Cargo‐​Preference Laws Bilk Taxpayers to Benefit Special Interests

U.S. shipping firms have a long‐​standing problem: Few people want to use their vessels. With operating costs nearly triple those of their foreign counterparts, U.S. ships must charge significantly higher rates. As a result, those in need of cargo transport typically — and understandably — prefer to use foreign shipping.

Rather than try to improve the competitiveness of U.S. shipping, however, the federal government has instead sought to remove alternative options. The 1920 Jones Act, for example, prohibits foreign ships from transporting goods within the United States. Internationally, meanwhile, so‐​called cargo‐​preference laws require anywhere from 50 to 100 percent of U.S. government cargo be sent on U.S.-flagged shipping.

And now, Representative John Garamendi (D., Calif.), Representative Bob Gibbs (R., Ohio), and Representative Alan Lowenthal (D., Calif.), want to push those numbers even higher.

A bill introduced by the three House of Representatives members this month would increase the amount of food aid required to be sent on U.S.-flagged ships from the current 50 percent to 75 percent. That would mean spending tens of millions of additional dollars on ocean shipping. A 2015 Government Accountability Office (GAO) report found that requiring the use of U.S. ships increased food‐​aid shipping costs by an average of 23 percent, while a 2021 American Enterprise Institute working paper calculated that shipping costs over a six‐​year period would have been 34–38 percent cheaper without the protectionist measure.

In fiscal year 2021, the U.S. Agency for International Development (USAID) spent 10 percent of its $2.3 billion food‐​aid budget — $230 million — on ocean shipping. Reducing that amount by just 20 percent would free up nearly $50 million to be spent on feeding people. Instead, some in Congress want to go in the opposite direction.

Unsurprisingly, cargo‐​preference requirements are opposed by agricultural groups: More money spent on transportation means less money to spend on food. Garamendi’s bill attempts to solve that problem by having the Department of Transportation cut food‐​aid programs a check for the extra cost of using U.S. ships.

But it would be naïve to think that the DOT won’t seek an expanded budget to compensate for this added burden. Special interests get taken care of while taxpayers are left to deal with the additional red ink.

Legislators justify such profligacy on the grounds that cargo preference helps preserve a fleet of U.S.-flagged ships and mariners to meet the military’s sealift needs. If that’s the goal, however, cargo preference has proven ineffective. The GAO has pointed out that the number of vessels and mariners supported by food‐​aid cargo preference has decreased, and the congressional watchdog deemed the protectionist measure’s overall contribution to sealift “unclear.”

Meanwhile, officials from the Department of Agriculture and USAID have stated that the majority of food‐​aid cargo must be shipped on dry‐​bulk vessels ideal for transporting large amounts of grain and other agricultural products. Of the U.S. fleet’s four dry‐​bulk ships, however, only one is classified as “militarily useful.”

While the vessels’ mariners can be used to crew U.S. sealift ships in time of war, even the military concedes that cargo preference is a less‐​than‐​ideal means of ensuring they have employment. According to 1994 GAO testimony, the Department of Defense believes that “it is not an efficient use of resources to provide for [mariner] needs through supporting U.S.-flag ships with food aid preference cargos.”

Beyond its debateable effectiveness and inefficiency, cargo preference likely plays a counterproductive role by disincentivizing efforts to control costs and improve the U.S. fleet’s competitiveness. Notably, U.S. ship‐​crew wages and salaries roughly doubled in real terms from 2000 to 2013 — a rate of growth roughly three times that of all transportation workers.

Cargo preference may be a flawed means of meeting U.S. sealift needs, but its effectiveness in inflating mariner salaries cannot be denied.

Frustratingly, the shortcomings of cargo preference have been known for decades. As far back as 1950, a government report argued that, no matter the desired size or composition of the U.S. fleet, cargo preference is a “highly undesirable means of achieving it.” Cargo preference, the report added, is “first of all, a concealed subsidy, and thus not subject to the scrutiny and supervision” given to more direct subsidies.

Such lack of scrutiny is great for lobbyists — perhaps helping to explain cargo preferences’ longevity — but not so for the rest of us.

The goal of U.S. food‐​aid programs should be to feed people, not serve as a backdoor subsidy to the U.S. maritime industry. If the purpose of cargo preference is to inflate the salaries of U.S. mariners, it’s doing yeoman’s work. But as an efficient method of revitalizing the U.S. commercial fleet or meeting the military’s sealift needs, such requirements clearly fail. Rather than increasing the burden of cargo preference, Congress should eliminate such laws altogether and instead address U.S. national‐​security requirements through more direct and transparent methods.