1625-0027 Stat/Authority

TITLE 46, APPENDIX—SHIPPING

§ 1194

§ 1194. Charter or sale of vessels acquired by Department of Transportation
All vessels transferred to or otherwise acquired by the Department of Transportation in
any manner may be chartered or sold by the
Secretary of Transportation pursuant to the further provisions of this chapter.
(June 29, 1936, ch. 858, title VII, § 704, 49 Stat.
2008; Apr. 1, 1937, ch. 64, 50 Stat. 57; Pub. L. 97–31,
§ 12(106), Aug. 6, 1981, 95 Stat. 163.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Department of Transportation’’ for ‘‘Commission’’ the first place it appeared and ‘‘Secretary of Transportation’’ for ‘‘Commission’’ the second place it appeared, and struck out
provisions relating to discontinuance of operation of
Commission’s vessels on lines in foreign commerce
under operating agreements within one year after June
27, 1936. For prior transfers of functions of the Commission, meaning the United States Maritime Commission,
see Transfer of Functions note below.
1937—Act Apr. 1, 1937, substituted ‘‘may be temporarily operated’’ for ‘‘shall be temporarily operated’’,
required preference to be given to present operators,
permitted private operators to commence voyages prior
to the expiration date and to complete them thereafter,
and inserted provisions providing that nothing contained in this section should be construed as limiting
the power of sale under section 1195 of this Appendix.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
AUTHORITY FOR WARTIME SALE OR CHARTER REPEALED
Act May 14, 1940, ch. 201, § 2, 54 Stat. 216, as extended
June 16, 1942, ch. 416, 56 Stat. 370, which related to sale
or charter of vessels by United States Maritime Commission until six months after the end of World War II
should have been proclaimed or such earlier time as the
Congress by concurrent resolution or the President
might designate, was repealed by act July 25, 1947, ch.
327, § 1, 61 Stat. 449.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix.

§ 1195. Employment of vessels on foreign trade
routes; selection of routes; encouraging private operation by sale or charter; selling
price
As soon as practicable after June 29, 1936, and
continuing thereafter, the Secretary of Transportation shall arrange for the employment of
the Department of Transportation’s vessels in
steamship lines on such trade routes, exclusively serving the foreign trade of the United
States, as the Secretary of Transportation shall
determine are necessary and essential for the
development and maintenance of the commerce
of the United States and the national defense:
Provided, That such needs are not being adequately served by existing steamship lines privately owned and operated by citizens of the
United States and documented under the laws of
the United States. It shall be the policy of the
Secretary of Transportation to encourage private operation of each essential steamship line
now owned by the United States by selling such

Page 146

lines to citizens of the United States in the
manner provided in section 7 of the Merchant
Marine Act, 1920 [46 App. U.S.C. 866], and in
strict accordance with the provisions of section
5 of said Act,1 or by demising his vessels on bareboat charter to citizens of the United States
who shall agree to maintain such line or lines in
the manner hereinafter provided. No vessel constructed under the provisions of this chapter, as
amended, shall be sold by the Secretary of
Transportation for operation in the foreign
trade for a sum less than the estimated foreign
construction cost exclusive of national defense
features (determined as of the date the construction contract therefor is executed) less depreciation based on a twenty-five year life, nor shall
any such vessel be sold by the Secretary of
Transportation for operation in the domestic
trade for a sum less than the cost of construction in the United States exclusive of national
defense features less depreciation based on a
twenty-five year life.
(June 29, 1936, ch. 858, title VII, § 705, 49 Stat.
2009; Aug. 4, 1939, ch. 417, § 11(a), 53 Stat. 1185;
Pub. L. 86–518, § 1, June 12, 1960, 74 Stat. 216; Pub.
L. 97–31, § 12(107), Aug. 6, 1981, 95 Stat. 163.)
REFERENCES IN TEXT
Section 5 of said Act, referred to in text, was classified to section 864 of former Title 46, Shipping, and was
repealed by Pub. L. 100–710, title II, § 202(4), Nov. 23,
1988, 102 Stat. 4753.
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in four places, ‘‘the Department of Transportation’s vessels’’ for ‘‘its vessels’’,
and ‘‘his vessels’’ for ‘‘its vessels’’. For prior transfers
of functions of the Commission, meaning the United
States Maritime Commission, see Transfer of Functions note below.
1960—Pub. L. 86–518 substituted ‘‘twenty-five-year
life’’ for ‘‘twenty-year life’’ in two places.
1939—Act Aug. 4, 1939, prohibited sale of any vessel
constructed under this chapter for operation in the foreign trade for a sum less than the estimated foreign
construction cost exclusive of national defense features
less depreciation based on a 20 year life, nor for operation in the domestic trade for a sum less than the cost
of construction in the United States exclusive of national defense features less depreciation based on a 20
year life.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86–518 applicable only to vessels delivered by the shipbuilder on or after Jan. 1, 1946,
and with respect to such vessels shall become effective
on Jan. 1, 1960, and with respect to vessels delivered by
the shipbuilder before Jan. 1, 1946, the provisions of this
chapter existing immediately before June 12, 1960, shall
continue in effect, see section 8(a) of Pub. L. 86–518, set
out as a note under section 1125 of this Appendix.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
RATE OF DEPRECIATION FOR VESSELS DELIVERED BY
SHIPBUILDER ON OR AFTER JANUARY 1, 1946, AND BEFORE JANUARY 1, 1960
For provisions relating to computation of depreciation with respect to vessels delivered by the shipbuilder
1 See

