Atch_5_-_VISA_Rate_Methodologies_A_ _B_Guidance_(Final).pdf

Attachment 5 - Page 1 of 23 21 July 2015

VOLUNTARY INTERMODAL SEALIFT AGREEMENT (VISA)

USTRANSCOM CONTINGENCY CONTRACT

Rate Methodologies A & B Guidance

Description

Exhibits/Addendums

a. Exhibit 1- VISA Stage III Revenue Based Methodology, Method A

(1) Appendix A – Abreviations

(2) Appendix B - Glossary

(3) Addendum 1 – Standard Procedures and Protocols

(4) Addendum 2 – Space, Revenue, and Expense Data Worksheet

(5) Addendum 3 – Example of Space, Revenue, and Expense Data Worksheet

b. Exhibit 2 – VISA Stage III Peacetime Rate Based Methodology , Method B

(1) Addendum 1 – Example of Rate Proposal Worksheet, Method B

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EXHIBIT 1

VISA STAGE III

REVENUE BASED METHODOLOGY (RBM)

Method A

1. Application. Rates developed under this methodology apply to US flag vessels enrolled in VISA Stage III.

2. Purpose. To implement the requirements of Title XXXV, Section 53107(e) of the National Defense Authorization Act for fiscal year 2004 which incorporates the Maritime Security Act of 2003 by allowing a commercial revenue-based compensation methodology that establishes pre-determined rates for inclusion in the USTRANSCOM VISA Contingency Contractwhich will implement this methodology.

3. Intent. The methodology is intended to fully compensate the carrier at the rate it would have earned, but for the contingency. For example, if a vessel normally earned $5 million in net revenues on a 42 day voyage, then the government will pay the carrier a per diem rate equal to $5 million net revenue when it activates the vessel for a 42 day period (on either a dedicated service, or dry time charter basis), or will pay a comparably priced unit rate for an individual shipment per the rate methodology formula. The carrier will also recover its costs even where a particular string is not profitable.

4. Terms and Definitions. The terms and definitions used herein are unique and specific to this document and do not necessarily include the same meanings as those listed in the Federal Acquisition Regulations.

5. TINA/CAS Application. All services identified in the RBM have been classified as commercial. Therefore, carriers providing data IAW this methodology are excused from applying and adhering to TINA/CAS regulations and requirements.

6. Conceptual Overview. The following narrative provides a conceptual overview on how the methodology works. A series of business rules, which govern and control the process, are listed in paragraph 7. Paragraph 8 lists step-by-step procedures (including examples) on how to calculate rates.

a. Rates. The methodology develops two types of rates: unit and per diem. The unit rate is directional and applies to activated capacity. The per diem rate applies to the use of the activated vessel. There are three types of unit rates: container, measurement ton, and square foot. Container rates are further divided between size and type.

The application of each depends on specific vessel, container and cargo handling characteristics.

b. Application. The methodology develops individual carrier and vessel-string rates. For example, vessel-string rates will be developed for carrier A's Far East and North Europe strings, and carrier B's Far East and South America strings. Rates apply only to the carrier and string for which they were developed, e.g., carrier A's Far East rates will not apply to carrier B, nor will carrier A's Far East rates apply for shipments on its North Europe string.

Unit rates are specific to the string and apply to all vessels on the string. Per diem rates are vessel specific and apply to that vessel wherever it is deployed.

c. Service. The unit rate applies to the carrier's regular ocean port-to-port liner service. The per diem rate applies to vessel and crew when provided on a per diem basis.

d. Scope and Pricing of Services. The unit rate does not include drayage/line haul, container freight station (CFS), or interport cargo handling services. The per diem rate does not include drayage/line haul (intermodal), CFS, port call, fuel, equipment or cargo handling services. The prices for these services will be determined IAW the provisions stated in the USTRANSCOM VISA Contingency Contract. When the government requests any of these services, the carrier will be paid IAW the USTRANSCOM VISA Contingency Contract Pricing Schedule.

e. String-based data. The methodology develops rates by using vessel-string space, revenue and expense data. A vessel-string is a single vessel or a series of vessels that provide continuous service over specific routes and trade lanes. The methodology establishes string-based data totals and takes a straight average of the data contributed from each vessel in the string except as provided in 7af. The purpose of using a straight average is to produce a rate that applies to any vessel and ports served by the string.

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f. Data period. The methodology generally uses vessel-string data from a one business year period of the carrier. This is referred to as vessel/string/year data. The reason for using a one business year data collection period is to avoid seasonal fluctuations. (Also, see para 7ac.)

g. Revenue and expense calculations. The methodology develops a gross revenue amount for each carrier. This amount is the sum of ocean port to port (including all interport), drayage/line haul, and CFS revenues. A revenue adjustment is then made by subtracting certain expenses such as volume discounts. The remaining amount is called the adjusted gross revenue (AGR). Certain expenses are then subtracted from the AGR to produce the net revenue. The reason for subtracting these expenses is to give the government an option of providing these services itself. (Note: the reason why the methodology requires separate drayage/line haul and CFS expenses to be included in the gross revenue line, and then subtracted from the AGR, is to keep the difference between the amount charged to the customer and the amount paid out for the performance of the service in the net revenue line.)

h. Space unit calculation. To calculate the unit rate, it is necessary to determine the number of revenue units (as measured by direction, container size/type, measurement tons, and square feet). For carriers without VSA or other partners, revenue units are equal to the actual units used during the carrier's business year period. For carriers with VSA or other partners, revenue units are calculated by multiplying a utilization factor by the number of allocated spaces.

i. Voyage days. To calculate the per diem rate, it is necessary to determine the number of voyage days.

