Cargo Preferences for U.S.-Flag Shipping

Long-standing U.S. policy has treated the U.S.-flag international fleet as a naval auxiliary to be available in times of war or national emergency. When the United States is involved in an extended military conflict overseas, 90% or more of military cargoes are typically carried by ship. To support the U.S. merchant marine, Congress has required that “government-impelled” cargo sent overseas be carried on U.S.-flag ships. Government-impelled cargo (a.k.a. “preference cargo”) is government-owned cargo, such as military supplies and food aid, and any cargo that is somehow financed by the federal government, such as by the Export-Import Bank. While export shipments account for the vast bulk of government-impelled cargo, in 2008 Congress extended the law to require that state and local governments and private entities importing goods with federal financial assistance ship at least 50% of such cargo in U.S.-flag vessels. Regulations to implement that requirement have not been issued. Historically, cargo preference law has been used to assure that a large proportion of government-impelled cargoes is shipped in privately owned U.S.-flag ships rather than in government-owned vessels such as those now controlled by the Military Sealift Command (MSC). Military cargo then, and more so now, accounts for the overwhelming bulk of preference cargoes. Since 1954, an agreement between U.S. government cabinet departments has restricted the size of the military-owned fleet and has required the military to turn first to the private fleet before using its own ships. The cost of employing U.S. citizens aboard U.S.-flag commercial vessels appears to be higher than the costs of employing the federal civilian mariners that crew government-owned ships. It appears preference cargo now accounts for almost all of the revenues of the U.S.-flag international fleet. U.S.-flag ships do not appear competitive with foreign-flag ships in carrying the overwhelming bulk of exports and imports transacted in the private sector. However, Congress has directed that the U.S. government pay the additional cost of U.S.-flag shipping in order to maintain the U.S.-flag international fleet as a naval auxiliary to be available in times of war or national emergency. This cost may be influenced by the level of competition among U.S.- flag carriers bidding for preference cargoes and the procedures for determining “fair and reasonable rates.” The needs of the commercial market increasingly have diverged from those of the military, as the trend toward highly specialized and larger ships in the commercial sector appears inconsistent with the military’s shipping requirements. However, the knowledge and skills of the mariners aboard U.S.-flag commercial ships are transferrable to manning a military reserve fleet of ships. In the 114th Congress, several disparate bills would have the effect of either increasing or decreasing the volume of preference cargo significantly. The bills involve the future of food-aid policy, the existence of the Export-Import Bank, and the level of operating subsidy provided to U.S.-flag carriers. The boom in domestic oil and gas production also has led to discussions in Congress about whether U.S.-flag tankers should be guaranteed a portion of the cargo if these products are exported. These issues are arising at a time when U.S.-flag operators face a potential decline in the amount of preference cargo due to overseas troop withdrawals and changes in food-aid policy


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Media Info

  • Media Type: Digital/other
  • Features: References; Tables;
  • Pagination: 20p

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Filing Info

  • Accession Number: 01704520
  • Record Type: Publication
  • Report/Paper Numbers: R44254
  • Files: TRIS
  • Created Date: May 8 2019 1:31PM