[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
CARGO PREFERENCE: COMPLIANCE WITH AND ENFORCEMENT OF MARITIME'S BUY
AMERICAN LAWS
=======================================================================
(117-57)
REMOTE HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 14, 2022
__________
Printed for the use of the
Committee on Transportation and Infrastructure
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available online at: https://www.govinfo.gov/committee/house-
transportation?path=/browsecommittee/chamber/house/committee/
transportation
______
U.S. GOVERNMENT PUBLISHING OFFICE
50-066 PDF WASHINGTON : 2023
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
PETER A. DeFAZIO, Oregon, Chair
SAM GRAVES, Missouri ELEANOR HOLMES NORTON,
ERIC A. ``RICK'' CRAWFORD, Arkansas District of Columbia
BOB GIBBS, Ohio EDDIE BERNICE JOHNSON, Texas
DANIEL WEBSTER, Florida RICK LARSEN, Washington
THOMAS MASSIE, Kentucky GRACE F. NAPOLITANO, California
SCOTT PERRY, Pennsylvania STEVE COHEN, Tennessee
RODNEY DAVIS, Illinois ALBIO SIRES, New Jersey
JOHN KATKO, New York JOHN GARAMENDI, California
BRIAN BABIN, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
GARRET GRAVES, Louisiana Georgia
DAVID ROUZER, North Carolina ANDRE CARSON, Indiana
MIKE BOST, Illinois DINA TITUS, Nevada
RANDY K. WEBER, Sr., Texas SEAN PATRICK MALONEY, New York
DOUG LaMALFA, California JARED HUFFMAN, California
BRUCE WESTERMAN, Arkansas JULIA BROWNLEY, California
BRIAN J. MAST, Florida FREDERICA S. WILSON, Florida
MIKE GALLAGHER, Wisconsin DONALD M. PAYNE, Jr., New Jersey
BRIAN K. FITZPATRICK, Pennsylvania ALAN S. LOWENTHAL, California
JENNIFFER GONZALEZ-COLON, MARK DeSAULNIER, California
Puerto Rico STEPHEN F. LYNCH, Massachusetts
TROY BALDERSON, Ohio SALUD O. CARBAJAL, California
PETE STAUBER, Minnesota ANTHONY G. BROWN, Maryland
TIM BURCHETT, Tennessee TOM MALINOWSKI, New Jersey
DUSTY JOHNSON, South Dakota GREG STANTON, Arizona
JEFFERSON VAN DREW, New Jersey COLIN Z. ALLRED, Texas
MICHAEL GUEST, Mississippi SHARICE DAVIDS, Kansas, Vice Chair
TROY E. NEHLS, Texas JESUS G. ``CHUY'' GARCIA, Illinois
NANCY MACE, South Carolina CHRIS PAPPAS, New Hampshire
NICOLE MALLIOTAKIS, New York CONOR LAMB, Pennsylvania
BETH VAN DUYNE, Texas SETH MOULTON, Massachusetts
CARLOS A. GIMENEZ, Florida JAKE AUCHINCLOSS, Massachusetts
MICHELLE STEEL, California CAROLYN BOURDEAUX, Georgia
Vacancy KAIALI`I KAHELE, Hawaii
MARILYN STRICKLAND, Washington
NIKEMA WILLIAMS, Georgia
MARIE NEWMAN, Illinois
TROY A. CARTER, Louisiana
SHEILA CHERFILUS-McCORMICK,
Florida
------ 7
Subcommittee on Coast Guard and Maritime Transportation
SALUD O. CARBAJAL, California, Chair
RICK LARSEN, Washington BOB GIBBS, Ohio
JAKE AUCHINCLOSS, Massachusetts, RANDY K. WEBER, Sr., Texas
Vice Chair MIKE GALLAGHER, Wisconsin
SEAN PATRICK MALONEY, New York JEFFERSON VAN DREW, New Jersey
ALAN S. LOWENTHAL, California NICOLE MALLIOTAKIS, New York
ANTHONY G. BROWN, Maryland Vacancy
CHRIS PAPPAS, New Hampshire SAM GRAVES, Missouri (Ex Officio)
PETER A. DeFAZIO, Oregon (Ex
Officio)
CONTENTS
Page
Summary of Subject Matter........................................ v
STATEMENTS OF MEMBERS OF THE COMMITTEE
Hon. Salud O. Carbajal, a Representative in Congress from the
State of California, and Chair, Subcommittee on Coast Guard and
Maritime Transportation, opening statement..................... 1
Prepared statement........................................... 3
Hon. Bob Gibbs, a Representative in Congress from the State of
Ohio, and Ranking Member, Subcommittee on Coast Guard and
Maritime Transportation, opening statement..................... 4
Prepared statement........................................... 4
Hon. Peter A. DeFazio, a Representative in Congress from the
State of Oregon, and Chair, Committee on Transportation and
Infrastructure, prepared statement............................. 55
Hon. Sam Graves, a Representative in Congress from the State of
Missouri, and Ranking Member, Committee on Transportation and
Infrastructure, prepared statement............................. 56
WITNESSES
Panel 1
Ann C. Phillips, Rear Admiral, U.S. Navy (Ret.), and
Administrator, Maritime Administration, oral statement......... 5
Prepared statement........................................... 7
Andrew Von Ah, Director, Physical Infrastructure, U.S. Government
Accountability Office, oral statement.......................... 8
Prepared statement........................................... 10
Panel 2
Captain Donald J. Marcus, President, International Organization
of Masters, Mates & Pilots, AFL-CIO, oral statement............ 29
Prepared statement........................................... 31
Eric P. Ebeling, President and Chief Executive Officer, American
Roll-On Roll-Off Carrier Group, on behalf of USA Maritime, oral
statement...................................................... 34
Prepared statement........................................... 36
Bryan Clark, Senior Fellow and Director of the Center for Defense
Concepts and Technology, Hudson Institute, oral statement...... 41
Prepared statement........................................... 43
SUBMISSIONS FOR THE RECORD
U.S. Government Accountability Office, ``Maritime Administration:
Actions Needed To Enhance Cargo Preference Oversight,'' GAO-22-
105160, Sept. 12, 2022, Submitted for the Record by Hon. Salud
O. Carbajal.................................................... 56
APPENDIX
Question from Hon. Bob Gibbs to Bryan Clark, Senior Fellow and
Director of the Center for Defense Concepts and Technology,
Hudson Institute............................................... 57
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
September 12, 2022
SUMMARY OF SUBJECT MATTER
TO: LMembers, Subcommittee on Coast Guard and Maritime
Transportation
FROM: LStaff, Subcommittee on Coast Guard and Maritime
Transportation
RE: LHearing on ``Cargo Preference: Compliance with
and Enforcement of Maritime's Buy American Laws''
_______________________________________________________________________
PURPOSE
The Subcommittee on Coast Guard and Maritime Transportation
will hold a hearing on Wednesday, September 14, 2022, at 10:00
a.m. ET in 2167 Rayburn House Office Building and via Zoom to
examine the current state of cargo preference compliance and
enforcement. The Subcommittee will hear testimony from the U.S.
Maritime Administration (MARAD), the Government Accountability
Office (GAO), the Hudson Institute, USA Maritime, and the
International Organization of Masters, Mates & Pilots.
BACKGROUND
Cargo preference is the general term used to describe the
U.S. laws, regulations and policies that require the use of
U.S. flag vessels in the movement of cargo that is owned,
procured, furnished, or financed by the U.S. government.\1\ It
also includes cargo that is being shipped under an agreement of
the U.S. government, or as part of a government program.
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\1\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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Cargo preference has been an effective shipping strategy in
maintaining the U.S. presence and economic viability in the
international shipping market.\2\ U.S. law requires that
certain percentages of cargo be carried on vessels registered
in the United States when the cargo is supported by U.S.
federal funding.\3\ Such cargo is commonly referred to as
``government-impelled'' and typically moves:
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\2\ Id.
\3\ Id.
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Las a direct result of federal government
involvement, such as military transportation of supplies by
sea;
Lindirectly through financial sponsorship of a
federal program, such as food aid supported by the U.S. Agency
for International Development (USAID); or
Lin connection with a loan, grant, loan guarantee,
or other financing provided by the federal government.\4\
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\4\ Id.
Any department, agency, contractor, or sub-contractor of
the federal government administering a program that directly or
indirectly involves the transportation of cargoes on ocean
vessels is subject to cargo preference requirements.
Additionally, all members of the supply chain of said cargoes
must comply with cargo preference.\5\
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\5\ Id.
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The U.S. uses federal laws and regulations to regulate and
protect its own cargo interests. Three primary pieces of
legislation guide Cargo Preference requirements in the United
States: Section 2631 of title 10, United States Code, popularly
known as the Cargo Preference Act of 1904; Section 55305 of
title 46, United State code, popularly known as the Cargo
Preference Act of 1954; and Section 55304 of title 46, United
States Code, popularly known as Public Resolution 17 (PR-17).
The Cargo Preference Act of 1904 requires 100 percent of
military cargo carried by sea by the Department of Defense to
be shipped via a U.S.-flagged vessel.\6\
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\6\ 10 U.S.C. Sec. 2631
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The Cargo Preference Act of 1954 currently requires that at
least 50 percent of the gross tonnage of civilian agencies
cargo and agricultural cargo be transported on privately owned
U.S.-flag commercial vessels.\7\ This can include cargo from
the Department of Agriculture (USDA), USAID, and the
transportation of all U.S. government personnel and their
personal effects (household goods) and all private vehicles
transported at the U.S. government's expense.\8\ At first
passage, this act set civilian and agricultural requirements at
50 percent.\9\ These were increased to 75 percent by the Food
Security Act of 1985 (P.L. 99-198, subtitle C) but were
subsequently lowered back to 50 percent when subtitle C was
repealed by the Moving Ahead for Progress in the 21st Century
Act in 2012.
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\7\ 46 U.S.C. Sec. 55305
\8\ Id.
\9\ Congressional Research Service. Cargo Preferences for U.S.-Flag
Shipping. October 29, 2015.
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PR-17 was enacted in 1934 to address U.S.-flag shipping
requirements for the U.S. Export-Import (EXIM) Bank of the
United States and requires shipping on U.S.-flag vessels for
the following EXIM Bank transactions: Direct loans regardless
of term or amount, and Guarantees valued over $20,000,000 USD
(excluding EXIM Bank exposure fees) or with repayment terms
greater than seven years, unless the export qualifies for a
longer repayment term under EXIM's Medical Equipment
Initiative, Environmental Exports Program, or Transportation
Security Program. Furthermore, foreign countries that are
recipients of U.S. assistance through foreign military financed
programs are also required by law to use U.S.-flag vessels.\10\
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\10\ 46 U.S.C. Sec. 55304
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MARAD holds the responsibility of monitoring federal
agencies' cargo volumes to ensure compliance with cargo
preference laws and regulations.\11\ MARAD's Office of Cargo
and Commercial Sealift manages all MARAD Cargo Preference
activities.\12\ Data regarding compliance by agencies was
previously published by MARAD and publicly available up until
2013, when MARAD stopped publishing this information because
they were no longer required to do so by Congress.\13\ Section
3502(b) of H.R. 7900, the National Defense Authorization Act
for Fiscal Year 2023 which passed the House on July 14, 2022,
reinstates the reporting requirement.
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\11\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
\12\ Id.
\13\ Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
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Current regulations make one entity, the prime contractor,
the responsible party for ensuring that U.S.-flag vessels are
used throughout the supply chain. The prime contractor is
deemed to have violated its U.S.-flag requirements if any
person or entity in its supply chain--including sub-
contractors, vendors, suppliers, freight forwarders, and
shipping companies--does not meet the requirements. The Federal
Contracting Officer is the official enforcement authority and
can impose financial assessments against the prime contractor
if the U.S.-flag vessel use requirements are not met by any
member of the supply chain.\14\
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\14\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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I. THE PURPOSE OF CARGO PREFERENCE
Cargo preference, the reservation of certain cargoes to
U.S.-flag ships, is necessary for our national defense and a
key driver of domestic and foreign commerce. This helps
maintain a U.S.-flag commercial merchant marine that can be
called upon in times of war or national emergencies.\15\
Section 50101 of title 46, U.S.C., dictates that the United
States must have a merchant marine--
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\15\ Id.
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Lsufficient to carry the waterborne domestic
commerce and a substantial part of the waterborne export and
import foreign commerce of the United States,
Lcapable of serving as a naval and military
auxiliary in times of war or national emergency;
Lowned and operated as vessels of the United
States by citizens of the United States;
Lcomposed 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; and
Lsupplemented by efficient facilities for building
and repairing vessels.
It is the United States' policy to encourage and aid in the
development of a merchant marine satisfying the above
objectives.\16\ Cargo preference coupled with other programs
such as the Maritime Security Program \17\ (MSP) and Voluntary
Intermodal Sealift Agreement \18\ (VISA), are intended to
support the U.S.-flag shipping industry so that the United
States has a fleet capable of supplementing the capacity of the
U.S. military with U.S.-flagged vessels and trained mariners
during times of war or national emergency, while also providing
transportation for the nation's maritime commerce.\19\ Despite
this objective, the number of oceangoing vessels in the U.S.-
flag fleet has fallen over time.\20\ According to MARAD data,
the fleet of U.S.-flagged vessels engaged in international
trade has declined from approximately 199 vessels at the end of
1990 to 84 vessels in 2021.\21\ This is in part due to the
increased costs associated with operating a U.S.-flagged vessel
in comparison to foreign-flagged vessels and the continued
practice of using flags of convenience.\22\ Cargo preference
requirements ensure a baseline of cargo for vessel operators
which guarantees at least a portion of the defense capability
needed for United States national sealift capability.\23\ The
figure below demonstrates the decline of the number of vessels
in the U.S.-flag fleet since 1990.
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\16\ 46 U.S.C. Sec. 550101
\17\ The Maritime Security Program (MSP) maintains a fleet of
commercially viable, militarily useful merchant ships active in
international trade. The MSP fleet is available to support U.S.
Department of Defense (DoD) sustainment sealift requirements during
times of conflict or in other national emergencies. The program also
provides DoD access to MSP participants' global intermodal
transportation network of terminals, facilities, logistic management
services, and U.S. citizen merchant mariners. In return, vessel
operators receive a federal stipend. Maritime Administration. https://
www.maritime.dot.gov/national-security/strategic-sealift/maritime-
security-program-msp
\18\ MARAD's Voluntary Intermodal Sealift Agreement (VISA) program
is a partnership between the U.S. Government and the maritime industry
to provide the Department of Defense (DoD) with assured access to
state-of-the-art commercial sealift and intermodal equipment when DoD
deploys military forces during a national emergency or wartime
operations. Maritime Administration. https://www.maritime.dot.gov/
national-security/strategic-sealift/voluntary-intermodal-sealift-
agreement-visa
\19\ Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
\20\ Maritime Administration. U.S. Department of Transportation.
U.S. Flag Vessels. https://www.maritime.dot.gov/national-security/us-
flag-vessels.
\21\ Id.
\22\ Maritime Administration. U.S. Department of Transportation.
Comparison of U.S. and Foreign-Flag Operating Costs. September 2011.
https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/resources/
3651/comparisonofusandforeignflagoperatingcosts.pdf
\23\ Maritime Administration. Cargo Preference. https://
www.maritime.dot.gov/ports/cargo-preference/cargo-preference
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FIGURE 1: NUMBER OF INTERNATIONALLY TRADING U.S.-FLAG VESSELS, 1990 TO
2021
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 1: Number of Internationally Trading U.S.-Flag Vessels from 1990
to 2021. Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
In testimony to the subcommittee earlier this year, MARAD
Deputy Administrator Lucinda Lessley stated that:
``Critical to the operation of both Government-owned and
commercial U.S.-flag vessels is an adequate supply of qualified
U.S. mariners to crew them. Access to a pool of qualified
mariners from a robust, commercial maritime fleet is essential
to maintaining sufficient sealift readiness capacity for
contingencies. Due to the declining number of ships in the
U.S.-flag oceangoing fleet, MARAD is concerned about our
ability to quickly assemble an adequate number of qualified
mariners to operate large ships for surge and sustainment
sealift operations if an extended mobilization were to occur.''
\24\
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\24\ U.S. House of Representatives Committee on Transportation and
Infrastructure. Statement of Lucinda Lessley, Acting Administrator,
Maritime Administration, U.S. Department of Transportation, Before the
Committee on Transportation and Infrastructure, Subcommittee on Coast
Guard and Maritime Transportation, U.S. House of Representatives,
Hearing on ``Review of Fiscal Year 2023 Budget Request for the Coast
Guard and Maritime Transportation Programs.'' April 27, 2022. https://
transportation.house.gov/imo/media/doc/Lessley%20Testimony1.pdf
A 2020 report by the Center for Strategic and Budgetary
Assessments emphasized the importance of not only
recapitalizing the U.S.-flagged fleet but also the need for
cargo preference and enforcement of cargo preference laws.\25\
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\25\ Clark, Bryan; Walton, Tim; Lemon, Adam. Center for Strategic
and Budgetary Assessments. Page 55 https://csbaonline.org/uploads/
documents/CSBA8199_Maritime_Industrial_FINAL.pdf
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II. RECENT LEGISLATIVE CHANGES
A. THE DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR
2009
In 2008, MARAD was granted new authorities to take certain
cargo preference-related enforcement actions through amendments
made by the Duncan Hunter National Defense Authorization Act
for Fiscal Year 2009 (P.L. 110-417) (2009 NDAA) to section
55305(d) of title 46. Those authorities include assessing civil
penalties ``against any person'' for noncompliance with cargo
preference requirements. The Secretary of Transportation was
also given discretion to prescribe rules if deemed necessary to
carry out the authorities granted. To date, MARAD has not
issued any regulations implementing those authorities nor has
MARAD taken any enforcement action.\26\ Section 3502(a) of the
National Defense Authorization Act for Fiscal Year 2023 which
passed the House on July 14, 2022, directed MARAD to issue such
rules within 90 days of enactment.
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\26\ Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
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B. MOVING AHEAD FOR PROGRESS IN THE 21ST CENTURY ACT
Cargo preference laws were further amended by the Moving
Ahead for Progress in the 21st Century Act (P.L. 112-141) (also
known as MAP-21). As mentioned above, MAP-21 repealed the Food
Security Act of 1985 (P.L. 99-198, subtitle C), which had
increased the cargo preference requirement from 50 percent to
75 percent of food aid tonnage. Section 100124 of MAP-21
reduced the percentage of U.S. food aid that must be shipped on
U.S.-flagged ships (which must be owned and crewed by U.S.
citizens) from 75 percent to 50 percent and repealed the
requirement that 25 percent of bagged or processed food aid be
shipped through Great Lakes ports.\27\ These repeals weakened
current cargo preference laws by lowering cargo levels and
reducing government impelled cargo set aside for carriage on
U.S.-flagged ships.
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\27\ Congressional Research Service. Surface Transportation Funding
and Programs Under MAP-21: Moving Ahead for Progress in the 21st
Century Act (P.L. 112-141). https://sgp.fas.org/crs/misc/R42762.pdf
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In a 2015 joint hearing before the Subcommittee on
Livestock and Foreign Agriculture, Committee on Agriculture,
and the Subcommittee on Coast Guard and Maritime
Transportation, Committee on Transportation and Infrastructure,
testimony was provided by Brian Shoeneman, with the Seafarers
International Union, highlighting the impacts MAP-21 has had on
the U.S.-flag fleet including a reduction of the overall size
and cargo volumes.\28\ He stated:
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\28\ Joint hearing before the Subcommittee on Livestock and Foreign
Agriculture Committee on Agriculture and the Subcommittee on Coast
Guard and Maritime Transportation Committee on Transportation and
Infrastructure, U.S. House of Representatives. ``U.S. International
Food Aid Programs: Transportation Perspectives'' November 17, 2015.
https://www.govinfo.gov/content/pkg/CHRG-114hhrg97713/pdf/CHRG-
114hhrg97713.pdf
``There is no denying that the loss of food aid cargo resulting
from reductions in appropriations, and the cuts to cargo
preference in MAP-21, has cost this industry ships and jobs.
Over the last 10 years food aid has made up a considerable
portion of the preference cargo carried by American carriers,
if not the majority. From 2000 to 2013 cargo volumes in the
food aid program have dropped 77 percent. In 1999 there were
106 American ships carrying approximately 6 million tons of
food aid. In 2013 the fleet had dropped in size to 75 ships,
carrying slightly more than 1 million tons of food aid.
According to MARAD, since 2010 the size of the U.S.-flag fleet
has dropped 23 percent, from 99 ships to the 78 ships mentioned
today. And that has resulted in the loss of nearly 1,000
mariner jobs.'' \29\
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\29\ Id.
C. WILLIAM M. (MAC) THORNBERRY NATIONAL DEFENSE AUTHORIZATION ACT FOR
FISCAL YEAR 2021
Included in the William M. (Mac) Thornberry National
Defense Authorization Act for Fiscal Year 2021 was an amendment
to section 2631 of title 10, United States Code which aimed to
increase DOD compliance with military cargo preference
requirements.\30\ Another part of the bill required a GAO study
regarding federal compliance with existing civilian and
military cargo preference rules.\31\
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\30\ William M. (Mac) Thornberry National Defense Authorization Act
for Fiscal Year 2021. Public Law 116-283.
\31\ Id.
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III. AGENCY COMPLIANCE WITH CARGO PREFERENCE LAWS
Despite the enhanced enforcement capabilities provided to
MARAD by the 2009 NDAA, the degree to which agencies comply
remains unclear due to a lack of transparency from MARAD and
obligated agencies. Government cargoes have decreased in volume
by more than half since 2004, which has placed downward
pressure on the profitability and viability of the U.S.-flagged
international trading fleet and, by extension, contributed to a
decline in its size, raising national security concerns.\32\ As
mentioned above, Section 8404 of the William M. (Mac)
Thornberry National Defense Authorization Act for Fiscal Year
2021 included a provision for GAO to examine federal agencies'
actions to monitor and ensure compliance with cargo preference
requirements and to review MARAD's enforcement activities.\33\
In the report released September 12, 2022, GAO looked at seven
agencies covered under cargo preference requirements: DOD,
USAID, USDA, EXIM Bank, the Department of Energy, Department of
Transportation, and the Department of State.\34\
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\32\ Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
\33\ William M. (Mac) Thornberry National Defense Authorization Act
for Fiscal Year 2021. Public Law 116-283.
\34\ Id.
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Data received from most agencies is typically through the
review of bills of lading that agencies' ocean transportation
contractors are required to submit to MARAD following
completion of transportation services. DOD typically provides
additional data beyond the bills of lading on cargo shipments.
As mentioned previously, prior to 2013, data on cargo
preference compliance had been publicly reported by MARAD.\35\
This practice ceased following the 2012 removal of said
reporting requirement by MAP-21.\36\ GAO was able to obtain
compliance data from MARAD for years after 2013 and found that
U.S.-flagged cargo volumes decreased 36 percent from fiscal
year 2012 through 2020.\37\ The lack of published data
obstructs outside oversight by industry or Congress on
compliance with cargo preference laws. Without public
reporting, federal agencies lack the incentive to demonstrate
to the public that they are meeting cargo preference
requirements.\38\
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\35\ Id.
\36\ Government Accountability Office. Maritime Administration:
Actions Needed to Enhance Cargo Preference Oversight. GAO-22-105160.
September 12, 2022.
\37\ Id.
\38\ Id.
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MARAD also has the authority to issue waivers for
situations where U.S.-flagged vessels are not readily available
for use. DOD has statutory authority to make its own
determination about the real-time availability of eligible
U.S.-flagged vessels.\39\ DOD shares this information with
MARAD, but is not required to do so.\40\ Other agencies vary on
their procedures for determining availability and compliance.
While some agencies make these determinations on their own or
leave it to their contractors, others go to MARAD for guidance.
A lack of guidance from MARAD on how to determine the
availability of U.S.-flagged vessels and calculate the
percentage of cargo shipped on U.S.-flagged ships has led to
varying interpretations of cargo preference laws and
calculations of compliance.\41\ Without conducting a rulemaking
and issuing these regulations, MARAD is unable to consistently
assess cargo preference compliance rates across agencies and
utilize enforcement capabilities that were provided in the 2009
NDAA, despite MARAD-identified instances of noncompliance.\42\
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\39\ Id.
\40\ Id.
\41\ Id.
\42\ Id.
