Sea-Land Service, Inc. v. Kreps

Opinion for the Court filed by WILKEY, Circuit Judge.

Dissenting opinion filed by SPOTTSWOOD W. ROBINSON, III, Circuit Judge.

WILKEY, Circuit Judge:

This appeal is from an order of the District Court (Robinson, J.) reversing the decision of the Maritime Subsidy Board (hereinafter the Board) to grant an amended operating differential subsidy (ODS) contract to intervenor-appellant American President Lines, Ltd.¹ (APL) pursuant to the Merchant Marine Act of 1936 (the Act).² Before the Board can grant an ODS to a United States flag carrier, it is required by section 605(c) of the Act to find that “the service already provided by vessels of United States registry is inadequate. . . . ” ³

The sole issue presented in this appeal is whether the Board can lawfully recognize transoceanic cargo carried by U. S. flag vessels between Canada and the Far East in making the finding as to the adequacy of U. S. flag service on a particular trade route.⁴ The Board ruled that such cargo could be recognized for purposes of making the section 605(c) adequacy determinations;⁵ the District Court reversed the Board on this point.⁶ We conclude that the District Courts’ interpretation of section 605(c) was in error and that the Board’s position was a proper interpretation and application of the Act entitled to deference from the reviewing court. Accordingly, we reverse the order of the District Court and remand the case with instructions to affirm the Board’s decision to grant the ODS application of APL.

I. BACKGROUND

A. Statutory Framework.

The Merchant Marine Act of 1936 was enacted to foster the development and continued maintenance of a modern merchant marine fleet for the United States.⁷ The Act’s declaration of policy states that

It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency * * *.⁸

To accomplish these goals the Act establishes two subsidies for American shipping enterprises — the operating-differential subsidy that is the focus of this appeal, and a construction-differential subsidy (CDS) that is not implicated in these proceedings.⁹

The operating-differential subsidy is governed by Title VI of the Act. Under section 601(a) of the Act, the Secretary of Commerce is authorized and directed “to consider the application of any citizen of the United States for financial aid in the operation of a vessel or vessels, which are to be used in an essential service in the foreign commerce of the United States * * ¹⁰ The approval of an application for ODS is predicated on a determination by the Secretary that “the operation of such vessel or vessels in an essential service is required to meet foreign-flag competition and to promote the foreign commerce of the United States”; that the applicant possesses the vessels and qualifications necessary to enable him “to meet competitive conditions and promote foreign commerce”; and that the subsidy is “necessary to place the proposed operations * * * on a parity with those of foreign competitors, and is reasonably calculated to carry out effectively the purposes and policy of this Act.”¹¹

The term “essential service ” is expressly defined in section 601(a) to mean “the operation of a vessel on a service, route, or line described in section 211(a) * * *.”¹² Section 211(a) of the Act authorizes and directs the Secretary to determine

[t]he ocean services, routes, and lines from ports in the United States, or in a Territory, district, or possession thereof, to foreign markets, which are, or may be, determined by the Secretary of Commerce to be essential for the promotion, development, expansion, and maintenance of the foreign commerce of the

United States, and in reaching his determination the Secretary of Commerce shall consider and give due weight to the cost of maintaining each of such steamship lines, the probability that any such line cannot be maintained except at a heavy loss disproportionate to the benefit accruing to foreign trade, the number of sailings and types of vessels that should be employed in such lines, and any other facts and conditions that a prudent business man would consider when dealing with his own business, with the added consideration, however, of the intangible benefit the maintenance of any such line may afford to the foreign commerce of the United States, to the national defense, and to other national requirements^] ¹³

If the Secretary approves the application for an ODS, a contract is entered into with the applicant for payment of the subsidy.¹⁴ The amount of the ODS is the excess of certain operating costs (wages, insurance, maintenance and repairs) incurred in the operation of the subsidized vessel over the estimated fair and reasonable cost of the same items of expense if the vessel were operated under the registry of a foreign country whose vessels are substantial competitors of the subsidized vessel¹⁵. The subsidy contract specifies the trade route (the “essential service”) for which the subsidy is authorized, including the number of vessels to be operated thereon, and the minimum and maximum number of outbound and inbound sailings by such vessels per year. Contracts are typically for 20-year terms.

Section 605(c) of the Act — the provision involved in this case — provides in pertinent part:

No contract [for ODS] shall be made * * with respect to a vessel to be operated in an essential service served by citizens of the United States which would be in addition to the existing service, or services, unless the Secretary of Commerce shall determine after proper hearing of all parties that the service already provided by vessels of United States registry is inadequate, and that in the accomplishment of the purposes and policy of this Act additional vessels should be operated thereon * * * ¹⁶

The Secretary of Commerce has interpreted this provision to cover significant changes in existing ODS contracts involving additional service (not only new ODS contracts); and to cover, among other things, additional sailings by existing subsidized vessels as well as the operation of additional vessels by existing subsidized lines.¹⁷

The effect of section 605(c) is thus to bar any increase in the maximum number of sailings specified in an ODS contract for a subsidized line operating in a particular trade route, if any other objecting American shipping company (subsidized or unsubsidized) operates U. S.-flag vessels in that trade route, unless the Secretary determines at a hearing that the existing service provided by all U. S.-flag vessels is “inadequate.” Under a general guideline established by the Board, carriage by U. S.-flag vessels of less than 50 percent of the available waterborne U. S. foreign commerce on a particular trade route will be considered “inadequate.” Carriage of 50 percent or more of the available U. S. foreign commerce by U. S.-flag vessels will be considered adequate unless a higher percentage is feasible.¹⁸

In summary, the Act authorizes the payment of ODS in order to promote the development of an American merchant marine, both for national defense purposes and to carry a substantial portion of this country’s foreign commerce. ODS is authorized for U. S.-flag vessels in order to meet foreign flag competition and to carry U. S. foreign commerce in particular essential trade routes between American and foreign ports. Where competing U. S.-flag carriers operate, no ODS contracts may be executed, and no additional sailings by subsidized vessels can be authorized, unless existing services provided by all U. S.-flag vessels in a particular trade route are determined to be inadequate.

