation of the wage differential.
(6) U.S.-foreign cost differential. The U.S.-foreign cost differential shall be the excess of the operator's total premium cost over the principal foreign-flag competitor's estimated total premium cost, expressed as a percentage, calculated in the following manner.
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ABC Steamship Company, Inc., Trade Route X, Protection and Indemnity Insurance Premiums, 1985------------------------------------------------------------------------ United South Premium cost (per GRT) States Greece Pakistan Africa------------------------------------------------------------------------Crew liability.................. \1\ \2\ \3\ \2\ 0.08 $3.98 $1.27 $0.45All other liability............. $1.06 $1.06 $1.06 $1.06 --------------------------------------- Total costs............... $5.04 $2.33 $1.51 $1.14 =======================================Differential_Excess of U.S. cost $2.71 $3.53 3.90 over foreign cost..............Unweighted differential 53.77 70.04 77.38 (percent)......................Competition weight factor ........ 24.3 24.9 50.8 (percent)......................Weighted differential (percent). ........ 13.07 17.44 39.31 -----------------------------U.S.-foreign cost differential ........ ........ ........ 69.82 (percent)......................------------------------------------------------------------------------\1\ Determined by applying 79.03 percent (based on 5-year claims experience) to total GRT premium rate of $5.04.\2\ Crew liability data obtained by Maritime Administration.\3\ The unweighted percentage of Pakistani to U.S. wage costs of 11.23% was applied to $3.98 to estimate the foreign cost.
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(d) Daily Subsidy Rate. The daily subsidy rate shall be calculated in the following manner:
(1) Premiums. The net premium costs per calendar day for the subsidized year shall be multiplied by the U.S.-foreign cost differential percentage determined for the most recent year. The product shall be the daily amount of subsidy for P&I premiums.
(2) Deductibles. (i) The eligible illness and injury crew claims paid and pending for each calendar year of a three-year period commencing six years prior to January 1 of the subsidized year shall be recalculated, if necessary, to reflect the operator's current deductible levels. These expenses, after audit, shall be multiplied by the percentage wage differential, as determined in the calculation of wage subsidy for the appropriate fiscal period. The resulting calendar period P&I deductible subsidy for the three-year period shall be divided by the voyage days for the period to arrive at an aggregate daily P&I deductible subsidy. The aggregate fiscal period wage subsidy accrued in the service for the three-year period shall be divided by the voyage days for the period to arrive at an aggregate daily wage subsidy amount. The aggregate daily P&I deductible subsidy for the three-year calendar period shall be divided by the aggregate daily wage subsidy for the three-year fiscal period. The resulting percentage shall be applied to the wage per diem calculated for each ship type in the service to derive the daily amount of subsidy for P&I deductibles. As to pending claims previously recognized in the historical period, only the amount of changes in cost with respect to such claims shall be subsequently recognized. The following methodology shall be used to determine subsidy for P&I deductibles.
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Determination of Daily Amount of Subsidy for P&I Deductibles---------------------------------------------------------------------------------------------------------------- Calendar year Calendar year Calendar year T.R. 98 item 1979 1980 1981 Total----------------------------------------------------------------------------------------------------------------P&I Deductible C.Y. Expenses................ $1,680,000 $1,220,000 $1,400,000Diff. Foreign/U.S. Wage Cost.................... 26.00% 23.00% 20.00%Subsidy......................................... $436,800 $280,600 $280,000 $997,400Voyage Days..................................... 1,140 1,100 1,225 3,465 Average Subsidy Per Voyage Day ($997,400÷3,465 days)=$287.85 Fiscal year Fiscal year Fisal year Total 1979 1980 1981Wages F.Y. Per Diem Rate........................ $7,660 $7,700 $8,050Voyage Days..................................... 1,090 1,180 1,230 3,500Subsidy......................................... $8,349,400 $9,086,000 $9,901,500 $27,336,900 Average Subsidy Per Voyage Day ($27,336,900÷3,500 days)=$7,810.54 Ratio P&I Deductible ODS to Wage ODS $287.85÷$7,810.54=3.69%----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------- Ratio P&I T.R. 98 ship type Daily wage ODS 1/ ded. to wage ODS Daily P&I 1/85 (percent) ded. ODS 1/1/85----------------------------------------------------------------------------------------------------------------C4-A................................................... $9,000 x3.69 $332.10C5-B................................................... 9,300 x3.69 343.17C6-C................................................... 9,600 x3.69 354.24----------------------------------------------------------------------------------------------------------------
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(ii) In cases where national insurance schemes cover crew claims costs in their entirety, resulting in no cost to the foreign competitor for deductible absorptions, the composite percentage differential for wages shall be adjusted by substituting a zero cost for such foreign competitor in the calculation of the differential. The adjustment of the wage percentage differential shall not be used for Japan, where operators incur minimal costs for deductible absorptions, rather than no costs. For Japan, the insurance related costs which are normally included in the calculation of Japanese wage costs shall be excluded in adjusting the wage percentage differential for this purpose.
(3) Data submission requirement. The operator is required to submit annually a certified statement of eligible and audited crew claims, as identified in paragraph (d)(2) of this section, for the historical period identified therein. The report shall be submitted to the Director, Office of Ship Operating Costs no later than January 1 of the subsidized year.
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