COURT UPHOLDS POLICY ALLOWING OLD TANKERS IN COASTAL TRADE

COURT UPHOLDS POLICY ALLOWING OLD TANKERS IN COASTAL TRADE

A major U.S. oil carrier has lost its bid to bar aging, government-subsidized tankers from carrying cargo in the coastal shipping market.

An appeals court here affirmed the Maritime Administration's authority under shipping law to allow 1970s-era tankers constructed with federal subsidies to enter the coastal trades after serving 20 years exclusively on international routes.The appeals court ruling ends a legal challenge dating back to 1993 by OSG Bulk Ships Inc., the operator of 13 ships built without the aid of construction subsidies. The company is a subsidiary of Overseas Shipholding Group, of New York.

OSG has argued that construction-subsidy ships should be banned permanently from domestic routes.

Under the Jones Act, the domestic market is reserved for unsubsidized U.S.-flag carriers.

The appeals court, however, said Marad is correct under shipping law to allow subsidized tankers into the coastal trades after 20 years, a term that Marad considers the ''economic life'' of a tanker.

When court proceedings began, OSG's challenge affected 31 ships. Due primarily to scrappings and foreign transfers, that number has dwindled.

Nine tankers are covered under the ruling, representing roughly 15 percent of the market. Two more ships will reach the 20-year mark in 2001.

The nine tankers weren't enjoined from serving the coastal trades while OSG's challenge was pending, so the market has already absorbed the court ruling, a market watcher said.

OSG officials declined to comment on the appeals court decision.

Company officials had said in early 1994 the influx of tankers threatened to drive freight rates below break-even costs for unsubsidized carriers.

A Marad attorney called the court ruling ''a win'' for the agency.

Refering to the notion that the government has received full consideration once a ship has competed on international routes for 20 years, she said the decision affirms ''a longstanding interpretation'' of the Merchant Marine Act.

Tom Mills, an attorney who represented BP Oil Shipping Co. in the proceedings, called the appeals court decision ''a major victory for the U.S. Maritime Administration, shippers and owners of (subsidy-built) vessels.''

The ruling ''maximizes competition'' in the domestic shipping market, Mr. Mills said.

Congress inserted a clause in the 1996 Maritime Security Act clarifying the eligibility of subsidy-built container ships for the domestic market after 25 years of service in international trades.