B. The Application by APL.

APL, a subsidized line, filed an application with the Board on 3 June 1971 requesting authority for additional sailings between ports in the Pacific Northwest of the U. S. and the Far East, within Trade Route No. 29.¹⁹ Trade Route No. 29 shipping service has been determined by the Secretary of Commerce to be an “essential service” under section 211(a) of the Merchant Marine Act.²⁰ This Route is the ocean trade route between U. S. Pacific ports (in Alaska, Washington, Oregon, California, Hawaii, and U. S. islands lying between the United States and the Far East) and ports in Japan, Taiwan, Philippines, the Continent of Asia from the U.S.S.R. to Thailand, inclusive, and other Pacific Islands lying between the United States and the Continent of Asia.²¹

The principal American ports served by Trade Route No. 29 are Seattle and Tacoma (Washington), Portland (Oregon), and San Francisco and Los Angeles (California). There are two adjacent Canadian ports in the Puget Sound area, Victoria and Vancouver, in British Columbia. As a matter of practice, most U. S.-flag and foreign-flag trans-Pacific vessels which serve the American ports in Puget Sound, including the parties to this case,²² also serve one or both of these Canadian ports.

The APL application sought the approval of the Board for an increase in the maximum number of sailings by its vessels operating on Route 29 from 60 to 80 sailings per year. In consequence of converting four breakbulk freighters into containerships,²³ APL proposed to revise its trans-Pacific service.by instituting a weekly shuttle service between the Pacific Northwest and Japan (i. e., 52 round-trip sailings).. In addition, APL proposed using 6 additional breakbulk vessels (5 having some container capacity), to institute 28 annual sailings (13-day frequency) from the Pacific Northwest to the Korea-Singapore range (involving Trade Route Nos. 29 and 17).²⁴ APL expected that the latter vessels would be converted to partial or full containerships by 1975. Since these containerships are capable of being loaded and unloaded faster than breakbulk vessels, and are faster, APL could expect to increase its sailings from 60 to 80 per year without any increase in the number of its vessels.

Since no increase in the number of vessels was requested in this application, no increase in the amount of ODS was involved.²⁵ The increase in the number of sailings was, however, deemed by the Board sufficient to require notice and opportunity for hearing under section 605(c) of the Act.

C. Factual Basis Underlying the Dispute.

The dispute in this case centers around the particular technique (the formula) used by the Board in making the section 605(c) adequacy determination. At this stage in the litigation there is no dispute as to the underlying data to be used in the formula that is chosen; the dispute is solely over the proper formula to apply to these undisputed facts. Since the data as to projected capacity and cargo are central to all phases of this case, we provide that data at this point and reserve our discussion of the proper calculation technique for Part II of this opinion.

In discussing the data involved in this case, there are two sets of figures that are relevant to a determination of adequacy. The first is the available capacity of the ships serving the particular geographical area in question; the second is the available cargo to be carried to or from that geographical area. There is no dispute that it is the ratio of capacity to cargo that yields the relevant percentage in determining the adequacy of U. S.-flag service. Rather the controversy revolves around the correct method of determining the available capacity of U. S.-flag vessels.

The Board projected that, for calendar year 1975, 755,000 long tons of container-ship cargo²⁶ would be available for shipment from the Far East inbound to American ports in the Pacific Northwest portion of the Trade Route No. 29.²⁷ The Board’s figures also showed that a total of 336,000 long tons of containership cargo would be available for shipment from the Far East inbound to the Canadian ports off Puget Sound.²⁸ The combined projected available inbound containership cargo for this particular sea route was thus 1,091,000 long tons for 1975.

The Board’s figures revealed that the projected net cargo-carrying capacity of the inbound containerships of all U. S.-flag operators serving the Pacific Northwest portion of Trade Route 29 would be 432,000 long tons for 1975.²⁹ It is important to note that this figure was based on the assumption that no applications for increased sailings, such as made by APL, would be granted. In addition to this U. S.-flag capacity, the Board projected that the capacity of the containerships of all foreign-flag operators serving the inbound Pacific Northwest portion of Trade Route 29 would be 595,000 long tons for 1975.³⁰ Thus, according to the Board, the total inbound net cargo capacity for all U. S. and foreign-flag containerships on the relevant portion of Trade Route 29, was projected to be 1,027,000 long tons for 1975. Quite significantly, this projected capacity was less than the projected available inbound cargo of 1,091,000 long tons for 1975.³¹ Now that these figures relating to available capacity and cargo have been presented, we can proceed to describe how the raw data was treated in the proceedings at the agency level and in the district court.

D. The Agency Proceedings.

1. The Initial Agency Decision. The application by APL was consolidated with the applications of other subsidized lines for additional service on Trade Route No. 29. The U. S.-flag carriers operating at the time on the Pacific Northwest portion of Trade Route 29 were APL (subsidized), States Steamship Company (subsidized), and Sea-Land Service, Inc. (unsubsidized). Sea-Land Service, Inc., the appellee in this case, intervened in the proceedings to oppose the applications under section 605(c) of. the Act. Sea-Land contended that the service already provided by vessels of United States registry on the Pacific Northwest portion of Trade Route 29 was “adequate”, and therefore no increase in sailings by a subsidized line was authorized on that route under the terms of section 605(c).

