Ukraine Crisis Is Latest Excuse For Attacking Cargo Preferences—And Potentially Undermining U.S. Security

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The interruption of food exports caused by Russia’s invasion of Ukraine is providing the latest pretext for assailing cargo preferences that are vital to the preservation of a U.S.-controlled merchant fleet.

That fleet, which has dwindled to a mere 180 large ocean-going vessels, is a core component of Pentagon plans for moving military forces overseas in the event of a foreign emergency.

Without access to U.S.-registered commercial ships and the mariners who crew them, the government could lack sufficient sealift to sustain a prolonged military campaign.

However, the U.S. fleet is heavily dependent upon protections provided by Washington to survive in a marketplace where much bigger foreign shippers are subsidized by their home-state governments.

Cargo preference—the reservation of government cargoes for transport by U.S.-owned and operated vessels—is an essential feature of such protections.

But two concurrent resolutions pending on Capitol Hill from Senators Coons and Ernst would suspend or abolish preferences for food aid exported by the U.S. Agency for International Development (USAI

USAI
D), weakening the incentives for U.S. operators to stay in the business.

Some observers fear that if the language in the resolutions is implemented, it would be the opening salvo in a campaign to eliminate all cargo preferences—dealing a devastating blow to the U.S. fleet.

There isn’t much left of that fleet. As of the year 2000, there were 282 oceangoing commercial vessels displacing at least a thousand tons in the U.S.-registered fleet; today, that number has fallen to about 180, a majority of which operate on protected domestic routes.

Among the 80 or so large oceangoing vessels still operating on international routes, cargo preferences are a key source of income, as are subsidies provided under the Maritime Security Program to assure a portion of the vessels are suitable for transporting military equipment in wartime.

If either of these efforts disappears, much of the U.S. fleet engaged in international trade would disappear too. As it stands today, less than 2% of waterborne commerce into and out of the United States is conducted on vessels owned by U.S. interests and crewed by U.S. mariners.

This is not a concern that attracts much interest in Washington. I only know about it because a handful of donors to my think tank have an interest in the domestic fleet, and occasionally call developments to my attention.

Few in industry doubt the sincerity of the senators proposing a suspension of cargo preferences in response to the food crisis that Russia has provoked in Ukraine.

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However, a 1994 study by the Government Accountability Office estimated that most of the U.S.-registered vessels engaged in overseas trade would exit the fleet in the absence of cargo preferences.

Those preferences currently come in four flavors: a reservation of all military cargo for U.S.-registered vessels; a similar reservation of all civilian cargoes financed by the Export-Import Bank; a set-aside of 50% of cargoes generated by the government’s civil agencies; and a corresponding requirement for sending a portion of food aid on U.S. ships.

If a credible case could be made that the higher cost of using U.S. shipping were reducing the ability of food aid to reach needy overseas recipients, then the pending resolutions would make some sense.

However, industry points out that USAID already has the power to waive restrictions on who can carry food aid if U.S. vessels are not available in a timely fashion, or cost too much to use compared with similar foreign vessels.

And although there is no doubt that U.S. vessels cost more to operate than many foreign-registered ships—over $10,000 more per day according to some sources—the industry contends that premium accounts for less than 1% of the costs associated with food aid.

In fact, the industry claims that pursuant to waiver authority, USAID already awards 70% of government-sponsored food shipments to foreign operators.

This all gets quite complicated, but the underlying security issue is not hard to grasp: if an adequate domestically-owned and operated merchant feet is not available, then some U.S. military forces moving overseas in a war would have to depend on foreign shipping.

It is not hard to imagine foreign shippers shying away from such business if America were at war, for example, with China.

And while food aid is only one facet of the cargo preference issue, the domestic maritime industry is under continuous assault from interests who want to eliminate all protections to the fleet—not just cargo preferences, but the Jones Act cabotage restrictions that reserve all commerce between U.S. ports for the domestic fleet.

So, some concern is justified. If all the critics of protections currently on the books had their way, the United States would cease to have a domestically-registered and crewed merchant fleet suitable for ocean-going transport.

The simple fact is that U.S.-operated ships are not price-competitive with foreign competitors, partly because those foreign operators are heavily subsidized by their home governments, and partly because countries such as Liberia and Panama providing flags of convenience impose few standards on how ships must be operated.

U.S. operating and safety standards, on the other hand, are among the most stringent in the world.

There’s nothing wrong with trying to get food aid into the hands of starving populations overseas, but the two resolutions pending on Capitol Hill would undermine U.S. security without materially improving Washington’s ability to do so.

The government is already facing a sizable shortfall in the availability of merchant mariners likely to be needed in a military emergency; there is no need to make this problem worse by further shrinking the domestic merchant fleet.

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