Maritime industry : cargo preference laws--estimated costs and effects
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Maritime industry : cargo preference laws--estimated costs and effects

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      Cargo preference laws require that certain government-owned or government-financed cargo shipped internationally (between a U.S. port and a foreign port) be carried on U.S.-flag vessels. Cargo subject to these laws is known as preference cargo. This report responds to a request from several Senators to provide information on (1) the cost to the federal government of cargo preference laws and (2) the effect of cargo preference laws on the U.S. merchant marine industry. The report also responds to the Senators' request for information on various other aspects of the merchant marine industry. In brief, the report findings are as follows: Cargo preference laws increased 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 average is about $710 million per year when the costs associated with the Persian Gulf War are included. Four federal agencies--the Department of Defense, the Department of Agriculture, the Agency for International Development, and the Department of Energy--are responsible for more than 99% of preference cargo, by tonnage. 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 vessels has declined despite cargo preference laws because most oceanborne international cargo is not subject to cargo preference laws. In 1992, for example, about 96% of oceanborne cargo was carried aboard foreign-flag vessels. On the other hand, these laws appear to have a substantial impact on the U.S. merchant marine industry by providing incentive for vessels to remain in the U.S. fleet. The General Accounting Office estimates that without preference cargo, the equivalent of up to two-thirds of the 165 U.S.-flag vessels engaged in international trade, by tonnage, would leave the fleet. Most of the vessels that would leave would either reflag to another country to save costs or cease to operate if they are not competitive. This would directly affect about 6,000 U.S. shipboard jobs.
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