Following a hearing the administrative law judge (AU) issued a decision on 7 March 1973.³² In this decision the ALJ denied APL’s application for the requested increase in sailings. With respect to the Canadian cargo issue, the AU held:

As a final matter, Sclar [the expert witness for APL] included Canadian-Far Eastern containerizable cargoes in his 1975 projection. It is accepted that such cargo may actually move in U. S.-flag vessels on T.R. 29 and to that extent, reduce the vessel capacity otherwise available for T.R. 29 cargoes. What is not accepted is the U. S.-flag subsidized operators’ claim that a part of their capacity for which subsidy payments are intended to give U. S. cargoes a priority will be assigned to Canadian traffic and that additional subsidized capacity will be required for U. S. cargoes. .This is the effect of adding Canadian cargoes to the pool for determining adequacy of service. Such procedure is rejected. The portion of the relevant market analyzed in Sclar’s projections here found acceptable, therefore, is limited to the T.R. 29 liner containerized cargo volumes, and the forecasts in Table 5, infra, reflect this limitation.

* * o * * * *

There can be no disagreement that U. S.-flag vessels operating under subsidy contracts must give priority to the commerce of the United States over that of foreign nations including ■ Canada. Therefore, in deciding whether the service on T.R. 29 is adequate, the entire capacity of such vessels will be considered available for competitive commercial cargo on the route except as the United States may have allowed a pre-emption for other traffic. * * *³³

The formula approved and used by the ALJ in making the section 605(c) adequacy determination can be represented as follows:

_Total U.S. Vessel Capacity_

Available Cargo Inbound to U.S. Ports

When this formula is applied to the facts enumerated in Part I.C., supra, the result is that the U. S.-flag vessels have the capacity to carry some 57% of the available projected cargo inbound to U. S. ports, a figure that is well above the 50% guideline generally used by the Board.³⁴ This formula does not provide for a reduction in the capacity of the U. S. vessels to take account of the Canadian cargo that is carried by these vessels.

2. The Decision of the Board. The decision of the AU was appealed to the Board on a variety of grounds, including the Canadian cargo issue. The Board issued its decision in consolidated proceedings on 3 January 1974.³⁵ On the Canadian cargo question the Board reversed the ALJ, holding that:

In a determination of ship container capacity to containerized cargo, Canadian cargo, which the parties did carry in 1970 and which there is no evidence to indicate they will not carry in 1975, must be recognized. The Judge accepted AML’s and other ship operators’ container capacity without making any reduction for this cargo * * *, but he excluded it from the 1975 pool of containerized cargo. A more reasonable approach is to provide for a reduction in ship container capacity [along with a] reduction in the pool of containerized cargo.³⁶

The formula used by the Board to determine adequacy is as follows:

Total U.S. vessel capacity minus Canadian cargo space Available Cargo Inbound to U.S. Ports

The application of this formula yields the conclusion that U. S.-flag vessels would carry only 37% of the cargo available for inbound shipment to the United States.

The difference in result achieved under this formula results from subtracting one-half of the Canadian cargo space from each of the U. S and foreign-flag capacities.³⁷ The Board also found that, if it were to grant the request by APL for additional sailings, the additional vessel service would result in an inbound net capacity of 514,000 long tons (as opposed to 432,000 long tons without the additional service) for all U. S.-flag containerships.³⁸ Along with the projected 595.000 long tons of foreign vessel net capacity, a combined inbound net capacity of 1.109.000 long tons would result with the addition of APL’s requested service. This total would then be enough to accommodate the total 1,091,000 long tons projected available inbound cargo.

If the increased net capacity figure of 514.000 long tons is used in the Board’s formula, the percentage of cargo to be carried by U. S.-flag vessels rises to 48% from 37%.³⁹ Given these figures (48% with approval of the application and 37% without) the Board held that the existing U. S.-flag service would be “inadequate,” and that the additional service requested by APL would be warranted. The Board ruled:

Whether or not these projected U. S.flag participation percentages establish adequate or inadequate U. S.-flag service turns on the following test of adequacy:

[W]e should consider a 50 percent objective as a goal in determining whether we have a merchant marine sufficient to carry ‘a substantial portion of the waterborne export and import foreign commerce of the United States,’ and in applying this guideline to any given factual situation no particular arithmetical percentage will be deemed per se adequate or inadequate; rather, it will be recognized that a U. S. merchant marine service of the highest percentage practically attainable is our goal, [footnote omitted].

Hence, generally 50 percent U. S.-flag participation has been used as a guideline, but it may exceed that percentage if a higher percentage is practically attainable.

The 1975 projected inbound PNW trade of 48 percent U. S.-flag participation with approval of the containership sailing applications is less than the 50 percent objective. It is significantly better than the 37 percent U. S.-flag participation anticipated without approval of these applications. The increased capacity will consist of modern, competitive vessels efficiently deployed and historically operated at relatively high utilization percentages. We therefore find that the 1975 projected U. S.-flag participation of 37 percent in T.R. 29 containerized liner commercial traffic inbound to PNW is inadequate U. S.-flag service and additional service to provide 48 percent participation is warranted.⁴⁰

The Board further held:

In summary, grant of AML’s application will serve the important policy objectives of the Act of development of efficient and effective U. S.-flag operations without serious adverse impact on other U. S.-flag operations and of reduction of U. S.-flag operators’ dependence on operating subsidy with no attendant increase in subsidy. Further, there is a reasonable expectation that approval of AML’s application will lead to increased U. S.-flag participation on T.R.s 17 and 29. Accordingly, we find that grant of AML’s application will be in the accomplishment of the purposes and policy of the Act within the meaning of Section 605(c).⁴¹

On 18 January 1974 appellee Sea-Land filed with the Secretary of Commerce a petition to review the Board’s decision. This petition was denied by the Secretary on 28 March 1974. The Board granted APL’s application on 26 April 1974. On 31 July 1974, APL’s contract for ODS was amended, pursuant to the Board’s decision, by increasing the maximum number of sailings from 60 to 80.

