How to start a charter business
We are interested in starting a charter business with the purchase of a 50 foot sportfishing yacht that is currently located and registered in Mexico. I have done some research and I understand that a boat must be built and registered in the United States to legally carry passengers for hire. The boat we are buying was built in the U.S., but it was taken to Mexico when it was first sold and has always been Mexican flagged. Assuming we transfer the boat to U.S. documentation after we take delivery, would there be any legal restrictions against operating the boat in a charter business?
Our reader’s preliminary research is accurate. Federal law requires a vessel to obtain a “Coastwise endorsement” on its Coast Guard Certificate of Documentation if it will be carrying passengers or cargo for hire within the United States. But a boat is generally not eligible for a Coastwise endorsement unless it was built and registered in this country.
This type of restriction is fairly common around the world. The United States is one of many nations that protects its domestic transportation industries through “cabotage” laws. These laws require the transportation of passengers or cargo between U.S. ports to be performed aboard “U.S. flagged” vessels (vessels registered under the laws of the United States), that are also constructed in this country. Under the scenario described above, the boat would seem to be eligible for charter since it was U.S. built and it will be U.S. flagged before it is placed into charter service.
Unfortunately, this question is not as straightforward as it seems. The U.S. Code of Federal Regulations provides that a vessel otherwise eligible for a Coastwise endorsement will permanently lose that eligibility if it is registered in a foreign country. [46 CFR sec. 67.19(d)]. However, as a practical matter, the Coast Guard’s National Vessel Documentation Center (NVDC) regularly issues Coastwise endorsements to vessels that are returned to U.S. documentation after being foreign registered, so long as the vessel measures less than 200 gross tons. The NVDC has taken the position that a 1996 amendment to a Federal statute [46 USC sec. 883] created an ambiguity that was intended to allow for a Coastwise endorsement to be issued under these circumstances, and they apply the law accordingly.
Another avenue available to our reader that is a little less ambiguous involves an application for a MARAD Waiver. “MARAD” is the United States Maritime Administration, and it is the agency that administers U.S. shipping laws. MARAD administers a “Small Vessel Waiver” program that allows operators of foreign built vessels to apply for a Coastwise endorsement if certain guidelines are met. This avenue is also available to a vessel operator such as our reader, who owns a vessel that was U.S. – built but was foreign registered for some period of time. Information regarding a waiver of the U.S. construction or registration requirement is available on the internet web site of the United States Maritime Administration marad.dot.gov (follow the links to the Small Vessel Waiver Program).
Many charter boat operators ignore the US construction requirements, particularly where the operation carries six or fewer passengers (commonly referred to as a “six pack” charter). The Coast Guard simply does not have the resources to enforce many of the regulations that apply to small charter boats, so the owners of the boats may never have a problem. However, in the event of a casualty such as a collision or an injured passenger they may find themselves in a bad situation. An illegal charter may result in thousands of dollars in fines, and a possible denial of insurance coverage. Consult a qualified maritime attorney if you have any doubts at all.