This is done by adding all days each vessel in the string generated revenues and expenses. Days for dry-docking and repair are not included.

j. Interport shipments. The methodology includes all revenue and expense data for interport shipments, but not space units. The rationale is that during a contingency the government may displace commercial interport shipments, which generate additional revenue for the carrier.

k. Pro ratios. The methodology requires the carrier to pro rate space, revenue and expense data (prior to reporting) when the carrier has a vessel sharing agreement or sells/trades space with another carrier.

l. Allocations. The carrier shall allocate revenue/expense data to another string or relay/feeder vessel, when that string or relay/feeder vessel provided ocean service.

m. Derivative formulas. The methodology requires the carrier to report direct amounts associated with each revenue and expense item. However, when the carrier's accounting system does not discreetly account for the item (that is, direct revenues or expenses that are aggregated in undifferentiated accounts), then the carrier will be required to devise a derivative formula that calculates an appropriate amount of the undifferentiated revenues and expenses, for rate calculation purposes.

n. Rate formulas. Rates are calculated as follows:

(1). Unit rate: (AGR - (drayage/line haul + CFS + interport cargo handling expenses)) Revenue units

(2). Per diem rate: (AGR - (drayage/line haul + CFS + port call + fuel + equipment + cargo handling expenses)) Voyage Days

7. Business Rules. The following rules will be used to calculate individual carrier unit and per diem rates. The rules are listed in alphabetical order for the purpose of making it easy to cross-reference one with another. Specific step-by-step instructions on how to calculate rates are listed in paragraph 8 below.

a. Accessorial expenses. The carrier may report separate accessorial expenses for the following items:

stop-offs, controlled atmosphere, modified atmosphere, and flat rack surcharges. The expenses will be subtracted from net revenues prior to calculating the unit and per diem rates. In the event the carrier provides one of the deducted accessorial services, the carrier will be paid IAW the USTRANSCOM VISA Contingency Contract Pricing Schedule. All accessorial expenses not deducted from net revenues will be included in the basic unit and per diem rates, and no separate rate will be paid.

b. Accounting and management system

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(1). As a condition of participation, the carrier shall have an accounting and management system in place that supports the rate methodology, i.e., a system that is capable of providing accurate, valid and reliable vessel space and financial revenue and expense data. The carrier will not be required to make changes to its system in the event it cannot provide some of the required data. Instead, the carrier shall create and apply derivative formulas, which will be used to provide reliable estimated quantities of missing data.

(2). During the post activation DCAA review and evaluation process, the carrier shall assist the evaluator understand the data, and the process the carrier used to acquire it. Also, the carrier shall advise the evaluator on how it classified the data, e.g., whether a specific item was classified as a direct, indirect/overhead or G&A expense.

(3). The carrier shall, to the maximum extent practicable, utilize existing computer systems and programs to obtain data in support of the methodology. The carrier is encouraged to modify existing programs in order to increase the speed, accuracy, reliability and overall integrity of the data collection process.

c. Adjusted gross revenue. The government will determine the carrier's AGR by subtracting revenue adjustments from gross revenues.

d. Allocated space. The carrier shall report the amount of allocated spaces, per vessel/voyage/year, by direction, and for container carriers by size and type. The number of allocated spaces will be equal to the average number of spaces the carrier operated with during the business year. Allocated space includes the space for both the principal carrier and its space sharing partner(s).

e. Allocation of revenues and expenses between strings.

(1) Revenues. For shipments involving more than one string, the carrier shall allocate revenues between strings based on the number of ocean transit days generally attributable to the string or relay/feeder vessels(s). For example, if the total transit time between two ports generally is 30 days, and shipments generally are transported on String A for 20 days, then 66.7% (20 days divided by 30 days) of allowable revenues shall be allocated to and reported to String A. The remaining 33.3% of the revenues shall be allocated and reported to String B, as necessary.

(2) Expenses. Carriers shall allocate expenses directly to the string or relay/feeder vessel that incurred the expense. For example, an origin port arbitrary charge, which is separately listed on the shipping order, would be allocated and reported on the origin string. In the event that a carrier cannot allocate and report expenses directly, the carrier shall use the same formula to allocate both expenses and revenues as stated above (i.e., based on pro-rata share of ocean transit days).

f. Allowable expenses. The government will calculate rates using only allowable expenses. Allowable expenses consists of carrier outlays for services associated with the six following categories: (1) container freight station, (2) drayage/line haul, (3) vessel fuel, (4) equipment, (5) port call, and (6) cargo handling. The carrier shall report only expenses generated on string-vessels for which rates are to be calculated. The government will reject all expense data attributable to vessels on another string, or for services not covered by one of the above six categories.

g. Allowable gross revenues. The government will calculate rates using only allowable gross revenues.