References in Text note below.

Page 147

TITLE 46, APPENDIX—SHIPPING

on or after Jan. 1, 1946, and before Jan. 1, 1960, see section 8(b) of Pub. L. 86–518, set out as a note under section 1125 of this Appendix.
REVISION OF CONTRACTS, COMMITMENTS TO INSURE
MORTGAGES, MORTGAGES, AND MORTGAGE INSURANCE
CONTRACTS ENTERED INTO PRIOR TO JUNE 12, 1960
For provisions authorizing revision, see section 8(c)
of Pub. L. 86–518, set out as a note under section 1125 of
this Appendix.
COMMERCIAL EXPECTANCY OR PERIOD OF DEPRECIATION
OF TANKERS AND OTHER LIQUID BULK CARRIERS
Nothing in any amendment made by Pub. L. 86–518 to
operate or be interpreted to change from 20 to 25 years
the provisions of this chapter relating to the commercial expectancy or period of depreciation of any tanker
or other liquid bulk carrier, see section 9 of Pub. L.
86–518, set out as a note under section 1125 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix.

§ 1196. Advertising for bids for charters; rejection
of bids
(a) The Secretary of Transportation shall not
charter the Department of Transportation’s vessels to private operators except upon competitive sealed bids submitted in strict compliance
with all the terms and conditions of a public advertisement soliciting such bids. Each and every
advertisement for bids to charter the Department of Transportation’s vessels shall state the
number, type, and tonnage of the vessels the
Secretary of Transportation is offering for bareboat charter for operation as a steamship line
on a designated trade route, the minimum number of sailings that will be required, the length
of time for which the charter will be given, and
all other information the Secretary of Transportation shall deem necessary for the information
of prospective bidders.
(b) The Secretary of Transportation shall have
authority to, and shall announce in his advertisements for bids that the Secretary of Transportation reserves the right to, reject any and
all bids submitted. The Secretary of Transportation shall reject any bid for the charter (under
sections 1191 to 1203 of this Appendix) of any vessel constructed under the provisions of this
chapter, as amended, if the charter hire offered
by the bidder is lower than the minimum charter hire for such vessel would be if chartered
under the provisions of section 1204 of this Appendix.
(June 29, 1936, ch. 858, title VII, § 706, 49 Stat.
2009; Aug. 4, 1939, ch. 417, § 11(b), 53 Stat. 1186;
Pub. L. 97–31, § 12(108), Aug. 6, 1981, 95 Stat. 163.)
AMENDMENTS
1981—Subsec. (a). Pub. L. 97–31, § 12(108)(A)–(C), substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in three places, ‘‘the Department of Transportation’s vessels’’ for ‘‘its vessels’’, and ‘‘the Department of Transportation’s vessels’’ for ‘‘Commission’s
vessels’’. For prior transfers of functions of the Commission, meaning the United States Maritime Commission, see Transfer of Functions note below.
Subsec. (b). Pub. L. 97–31, § 12(108)(A), (D), substituted
‘‘Secretary of Transportation’’ for ‘‘Commission’’ in
three places and ‘‘his’’ for ‘‘its’’. For prior transfers of

§ 1197

functions of the Commission, meaning the United
States Maritime Commission, see Transfer of Functions note below.
1939—Subsec. (b). Act Aug. 4, 1939, required rejection
of any bids for charter if the charter hire offered by the
bidder is lower than the minimum charter hire for such
vessel would be if chartered under the provisions of section 1204 of this Appendix.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.