E. The Decision of the District Court.

On 23 May 1974 appellee Sea-Land Service filed this action in the District Court seeking to set aside the Board’s decision granting APL’s application for 20 additional sailings on the Pacific Northwest portion of Trade Route No. 29. Sea-Land contended inter alia that the Board had erred in reducing the actual vessel capacity figures to reflect cargo expected to be discharged or picked up at the adjacent Canadian ports in the Pacific Northwest, “thereby effectively providing for United States government subsidy to the foreign commerce of Canada”.⁴² APL intervened as a party defendant to support the Board’s decision on the Canadian cargo question.⁴³

On cross-motions for summary judgment the district court ruled in favor of Sea-Land on the Canadian cargo issue. The court held:

The Court is persuaded that the Administrative Law Judge was correct and the Board in error [on the Canadian cargo issue]. In determining “adequacy” in a Section 605(c) proceeding, the Board is to include cargo moving in United States foreign commerce only. Although it is entirely permissible and indeed proper to consider the existence of trade “external” to the United Stages foreign commerce, the Board has done much more here. By improperly including the Canadian cargo in its calculations, the Board has created an unrealistic and improper picture of the adequacy of the service provided by United States vessels.⁴⁴

The District Court accordingly ordered the case to be remanded to the Board for reconsideration of the “adequacy” determination in accordance with its memorandum. The apparent intent of the court’s order was to require the Board to deny APL’s application for 20 additional sailings, since, as the administrative law judge held, existing U. S.-flag vessel service would be “adequate” under a quantitative assessment if its entire net capacity should be allocated to the available cargo on the Pacific Northwest portion of Trade Route No. 29 which is expected to be discharged or loaded solely at the American ports in the Pacific Northwest.

The District Court thus sanctioned the formula used by the ALJ in the initial agency decision: that is, to ignore the Canadian cargo in determining the capacity of U. S.-flag vessels operating on the Northwest Portion of Trade Route 29. This decision to ignore the Canadian cargo has the effect of increasing the attributable capacity of U. S. vessels and thus to increase the percentage of the available cargo which they can putatively carry.

With this background in mind, we now proceed to an analysis of the legal issues presented in this case.

II. ANALYSIS

A. Scope of Review.

We are called upon in this appeal to review the actions of the District Judge in reversing the decision of the Maritime Subsidy Board; this is not a direct appeal from the final decision of an administrative agency.⁴⁵ Although the grounds on which the District Judge reversed the Board were not clearly stated, it appears to us that the decision was one of statutory construction; that is, the reversal was based on the District Judge’s conclusion that section 605(c) of the Act prohibited the recognition of Canadian cargo in making the required adequacy determination.

In reviewing a decision of the District Court based on statutory construction — i. e., a question of law — we are not limited by the doctrines of “clearly erroneous” or “abuse of discretion” that are applicable to the review of factual determinations. Rather, the role of the appellate court is to determine the proper legal premise and to correct the error, if any, of the District Judge. In the circumstances of this case, we have “a view as to the applicable legal principle that is different from that premised by the trial judge; ”⁴⁶ our reversal stems from this disagreement over the applicable rule of law and from a determination that the District Judge was unreasonable, arbitrary, or chargeable with an abuse of discretion.⁴⁷

B. The Language of the Statute.

As a preface to the analysis of the issue presented in this appeal, it is necessary to emphasize the point that there is no question as to the lawfulness or the propriety of APL’s carriage of Canadian cargo. With only minor exceptions, every line which served the U. S. Pacific Northwest in foreign commerce in 1975 under any flag also served Canadian ports in British Columbia.⁴⁸ It is conceded by all parties to this case that this customary carriage of Canadian cargo by a subsidized U. S.-flag vessel is lawful and proper.⁴⁹

The relevant statutory language provides no direct guidance in resolving the dispute over the recognition of Canadian cargo under section 605(c). There is, however, a negative inference to be drawn from an examination of this language that accentuates the deference to be given the Board’s interpretation, and, indeed, emphasizes the rationality of that interpretation, as our independent analysis shows. The express language of section 605(c) does not deal with the power of the Board to recognize or to ignore cargo discharged or loaded at nearby contiguous foreign nation ports for the purpose of determining the adequacy of U. S.-flag service on a particular trade route. The Act simply does not define the term “inadequate”; in the absence of a direct statutory mandate the agency charged with administering the statute (the Board) must of necessity look to the purposes underlying the particular statutory provision and the Act in general in order to delineate the contours of this critical term.⁵⁰ In determining the proper construction to be applied to section 605(c), we shall engage in this same type of analysis; that is, we shall first examine the Board’s decision to recognize Canadian cargo in light of the purposes of section 605(c) and then compare this decision with the basic purposes of the Act itself.

C. Purpose of Section 605(c).

It is generally agreed that section 605(c) “is primarily designed to avoid subsidizing a trade when the trade is already adequately served by U. S.-flag carriers, i. e., overtonnaging.”⁵¹ This concern about overtonnaging is designed “to ensure that no undue competitive impact to United States-flag operators result[s] from [a] subsidy award.”⁵² The first point to be made concerning the purpose of section 605(c) relates to the nature of the inquiry needed to accomplish the objective set forth in the provision. In order to determine if a competitor has suffered actual economic injury as the result of an ODS award, an intensely practical inquiry is necessary. This inquiry must focus on the cargo and capacity that are in fact available on a particular trade route;⁵³ if a sizeable part of the cargo actually available and actually carried is ignored, a realistic assessment of competitive economic injury is not possible. The Board’s decision to recognize Canadian cargo is consistent with the need for a practical and realistic approach to the determination of the adequacy of existing U. S.-flag service.

The economic purpose of section 605(c) is not subverted by recognizing Canadian cargo in this case. The Canadian-port cargo is readily available for carriage by most lines serving the American ports in the Pacific Northwest portion of Trade Route 29, and is in fact carried by most such lines. Indeed, as noted previously,⁵⁴ if the Board did not approve the additional sailings sought by APL, the total available cargo (American and Canadian ports) for 1975 would not be carried, or would be disproportionately carried by foreign-flag lines serving the area. Since the total capacity would not, under the Board’s projections, equal the total available cargo in 1975 without the approval of APL’s request, the existing vessel service was certainly “inadequate” in a practical sense. While this evidence as to inadequacy provides direct support for the Board’s . decision to encourage further American shipping activity in Trade Route 29, it does not speak directly to the issue of a proper competitive balance between subsidized and unsubsidized American shipping lines. It is to this point that we now turn.

