The  cargo preference and Maritime Security Programs are intended to support  both as part of the U.S.-flag fleet. Cargo Preference and Maritime Security Programs Provide Incentives to Retain U.S.-Flag Ships and Mariners

The cargo preference and Maritime Security Programs both provide  incentives to retain privately owned U.S.-flag ships and their U.S.-citizen  mariners for commercial and national defense purposes. MSF currently has 47 ships, of which 37 have  participated in cargo preference food aid shipments. MSF and Non-MSF Carriers Compete for Bagged Food Aid Shipments

MSF and non-MSF carriers compete only for bagged food aid shipments  because MSF vessels do not carry bulk food aid. Increasing Share of Food Aid Is Shipped as Bagged Cargo

Although on average approximately 67 percent of food aid was shipped as  bulk cargo and 33 percent as bagged cargo from fiscal years 1999 to 2003,  the share of food aid shipped as bagged cargo generally increased during  these years. Changes in food aid spending from fiscal years 1999 to 2003 have  contributed to this shift from bulk to bagged cargo. MSF vessels  carried about 45 percent of this cargo and non-MSF vessels carried 55  percent. Cargo Preference Requirements Affect Whether Food Aid Shipments Are Awarded to MSF or Non-MSF Carriers

Cargo preference requirements affect the results of competition between  MSF and non-MSF carriers for food aid shipments. Multiple Factors Determine How Tonnage Limit Changes Would Impact Food Aid Carriers

Our analysis of data from program agencies and carriers suggests that  establishing a bagged tonnage limitation could reduce MSF vessels’ market  share in food aid, but the extent will depend on the limitation level and the  options MSF carriers have in responding to it. Using recent data, we  examined daily limits of 7,500, 5,000, and 2,500 tons and found that the  percentage of MSF food aid voyages affected rises from 3 percent at a limit  of 7,500 tons to 19 percent at a limit of 2,500 tons. The major food aid ports would generally experience a  limited impact on their overall port activity from a bagged tonnage limit,  although specific food aid terminals could potentially be affected,  depending on the extent of any limitation and the MSF carriers’ responses  to it. If carriers never forgo the subsidy, the impacts of a  limitation on MSF carriers would be greater. As discussed with Committee  representatives, we have focused on answering the following questions: (1)  how the cargo preference and Maritime Security Programs are designed to  meet their objectives and who participates in them; (2) what the nature and  extent are of MSF and non-MSF carrier participation in the food aid  program; (3) how establishing a bagged cargo preference tonnage  limitation on MSF vessels would be expected to affect the MSF, other U.S.- flag ships, the cargo preference food aid program, and the ports servicing  these ships. For affected voyages, an MSF  carrier may be able to (1) continue carrying some food aid up to the limit,  (2) replace some food aid above a limit with other cargo, and (3) continue  carrying food aid above a limit if it were more profitable than the subsidy  payment for that voyage plus any net revenue from replacing the food aid  with other cargo. 1.
Why GAO Did This Study

Food aid cargo must generally be carried on U.S.-flag ships under requirements set by the cargo preference program. Two groups of carriers compete for this cargo: (1) those that participate in the Maritime Security Program and receive an annual government subsidy--generally liners operating on scheduled routes and (2) those that do not--generally carriers operating on a charter basis. Congress directed GAO to study (1) how the cargo preference and Maritime Security programs are designed and who participates;(2) the nature and extent of MSF and non-MSF carrier participation and competition in the food aid program; and (3) how a tonnage limitation on bagged preference cargo for MSF vessels could affect MSF, other U.S.-flag ships, the cargo preference food aid program, and the ports servicing these ships.

What GAO Found

The cargo preference program and the Maritime Security Program provide incentives to retain privately owned U.S.-flag ships and their U.S. citizen mariners for commercial and national defense purposes. The cargo preference program is open to all U.S.-flagged vessels, while the Maritime Security Fleet (MSF) subsidy is only available to certain militarily useful vessels. Of the 47 ships currently in the MSF, 37 have participated in cargo preference food aid shipments. MSF and non-MSF carriers compete for food aid shipped as bagged cargo, which averaged 33 percent of food aid shipments by tonnage from fiscal years 1999 to 2003. There is no competition for bulk food aid shipments because MSF carriers do not carry bulk cargo. Changes in food aid spending have contributed to a shift from bulk to bagged cargo and increased reliance on bagged cargo by some non-MSF carriers. From 1999 to 2003, MSF carriers shipped about 45 percent and non-MSF carriers 55 percent of bagged food aid cargo. Competition between MSF and non-MSF carriers for bagged food aid is affected by certain cargo preference requirements. Establishing a tonnage limitation on MSF vessels would likely reduce their share of food aid shipments, but the extent would depend on factors such as the level of the limit and the options MSF carriers have in responding to it. We examined three proposed limits and found that the percentage of food aid voyages carrying more than the proposed limit rises from 3 percent with a limit of 7,500 tons to 19 percent above 2,500 tons, according to fiscal year 2001 to 2003 data. The actual impact on MSF carriers will be smaller if they are able to (1) carry some food aid up to the limit, (2) replace some food aid above the limit with other cargo, and/or (3) elect to carry food aid even without the subsidy. Food aid agencies are concerned about the impacts of a tonnage limit, including increased delays in providing food aid, administrative burdens, and higher shipping costs. Major ports would generally experience a limited overall impact of a tonnage limitation, but specific food aid terminals could be affected.