Cargo Preference

What is Cargo Preference?

Cargo preference requires that U.S. “government-impelled” (government-financed) cargoes be shipped on U.S.-flag vessels, provided that such vessels are available at fair and reasonable rates. Preference cargoes are a critically important incentive for U.S.-flag operators in the international trades to remain under U.S. registry.

Cargo Preference Laws

There are several laws and regulations that form the foundation of U.S. Cargo Preference Policy. These laws, rules, and regulations provide a vital base of cargo to help offset foreign-flag advantages and are administered by the Maritime Administration.

Cargo Preference Act of 1954: Required that at least 50 percent of civilian agency cargoes be transported on U.S.-flag vessels. However, the law was changed in 1985, as part of an agriculture/maritime compromise championed by then Senator Bentsen (D-TX) and Senator Cochran (R-MS), to require that 75 percent of certain agricultural commodities be carried on U.S.-vessels. The passage of MAP-21 highway bill reduced cargo preference from 75 percent U.S.-flag to 50 percent U.S.-flag.

Military Cargo Preference Act of 1904:

Requires 100 percent of items purchased for or owned by U.S. military departments and defense agencies be carried exclusively on U.S.-flag vessels at fair and reasonable rates.

Public Resolution 17: Requires that 100 percent of cargoes generated by Export Import Bank loans and guarantees be shipped on U.S.-flag vessels unless a waiver is granted.

Agricultural Cargoes as defined by law

Principally, the statutory sources of agricultural goods covered by cargo preference programs are:

- Title I of P.L. 480 provides for U.S. government financing of sales of U.S. agricultural commodities to developing countries on concessional credit terms.
- Title II is a donation program for least development countries.
- Title III is a grant program under which agricultural commodities are donated to least developed countries; in the recent past, Congress has not appropriated funding for this program.
Section 416(b) is a donation program primarily for surplus commodities.
Food for Progress provides agricultural commodities to developing countries on a grant basis in exchange for policy reforms.
The McGovern-Dole International Food for Education and Child Nutrition Program helps support education, child development, and food security for some of the world’s neediest children.
*The McGovern-Dole International Food for Education and Child Nutrition Program is subject to the 75% U.S.-flag requirement.

Congressional Findings on Cargo Preference

In an April 2015 report to Congress, the U.S. Maritime Administration concluded:

The decline in preference cargo has been the primary reason for the decline of the U.S.-flag fleet.
Food aid cargoes are the single greatest source of preference cargoes, over half of the dry preference cargo tonnage available since 2002.
Since 2000, the U.S.-flag fleet has shrunk over 10% as food aid cargoes plummeted 77%, even though DOD cargoes increased by almost 60%.
Food aid cargoes are more important than ever as DOD cargoes are expected to decline with the end of conflicts in the Middle East (in addition to broad reduction in overseas personnel and bases over the last 25 years)

That same report found essential food aid cargoes were dramatically reduced by:

The 2012 reduction of cargo preference in the MAP-21 highway bill from 75% U.S.-flag to 50% U.S.-flag.
Moves to convert the successful Food for Peace program to an overseas cash-giveaway program whereby cash is given to the hungry instead of food.
According to MARAD, the international fleet suffered a 23% loss in vessels between 2010 and 2013 as MAP-21 took effect.

Cargo Preference Topics

It cannot be emphasized too strongly the importance of these food aid programs to the U.S.-flag fleet. However, cargo preference laws are of little value if the U.S. government does not have domestically sourced commodities to send to those in need around the world. The U.S. maritime industry, in concert with a broad-based coalition for food aid (including agriculture groups, humanitarian groups, food processing groups, and commodity groups), works to maintain and increase, where possible, funding for P.L. 480 “Food for Peace” and the other food aid programs described above, in both agriculture authorization and appropriations legislation.

The U.S. maritime industry was greatly concerned that blanket waiver authority contained in the 2004 Iraq war supplemental budget bill would be interpreted as a “go-ahead” to waive the application of cargo preference laws for both military support and food aid shipments to the Middle East. At the urging of the maritime industry, language was included during floor debate clarifying that U.S.-flag shipping requirements would be followed. Indeed, there were several instances early in 2003 in which USAID contemplated transporting food aid cargoes to Afghanistan, Yemen and Zambia on foreign-flag vessels despite the fact that U.S.-flag vessels were available at rates found fair and reasonable. USAID attempted to invoke its “emergency” waiver powers under 7 U.S.C 1722(a) even though the U.S.-flag vessels available would have provided the same or faster delivery dates. Although the legislative history of USAID “emergency” authority makes clear that Congress did not intend that section of the law to be used to waive cargo preference requirements, it has been used for this purpose.
World Trade Organization Committee (WTO) negotiations on agriculture remain an important issue. In WTO negotiations over the years, a number of other countries, particularly those in the European Union, have been seeking to eliminate “in-kind” food aid for non-emergency uses, whether in the form of loans or grants. Instead, these countries would require that American taxpayers give cash for food aid through the World Food Organization in Rome, using U.S. taxpayer money to buy food aid from other sources including the strongest U.S. agriculture competitors. Such a policy, were it to prevail, would eliminate about 3 million metric tons annually of U.S. food aid shipments, and, thus, threaten purchases of American farm products. It is critical that U.S. trade negotiators not give in to this pressure in negotiations.
Recently, the Administration has attempted to convert a portion of the PL-480 Food for Peace program from an in-kind food donation to a direct cash donation to the recipients. AMC, along with our allies in the agriculture and charitable organization sectors, strongly urged the Administration and Congress not to cut funding for PL-480 by moving to a cash-only program. Not only does a cash program already exist under federal law, moving to cash only would damage the economic benefits that have been for decades an inherent part of food aid: Purchasing U.S. grown commodities and shipping the cargo on U.S.-Flag vessels, therefore providing stable food supplies for developing countries while also benefiting our U.S. economy and ensuring the U.S. seafarer and ship base necessary for our national and homeland security remains intact.