If a subsidized line such as APL cannot offer additional sailings if the justification for the increase relies in part on available cargo to or from contiguous foreign nation ports, the subsidized lines would be put at a competitive disadvantage. In such a situation, the foreign and unsubsidized lines could compete for all of the available cargo in a contiguous U. S./foreign port area; the subsidized lines, however, would tend to be limited to their present level of services because total U. S. flag service would nearly always be overcapacitated if only the American-port cargo is recognized.⁵⁵ Subsidized lines could rarely if ever justify an increase in services to carry available cargo to and from a common U. S./Canadian port area; approval of any increase would generally be prevented if it is assumed (contrary to fact) that all U. S.-flag vessel capacity is devoted only to carriage of American-port cargo.⁵⁶ This would appear to be unfair competition per se, a result directly contrary to the fair competition goal underlying section 605(c). While section 605(c) was designed to avoid unfair competition in favor of subsidized lines, it certainly was not designed to permit the opposite result.

The Board’s ruling in this case does not abandon the goal of preventing overtonnaging on trade routes; rather, the decision pursues this goal with a fierce concern for the realities of the situation existing on Trade Route 29. This concern for the real world is to be commended; far too often government regulatory agencies depart from this worldly context in pursuing the policies embodied in the statutes which they administer. The concern for realistic information exhibited by the Board in this case allows the agency to accommodate the interests of both the regulated and unregulated parties in a manner consistent with the purposes of the legislation. That is, the use of the actual facts allowed the Board to reach a decision that avoids actual overtonnaging in the carriage of American cargo by American vessels, while moving toward the goal of adequate available U. S. tonnage. Given the compelling reasonableness of the Board’s approach in recognizing the Canadian cargo, and the competitive consequences that would be visited on APL and other subsidized lines by the District Court’s decision, we believe that the Board’s interpretation of section 605(c) is the interpretation that is consistent with the statutory provision. The consistency of the Board’s interpretation with the broader purposes of the Act will now be considered.

D. Purposes of the Act.

The two basic purposes of the Act are set forth in Section 101 of the legislation; the promotion of U. S. foreign commerce, and the concern for national defense.

1. Promoting U. S. Foreign Commerce. Section 101(a) of the Act declares that it is necessary to have a merchant marine “sufficient to carry ... a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of such commerce at all times.”⁵⁷ Appellee Sea-Land’s main argument to this court is that the Board’s decision is not directed at promoting U. S. commerce to the maximum extent feasible but rather represents a “subsidizing at the expense of the U. S. taxpayer, not only [of] our own foreign commerce, but that of Canada also.”⁵⁸ We disagree strongly with the appellee on this point; we believe that the Board’s decision to recognize Canadian cargo does in fact promote the goal of having a merchant marine sufficient to carry a substantial portion of the U. S. foreign commerce.

Under section 605(c), subsidy awards are made “with respect to a vessel to be operated in an essential service.” It is true that “essential service” is defined as a service which promotes the “foreign commerce of the United States,”⁵⁹ and that foreign-to-foreign commerce is not included in this definition. But there is nothing in the Act to indicate that a subsidized vessel must serve U. S. commerce exclusively. Indeed, as we noted previously, there has been no suggestion that it is unlawful or improper for APL, or any other line (subsidized or unsubsidized) to carry Canadian cargo.⁶⁰ It is only in circumstances where carriage of foreign-to-foreign cargo by subsidized lines would conflict with the carriage by such lines of a “substantial portion” of the U. S. foreign commerce that the legislative policy as expressed in section 101 would be subverted. Such is not the situation presented in this case.⁶¹

In cases such as the present one where the foreign-to-foreign cargo is for practical purposes within the same trade route as the U. S.-to-foreign cargo, the recognition of the foreign-to-foreign cargo in fact enhances the goal of increasing the U. S.-flag carriage of U. S. foreign commerce. The liner operator serving the Pacific Northwest can with the support of the Canadian traffic offer more frequent service or larger vessel capacity to the U. S. ports in the Pacific Northwest than he could if his carriage were confined to that trade alone. And, for every unit of increase in U. S.-flag carrying capacity, a proportionately greater share of that unit can be assumed to be devoted to the U. S. foreign trade. Thus, for example, of the 20 additional sailings proposed by APL in this case, it may be assumed that the additional carrying capacity would be devoted to increased carriage of American-port cargo in at least the same proportion that ■ the total American-port cargo (755,000 tons inbound) bears to the total Canadian-port cargo (336,000 tons inbound). This results in substantially increased carriage of U. S. foreign commerce. On the other hand, to ignore the Canadian-port cargo, and to deny any increased service by a subsidized line having additional cargo carrying capability, would either result in inadequate over-all shipping service for all of the available cargo, both Canadian and U. S., or would permit foreign-flag carriers eventually to fill their holds with the available excess Canadian and U. S. cargoes.⁶² Both such possibilities or results are contrary to the legislative goal of increasing the U. S.-flag carriage of U. S. foreign commerce.

Thus, it is clear that recognition of contiguous foreign nation cargo, for purposes of increased services by subsidized lines, is not in conflict with the Act’s policy of promoting U. S.-flag carriage of a “substantial portion” of U. S. foreign commerce. On the contrary, by increasing the U. S.flag capacity to carry both the Canadian and American cargo, the legislative goal of increasing the U. S.-flag carriage of U. S. foreign commerce is directly promoted.

2. Concern for National Defense. In addition to the promotion of U. S. foreign commerce, section 101 of the Act declares the need for a merchant marine “capable of serving as a naval and military auxiliary in time of war or national emergency . .”⁶³ This concern for national defense was a primary purpose of the Merchant Marine Act;⁶⁴ indeed, as the Senate Report on the bill stated,⁶⁵

Our Navy, without adequate auxiliaries, is as ineffective as an army at the front without munitions and food transportation to support it. From the standpoint of national defense, our safety demands imperatively an immediate and effective solution of the problem of building up our merchant marine.