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GAO's findings resulted in two recommendations:
1. LThe Administrator of MARAD should publicly report, on
an annual basis, the cargo preference data it receives to
provide information on total cargo volumes and amounts shipped
on U.S.- and foreign-flag vessels for each federal agency.
2. LThe Administrator of MARAD should take steps to develop
regulations to oversee and enforce compliance with cargo
preference requirements. These steps should include evaluating
options for overcoming challenges to develop such regulations,
such as (1) using a negotiated rulemaking to address challenges
achieving consensus on how to implement cargo preference
requirements and (2) developing and communicating a legislative
proposal to address statutory challenges MARAD has
identified.\43\
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\43\ Id.
MARAD has identified barriers to completing a rulemaking
outlined in recommendation two. Due to varying stances,
agencies have failed to reach a consensus with MARAD on a final
rule. Without an agreement, MARAD cannot proceed forward with
regulations and enforcement.\44\ MARAD has also identified
three barriers in statutory language that prevent full
implementation of cargo preference laws.\45\ These barriers
include a failure to acknowledge containerized shipping, which
became popular after the passage of the 1954 Act; a lack of
definition for ``geographic areas'' in determining compliance,
and a three-year waiting period that limits the entrance of new
foreign-flagged bulk vessels from entering the U.S.-flagged
fleet.\46\ Section 3524 (a) of the National Defense
Authorization Act for Fiscal Year 2023 passed by the House on
July 14, 2022, waives the three-year waiting period. Despite
these barriers, MARAD has concurred with the recommendations
from GAO's report.\47\ This hearing will closely examine the
results of this report by GAO and provide insight from both
MARAD and maritime industry representatives.
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\44\ Id.
\45\ Id.
\46\ Id.
\47\ Id.
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WITNESS LIST
PANEL 1
LRear Admiral Ann C. Phillips, Administrator,
Maritime Administration
LMr. Andrew Von Ah, Director, Physical
Infrastructure, Government Accountability Office
PANEL 2
LMr. Bryan Clark, Senior Fellow and Director of
the Center for Defense Concepts and Technology, Hudson
Institute
LMr. Eric Ebeling, President and Chief Executive
Officer, American Roll-On Roll-Off Carrier, on behalf of USA
Maritime
LCaptain Don Marcus, President, International
Organization of Masters, Mates & Pilots
CARGO PREFERENCE: COMPLIANCE WITH AND ENFORCEMENT OF MARITIME'S BUY
AMERICAN LAWS
----------
WEDNESDAY, SEPTEMBER 14, 2022
House of Representatives,
Subcommittee on Coast Guard and
Maritime Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to call, at 10 a.m. in room
2167 Rayburn House Office Building and via Zoom, Hon. Salud O.
Carbajal (Chair of the subcommittee) presiding.
Members present in person: Mr. Carbajal, Mr. Larsen of
Washington, Mr. Auchincloss, Mr. Gibbs, Mr. Weber of Texas, and
Mr. Garamendi.
Members present remotely: Mr. Sean Patrick Maloney of New
York, Mr. Lowenthal, and Dr. Van Drew.
Mr. Carbajal. The subcommittee will come to order. I ask
unanimous consent that the chair be authorized to declare a
recess at any time during today's hearing.
Without objection, so ordered.
I also ask unanimous consent that Members not on the
subcommittee be permitted to sit with the subcommittee at
today's hearing and ask questions.
Without objection, so ordered.
As a reminder, please keep your microphones muted unless
speaking. Should I hear any inadvertent background noise, I
will request that the Member please mute their microphone.
To insert a document into the record, please have your
staff email it to [email protected].
With that, I will go into my opening statement.
Good morning and welcome to today's hearing entitled,
``Cargo Preference: Compliance With and Enforcement of
Maritime's Buy American Laws.'' Today, we will hear testimony
from five witnesses.
The first testimony will be from Rear Admiral Ann Phillips,
who is appearing before Congress for the first time in her role
as the new Administrator of the Maritime Administration.
Welcome and congratulations on your confirmation, Admiral. I am
glad that you have come on board to lead MARAD at this
important time with all the challenges that are before us.
Admiral Phillips will be joined on today's first panel by
Mr. Andrew Von Ah, Director of the Physical Infrastructure team
at the Government Accountability Office.
Two days ago, the GAO publicly released his team's report
on actions needed to enhance cargo preference oversight. After
months of interviews, research, and discussion with Federal
agencies, maritime labor, and cargo carriers, among others, the
GAO has found evidence of lack of oversight--let me repeat
that--lack of oversight, inconsistent application, and
noncompliance among Government agencies and contractors.
As a result, GAO has recommended that cargo preference be
reported to the public on an annual basis and that the
Department of Transportation take steps to fully enforce cargo
preference requirements.
I would also like to emphasize the fact that we will be
discussing a longstanding public law that has never been
adequately enforced--not a new proposal.
Today's second panel will feature a military sealift
expert, Mr. Bryan Clark, director of the Center for Defense
Concepts and Technology at the Hudson Institute, and two
representatives from the commercial maritime industry: Mr. Eric
Ebeling, speaking on behalf of USA Maritime, and Captain Don
Marcus, president of the International Organization of Masters,
Mates, and Pilots, representing maritime labor.
As I expect our witnesses will make clear, compliance with
cargo preference law is closely tied to the sustainment of
American jobs and national security. It requires that
Government-impelled cargo be shipped overseas using U.S.-
flagged vessels--in other words, vessels crewed by U.S.
mariners, owned by Americans, and abiding by U.S. laws.
Guaranteeing a steady supply of cargo through cargo preference
programs equates to job security for these hard-working
citizens. Along with the Maritime Security Program and the
Jones Act, cargo preference ensures that the U.S. seagoing
maritime industry does not disappear completely, as it has
dwindled over the years.
With cargo backlogs and rising inflation as pressing
concerns, we know better than ever that maintaining a vibrant
U.S.-flagged fleet is the foundation of a healthy economy. We
cannot rely on foreign ships and foreign mariners to carry out
our commerce any longer.
Finally, we must not forget the impact of cargo preference
on our Nation's defense. The law mandates that 100 percent of
Department of Defense cargo and 50 percent of nonmilitary,
Government-impelled cargo be shipped on U.S.-flagged vessels
when those vessels are available at a fair and reasonable rate.
Cleaning up the way, quote, ``availability,'' unquote, is
decided and communicated will increase the amount of cargo
available to U.S. carriers, bolstering the maritime industry
while accomplishing DoD's sealift capacity needs.
Today, I expect to hear actionable next steps out of MARAD.
Entrusting ill-suited agencies to make determinations has led
to the poor compliance rates we are currently seeing.
Enforcement power was provided to MARAD in 2009 NDAA and action
is long overdue; we need a completed rulemaking. It is a stated
priority of President Biden, and it needs to be a priority of
every agency.
We have a lot of ground to cover today with the help of our
witnesses. I thank each of them for their gracious attendance,
and I am excited to begin.
[Mr. Carbajal's prepared statement follows:]
Prepared Statement of Hon. Salud O. Carbajal, a Representative in
Congress from the State of California, and Chair, Subcommittee on Coast
Guard and Maritime Transportation
Good morning, and welcome to today's hearing titled, ``Cargo
Preference: Compliance with and Enforcement of Maritime's Buy American
Laws.'' Today, we will hear testimony from five witnesses.
The first testimony will be from Rear Admiral Ann Phillips, who is
appearing before Congress for the first time in her role as
Administrator of the Maritime Administration. Welcome and
congratulations on your confirmation Admiral. I am glad that you have
come on board to lead MARAD at this important time.
Admiral Phillips will be joined on today's first panel by Mr.
Andrew Von Ah, Director of the Physical Infrastructure Team at the
Government Accountability Office.
Two days ago, the GAO publicly released his team's report on
``Actions needed to enhance cargo preference oversight.'' After months
of interviews, research, and discussion with federal agencies, maritime
labor, and cargo carriers among others, the GAO has found evidence of a
lack of oversight, inconsistent application, and non-compliance among
government agencies and contractors. As a result, GAO has recommended
that cargo preference be reported to the public on an annual basis, and
that the DOT take steps to fully enforce cargo preference requirements.
I'd like to emphasize the fact that we will be discussing a long-
standing public law that has never been adequately enforced--not a new
proposal.
Today's second panel will feature a military sealift expert, Mr.
Bryan Clark, Director of the Center for Defense Concepts and Technology
at the Hudson Institute; and two representatives from the commercial
maritime industry, Mr. Eric Ebeling, speaking on behalf of USA
Maritime, and Captain Don Marcus, President of the International
Organization of Masters, Mates and Pilots representing maritime labor.
As I expect our witnesses will make clear, compliance with cargo
preference law is closely tied to the sustainment of American jobs and
national security. It requires that government-impelled cargo be
shipped overseas using U.S. flagged vessels--in other words, vessels
crewed by U.S. mariners, owned by Americans, and abiding by U.S. laws.
Guaranteeing a steady supply of cargo through Cargo Preference programs
equates to job security for these hardworking citizens. Along with the
Maritime Security Program and the Jones Act, Cargo Preference ensures
that the U.S. seagoing maritime industry does not disappear completely.
With cargo backlogs and rising inflation as pressing concerns, we
know better than ever, that maintaining a vibrant U.S.-flagged fleet is
the foundation of a healthy economy. We cannot rely on foreign ships
and foreign mariners to carry out our commerce any longer.
Finally, we must not forget the impact of cargo preference on our
nation's defense. The law mandates that 100 percent of DOD cargo and 50
percent of non-military government-impelled cargo be shipped on U.S.-
flagged vessels--when those vessels are available at a fair and
reasonable rate. Cleaning up the way ``availability'' is decided and
communicated will increase the amount of cargo available to U.S.
carriers, bolstering the maritime industry while accomplishing DOD's
sealift capacity needs.
Today, I expect to hear actionable next steps out of MARAD.
Entrusting ill-suited agencies to make determinations has led to the
poor compliance rates we're currently seeing. Enforcement power was
provided to MARAD in the 2009 NDAA and action is long overdue; we need
a completed rulemaking. It is a stated priority of President Biden and
it needs to be a priority of every agency.
We have a lot of ground to cover today with the help of our
witnesses. I thank each of them for their gracious attendance and am
excited to begin.
Mr. Carbajal. With that, I will now call on the ranking
member of the subcommittee, Mr. Gibbs, for an opening
statement.
Mr. Gibbs. Thank you, Mr. Chairman, and also
congratulations to Admiral Phillips on your confirmation.
The United States uses several Federal assistance programs
to hedge against its inability to compete in international
ship-operating market against vessels which operate under flags
of convenience which use low-paid, Third World crews.
These programs include requiring internal domestic
shipments be shipped on a U.S. flagged, crewed, manned, and
built vessels; loan guaranties for ship construction; the
Maritime Security Program, which subsidizes the operation of
certain militarily useful cargo vessels; and the cargo
reservation programs we are looking at today.
Today, we are going to look at the implementation of U.S.
cargo reservation, or cargo preference, programs. And
especially at the failure to write, much less implement, the
cargo preference enforcement regulations Congress mandated in
2009.
All Department of Defense generated cargoes and 50 percent
of other Federal agency generated cargoes must be carried on
U.S.-flag vessels with U.S. crews. In conjunction with the
Maritime Security Program, this provides the U.S. with an
international commercial fleet of 84 vessels. These vessels and
the U.S. mariners that crew them provide the crucial capacity
to meet future U.S. national defense sealift needs.
Unfortunately, agencies which generate cargo shipments take
a shortsighted view and have tangled up MARAD efforts to write
cargo preference enforcement regulations in the interagency
regulatory review process. In essence, killing these regs
before they are even implemented.
I look forward to hearing witness testimony today, and
especially how they believe the regulatory hurdles that have
prevented MARAD from writing and implementing cargo preference
enforcement regulations can be overcome.
Thank you, Chairman Carbajal. I look forward to the
testimony, and I yield back.
[Mr. Gibbs' prepared statement follows:]
Prepared Statement of Hon. Bob Gibbs, a Representative in Congress from
the State of Ohio, and Ranking Member, Subcommittee on Coast Guard and
Maritime Transportation
Thank you, Mr. Chairman.
The United States uses several Federal assistance programs to hedge
against its inability to compete in the international ship operating
market against vessels which operate under flags of convenience which
use low paid, third world crews.
These programs include: requiring internal domestic shipments be
shipped on U.S. flagged, crewed, manned, and built vessels; loan
guarantees for ship construction; the Maritime Security Program which
subsidizes the operation of certain militarily useful cargo vessels;
and the cargo reservation programs we are looking at today.
Today we are going to look at the implementation of U.S. cargo
reservation, or cargo preference, programs. And especially at the
failure to write, much less implement, the cargo preference enforcement
regulations Congress mandated in 2009.
All Department of Defense generated cargoes, and 50 percent of
other Federal agency generated cargoes must be carried on U.S-flag
vessels with U.S. crews. In conjunction with the Maritime Security
Program, this provides the U.S. with an international commercial fleet
of 84 vessels. These vessels and the U.S. mariners that crew them
provide the crucial capacity to meet future U.S. national defense
sealift needs.
Unfortunately, the agencies which generate cargo shipments take a
short-sighted view and have tangled up MARAD efforts to write cargo
preference enforcement regulations in the interagency regulatory review
process. In essence killing those regs before they are even
implemented.
I look forward to hearing witness testimony today, and especially
how they believe the regulatory hurdles that have prevented MARAD from
writing and implementing cargo preference enforcement regulations can
be overcome.
Thank you, Chair Carbajal. I look forward to the testimony and
yield back.
Mr. Carbajal. Thank you, Mr. Gibbs. I would now like to
welcome our first witnesses for the first panel, Rear Admiral
Ann Phillips, Administrator of the Maritime Administration, and
Mr. Andrew Von Ah, Director of Physical Infrastructure at the
Government Accountability Office.
Thank you both for being here today, and I look forward to
your testimony.
Without objection, our witnesses' full statements will be
included in the record.
Since your written testimony has been made part of the
record, the subcommittee requests that you limit your oral
testimony to 5 minutes. With that, Rear Admiral Phillips, you
may proceed.
TESTIMONY OF ANN C. PHILLIPS, REAR ADMIRAL, U.S. NAVY (RET.),
AND ADMINISTRATOR, MARITIME ADMINISTRATION; AND ANDREW VON AH,
DIRECTOR, PHYSICAL INFRASTRUCTURE, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE
Admiral Phillips. Thank you, Chairman Carbajal, Ranking
Member Gibbs, and, of course, Chairman DeFazio and Ranking
Member Graves. I am honored to appear today to discuss cargo
preference programs.
As a retired U.S. Navy rear admiral with more than 30 years
of service, I know the American merchant marine is critical to
our national defense as well as to our economy.
In June, General Jacqueline Van Ovost, commander,
Transportation Command, spoke at the graduation of the U.S.
Merchant Marine Academy, and in addressing our graduates,
General Van Ovost made the same critical point, saying that,
quote, ``as a maritime Nation, our national security depends on
the merchant marine.''
However, she also warned the graduates that they, quote,
``are about to face challenges our country has not encountered
since World War II.'' Further, she said, and I quote again,
``contested waters will stress our logistics lines all the way
from home port.''
Cargoes paid for by American taxpayers belong on American
ships. Cargo preference requirements are not just Buy America
requirements. They are requirements that also help strengthen
America.
In 2012, there were 106 ships in the foreign-flag trade
flying the U.S. flag. Four years later, there were just 77
vessels. Today, from that low point, we have grown back to 87
foreign trading ships under the U.S. flag.
However, without cargoes, ships will leave the U.S. flag.
Without cargoes, our modest fleet will continue to dwindle.
Without cargoes, we risk our ability to move military cargoes
on American vessels whenever and wherever needed.
I appreciate the thoughtful new report issued by the
Government Accountability Office and know this is an important
opportunity to further strengthen Federal compliance with cargo
preference, statutes, and regulations.
Given the critical importance of compliance with cargo
preference requirements, MARAD continuously and directly
engages with Federal acquisition officials and contractors over
project life cycles to advise them on the practical application
of cargo preference, including how to organize supply chains to
maximize the use of U.S.-flagged vessels.
I am also in the process of writing to all Federal
departments and agencies, reminding them of their obligations
and requesting that they each identify a senior accountable
official, consistent with OMB's implementing guidance on
Executive Order 14005, who can be a single point of contact
with whom MARAD can work to implement cargo preference
requirements.
MARAD also works to ensure that agencies make up for
cargoes transported on foreign vessels by employing U.S.-flag
vessels to carry equal or greater volumes. Facilitating makeup
cargoes produces revenue opportunities for the U.S.-flag fleet.
It gets cargo on ships.
MARAD has been evaluating options to advance a cargo
preference rulemaking. We recognize this effort will be a
complex undertaking. Success will entail addressing multiple
priorities, including the critical importance of supporting our
U.S.-flagged fleet, while also ensuring that urgent aid is
transported with expediency consistent with America's
commitment to those in need and our many foreign policy
objectives.
To lay the foundation for a rulemaking effort that
navigates this intersection, MARAD plans to issue a Request for
Information to seek input from all stakeholders.
Under the Biden-Harris administration, MARAD is also
committed to growing our U.S.-flag fleet. The administration
has proposed that Congress eliminate the 3-year period that
vessels entering the U.S. flag must currently wait before they
are eligible to carry preferenced cargoes.
Moreover, in the 2023 Presidential budget proposal, the
administration requested that Congress fully fund the new
Tanker Security Program at $60 million, which would support 10
U.S.-flag vessels.
Growing our fleet is also critical to ensuring we have
enough mariners with current, unlimited tonnage licenses and
ratings to meet our sealift needs in a worst-case scenario.
Vessel operators report that mariner availability is still
a challenging issue, and on September 23rd, I am convening a
summit with industry and labor to discuss recruitment and
retention challenges.
In closing, I would highlight that these remaining
challenges times. COVID has made hard jobs harder and has
created new stresses that are clearly affecting mariners' well-
being and willingness to continue sailing.
I appreciate this committee's commitment to our U.S.-
flagged fleet and your leadership in support of our cargo
preference programs. I am pleased to answer your questions
today. Thank you.
[Admiral Phillips' prepared statement follows:]
Prepared Statement of Ann C. Phillips, Rear Admiral, U.S. Navy (Ret.),
and Administrator, Maritime Administration
Thank you, Chairman Carbajal and Ranking Member Gibbs, and of
course Chairman DeFazio and Ranking Member Graves, for the opportunity
to testify today.
I was confirmed to serve as the Maritime Administrator four months
ago. In this position, my duty is to promote and strengthen our U.S.
merchant marine, which is essential both to our economic and our
national security.
As a retired U.S. Navy Rear Admiral with more than 30 years of
service, I know the critical importance of our merchant marine to our
national defense as well as to our economy. Particularly in a contested
environment, it is American mariners who will answer the call--as they
always have--to move the supplies we need to defeat any adversary.
I appreciate that my first opportunity to testify as the Maritime
Administrator is on the subject of cargo preference. Together with the
Jones Act and our Maritime Security Program, our cargo preference
programs are essential to the success of our merchant marine.
A few months ago, in the Capitol, MARAD helped unveil the
Congressional Gold Medal for the Merchant Mariners of World War II. I
thank the many Members of Congress who worked to authorize the medal--
including particularly Congressman John Garamendi--for your leadership.
The medal honors the more than 240,000 merchant mariners who sailed
the American convoys that President Roosevelt called ``the arsenal of
democracy.'' American merchant mariners and American ships delivered
the supplies we needed to defeat tyranny during World War II.
It is important to note, however, that this American fleet was
dwindling at the onset of World War II and had to be rebuilt at great
urgency to meet our war needs.
In June, we were honored to have the Commander of the U.S.
Transportation Command, General Jacqueline Van Ovost, speak at the
graduation of the U.S. Merchant Marine Academy. Addressing our
graduates--our nation's newest merchant mariners--she said that ``as a
maritime nation, our national security depends on the Merchant
Marine.''
However, General Van Ovost also warned the graduates that they
``are about to face challenges our country has not encountered since
WWII.'' She also warned that, ``Contested waters will stress our
logistics lines all the way from home port.''
Cargoes paid for by American taxpayers belong on American ships.
Cargo preference requirements are not just ``Buy America''
requirements, they are requirements that also help to strengthen
America.
In 2012, there were 106 ships in the foreign trade flying the U.S.
flag. Four years later, there were just 77 vessels in international
trade sailing under our flag. Today, from that low point, we have grown
back to 87 foreign trading ships under the U.S. flag.
However, without cargoes, ships will leave the U.S. flag. Without
cargoes, our modest fleet will continue to dwindle. Without cargoes, we
risk our ability to move military cargoes on American vessels wherever
and whenever needed.
MARAD continuously and directly engages with acquisition officials
and contractors throughout the federal sector to assist agencies in
complying with cargo preference mandates. Over the entire course of
project lifecycles, MARAD actively advises agencies on the practical
application of cargo preference, including how to organize supply
chains to maximize use of U.S.-flagged vessels.
We are also working with the Biden-Harris Administration's Made In
America Office to help agencies understand cargo preference
requirements.
In addition, I am in the process of writing to all federal
departments and agencies reminding them of their obligations under
cargo preference laws and regulations. In my letter, I explain how
MARAD can assist them in complying with cargo preference requirements.
I also request that they each identify a Senior Accountable Official--
consistent with OMB's implementing guidance on Executive Order 14005--
who can be a single point of contact with whom MARAD can work to
implement cargo preference requirements.
MARAD also works to ensure that agencies make up for cargoes
transported on foreign vessels by employing U.S.-flag vessels to carry
equal or greater volumes. Requiring make-up cargoes produces revenue
opportunities for the U.S.-flagged fleet.
MARAD has been evaluating options for a cargo preference
rulemaking. We recognize that a cargo preference rulemaking will be a
complex undertaking. We also understand that success will entail
addressing multiple priorities, including the critical importance of
supporting our U.S.-flagged fleet while also ensuring that urgent aid
and supplies are transported with expediency, consistent with America's
commitment to those in need and our many foreign policy objectives.
To lay the foundation for a rulemaking effort that navigates this
intersection, MARAD plans to issue a Request for Information (RFI)
shortly to seek input from all stakeholders.
Under the Biden-Harris Administration, MARAD is also committed to
growing our U.S.-flagged fleet. As you know, one of the current
challenges with meeting preference requirements is ensuring we have
both enough vessels and the wide mix of vessel types to carry the many
types of cargoes that the government impels.
To help attract additional vessels to our flag, the Biden-Harris
Administration has proposed that Congress eliminate the 3-year period
that vessels entering the U.S. flag must currently wait before they are
eligible to carry preference cargoes.
Moreover, in the 2023 Presidential Budget Proposal, the
Administration requested that Congress fully fund the new Tanker
Security Program (TSP) at $60 million, which would support up to 10
U.S. flagged vessels.
A study required by the 2020 National Defense Authorization Act
found a substantial risk to the nation associated with heavy reliance
on foreign-flagged tankers, particularly in a contested environment.
The TSP, which will be modeled on the highly successful Maritime
Security Program, will provide assured access to up to 10 U.S.-flagged
tankers available to support the Department of Defense's global
operations.
Growing our fleet is also critical to ensuring we have enough
mariners with current unlimited tonnage licenses and ratings to meet
our sealift needs in a worst-case scenario. In fact, MARAD's most
recent study assessing mariner availability--completed in 2017 at the
request of Congress--estimated a shortfall of just over 1,800 mariners.
Vessel operators report that mariner availability is still a
challenging issue. For that reason, on September 23, I am convening a
summit with industry and labor to discuss recruitment and retention
challenges.
In closing, I would highlight that these remain challenging times
for the entire maritime industry. COVID has made hard jobs harder and
has created new stresses that are clearly affecting mariners' well-
being and willingness to continue sailing. These new challenges
confront us even as world events demonstrate yet again the critical
importance of both the U.S.-flagged fleet and American mariners to our
national security.
I appreciate this Committee's commitment to our U.S.-flagged fleet
and your leadership in support of our cargo preference programs. I also
appreciate your support for our merchant mariners, and look forward to
working closely with you to continue to meet the requirements of laws
reserving government-impelled cargoes for U.S.-flagged vessels.
Mr. Carbajal. Thank you, Admiral Phillips.
With that, we will move to hear from Mr. Von Ah. You may
proceed.
