Maritime Industry

Cargo preference laws require that some government-owned or -financed cargo shipped internationally be carried on U.S.-flag vessels. Cargo subject to these laws is known as preference cargo. Cargo preference laws boosted federal agencies' transportation costs by an estimated $578 million per year for fiscal years 1989 through 1993 because U.S.-flag vessels generally charge more to carry cargo than their foreign-flag vessel counterparts. The effect of cargo preference laws on the U.S. merchant marine industry is mixed. On the one hand, the share of international oceanborne cargo carried by U.S.-flag ships has declined despite cargo preference laws because most oceanborne international cargo is not subject to cargo preference laws. On the other hand, these laws appear to have a substantial impact on the U.S. merchant marine industry by providing an incentive for vessels to remain in U.S. fleets. GAO estimates that without preference cargo, up to two-thirds of the U.S.-flag vessels engaged in international trade would leave the fleet, with most either shutting down or reflagging to another country to save costs. This would directly affect about 6,000 U.S. shipboard jobs.

GAO found that: (1) cargo preference laws have increased federal agencies' transportation costs by an average of $578 million per year; (2) cargo preference laws increase agencies' transportation costs because U.S.-flag vessels generally charge more than foreign vessels to carry cargo; (3) although some agencies paid an estimated $3.5 billion in additional transportation costs to ship cargo on U.S.-flag vessels, DOD estimated that $659 million of those costs were related to the Persian Gulf War; (4) the effect of cargo preference laws on the U.S. merchant marine industry has been mixed; (5) the share of oceanborne cargo carried aboard U.S.-flag vessels has declined because most internationally shipped cargo is exempt from cargo preference laws; (6) in 1992, foreign-flag vessels carried about 96 percent of international cargo; and (7) although eliminating cargo preference laws could cause two-thirds of the U.S.-flag vessels to leave the U.S. fleet and result in the elimination of about 6,000 U.S. shipboard jobs, it would have a minimal impact on the U.S. shipbuilding industry.