The national defense objective of having a modern fleet in being and in readiness is not in any way impaired by the fact that the U. S. ships also call at Canadian ports; for purposes of serving as a naval auxiliary, “a ship is a ship regardless of whether it is used in intercoastal or foreign trade or partly in one and partly in the other.”⁶⁶ As noted in Part II, supra, the decision of the Board in this case can be seen to promote the active carriage of U. S. foreign commerce and therefore to enhance the vitality of the U. S. merchant marine; this result is quite consistent with the goal of maintaining an active and modern merchant marine capable of being used for national defense purposes.

Having examined the two purposes of the Act and concluded that the Board’s decision is strongly supportive of both, we now undertake to examine in more detail the main argument advanced by appellee Sea-Land. This argument is that the Board’s decision results in a subsidy of Canadian foreign commerce.⁶⁷ Appellee extends its argument as follows:⁶⁸

Like Canada, Mexico is also adjacent to the United States, and the Soviet Union lies but a few miles removed from the Alaskan coast. Following the logic of [the Board’s decision], both Mexico and Russia would be entitled to similar subsidies from the U. S. taxpayers.

We have already refuted appellee’s contention that the Board’s decision does not promote U. S. foreign commerce, but it remains for us to examine this issue of who is the actual and intended beneficiary of the subsidy awarded pursuant to the Act. Appellee’s contention with respect to the subsidy of Canadian commerce appears to derive from a misconception regarding the purpose and operation of the ODS subsidy. The subsidy is awarded to the owners of U. S.-flag vessels operating in an essential service; the subsidy is not awarded to the shipper, nor is the subsidy intended to benefit the shipper. Indeed, the individual shipper (Canadian, American, or otherwise) will pay the same rates to a subsidized, unsubsidized, or foreign line; the subsidized line will not provide this shipper with a lower rate as the result of the contributions received from the U. S. taxpayers in the form of an ODS subsidy. Rather, the benefit of the subsidy is to be found in the promotion of a modern American merchant marine capable of promoting U. S. foreign commerce and the nation’s defense. In other words, the subsidy is for the benefit of the national maritime interest as defined by Congress, not for the individual shipper. When the Board grants a subsidy, its award is justified and the money can be deemed to have been well spent if the purposes of the Act are met. In the circumstances of this case, the purposes of the Act are indeed met by the Board’s decision.⁶⁹

CONCLUSION

For the reasons we have put forth in this opinion, we believe that the District Court was in error in ruling that section 605(c) of the Merchant Marine Act of 1936 prohibits the recognition of Canadian cargo in determining the adequacy of existing U. S.-flag vessel service on a particular trade route. Although there is little guidance to be derived from the language of the statute itself, the Board’s realistic interpretation of the Act allowing the recognition of the Canadian cargo serves to further the purposes of the legislation in a reasonable and sound manner, while the decision of the District Court does not. Since the only disagreement between the District Court and the Board concerned this issue of the proper treatment of Canadian cargo, the order of the District Court is reversed and the case is remanded with instructions to affirm the Board’s decision to grant the ODS application of APL.

So ordered.

1 . American President Lines, Ltd. (APL) is the successor by merger to American Mail Line, Ltd. (AML). The original application for subsidy was made in the name of AML on 3 June 1971; at this time, AML was a wholly owned subsidiary of APL. The merger took place on 1 October 1973. During the course of this opinion we shall refer only to APL, the current appellant, and will not make separate reference to AML as the original applicant.

The other appellants in this case are the Secretary of Commerce, Juanita M. Kreps, and Robert J. Blackwell and Howard F. Casey, members of the Maritime Subsidy Board. These officers are sued in their official capacity.

2 . 46 U.S.C. § 1101 et seq.

3 . Id. at § 1175(c). Under this section of the Act the Board is also required to determine that the award of an ODS contract will serve “the accomplishment of the purposes and policy of this Act . .” Id. For a discussion of these purposes, see Part II.D., infra.

4 . The other issues which were present at various stages in these proceedings are described in Brief for Appellant APL at 7-11. For our purposes it is important to recognize that the Canadian cargo issue is the only issue on which the District Court and the Board disagreed; this issue is, therefore, dispositive as to APL’s application for an ODS subsidy award.

5 . Joint Appendix (J.A.) at .111-113. The authority vested in the Secretary of Commerce by the Merchant Marine Act has been delegate^ to the Maritime Subsidy Board. j

6 . J.A. at 133-136.

7 . See generally States Marine International, Inc. v. Peterson, 171 U.S.App.D.C. 132, 518 F.2d 1070 (1975).

8 . 46 U.S.C. § 1101.

9 . The CDS subsidy is governed by Title V of the Act, 46 U.S.C. § 1151 et seq.

10 . 46 U.S.C. § 1171(a) (emphasis added).

11 . Id. at §§ 1171(a)(1), (2), (3), (4). See generally Bloomfield S.S. Co. — Subsidy, Routes 13(1) and 21(5), 4 F.M.B. 305 (1953).

12 .Id. at § 1171(a).

13 . Id. at § 1121(a).

14 . Id. at § 1173(a). It is important to note that the subsidy is paid to the carrier and not to the shipper.

15 . See id. at § 1173(b).

16 . 46 U.S.C. § 1175(c).

17 . See Final Decision of the Board, J.A. at 86-87.

18 . We wish to emphasize that the 50% figure is a general guideline to determine adequacy; it is not conclusive on this issue. As the Board has stated, “the 50% rule of thumb is very far from a binding limit on § 605(c) clearance. It is not a rigid bar to subsidy. . . .To the contrary, § 605(c) is no bar to service that will move U. S.-flag participation up to ‘the highest percentage practically available.’ ” United States Lines — Subsidy, Route 12, 5 S.R.R. 969, 977 (1965).

