Cargo Preference Requirements

"Cargo preference" is the reservation of government-financed or -sponsored oceangoing cargos specifically for U.S.-flag ships. Due to cargo preference requirements, the government has spent an additional $600 million during the past 3 years to transport food aid on U.S.-flag ships rather than on lower-cost foreign flag ships. The objective of the cargo preference is to help maintain a U.S. merchant marine (1) to serve as a naval and military auxiliary in times of war or national emergency and (2) to carry a substantial portion of U.S. domestic and foreign waterborne commerce. However, the U.S.-flag ships carrying the majority of the food aid tonnage are not viewed as militarily useful by the Defense Department. In addition, all domestic waterborne commerce, i.e., cargos shipped between U.S. ports, are required to be carried by U.S.-flag ships. As for foreign commerce, U.S.-flag ships now carry only about four percent of all cargo shipped into and out of the United States, and food aid cargos account for less than one-fourth of that four percent. GAO also found that cargo preference requirements harm the operations of the food aid programs. GAO summarized this report in testimony before Congress; see: Cargo Preference Requirements: Objective Not Met When Applied to Food Aid Programs, by Allan I. Mendelowitz, Director of International Trade, Finance, and Competitiveness Issues, before the Subcommittee on Foreign Agriculture and Hunger, House Committee on Agriculture. GAO/T-GGD-94-212, Sept. 29, 1994 (24 pages).

GAO found that: (1) cargo preference requirements do not meet the objective of helping to maintain U.S.-flag ships as a Ready Reserve Force in times of war or national emergency or for purposes of domestic or foreign commerce; (2) the Department of Defense (DOD) does not consider the U.S.-flag ships that transport the majority of food aid tonnage to be militarily useful; (3) DOD does not believe that food aid cargo preferences are a cost-effective method of obtaining Ready Reserve crews; (4) food aid cargos account for less than one-fourth of the 4 percent share of export-import tonnage that U.S. ships carry; (5) U.S.-flag ships are not competitive with foreign-flag ships because their operating costs are higher; (6) cargo preference requirements adversely affect U.S. food aid programs by reducing the funds available for commodity purchases and causing recipients to purchase higher-priced or different commodities because of the unavailability of U.S.-flag ships; and (7) certain Department of Agriculture and Agency for International Development (AID) management practices increase transportation costs, because they require shipowners to pay for.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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