§ 1197. Awarding charter on bids
(a) Highest bid
The Secretary of Transportation shall award
the charter to the bidder proposing to pay the
highest monthly charter hire unless the Secretary of Transportation shall reject such bid
for the reasons set forth in subsection (b) of this
section.
(b) Rejection of highest bid
The Secretary of Transportation may reject
the highest or most advantageous or any other
bid, if, in the Secretary’s discretion, the charter
hire offered is deemed too low, or the Secretary
of Transportation determines that the bidder
lacks sufficient capital, credit, or experience to
operate successfully the line; but the reason or
reasons for rejection of any bid, upon request of
the bidder, shall be stated to such bidder in
writing.
(c) Next highest bid; rejection of all bids and readvertisement
If the highest bid is rejected, the Secretary of
Transportation may award the charter to the
next highest bidder, or may reject all bids and
readvertise the line: Provided, however, That the
Secretary of Transportation may operate the
line until conditions appear to be more favorable for a reoffering of the line for private charter.
(June 29, 1936, ch. 858, title VII, § 707, 49 Stat.
2009; Pub. L. 97–31, § 12(109), Aug. 6, 1981, 95 Stat.
163.)
AMENDMENTS
1981—Subsec. (a). Pub. L. 97–31, § 12(109)(A), substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in two places. For prior transfers of functions of
the Commission, meaning the United States Maritime
Commission, see Transfer of Functions note below.
Subsec. (b). Pub. L. 97–31, § 12(109), substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in two
places and ‘‘Secretary’s discretion’’ for ‘‘Commission’s
discretion’’. For prior transfers of functions of the
Commission, meaning the United States Maritime
Commission, see Transfer of Functions note below.
Subsec. (c). Pub. L. 97–31, § 12(109)(A), substituted
‘‘Secretary of Transportation’’ for ‘‘Commission’’ in
two places. For prior transfers of functions of the Commission, meaning the United States Maritime Commission, see Transfer of Functions note below.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix.

TITLE 46, APPENDIX—SHIPPING

§ 1198

§ 1198. Payment of subsidies to charterers
The Secretary of Transportation may, if in his
discretion financial aid is deemed necessary,
enter into a contract with any charterer of his
vessels for payment to such charterer of an operating-differential subsidy upon the same
terms and conditions and subject to the same
limitations and restrictions, where applicable,
as are elsewhere provided in this chapter with
respect to payments of such subsidies to operators of privately owned vessels.
(June 29, 1936, ch. 858, title VII, § 708, 49 Stat.
2009; June 23, 1938, ch. 600, § 31, 52 Stat. 962; Pub.
L. 97–31, § 12(110), Aug. 6, 1981, 95 Stat. 163.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ and ‘‘his’’ for ‘‘its’’ in
two places. For prior transfers of functions of the Commission, meaning the United States Maritime Commission, see Transfer of Functions note below.
1938—Act June 23, 1938, inserted ‘‘, where applicable,’’
before ‘‘as are elsewhere provided’’.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix; title 50 App. section 1738.

§ 1199. Excess profit; payment to Secretary; formula for determining profit
(a) Every charter made by the Secretary of
Transportation pursuant to the provisions of
this subchapter shall provide that whenever, at
the end of any calendar year subsequent to the
execution of such charter, the cumulative net
voyage profits (after payment of the charter
hire reserved in the charter and payment of the
charterer’s fair and reasonable overhead expenses applicable to operation of the chartered
vessels) shall exceed 10 per centum per annum
on the charterer’s capital necessarily employed
in the business of such chartered vessels, the
charterer shall pay over to the Secretary of
Transportation, as additional charter hire, onehalf of such cumulative net voyage profit in excess of 10 per centum per annum: Provided, That
the cumulative net profit so accounted for shall
not be included in any calculation of cumulative
net profit in subsequent years.
(b) Every charter shall contain a definition of
the terms ‘‘net voyage profit’’ and ‘‘fair and reasonable overhead expenses’’, and ‘‘capital necessarily employed’’, as said terms are used in
subsection (a) of this section, setting forth the
formula for determining such profit and overhead expense and capital necessarily employed,
which definitions shall have been previously approved by the Secretary of Transportation and
published in the advertisement for bids for such
charter.
(June 29, 1936, ch. 858, title VII, § 709, 49 Stat.
2010; Pub. L. 97–31, § 12(111), Aug. 6, 1981, 95 Stat.
163.)