Section 605(c) uses the term “inadequate” without providing any guideposts as to the practical meaning of the term. The Secretary of Commerce has specifically tied the adequacy determination to the criterion set forth in section 101(a) of the Act, 46 U.S.C. 1101(a). That is, service is adequate if it is “sufficient to carry a substantial portion” of U. S. foreign commerce. See Atlantic Express Lines of America, Inc., 2 S.R.R. 725, 732-733 (Sec. Comm.1963). The term “substantial” has in turn been interpreted to mean 50%. This information is provided in order to explain the derivation of the 50% rule of thumb.

The Board in this case explicitly recognized that U. S.-flag carriage in excess of 50%, if practically attainable, was no bar to § 605(c) clearance. See J.A. at 116.

19 .For a fuller statement as to the nature of the application filed by APL, see Initial Decision of the Administrative Law Judge, J.A. at 4-9.

20 . See Brief for the Federal Appellants at 9.

21 . Id. at 9-10.

22 . See Brief for Appellant APL at 13-14.

23 . Containership cargo is general cargo preloaded in large containers which may be directly transferred in such containers from truck trailers to specially-built “containerships,” or vice versa. It is to be distinguished from break-bulk general cargo, bulk dry cargo, and bulk liquid cargo, which are respectively carried on breakbulk freighters, bulk carriers, and tankers. Containerships and breakbulk freighters may be used in either “liner” service (regular scheduled service), or “non-liner” (irregular or tramp) service.

24 . The trade route between the U. S. Pacific Northwest and Indonesia, Malaysia and Singapore is Trade Route No. 17 and is only peripherally involved in these proceedings.

25 . This results from the fact that the subsidy is figured according to the number of vessels, not the number of voyages.

26 . The Board used containership cargo figures since this form of cargo was expected to predominate by 1975. See J.A. at 96, 101.

27 . The Board used inbound figures in this case befcause the inbound cargo was greater than the outbound cargo. See J.A. at 116-117.

28 . JA at 111.

29 . J.A. at 114, 115. Gross vessel capacity is reduced by 10% to arrive at net vessel capacity in these proceedings. See J.A. at 115.

30 . J.A. at 114, 115.

31 . Thus, if the Board granted no additional authority for sailings on Trade Route 29, there theoretically would be insufficient vessel capacity to transport the combined Canadian and American cargo projected to be available.

32 . J.A. at 3.

33 . J.A. at 31-32, 48.

34 . The arithmetic is as follows:

432.000 tons — total U.S. capacity

755.000 tons — total available cargo inbound to U.S.

35 . J.A. at 84.

36 .J.A. at 112-113.

37 . One-half of the available Canadian cargo for 1975 is equal to 168,000 long tons; when this figure is subtracted from the total net U. S. capacity of 432,000 long tons, the capacity of U. S. ships to carry cargo inbound to U. S. ports is reduced to 281,000 long tons. When this figure of 281,000 is compared to the available inbound cargo destined for U. S. ports, the 37% figure results.

38 . J.A. at 116.

39 . The calculation is as follows: the 514,000 ton capacity is reduced in recognition of the space to be devoted to Canadian cargo; the resulting figure of 363,000 tons, when compared with the 755,000 tons of available cargo, yields the 48% figure.

40 . J.A. at 116-117.

41 . J.A. at 130.

42 . Complaint, ¶ 18c; see Brief for Federal Appellants at 21.

43 . APL intervened in No. 76-1204; this has been consolidated with No. 76-1389 in this appeal.

44 . J.A. at 135.

45 . If this were a direct appeal from the agency decision — as was the case when the District Court was reviewing the agency action — the proper standard of review would be whether the decision of the agency was “arbitrary, capricious, [or] an abuse of discretion . . ..” 5 U.S.C. § 706. If the Board was operating within the bounds of the Act, we cannot see how the action that it took could be so characterized. Thus, if we are incorrect as to the basis of the District Court’s decision, we would still reverse the order of the District Court for failing to defer to a reasonable interpretation by the agency of the statute which it is charged with administering.

It is worth noting that the parties appear to agree that this case centers on an issue of statutory construction. See Brief for Federal Appellants at 23 n. 31; Brief for Appellant APL at 11-13; Brief for Appellee at 7.

46 . Del. & Hudson Ry. Co. v. United Trans. Union, 146 U.S.App.D.C. 142, 159, 450 F.2d 603, 620-21, cert. denied, 403 U.S. 911, 91 S.Ct. 2209, 29 L.Ed.2d 689 (1971).

47 . Id.

48 . See Brief for Appellant APL at 13-14.

49 . See Brief for Appellee at 12; Brief for Appellant APL at 13-14; Brief for Federal Appellants at 25-26.

50 . Appellee Sea-Land contends that an examination of the policy and purposes of the Act are “irrelevant” to the disposition of the statutory construction issue before this court in this case. Brief for Appellee at 11-12, 16. Appellee is, of course, totally incorrect in this regard. There are numerous issues to which Congress does not speak when it enacts legislation; the accepted method of determining the lawfulness of a particular interpretation for which there is no direct statutory guidance is to test the interpretation for consistency with the purpose of the legislation.

Appellee is correct in its assertion that the requirement of section 605(c) that each ODS award be made for “the accomplishment of the purposes and policy of this Act . .’’is an independent determination. See Brief for Appellee at 16. This determination is to be made independently of the adequacy determination; that is, there are two independent requirements (inadequacy and furtherance of the Act’s policies) to be made before an ODS award can be made. This independence between the two statutorily-mandated requirements does not, however, mean that issues of statutory construction'can be decided “independently” of the purposes and policies of the Act.

51 . J.A. at 87.

52 . American Export Lines, Inc., 14 S.R.R. 1539, 1552 (1975).

53 . See Bloomfield S.S. Co. — Subsidy, Routes 13(1) and 21(5), 4 F.M.B. 305, 317 (1953) (“The standard of adequacy must be consistent with the realities of each particular route and with the purposes of the Act.”).

