1. (a) In General.— If the Secretary of Transportation finds that a trade route determined to be essential under section 50103 of this title cannot be successfully developed and maintained and the Secretary’s replacement program cannot be achieved under private operation of the trade route by a citizen of the United States with vessels documented under chapter 121 of this title, without further aid by the United States Government in addition to the financial aid authorized under title V of the Merchant Marine Act, 1936, the Secretary, without advertisement or competition, may—

   1. (1) have constructed, in private shipyards or in navy yards, vessels of the types necessary for the trade route; and
   2. (2) demise charter those new vessels to the operator of vessels of the United States established on the trade route.

2. (b) Amount of Charter Hire.—

   1. (1) In general.— The annual charter hire under subsection (a) shall be at least 4 percent of the price (referred to in this section as the “foreign cost”) at which the vessel would be sold if constructed under title V of the Merchant Marine Act, 1936, plus—

      1. (A) a percentage of the depreciated foreign cost computed annually determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the Government with remaining periods to maturity comparable to the term of the charter, adjusted to the nearest one-eighth percent; and
      2. (B) an allowance adequate in the judgment of the Secretary of Transportation to cover administrative costs.

   2. (2) Depreciation.— Depreciation under paragraph (1)(A) shall be based on—

      1. (A) a 25-year life for dry-cargo and passenger vessels; and
      2. (B) a 20-year life for tankers and other bulk liquid carrier vessels.

3. (c) Option To Purchase.— The charter may contain an option to the charterer to purchase the vessels from the Secretary of Transportation within 5 years after delivery under the charter, on the same terms and conditions as provided in title V of the Merchant Marine Act, 1936, for the purchase of new vessels from the Secretary. However—

   1. (1) the purchase price shall be the foreign cost less depreciation to the date of purchase based on the useful life specified in subsection (b)(2);
   2. (2) the required cash payment payable at the time of the purchase shall be 25 percent of the purchase price;
   3. (3) the charter may provide that any part of the charter hire paid in excess of the minimum charter hire provided for in this section may be credited against the cash payment payable at the time of the purchase;
   4. (4) the balance of the purchase price shall be paid within the remaining years of useful life (as specified in subsection (b)(2)) after the date of delivery of the vessel under the charter and in approximately equal annual installments, except that the first installment, which shall be payable on the next ensuing anniversary date of the delivery under the charter, shall be a proportionate part of the annual installment; and

   5. (5) interest shall be payable on the unpaid balances from the date of purchase, at a rate not less than—

      1. (A) a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the Government with remaining periods to maturity comparable to the average maturities of the loans, adjusted to the nearest one-eighth percent; plus
      2. (B) an allowance adequate in the judgment of the Secretary of Transportation to cover administrative costs.

4. (d) Operation of Vessel.—

   1. (1) Permissible voyages.— The charter shall provide for operation of the vessel exclusively—

      1. (A) in foreign trade;
      2. (B) on a round-the-world voyage;
      3. (C) on a round voyage from the west coast of the United States to a European port that includes an intercoastal port of the United States;
      4. (D) on a round voyage from the Atlantic coast of the United States to the Orient that includes an intercoastal port of the United States; or
      5. (E) on a voyage in foreign trade on which the vessel may stop at Hawaii or an island territory or possession of the United States.
   2. (2) Domestic trade.— The charter shall provide if the vessel is operated in domestic trade on any of the services specified in paragraph (1), the charterer will pay annually to the Secretary of Transportation that proportion of ¹⁄₂₅ of the difference between the domestic and foreign cost of the vessel as the gross revenue derived from the domestic trade bears to the gross revenue derived from the entire voyages completed during the preceding year.

(Pub. L. 109–304, § 8(c), Oct. 6, 2006, 120 Stat. 1668; Pub. L. 114–120, title III, § 313(b)(2), Feb. 8, 2016, 130 Stat. 58.)

In subsection (a)(2), the words “demise charter” are substituted for “demise . . . or bare-boat charter” to eliminate unnecessary words. The words “operator of vessels of the United States” are substituted for “American-flag operator” for consistency in the revised title.

Subsection (b)(2) is substituted for “Upon the basis of a twenty-five year life of the vessel” because of section 9 of Public Law 86–518 (June 12, 1960, 74 Stat. 217), which provided that “Nothing in any amendment made by this Act [including section 5 substituting ‘twenty-five’ for ‘twenty’ in 46 App. U.S.C. 1204] shall operate or be interpreted to change from twenty to twenty-five years the provisions of the Merchant Marine Act, 1936, as amended, relating to the commercial expectancy or period of depreciation of any tanker or other liquid bulk carrier.”

In subsection (c), in paragraphs (1) and (4), references to the useful life specified in subsection (b)(2) are substituted for references to the twenty-five year useful life for the reason stated in explaining subsection (b)(2).

Editorial Notes

References in Text

The Merchant Marine Act, 1936, referred to in subsecs. (a), (b)(1), (c), is act June 29, 1936, ch. 858, 49 Stat. 1985. Title V of the Act enacted provisions set out as a note under section 53101 of this title. For complete classification of this Act to the Code, see Short Title of 1936 Amendment note set out under section 101 of this title and Tables.

Amendments

2016—Subsec. (a). Pub. L. 114–120 substituted “title V” for “titles V and VI” in introductory provisions.