Cargo Preference is commonplace among the world's seafaring nations, including Australia, Brazil, France, Japan, Taiwan.
"[4] Although cargo preference contains exceptions where U.S.-flag vessels are unavailable, as discussed infra, shipper agencies may determine non-availability only with MARAD concurrence.
[5] The 1904 Act requires that 100% of cargoes "bought for the Army, Navy, Air Force, or Marine Corps" be carried on board U.S.-flag vessels.
to incorporate a new section 901(b) to require U.S.-flag vessel participation in the carriage of United States Government impelled cargoes.
During two wars, the United States Government found itself unable to respond to pressing economic and military needs, and therefore built a legal framework to fortify the merchant marine as a bulwark against future failures.
The purpose of Cargo Preference is encapsulated in the opening section of the Merchant Marine Act of 1936: It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (A) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and foreign commerce of the United States and to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (B) capable of serving as a naval and military auxiliary in time of war or national emergency, (C) owned and operated under the United States Flag by citizens of the United States insofar as may be practicable, and (D) composed of the best-equipped, safest, and most suitable types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel.
As then-Senator Barack Obama stated in 2008: A strong U.S.-flag commercial fleet needs our nation's cargo preference laws.
[12] The U.S. fleet depends upon Cargo Preference because U.S. laws, regulations, and taxes place it at a competitive disadvantage relative to so-called "Open Register" or "Flag of Convenience" ("FOC") fleets, from nations such as Panama, the Bahamas, and Liberia, which impose minimal tax and regulatory burdens.
GAO measured this impact by estimating that, in the absence of preference cargo, the equivalent of between 61 and 68 percent, by tonnage, of the 165 U.S.-flag vessels engaged in international trade would leave the U.S.
"[13] Another GAO report found that shipments of food aid on U.S.-flag vessels did little to meet the law’s objective of helping to maintain a U.S. merchant marine and those cargo preference requirements adversely affected operations of the food aid programs, chiefly by raising the cost of ocean transportation and reducing the volume of commodities that can be shipped.
"Look at the numbers from Europe: After the Commission and member states began moving to cash, their contributions fell by 40 percent.