Mr. Von Ah. Chairman Carbajal, Ranking Member Gibbs, and
members of the subcommittee, thank you for the opportunity to
discuss MARAD's oversight of cargo preference requirements.
The Federal Government ships many types of cargo
internationally, such as military supplies, food aid for
nations experiencing famine, and Government employees'
household goods and personal vehicles.
Cargo preference laws, regulations, and policies require
that when cargo owned or financed by the Federal Government is
shipped internationally, certain percentages of that cargo be
carried on U.S.-flag vessels.
The requirements are designed to ensure the U.S.-flag
shipping industry has sufficient vessels and trained mariners
to supplement the cargo-carrying capacity of military ships
during times of war and national emergency, among other things.
My statement today discusses the key findings and
recommendations in our report issued earlier this week. The
statement addresses the extent to which MARAD has monitored and
reported on Federal agencies' compliance with cargo preference
requirements and the extent to which MARAD has provided
direction to Federal agencies on how to meet cargo preference
requirements and has enforced those requirements.
MARAD relies on bills of lading submitted by contractors or
agencies to monitor agencies' cargo volumes. However, MARAD
does not determine whether agencies are in compliance with
cargo preference requirements for two reasons.
First, it is not obligated to make compliance
determinations under existing laws. Nonetheless, the National
Defense Authorization Act for fiscal year 2009 granted MARAD
authorities to take certain cargo preference-related
enforcement actions, and MARAD would need to issue regulations
and make compliance determinations to implement those
authorities.
Second, MARAD is unable to validate if it is getting all
the bills of lading for cargoes funded or financed by the
Government to make comprehensive compliance determinations.
In some cases, carriers have notified MARAD of Government
cargoes sent on foreign-flag vessels that were not subsequently
reported to MARAD. So, it is likely that there is some amount
of cargo not accounted for in MARAD's data.
Nonetheless, the data that MARAD does receive is the best
available source of information for Government shipping and can
be useful to assess whether agencies are making progress toward
their cargo preference requirements.
Furthermore, MARAD has not publicly reported cargo
preference data since 2013. For a number of years, MARAD
reported agencies' cargo preference data in publicly available
annual reports to Congress, but stopped, in part, because
Congress eliminated the statutory reporting requirement in
2008.
With respect to MARAD's direction to Federal agencies on
how to meet and enforce the requirements, MARAD works
collaboratively with agencies and their contractors to make
them aware of the requirements, help them to locate U.S.-flag
vessels, and provide training where needed.
In cases where MARAD has identified potential instances of
noncompliance, MARAD has referred those cases to the relevant
agencies and worked with the agencies and contractors to
identify additional cargo to be shipped on U.S.-flag vessels to
compensate for prior cargo volumes sent on foreign-flag
vessels.
However, MARAD has not clarified how agencies should
implement two key procedures that we identified: determining
the nonavailability of U.S.-flagged vessels and calculating
agencies' percentages of cargo volume shipped on U.S.-flag
vessels.
Without clarification from MARAD on how to implement these
procedures, several agencies included in our review developed
their own policies for making nonavailability determinations
and for calculating compliance that MARAD officials may not
always agree with.
Further, MARAD has not taken any enforcement actions as
granted by the 2009 NDAA because it has not issued regulations
to carry out those enforcement authorities.
The agency began developing regulations in 2009, but
terminated the effort in 2017, due to challenges in reaching
sought-after consensus with other Federal agencies.
To address these issues, we made two recommendations which
MARAD has concurred with. First, we recommended that MARAD
publicly report cargo preference data, and second, we
recommended that MARAD pursue options for overcoming the
challenges to developing cargo preference regulations.
These actions could include such things as using a
negotiated rulemaking as a means to help achieve consensus on
how to implement cargo preference requirements and also to
develop a legislative proposal to address other statutory
challenges MARAD has identified.
Absent these steps, MARAD will continue to lack tools that
can help it meet its maritime goals and objectives.
Mr. Chairman, this concludes my statement. I would be happy
to address any questions you or members of the subcommittee may
have. Thank you.
[Mr. Von Ah's prepared statement follows:]
Prepared Statement of Andrew Von Ah, Director, Physical Infrastructure,
U.S. Government Accountability Office
Chairman Carbajal, Ranking Member Gibbs, and Members of the
Subcommittee:
I am pleased to be here today to discuss our work on the U.S.
Maritime Administration's (MARAD) oversight of federal cargo preference
requirements. The federal government ships many types of cargo
internationally across the ocean, such as military supplies, food aid
for nations experiencing famine, and government employees' household
goods and personal vehicles. Two ``cargo preference'' laws, enacted
respectively in 1904 and 1954, as well as associated regulations, and
policies require that when cargo owned or financed by the federal
government is shipped internationally, certain percentages of that
cargo be carried on vessels registered in the United States (U.S.-flag
vessels).\1\ Cargo preference requirements are intended to support the
U.S.-flag shipping industry. The requirements are designed to ensure
the industry has sufficient vessels and trained mariners to supplement
the cargo-carrying capacity of military ships during times of war or
national emergency, among other things.\2\
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\1\ Pub. L. No. 58-198, 33 Stat. 518 (1904) (codified as amended at
10 U.S.C. Sec. 2631); Pub. L. No. 83-664, 68 Stat. 832 (1954)
(codified as amended at 46 U.S.C. Sec. 55305).
\2\ GAO has found, however, that the application of cargo
preference in the delivery of international food assistance does not
clearly contribute to sealift capacity. GAO, International Food
Assistance: Cargo Preference Increases Food Aid Shipping Costs, and
Benefits Are Unclear, GAO-15-666 (Washington, D.C.: Aug. 26, 2015).
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The Secretary of Transportation, through MARAD, supports the U.S.-
flag fleet, in part, by collecting data on federal agencies' cargo
shipments and monitoring U.S.-flag cargo volumes. MARAD--as part of the
Department of Transportation (DOT)--was granted authorities to take
certain cargo preference-related enforcement actions through amendments
to the 1954 act made by the Duncan Hunter National Defense
Authorization Act for Fiscal Year 2009 (NDAA for 2009).\3\ Those
authorities include assessing civil penalties for noncompliance with
cargo preference requirements. To date, MARAD has not issued
regulations implementing those authorities.
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\3\ Pub. L. No. 110-417, Sec. 3511(b), 122 Stat. 4356, 4769-70
(2008) (codified as amended at 46 U.S.C. Sec. 55305(d)(2)).
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My statement today discusses the key findings and recommendations
in our report issued on September 12, 2022 entitled Maritime
Administration: Actions Needed to Enhance Cargo Preference
Oversight.\4\ This statement addresses:
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\4\ GAO, Maritime Administration: Actions Needed to Enhance Cargo
Preference Oversight, GAO-22-105160, (Washington, D.C.: Sept. 12,
2022).
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the extent to which MARAD has monitored and reported on
federal agencies' compliance with cargo preference requirements;
the extent to which MARAD has provided direction to
federal agencies on how to meet cargo preference requirements; and
MARAD's efforts to enforce cargo preference requirements.
In our report we made two recommendations to MARAD, which MARAD
agreed to implement. These recommendations are intended to (1) increase
transparency into federal agencies' use of U.S.-flag vessels in
relation to their cargo preference requirements; and (2) help MARAD and
federal agencies move toward establishing regulations to improve the
implementation and oversight of federal cargo preference requirements.
Both recommendations and MARAD's response are described at the end of
this testimony.
In preparing our report, we reviewed relevant cargo preference
laws, regulations, and policies. We collected and reviewed cargo
preference data received by MARAD for fiscal years 2012 through 2020.
We selected seven federal agencies and reviewed the policies and
procedures these agencies identified for implementing cargo preference
requirements.\5\ We interviewed officials from these agencies and
MARAD, as well as selected maritime industry stakeholders. We compared
MARAD's cargo preference oversight efforts to MARAD's 2020 National
Maritime Strategy, federal internal control standards, and our prior
work on enterprise risk management practices.\6\ More detailed
information on our objectives, scope, and methodology can be found in
the issued report.
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\5\ These federal agencies included the five largest volume
shippers in fiscal year 2019: the Department of Defense; the U.S.
Agency for International Development; the U.S. Department of
Agriculture, the Export-Import Bank, and the Department of State. We
also included two lower-volume shippers: the Department of
Transportation and the Department of Energy.
\6\ GAO, Standards for Internal Control in the Federal Government,
GAO-14-704G (Washington, D.C.: Sept. 10, 2014). GAO, Enterprise Risk
Management: Selected Agencies' Experiences Illustrate Good Practices in
Managing Risk, GAO-17-63 (Washington, D.C.: Dec. 1, 2016).
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We conducted the work on which this statement is based in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
MARAD Monitors Agencies' Cargo Volumes But Does Not Assess Compliance
with Requirements or Publicly Report Data
The mission of MARAD's Office of Cargo and Commercial Sealift is to
promote and monitor the use of U.S.-flag vessels in the movement of
cargo, and to oversee the administration of and compliance with U.S.
cargo preference laws and regulations. We found that MARAD monitors
federal agencies' cargo volumes to calculate the percentage of U.S.-
flag shipments and to obtain insight into each federal agency's overall
activity. However, MARAD does not use this data to determine an
agency's compliance with cargo preference requirements, and MARAD does
not publicly report the data it receives. Such reporting would provide
an important accountability measure to monitor federal agencies'
shipping activities in relation to their cargo preference requirements.
Specifically, MARAD monitors agencies' cargo volumes on U.S.-flag
vessels, which generally declined over the time period we reviewed.
Federal agency contractors are to submit documentation--in the form of
bills of lading--to MARAD for government-impelled cargo,\7\ as required
by federal acquisition regulations.\8\ MARAD compiles data on U.S.- and
foreign-flag cargo volumes and on the commodities shipped by each
federal agency. According to data received by MARAD and provided to us,
total government-wide cargo volumes in fiscal year 2020 were 27 percent
lower than fiscal year 2012, and U.S.-flag volumes were 36 percent
lower (see figure).
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\7\ According to MARAD, cargo preference requirements apply to
``government-impelled'' cargo--any cargo supported by U.S. government
funding, including cargo moving as a direct result of federal
government involvement, such as military transportation of supplies by
sea; indirectly through financial sponsorship of a federal program,
such as USAID supported food aid; or in connection with a loan, grant,
loan guarantee, or other financing provided by the federal government.
\8\ In general, a bill of lading is a document issued by a carrier
to acknowledge receipt of cargo for shipment. For contracts that may
involve ocean transportation of supplies, Federal Acquisition
Regulation (FAR) and Defense Acquisition Regulation Supplement (DFARS)
provisions require that copies of ocean bills of lading containing a
range of information, including the sponsoring U.S. government agency,
vessel name and flag of registry, date of loading, description of the
commodity, port of discharge, and the gross weight of the shipment be
filed with MARAD. See, FAR provisions at 48 C.F.R. Sec. Sec.
47.507(a), 52.247-64(c); DFARS provisions at 48 C.F.R. Sec. Sec.
247.574, 252.247-7023. See also, FAR provisions relating to USAID ocean
transportation contracts at 48 C.F.R. Sec. Sec. 747.507, 752.247-70.
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Figure: Data Received by MARAD on Federal Agencies' Cargo Volumes
Shipped Internationally, Including Tonnage on U.S.- and Foreign-Flag
Vessels, Fiscal Years 2012 through 2020
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Notes: Data received by MARAD includes the bills of lading that MARAD
receives for all federal agencies; data are maintained in MARAD's Cargo
Preference Overview System, as well as additional data on military
shipments provided by the Department of Defense to MARAD annually.
The declines in cargos carried by U.S.-flag vessels over this time
period were largely due to changes in cargo shipments within the
Department of Defense (DOD) and in the delivery of food aid for
international assistance, according to data received by MARAD. For
example, DOD volumes on U.S.-flag vessels declined from 82 percent of
DOD's total volume in 2012 to 62 percent in 2015. According to DOD
officials, this decline was due, largely, to the limited availability
of U.S.-flag tanker vessels during those years. Similarly, the use of
U.S.-flag vessels by the U.S. Agency for International Development
(USAID) and the U.S. Department of Agriculture (USDA) decreased for
both agencies by approximately 46 percent from 2012 through 2020, based
data received by MARAD. This decline was due, in part, to a statutory
reduction in the minimum percentage of food aid required to be carried
on U.S.-flag vessels from 75 percent to 50 percent, beginning in fiscal
year 2013.
In addition, USAID and USDA officials told us that the majority of
the food aid cargo--bulk commodities such as grain--must be shipped on
dry-bulk vessels and that the existing fleet was not sufficient to meet
the transportation needs of the two agencies. At the time of our
review, there were a total of three U.S.-flag dry-bulk vessels in
service.
MARAD officials provided several reasons why MARAD does not
determine an agency's compliance with cargo preference requirements or
publicly report the data.
Determining agency compliance. MARAD officials told us
they do not determine an agency's compliance with cargo preference
requirements because (1) MARAD is not obligated to make compliance
determinations under existing laws, and (2) MARAD cannot validate
whether it has received all bills of lading for an agency's government-
impelled cargo to make such determinations. MARAD officials said they
do not know how much data on agencies' shipments they may be missing.
Occasionally, carriers will notify MARAD about instances in which cargo
was shipped on a foreign-flag vessel, but MARAD did not receive a
record of those shipments on a bill of lading, according to MARAD.
However, the data that MARAD does receive could provide useful
information toward assessing whether federal agencies are making
progress toward their cargo preference requirements. MARAD officials
also acknowledged that MARAD would first need to make compliance
determinations in order to take enforcement actions under the
authorities it received in the NDAA for 2009. However, MARAD officials
stated that MARAD is not in a position to use those authorities because
it has not issued regulations to implement them, as discussed in
greater detail below.
Publicly reporting data. MARAD has not publicly reported
cargo preference data since 2013. For a number of years, MARAD reported
agencies' cargo preference data in publicly available annual reports to
Congress. These reports contained data on federal agencies' annual
cargo volumes, including metric tons shipped on U.S.-flag vessels. As
previously mentioned, MARAD officials told us MARAD no longer reports
the data it receives, in part because amendments in the NDAA for 2009
eliminated the statutory reporting requirement. But, the elimination of
the reporting requirement does not preclude MARAD from reporting this
data, and MARAD continued to issue annual reports that covered
shipments through fiscal year 2013. In addition, the NDAA for 2009
amendments require DOT to perform an annual review of agencies'
programs subject to cargo preference requirements. MARAD officials told
us that MARAD has not completed agency-level annual reviews due to a
lack of implementing regulations. However, these required annual
reviews could facilitate MARAD's mission of overseeing cargo preference
compliance and provide a useful venue for MARAD to publicly communicate
the data it receives about federal agencies' cargo volumes. Without
public reporting by MARAD, Congress and others lack visibility into
federal agencies' cargo shipments, including the amounts shipped on
U.S.-flag vessels.
MARAD Has Offered Agencies Some Direction on Requirements but Has Not
Clarified How Agencies Should Implement Key Procedures
We found that MARAD has offered some direction on cargo preference
requirements to federal agencies by providing information on applicable
requirements, answering questions related to cargo preference, and
sharing available training resources. However, MARAD has not clarified
how agencies should implement two key procedures that we identified:
determining the non-availability of U.S.-flag vessels and
sharing related information with MARAD; and
calculating agencies' percentages of cargo volume shipped
on U.S.-flag vessels.
As discussed in greater detail in our report, we found that without
clarification from MARAD on how to implement these procedures, several
agencies included in our review have developed their own policies for
making non-availability determinations and calculating compliance. In
addition, we found that MARAD officials do not always agree with those
policies.
MARAD has not clarified for agencies how to implement these
procedures, in part, because it has not been successful in completing a
rulemaking to establish them. A federal statutory cargo preference
requirement directs agencies to implement their programs in accordance
with MARAD regulations and guidance.\9\ MARAD officials told us that
the agency began developing regulations to clarify how agencies should
implement cargo preference requirements in 2009. The officials further
said that in 2017 MARAD terminated the effort, due in part to
challenges reaching consensus with other federal agencies on how to
implement cargo preference requirements.
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\9\ Specifically, the NDAA for 2009 amendments to the 1954 Act
require each department or agency responsible for a program subject to
the 1954 Act cargo preference requirements to administer such programs
in accordance with the 1954 Act and regulations and guidance issued by
the Secretary of Transportation, as delegated to MARAD.
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Although MARAD has faced challenges in reaching consensus with
agencies, MARAD officials stated that MARAD has not abandoned a cargo
preference rulemaking and has held internal discussions about advancing
a rulemaking. However, we found that MARAD has not fully considered
options to reach the interagency consensus sought to complete a
rulemaking or otherwise provide direction to agencies on how to
implement cargo preference procedures. For example, agencies can
supplement the typical informal rulemaking process through a
``negotiated rulemaking'' as a way of reaching a consensus in the
development of a proposed rule. Through this process, an agency
considering drafting a rule convenes a negotiated rulemaking committee
for negotiations, consistent with the Negotiated Rulemaking Act of
1990.\10\
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\10\ Rulemaking at most regulatory agencies follows the
Administrative Procedure Act's informal rulemaking process, also known
as ``notice and comment'' rulemaking, which generally requires agencies
to publish a notice of proposed rulemaking in the Federal Register,
provide interested persons an opportunity to comment on the proposed
regulation, and publish the final regulation, among other things. See 5
U.S.C. Sec. 553: Pub. L. No. 101-648, 104 Stat. 4969 (codified as
amended at 5 U.S.C. Sec. Sec. 561-570a). If the committee comes to a
unanimous consensus on the content of a potential regulation, the
agency may use it as the basis of a proposed rule. In passing the
Negotiated Rulemaking Act of 1990, Congress made several findings,
including that (1) negotiated rulemaking, in which the parties who will
be significantly affected by a rule participate in the development of
the rule, can provide significant advantages over adversarial
rulemaking, and (2) negotiated rulemaking can increase the
acceptability and improve the substance of rules, making it less likely
that the affected parties will resist enforcement or challenge such
rules in court.
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MARAD officials also identified issues related to statutory
language in the Cargo Preference Act of 1954 (1954 Act) \11\ that
create challenges for MARAD in overseeing agencies' compliance with
cargo preference requirements. Specifically, the officials stated that
language in the 1954 Act related to the calculation of compliance by
``vessel type'' and ``geographic areas'' presents challenges for
MARAD.\12\ In addition, MARAD officials stated that a provision in the
1954 Act, known as the ``3-year waiting period,'' in effect, limits the
supply of U.S.-flag vessels to deliver bulk food aid.\13\ According to
MARAD officials, this provision presents a further challenge to MARAD's
efforts to ensure that federal agencies that deliver such aid have
sufficient U.S.-flag vessels to meet cargo preference requirements.
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\11\ Cargo Preference Act of 1954, Pub. L. No. 83-664, 68 Stat. 832
(codified as amended at 46 U.S.C. Sec. 55305.
\12\ The 1954 Act's requirement to ship a minimum of 50 percent of
cargo volumes on privately owned commercial U.S.-flag vessels, is to be
computed separately for certain ``vessel types.'' However, MARAD
officials noted that the vessel types specified in the 1954 Act do not
include container vessels, which became common after the 1954 Act.
MARAD officials stated that undefined language related to ``geographic
areas'' in the Act complicates how cargo preference compliance should
be calculated, such as by country, region, or otherwise. In 2015, GAO
made a matter for congressional consideration addressing the definition
of geographic areas. Specifically, GAO stated that Congress should
consider clarifying cargo preference legislation regarding the
definition of ``geographic area'' to ensure that agencies can fully
utilize the flexibility Congress granted to them when it lowered the
cargo preference for food aid requirement. GAO-15-666. To date,
legislation to address this matter has not been enacted.
\13\ More specifically, MARAD officials also noted that this
provision limits the supply of U.S.-flag vessels by requiring foreign-
built or foreign-documented vessels that reflag into the U.S. registry
to wait 3 years before they are able to participate in the
transportation of preference cargo as a U.S.-flag vessel.
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In May 2022, MARAD submitted a legislative proposal to Congress to
address the 3-year waiting period challenge.\14\ This proposal was
included in a bill to authorize MARAD programs for fiscal year
2023.\15\ However, MARAD has not developed legislative proposals to
clarify the challenges it has identified regarding the definitions of
``vessel types'' and ``geographic areas,'' largely because it has
prioritized developing the current proposal to address the 3-year
waiting period challenge.
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\14\ In 2011, we made a Matter for Congress to consider amending
the Cargo Preference Act of 1954 to eliminate the 3-year waiting period
imposed on foreign vessels that acquire U.S.-flag registry before they
are eligible for carriage of preference food-aid cargos. To date,
legislation to address this matter has not been enacted. GAO,
International Food Assistance: Funding Development Projects through the
Purchase, Shipment, and Sale of U.S. Commodities Is Inefficient and Can
Cause Adverse Market Impacts, GAO-11-636 (Washington, D.C.: June 23,
2011).
\15\ See Maritime Administration Authorization Act for Fiscal Year
2023, S. 4357, 117th Cong. Sec. 103 (2022).
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Without taking steps to evaluate options for developing regulations
that could achieve the sought-after consensus with agencies, such as a
negotiated rulemaking, MARAD will continue to lack the tools necessary
to provide federal agencies with direction on key cargo preference
requirements. In addition, action by MARAD to develop a legislative
proposal to address the statutory challenges it has identified would
help Congress determine whether statutory changes are necessary to
enable MARAD to ensure compliance with U.S. cargo preference laws and
regulations.
MARAD Has Identified Potential Instances of Noncompliance but Not Taken
Cargo Preference Enforcement Actions
We found that MARAD has taken steps to identify potential instances
of noncompliance with cargo preference requirements but has not taken
enforcement actions. For example, MARAD has notified federal agencies
and contractors about potential contract violations. MARAD has also
worked with federal agencies and contractors to identify additional
cargo to be shipped on U.S.-flag vessels to compensate for prior cargo
volumes sent on foreign-flag vessels. However, according to MARAD
officials, MARAD has not taken any enforcement actions, in part,
because it has not issued regulations to carry out the enforcement
authorities granted by the NDAA for 2009. The NDAA for 2009 amendments
to the 1954 Act authorized MARAD to take certain enforcement actions,
including: (1) assessing civil penalties ``against any person'' for
violations of cargo preference requirements, (2) requiring ``make up''
cargoes if federal agencies fall short of the percentage of cargo
required to be shipped on U.S.-flag vessels, and (3) taking other
measures under the Federal Acquisition Regulation.
According to MARAD officials, regulations are required for MARAD to
impose civil penalties and could facilitate MARAD's use of other
enforcement actions. Specifically, DOT policy requires certain
procedural requirements governing enforcement actions initiated by DOT,
including civil penalties, to be set forth in procedural regulations to
satisfy the principles of due process.\16\ The officials said
regulations would allow MARAD to address issues such as what
constitutes a violation for which a civil penalty may be imposed. MARAD
officials also noted that for MARAD to assess civil penalties, MARAD
would need to make defensible compliance determinations based on
regulations.
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\16\ Department of Transportation, Procedural Requirements for DOT
Enforcement Actions, Memorandum for Secretarial Officers and Heads of
Operating Administrations (Feb. 15, 2019).
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MARAD's maritime goals and objectives establish the importance of
enforcing cargo preference requirements. More specifically, MARAD's
2020 National Maritime Strategy established the objective of improving
the capability of U.S.-flag vessels through a combination of efforts
including enforcement of cargo preference requirements.\17\ Without
additional efforts by MARAD to develop regulations to assist with its
oversight and to enforce compliance with cargo preference requirements,
MARAD will continue to lack the tools necessary to meet its maritime
goals and objectives.
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\17\ The Howard Coble Coast Guard and Maritime Transportation Act
of 2014 directed DOT in consultation with the Secretary of the
department in which the U.S. Coast Guard is operating to submit to
Congress a national maritime strategy that included the identification
of federal regulations and policies that reduce the competitiveness of
U.S.-flag vessels in international transportation as well as
recommendations to make U.S.-flag vessels more competitive and to
ensure compliance by federal agencies with cargo preference laws. Pub.
L. No. 113-281, Sec. 603, 128 Stat. 3022, 3061 (2014).
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GAO Recommendations and MARAD's Response
In our report, we made two recommendations to MARAD:
The Administrator of MARAD should publicly report, on an
annual basis, the cargo preference data it receives to provide
information on the total cargo volumes and amounts shipped on U.S.- and
foreign-flag vessels for each federal agency.
