Piracy is not the only robbery on the high seas. A 56-year-old policy known as cargo preference is costing U.S. taxpayers an estimated $140 million each year for humanitarian food shipments and is affecting millions of aid recipients worldwide. It is time to update this well-intentioned but ineffective policy.
Cargo preference was launched in 1954 alongside modern American food aid programs. By requiring the U.S. government to ship three-quarters of its international food aid on U.S. flag vessels, the policy was intended to maintain essential sealift capacity in wartime, safeguard maritime jobs for American sailors and avoid foreign domination of U.S. ocean commerce. But in a comprehensive – and, to date, the only peer-reviewed – analysis of available shipping data and shipping vessel ownership records, we found that cargo preference falls well short of these objectives. Our study of the shipping data and the fiscal 2006 food-aid shipment records – the only full year records were available – from the U.S. Agency for International Development found that by restricting competition, the policy costs U.S. taxpayers a 46 percent markup on the market cost of ocean freight.
A few factors contribute to the expense of the cargo preference policy: Fully 70 percent of the vessels approved for cargo preference fail to meet the U.S. Maritime Administration’s age-based criterion for being militarily useful. And the system that awards food-aid shipping contracts allows price competition only within each priority category. That effectively means that the shippers using only U.S. vessels for the entire voyage automatically win bids against shippers that, in an effort to minimize costs, move containerized cargo between foreign and U.S. flag vessels en route.
Seven major U.S. military operations – in Vietnam, Grenada, Panama, the Persian Gulf, Bosnia, Afghanistan and Iraq – have been carried out since the cargo-preference policy was implemented. But in that time there has been no documented call-up of citizen mariners for national service from these vessels. Meanwhile, the ships’ crews supported by cargo preference number only about 1,400 mariners. So the extra $140 million cost to U.S. taxpayers breaks down to about $100,000 per sailor.
And much of the windfall gains of this supposedly “buy American” program accrue to foreign shipping lines, thanks to a complex set of nested holding companies incorporated in the United States. A large share of the vessels eligible for preferred treatment are ultimately owned by foreign lines that include Hapag-Lloyd, Maersk and Wallenius.
The extra costs of this program – $140 million is roughly equal to the fiscal 2006 value of non-emergency food aid to Africa – are largely shouldered by programs such as USAID. This reduces resources to minimize hunger and human suffering abroad. With the federal government struggling not only to cut spending but also to meet President George W. Bush’s 2005 pledge to double U.S. aid to Africa and to fund President Obama’s Feed the Future initiative, ending wasteful cargo preference spending is an obvious source of revenue.
More efficient ways can be found to fulfill cargo preference’s policy objectives. The 1996 Maritime Security Program meets the same demands by subsidizing only militarily useful U.S. flag ships. By ending cargo preference on food aid, we could augment the Maritime Security Program, reduce costs to taxpayers and more directly support additional militarily useful vessels. The Pentagon would have more vessel options to quickly mobilize for national security missions, while the United States would be able to increase humanitarian response worldwide. Eliminating a parallel, obscure provision that requires 25 percent of bagged food aid to be handled in the U.S. Great Lakes port range would similarly encourage greater price-based competition among ocean carriers. Tightening guidelines regarding corporate parentage of eligible carriers could increase the benefits afforded to American carriers, merchant mariners and other ocean freight industry employees.
Rather than promote ineffective shipping subsidies under the guise of humanitarian assistance, national security and “buy American” objectives, Congress should revisit the role of cargo preference as it applies to international food aid. Updating this legislation could enhance welfare and security in America and abroad while costing U.S. taxpayers less. There is no reason for high-seas piracy to be legislated from Washington.
Christopher B. Barrett, Elizabeth R. Bageant and Erin C. Lentz. They are at Cornell University. Barrett is a professor in the Charles H. Dyson School of Applied Economics and Management and associate director of the Atkinson Center for a Sustainable Future. Bageant is a research assistant. Lentz is a research support specialist.