Assessment of Cost Estimates Associated with H.R. 1037, a Cargo Preference Bill

The estimates of the difference between the cost of carrying imported oil on U.S. ships protected by cargo preference legislation and the cost of carrying oil on foreign-flag ships range from 1.3 cents per gallon (as determined by the Maritime Administration) to 2.8 cents per gallon (as determined by the Federation of American Controlled Shipping).

The differences are due primarily to disagreement over the capital cost differential--the cost of building new ships in the United States and of obtaining ships in the world market. The disagreement among witnesses at hearings conducted by the House Committee on Merchant Marine and Fisheries was far greater when the cost estimates were expressed in cents per gallon of all imported oil, ranging from 0.4 cents per gallon (Maritime Administration) to 2.4 cents per gallon. GAO made an estimate of the cost of cargo preference which indicated that a reasonable range of cost estimates would be from 0.5 cents to 0.7 cents per gallon of imported oil. These estimates do not include costs due to excess profits on the transportation of oil or costs due to increases in the price of domestically produced oil. For imports of 8 million barrels per day, the projected figure for 1985, when the proposed legislation could be fully in effect, each one-cent increase in the price per gallon means $1.23 billion annually. The estimate applicable to the recently proposed 9.5 percent cargo preference would give a figure of $240 million per year.