	Introduction

Long-standing U.S. policy has treated the U.S.-flag international fleet as a naval auxiliary to be available in times of war or national emergency. When the United States is involved in an extended military conflict overseas, 90% or more of military cargoes are typically carried by ship. To support the U.S.-flag international fleet, Congress has required that "government-impelled" cargo sent overseas be carried on U.S.-flag ships. Government-impelled cargo is government-owned cargo such as military supplies, foreign aid such as food, and any privately owned cargo financed by the federal government, such as goods purchased with an Export-Import Bank loan. However, preference cargo is critical to some U.S.-flag ship lines, as U.S.-flag ships are not price-competitive with foreign-flag ships in carrying the overwhelming bulk of exports and imports transacted in the private sector. The report also identifies several disparate bills reflecting wide disagreement on the future direction of cargo preference policy. The Military Sealift Command (MSC) in the Department of Defense (DOD) operates a fleet of about 120 ships. The MSTS found that it could transport passengers and cargo in government-owned vessels for 80% or less of the cost of using private U.S.-flag shipping space. The objective of restricting the size of the MSTS fleet was to commit more military cargo to the privately owned U.S.-flag fleet. In recent years, military cargo has accounted for the vast majority of government-sponsored cargo. At least 50% of such cargo must be shipped in U.S.-flag vessels. In return for the subsidies, these 60 ships are to be made available to DOD in times of war or national emergency. The trend toward highly specialized and larger ships in the commercial sector appears inconsistent with the military's shipping needs. In the commercial market, however, this ship type has evolved into specialized vessel types that do not offer the flexibility the military requires. Budgetary considerations aside, if the objective of sealift policy is merely to sustain the existence of U.S.-controlled and -crewed ships, rather than to maintain a U.S.-flag commercial fleet, that objective can be met equally well whether those ships are government-owned and crewed by federal employees or are privately owned and crewed. If preference cargo is now supporting almost all of the costs of the U.S.-flag commercial fleet, then commercial shipments are no longer helping to minimize the government's costs. Competition Among U.S.-Flag Carriers

The small size of the U.S.-flag fleet may limit competition in bidding for preference cargoes. For foreign-aid bulk cargo, Congress specified in the Cargo Preference Act of 1954 that U.S.-flag vessels were to be used "to the extent such vessels are available at fair and reasonable rates for United States-flag commercial vessels " (italics added). The boom in U.S. shale oil and natural gas production has led to discussion, particularly in the House Committee on Transportation and Infrastructure, Subcommittee on Coast Guard and Maritime Transportation, about whether to require the use of U.S.-flag tankers for the export of oil and liquefied natural gas (LNG). Legislation in the 114th Congress

Congress is considering several bills that could significantly affect the volume of preference cargo. from 50% to 0%, and increase the amount of food aid supplied locally from overseas, thereby decreasing the amount of food aid shipped from the United States. The Administration also supports changes in food-aid policy that would have the effect of reducing U.S.-flag shipments, and sought $25 million in its FY2016 MARAD budget request to "otherwise retain" U.S. merchant mariners.
Long-standing U.S. policy has treated the U.S.-flag international fleet as a naval auxiliary to be available in times of war or national emergency. When the United States is involved in an extended military conflict overseas, 90% or more of military cargoes are typically carried by ship. To support the U.S. merchant marine, Congress has required that "government-impelled" cargo sent overseas be carried on U.S.-flag ships. Government-impelled cargo (a.k.a. "preference cargo") is government-owned cargo, such as military supplies and food aid, and any cargo that is somehow financed by the federal government, such as by the Export-Import Bank. While export shipments account for the vast bulk of government-impelled cargo, in 2008 Congress extended the law to require that state and local governments and private entities importing goods with federal financial assistance ship at least 50% of such cargo in U.S.-flag vessels. Regulations to implement that requirement have not been issued.
Historically, cargo preference law has been used to assure that a large proportion of government-impelled cargoes is shipped in privately owned U.S.-flag ships rather than in government-owned vessels such as those now controlled by the Military Sealift Command (MSC). Military cargo then, and more so now, accounts for the overwhelming bulk of preference cargoes. Since 1954, an agreement between U.S. government cabinet departments has restricted the size of the military-owned fleet and has required the military to turn first to the private fleet before using its own ships. The cost of employing U.S. citizens aboard U.S.-flag commercial vessels appears to be higher than the costs of employing the federal civilian mariners that crew government-owned ships.
It appears preference cargo now accounts for almost all of the revenues of the U.S.-flag international fleet. U.S.-flag ships do not appear competitive with foreign-flag ships in carrying the overwhelming bulk of exports and imports transacted in the private sector. However, Congress has directed that the U.S. government pay the additional cost of U.S.-flag shipping in order to maintain the U.S.-flag international fleet as a naval auxiliary to be available in times of war or national emergency. This cost may be influenced by the level of competition among U.S.-flag carriers bidding for preference cargoes and the procedures for determining "fair and reasonable rates."
The needs of the commercial market increasingly have diverged from those of the military, as the trend toward highly specialized and larger ships in the commercial sector appears inconsistent with the military's shipping requirements. However, the knowledge and skills of the mariners aboard U.S.-flag commercial ships are transferrable to manning a military reserve fleet of ships.
In the 114th Congress, several disparate bills would have the effect of either increasing or decreasing the volume of preference cargo significantly. The bills involve the future of food-aid policy, the existence of the Export-Import Bank, and the level of operating subsidy provided to U.S.-flag carriers. The boom in domestic oil and gas production also has led to discussions in Congress about whether U.S.-flag tankers should be guaranteed a portion of the cargo if these products are exported. These issues are arising at a time when U.S.-flag operators face a potential decline in the amount of preference cargo due to overseas troop withdrawals and changes in food-aid policy.