However, because U.S.-flag vessels often charge higher rates to transport cargo than foreign-flag vessels, cargo preference laws increase the government’s transportation costs. 1.1.) The Costs of Cargo Preference Laws to the Federal Government

Because the cost to transport cargo on U.S.-flag vessels is generally higher than it is on foreign-flag vessels, cargo preference laws add directly to a federal agency’s transportation costs. In fiscal years 1989 through 1993, the five agencies responsible for the transportation costs of most of the government’s international cargo paid an estimated additional $3.5 billion in transportation costs to ship cargo on U.S.-flag vessels. However, DOD estimates that $659 million of this cost was related to the Persian Gulf War. However, their effect on the U.S. merchant marine industry is mixed. The Impact of Cargo Preference Laws on the U.S. Maritime Industry

While cargo preference laws do not appear to have significantly affected the share of international oceanborne freight carried on U.S.-flag vessels, we estimate that in the absence of preference cargo, a significant portion of the U.S. fleet would reflag or cease operating. 3.6.) Conclusions

The effect of cargo preference laws on the U.S. merchant marine industry is mixed. This would likely result in the elimination of about 6,000 U.S. shipboard jobs but would have a minimal impact on the U.S. shipbuilding industry.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on cargo preference laws, focusing on their effect on: (1) federal transportation costs; and (2) the U.S. merchant marine industry.

What GAO Found

GAO found that: (1) cargo preference laws have increased federal agencies' transportation costs by an average of $578 million per year; (2) cargo preference laws increase agencies' transportation costs because U.S.-flag vessels generally charge more than foreign vessels to carry cargo; (3) although some agencies paid an estimated $3.5 billion in additional transportation costs to ship cargo on U.S.-flag vessels, DOD estimated that $659 million of those costs were related to the Persian Gulf War; (4) the effect of cargo preference laws on the U.S. merchant marine industry has been mixed; (5) the share of oceanborne cargo carried aboard U.S.-flag vessels has declined because most internationally shipped cargo is exempt from cargo preference laws; (6) in 1992, foreign-flag vessels carried about 96 percent of international cargo; and (7) although eliminating cargo preference laws could cause two-thirds of the U.S.-flag vessels to leave the U.S. fleet and result in the elimination of about 6,000 U.S. shipboard jobs, it would have a minimal impact on the U.S. shipbuilding industry.