Allowable gross revenues consist of income generated from services (including interport services) associated with the following three categories: (1) vessel port-to-port including interport, (2) container freight station, and (3) drayage/line haul. The carrier shall report as gross revenues only those amounts listed on a shipping order, i.e., all gross revenues must be generated as the result of providing ocean transportation and/or intermodal services, with the revenues listed as charges to the customer on a shipping order, and supported by lawfully filed tariffs, or other contractual documents. The carrier shall report only gross revenues generated on string-vessels for which rates are to be calculated. The carrier shall report its revenue in a single total amount. The government will classify this amount as the carrier's gross revenue and use it to calculate rates. (See Vessel Revenues for a sub category list of vessel port-to-port revenues.)

h. Review and Evaluation of Agreed-Upon Procedures by DCAA.

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(1) All data submitted to DCAA by the carrier is subject to a DCAA evaluation and protocols as set forth in Addendum 1.

(2) When evaluating records and data, DCAA will not perform customary auditing procedures necessary to provide an audit opinion. Instead, DCAA will perform a mutually agreed upon procedure review, in accordance with generally accepted auditing principles, to evaluate the carrier's submissions for compliance with the business rules stated herein.

i. Cargo handling expenses. The carrier shall report cargo handling expenses that consist of outlays related to the following events.

(1) The cost of removing and handling breakbulk, container, LASH, and rolling stock from the pier or in pier sheds, or from rail cars, barges, lighters, scows, or booms alongside and stowing the same in or on any part of the vessel, and the cost of discharging cargo from any part of the vessel onto the pier or into pier sheds, or into or on cars, lighters, scows, or booms alongside the vessel and piling the same on the pier or in pier sheds. Examples of expense items include, but are not limited to: straight time, overtime, extra labor, fringe benefits, union- contributions, detentions, transportation, travel & meals, lashing and lashing gear, loading/unloading, cranes and related material handling equipment, clerking, tallying, cargo wharfage charges, terminal charges, dunnage, pallets, shoring/unshoring, watchmen, etc.

(2) The expense of handling containers, barges, LASH and other floating equipment within a terminal which are not assigned under para (1) above.

(3) The expense of shipping order fees, equalizations, inspections, measuring cargo fees, surveys, cargo dues, and loading/discharging from truck and rail car.

(4) The expense of transporting containers, barges, and LASH within the port or terminal area.

(5) Only expense items listed above will be used to calculate the unit or per diem rate.

j. Compensation requirements. The government shall compensate the carrier for services provided during a

VISA Stage III activation in accordance with Title XXXV, Section 53107(e) of the National Defense Authorization Act for Fiscal Year 2004 (NDA 2004) which incorporates the Maritime Security Act of 2003 (MSA 2003). MSA 2003 provides, inter alia, the following specific requirements: (i) compensation shall not be less than the contractor's commercial market charges for like transportation; (ii.) compensation shall be fair and reasonable considering all circumstances; (iii) compensationshall be provided from the time that a vessel or resource is required by the Secretary of Defense until the time that it is redelivered to the contractor and is available to reenter commercial service and (iv.) compensation shall be in addition to and shall not in any way reflect amounts payable under section 53106 of the NDA 2004 (Annual Payments for Maritime Security Fleet.).

k. Container freight station revenues and expenses. Revenues and expenses are those incident to the stuffing and unstuffing of containers, including the receiving, delivery and warehousing of such cargo at a container freight station facility. Revenues to be reported include those amounts listed on a shipping order and paid by a customer.

l. Converting space units. When separate revenue and expense data is available for different units (e.g., containers, square feet or MTs) on a combination ship, the carrier shall make separate reportings, and the government will calculate separate unit rates. When separate data is not available, the carrier shall devise a formula for converting data from the smaller to the larger unit. For example, if 90% of shipping space is dedicated to container shipments, and the remainder to automobile ro/ro shipments, the carrier may devise a formula that converts two automobile shipments to one 40 foot container. The carriers formula shall be evaluated by DCAA.

m. Derivative formula. When specific and identifiable space, revenue and expense data is not available (e.g., monthly gantry crane rental charges that apply to several strings, or to foreign flag vessels in the string), the carrier shall create a derivative formula for the purpose of estimating and reporting on missing data elements. All derivative formulas shall be reviewed by DCAA.

n. Drayage/Line haul transportation revenues and expenses. Revenues and expenses are those incident to the transportation of cargo from the carrier's ocean terminal area to inland terminals or locations, overland or via river, Attachment 5 - Page 6 of 23 and to other marine terminals. Revenues to be reported include those amounts listed on a shipping order and paid by a customer/shipper. Expenses are those amounts paid to an employee or a third-party for the cost of providing the service that generated the revenue above. Drayage/line haul revenues and expenses which are part of a mini-land bridge shipment will be identified separately by applying an approved derivative formula.

o. Dry docking, maintenance and repair, reduced operating status. The carrier shall not report space, revenue, expenses or voyage days during the time a vessel is in dry dock, undergoing maintenance and repair, or when in reduced operating status. This provision includes any vessel positioning time to/from the dry dock or maintenance yard.

p. Effective period. Rates will be effective for the period of the contract unless otherwise mutually agreed.