The Administrator of MARAD should take steps to develop
regulations to oversee and enforce compliance with cargo preference
requirements. These steps should include evaluating options for
overcoming challenges to developing such regulations, such as: (1)
using a negotiated rulemaking as a means to address challenges
achieving consensus on how to implement cargo preference requirements,
and (2) developing and communicating a legislative proposal to address
statutory challenges MARAD has identified.
In its written response to our report, MARAD concurred with our two
recommendations. MARAD noted that it recognizes the critical importance
of federal laws requiring that government-impelled cargoes be carried
on U.S.-flagged vessels to support and sustain an economically viable
and militarily useful U.S.-flagged fleet in international trade. MARAD
added that it has started evaluating options to advance a rulemaking
related to cargo preference. MARAD stated that it intends to discuss
the ideas that result from that effort with other federal agencies and
the Office of Information and Regulatory Affairs, the office within OMB
that reviews Executive Branch regulations. We are encouraged by this
response and will monitor MARAD's progress implementing our
recommendations.
Chairman Carbajal, Ranking Member Gibbs, and Members of the
Subcommittee, this completes my prepared statement. I would be pleased
to respond to any questions that you may have at this time.
Mr. Carbajal. Thank you, Mr. Von Ah. With that, I am going
to move into questions. I will recognize myself first.
In 2020, former TRANSCOM Commander Lyons called for 100
percent cargo preference on all Government-impelled cargoes.
Given that cargo preference is subject to the availability of
vessels at fair and reasonable rates and that Department of
Defense cargo already has the requirement, how would an
increase to 100 percent in civilian cargo preference affect the
U.S.-flagged fleet?
Rear Admiral Phillips, the U.S.-flagged fleet is
responsible for carrying less than 2 percent of America's
foreign cargo. After witnessing supply chain issues over the
past 2 years, what are the risks associated with that dynamic?
How important is cargo preference, which helps maintain a U.S.-
flagged fleet, to addressing that concern?
Admiral Phillips. Mr. Chairman, thank you for that
question. I can summarize the impacts, I think, in a rather
succinct way, which would be that additional cargo, more cargo,
will drive more ships into the U.S.-flag fleet, and more ships
to carry more cargo will work to expand mariners and certainly
drive a need for additional mariners into the U.S.-flag fleet
and provide them with paying jobs.
So, in the context of, should Congress decide to make any
decisions in that context which we are not asking for, but
certainly more cargo will drive the need for more vessels which
will drive the need for more mariners.
In the context of how a strong and vital U.S.-flag fleet
could influence and might have had an influence, I would say,
an additional influence, on the challenges we faced during the
past several years with COVID and our supply chain challenges,
I can say that Buy America and Ship America is a way to think
about it.
We would have much more control with a larger and more
vibrant U.S.-flag fleet on our exports in particular and also
on our imports. In fact, we would have much more control over
our supply chain, which is so vital to our economy.
So, you can make that tie, that U.S.-flag vessels and our
U.S. merchant marine provide vital economic and national
security support for this country, and that is the vital nature
of why having a merchant marine is so important, and why having
U.S.-flag vessels is so important to this country. Thank you,
sir.
Mr. Carbajal. Thank you. Mr. Von Ah, if you can answer the
first question. I will just reiterate the last part of it. How
would an increase to 100 percent in civilian cargo preference
affect the U.S.-flag fleet?
Mr. Von Ah. Yes, thank you for that question, Chairman
Carbajal. So, all cargoes, as the admiral mentioned, help
sustain the fleet. I think it is a little bit unclear as to the
extent to which it would drive additional vessels into the U.S.
flag for a couple of reasons.
First, just setting aside food aid cargo, the amount of
cargo shipped by civil agencies is typically a fairly small
percentage of the overall Government cargoes shipped. We are
talking, like, between 1 and 5 percent typically.
So, I am not sure that if that were 100 percent that would
provide enough incentive to bring additional vessels into the
U.S.-flag fleet, but it would be speculation on my part.
If you talk about food aid, we are talking about a much
larger amount of cargo that would be available for U.S.-flag
vessels. However, there are only three current dry bulk cargo
vessels in the fleet.
So, here is where the 3-year waiting period becomes a bit
of a barrier, right? That would provide an incentive for
carriers to bring those vessels into the fleet, but they have a
3-year waiting period where they would have to be willing to
hold on to those vessels for 3 years.
So, for at least those 3 years, you wouldn't see any
additional vessels. But at that time, I would just point out
that at that point, you would be bringing dry bulk cargo
vessels into the fleet. Those are vessels that DoD has, sort
of, determined to be perhaps the least militarily useful for
their purposes.
And you would also be starting to raise costs to ship food
aid, so, those food aid agencies would certainly have some
concerns about the amount of food that they would be able to
ship to those countries in need.
Mr. Carbajal. Thank you. Mr. Von Ah, after President Biden
took office, he signed Executive Order 14005, which, among
other things, strengthened oversight and enforcement over cargo
preference laws in order to maximize the utilization of U.S.-
flagged vessels and encouraged shipper agencies to go above the
statutory minimum.
The Executive order further created a Made in America
Office to help ensure that the policies were being followed.
Given the current level of compliance and enforcement, has
this Executive order been successful? If not, who is to blame?
Mr. Von Ah. So, our review didn't review the Made in
America Office specifically, but I would say that during the
course of our review, we didn't hear from any agencies that
desire to increase their use of U.S.-flagged vessels. Put it
that way.
Early on in our engagement, we did talk to the Made in
America Office. Their plan was to partner with MARAD to work
with agencies to designate points of contact, as the admiral
mentioned in her opening statement, that the MARAD and the Made
in America Office could work together to understand, sort of,
where cargo preference stood within the agencies.
And so, that is as much as we know at this point. I am sure
there is a status update that we could provide to you at a
later date.
Mr. Carbajal. Thank you. It sounds like the President needs
to have his Made in America Office do a little bit more work.
Thank you very much.
With that, I will recognize Representative Gibbs.
Mr. Gibbs. Thank you, Chairman.
Rear Admiral, in 2009, Congress, as you know, enacted
legislation led by then subcommittee chairman Elijah Cummings,
to assure that MARAD had the final say on which Government-
impelled cargo shipments were subject to Federal cargo
preference requirements.
Unfortunately, MARAD has had difficulties in implementing
that.
And then the GAO report released this week recommends that
MARAD look at innovative ways to complete the rulemaking,
including possibly a negotiated rulemaking process.
What actions does MARAD plan to take to find a way through
the regulatory thicket that is the interagency review process,
and then also, is a negotiated rulemaking a possibility, or
does it threaten MARAD's decisionmaking role as provided in
statute?
Admiral Phillips. Ranking Member Gibbs, thank you for that
question, sir. As I have stated in my opening statement, MARAD
has and is in the process of sending a letter to agencies and
departments that outlines our current regulatory processes,
requesting agencies' assistance in complying with and
fulfilling their responsibilities under those current
processes.
In addition to that, in the context of rulemaking, we
intend to issue, very soon, a Request for Information to
stakeholders so that we can understand what their particular
challenges are with the regulation as it exists, with the law
as it exists, so that we can then begin to move forward
ultimately into a rulemaking process.
So, our first step is the letter requesting their
compliance and also requesting they designate a senior
accountable official under the auspices of--as has also been
requested by the Made in America Office under Executive Order
14005, a Request for Information from our stakeholders so that
we can gather their information and move forward, and then from
there, move into a rulemaking process ultimately.
Mr. Gibbs. OK. Director Von Ah, has GAO found other
circumstances in which negotiated rulemaking helped break loose
interagency regulatory logjams on complex issues? Have you had
that experience with other agencies?
Mr. Von Ah. Yes, thank you for that question, Ranking
Member Gibbs. Yes, it has worked in a number of instances: with
EPA, with OSHA, with the Nuclear Regulatory Commission, with
FAA. Actually, I think FAA was one of the first to use
negotiated rulemaking for pilots and pilot issues that were
being worked through.
So, it is a useful tool. Particularly when, in a regular
rulemaking process, it can be adversarial when there are some
difficult issues to work through. Usually you have got parties
taking extreme viewpoints on either side, usually in
anticipation of some kind of litigation down the road.
So, a negotiated rulemaking allows those parties to come
around the table with a mediator, work through some difficult
issues, and come up with some innovative solutions to avoid
those kinds of things down the line.
Mr. Gibbs. Yes, it makes sense.
Admiral, in H.R. 7900, the National Defense Authorization
Act of 2023, as passed by the House, requires the Maritime
Administration to issue a final rule where having a statutory
deadline for completion of these rules to assist MARAD in
including the rules. Is that going to be helpful, that passage
of the law, and that statutory deadline?
Admiral Phillips. Ranking Member Gibbs, can you repeat your
question, sir? I can't quite hear you.
Mr. Gibbs. OK. The NDAA bill, 2023, that passed the House,
requires a final deadline, a statutory deadline for completion
of these rules [audio malfunction].
Admiral Phillips. Thank you for that question, sir,
regarding a deadline. Deadlines are always helpful, provided
they are realistic, sir. So, I think the challenge there would
be, what exactly is the deadline being considered, and in this
context, as you are well aware, this is a very complex
challenge.
Rulemakings have been attempted in the past, they have
failed, and so, in the context of how we would move forward
with a rulemaking, and even in the initial Request for
Information from agencies, that will take some time and review
to ensure----
Mr. Gibbs [interrupting]. I think the point, Congress just
wants to get it done, and I think that is part of the deadline
in my opinion.
Admiral Phillips. Yes, sir, thank you. I understand that.
Mr. Gibbs. Director, in our next panel, Dr. Clark is
proposing that DoD ship oil from U.S. depots rather than
foreign depots, and, as was mentioned, there has been a drop in
shipments from U.S.-flagged vessels, mainly oil tankers.
Would his proposal--do you think it would claw much of it
back, his recommendation to claw back to U.S. ships, and in the
case of having to ship out of U.S. depots, would there be
additional costs that would be significant or not?
Mr. Von Ah. Thanks for that question, Ranking Member. If I
understand it correctly, I am not sure I would be able to
comment on whether or not that would get more cargo onto U.S.
vessels.
It is always going to be a question of the availability of
vessels at the given time and place that they are looking to
ship those cargoes. And so, I believe that would help, but it
is hard for me to say not knowing the specifics of the
situation.
Mr. Gibbs. Well, I guess one of the questions I might have
for him is, you know, having to go back to U.S. depots versus
more accessibility, what that might do to the cost. I don't
know if that would be a question, but----
Mr. Von Ah [interposing]. Sure.
Mr. Gibbs. I yield back. Thank you for being here.
Mr. Carbajal. Thank you, Mr. Gibbs. I will now move on to
the rest of the Members, recognizing them for 5 minutes. First,
I will move to Representative Larsen.
Mr. Larsen of Washington. Thank you, Mr. Chair.
Administrator Phillips, with regards to the hurdles that
GAO outlined in this report to get to regulations, are there
any other reasons that MARAD has not developed regulations and
began issuing civil penalties to enforce cargo preference?
Admiral Phillips. Thank you for that question, Congressman
Larsen. As you are well aware, the cargo preference
requirements are quite challenging, they are quite complicated,
and within them, pivotal language is not defined.
They also, in some instances, predate existing, current
types of ships. We do a lot of container shipping now. Look at
the 1954 act, there were no containerships at that point in
time. So, there are things that have changed over time that
make this a complicated situation.
Within the context of our authority under the law to issue
citations or to issue any particular enforcement actions, the
agencies are charged with compliance, 50 percent or more, and
this is for civilian agencies, but the law specifically applies
or describes fines against persons. And so, part of the
challenge in that context is, OK, which persons, how might we
find them, what is the requirement, what is the statutory level
of violation.
The law refers to, for example, a willful and knowing
violation. That is a very high level of culpability, my counsel
tells me, so, how might we enforce that, how would we determine
it.
All of these things are reasons for a regulatory process so
that we can determine how we might enforce such regulations in
the future. Again, getting back to the complexity of the
regulations as they currently exist. Thank you, sir.
Mr. Larsen of Washington. You noted in your testimony, and
I think it answered a question here about the timing of the RFI
and you said soon. Is there a more specific date than soon?
Admiral Phillips. There is not yet a defined date, sir, and
I appreciate your interest in that and understand it. In order
to issue an RFI, we will have to review carefully the nature of
the questions that we ask, so that we don't wander into
rulemaking territory yet, and that will require legal review
and regulatory review.
But we are certainly interested in expediting the process,
and I will commit to doing so. Thank you.
Mr. Larsen of Washington. Do you feel or believe or have a
view on whether or not MARAD has strong enough singular
authority over other agencies on cargo preference?
It seems that looking back at the failure of establishing
the rulemaking in the past, it reads as if the agencies walked
away, and MARAD didn't have the ability to keep them at the
table.
Admiral Phillips. Thank you for that question, sir. MARAD
has the authority of the law behind it, and the law has been in
place since 1954. It has been reinvigorated in 2009 and in
subsequent additional actions, but we do have the power of the
law behind us.
I can't speak, and there certainly were challenges
addressed by previous agencies and under previous
circumstances, but at this point in time, we believe the
authority of the law is what we have and what we need to be
able to move forward in this context, to move a regulatory
process.
Mr. Larsen of Washington. The Infrastructure Investment and
Jobs Act invested $450 million in MARAD this year. Are you
using any of those dollars to enforce cargo preference laws and
regulations?
Admiral Phillips. Thank you for that question, sir. The
Bipartisan Infrastructure Law did indeed provide $450 million
to the Maritime Administration under the Port Infrastructure
Development Program, for port infrastructure development in
particular. And so, those funds are very specifically targeted
at port infrastructure development.
Mr. Larsen of Washington. Director Von Ah, your testimony
states that MARAD monitors Federal agencies' cargo volumes to
calculate a percentage of U.S.-flag shipments but does not use
this data to determine agencies' compliance.
As these compliance determinations are necessary for even
contemplating civil penalties for lack of compliance, can MARAD
use the data more effectively in your view?
Mr. Von Ah. Thank you for that question, Congressman
Larsen. So, there are a couple of difficulties in determining
compliance, and it stems from some ambiguities in the original
law that make it, sort of, more difficult, and those things are
things that GAO has talked about in prior reports and
recommended that Congress address.
One of them is to deal with, sort of, ambiguities about
what is meant by a geographic area, because compliance is also
supposed to be determined by geographic area. And another is by
vessel type, supposed to be determined by vessel type as well.
But as the admiral mentioned, some of the vessel types
don't exist, or didn't exist at the time when the law was
originally written. So, those would need to be clarified, first
and foremost, for MARAD to start to make compliance
determinations.
The other issue is that there is a difficulty in knowing
whether or not MARAD has all of the bills of lading for all of
the shipments that agencies have made. And so, that is a little
bit more of a difficult problem there's, sort of, a ``we don't
know what we don't know'' there.
There is a certain amount that may not be being reported to
MARAD, and there are ways that MARAD is considering looking at
certain kinds of customs data and other databases to
investigate whether there are shipments out there that are not
being reported to them. But that is another one of the
challenges in terms of determining whether the agency is in
compliance or not.
Mr. Larsen of Washington. Thank you.
Thank you, Mr. Chairman.
Mr. Carbajal. Thank you, Mr. Larsen, and next I will
recognize Mr. Weber for 5 minutes.
Mr. Weber of Texas. Thank you, Mr. Chairman.
Rear Admiral Phillips, a couple questions for you. I am
from the gulf coast of Texas, starting at Louisiana, and border
that other foreign country. And I have got the Port of Beaumont
and Sabine-Neches Waterway in my district, and so, MARAD has
some facilities out there. Are you familiar with those
facilities?
Admiral Phillips. Yes, sir, I am familiar with them in that
we do have a regional office in that area. I have not yet had
the opportunity to visit, and I hope to do so very soon.
Mr. Weber of Texas. Well, we do want you to come out there
and spend lots of money in my district just so you know. Are
you aware that Beaumont moves more military personnel and
equipment than any other port in the United States?
Admiral Phillips. I am aware that it is an extremely busy
port in the context of moving military requirements, yes, sir.
Thank you.
Mr. Weber of Texas. OK. We want to make sure that that is
on our radar. In your opinion, Admiral, what is the best thing
that MARAD could do--we are talking about getting more flagged
vessels--with the supply chains already stretched to the max?
What is the best thing that MARAD could do to facilitate that?
Money is no object.
Admiral Phillips. Thank you, sir. If only that were true. I
appreciate your interest in that question, and I think some
things that we are already doing, that are already underway,
pending certainly in legislation for the Biden administration,
would be eliminating the 3-year wait which we described earlier
in the testimony today. That will give more options for more
vessels to join the U.S.-flag fleet, particularly in cases
where we have only a few of a certain type, bulk carriers being
one of them, which would then provide additional options for
agencies who are shipping food aid in particular, and perhaps
give them more opportunities to more easily comply with the
requirement.
Certainly, that is a way to expand the U.S.-flag fleet, and
then in addition, under the Tanker Security Program, we have an
appropriation for that. We requested that again in 2023. That
will bring 10 tank vessels, petroleum product carriers, into
the U.S.-flag fleet as well. So, those are two ways, near term,
that we can, and hope to expect, that we will see growth----
Mr. Weber of Texas [interrupting]. Well, let me break in if
I may. You mentioned earlier I think in getting the rulemaking
actually going off of dead center, for lack of a better term,
you had counsel looking at it. Do I remember that correctly? Or
you will have legal counsel looking at it? You didn't want to
get into the rulemaking process--what were your comments? I
came in a little late.
Admiral Phillips. Right. Certainly I think the discussion
actually, sir, was in the context of how soon an RFI could be
issued. We would certainly want counsel to review that.
Mr. Weber of Texas. Got you.
Admiral Phillips. And then the next step would be a
rulemaking process.
Mr. Weber of Texas. How many people, would you say, in that
office are working on that?
Admiral Phillips. Sir, are you asking how many people are
in the Office of Cargo and Commercial Sealift?
Mr. Weber of Texas. Yes, ma'am, that would help move this
process along.
Admiral Phillips. Well, I would say that the administration
more broadly is going to be involved in moving this process
along. So, I probably have between 20 and 25 in the Office of
Commercial Sealift----
Mr. Weber of Texas [interrupting]. But how many in your
office are interacting with the administration--that is really
the heart of my question--about that process?
Admiral Phillips. Well, I would----
Mr. Weber of Texas [interrupting]. Do you have 1 person, 2
people, 3 people, 7 people?
Admiral Phillips. I have a full legal staff. My counsel is
here with me today. She and her staff would be supporting this.
The Office of Cargo and Commercial Sealift is here. The
administrator of that is here as well. So, we are talking, I
don't know, 20, 30 people at times involved in this.
Mr. Weber of Texas. OK. I am just trying to get a handle on
what kind of attention, what kind of manpower is available to
actually follow this through.
And we talked about the lack of rules hurting you because
you have more American-flag vehicles, so, it is important to
us, especially important to our ports--I also have seven ports
in my district, more than any other Member of Congress. Some
have four, we have seven.
The Sabine-Neches Waterway is the second longest waterway
in the Gulf of Mexico, second only to the Mississippi River.
So, a lot--and by the way, the Port of Houston is not one of my
seven ports. It comes through Galveston Bay up into the Houston
Ship Channel.
We have a lot of traffic that moves in and out, so, we are
only wanting to make sure that we can get as much of this done
as quickly as we can, to facilitate America staying on top and
in getting back on top of the supply chain crisis and--and--
being ready should a military excursion be necessary.
And with that, Mr. Chairman, I will yield back.
Mr. Garamendi [presiding]. Thank you, Mr. Weber.
The gavel was passed. I will do my best to follow on here
from the chairman who had to go to another classified meeting.
Our next questioner is Mr. Lowenthal.
Mr. Lowenthal. Thank you, Mr. Chair. You are doing already
an excellent job there.
My question first is to Mr. Von Ah. Your report and your
testimony clearly show a disturbing trend, and I was
particularly surprised to see your finding on page 19 of your
report, that USAID seeks a blanket waiver for dry bulk cargo
vessels because it believes these vessels do not have military
use.
I think this really--and I know--this really fails to
understand the value of the U.S.-flag fleet.
Vladimir Putin has made Ukrainian grain exports into a
weapon to coerce the world during his war of aggression. The
lesson is clear: Losing control over critical global supply
chain can be dangerous.
A U.S.-flag fleet gives us options in the event of
contingencies like a future global commodity crisis.
So, I want to switch now to Admiral Phillips. I am very
concerned that USAID's mistaken rationale reflects the absence
of clear guidance, let alone regulations, from MARAD on the
importance of these Federal laws.
I want to join my colleagues in urging you to consider
implementing the GAO recommendation to consider a negotiated
rulemaking. We have already discussed that. I just want to join
in supporting the negotiated rulemaking.
I want to ask you, Admiral Phillips, do you believe that
the existing laws are strong enough to enable you to overcome
resistance from agencies like I just mentioned--USAID--to
uphold congressional intent?
Admiral Phillips. Thank you, Congressman Lowenthal, for
that question. I believe that existing law is strong enough to
allow us to execute a rulemaking and move through this process,
working with our sister and our fellow agencies, as described.
With the force of the law behind us, we have the authority
to do this and to work with our fellow agencies to move forward
and also to ensure that they understand the force of the law
that is behind this.
That said, I am a realist, I understand this is a
challenging process, and it has been tried before and has
failed. However, I believe that with the interest in global
shipping and U.S.-flag shipping that we have certainly seen in
the last 2 years under the COVID crisis and the supply chain
challenges we have had, that we are in a different position
now, and we may have more attention to this need than we might
have had in the past.
So, yes, sir, I think we have sufficient authority under
the law, and we will put that to the test as we move forward
with this process. Thank you.
Mr. Lowenthal. Well, thank you for that answer, and I am
going to yield back. Thank you, Mr. Chair.
Mr. Garamendi. Thank you, Mr. Lowenthal. We now turn to Mr.
Van Drew for 5 minutes.
Mr. Van Drew, are you somewhere around?
[Pause.]
Mr. Van Drew, you are about to lose your place.
[No response.]
Mr. Auchincloss, you have 5 minutes.
Mr. Auchincloss. Thank you, Chair.
This question is about MARAD's mandate to support the
military and how the Marines' force readiness plans will
streamline MARAD's support capability, and it is for you, Rear
Admiral.
Cargo preference, coupled with other programs, such as the
Maritime Security Program and Voluntary Intermodal Sealift
Agreement, are intended to support the U.S.-flag shipping
industry so that the United States is a fleet capable of
supplementing the capacity of the U.S. military with U.S.-flag
vessels and trained mariners during times of war and national
emergency, while also providing transportation for the Nation's
maritime commerce.
The Commandant of the Marine Corps 2030 Force Design
includes significant ground force reductions, and the Marines'
plan includes pursuing new capabilities to increase littoral
maritime ability and resilience.
With this recalibration, it would follow that this would
lessen MARAD's requirement that it has the ship capability to
support a national security emergency. What impact do you
foresee the Commandant's Force Design 2030 plan having on
MARAD's operating costs?
Admiral Phillips. Mr. Auchincloss, thank you for that
question. We, as you are aware, work very directly with the
U.S. Transportation Command, who is responsible for overseeing
military transportation broadly. In that context and in support
of your specific question, the Marine Corps changes and
challenges, which I am aware of, we would work with TRANSCOM to
understand what the needs are and what they will be in the
future.
I would add that the Transportation Command is very
interested in additional merchant capacity for other reasons,
including support of product tankers, in the Pacific in
particular, and other additional requirements.
So, I would revert back to TRANSCOM to work with their
fellow Services to ensure that they support the needs of the
Marine Corps and to understand what those impacts might be more
broadly, which then we respond to and provide the services that
they request from us in that context.
Mr. Auchincloss. Can you continue on that thread, Rear
Admiral, because I think it is worth pushing on, the fact that,
if I am correct, our merchant marine number of ships has
actually declined since World War II.
And yet as we are pivoting from a transatlantic
requirement, like we had in World War II really to support our
European Allies, towards an Indo-Pacific one, where the
distances are much greater and the need for maritime
transportation potentially much greater, do you feel like we
are in a position where we can support, with the merchant
marine, an Indo-Pacific strategy?
Admiral Phillips. So, thank you for that question, sir.