54 . See text and notes at notes 26 to 31, supra.

55 . Such was the result reach by the ALJ and the District Court in this case by comparing total U. S. vessel capacity with total U. S. cargo. See text and notes at notes 32 to 34, supra.

56 . The point deserves emphasis that the Board’s ruling in this case permits APL to increase its sailings so as to carry available trans-Pacific cargo on Trade Route 29.

57 . 46 U.S.C. § 1101(a).

58 . Brief for Appellee at 8-9.

59 . See note 13, supra.

60 . See text and notes at notes 48 to 49, supra.

61 . See notes 27 and 28, supra.

62 . The necessity of meeting such foreign flag competition is a requirement for an ODS subsidy. See 46 U.S.C. § 1171.

63 . 46 U.S.C. § 1101(b).

64 . See, e. g., Hearings on H.R. 7521, 74th Cong., 1st Sess. (1935) at 694 (remarks of Rep. Welch).

65 . S.Rep.No.1721, 74th Cong., 2d Sess. (1936) at 5.

66 . Hearings on S. 3500, 74th Cong., 2d Sess. (1936) at 75, 76 (remarks of Shipping Board Bureau Director Peacock).

67 . See note 42, supra.

68 . Brief for Appellee at 18.

69 . See text and notes at notes 56 to 65, supra.

The position of our dissenting colleagues is based on the erroneous assumption that the objectives of the Merchant Marine Act are automatically met by a U. S.-flag fleet sufficient to carry only one half of the U. S. cargo on any given essential trade route. He misconstrues the objectives of the Act and the role that the Act plays to achieve those objectives. The Act’s declaration of policy states that “it is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic waterborne and a substantial portion of the water-borne export and import foreign commerce of the United States . . . Observe that it is “necessary” that a U. S.-flag fleet carry all of the domestic commerce and a substantial portion. of the foreign. Both of these necessities are relevant to the twin objectives of “maintaining the flow of such domestic and foreign waterborne commerce at all times, [and] (b) capable of serving as a naval and military auxiliary in time of war or national emergency . . .

Nowhere in the statute is the figure of 50% of the export and import foreign commerce used. This has been taken as a rule of thumb equivalent to the statutory mandate of “a substantial portion.” Both the statutory language and the operating rule of thumb 50% recognize implicitly the economic realities in the situation. It is not only necessary but also possible for the United States to provide for a merchant marine carrying all of its own domestic waterborne commerce, but it is not realistic to expect in a highly competitive world the United States to carry much more than 50% of its foreign commerce — even though for economic emergency and national defense purposes it would be highly desirable to have all foreign commerce carried in American ships. The economic realities are that buyers of our goods and shippers to the United States may have some claim of their own to designate the flag vessels in which such commerce is carried; therefore, a rule of thumb target of 50% of such commerce is a practical commercial expression of the statutory mandate of “a substantial portion of the water-borne export and import foreign commerce of the United States.”

As this opinion points out, “Carriage of 50 per cent or more of the available U. S. foreign commerce by U. S.-flag vessels will be considered adequate unless a higher percentage is feasible.” (p. 102 of 185 U.S.App.D.C., p. 767 of 566 F.2d) As the Board has stated, “. . . section 605(c) is no bar to service that will move U. S. flag participation up to ‘the highest percentage practically available.’ ” Note 18, supra.

Thus, when we have a situation (as on the U. S. and Canada to the Far East trade route) where U. S., Canadian, and other foreign flag vessels regularly pick up or deliver cargo at U. S. and Canadian ports on the same voyage, then it is economically and commercially feasible to calculate the rule of thumb 50%, /. e., the statutory “substantial portion” objective, as capacity to carry 50% of all the cargo available on the trade route. Or to make the calculation another way, as the Board did here, it is both feasible and logical to remove from the estimated capacity of U. S.-flag ships that portion of capacity which is devoted to the carrying of Canadian cargo, thus leaving for the available U. S. cargo only that portion of the U. S.-flag fleet not otherwise already committed. On this latter calculation the available U. S.-flag capacity of 37% obviously is inadequate. And, since we are considering available U. S. cargo in ratio to available U. S.-flag capacity, it is commercially feasible to think about increasing this 37% capacity to something approaching 50%, i.e., the 48% which the Board contemplated as a result of its decision in favor of the appellant’s increased voyages.

In summary, our dissenting colleague’s position takes the 50% commercially practical goal in the usual circumstances (U. S. capacity to U. S. cargo only) as a total fulfillment of the objectives and policies of the Merchant Marine Act, which it never is unless a higher percentage of carriage by American flag vessels is simply not commercially feasible. The present situation is an example of a higher ratio of U. S.-flag capacity to purely U. S. cargo being commercially feasible, because U. S.-flag capacity fortunately is successfully competitively engaged in carrying Canadian cargo. As the Board has repeatedly said, where it is possible, then the policies and objectives of the Act call for increased American tonnage, because 50% capacity for all U. S. cargo in foreign commerce can never provide 100% of U. S. needs in either an economic or military emergency. We settle for 50% of the foreign (but not domestic) waterborne commerce under normal peacetime conditions because that is usually all that is commercially feasible to obtain for U. S. ships; it has been held to satisfy the statutory mandate of “substantial portion” under normal conditions.

Of course, as our dissenting colleague points out, in an economic or military emergency our U. S.-flag vessels might well drop their carriage of Canadian cargo. In such event, regrettably the U. S.-flag tonnage available, even after the Board’s decision is implemented, would not be nearly sufficient to carry all of the U. S. cargo normally generated. What the Board’s decision, which we uphold, does here does not approach 100% insurance for an emergency; it only increases that emergency capacity insurance to a level higher than 50% of purely U. S. cargo by taking advantage of the commercial situation to provide capacity to approximately 50% of all (U. S. and Canadian) cargo normally available to U. S. ships, a reasonable commercial prospect satisfying the statutory “substantial portion.”