The VISA rates provided will be utilized as the baseline rates for post activation DCAA audit comparison. Any differences between initial submission and post DCAA audit will be remedied via a Changes modification.

q. Free-In-Free-Out (FIO) Service. In the event a carrier offers FIO service, the carrier need not report drayage/line haul, CFS, equipment and cargo handling expenses, since none of these services are included in the gross revenues. However, the remaining terms and conditions concerning space, revenue, fuel expense, vessel port call, and other relevant provisions still apply.

r. Fuel expenses. Includes the expense for fuel, lube oil and petroleum products, to operate the ship during ocean transit and time in port.

s. Increased war risk insurance expenses. The government will compensate the carrier for the increased amount of war risk insurance, i.e., the government will not pay for the basic war risk premium, but will pay any increase that is directly related to service in the contingency area of operations.

t. Individual carrier-based rates. A unit and per diem rate will be developed for each carrier and for each string. Rates will be developed from specific string space, revenue and expense data provided by the carrier. The rate (unit or per diem) will apply to all vessels on the string.

u. Interport shipments.

(1) The carrier shall include revenues and expenses generated for interport shipments. Interport revenues and expenses will be used to calculate rates.

(2) The carrier shall not report interport shipment space units. Interport space units will not be used to calculate rates.

v. Non-allowable expenses. Non-allowable expenses are all expenses other than allowable expenses.

Non-allowable expenses will not be used in expense reduction calculations. Examples of non-allowable expenses include, but are not limited to: vessel and equipment depreciation, crew costs, general and administrative, overhead, basic war risk insurance, substituted service, etc.

w. Non-allowable revenues. Non-allowable revenues are all revenues other than allowable revenues.

Non-allowable revenues will not be used in revenue calculations. Examples include, but are not limited to: interest income, vessel operations involving vessels not subject to this methodology, income from non-vessel operations, income from the sale of vessels, lease of facilities and equipment, vessel demurrage, equipment detention/demurrage, etc.

x. On route/off service. In the event the government requests, and the carrier agrees to provide a modified liner service (e.g., a diversion from one port to another, an increase or decrease in sailing speed, etc.) the government and carrier will negotiate a separate modification to the USTRANSCOM VISA Contingency Contract, and will mutually agree on all terms, conditions and prices.

y. Port call expenses. Includes expense items directly related to the following: dues, taxes, pilotage, vessel towage, launch hire, anchor dues, canal tolls including Panama, Suez and Saint Lawrence Seaway), docking dues (not included elsewhere in the methodology), entry dues and fees, handling lines, dispatch, stowage plan, vessel demurrage, and customs.

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z. Pro Forma Data Worksheet. The carrier shall complete a Worksheet for each string and shall list applicable space, revenue and expense data for the business year. The carrier shall calculate its own unit and per diem rates. (See Addendums 2 & 3)

aa. Pro-rating space, revenues and expenses for carriers who have VSA or other space partners.

(1) Space. The principal carrier shall not report the space used by another carrier. Instead, the principal carrier shall pro-rate its space (i.e., the space set aside for its use and the space actually used) in accordance with the instructions listed in para 8 below. The purpose of pro-rating the principal carrier's space across the entire vessel is to determine the number of available revenue units, which in turn will be used to calculate the unit rate.

(2) Revenues and expenses. The principal carrier shall not report the revenues and expenses of another carrier. Instead, the principal carrier shall pro-rate its revenues and expenses.

ab. Firm-fixed priced services. The government may request the carrier provide a service not included in the unit or per diem rate. When the government requests such a service, the government will pay IAW the USTRANSCOM VISA Contingency Contract Pricing Schedule, or change order. (See para 6d above.)

(1) Examples of the types of service the government may request include, but are not limited to, the following: CFS, drayage/line haul, vessel fuel, port call, containers/chassis equipment, cargo handling, increased war risk insurance, war time and hazardous duty crew bonuses, vessel modifications, vessel positioning, diversions, EDI/ITV, reefer maintenance, and ocean transportation services via transfer or feeder vessels

(2) The government will compensate the carrier for incremental G&A, overhead and profit related to incremental expenses.

ac. Reporting period. Unit and per diem rates will be calculated from allowable space, revenue and expense data covering a one year period. The one year period will be the carriers most recent business year. However, when business year data is not available current data will be used. In the event current data is not available, carrier pro forma data will be used.

ad. Revenue adjustments. The carrier shall determine its total revenue adjustment and enter it on the Pro Forma Data Worksheet. When required, the carrier shall allocate the adjustments between strings and/or relay/feeder vessels.

ae. Source records and documents. To the greatest extent practicable, space, revenue, and expense data should be obtained from general and subsidiary ledgers, journals and chart of accounts. However, in the event these records are incomplete or unavailable, then underlying records such bills of lading, shipping orders, vessel manifests, applicable third party invoices, etc., must be made available to DCAA for use in substantiating revenues and expenses consistent with the protocols.

af. String-Based Rate Development. The government will develop string-based rates for each string by taking the straight average of space, revenue and expense data from each vessel on the string, over the carrier's business year.