That is actually the point of working with Transportation
Command to understand the need and, in particular, their
identification of a shortfall in the--I just lost my
microphone--in the ability to handle the needs in the context
of product tankers and tank vessels to support scenarios that
would be of interest in the Pacific and the Indo-Pacific
theater.
Mr. Auchincloss. Thank you for that. And can you talk as
well about--and this might be more for you, Mr. Von Ah--about
how coordinated sanction implementation on Russia, either
global price cap in the maritime insurance regulations that we
are putting into place in conjunction with the European Union,
at the end of 2022, might affect the maritime industry?
Mr. Von Ah. I am not sure our work spoke to that,
Representative Auchincloss. I am not sure if the rear admiral
has any points of view on that.
Admiral Phillips. Thank you, sir, I don't in particular. I
will say that we certainly have been asked, and have supported,
with Ready Reserve Force vessels, and provided assistance in
the Ukraine context, as directed by TRANSCOM, and we will
continue----
Mr. Auchincloss [interrupting]. Has cargo preference
impacted our ability to send aid abroad to countries like
Ukraine?
Admiral Phillips. That is an interesting question. Our work
in the context of supporting Ukraine is directed through the
Transportation Command, to be able to move military cargo to
this point, which is 100 percent compliance.
Mr. Auchincloss. Chairman, I yield back.
Mr. Garamendi. Thank you, Mr. Auchincloss.
Mr. Van Drew, how nice of you to join us. You have 5
minutes.
Dr. Van Drew. Thank you. Thank you and good morning, and I
appreciate you holding today's hearing on the enforcement of
maritime Buy American laws.
The supply chain crisis has shown that we need to invest in
America [inaudible] to strengthen our economic position. This
includes cargo handling infrastructure, like cranes, which are
not currently made in the United States of America.
Unfortunately, a neglected manufacturing base and
burdensome regulations have put our country in a difficult
position when it comes to improving our port infrastructure.
These factors have led to a situation where the cost of
ocean shipping actually sometimes exceed the value of the cargo
that we are shipping out. This arrangement is economically
unsustainable for the United States of America.
Administrator Phillips, could you explain how current
regulations are impeding ports' ability to use DOT grant funds
to decrease cargo backlogs, prepare for increased trade, and
stay competitive?
Further, what actions can we take to align the economics of
maritime shipping with the value of American exports?
Admiral Phillips. Congressman, thank you for that question,
sir. In the context of port infrastructure and support for port
infrastructure, as you are aware, the Maritime Administration
supports the Port Infrastructure Development Program, which, as
discussed earlier in testimony, has received $450 million under
the Bipartisan Infrastructure Law, this year, bringing our
total, including appropriations in fiscal year 2022, to about
$680 million.
That grant program which will assist ports in improving
their infrastructure and improving the capacity and resilience
and their ability to move cargo, is under review now, and is
moving forward, and we expect to announce awards later this
fall. So, that will help ports nationwide improve their
capacity to move cargo.
In the context of shipping and commercial shipping and
pricing and our ability to regulate that, we do not have an
ability to regulate that. I would defer those questions, I
believe, sir, to the Federal Maritime Commission in the context
of the commercial world more broadly.
Certainly U.S.-flag shipping with more capacity to ship on
U.S.-flag vessels would allow us more control, in particular of
our exports as I stated earlier, which we have been challenged
to deal with under COVID and the many challenges to our supply
chain infrastructure, which, of course, we are all so well
aware of and, sir, which you are describing in your question, I
believe. Thank you.
Dr. Van Drew. Thank you. Just a followup. I have a couple
minutes. So, do you think we are well on our way to getting
this under control, or do you feel that we are still pretty
much in the thick of it and have some pretty serious problems
here?
I mean, this is something that is obviously important for
the economy, important for the future, just important in every
aspect. So, what are we not doing that you would like to see us
do, what are we doing that you like, and how can we do better?
Admiral Phillips. Thank you for that question, sir. I will
defer on the costs of foreign-flag vessel shipping, which
certainly has been a challenge across the COVID pandemic and
the supply chain challenges.
I would say in the context of improving our port
infrastructure, under the Bipartisan Infrastructure Law, and
PIDP in particular but other grants as well administered by the
Department of Transportation, we have a generational
opportunity to make change, to build resilience into our ports
and our supply chains, and to improve our capacity to move
cargo and keep cargo moving.
Of course, from our perspective, it is all about getting
cargo on ships, on U.S.-flag vessels, but in the broader
context, certainly under the Bipartisan Infrastructure Law, the
grants that have been approved and are underway in the
Department of Transportation, and particularly in MARAD PIDP,
will be of significant value in improving our port
infrastructure over the next 5 years. Thank you, sir.
Dr. Van Drew. So, you see that, and through that bipartisan
infrastructure bill, you see that as a positive, obviously, and
your sense is that we are going in the right direction, and
that this should be helpful, and we should see noticeable
improvement in the future?
Admiral Phillips. Yes, sir, in the context of being able to
improve our port infrastructure, something that we have long
needed and not done, this is a generational change and a
generational opportunity, sir. Thank you.
Dr. Van Drew. Thank you for your time and commitment and,
Chairman, thank you for yours.
Mr. Garamendi. Thank you, Mr. Van Drew. I now turn to
myself.
I believe, Admiral Phillips, you are the fourth
Administrator in the last decade. I believe that to be
accurate. And over that period of time, every Administrator has
failed to be able to fully implement the cargo preference laws.
Given your testimony today, your determination to achieve
what others have not been able to do is meritorious, hopeful,
but I don't think you are going to be able to do it. As good as
you are, as much experience as you have--and I am familiar with
the previous folks that held your office--the problem is the
law itself.
While you do have authority, I am not sure you have the
ability to actually, under the law, force the other American
shippers to meet the requirements of the law. A lot of
discussion about TRANSCOM here. I am going to write a letter to
TRANSCOM, who is responsible to my subcommittee, the Readiness
Subcommittee, and ask her for specific information about just
how well she is doing in carrying out the law.
Bottom line here is, we need to change the law, and I would
like to have your specific thoughts about several of the
specific things that we really must do, if we are going to
maintain our maritime industry.
So, here we go. You have the authority, responsibility, to
write regulations. Why have your predecessors been unable to do
that? Can they force the negotiations? Do you have the power to
actually force negotiations? That is, say, it is my way or the
highway?
Admiral Phillips. So, Mr. Chairman, thank you for that
question, and thank you for your interest in cargo preference
and enforcing the law.
As I have said before, we have the power of the law behind
us, and the law has been in place for a number of years.
Certainly the complexities in the law and pivotal language,
which is not clearly defined, as we have deferred to earlier in
this hearing, the kinds of ships that we use today that weren't
in existence when the 1954 law was put in place, all add to the
challenge.
In addition to that, agencies interpret the law
differently. They argue with us, and they argue amongst
themselves.
But setting all that aside, we have an opportunity here, I
think, particularly in the context of the understanding and
incredible need for our supply chain----
Mr. Garamendi [interrupting]. Excuse me. I understand all
that, the committee has heard that already, so, I am going to
interrupt you and ask you, if you had the power, in the new
law, to be the arbitrator of the cargo preference, that the
agencies--USDA, DoD, USAID--had to get your authority to ship
on other-than-American ships, could you carry that out? In
other words, you had the power.
Admiral Phillips. So, Mr. Chairman, are you asking me if I
have the power now to determine a nonavailability?
Mr. Garamendi. No. We must write a new law. This simply has
not worked. We are well into two decades of failure. And so, if
you, MARAD, had the authority, period, and DoD had to get your
permission to ship on other-than-American ships, USAID and
Department of Agriculture, could you carry that out?
Admiral Phillips. So, hypothetically speaking, sir, in the
context of what Congress may or may not decide to do, we
believe that we have--in the context of civilian authority now,
the ability to make a determination as to whether or not ships
are available, which in that case would allow agencies to ship
U.S. flag if they are available or not if they are not.
Anything that strengthens that authority certainly is helpful.
However, I defer to Congress in actions they might choose
to take in that context, sir.
Mr. Garamendi. Of course.
Should we increase the cargo preference back to 75 percent?
Would that expand the merchant marine?
Admiral Phillips. Again, I defer to Congress on their
decisions in this context, sir. However, back to my original
statement, more cargoes will tend to drive more ships which
will also drive the need for more mariners.
Mr. Garamendi. Very good. My time has expired. I will
simply share with the committee here that I intend to introduce
legislation, look forward to working with the committee and
with you and the other American shippers to make it clear that
the cargo preference laws are the laws and that the ambiguity,
confusion, and total disregard for the law by many is
terminated. We are going to work on that.
I do not believe we have a second round of questions.
Ah, Mr. Maloney. Sean Patrick, you are out there somewhere.
[Pause.]
Did you just quit on us again, Mr. Maloney?
[Pause.]
Hello, Mr. Maloney. If you would like to participate, this
is your moment, and it is rapidly disappearing.
[Pause.]
Last call. Mr. Maloney?
[No response.]
I believe we have completed the review.
Admiral Phillips, I look forward to working with you. Thank
you for being here today, and congratulations on your
appointment. You may be able to overcome the current inability
of the past Administrators, but I think if you had the power
clearly defined, I would have confidence you could carry it
out.
Mr. Von Ah, thank you very much for your continued
investigations and the clarity of reports. Thank you. We
appreciate your attendance here.
We now move on to the second panel.
The committee will come back to order.
Our second panel is now in place. The chairman may be able
to return, in which case I will move on.
So, I would like to welcome the next panel of witnesses.
Mr. Bryan Clark, senior fellow and director of the Center
for Defense Concepts and Technology at the Hudson Institute.
Thank you very much for joining us, Mr. Clark.
Mr. Eric Ebeling, president and chief executive officer of
American Roll-on Roll-off Carrier Group, on behalf of USA
Maritime.
And, Captain Don Marcus, president of the International
Organization of Masters, Mates & Pilots.
Gentlemen, thank you very much for being here today. I look
forward to your testimony.
Without objection, the witnesses' full statements will be
included in the record.
Captain Marcus, would you like to lead us? After all, you
are the captain of mates and masters.
TESTIMONY OF CAPTAIN DONALD J. MARCUS, PRESIDENT, INTERNATIONAL
ORGANIZATION OF MASTERS, MATES & PILOTS, AFL-CIO; ERIC P.
EBELING, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN ROLL-
ON ROLL-OFF CARRIER GROUP, ON BEHALF OF USA MARITIME; AND BRYAN
CLARK, SENIOR FELLOW AND DIRECTOR OF THE CENTER FOR DEFENSE
CONCEPTS AND TECHNOLOGY, HUDSON INSTITUTE
Mr. Marcus. Thank you very much. Mr. Chairman and members
of the subcommittee, good morning. I am Don Marcus, president
of the International Organization of Masters, Mates & Pilots,
AFL-CIO. Thank you for the opportunity to be here today to
represent America's seagoing labor and Transportation Trades
Department and Maritime Trades Department of the AFL-CIO.
Collectively, our unions represent the vast majority of
American professional mariners employed aboard U.S.-flag
vessels to carry cargo preference cargoes in foreign trade,
civilian, and defense cargoes. The strict enforcement and
enhancement of the U.S.-flag cargo preference shipping
requirements are essential to provide the base of cargo
necessary to sustain U.S.-flag vessels in foreign commerce.
Without cargo, there are no merchant ships. Without U.S.-flag
ships, our military and economic independence cannot be
guaranteed.
Men and women operate these vessels. They do so at all
times and in all conditions, in peace and war. During the
present pandemic and through all the daily hazards and personal
hardships inherent in their occupation, they support their
families through employment in good family-wage jobs, union
jobs. An attack on cargo preference, however, is more than
simply another attack on middle-class livelihoods.
The consistent support of U.S.-flag shipping from you, Mr.
Chairman, and many of your colleagues is especially important
today. The war in Europe could escalate into direct military
involvement at any time by the United States. It is with
unwelcome irony that a few months ago in this building, World
War II merchant marine veterans finally received a
Congressional Gold Medal in recognition of their wartime
service. And yet, at the same time, there are those in and out
of Government who are trying to weaken, if not destroy, cargo
preference with no regard for its impact on our fourth arm of
defense, or our maritime workforce.
What the opponents of cargo preference refuse to comprehend
is that the mariners who operate U.S.-flag vessels that carry
cargo preference cargoes are the same mariners who operate
surge and sustainment vessels that are necessary for our
military.
With the European conflict raging and an aggressive China
supporting a national-flag merchant fleet of over 4,000
oceangoing vessels, now is not the time to withdraw Government
cargo and undermine the commercial viability of the 80 to 85
U.S.-flag vessels that are currently operating in foreign
trade.
To this end, Congress must reject the concurrent
resolutions introduced in the House and Senate that attempt to
leverage the war in Ukraine to justify a waiver of cargo
preference. If these resolutions are enacted, our fleet will be
diminished, and our sealift readiness grievously compromised.
Secondly, Congress should reverse the arbitrary reduction
in cargo preference for food aid that was enacted in 2012.
Beginning in 1985 and through 2012, at least 75 percent of the
gross tonnage of international food aid cargoes was to be
carried aboard U.S.-flag vessels when available at fair and
reasonable rates.
In addition, the law stipulated that the Department of
Transportation would reimburse the food aid programs for any
cost premium associated with the use of U.S.-flag vessels for
more than 50 percent of the food aid cargoes. This 75 percent
minimum and the reimbursement mechanism should be reinstated.
Finally, we ask that Congress provide the Maritime
Administration with whatever additional authority it needs to
fully administer and enforce the cargo preference statutes as
set forth in section 3511 of the Duncan Hunter National Defense
Authorization Act of 2009, P.L. 110-417. The full exercise of
this authority by the Maritime Administration will help to
minimize, if not eliminate, interagency disputes over the
applicability and implementation of cargo preference.
American merchant mariners have served with distinction and
courage in every international conflict since our country
declared independence. It has never hesitated to sail in war
zones anywhere that U.S. troops are deployed. Too often,
merchant mariners have sacrificed their lives in this process.
Today's American seafarers should not be sold down the
river while their predecessors are given Congressional Gold
Medals some 75 years after the fact. Full compliance with cargo
preference laws is an investment in the U.S. Government that it
must make to strengthen our commercial sealift readiness, to
support our national security, and protect our national
economy.
Thank you again for the opportunity to express the views of
America's seafaring and transportation labor organizations. We
stand ready to provide additional information and work with you
and your colleagues to strengthen and grow the U.S.-flag
merchant marine.
[Mr. Marcus' prepared statement follows:]
Prepared Statement of Captain Donald J. Marcus, President,
International Organization of Masters, Mates & Pilots, AFL-CIO
Mr. Chairman and Members of the Subcommittee:
Good morning. I am Captain Donald Marcus, President of the
International Organization of Masters, Mates & Pilots, AFL-CIO. I am
pleased to appear today and to submit this statement on behalf of the
International Organization of Masters, Mates & Pilots as well as the
following seafaring and transportation labor organizations: American
Maritime Officers, American Radio Association, Marine Engineers'
Beneficial Association, Marine Firemen's Union, Maritime Trades
Department, AFL-CIO, Seafarers International Union, Sailors' Union of
the Pacific, and Transportation Trades Department, AFL-CIO. The full
enforcement and enhancement of America's U.S.-flag cargo preference
shipping requirements are critically important to our organizations and
to the jobs of the thousands of American mariners we represent. Our
labor organizations are united in our vigorous support of the U.S.-flag
cargo preference shipping requirements, and we thank this Subcommittee
for holding this hearing and giving us the opportunity to express our
views.
Together, our maritime labor unions represent the vast majority of
United States Coast Guard (USCG) licensed and unlicensed American
maritime personnel who work aboard commercial vessels of all types and
who are among the most highly trained and qualified mariners in the
worldwide maritime industry. Our unions and the licensed and unlicensed
American merchant mariners we represent have never turned away from the
challenges that must be faced to preserve the democratic way of life at
home and overseas. As they did at the founding of our nation, during
World War II and in every conflict before and since, the men and women
of the United States-flag merchant marine stand ready to sail into
harm's way whenever and wherever needed by our country to enhance
America's military and economic interests and to support and supply our
armed forces deployed overseas.
Without the U.S.-flag vessels and U.S. citizen licensed and
unlicensed merchant mariners ready and available to provide the
commercial sealift readiness capability needed by the Department of
Defense, our nation would be forced to entrust the support, supply, and
security of our forces overseas to foreign flag vessels and foreign
crews who may not support U.S. defense operations and objectives. To do
so would be to jeopardize the lives of American servicewomen and men
who will no longer be guaranteed the supplies and equipment they need
to do their job in support of our country.
As stated by United States Transportation Command (USTRANSCOM)
Commander General Stephen Lyons in November 2020, ``With 85 percent of
our forces based in the continental United States, nearly 90 percent of
our military equipment is expected to deploy via sealift in a major
conflict. In order to deploy those forces, we require safe, reliable
and ready U.S.-flagged vessels [and], mariners to crew those ships . .
.''
We thank you, Mr. Chairman, the members of this Subcommittee and
Committee, and numerous other members of the House of Representatives
for your strong support for the U.S.-flag maritime industry and for
your efforts to preserve and create jobs for America's maritime
workforce. We especially appreciate the action taken by this Committee
to enact legislation requiring the Comptroller General to perform an
independent audit regarding the enforcement of existing cargo
preference shipping requirements by all Federal agencies and
departments. We are hopeful that this audit will provide a clearer
understanding of the degree to which Federal agencies may be, for
whatever reason, acting contrary to the law and bypassing U.S.-flag,
U.S.-crewed vessels in favor of foreign flag, foreign crewed vessels to
move U.S. government cargoes. To fully achieve the goals and objectives
of the U.S.-flag cargo preference shipping requirements, it is
essential that the maximum amount of government generated cargoes move
on U.S.-flag vessels consistent with the requirements of law.
We also appreciate President Biden's recognition of the importance
of the maritime industry, and his Administration's commitment to a
greater adherence to America's domestic Made-in-America and Buy
American laws and policies as reflected in his Executive Order 14005
issued January 25, 2021. We are especially pleased that this Executive
Order includes within its scope the domestic preference laws for
maritime transport. This Administration has made clear that Ship
American is a key component of our Nation's Buy American and Hire
American policies and should be treated as such. As the President has
stated, ``I understand that merchant ships do not sail, and U.S.
merchant mariners do not work, unless they have cargo to carry. I
strongly support America's cargo preference laws.''
Significantly, Executive Order 14005 strengthened the oversight and
enforcement over the implementation of our cargo preference
requirements and created a Made-In-America Office (MIAO) to help ensure
his Administration's policies were being followed.
More specifically, the guidance issued by the White House to
supplement the President's Executive Order states that the Made In
America Office ``will work with relevant agencies to review how best to
ensure agency compliance with cargo preference requirements in order to
maximize the utilization of U.S.-flag vessels, in excess of any
applicable statutory minimum, to the greatest extent practicable.'' The
guidance also notes that ``cargo preference is necessary for the U.S.
to encourage and aid the development and maintenance of an American
merchant fleet (and mariner base) . . . to serve as a naval and
military auxiliary in time of war or national emergency.'' We applaud
President Biden for acting to ensure that Ship American requirements
are implemented and enforced throughout his Administration.
It is interesting to note that this action by President Biden is
the most significant step taken to ensure full compliance with the
spirit and letter of our nation's cargo preference shipping
requirements since the April 1962 Presidential Directive issued by
President John F. Kennedy. That Directive, a response to the
``worldwide economic and defense burdens facing the United States,''
directed all executive branch agencies to comply fully ``with the
purpose of our various cargo preference laws.''
President Kennedy's Directive, like President Biden's Executive
Order, reflects the fact that the cargo preference statutes were not
being ``implemented in a manner to achieve fully their purpose,'' which
is that ``U.S. government generated cargoes move in privately-owned
U.S.-flag commercial vessels whenever such vessels are available at
fair and reasonable rates.'' In response, President Kennedy's Directive
makes clear, as does President Biden's Executive Order, that the 50
percent requirement for U.S.-flag vessels in the law ``is a minimum,
and it shall be the objective of each agency to ship a maximum amount
of such cargoes on U.S.-flag vessels.''
As this Subcommittee knows, existing U.S.-flag cargo preference
shipping requirements mandate that a percentage of U.S. taxpayer
financed government exports and imports be transported on privately-
owned U.S.-flag commercial vessels, to the degree such vessels are
available at fair and reasonable rates. The Cargo Preference Act of
1954 as amended requires that no less than 50 percent of government
financed civilian cargoes shall move on privately-owned U.S.-flag
commercial vessels. The Cargo Preference Act of 1904 (10 USC 2631)
requires that all defense cargo be transported on U.S.-flag ships to
the extent such vessels are available at fair and reasonable rates as
does Public Resolution 17 which requires 100 percent of certain Export-
Import Bank financed cargoes be carried on U.S.-flag ships also if
available at fair and reasonable rates.
Reductions in cargo preference requirements and the failure by U.S.
government agencies to fully enforce these cargo preference laws result
in less cargo for U.S.-flag ships which means fewer U.S.-flag ships in
operation and fewer U.S. mariners. In fact, since U.S.-flag cargo
preference shipping requirements for food aid cargoes were arbitrarily
slashed from 75% to 50% in 2012, the U.S.-flag fleet has plummeted by
26% according to the Maritime Administration--more than triple the
impact initially forecast--contributing to the current maritime
manpower shortage which has been exacerbated by the direct and indirect
impacts of the COVID 19 pandemic on our industry.
The cargo preference statutes and policies, taken in conjunction
with the Maritime Security Program and the soon-to-be-implemented
Tanker Security Program, provide U.S.-flag vessels with a critical base
of cargo, and thereby give U.S.-flag vessels the opportunity to stay
active while they compete against lower-cost and oftentimes tax-free
foreign flag vessels for the carriage of commercial cargoes in the U.S.
foreign trades. This in turn helps to ensure that the U.S.-flag vessels
and their American crews remain available to the Department of Defense
in time of war or other international emergency.
It is important to understand that every U.S.-flag oceangoing
vessel regardless of type and regardless of whether it is enrolled in
the Maritime Security Program, has important military utility by
providing the employment base necessary to maintain the cadre of
American merchant mariners needed by the Department of Defense.
Consequently, the full implementation of all cargo preference
requirements applicable to the carriage of all types of U.S. government
cargoes helps guarantee that American maritime jobs will not be
outsourced to the benefit of foreign maritime workers and that the
dangerous decline in the number of available American merchant mariners
will not worsen.
To reiterate: Without the capability provided by the U.S.-flag
international fleet and its civilian American mariner workforce, the
Department of Defense would be forced to either dedicate its resources
to replicate, at significant cost to the American taxpayer, the
commercial sealift readiness capability provided by our industry or to
entrust the security of our Nation and the safety and supply of
American troops to foreign flag of convenience vessels crewed by
foreign nationals who cannot be counted on to support U.S. defense
operations. To do so would be to jeopardize the lives of American
servicewomen and men who will no longer be guaranteed the supplies and
equipment they need to do their job in support of our country.
We can begin to address this shortfall in the American maritime
manpower pool by rejecting misguided and unwarranted attempts to weaken
or repeal existing U.S.-flag cargo preference shipping requirements and
by ensuring that greater amounts of government-generated cargoes move
on U.S.-flag ships, thereby increasing the size of the U.S.-flag fleet
and the number of American merchant mariners to crew the vessels needed
to meet Department of Defense requirements. As stated in 2015 by
General Paul Selva, former Vice Chairman of the Joint Chiefs of Staff:
``A strong mariner base is critical to not only crewing the merchant
fleet in peacetime, but our DOD surge capacity in wartime . . . the
mariner base is at the point where future reductions in U.S.-flag
capacity puts our ability to fully activate, deploy, and sustain forces
at increased risk.''
Therefore, we call on Congress to forcefully reject the Concurrent
Resolutions introduced in the House of Representatives and Senate that
attempt to leverage the war in Ukraine to justify a waiver of cargo
preference. These resolutions not only ignore the impact such a waiver
would have on America's commercial sealift readiness capability, but
totally disregard the impact it would have on the jobs of American
merchant mariners. The reality is that if these Resolutions were
enacted, the Federal government will relinquish all control over the
carriage of U.S.-taxpayer financed food aid cargoes to foreign flag
foreign crewed ships.
