Industry Says MARAD Should Improve Enforcement of Cargo Preference Laws

October 27, 2011 by Elizabeth Parker|Other U.S.

The Maritime Administration (MARAD) has recently released a transcript of its October 3, 2011 public meeting on how it should implement its cargo preference regulations going forward (46 CFR 381-382), in accordance with the President's Executive Order on independent agency regulatory review¹. Statements provided by participants in the marine cargo industry urged MARAD to, among other things, improve enforcement of the cargo preference laws and promulgate a regulation to implement a 2008 amendment that granted MARAD greater authority over the program.

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(The Military Cargo Preference Act of 1904 requires all items procured for or owned by U.S. military departments and defense agencies be carried exclusively (100%) on U.S.-flag vessels. Through the Merchant Marine Act of 1970, Congress provided MARAD with enforcement authority over the administration and compliance with cargo preference shipments by U.S. agencies. This Act was amended in 2008 to provide MARAD with the authority to, among other things, impose a civil penalty of not more than $25,000 for each violation of the cargo preference laws willfully and knowingly committed.²)

Industry Urges MARAD to Improve Enforcement, Fill Senior Positions, Etc.

The following are highlights of industry statements³ provided during the hearing:

Preference key due to fewer gov't exports. Many industry representatives stated that the importance of cargo preference laws is increasing as the U.S. Government is shipping fewer goods and commodities abroad, as evidenced by the reduction of U.S. military cargoes in Iraq, the winding down of operations in Afghanistan, and a reduction of spending on international food aid.
Some agencies do not apply preference. Industry raised concerns with the fact that shipments that should be subject to cargo preference requirements frequently do not receive preference. One speaker stated this was caused by a lack of visibility into the supply chain, shipper unfamiliarity with cargo preference (particularly in the NVO and forwarding communities), and in some cases, willful evasion of the U.S. flag obligation or disinterest by some government agencies⁴.
Better enforcement is needed. MARAD was urged to undertake rigorous enforcement of the existing cargo preference laws to ensure that the requirements are being applied and to ensure that agencies and contracting follow cargo preference requirements.
MARAD should implement the 2008 amendment. A majority of speakers stated that MARAD should promulgate a regulation to implement the 2008 cargo preference statutory amendment, which provided MARAD with greater authority to implement cargo preference.
Acquisition regulation needs amendment. MARAD was urged take the initiative to amend federal acquisition regulation (FAR) that has also not been amended to take into account the 2008 changes. Speakers stated that if such regulation is not current, cargo preference enforcement wouldn't be either.
Senior positions should be filled. Two senior positions for the Director of Cargo Preference and Domestic Trade, and Assistant Administrator for Business and Finance Department have been vacant for a considerable amount of time. Speakers stated that MARAD should immediately fill these two senior preference positions so as not to inhibit MARAD's cargo preference efforts.
Info collection & dissemination should be improved. Several speakers stated that MARAD needs to significantly improve its cargo preference information collection and dissemination efforts. They noted that MARAD's website has not been updated, for example, with regard to food aid preference numbers in two years. They state that better data will help all parties ensure cargo preference compliance.

¹On January 18, 2011, the President issued EO 13563, "Improving Regulation and Regulatory Review," which requires retrospective review of significant rules. EO 13563 requires each Executive Branch agency to develop a preliminary plan to periodically review its existing regulations to determine whether any regulations should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving its regulatory objectives. (See ITT’s Online Archives 11011915, for summary.)

²According to cargo preference laws, 100% of cargo for the military and Export Import Bank must be transported on U.S.-flag vessels, at least 50% of cargo for civilian agencies, and at least 75% of agricultural cargo.)

³Speakers from MAERSK (representing the U.S.A. Maritime Coalition), Marine Engineer's Beneficial Association, Seafarers International Union, and other private firms and organizations presented during this hearing.

⁴Several industry statements stated that agencies like the Department of Energy and USAID tend to avoid alerting or cooperating with MARAD regarding the shipments of goods deemed to be subject to cargo preference laws and requirements.

(See ITT's Online Archives 11091625 for summary of MARAD's announcement of this meeting.

See ITT's Online Archives 11062724 for summary of a GAO report finding high shipping costs for USAID and USDA federal food aid programs due to legal requirements to ship 75% of commodities on U.S.-flag vessels.)

Meeting transcript, video recording, agenda, and other documents are available here.