(1) Unit rates will apply to any vessel on the string. Individual unit rates will not be developed on a string that employs more than one vessel.

(2) For per diem rates, an average per diem rate will be developed for the string. For each vessel on the string, that average rate will be multiplied by an adjustment factor that equals the ratio of the space for the particular vessel to the space of the average vessel capacity (total space for the string divided by the number of vessels in the string) for that string. For example, for a string composed of four vessels with capacities of 1,000, 2,000, 2,500, and 3,000 TEUs, the average capacity would be 2,125 (8,500 divided by 4). The respective adjustment factors for the vessels would be .47,.94, 1.2, 1.4.

ag. US Flag/Foreign flag. The carrier shall report only data attributable to U.S. flag vessels. If actual data is not available, then the carrier shall devise a derivative formula to determine what data is attributable to these vessels.

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ah. Vessel capacity. Number of units a vessel is capable of transporting. This may be expressed as actual capacity, some derivative of actual, nominal or operating capacity. Allocated spaces or actual space units as used in this methodology may be the equivalent units of a specific vessel's capacity.

ai. Vessel replacement. Allocated space, revenue and expense data of a replacement vessel will be used to calculate rates once a replacement vessel enters service on the string. However, data from the time period before and after it left string service will not be used. Also, data from the original vessel (i.e., the one that was replaced) will not be used during the time it remains out of service on the string. Example: Vessel A (a regular string vessel) performs service from Jan 1 -Apr 30 and is pulled from service from May 1 - Jul 31, and resumes service from Aug 1 - Dec 31. Vessel B (a replacement vessel) begins string service on Jun 1 -and ends on Jul 31. Space, revenue and expense data for Vessel B can only be used between the period of Jun 1 - Jul 31. Any positioning and/or repositioning expense for Vessel B will not be used to calculate rates.

aj. Vessel revenues. Allowable vessel revenues are those that directly accrue from the transportation of cargo based on tariff rates or other ocean transportation contracts (e.g., interport ocean services), including surcharges. Surcharges include, but are not limited to, the following: bunker adjustments, currency adjustments, terminal handling charges, and port arbitraries, and other transportation-related charges.

ak. Vessel Sharing Agreements and Capacity Determination. When the principal carrier has a VSA or other space sharing partner the principal carrier shall pro rate its space, revenues and expenses to the vessel's allocated spaces. The principal carrier shall not report the space, revenues and expenses associated with its VSA or other space partner. DCAA shall have the right to review VSA or space sharing agreements. However, the carrier will not be required to divulge any financial or business sensitive information contained in these agreements.

al. Vessel/string/year. When calculating unit and per diem rates, the government and carrier will apply relevant space, revenue, expense, vessel and voyage data generated during the business year.

am. Voyages

(1) The carrier shall identify and provide the number of completed and incomplete voyages, and the spaces allocated, reserved and used on those voyages, during the reporting period. The government and carrier will use this data to calculate unit and per diem rates.

(2) The carrier shall provide average numbers allocated, reserved and actual used spaces for each voyage and by direction, e.g., 1,400 containers (further divided by 20, 40 and refrigerated containers) outbound and 1,350 containers inbound.

an. Voyage days. The carrier shall report the number of days a vessel was engaged in a voyage during the reporting period, including the number of days for incomplete voyages. Include both port and ocean transit days.

Report only those days a vessel operated for the purpose of generated revenues and expenses for which rates are to be calculated.

8. Rate Methodology - Step by Step Procedures. The carrier shall complete a Pro Forma Data Worksheet for each U.S. string in its system. Vessel/voyage/year data (including bridge year data) will be reported for all carriers by direction (i.e., outbound/inbound) and for container carriers by size and type of containers. Listed below are step-by-step instructions on how to complete the Worksheet.

Step 1. Enter the name of the carrier. Self explanatory.

Step 2. Enter the string name. Self explanatory.

Step 3. Enter the region served. Self explanatory.

Step 4. Enter the name of each vessel on the string. Self explanatory.

Step 5. Enter the names of the ports served and rotation. Self explanatory.

Step 6. Enter the number of allocated spaces, by direction, size and type.

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Step 7. This step applies to carriers with VSA or other space-sharing partners. The purpose of this step is to determine the number of revenue spaces.

A. Enter the number of spaces the principal carrier reserved for its own use.

B. Enter the number of actual spaces the principal carrier used.

C. Enter the utilization factor. This can be determined by dividing the number of actual spaces by the number of reserved spaces, i.e., Step 7B divided by Step 7A.

D. Enter the revenue spaces. This can be determined by multiplying the number of allocated spaces by the utilization factor, i.e., Step 6 times Step 7C.

Step 8. This step applies to carriers without VSA or other space sharing partners. The purpose of this step is to determine the number of revenue spaces.

A. Enter the number of actual used spaces.

B. Enter the number of revenue spaces (Note: the revenue space number is identical to the actual space number.)

Step 9. Enter gross revenues, revenue adjustments, adjusted gross revenues, and grand total revenues.