Most importantly, contrary to what the sponsors of these
Resolutions would have us believe, existing U.S.-flag cargo preference
shipping requirements are not impeding our government's efforts to
export food aid. If and when the United States Agency for International
Development (USAID) begins to utilize the funding made available by
Congress to respond to the worldwide food aid crisis and either the
volume of food aid cargo exceeds available U.S.-flag tonnage or U.S.-
flag vessels are not available at fair and reasonable rates, existing
law already allows for the waiver of the cargo preference Ship American
requirements. In short, the resolutions are completely unnecessary.
Secondly, despite the efforts of the late Congressman Elijah
Cummings and numerous members of this Committee, Congress has failed to
undo the damage caused our industry through the arbitrary reduction in
cargo preference shipping requirements for food aid cargoes enacted in
2012. Beginning in 1985, no less than 75 percent of the gross tonnage
of international food aid cargoes was reserved for U.S.-flag vessels to
the degree such vessels are available at fair and reasonable rates. In
addition, the law at that time further stipulated that the Department
of Transportation would reimburse the food aid programs for any cost
premium associated with the use of U.S.-flag vessels for more than 50
percent of the food aid cargoes. In this way, we would be maximizing
the use of U.S.-flag vessels while minimizing the impact on the budget
for the food aid programs.
It is time to rectify this situation and restore, at a minimum, the
requirement in place from 1985-2012 that at least 75 percent of the
gross tonnage of international food aid cargoes be carried on U.S.-flag
vessels in conjunction with the reinstatement of the reimbursement
mechanism. As stated in 2018 by General Darren McDew, then-Commander,
United States Transportation Command: ``a higher cargo preference
requirement may incentivize increased government use of existing U.S.-
flag vessels and stem the current decline of the fleet.''
Thirdly, we ask that Congress provide the Maritime Administration
with whatever additional authority may be necessary to enable the
Maritime Administration to fully administer and enforce the cargo
preference statutes. Section 3511 of the Duncan Hunter National Defense
Authorization Act of 2009 (P.L. 110-417) clarifies that the Department
of Transportation through the Maritime Administration is the lead
Federal agency responsible for the administration, interpretation, and
enforcement of the cargo preference requirements. The primary purpose
of this provision is to minimize if not eliminate interagency disputes
over the applicability of cargo preference by clarifying the authority
of the Department of Transportation/Maritime Administration to be the
final arbiter.
The need for such authority within the Maritime Administration is
best illustrated by the unilateral refusal by USAID to use U.S.-flag
vessels to carry food aid to Yemen. Since P.L. 480 cargoes are the
single largest source of civilian agency cargoes, and the Yemen program
now accounts for 40% of the P.L. 480 budget, this is a serious and
pressing matter for our industry.
Compounding the arbitrariness on the part of USAID is the lack of
transparency in its application of waivers that exclude U.S.-flag
carriers from participating in the Yemen program. The agency initially
stated that it had excluded American carriers from the program because
it believed American carriers are unreliable and then claimed that the
carriage of cargoes to Yemen is too dangerous for American vessels and
American crews--despite the fact that U.S.-flag vessels and their
American crews are the only vessels that can be consistently relied
upon by our government and that American mariners have never refused to
sail into dangerous waters in support of a United States policy or
objective.
Most recently, and most disturbingly, USAID stated that it would no
longer discuss with our industry potential avenues to restore U.S.-flag
participation in the program and indicated that American carriers would
be excluded from participation based on cost relative to foreign
carriers, contrary to the fair and reasonable rate requirements in the
law.
In conclusion Mr. Chairman, we would again emphasize that the
dangerous decline in the American maritime manpower pool must be
reversed as we re-examine our critical national security supply chain.
Congress and the Administration must focus on ways to stop the further
loss of U.S.-flag vessels and the resultant outsourcing of American
maritime jobs, and actively work to increase the number of vessels
operating under the U.S.-flag to create and support more maritime job
opportunities for Americans. It is imperative to ensure that our
country has the U.S.-flag commercial sealift capability and trained
American mariners needed to support the Department of Defense
throughout its supply chain.
The full implementation of the cargo preference requirements to
transport U.S. government cargoes helps guarantee that American
maritime jobs will not be outsourced and lost to foreign maritime
workers. Congress and the Administration should expand the application
of cargo preference for non-defense U.S. government impelled cargoes.
Additionally, the Department of Defense should regularly and actively
ensure compliance with current U.S. cargo preference laws by Department
of Defense entities, including contracting officers, as well Department
of Defense contractors and subcontractors.
A strong, viable, privately-owned United States-flag maritime
industry serves as a critical line of defense against the total
domination of the world's oceans and the carriage of international
trade by those nations that do not adhere to our commitment to fair
trade and open seas. From the founding of our Nation to today, American
merchant mariners have served with distinction and courage, never
hesitating to sail into war zones to supply and support American troops
deployed anywhere in the world, and too often sacrificing their own
lives for our protection. We submit that full compliance with cargo
preference laws is an investment the U.S. Government must make to
maintain and increase the commercial sealift readiness capability
necessary to support our national security and to protect our national
economy.
Thank you again for the opportunity to express the views of
America's seafaring and transportation labor organizations on the
importance of our nation's U.S.-flag cargo preference shipping
requirements. We stand ready to provide whatever additional information
you may require and to work with you and your colleagues to strengthen
and grow our U.S.-flag merchant marine.
Mr. Garamendi. Thank you, Captain Marcus. We stand ready to
stand with you.
Mr. Ebeling, if you will present your testimony.
Mr. Ebeling. Thank you for the opportunity to appear before
you today. My name is Eric Ebeling, and I am testifying today
on behalf of USA Maritime, which is committed to ensuring the
U.S. merchant marine will always be available to support our
warfighters, enhance our economy through trade, and provide
great jobs to thousands of Americans across the country.
As president and CEO of American Roll-on Roll-off Carrier,
it is my honor to lead the largest U.S.-flag Ro-Ro operator, a
longtime participant in the Maritime Security Program,
committed to investing in the U.S.-flag fleet and U.S. merchant
marine.
While we have only had a short time to digest the GAO's
report, ``Actions Needed To Enhance Cargo Preference
Oversight,'' the recommendations made by GAO that MARAD should
publicly report on cargo preference data and that MARAD should
take steps to develop regulations to oversee and enforce
compliance with cargo preference requirements are excellent.
The U.S.-flagged commercial fleet in international trade is
vitally important to U.S. economic and national security, but
that U.S.-flag fleet is at a crossroads with declining cargoes,
resulting in a shrinking fleet and a shortage of qualified
mariners.
According to data received by MARAD and provided to GAO,
U.S.-flag volumes decreased 36 percent from 2012 to 2020. This
impacts national defense readiness but also impacts the
Nation's ability to pursue generous overseas economic and
agricultural assistance programs.
As detailed in my written statement, cargo preference is
the key incentive for U.S.-flag operators in international
trade to remain under U.S. registry and provide the vital cargo
base to help offset the cost advantages of operating a foreign-
flag ship, such as regulatory tax and crewing costs.
The most enduring and effective legislation supporting the
U.S.-flag fleet has often come in the wake of the Nation's
wars. The lack of any significant new maritime legislation
after Afghanistan and Iraq is telling. Not coincidentally, the
U.S.-flag fleet has fallen from a recent high of 107 ships in
international trade in 2011 to a recent low of 77 ships in 2016
due to major decreases in preference cargoes before
restabilizing primarily due to the reauthorization and
stabilization of MSP.
According to the GAO report, DoD compliance varied from 82
percent in 2012, declined to 62 percent in 2015, before
increasing again to 85 percent in 2020. The GAO report also
stated Government-owned reserve cargo vessels are held in
reduced operating status with minimal crew in peacetime. When
put in full operating status, the Government can add additional
trained and qualified mariners to operate them. That is only so
because of the continued existence of a commercial fleet that
provides the mariners, that crew, those reserve ships.
As the commander of USTRANSCOM, General Jacqueline Van
Ovost noted in a December 2021 speech, quote, ``as a seafaring
Nation, our country has been, and is, and will continue to be
reliant on the strength of the maritime industry and the many
mariners,'' also pointing to the importance of the U.S.-flag
fleet and merchant marine as, quote, ``America's economic
lifeline during peacetime.''
Civilian agency cargoes include such diverse cargoes as
USDA and USAID support and food aid, Federal Transit
Administration projects, Department of State cargoes,
Department of Energy projects, and many other nonmilitary
cargoes shipped or sponsored by the various departments and
agencies of the U.S. Government.
According to the GAO report, USAID compliance was 79
percent in 2012 but fell to 41 percent by 2019, while USDA
compliance fell from 86 percent in 2012 to 47 percent in 2020.
One might reasonably ask why such gamesmanship and
noncompliance is allowed to persist. The reason has to do with
the combination of lax enforcement mechanisms and unclear and
nonexistent consequences for violators, be they commercial
entities or Government agencies.
As has been touched on, the shortcoming was intended to be
addressed by the fiscal year 2009 NDAA, and if there were any
doubt of the intent of that language, it was clarified by one
of the sponsors of that language, Senator Daniel K. Inouye, in
a 2009 letter to President Barack Obama. In relevant excerpts,
quote:
``One of the most important elements in sustaining our
U.S.-flag fleet is its continued ability to carry certain
Government-impelled cargo. . . . [T]his provision is intended
to provide much needed clarity that the Department of
Transportation is the lead Federal agency for the
administration, interpretation, and execution of our cargo
preference requirements and guidelines. . . . It . . . does not
change the application of existing law but will resolve many of
the jurisdictional overlaps that exist with current shipper
agencies, and ultimately help fashion a more coherent policy
regarding the application of cargo preference laws,'' close
quote.
Whether by legislation or Executive order, 100 percent of
all Government owned or financed cargoes should be required to
move on U.S.-flag ships. This will help eliminate any
gamesmanship. Without cargo, carriers will not invest in ships,
and without those ships, there will not be jobs for our
merchant mariners who also crew those Government reserve ships
in time of need.
Congress should ensure that the DOT and MARAD are directed
and fully resourced to fully enforce the cargo preference laws,
and Congress and the administration should consider policies
that encourage shippers of all kinds to prioritize U.S.-flag
shipping as part of their global supply chains, to include
Government contracting policies and an incentive, such as a tax
credit, for shippers to utilize U.S.-flag carriers.
GAO was spot-on in its two conclusions on cargo preference.
USA Maritime stands ready to work with the Congress and the
agency on achieving these objectives.
Thank you.
[Mr. Ebeling's prepared statement follows:]
Prepared Statement of Eric P. Ebeling, President and Chief Executive
Officer, American Roll-On Roll-Off Carrier Group, on behalf of USA
Maritime
Introduction
Chairman Carbajal, Ranking Member Gibbs, and members of the
Committee--Thank you for the opportunity to appear before you today to
discuss the state of the U.S.-flag international fleet and in
particular the Cargo Preference laws of the United States. My name is
Eric Ebeling and I am testifying today on behalf of USA Maritime, a
coalition consisting of American-flag vessel owners and operators,
trade associations, and maritime labor. USA Maritime is committed to
ensuring the U.S. merchant marine will always be available to support
our warfighters, enhance our economy through trade, and provide great
jobs to thousands of Americans across the country.
As President and CEO of American Roll-On Roll-Off Carrier (ARC), it
is my honor to lead an incredibly talented team of men and women at the
largest U.S.-flag Ro-Ro operator. ARC has long been a participant in
the Voluntary Intermodal Sealift Agreement (VISA) and Maritime Security
Program (MSP) and we are committed to investing in the U.S.-flag fleet
and U.S. merchant marine to support our armed forces around the world.
We have re-flagged seven large Ro-Ro vessels into U.S. registry since
2016, including most recently M/V ARC COMMITMENT in December 2021 and
M/V ARC DEFENDER in January 2022.
The U.S.-flag fleet operating in international trade primarily
consists of the militarily useful and commercially viable MSP fleet of
60 ships and attendant global networks, as well as a handful of vessels
operating in international trade outside the MSP fleet. Without the
ships, networks and mariners provided by the MSP fleet, it would cost
the government tens of billions of dollars to attempt to try to
replicate the capabilities provided. The U.S.-flag fleet in
international trade is at a crossroads, with declining cargoes
resulting in a shrinking fleet and a shortage of qualified mariners.
These factors in turn impact national defense readiness in terms of
sealift and logistics support available to support the needs of the
Department of Defense (DoD), but also impact the nation's ability to
pursue generous overseas economic and agricultural assistance programs.
Overview of Cargo Preference Laws
Cargo preference is the reservation by law for transportation on
U.S.-flag vessels of all, or a portion of all, ocean-borne cargo which
moves in international trade either as a direct result of the Federal
Government's involvement, or indirectly because of the financial
sponsorship of a federal program or guarantee provided by the Federal
Government. It is relevant and appropriate at the outset to emphasize
that these are laws, not policy recommendations or suggestions. A
further note for clarity: USA Maritime is anxious to see the
recommendations from the forthcoming Government Accountability Office
(GAO) study on the cargo preference laws that is in part the impetus
for this hearing. While the study was not made available to USA
Maritime in advance, and we are not able to address its specific
findings or recommendations in this written testimony, we are hopeful
and expectant that the GAO study will demonstrate similar robust
support for, and clear enforcement of, the cargo preference laws. The
following overview and recommendations are therefore independent of the
GAO study.
The U.S. cargo preference laws are part of the overall statutory
program to support the privately-owned and operated U.S.-flag fleet and
merchant marine. Cargo preference requires that U.S. Government-
financed cargoes be shipped on U.S.-flag vessels, provided that such
vessels are available at fair and reasonable rates. Preference cargoes
are the key incentive for U.S.-flag operators in international trade to
remain under U.S. registry and provide a vital cargo base to help
offset regulatory, tax, crewing cost, and other cost advantages of
operating a foreign-flag ship. The primary U.S. cargo preference laws
are set forth in the Military Transportation Act of 1904 [Public Law
58-198, approved 28 April 1904 (33 Stat. 5187), as amended (10 U.S.C.
2631)], often also referenced as the Cargo Preference Act of 1904;
Public Resolution 17 [73rd Congress, approved 26 March 1934 (48 Stat.
500), as amended (46 App. U.S.C. 1241-1]; and the Cargo Preference Act
of 1954 [Public Law 83-664, approved 26 August 1954, (68 Stat. 832) as
amended (46 U.S.C. 55305)].
The 1904 Act requires that 100% of all military cargoes purchased
for or owned by U.S. military departments be shipped exclusively on
vessels of the United States or belonging to the United States. The
structure of the 1904 Act applies to all supplies for which the
military has contracted, including supplies to which it does not have
title at the time of shipment. Congress' overriding purpose is to
protect and promote a sufficient merchant marine capable of providing
sealift in time of war or national emergency. In general, well over 90%
of all overseas military equipment is shipped by sea because of the
cost efficiency of moving it by sea versus air as well as the scale and
scope of such cargoes.
Public Resolution 17 (1934) requires that all cargoes generated by
the U.S. Export-Import (Ex-Im) Bank be shipped on U.S.-flag vessels
unless a waiver is granted by the Maritime Administration, and the
Cargo Preference Act of 1954 requires that at least 50% of civilian
agency cargoes be transported on U.S.-flag vessels to the extent those
vessels are available at fair and reasonable rates. Every Department or
Agency is required to administer its programs in compliance with the
1954 Act's 50% requirement and is further subject to regulations issued
by the Secretary of Transportation. This 50% shipment requirement may
only be waived under the specific terms of the statute by the
``President, the Secretary of Defense, or Congress (by concurrent
resolution or otherwise) . . . temporarily . . . by declaring the
existence of an emergency justifying the waiver''. To USA Maritime's
knowledge, no such waiver has ever been issued with respect to the 1954
Act.
U.S. cargo preference laws are crucial to the continued existence
of the active, commercially viable, privately-owned U.S.-flag
commercial shipping fleet--the most cost-effective sealift capability
available to the U.S. Government. Proper enforcement by the Maritime
Administration and vigilant adherence by the Department of Defense,
Export-Import Bank, and all civilian departments and agencies is
critically important not only to the American international fleet, but
also to the survival of the U.S. merchant marine, who provide the
loyal, well-trained crews for such vessels. Although less than 2% of
the nation's waterborne trade moves on U.S.-flag ships, the cargo
preference laws ensure that the oceans are not completely dominated by
foreign-flag ships whose interests may not align with those of the
United States.
The existence of a U.S.-flag fleet ensures that the United States
can implement any national security policy necessary without having to
rely on the fleets of foreign nations. The U.S.-flag fleet is vital to
U.S. national security, providing essential sealift in peacetime and
wartime, and the ships that carry these cargoes provide important jobs
for American seafarers who are available in time of national emergency
to crew the sizeable fleet of reserve government vessels. By
guaranteeing the availability of certain cargoes to U.S.-flag ships,
the U.S. cargo preference laws help ensure that the vessels and
attendant intermodal systems, terminals, commercial IT systems, trained
crews, and vessel service industries continue to exist.
Military Cargoes
U.S.-flag commercial shipping is critical for the global movement
of U.S. forces and sustainment, and it generally holds that when the
U.S. Military is most active, the cargo base is larger and therefore
the U.S.-flag fleet sizes up accordingly. The most enduring and
effective legislation supporting the U.S.-flag fleet has often come in
the wake of the nation's wars. This includes the 1904 Military
Transportation Act in the wake of the Spanish-American War; the 1920
Merchant Marine Act after World War I; the 1954 Cargo Preference Act
following World War II and the Korean War; and the 1996 Maritime
Security Act post-Gulf War. The lack of any significant new maritime
legislation after Afghanistan and Iraq is telling. Not coincidentally,
the U.S.-flag fleet fell from a recent high of 107 ships in
international trade in 2010-2011 to a recent low of 77 ships in 2016
due to major decreases in defense, agricultural and other preference
cargoes, a failure of the MSP stipend to keep pace adequately with
rising costs generally, and a widening discrepancy between U.S.-flag
operating and foreign-flag costs.
The MSP fleet has stabilized over the past several years due to an
increase in the MSP stipend that took effect in FY17. In December 2019,
Congress wisely reauthorized MSP through 2035, which provides much
needed longer-term stability as carriers invest in new assets and their
networks for the long term. Having only just stabilized over the past
several years, the U.S.-flag fleet has faced imploding government cargo
markets during the pandemic, impacting carriers' ability to maintain
service, and in turn negatively impacting U.S.-flag fleet and mariner
readiness and by extension DoD readiness. As the Commander of U.S.
Transportation Command (TRANSCOM) General Jacqueline Van Ovost noted in
a December 2021 speech, ``(a)s a seafaring nation, our country has
been, and is, and will continue to be reliant on the strength of the
maritime industry and the many mariners'' also pointing to the
importance of the U.S.-flag fleet and merchant marine as ``America's
economic lifeline during peacetime.''
Since all U.S. military cargo is required to move on U.S.-flag
vessels, policymakers should consider other segments and policies for
potential sources of reinvigoration for the U.S.-flag commercial fleet
in international trade. One area adjacent to defense cargoes is foreign
military sales, which can include shipments involving direct DoD credit
sales, sales without such credit guarantees, offset purchases,
purchases under co-production agreements, and excess defense articles.
Such cargoes may not always entail a U.S.-flag shipping requirement,
but could be considered for coverage, and would provide a further base
of cargo to ensure the success of the U.S.-flag fleet and merchant
marine. In addition, government contracting policies and procedures
could prioritize U.S.-flag carriers that invest in owning and operating
essential assets and networks in other government contracts involving
transportation, logistics and supply chains.
Export-Import Bank Cargoes
Ex-Im Bank, the national export credit agency (ECA) of the United
States, seeks to create and maintain U.S. jobs by financing the sales
of U.S. exports, primarily to emerging markets throughout the world,
providing loan guarantees, export-credit insurance and direct loans.
P.R. 17 of the 73rd Congress requires that all cargoes generated by the
U.S. Export-Import Bank be shipped on U.S.-flag vessels unless a waiver
is granted by the Maritime Administration. These cargoes not only help
support and sustain thousands of well-paying jobs for the U.S.-flag
merchant marine, but shipping on U.S.-flag vessels also counts towards
the Ex-Im Bank's U.S. content requirement.
As defined by Ex-Im Bank, the following transactions are covered by
P.R. 17: direct loans, regardless of term or amount; and guarantees in
excess of $20,000,000 (excluding the Ex-Im Bank Exposure Fee) or a
repayment period of greater than seven (7) years. In theory, 100% of
all covered cargoes generated by Ex-Im Bank are required to move on
U.S.-flag bottoms, although waivers are commonplace for the movement of
goods on recipient nation's flagged fleets, where applicable.
Ex-Im generated cargoes were major sources of cargo for the U.S.-
flag international fleet in the 1990s during the post-Cold War
rebuilding efforts in the former Soviet Union, and again for several
years following the National Export Initiative of 2010. Soon
thereafter, however, after nearly 75 years of relative stability, the
Bank lost its charter for several years, and was unable to approve
projects above de minimis values due to the lack of a Board quorum. The
Bank has restabilized in the past several years, although without
generating much in the way of meaningful export volumes for U.S.-flag
carriers.
Nevertheless, the U.S. shipping community is supportive of the Bank
for global economic competitive purposes. There are at least 25
countries that require support from an export credit agency before they
will even consider a bid from an international company for a given
project, and there are over 80 ECAs offering such financing. Such ECAs
collectively exceed the size of the entire World Bank Group and fund
more private sector projects in the developing working than any other
class of financial institution. The U.S. Export-Import Bank levels the
playing field for American companies competing for such international
projects. Absent such an ECA, the United States would have effectively
unilaterally disarmed from participating in these trades and markets.
The U.S.-flag shipping and merchant mariner jobs should be considered
just as critical as the industry and manufacturing jobs that are
supported by Ex-Im financing.
Civilian Agency Cargoes
Civilian agency is a catch-all term that include such diverse
cargoes as USDA and USAID agricultural support and food aid, Federal
Transit Administration projects, Department of State personal property
and official fleet vehicles, Department of Energy projects, and many
other non-military cargoes shipped or sponsored by the various
departments and agencies of the U.S. Government. While often not as
voluminous as military cargoes, civilian agency cargoes often move on
different cycles and to a broader range of geographies than military
cargoes, and thus help keep ships and mariners fully employed. These
cargoes also move on all U.S.-flag vessel types, including container,
roll-on/roll-off, heavy lift, and bulker vessels. A minimum of 50% of
such cargoes are required to move on U.S.-flag bottoms, and while some
agencies aim for more, others are less scrupulous.
For nearly 30 years following the passage of the 1985 Food Security
Act, 75% of agricultural cargoes were required to ship U.S.-flag,
before the law was changed to 50% about a decade ago. In FY21, USAID
shipped only 31% of P.L. 480 ``Food for Peace'' bulk cargoes on U.S.-
flag ships using a variety of administrative waivers currently
available to Federal agencies. More recently, concurrent resolutions
proposing the total elimination of civilian cargo preference for three
years have surfaced in Congress, citing non-existent need arising out
of the Ukraine invasion despite the availability and widespread use of
such administrative waivers. USA Maritime calls upon Congress to reject
the concurrent resolutions that attempt to leverage the war in Ukraine
to eliminate civilian cargo preference for three years. The Federal
government should not relinquish control over the carriage of U.S.-
taxpayer financed food aid cargoes to foreign-flag and foreign crewed
ships, and it is precisely for instances such as the present one that
we maintain a robust U.S.-flag fleet and merchant marine.
One might reasonably ask why such gamesmanship and non-compliance
is allowed to persist. The reason has to do with a combination of lax
enforcement mechanisms and unclear or nonexistent consequences for
violators, be they commercial entities or government agencies. The
Maritime Administration, the agency tasked with administering the cargo
preference laws, is not traditionally an enforcement or regulatory
agency but rather a promotional agency.
Congress has sought to address this matter multiple times over the
decades. The Merchant Marine Act of 1970 provided the Secretary of
Commerce (MARAD was then part of the Department of Commerce) with the
responsibility and authority to promulgate cargo preference regulations
and to monitor the administration of cargo preference legislation. As
the legislative history explains, ``There is a clear need for a
centralized control over the administration of preference cargoes. In
the absence of such control, the various agencies charged with
administration of cargo preference laws have adopted varying practices
and policies, many of which are not American shipping oriented.'' The
1970 act states that each agency involved in shipments of cargo that
come under the Cargo Preference Act of 1954 is responsible for
administering the program under regulations issued by the Secretary of
Commerce, and the Secretary of Commerce is in turn responsible for
reviewing the administration of the total program and for reporting
annually to the Congress. These authorities were subsequently delegated
by the Department of Transportation to the Maritime Administration.