Page 148

(a) and once in subsec. (b). For prior transfers of functions of the Commission, meaning the United States
Maritime Commission, see Transfer of Functions note
below.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1196, 1205 of this
Appendix; title 50 App. section 1738.

§ 1200. Undertaking required of charterer
Every charterer of the Secretary of Transportation’s vessels shall be required to deposit with
the Secretary of Transportation an undertaking
with approved sureties as security for the faithful performance of all of the conditions of the
charter, including indemnity against liens on
the chartered vessels, in such amount as the
Secretary of Transportation shall require.
(June 29, 1936, ch. 858, title VII, § 710, 49 Stat.
2010; Pub. L. 97–31, § 12(112), Aug. 6, 1981, 95 Stat.
163.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’s vessels’’ for ‘‘Commission’s vessels’’ and
‘‘Secretary of Transportation’’ for ‘‘Commission’’ in
two places. For prior transfers of functions of the Commission, meaning the United States Maritime Commission, see Transfer of Functions note below.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix; title 50 App. section 1738.

§ 1201. Terms and conditions of charters
The charters to be made by the Secretary of
Transportation pursuant to the provisions of
this subchapter shall demise the vessels to the
charterer subject to all usual conditions contained in bareboat charters, and until January 1,
1940, shall be for terms of three years or less as
the Secretary of Transportation may decide:
Provided, That after January 1, 1940, charters
may be executed by the Secretary of Transportation for such terms as the experience gained
by the Secretary of Transportation shall indicate are to the best interests of the United
States and the merchant marine.
(June 29, 1936, ch. 858, title VII, § 711, 49 Stat.
2010; Pub. L. 97–31, § 12(113), Aug. 6, 1981, 95 Stat.
163.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in four places. For prior
transfers of functions of the Commission, meaning the
United States Maritime Commission, see Transfer of
Functions note below.

AMENDMENTS

TRANSFER OF FUNCTIONS

1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in two places in subsec.

For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan

Page 149

TITLE 46, APPENDIX—SHIPPING

No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix.

§ 1202. Insurance requirements; repairs; inspection by Secretary; termination of charter in
national emergency
Every charter shall provide—
(a) That the charterer shall carry on the chartered vessels, at his own expense, policies of insurance covering all marine and port risks, protection and indemnity risks, and all other hazards and liabilities, in such amounts, in such
form, and in such insurance companies as the
Secretary of Transportation shall require and
approve, adequate to cover all damages claimed
against and losses sustained by the chartered
vessels arising during the life of the charter:
Provided, That in accordance with existing law,
some or all of such insurance risks may be underwritten by the Secretary of Transportation
himself as in his discretion he may determine.
(b) That the charterer shall at its own expense
keep the chartered vessel in good taste of repair
and in efficient operating condition and shall at
its own expense make any and all repairs as may
be required by the Secretary of Transportation.
(c) That the Secretary of Transportation shall
have the right to inspect the vessel at any and
all times to ascertain its condition.
(d) That whenever the President shall proclaim that the security of the national defense
makes it advisable, or during any national
emergency declared by proclamation of the
President, the Secretary of Transportation may
terminate the charter without cost to the
United States, upon such notice to the charterers as the President shall determine.
(June 29, 1936, ch. 858, title VII, § 712, 49 Stat.
2010; Aug. 7, 1939, ch. 555, § 1, 53 Stat. 1254; Pub.
L. 97–31, § 12(114), Aug. 6, 1981, 95 Stat. 163.)
AMENDMENTS
1981—Subsec. (a). Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in two
places, and ‘‘himself’’, ‘‘his’’, and ‘‘he’’ for ‘‘itself’’,
‘‘its’’, and ‘‘it’’, respectively. For prior transfers of
functions of the Commission, meaning the United
States Maritime Commission, see Transfer of Functions note below.
Subsecs. (b) to (d). Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’. For prior
transfers of functions of the Commission, meaning the
United States Maritime Commission, see Transfer of
Functions note below.
1939—Subsec. (d). Act Aug. 7, 1939, permitted termination of a charter whenever the President proclaims
that the security of the national defense makes it advisable.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
TERMINATION OF WAR AND EMERGENCIES
Act July 25, 1947, ch. 327, § 3, 61 Stat. 451, provided
that in the interpretation of subsec. (d) of this section,
the date July 25, 1947, shall be deemed to be the date of

§ 1204

termination of any state of war theretofore declared by
Congress and of the national emergencies proclaimed
by the President on Sept. 8, 1939, and May 27, 1941.
CROSS REFERENCES
War risk insurance, see section 1281 et seq. of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix; title 50 App. section 1738.

