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Maritime cargo preferences only waste American taxpayer dollars

Maritime cargo preferences only waste American taxpayer dollars
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In a recent column in The Hill, the authors contend that preserving and bolstering cargo preference requirements — the law requiring U.S. shippers to use U.S. flagged vessels to transport “government-impelled ocean-borne cargo” — is crucial to maintaining America’s standing in international trade, carrying out the nation’s humanitarian agenda, and projecting U.S. military power overseas.

Our findings and those of others, including Christopher Barrett of Cornell University and Vincent Smith of the American Enterprise Institute and Montana State University, suggest otherwise. First, there is little to no evidence that the cargo preference requirement on U.S. food aid shipments does anything to augment the readiness of today’s U.S. armed forces. The Defense Department maintains that it receives benefits from paying higher prices to ship military goods on U.S. flagged ships, but the consensus view of three 2015 studies is that the limited number of cargo ships in the U.S. flagged fleet would not affect a military surge.

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The issue is the number of trained U.S. mariners available to crew existing vessels in Military Sealift Command and the Ready Reserve Fleet. In the more than 60 years since the Cargo Preference Act was enacted, the government has never mobilized an agricultural cargo preference vessel and crew, unless they were also part of the Maritime Support Program, which is a completely separate subsidy program that only includes vessels deemed to be suited for military use by Pentagon. Many U.S. flagged ships carrying substantial amounts of U.S. food aid are not eligible for the program.

Second, food aid cargo preference does nothing for the U.S. humanitarian agenda. The mandate that almost all food aid be sourced in America, plus the cargo preference requirement, imposes substantial additional shipping costs of at least $300 million per year. As a result, U.S. humanitarian aid serves at least four million fewer people every year. Third, the food aid cargo preference does nothing to maintain the U.S. maritime industry’s competitiveness in the global shipping services market. The old, slow, technologically antiquated U.S. flagged ships carrying most cargo preference food aid are uncompetitive.

The authors of the column also imply that the 2012 decision to reduce the food aid cargo preference requirement from 75 percent to 50 percent resulted in the loss of one quarter of the U.S. flagged fleet. This is inaccurate. The size of the U.S. flagged fleet has steadily declined despite the protection provided by the 1954 cargo preference statute and other federal programs such as the Marine Support Program. Between 1947 and 2010, the number of U.S. flagged ships decreased from 980 to 115 vessels. As of January, there were only 82.

The longer-term reduction in fleet size has occurred because U.S. flagged ships find it difficult to compete for commercial cargo on the open market. A 2011 survey conducted by the Maritime Administration (MARAD) found that the annual operating costs of an average U.S. flagged vessel were 2.7 times higher than a comparable foreign flagged vessel. Part of the gap is due to the higher wages received by American mariners over their counterparts on foreign-flagged ships. Though, as reported in several Government Accountability Office reports, many U.S. flagged vessels require more crew per ship because they are older, and less automated than foreign flagged ships.

It is also simply not credible to argue that the 2012 statutory change to food aid cargo preference could have caused the U.S. flagged fleet to shrink so severely. In fact, the 1985 increase in the use of cargo preference from 50 percent to 75 percent did nothing to stem the fleet’s shrinkage. As global trade volumes have grown steadily, the effect of food aid cargo preference on the maritime industry has been shrinking because the total volume of shipped U.S. food aid has been declining steadily for decades. Most U.S. food aid transported under cargo preferences moves on only a few vessels, suggesting that U.S. cargo preferences, while expensive, only supports a handful of shippers. According to federal data for 2016, five U.S. flagged ships accounted for 56 percent of all cargo preference U.S. food aid shipments.

While cargo preference law requires that eligible U.S. flagged ships be owned by American companies, a large share of the vessels are actually operated by U.S. divisions of foreign shipping lines. Between 2012 and 2015, U.S. flagged ships owned by A.P. Moller Maersk Group, headquartered in Denmark, the American President Lines, owned by a company based in Singapore, and Hapag Lloyd, owned by a German company, carried 45 percent of U.S. food aid shipments by volume. So much for food aid cargo preference being necessary to maintain an American-owned maritime fleet responsive to U.S. government needs.

In sum, the U.S. maritime lobby seeks to divert taxpayer dollars to American and foreign shipping companies instead of spending it on U.S. humanitarian aid urgently needed to save the lives of millions of people. U.S. voters and legislators should protest against the profligate waste of resources that is food aid cargo preference.

Stephanie Mercier, Ph.D., is a retired former staff senior economist on Senate Agriculture Committee. Erin Lentz, Ph.D., is assistant professor at the Johnson School of Public Affairs at the University of Texas at Austin.