This shortcoming was also intended to be addressed by Section 3511
of the Duncan Hunter National Defense Authorization Act of 2009 (P.L.
110-417), which provides clarity that DoT, through MARAD, is the lead
Federal agency responsible for interpretation and enforcement of the
cargo preference laws, including providing for fines and debarment.
Unfortunately, although arguably self-executing, MARAD never completed
a rule making and the non-compliance has persisted.
If there were any doubt about the intent of the FY09 NDAA language,
it was clarified in a letter of October 8, 2009 from Senator Daniel K.
Inouye to President Barack Obama:
I am writing to personally express my strong support for the
enforcement of U.S. cargo preference laws. The U.S.-flag
merchant marine fleet is not only important to the efficient
flow of commerce, but also, as history has shown, is critical
to our national security. Our merchant fleet provides our
nation with critical, dependable sealift capability at a
fraction of the cost and, among other things, is instrumental
in supplying U.S. troops stationed abroad, as well as starving
people around the globe in times of war, peace, and natural
disaster.
One of the most important elements in sustaining our U.S.-
flag fleet is its continued ability to carry certain government
impelled cargo. For this reason, I authored a statutory
provision which was enacted into law as Section 3511 of the
Duncan Hunter National Defense Authorization Act of 2009 (P.L.
110-417) to ensure that U.S. cargo preference laws are legally
applicable to all shippers. Further, this provision is intended
to provide much needed clarity that the Department of
Transportation is the lead federal agency responsible for the
administration, interpretation, and execution of our cargo
preference requirements and guidelines. For too long,
interagency disputes between the U.S. Department of
Transportation, the U.S. Department of Agriculture, and the
United States Agency for International Development have
hampered the efficiency of our food aid programs.
It is important to note that Section 3511 does not change the
application of existing law but will resolve many of the
jurisdictional overlaps that exist with current shipper
agencies, and ultimately help fashion a more coherent policy
regarding the application of cargo preference laws. As these
agencies work toward improving our export-based food aid
programs, it is essential that the clear authority of the
Department of Transportation over cargo preference laws is
maintained, and that any decisions, rules, and regulations are
consistent with current law.
Given your strong support for the U.S. maritime industry and
your recognition of the importance of our nation's cargo
preference laws, I would appreciate your assistance with the
full implementation and enforcement of Section 3511. I look
forward to working with you in support of our nation's merchant
marine fleet.
More recently, on January 25, 2021, the Biden Administration issued
Executive Order 14005 to strengthen the oversight of and enforcement
over cargo preference requirements, including creating a ``Made in
America Office'' (MIAO). The guidance echoed previous efforts by
stating that MIAO ``will work with relevant agencies to review how best
to ensure agency compliance with cargo preference requirements in order
to maximize the utilization of U.S.-flag vessels in excess of any
applicable statutory minimum, to the greatest extent practicable''.
Recommendations
Whether by legislation or executive order, 100% of all government-
owned or financed cargoes should be required to move on U.S.-flag
ships. It is a rather simple equation: without cargo, carriers will not
invest in ships, and without ships, there will not be jobs for merchant
mariners. Without those merchant mariners, the Government-owned reserve
sealift fleet cannot be crewed. Given declining government cargoes over
the past decade, the impacts of the Covid-19 pandemic, and the already
critical shortage of maritime labor available to crew the U.S.-flag
commercial and government sealift fleets, this would provide a critical
boost to U.S.-flag shipping and the American merchant marine. In a
letter addressed to this Committee dated May 15, 2020, signed by then-
Commander of TRANSCOM General Stephen Lyons called for requiring ``100
percent of all government-impelled cargoes to be transported on U.S.
flagged vessels''. USA Maritime strongly endorses the recommendation.
Congress should ensure that the Department of Transportation and
Maritime Administration are directed and fully resourced to finally
enforce the cargo preference laws, including through the implementation
of the FY09 NDAA enforcement language. In addition to its MIAO effort,
the Administration could also reissue or reinvigorate the April 1962
Directive by President John F. Kennedy, a response to the ``worldwide
economic and defense burdens facing the United States'', that directed
all executive branch agencies to fully comply ``with the purpose of our
various cargo preference laws'', to help meet the geopolitical and
strategic great power competition challenges of today just as we did
during the Cold War.
Similarly, another way to expand the available cargo base for the
U.S.-flag fleet is to allow for NATO member countries to meet their 2%
defense spending commitment by shipping military or commercial cargo on
U.S.-flag vessels. In a time of increased geopolitical risk in Europe
due to the Russian invasion of Ukraine, the NATO alliance is perhaps
more relevant than at any time since the end of the Cold War. Allowing
NATO member nations to meet their spending commitments by supporting
the U.S.-flag fleet would be a tangible way for the allies to support
the essential asymmetric advantage that is the U.S.-flag sealift fleet.
Lastly, Congress and the Administration should consider shipping
policies that encourage shippers of all kinds, whether beneficial cargo
owners, freight forwarders, non-vessel operating common carriers
(NVOCCs) or otherwise, to prioritize U.S.-flag shipping as part of
their global supply chains. Less than 2% of the nation's commerce moves
on U.S.-flag ships, a figure that has more than halved in the last 50
years. It is right and proper that government-financed or generated
cargoes are set aside for U.S.-flag carriers as part of the overall
statutory framework, but more could be done, including prioritizing
asset-owning/operating companies in government contracts. As for non-
government cargoes, an incentive such as a tax credit for shippers to
utilize U.S.-flag carriers could provide an additional source of cargo
for U.S.-flag ships while providing an ancillary benefit to cargo
shippers seeking to access the American market.
Conclusion
General Darren McDew, then-Commander of U.S. Transportation
Command, noted in an October 2017 speech, ``We don't know when, but
someday the nation is going to come calling. When she does, she will
need us, she will need our ships, she will need our mariners . . . if
we do nothing now, the strength of the maritime fleet that brought the
nation to war throughout history . . . that strength will not be here.
It's already in decline.'' Alongside the Maritime Security Program, the
cargo preference laws of the United States constitute the most
important historical policy plank to ensure that this crown jewel
capability continues to be available to TRANSCOM and DoD, and the
nation writ large. Thank you for the opportunity to offer my views on
the critical factors pertinent to the cargo preference laws and
maintaining a strong U.S.-flag international fleet. I look forward to
your questions.
Mr. Garamendi. Thank you, Mr. Ebeling.
We will now turn to Mr. Clark.
Mr. Clark. Thank you, Mr. Chairman, Ranking Member Gibbs,
for the opportunity to testify here today about the importance
of cargo preference. I am a retired Navy officer and a think
tanker today, so, I am going to talk a little bit more
strategically about the challenge posed by noncompliance with
cargo preference.
Today, China dominates the global shipping industry. Six
thousand vessels are owned by Chinese companies. More than
4,500 are under Chinese flag. We have heard discussion today
about the fact of the U.S. fleet only has about 85 vessels
under U.S. flag that are oceangoing international shipping
vessels.
That is a disparity that would ordinarily not be that big
of an issue in a globalized economy operating under the rule of
law. But today we are seeing evidence where countries like
Russia, like China, are weaponizing their supply chains against
their opponents. We could find ourselves in the United States
in the position of being the victim of supply chain warfare
being imposed upon us by a company like China with this
enormous reach in the global shipping industry.
To avoid America suffering the fate that we see our
European allies suffering today under the threat of Russia
cutting off gas supplies, we need to improve and expand our own
U.S. shipping fleet to provide a hedge against the potential
for supply chain warfare and this weaponization of shipping
against us. But there is a challenge in doing that, and I guess
the cargo preference operating under U.S. flag is more
expensive than operating under foreign flags of convenience. We
have stricter safety rules. Labor requirements require us to
have more people to ensure for the safety of the vessel, and
also its security in foreign ports, and we are required that
our mariners be U.S. citizens or residents.
Carriers that are facing these higher costs cover those
costs by carrying preference cargo that is at a premium
compared to the price that they might receive in the open
market, and by getting stipends from the Maritime Security
Program and Tanker Security Program. These programs operate in
conjunction, though. The stipends from the Maritime Security
Program and TSP, the Tanker Security Program, aren't sufficient
to cover the higher cost, so, preference cargo is absolutely
essential.
To be able to expand the fleet to support U.S. shipping
needs and hedge against supply chain warfare, we are going to
need to both expand the use of those stipends but also ensure
that preference cargo is actually provided to the shippers that
are charged with carrying it and that are operating under U.S.
flag and incurring these higher costs for doing so. That larger
fleet is also extremely important to supporting our maritime
sealift demands that the military has during wartime or crisis.
The most severe shortfall we are facing right now in our
maritime sealift capacity for wartime demands is in tankers.
Today, as Admiral Phillips mentioned, the Tanker Security
Program is aiming to provide stipends, and, hopefully,
preference cargo for up to 10 tankers that could be U.S.-
flagged and operating international trade.
The requirement that has come out of the most recent
mobility capabilities requirements study from TRANSCOM is for
84 tankers. So, we have an enormous shortfall in the number of
tankers available under U.S. flag to support U.S. military
needs in a crisis or conflict. You could see a situation in
which that same set of tankers could also be employed to help
provide for U.S. shipping needs for fuel in the event of China
employing supply chain warfare against us and using their
shipping industry dominance against the United States.
There are opportunities to improve that, though. Obviously,
we need to improve compliance with cargo preference, and MARAD
needs to be charged with being able to do that. We could also,
as I mentioned in my written testimony, require that U.S. DoD
fuel being provided overseas be sourced from U.S. refineries,
which would increase the number of tankers required to carry
that fuel, increasing the cargo available, and potentially
allowing for an expansion of the Tanker Security Program and
providing for more tankers under U.S. flag.
But we're going to have to make these changes if we want to
be able to have our sealift capacity that we need for wartime
mobilization, as well as be able to insulate ourselves from the
potential for the weaponization of supply chains and shipping
against the United States against a China that is going to be
increasingly belligerent and willing to use a lot of tools
available to it in a hybrid approach to deter U.S. intervention
on behalf of Taiwan or other U.S. allies overseas.
So, again, thank you for the opportunity to speak with you
today, and I hope that we can have a discussion about these
improvements going forward.
[Mr. Clark's prepared statement follows:]
Prepared Statement of Bryan Clark, Senior Fellow and Director of the
Center for Defense Concepts and Technology, Hudson Institute
Russia's actions to reduce gas exports to Europe show the risk of
allowing an opposing power to gain control of essential contributors to
a nation's economy. America's NATO allies are now scrambling to
establish alternative sources of energy and revisit policies, such as
Germany's decision to sundown its nuclear generating capacity, that led
to an increased dependence on Russian gas.
The United States could find itself in a similar situation
regarding its maritime industry. Since the nation's founding, Americans
have gone to sea for trade, to harvest resources from the oceans, and
to advance the country's interests. By building and repairing ships,
training mariners, operating shipping networks, and sustaining ports
and waterways, the U.S. maritime industry makes possible the economic
benefits of access to the sea.
Recognizing the value of a strong maritime industry, China
undertook a methodical effort--supported by more than $15 billion
annually in government support--to establish the world's largest navy,
coast guard and shipping fleet, gain control of ports worldwide, and
become the world's largest shipbuilding nation. Today, Chinese
companies own more commercial ships than any other country, almost
doubling second place Greece. More than 7,000 large commercial ships
are registered in China, just slightly below first-place Panama. China
holds more than half the global orderbook for constructing large
commercial ships and builds nearly all the world's shipping containers.
Through its Belt-and-Road initiative, China has access and significant
control over marine terminals and other infrastructure around the
world.
China's domination of the maritime industry has benefitted U.S.
consumers by lowering prices for imported goods and subsidizing
infrastructure improvements at overseas ports. However, it also creates
vulnerabilities. During a confrontation between the United States or
its allies and China, Beijing could use its control over the maritime
shipping and transportation sector to impose costs and punish its
opponents. Outside of military conflict, China's government could
direct its companies, which lack the independence of U.S. firms, to
discriminate in favor of Chinese interests through pricing, scheduling,
insurance, or quality of service. The gas shortfalls being experienced
today by Europe and recent supply chain backlogs may pale in comparison
to the impact from a concerted effort by the Chinese maritime industry
to disrupt the U.S. economy.
U.S. policy decisions since the end of World War II contributed to
this vulnerability. Fewer than 200 large commercial ships now fly the
U.S. flag and fewer than 10 commercial ships are under construction in
U.S. shipyards. American shipping companies faced tax and other
regulatory disadvantages that led the largest to sell out to foreign
buyers decades ago.
To effectively compete, the United States will need to break with
maritime strategies that assume commercial and national security
contributions of the maritime industry are largely distinct. Instead,
the United States should adopt a new approach that recognizes the
inherent linkage between the two and fosters a healthier commercial
industry that can support U.S. national security. A new comprehensive
strategy is even more important now given the growing threat posed by
Chinese maritime power, the urgent need for new approaches to
shipbuilding and the repair of U.S. government ships, and the need for
viable solutions for strategic sealift gaps.
Restoring sealift capacity
A framework of regulation, law, and government programs governs and
shapes the U.S. maritime industry. Most relevant to this hearing is the
shipping fleet and its ability to support U.S. sealift demands during a
crisis or conflict, including the potential of Beijing reducing U.S.
access to Chinese flagged or owned vessels. By supporting the U.S.
shipping fleet, the United States can insulate itself from Chinese
pressure.
As depicted in the figure below, in the U.S. domestic commercial
shipping fleet, the Merchant Marine Act of 1920, also known as the
Jones Act, requires ships conducting commerce between U.S. ports to be
U.S.-built, U.S.-owned, and operated by crews of U.S. citizens or
permanent residents. In the international commercial fleet, the
Maritime Security Program (MSP) provides stipends to U.S.-flagged ship
operators to help cover the higher cost of following U.S. regulations,
and Cargo Preference rules require that U.S.-flagged ships carry all
DoD and 50 percent of other U.S. government cargoes. Ships
participating in MSP are enrolled in the Voluntary Intermodal Sealift
Agreement (VISA), which requires participating vessels to be made
available for surge sealift operations during wartime or other crises.
VISA also includes other vessels from the domestic and international
fleets, but they do not receive a stipend.
Contributors to U.S. surge sealift capacity
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Shipping operators are reticent to operate under U.S. flag due to
higher costs and a resulting lack of competitiveness that reduces cargo
throughput. Outdated taxes and regulations--especially related to
mariner wages and repair duties--should be reformed to help reduce
expenses. To improve efficiency and encourage shipping, the government
should also fund enhancements to intermodal links and deter cargo
diversion. And because shipping companies will need more sailors to
operate a larger U.S.-flagged fleet, merchant marine recruiting and
retention should be improved through new initiatives to ease of
credentialing and licensing and establishment of a Merchant Marine
Reserve.
Maritime Security Program and cargo preference
The current MSP offers a stipend to about 60 U.S.-flagged ships. At
a relatively low cost compared to acquiring, crewing, and maintaining
additional government ships, the MSP provides DoD access through VISA
to commercial vessels, mariners, and associated global intermodal
networks. By supporting the operation of U.S.-flagged ships in commerce
around the world, the MSP also contributes to U.S. tax revenue and
commercial access. However, the government could improve the program's
effectiveness by stabilizing the MSP stipend, expanding MSP to cover
sealift shortfalls and replacement of aging government-owned ships, and
bringing specialized ship types into the MSP that are expensive for the
government to buy and maintain.
However, the MSP stipend is generally not sufficient to cover the
costs of maintaining a ship under U.S. flag. Preference cargo, which
generally can command higher rates compared to commercial cargo, makes
up the difference. While government vendors and agencies are required
to comply with Cargo Preference rules, avoidance is rampant.
For example, defense contractors have difficulty identifying how
all the elements of their supply chain arrive in the United States for
manufacturing or assembly. This is a challenging problem, but recent
efforts by the Department of Defense (DoD) to understand its supply
chains should help identify the methods being used to move materials
and parts from overseas suppliers to U.S. defense contractors.
The Defense Logistics Agency (DLA) often circumvents Cargo
Preference rules to save costs in the name of national security. While
in general this would allow more funding to go to other defense
programs and logistics needs, as a working capital fund, the DLA is
also incentivized to reduce costs and reallocate the savings to
internal priorities.
Food aid is sometimes shipped on foreign-flagged ships to allow
more dollars to be spent on aid, but this undercuts the purpose of the
Cargo Preference program, which is to support the U.S. shipping
industry. Circumventing cargo preference merely privileges one industry
at the expense of another.
By reducing the circumvention of cargo preference rules, the U.S.
government could make operating under U.S. flag more attractive for
carriers. With a larger base of preference cargo to ship, the MSP fund
could eventually be applied to a larger number of carriers and expand
the size of the program, and the U.S. flag fleet.
Tanker security program and cargo preference
In the 2016 Mobility Capabilities Requirements Study, the U.S.
Transportation Command (USTRANSCOM) identified a requirement of 86
tankers necessary for the strategic sealift of fuel in a large
contingency.\1\ Additional tankers are necessary to support U.S. Navy
Consolidated Logistics (CONSOL) tanker at-sea fuel transfer
requirements.\2\ However, DoD only has access to about 9 U.S.-flag
militarily useful tankers that it could call upon in a contingency,
exclusive of tankers in the domestic trade.\3\
---------------------------------------------------------------------------
\1\ Lieutenant General Stephen Lyons, U.S. Army, Deputy Commander
of USTRANSCOM, ``Logistics and Sealift Forces,'' statement before House
Armed Services Committee Subcommittee on Seapower and Projection
Forces, March 22, 2016, p. 3.
\2\ U.S. Navy forces require lightering, CONSOL, or Modular Fuel
Delivery System-equipped tankers to transfer fuel afloat to other
tankers, to Combat Logistics Force ships, and to other vessels,
respectively. For more information on this demand, please see: Timothy
A. Walton, Ryan Boone, Harrison Schramm, Sustaining the Fight:
Resilient Maritime Logistics for a New Era (Washington, DC: Center for
Strategic and Budgetary Assessments, 2019), pp. 41-43, 77-83, https://
csbaonline.org/uploads/documents/Resilient_Maritime_Logistics.pdf. and
Bryan Clark, Timothy A. Walton, and Seth Cropsey, Seapower at a
Crossroads: A Plan to Restore the U.S. Navy's Maritime Advantage
(Washington, DC: Hudson Institute, 2020), pp. 40, 41, 44, https://
s3.amazonaws.com/media.hudson.org/
Clark%20Cropsey%20Walton_American%20Sea
%20Power%20at%20a%20Crossroads.pdf.
\3\ Figure 32 in Timothy A. Walton, Ryan Boone, Harrison Schramm,
Sustaining the Fight: Resilient Maritime Logistics for a New Era
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019),
p. 78, https://csbaonline.org/uploads/documents/Resilient_
Maritime_Logistics.pdf.
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Current U.S.-flagged fleet is far less than TRANSCOM requirement
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Figure 32 in Timothy A. Walton, Ryan Boone, Harrison Schramm,
Sustaining the Fight: Resilient Maritime Logistics for a New Era
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019),
p. 78, https://csbaonline.org/uploads/documents/
Resilient_Maritime_Logistics.pdf
The DoD faces a gap of approximately 76 fuel tankers to meet surge
sealift requirements. The newly established Tanker Security Program
(TSP) will help address this gap. But like the MSP, tankers
participating in the TSP require preference cargo to be economically
viable. Moreover, the TSP is small and would require more cargo if it
is to expand to meet the 76-tanker gap.
DLA Energy purchases the majority of its bulk fuel contracts for
deliveries to Defense Fuel Support Points (DFSPs) Outside the
Continental United States (OCONUS) from foreign refineries. Purchasing
fuel from foreign refineries closer to DFSPs allows DLA Energy to buy
fuel that is not only in some cases slightly less expensive than fuel
from U.S. refineries, but also allows DLA Energy to minimize
transportation costs, as the fuel can come from closer refineries than
farther, U.S. ones. This approach has allowed DLA Energy, a working
capital fund organization, to minimize costs passed on to the U.S.
military services and defense agencies.
DLA's approach has also had the unintended pernicious effect of
reducing the amount of preference cargo available to U.S.-flag tankers
and in turn reducing the number of U.S. tankers and crews available to
support critical U.S. Department of Defense (DoD) requirements. It also
creates a peacetime business environment misaligned with the threat
environment. For example, DLA Energy has historically purchased most of
the bulk fuel contracts for the Western Pacific solicitation from
refineries in Japan, the Republic of Korea, and Singapore--refineries
that would likely be subject to Chinese business control, coercion, or
attack in a potential conflict with the People's Republic of China.
Hoping requisite numbers of foreign tankers and their crews will be
available in a conflict to substitute for U.S. tankers is imprudent.
Global spare tanker capacity significantly fluctuates, and a large and
growing portion of commercial tanker fleets are Chinese controlled or
subject to Chinese coercion or might not want to participate in a Sino-
American confrontation.
To start to address this major gap in U.S. tankers, one of the
easiest and lowest-cost options is to source a greater proportion of
DLA Energy bulk fuel contracts from U.S. refineries and to continue to
require that fuel be transported to the greatest degree possible on
U.S.-flag tankers participating in the Maritime Administration
Voluntary Tanker Agreement (VTA).\4\
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\4\ The Voluntary Tanker Agreement (VTA) is an agreement that
facilitates cooperation between tanker operators and the government
(and grants shipowners anti-trust immunity for cooperating amongst
themselves) if the government determines it necessary to requisition
tankers in contingencies. Another complementary option to increase the
number of U.S.-flag tankers is to increase the number of Tanker
Security Fleet slots, increase their stipend to match the operating
differential between U.S. and foreign-flag vessels, and eliminate
regular Tanker Security Fleet participants' access to preference cargo
fuel to have these tankers operate in international trade, while other
U.S.-flag tankers transport preference cargo and meet domestic trade
requirements. As another option, DoD can long-term charter additional
tankers to serve as prepositioned reserves afloat that can move to
areas of need. And lastly, the U.S. Congress could mandate a
requirement in which a gradually growing proportion of U.S. energy
exports would need to be lifted on U.S.-flag tankers. For a further
discussion of this topic, please see: Timothy A. Walton, ``Resilient
refueling beyond Red Hill'', Real Clear Defense, March 14, 2022,
https://www.realcleardefense.com/articles/2022/03/14/
resilient_refueling_beyond_red_hill_
821616.html; and Timothy A. Walton, Ryan Boone, Harrison Schramm,
Sustaining the Fight: Resilient Maritime Logistics for a New Era
(Washington, DC: Center for Strategic and Budgetary Assessments, 2019),
pp. 81-82, 118, https://csbaonline.org/uploads/documents/
Resilient_Maritime_Logistics.pdf.
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This requirement would end the current penny-wise, pound-foolish
approach of purchasing most OCONUS bulk fuel contracts from foreign
refineries and would provide three major benefits. First, more U.S.-
flag tankers could join the U.S. commercial fleet since there would be
more preference cargo to support their operations. By participating in
the VTA, these tankers could engage in commerce in peacetime and be
requisitioned, if necessary, by the U.S. government during
contingencies. Second, the proposed approach would provide more jobs to
U.S. mariners and their supporting maritime industry personnel and
provide additional revenues to U.S.-flag tanker companies (and tax
receipts to the U.S. government from those companies and from their
personnel). Third, the proposed approach would increase sales of fuels
by U.S. refineries and in turn support jobs, revenues, and tax receipts
at these refineries.
Recommendations
The U.S. Congress should introduce legislation that mandates that
DLA Energy, starting in FY 2023, purchase no less than 50 percent of
tanker-delivered OCONUS bulk fuel contracts from U.S. refineries and
that all tanker-delivered fuel be transported on U.S.-flag tankers
participating in the Voluntary Tanker Agreement. The requirement should
increase to eventually mandate that DLA Energy purchase no less than
100 percent of tanker-delivered OCONUS bulk fuel contracts from U.S.
refineries, and no less than 25 percent of pipeline-delivered OCONUS
bulk fuel contracts from U.S. refineries, and that all tanker-delivered
fuel be transported on U.S.-flag tankers participating in the Voluntary
Tanker Agreement.
To reduce circumvention of Cargo Preference rules, the U.S.