Step 10. Enter expense amounts by direction, size and type for drayage/line haul, CFS, and cargo handling, and total amounts for fuel, port call, and equipment.

Step 11. Calculate unit rates by direction, size and type. This step is in two parts: Sub-step A applies to carriers without VSA or other space partners, and Sub-step B applies to carriers with VSA or other space partners.

A. Determine remaining AGR, and drayage/line haul, CFS, and interport cargo handling expenses after making allocations to other strings and/or relay/feeder vessels which provided ocean service. After making the allocations and determining the remainder, calculate the unit rates.

B. Determine specific revenue and expense amounts attributed to shipments handled by the principal carrier, and pro-rate the amounts to the total revenue space on the string. After pro-rating these amounts, go to Step I IA.

Step 12. Calculate the per diem rate. This step is in two parts: Sub-step A applies to carriers without VSA or other space partners, and Sub-step B applies to carriers with VSA or other space partners.

A. Determine total voyage days, grand total AGR and expenses, and then calculate the per diem rate.

B. Pro-rate total AGR and all expenses. After this is done, go to Step 12A.

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APPENDIX A to EXHIBIT 1 Abbreviations

AGR - Adjusted gross revenue

CFS - Container freight station

CONUS - Continental United States (domestic) ports and cities

DoD - Department of Defense

DCAA - Defense Contract Audit Agency

EDI/ITV - Electronic data interchange/intransit visibility

FIO - Free in/free out

FMC - Federal Maritime Commission

IAW - In accordance with

IMDG - International Maritime Dangerous Goods Code

LASH - Lighter aboard ship

MSA 96 - Maritime Security Act of 1996

MSC - Military Sealift Command

MT - Measurement ton (40 cubic feet)

SDDC - U.S. Army Military Surface Deployment and Distribution Command

OCONUS - Overseas Continental United States (or foreign) ports and cities

RBM - Revenue Based Methodology

RMWG - Rate Methodology Work Group

RO/RO - Roll on/roll off vessel

THC - Terminal handling charges

SQFT - Square feet

USTRANSCOM - United States Transportation Command and its component commands (AMC, MSC, and SDDC)

VISA - Voluntary Intermodal Sealift Agreement

VSA - Vessel Sharing Agreement

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APPENDIX B to EXHIBIT 1 Glossary

TERMINOLOGY/DEFINITIONS USED IN THE RATE METHODOLOGY ARE SPECIFIC TO THE RATE

METHODOLOGY. TINA/CAS TERMINOLOGY/ DEFINITIONS ARE NOT TO BE USED.

Actual data - Vessel space, revenue and expense data which is accounted for discreetly, is factual and verifiable, such as financial and management records and reports. Actual data will take precedence over derivative data.

Actual space units - The amount of space units (e.g., 20/40/Reefer slots, MTs, and SQFT) a carrier actually used (i.e., principal's lift) to generate revenues and expenses during the reporting period.

Adjusted gross revenue - Equal to gross revenues minus revenue adjustments.

Agreed-upon procedures - Business and procedural rules agreed upon by the government and carrier, for the purpose of developing the rate methodology, and used as criteria by DCAA when evaluating data.

Allocated revenues and expense - Revenues and expenses that are spread between the string for which rates are to be developed, and another string(s) or relay/feeder vessel(s). An allocated expense does not included G&A.

Allocated space - The average amount of space the principal carrier normally operates with during the business year, including the space set aside for VSA or other space partners. The allocated space number serves as the baseline number to establish a revenue space number for carriers with space sharing partners.

Allowable - The term is to be defined within the context of this document only, and does not include definitions and/or meanings as provided in the FAR.

Allowable expense - An expense reported by the carrier consistent with the terms and conditions of the business rules.

Allowable revenue - A revenue reported by the carrier consistent with the terms and conditions of the business rules.

Bad debts - The amount of money the carrier does not collect from lawfully assessed transportation service charges, and which it writes off.

Bad paper - An amount of money owed to the carrier as a result of an error, e.g., a shipping order charge that reads $100,000 rather than $10,000. The $90,000 difference is termed "bad paper."

Breakbulk shipments - Goods that are not containerized

Bridge year - Vessel space, revenue and expense data that generated during two consecutive reporting periods.

Applicable bridge year data will be used to calculate rates. For example, if Vessel A completed only 40% of its operational activities during the 1996 business year, and the remainder during the 1997 business year, then 40% of Vessel A's space, revenue and expense data will be used to calculate rates for the 1996 business year. The carrier shall use a derivative formula to determine the data attributed to the 1996 business year.

Business rules - The terms and conditions the government uses to calculate the VISA Stage III unit and per diem rates.

Business year - The period of time for which a carrier collects and reports space, revenue and expense data for the purpose of calculating rates under this methodology. A business year covers a twelve-month period. However, the starting and ending months will vary between carriers.

Cargo (or flat) barge - A barge (other than a LASH barge) used to transport cargo, and is moved by a tug. Liner shipments made via a cargo barge will be paid at the unit rate. Includes the shipment of containers on a flat barge.

Cargo (or freight) shipments - Includes both commercial and military shipments.

