Cost of Proposed Cargo Preference Legislation

Cargo preference legislation has the objective of assisting the U.S. maritime industry by giving the U.S.-flag fleet a larger share of the market in transporting imported oil. Cargo preference costs would be in the form of higher prices for oil and oil products and involve complex market forces and regulatory actions for 8 years in the future. Estimates must take into account the differential between the transport cost of U.S.-flag shipping and foreign-flag shipping. Estimates of costs presented by seven witnesses varied because they were not developed on a comparable basis. Even when adjusted to a common time frame, estimates varied by as much as a factor of 10. By selecting the most realistic estimates from component parts, averaging some factors, and making its own estimates of others, GAO estimated that the legislation would add between 0.15 and 0.23 cents per gallon to the price of imported oil. The total cost in 1985 will also depend on the amount of oil to be imported and estimates for this amount vary widely. GAO's estimates for total annual costs of the legislation were higher than those of the Maritime Administration because of: differences in calculating inflation factors, exclusion of present subsidy costs, transport price differentials, and the effect of imported oil prices on domestic oil prices.