§ 1203. Financial resources and other factors considered in awarding charters
In the awarding of charters, the Secretary of
Transportation shall take in consideration the
charterer’s financial resources and credit standing, practical experience in the operation of vessels, and any other factors that would be considered by a prudent businessman in entering into
a transaction involving a large investment of
his capital; and the Secretary of Transportation
is directed to refrain from chartering the Department of Transportation’s vessels to any person appearing to lack sufficient capital, credit,
and experience to operate successfully the vessel
over the period covered by the charter.
(June 29, 1936, ch. 858, title VII, § 713, 49 Stat.
2010; Pub. L. 97–31, § 12(115), Aug. 6, 1981, 95 Stat.
164.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Commission’’ in two places and ‘‘the
Department of Transportation’s vessels’’ for ‘‘its vessels’’. For prior transfers of functions of the Commission, meaning the United States Maritime Commission,
see Transfer of Functions note below.
TRANSFER OF FUNCTIONS
For transfer of functions of United States Maritime
Commission, see Reorg. Plan No. 6 of 1949, Reorg. Plan
No. 21 of 1950, and Reorg. Plan No. 7 of 1961, set out
under section 1111 of this Appendix.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 1196 of this Appendix; title 50 App. section 1738.

§ 1204. Construction and chartering of vessels for
unsuccessful routes; purchase of vessel by
charterer; purchase price; operation of vessel
in foreign trade
If the Secretary of Transportation shall find
that any trade route (determined by the Secretary of Transportation to be an essential trade
route as provided in section 1121 of this Appendix) cannot be successfully developed and maintained and the Secretary of Transportation’s replacement program cannot be achieved under
private operation of such trade route by a citizen of the United States with vessels registered
under the laws thereof, without further Government aid in addition to the financial aids authorized under subchapters V and VI of this
chapter, the Secretary of Transportation is authorized to have constructed, in private shipyards or in navy yards, the vessel or vessels of
the types deemed necessary for such trade route,
and to demise such new vessel or vessels, or
bare-boat charter to the American-flag operator
established on such trade route, without adver-

§ 1204

TITLE 46, APPENDIX—SHIPPING

tisement or competition, upon an annual charter hire of not less than 4 per centum of the
price (herein referred to as the ‘‘foreign cost’’)
at which such vessel or vessels would be sold if
constructed under subchapter V of this chapter
plus an amount equal to (i) the sum of a percentage of the depreciated foreign cost computed annually upon the basis of a twenty-five
year life of the vessel determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United
States with remaining periods to maturity comparable to the term of the charter, adjusted to
the nearest one-eighth of 1 per centum, plus (ii)
an allowance adequate in the judgment of the
Secretary of Transportation to cover administrative costs. Such charter may contain an option to the charterer to purchase such vessel or
vessels from the Secretary of Transportation
within five years after delivery thereof under
the charter, upon the same terms and conditions
as are provided in subchapter V of this chapter
for the purchase of new vessels from the Secretary of Transportation, except that (a) the
purchase price shall be the foreign cost less depreciation to the date of purchase based upon a
twenty-five year life; (b) the required cash payment payable at the time of such purchase shall
be 25 per centum of the purchase price as so determined; (c) the charter may provide that all or
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 such purchase; (d) the
balance of the purchase price shall be paid within the years remaining of the twenty-five years
after the date of delivery of the vessel under the
charter and in approximately equal annual installments, except that the first of said installments, which shall be payable upon the next ensuing anniversary date of such delivery under
the charter, shall be a proportionate part of the
annual installment, interest to be payable upon
the unpaid balances from the date of purchase,
at a rate not less than (i) a rate determined by
the Secretary of the Treasury, taking into consideration the current average market yield on
outstanding marketable obligations of the
United States with remaining periods to maturity comparable to the average maturities of
such loans, adjusted to the nearest one-eighth of
1 per centum, plus (ii) an allowance adequate in
the judgment of the Secretary of Transportation
to cover administrative costs.
Such charter shall provide for operation of the
vessel exclusively in foreign trade, or on a
round-the-world voyage, or on a round voyage
from the west coast of the United States to a
European port or ports which includes intercoastal ports of the United States, or a round
voyage from the Atlantic coast of the United
States to the Orient which includes intercoastal
ports of the United States, or on a voyage in foreign trade on which the vessel may stop at the
State of Hawaii, or an island possession or island Territory of the United States, and if the
vessel is operated in the domestic trade on any
of the above-enumerated services the charterer
will pay annually to the Secretary of Transportation that proportion of one-twenty-fifth of the