Carrier - The entity who provides space, revenue and expense data for the purpose of calculating rates under this methodology, and who provides ocean and intermodal services during a contingency. When the VISA participant time

Attachment 5 - Page 12 of 23 charters the vessel to a common or contract carrier that commits equipment and/or intermodal service support for the vessel, the revenue and cost information used to determine the compensation to be paid shall be the revenue and cost information of the time charterer. The intent of this provision is to provide to the entity that time charters the vessel compensation consistent with the criteria of Title XXXV, Section 53107(e) of the National Defense Authorization Act for fiscal year 2004 which incorporates the Maritime Security Act of 2003.

Combination vessel - A vessel that is capable of carrying liner cargo shipments of more than one type, e.g., a vessel that can carry both containers and rolling stock.

Container - A reusable cargo conveyance which confines and protects the cargo from loss or damage, can be handled in transit as a unit and can be mounted and secured in or on marine, rail or highway equipment. Common types of containers are: weatherproof, dry enclosed, refrigerated, van, tank, non-weather proof, open top, car carrier, flatracks or platforms, and trailer/rail intermodal equipment.

Conversion - Re-calculating one type of space unit to another, e.g., re-calculating space, revenue and expense data for a limited number of MT shipments to container shipments.

Defense Contract Audit Agency - The DoD agency that will review and evaluate carrier provided space, revenue and expense data.

Derivative data - The determination and quantification of specific space, revenue and expense data that is mixed with other assets or account items, e.g., cargo handling expenses that apply to both vessels for which rates are to be calculated, and other vessels for which rates are not to be calculated. Derivative data is based on and is derived from data (that is factual and verifiable). Derivative data may include pro forma data. Derivative data will not be used when actual data is available.

Derivative formula - A formula created by the carrier for the purpose of determining and quantifying space, revenue and expense data when actual data is not available.

Direct expense - An expense item that can be specifically identified with a particular final expense objective or activity. For example, the expense of a gantry crane operator hired to unload a specific vessel or number of vessels.

Generally, direct expenses will be supported by objective documentation such as a third-party invoice.

Discount - The amount of money, initially charged and then returned, to the shipper, as a result of the application of a tariff or document (foreign/foreign) volume discount provision.

Drayage - The movement of a container between the carrier's terminal at the port where the container is loaded to, or discharged from, the vessel and another place within the commercial zone or modified zone of that United States port city or within a ten mile radius of the city limits of that foreign port city, by means other than the carrier's principal vessels, such as by highway or railway

Equipment - Includes all types of containers, chassis, trailers and related equipment.

Flatrack (Platform) Container - A container without weatherproof sides and/or top. Includes platforms, which have no sides or ends and flatracks with rigid or collapsible ends. They can be end loaded or top or side loaded.

General and administrative (G&A) expenses - Any management, financial, and other expense which is incurred for the general management and administration of the business as a whole. It includes, but is not limited to, the following types of expenses: executive salaries, corporation office rents, administrative support, depreciation costs, capital costs, computer system costs, etc.

Gross revenue - The total revenues (including interport) generated from cargo shipments such as: vessel port-to-port (includes CAF, BAF, THC, and port arbitraries), drayage/ line haul, CFS, and other related cargo charges.

Inbound shipments - Cargo shipments made from an OCONUS to a CONUS port.

Incremental expense - The increased expense that accompanies the addition or subtraction of a unit or output, or a change or subtraction of a unit or output. Incremental expenses are generally supported by objective documentation such as a third-party invoice.

Attachment 5 - Page 13 of 23

Indirect expense - Any expense that cannot be directly identified with a single final cost objective, but is identified with two or more final cost objectives and is allocated or spread over several items. Indirect expenses are accumulated in overhead accounts and not considered allowable under this methodology.

Intermodal/infrastructure support - Includes, but is not limited to, the following organic or subcontracted equipment and services controlled by the VISA participant: containers, chassis, trailers, tractors, cranes, commercial truck and rail transportation services including rail cars, material handling equipment, receiving/delivering facilities, ocean terminal berths/piers, management services, information and computer resources, EDI and tracking capability, etc.

Interport shipments - Cargo shipments between OCONUS ports on the same vessel-string for which rates are calculated. Applies to both outbound and inbound directions.

Land bridge - Movement of cargo by water from one country through the port of another country, thence, using surface transportation to a third country. As an example, a through movement of Asian cargo to Europe across North America.

LASH barge - An enclosed barge transported aboard a LASH vessel. The MT rate will apply to shipments loaded in a LASH barge.

Line haul - The movement of a container between the carrier's terminal at the port where the container is loaded to, or discharged from the vessel and another place outside of the commercial zone or modified zone of that United States port city or beyond a l0 mile radius of the city limits of that foreign port city by means other than the carrier's principal vessels, such as by highway, railway, canal, or river, or in specific instances by feeder vessels, ferry or barge ship systems.

Liner service - Type of service offered on a definite advertised schedule and giving relatively frequent sailing at regular intervals between specific ports or ranges.

Maritime Security Act of 1996 - The Act that requires a carrier receiving financial assistance from the Government to join a DOT/DoD approved emergency preparedness program. The Act specifies the criteria on how carriers will be paid for services provided during VISA Stage III activation. See compensation requirements.

