Department of Transportation

Reduce the U.S. Ocean Cargo Preference Requirements and Save $140 million

The U.S. cargo preference program and other Maritime subsidies to U.S. merchant vessels cost American taxpayers millions of dollars each year to promote and maintain inefficient and non-competitive shipping practices. The U.S. fleet continues to diminish despite increasing cargo preference requirements for the transportation of vital humanitarian assistance cargoes necessary to achieve global food security objectives

 

In 1985, Congress increased U.S. cargo preference requirements for food aid programs from 50 percent to 75 percent while providing a tax payer funded reimbursement mechanism for the U.S. agencies forced to ship food aid with more expensive, inefficient vessels.

 

According to a recent Cornell study (http://aem.cornell.edu/faculty_sites/cbb2/Papers/Cargo%20Preference%20July%202010.pdf), the cost of cargo preference on US government food aid programs can run upwards of $140 million a year due to the high cost structure and inefficiencies of U.S. flag vessels.

 

A reduction by 25% of the U.S. flag preference requirement for food aid shipments will produce significant returns in savings and performance. It also provides consistency in the application of U.S. cargo preference compliance for all civilian government agencies rather than having the food aid programs bear the burden which negatively impacts our ability to enhance global food security. Moreover, the cost of cargo preference becomes exponentially more expensive as the compliance requirement increases due to the loss of logistical flexibility and the resulting decrease in competition.

 

Allowing program agencies the flexibility to use best value determinations in a global competitive market, and align the programs with commercial methodologies will benefit the taxpayer and the programs. It will also further the aims of the food security initiatives by providing faster, more reliable and most importantly cheaper transport of vital food aid. The resulting decrease in preference requirements will have little effect on the militarily useful portion of the U.S. flag fleet. These ships are efficient and can more effectively compete in a lower compliance environment. The added benefit of using the additional cost savings to procure more food to serve the needy will have a multiplier effect on the economic activity and jobs at our ports and the regions that they serve according to a recent Maritime Administration study.

 

A lower compliance environment will result in little to no loss of U.S. jobs while increasing the goodwill of the American people overseas for less money and in a more efficient manner.

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Idea No. 17610