Congress should require that DoD complete a survey of defense
contractors to determine how well they understand the shipping used
within their supply chains. The report should include a plan to gain a
complete understanding of the overseas materials and part used in U.S.
weapon systems and the shipping used to obtain them. The Congress
should also require that DLA provide a report on its use of foreign-
flagged vessels, the reasons for doing so, and how the resulting
savings were repurposed.
Conclusion
In a future military or diplomatic confrontation against China, the
United States could experience economic disruptions like those imposed
by the Covid-19 pandemic's impact on supply chains or the energy
shortfalls befalling Europe today. Some of these effects may be
unavoidable, given the Chinese maritime industry's size and influence.
However, the best insulation against the worst disruptions is to
improve the health of the U.S. maritime industry, which depends on
effective enforcement of cargo preference rules.
Mr. Carbajal [presiding]. Thank you very much, Mr. Clark.
Now, I will proceed with allowing all of the Members to ask
your questions for 5 minutes. I will start by recognizing
myself.
This is to the entire panel. In the wake of the Russian
invasion of Ukraine, there have been legislative efforts to
waive cargo preference. What effect would that proposal have on
the mariner base, the number of U.S.-flag vessels, military
search capability, and readiness?
[No response.]
Don't all jump in at one time.
Mr. Marcus. I will answer that, Mr. Chair, and thank you
for the opportunity.
I would say it would certainly diminish the amount of
vessels available and crewmembers available to support any kind
of sustained military sealift. If you cut the program to--you
said you would cut the program, is that correct? Or did you say
you would bring it to 100 percent?
Mr. Carbajal. Cut or 100 percent----
Mr. Marcus [interrupting]. Well, obviously, if you cut it--
and I am sorry. If you cut it, the amount of sealift would go
down. The amount of available mariners would go down. You are
cutting a program from 75 percent to 50 percent. In 2012, we
saw the number of ships available decrease, at least 10 or 15
ships. We saw members permanently leave the industry. So, you
would have a crew shortage, and you would have a shortage of
tonnage.
And on the other side, if you increase the program from the
current 50 percent to 100 percent, you would increase your
sealift capability. You would increase your manpower and
opportunities to grow the U.S. merchant marine.
Mr. Carbajal. Thank you.
Mr. Ebeling. Yes, thank you for the question.
Just to maybe expand on that a little bit, any reduction in
cargo will have a detrimental impact on the U.S.-flag fleet. As
Captain Marcus alluded to, that impacts not just the ships, but
the mariner pool, and that mariner pool also crews the
Government reserve ships.
This kind of circumstance is precisely why we have a U.S.-
flag fleet so that we can pursue any national security or
economic policy that we so choose.
Thank you.
Mr. Carbajal. Thank you.
Mr. Clark. And just to add to what my colleagues have said,
the ships right now cannot operate cost effectively under just
the Maritime Security Program stipend. They need the cargo
preference cargo to augment that income and be able to operate
in the black. So, you are going to see a continued erosion of
the size of the U.S. fleet without preference cargo, and
waiving this requirement would be devastating to that cargo
amount.
Mr. Carbajal. Thank you.
Mr. Clark, the GAO report issued on Monday provides
important information on the decline of the size of the fleet
of U.S.-flag vessels engaged in international trade. In 1990,
there were 199 U.S.-flag vessels in the fleet; but as of 2021,
the fleet was down to 84 vessels. What can be done to stabilize
the U.S.-flag vessel fleet in addition to obviously not cutting
it, the preference?
Mr. Clark. Right. Obviously not cutting cargo preference.
So, making sure that preference cargo is carried by U.S.-flag
ships is really important. So, compliance with cargo preference
rules is essential. Going after the agencies that have been
avoiding using U.S.-flag ships for preference cargo will be
important. There are agencies that are obviously avoiding that
for the purpose of saving money. Also defense contractors,
including defense vendors, are sometimes not using U.S.-flag
ships to move their cargo, and it is partially a result of not
understanding their supply chain, but it is also a result of
inadequate oversight. So, making sure that preference cargo is
shipped on U.S. ships is one.
The other part would be looking at expanding the Maritime
Security Program, but to expand the Maritime Security Program
and its associated stipend, we are going to need to have more
preference cargo to make those ships viable economically. So,
it goes back to cargo preference.
Mr. Carbajal. Thank you.
Mr. Ebeling, you mentioned foreign military sales as a way
to invigorate the market. Can you provide more detail on what
the Federal Government can do there to stabilize the cargo
markets for U.S.-flag carriers?
Mr. Ebeling. Sure. So, foreign military sales, there are
different types of that, some of which, such as foreign
military financing, or FMF, are subject to U.S.-flag shipping
requirements. Other types of FMS may not be. One way to
potentially support the U.S.-flag fleet is to require all types
of FMS, or a larger percentage of such, to move on U.S.-flag
ships.
Mr. Carbajal. Thank you very much.
Captain Marcus, in your testimony you brought up the
administration's emphasis and prioritization of implementing
cargo preference requirements. And yet, there are agencies such
as the USDA, USAID, and DoD who are not following the
President's Executive order. What would this mean to the
maritime industry should these agencies comply for a change?
Mr. Marcus. Well, I think it would certainly mean there
would be more cargo carried aboard U.S.-flagged vessels, and
there would most likely certainly be more vessels entering
service under the U.S. flag and more bulk carriers to carry
these commodities.
Thank you.
Mr. Carbajal. Thank you.
I now will go to Representative Gibbs.
Mr. Gibbs. Thank you, Mr. Chair.
Mr. Clark, we were talking about your proposal because of
the 82-percent drop in U.S.-flag vehicles. I've got the law
here, and I just want to--for clarification, it says,
``Supplies bought for the Army, Navy, Air Force, Marine Corps,
or space force, or for a defense agency, or otherwise
transported by the Department of Defense, may only be
transported by sea in a vessel belonging to the United States
or a vessel of the United States.'' And it has another
definition. But then it goes on, there is a waiver provision:
``The Secretary of Defense may waive the requirement.''
I assume that is what has happened?
Mr. Clark. Yes. So, what will happen, internal to the
Department of Defense, they make a determination that there is
not an available U.S. ship at an acceptable cost or reasonable
cost and schedule. And then they will choose a foreign-flag
ship to make the shipment. And that happens a lot because in a
perverse sort of cycle, because we have reduced the amount of
cargo that we are sending to U.S. ships, the size of the U.S.
fleet shrinks, and then it makes it harder to schedule. So then
the agencies can say, well, I can't get a ship at an acceptable
schedule or cost. But that is because they have not been using
the ships and, therefore, the fleet has been shrinking. So,
they have waived that internally.
Mr. Gibbs. I believe that provision is not in our
jurisdiction. I think it is probably Armed Services Committee
jurisdiction.
Mr. Clark. That is an internal discussion inside the DoD,
but the----
Mr. Gibbs [interposing]. I understand.
Mr. Clark. Right. But MARAD can enforce those rules under
the existing law. So, it is just that DoD has chosen to
establish its own waiver provisions, but under the existing
law, MARAD is supposed to be administering the cargo preference
rules.
Mr. Gibbs. OK. That is interesting.
If they did--in your proposal to ship oil from U.S. depots
rather than foreign depots, how much do you think that we would
be able to claw back of that 82 percent?
Mr. Clark. It is hard to tell when you look at the math,
but it looks like you would be able to at least get three more,
and probably more than that, tankers under U.S. flag to source
that, because it is obviously not going to be completely
efficient. So, if all of that fuel was put on the smallest
number of tankers possible, you are looking at 3, maybe 10.
Mr. Gibbs. Yes, I thought that the efficiency is probably
lost.
Mr. Clark. Right, right. But the cost would be minimal, and
it would expand the amount of, obviously, fuel being shipped on
U.S. ships substantially.
Mr. Gibbs. OK. I guess to the other two panelists,
President Biden's Executive Order 14005 strengthens the
oversight and enforcement, but MARAD has been unable to
promulgate the rules. Are you working with the Biden
administration to assure that MARAD is getting cooperation in
the interagency review process to be able to promulgate these
long-delayed regulations? What's your involvement with the
Biden administration?
Mr. Ebeling. Yes. USA Maritime has had productive
discussions with the administration. It hasn't moved the needle
much in terms of tangible action yet. Those discussions are
ongoing, and we would be happy to work with the administration
and the Congress on further tangible action.
Mr. Gibbs. Mr. Marcus?
Mr. Marcus. Yes. I will follow up in the same way. The AFL-
CIO Transportation Trades Department, the Maritime Trades
Department, the labor unions, we have been working for a number
of years to try to get regulatory mechanisms in place that are
necessary to actually make this happen. And as has been said
earlier in this testimony, it has gone year after year,
Administrator after Administrator, and there needs to be some
change, hopefully in the law, to make this more likely.
Thank you.
Mr. Gibbs. Yes. Mr. Marcus, I have a question. It is a
little off topic, but I think it is timely. We are looking at a
possible railroad strike, strike of freight rail. And since you
represent the AFL-CIO, can you tell us any involvement that you
have had with the railroad industry to try to mitigate, prevent
a strike happening? Because the impact on your members is going
to be significant if it happens, I believe.
Mr. Marcus. Well, it is significant for the supply chain,
and we have been working closely with the Transportation Trades
Department supporting the railroad workers who have been under
the thumb and experienced some horrifying job losses, working
conditions, and safety problems for decades.
So, we are supporting the railroad workers. And hopefully a
just and fair resolution to their labor issues and the supply
chain issues that plague the railways can be found.
Mr. Gibbs. Are you hopeful?
Mr. Marcus. I would have to say that I think it is going to
have to get pushed further to get some real actions, but I am
optimistic at the end of the day that a resolution will be
found.
Mr. Gibbs. Because I hope the kind of resolutions--we just
went through a major bottleneck at the ports, especially on the
west coast, and we saw that. We are slowly digging our way out
of that. And I have always said, when one leg of the intermodal
system breaks down, it has a tremendous catastrophic effect on
the rest. And this could be--after just coming out of COVID and
the supply chain issues, to have this happen at this time puts
us on a very tight, precarious position. I am worried about
that. So, I hope everybody is trying to work together to
resolve the issue.
Mr. Marcus. Yes, sir, I believe they are. Thank you for the
inquiry.
Mr. Gibbs. I yield back, Mr. Chairman.
Mr. Carbajal. Thank you, Mr. Gibbs.
I will now recognize Representative Lowenthal, the
distinguished gentleman from California.
Mr. Lowenthal. Thank you, Mr. Chairman. Great to see you
back on the committee.
This has been a very interesting discussion, and I want to
elaborate on points that have already been made, but we are
going in this vicious cycle. On one hand, agencies are arguing
that existing U.S.-flag fleet cannot adequately meet their
demands. This is used to justify lax enforcement and mandates
which weaken the demand for critical services that are provided
by U.S.-flag carriers, and it hinders the expansion of the
fleet. And I believe the only response to this is to make sure
that the fleet is big enough and flexible enough to meet
congressional requirements. And, clearly, MARAD is not ensuring
that agencies are following the law. We need to change that and
to guarantee demand for U.S.-flagged vessels.
But there are two sides of the equation, and I think we
have already heard some of the responses about what else we can
do besides MARAD ensuring demand for U.S. And I want to ask
Captain Marcus and Mr. Ebeling, can you weigh in also on
additional measures that we should be considering to help
ensure that U.S.-flag vessels meet the demand for vessels and
mariners? What else should we be doing?
Mr. Marcus. Thank you, Congressman, for the inquiry.
I think there is a lot that could be done. I think the
starting point is clearly to have a national maritime policy.
We lack a national maritime policy. We have a handful of
programs to keep a minimal baseline of shipping afloat under
U.S. flag, but we don't have a comprehensive national maritime
policy.
Specific things that could be done besides expanding the
Maritime Security Program or the Tanker Security Program would
be things like bilateral trade agreements, export quotas, which
Congressman Garamendi and others have suggested over the years,
and certainly a national program such as we saw in 1936. I
mean, when there were war clouds in Europe in the thirties,
U.S. Congress and President Roosevelt got together. They
developed a merchant marine policy called the Merchant Marine
Act of 1936, and what we have left is basically the remnants of
those policies, a few new things added to keep us on the
lifeline. But there is plenty of things that could be done. It
requires national will, and it requires financial investment.
Thank you.
Mr. Lowenthal. Thank you, Captain Marcus.
Mr. Ebeling, anything that you would like to add?
Mr. Ebeling. Yes. Thank you.
And I certainly echo Captain Marcus' remarks there. I was
reflecting on the chairman's remark earlier about the decline
of the fleet from the 1990s through the present, and I think it
is important maybe to take a step back and look at the goals
for the U.S.-flag fleet. And I think we have really emphasized
the national security requirements. For example, Mr. Clark
alluded to the mobility capability requirements study earlier.
That has stayed pretty consistent at 19 to 20 million square
feet of capacity needed to pursue the national security
objectives for sealift.
I think we need to expand the conversation beyond national
security. Of course, defense sealift should be prioritized, but
we should be looking at other programs as well, and maybe
taking a little bit more of a holistic approach, looking at our
global supply chains, looking at our contracting policies,
looking at potential tax credits, so, we are really kind of
elevating the discussion a little bit.
So, thank you.
Mr. Lowenthal. Thank you.
And I yield back, Mr. Chair.
Mr. Carbajal. Thank you, Mr. Lowenthal.
I will recognize now Mr. Garamendi for 5 minutes.
Mr. Garamendi. First, Mr. Chairman, thank you for holding
the hearing. It is very, very important.
The maritime industry is exceedingly important. We do need
what I would call a national maritime security policy that
would go beyond the subject matter of this issue, of this
hearing, one that would provide usually the Jones Act to meet
the national military security. That is another hearing and
another day.
I believe that we need a new law. As I said previously to
the admiral about her power, four Administrators have failed to
carry out the law. We need an explicit requirement--for each of
you gentlemen, does it make sense that the Administrator, MARAD
Administrator, have the authority and that the agencies must
seek her permission, or the Administrator's permission, to
waive the current requirement of 50 percent?
Mr. Ebeling. In a word, yes. And I think that that has been
Congress' intent going back at least to the fiscal year 2009
NDAA, but even further, probably back to the 1970 act as well.
Thank you.
Mr. Garamendi. Mr. Clark?
Mr. Clark. Yes, I agree.
Mr. Garamendi. Captain Marcus?
Mr. Marcus. Absolutely, we need a new law, and it needs to
be effective. It needs to be implemented, yes, sir.
Mr. Garamendi. Should we restore the 75 percent
requirement?
Mr. Marcus. Certainly speaking for labor, absolutely. It
would bring more cargo. It would require more vessels and
improve and increase the industry for the better of the Nation.
Thank you.
Mr. Ebeling. We would support that, but I would also argue
perhaps to consider 100 percent, which would also take some of
the gamesmanship out of it.
Thank you.
Mr. Garamendi. Very good.
Mr. Clark. I agree, and I think 100 percent is the
appropriate number because it does open up a lot of
interpretation otherwise. And I think it also requires stepping
back and saying what is the purpose of this program, which is
fundamentally to ensure that we have a U.S.-flag fleet to
support both our national security needs and insulate us
against potential supply chain warfare. And we need to start
thinking of it in a strategic approach as opposed to being just
tactical.
Mr. Garamendi. And if there was a reasonable waiver
associated with 100 percent, could we get past that argument
that we would undoubtedly hear about 100 percent?
Mr. Clark. A waiver, but that would be something that MARAD
should be agreeing to rather than something the agencies
independently decide.
Mr. Garamendi. So, a tight waiver, well-understood waiver?
Mr. Clark. Right.
Mr. Garamendi. Administered by MARAD?
Mr. Clark. Correct.
Mr. Garamendi. Yes?
Mr. Ebeling. Just to add, I think that is correct, but I
would also argue that it should be subject to availability and
fair and reasonable rates as well. And that is part of the
existing law and that, I think, even if it were 100 percent,
that should probably stay as part of the existing law.
Thank you.
Mr. Garamendi. Captain Marcus, anything to add?
Mr. Marcus. No. I would just echo what was said, but also
say with the question of availability, which has been noted
earlier in this hearing, the less cargo, the less ships are
available. So, as was said earlier by Mr. Von Ah, if you are
down to the last three boat carriers in the U.S.-flag fleet,
there is not going to be a whole lot of availability. So, you
need a larger number of vessels to have the availability to use
the program.
Thank you.
Mr. Garamendi. That goes to my next series of questions
about waiving into the American-flag fleet ships that are
presently not. Should we allow foreign-flag ships to be
reflagged into the American fleet? For example, the current 3-
year law makes that almost impossible. Should we modify that in
such a way as to allow those ships to be flagged in to be
available more quickly, and then requirements that they not be
in and out? Does it make sense to do that?
Mr. Marcus. Yes. Certainly, the 3-year wait, as has been
noted earlier, is a problem in the current law for flagging in
vessels. And I do think there should be some mechanism to
require the vessels, once flagged in, to remain in service for
the defined period of time.
Thank you, sir.
Mr. Garamendi. Mr. Ebeling?
Mr. Ebeling. I would just add that removing the 3-year
wait, while it may have some short-term positive impacts, would
not necessarily generate any new cargo. And so, I think that is
an important consideration to bear in mind as well.
Thank you.
Mr. Clark. Yes. And I agree. I think the one thing to note
is that there are several requirements that you have to meet in
order to be U.S.-flagged that make it so that it is not just a
jumping in and jumping out sort of operation. It will take some
time for a ship to be qualified and have the appropriate crew.
So, there is still a requirement in place. It is just not a
time requirement.
Mr. Garamendi. My time having expired, but my questions
not, I yield back.
Mr. Carbajal. Thank you, Mr. Garamendi.
That concludes our hearing for today.
I would like to thank the witnesses for your testimony.
Your contributions to today's discussion have been very
informative and helpful.
I ask unanimous consent that the record of today's hearing
remain open until such time as our witnesses have provided
answers to any questions that may be submitted to them in
writing.
I also ask unanimous consent that the record remain open
for 15 days for any additional comments and information
submitted by Members or witnesses to be included in the record
of today's hearing.
Without objection, so ordered.
The subcommittee stands adjourned.
[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]
Submissions for the Record
----------
Prepared Statement of Hon. Peter A. DeFazio, a Representative in
Congress from the State of Oregon, and Chair, Committee on
Transportation and Infrastructure
Thank you, Chair Carbajal, for calling this very important hearing
on compliance with and enforcement of cargo preference requirements.
Oversight of cargo preference laws is long overdue, and this hearing
could not come at a better time with the release of the Government
Accountability Office's (GAO) report on cargo preference enforcement on
Monday.
I'd like to acknowledge Rear Admiral Phillips' first appearance
before this subcommittee in her new role as Maritime Administrator. It
is great to see you again and I look forward to hearing how the
Maritime Administration (MARAD) plans to better enforce cargo
preference compliance.
The U.S. depends on a robust merchant fleet not only for economic
purposes but also for national security. This past year, we've seen the
negative effects of an industry dominated by foreign companies and
interests wreaking havoc on our supply chain. It is counter to U.S.
interests to increase reliance on foreign-flagged vessels. For decades
we've seen the U.S.-flag fleet shrink, dropping from 199 vessels in
1990 to 84 presently. The flags of convenience system has exacerbated
this issue, allowing companies to flag their vessels under countries
that lack labor, safety, and environmental standards.
Cargo preference provides a backbone to support the dwindling
internationally sailing U.S.-flag fleet, especially when coupled with
other incentive programs like the Maritime Security Program. Cargo
preference refers to the various laws requiring government-impelled
cargo to be carried on U.S.-flagged vessels. Without it, the U.S. would
not have the means to carry defense cargo overseas in times of war and
would instead rely on foreign-flagged vessels.
There's an old saying: ``cargo is king.'' By providing a baseline
of cargo for U.S.-flagged ships, we incentivize more vessels to join
the fleet. Without guaranteeing cargo for U.S. vessels, we lose demand
for U.S. owned and crewed ships. The 2012 Moving Ahead for Progress in
the 21st Century Act reduced the cargo preference minimum for non-
military government impelled cargo from 75 percent to 50 percent. Since
then, we've witnessed a 36 percent drop in total government cargo
transported on U.S.-flagged vessels and the number of U.S.-flagged
vessels. That is why it is vital that cargo preference requirements not
only be restored to the 75 percent requirement for non-military cargo,
but also that existing statutory requirements be fully enforced.
Over the years, we've heard of agencies working to defy or subvert
the statutory requirements of cargo preference through the
overutilization of ``notwithstanding'' exemptions and individual
agencies making their own determinations of availability without
seeking assistance from MARAD. But we haven't been able to track this
due to the lack of public reporting by MARAD.
The compliance rates reported to MARAD and provided by GAO in their
report paint a false picture of what is occurring. While on the surface
it seems as if these federal agencies are in full compliance, in
reality the percentage is inflated to include instances where
``notwithstanding'' or non-availability exemptions are granted. If you
look at the strict amount of cargo carried on U.S.-flagged vessels not
taking the exemptions into account, it is far lower than the 100
percent for military cargo and 50 percent for non-military government-
impelled cargo mandated by statute.
In addition, MARAD has yet to complete a rulemaking on cargo
preference guidance to determine availability or procedures for
determining agency compliance. Without completing this rulemaking,
MARAD cannot and has not used enforcement powers granted to them in the
National Defense Authorization Act for Fiscal Year 2009. We will
continue to see agencies pad their numbers and not provide full data
until MARAD moves forward with a rulemaking.
The report released Monday by the GAO highlights the frustrating
position MARAD is in and recommends they move forward with a
rulemaking. It is my understanding that MARAD concurs with the
recommendations of the report. While they may agree with the
recommendations, they're presently blocked from publishing a rulemaking
by the Office of Management and Budget and the agencies subject to
cargo preference requirements. Today I expect to hear more on how MARAD
can move forward with a rulemaking and enforcement.
We cannot wait any longer while MARAD is bullied into a position of
non-compliance with the law. That is why we included a provision in
this year's House National Defense Authorization Act which would
require MARAD to report cargo preference data again and move forward
with a rulemaking.
I thank GAO for their work on this insightful report and look
forward to our witnesses' comments on the findings and the current
state of cargo preference compliance.
Prepared Statement of Hon. Sam Graves, a Representative in Congress
from the State of Missouri, and Ranking Member, Committee on
Transportation and Infrastructure
Thank you, Chair Carbajal, and thank you to our witnesses for being
here today.
Cargo preference is one of the key policy mechanisms the United
States uses to maintain U.S.-flag vessels and U.S. mariners. These
vessels and mariners will support national defense sealift surge
operations when such operations become necessary.
It's unfortunate that Federal agencies that are subject to cargo
preference have blocked MARAD from even writing, much less
implementing, the cargo preference enforcement regulations Congress
mandated in 2009.
I look forward to hearing from the witnesses today about how we can
help MARAD enforce cargo preference laws on uncooperative Federal
bureaucrats.
Thank you, Chair Carbajal. I yield back.
U.S. Government Accountability Office, ``Maritime Administration:
Actions Needed To Enhance Cargo Preference Oversight,'' GAO-22-105160,
Sept. 12, 2022, Submitted for the Record by Hon. Salud O. Carbajal
The 49-page report is retained in committee files and is available
online at https://www.gao.gov/assets/gao-22-105160.pdf.
Appendix
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Question from Hon. Bob Gibbs to Bryan Clark, Senior Fellow and Director
of the Center for Defense Concepts and Technology, Hudson Institute
Question 1. Dr. Clark, does the Department of Defense make non-
availability determinations when making decisions regarding preference
cargo carried in accordance with section 2631 of title 10, United
States Code?
Answer. DoD, via the commander of Military Sealift Command (MSC)
and commander, Military Surface Distribution and Deployment Command
(SDDC), can make its own non-availability determinations.\1\ These
determinations, however, are required to consult, as appropriate:
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\1\ U.S. Government, Defense Acquisition Regulation, PGI 247.5--
OCEAN TRANSPORTATION BY U.S.-FLAG VESSELS, October 28, 2022, https://
www.acquisition.gov/dfarspgi/pgi-247.5-ocean-transportation-u.s.-flag-
vessels.
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(i) Published tariffs;
(ii) Industry publications;
(iii) The U.S. Maritime Administration; and
(iv) Other available sources.
The DoD appears to have a process for consulting MARAD on non-
availability determinations that is used regularly, based on our
research and that of the Government Accountability Office.