Measurement ton - One MT is equal to 40 cubic feet of cargo volume.

Micro bridge - A cargo movement in which the water carrier provides a through service between an inland point and the port of load/discharge. The carrier is responsible for cargo and costs from origin on to destination. Also known as IPI or Through Service.

Military Sealift Command - A Navy organization that is responsible for awarding peacetime and DCC charter contracts. MSC is a component of USTRANSCOM.

Mini land bridge - An intermodal system for transporting cargo by ocean and then by rail or motor to a port served as an all-water move (e.g., Hong Kong to New York over Seattle).

Negotiated rate - The rate agreed upon by the government and carrier

Net revenue - For unit rate calculations, it is the adjusted gross revenue minus the sum of drayage/line haul, CFS, and interport cargo handling expenses. For per diem rate calculations, it is the adjusted gross revenue minus the sum of the following expenses: drayage/line haul, CFS, fuel, port call, cargo handling and equipment.

Non-allowable expense - An expense reported by the carrier which will not be used to calculate unit and per diem rates.

Non-allowable revenue - A revenue reported by the carrier which will not be used to calculate unit and per diem rates.

Outbound shipments - Cargo shipments made from a CONUS port to an OCONUS port, including intermodal services.

Overhead expenses - See general and administrative expenses.

Attachment 5 - Page 14 of 23

Per diem rate - The daily rate paid for a vessel activated on a time-chartered or dedicated service basis.

Principal carrier - The carrier for whom rates are to be negotiated.

Pro-rate - The determination of an estimated amount of space, revenue and expense data, when only a limited actual amount of data is available. For example, when the principal carrier has a VSA partner, and has available only the revenue/expense data of its own shipments (vice those of its partners), then the carrier will pro-rate its known revenue/expense amount to the entire vessel for the purpose of calculating unit and per diem rates.

Rate calculation - The determination of specific unit and per diem rates in accordance with the rate methodology formula.

Relay port - Port(s) where a shipment/cargo is transferred from one string to another.

Relay/feeder vessels - Vessels providing service for cargo shipments transferred from or to one vessel to another vessel.

Reporting period - A one year time period, as measured by the carrier's business year, from which space, revenue and expense data is obtained and evaluated for the purpose of calculating rates.

Revenue - Refers only to allowable revenue items.

Revenue adjustments - Carrier business expenses not included in any of the rate methodology expense categories.

Revenue adjustment items include all of the following: volume discounts, bad debt, and bad paper, if included in the gross revenues. Additional adjustment items, if included in gross revenues, may be added to the list, such as equipment detention, equipment maintenance and repair, etc.

Revenue units - The total number of 20/40/Reefer slots, MTs, or SQFT on a string that is used to calculate the unit rate.

Rolling stock (equipment) - Vehicles (including railroad equipment and track vehicles) that are driven or towed aboard a ro/ro vessel and not loaded into a container or lifted to a breakbulk vessel. The unit rate will apply to these shipments.

Shipments - Cargo (freight) shipments for the account of either commercial shippers or government shippers.

Shipping order - Contractual shipping documents such as bill of lading, freight bill, invoice, manifest, or other contractual documents. All liner cargo is booked by SDDC in IBS.

Single factor rate - A point to point, point to port, or port to point rate that includes drayage/line haul, and ocean and related transportation charges in one rate.

Space - Includes container, MT and SQFT units

String - One or more US flag vessels that provide consecutive and continuous ocean transportation service between ports.

String-vessels - Refers to all vessels operating in a string

String voyage days - The sum of the number of voyage days (both ocean and port) for each vessel operating in a string during the reporting period.

Substituted service - The expense of transporting full or partially full containers, flat barges, or LASH barges from one port area to another in order to avoid a vessel port call at the first port area. A substitute service expense will not be used to calculate rates.

Twenty foot equivalent unit containers (TEUs) - For the purpose of payment, includes all types of containers 20 feet or greater, but less than 40 feet in length.

Unit - A single cargo shipment, e.g., a container, uncrated generator, tank, etc.

Attachment 5 - Page 15 of 23

Unit rates - A unit rate will be paid for each one way shipment of cargo. There are three types of unit rates: container (further divided by 20', 40' and reefer), measurement tons (MT), and square foot (SQFT). The type of ocean rate to be developed will be the same as that used by the carrier during normal peacetime operations. For example, if the carrier normally operates with a MT rate, then a MT rate will be developed

Vessel sharing agreement (VSA) - An agreement between a US flag carrier and another US flag carrier or a foreign flag carrier for the sharing, sale, trade, or exchange of space aboard each other's vessels. The methodology recognizes all formal agreements, and does not require the agreements be filed with the FMC.

Vessel/string year - The quantification and summation of space, revenue, and expense data obtained from all vessels operating in a string during the reporting period

Voyage - The completion of a round trip sailing. A completed voyage is measured from the date a vessel sails from the last CONUS port to an OCONUS port, until it returns to the same CONUS port and completes loading for another OCONUS port sailing.

Voyage days - The number of days a vessel sailed during the reporting period.