Page 150

difference between the domestic and foreign cost
of such 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.
(June 29, 1936, ch. 858, title VII, § 714, 49 Stat.
2011; June 23, 1938, ch. 600, § 32, 52 Stat. 962; Aug.
4, 1939, ch. 417, § 12, 53 Stat. 1186; Pub. L. 86–3,
§ 18(b)(3), Mar. 18, 1959, 73 Stat. 12; Pub. L. 86–518,
§ 5, June 12, 1960, 74 Stat. 216; Pub. L. 91–469, § 22,
Oct. 21, 1970, 84 Stat. 1032; Pub. L. 97–31, § 12(116),
Aug. 6, 1981, 95 Stat. 164.)
AMENDMENTS
1981—Pub. L. 97–31 substituted ‘‘Secretary of Transportation’’ for ‘‘Secretary of Commerce’’ and ‘‘Secretary of Transportation’s’’ for ‘‘Secretary of Commerce’s’’.
1970—Pub. L. 91–469 substituted: ‘‘Secretary of Commerce’’ and ‘‘Secretary of Commerce’s’’ for ‘‘Commission’’ and ‘‘Commission’s’’ wherever appearing; provision for an additional amount for charter hire equal to
sum of depreciated foreign cost computed annually
upon basis of a twenty-five year life of vessel determined by the Secretary of the Treasury, taking into
consideration the current average market yield or outstanding marketable obligations of the United States
with remaining periods to maturity comparable to the
term of the charter, adjusted to the nearest one-eighth
of 1 per centum plus an administrative cost allowance
for prior provision for 31⁄2 per centum of depreciated
foreign cost computed annually upon the basis of a
twenty-five year life of vessel; and provision for interest upon unpaid balances of purchase price payable in
annual installments from date of purchase, at a rate
not less than a rate determined by the Secretary of the
Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to
maturity comparable to the average maturities of such
loans, adjusted to the nearest one-eighth of 1 per centum plus an administrative cost allowance for prior interest upon unpaid balances of 31⁄2 per centum per
annum from date of purchase.
1960—Pub. L. 86–518 substituted ‘‘4 per centum’’ for ‘‘5
per centum’’, ‘‘twenty-five-year life’’ for ‘‘twenty-year
life’’ in two places, ‘‘twenty-five years’’ for ‘‘twenty
years’’, and ‘‘one-twenty-fifth’’ for ‘‘one-twentieth’’.
1959—Pub. L. 86–3 included stops at the State of Hawaii for vessels operated on voyages in foreign trade.
1939—Act Aug. 4, 1939, amended section generally, and
among other changes, substituted ‘‘price (herein referred to as the ‘foreign cost’) at which such vessel or
vessels would be sold if constructed under sections
1151–1161 of this Appendix plus 31⁄2 per centum of the depreciated foreign cost computed annually upon the
basis of a twenty-year life of the vessel’’ for ‘‘construction cost of such new vessel or vessels’’, and added second paragraph relating to mixed foreign and domestic
trade.
1938—Act June 23, 1938, required the charter to contain an agreement of the purchaser to pay interest at
the rate of 31⁄2 per centum per annum upon all unpaid
portions of the purchase price from the date of the delivery of the vessel to the purchaser under the charter
agreement, and provided that if the option to purchase
is exercised, the deferred payments shall not be extended beyond the life of the vessel computed on a 20
year expectancy.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86–518 applicable only to vessels delivered by the shipbuilder on or after Jan. 1, 1946,
and with respect to such vessels shall become effective
on Jan. 1, 1960, and with respect to vessels delivered by
the shipbuilder before Jan. 1, 1946, the provisions of this
chapter existing immediately before June 12, 1960, shall