What is Cargo Preference?
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. It also includes cargo that is being shipped under an agreement of the U.S. Government, or as part of a Government program.
Over the years, Cargo Preference has been an effective shipping strategy in maintaining our Nation's presence and economic viability in the international shipping market. In short, certain percentages of cargo must be carried on vessels registered in the United States when the cargo is supported by U.S. Federal funding. Such cargo is commonly referred to as “government-impelled”, and is typically 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.
Who is Subject to Cargo Preference?
Any department, agency, contractor, or sub-contractor of the Federal Government, administering a program that directly or indirectly involves the transportation on ocean vessels of cargoes. Additionally, all members of the supply chain must comply with Cargo Preference.
To help ensure compliance, the regulations make one entity, the prime contractor, the responsible party for ensuring U.S.-flag vessels are used throughout the supply chain. The prime contractor will be 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 - do 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.
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.
Why is Cargo Preference Necessary?
Just as many other seafaring nations have learned, history has taught us that 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 requires a U.S.-flag commercial merchant marine that can be called upon in times of war or national emergencies. Therefore, Congress has determined that the United States have a merchant marine —
- sufficient to carry the waterborne domestic commerce and a substantial part of the waterborne export and import foreign commerce of the United States,
- capable of serving as a naval and military auxiliary in time of war or national emergency;
- owned and operated as vessels of the United States by citizens of the United States;
- composed of the best-equipped, safest, and most suitable types of vessels constructed in the United States and manned with a trained and efficient citizen personnel; and
- supplemented by efficient facilities for building and repairing vessels.
It is the United States’ policy to encourage and aid the development of a merchant marine satisfying the above objectives. By requiring that U.S.-flag carriers ship U.S. Government impelled cargo, we ensure that this economic activity and defense capability benefits the United States.
What percent of cargo is required to be carried on U.S.-flag vessels?
- Military Cargo = 100%
- Civilian Agencies Cargo = at least 50%
- Agricultural Cargo = at least 50%
- Export Import Bank Cargo = 100% (for additional information refer to below PR-17 section)
Cargo Preference Laws and Regulations
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:
- The Military Cargo Preference Act of 1904 requires that 100% of cargoes "bought for the Army, Navy, Air Force, or Marine Corps" be carried on U.S.-flag vessels. Essentially, this means all military cargo.
- The Cargo Preference Act of 1954 requires that 50% of Civilian Agencies cargo and Agricultural Cargo be carried on U.S.-flag vessels.
- Public Resolution 17 (PR-17) was enacted in 1934 to address U.S. Flag shipping requirements for the U.S. Export-Import 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 USD 20,000,000 (excluding EXIM Bank exposure fee) 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.
The Maritime Administration's Office of Cargo and Commercial Sealift manages all MARAD Cargo Preference activities. The typical Cargo Preference disposition process is as follows:
- Shipper/cargo interests identify a potential cargo move.
- Shipper/cargo interests should identify cargo to be shipped to the extent possible (e.g., shipping dimensions and volume).
- Shipper works in advance with potential U.S.-flag commercial carriers and Maritime Administration, and must solicit ocean service from U.S.-flag carriers.
- Evaluate U.S.-flag carrier responses regarding availability.
- Book cargo on a U.S.-flag vessel or contact the Maritime Administration for assistance (202-366-4610 or firstname.lastname@example.org).
- File required receipts for ocean shipping (rated master bill of lading only) with the Maritime Administration.
Submit rated master bill of lading documents (as required by the FAR or DFARS) either electronically to email@example.com, or, hard copy mail to:
U.S. Department of Transportation
Office of Cargo and Commercial Sealift
MAR-640/Mail Stop 2
1200 New Jersey Avenue, SE
Washington, DC 20590
FAR 52.247-64 reporting requirements mandate that the contractor submit a copy of the rated master ocean bills of lading (MB/L) to our office within 20 working days from date of loading on all shipments loaded from the United States, and 30 working days for shipments loaded outside the United States. The reporting requirement applies whether cargo moves on a non-USF or USF vessel and is irrespective of cargo origin or destination (including foreign-to-foreign cargo movements).
Per DFARS, the Contractor shall, within 30 days after each shipment, provide MARAD one copy of the rated onboard vessel operating carrier's ocean bill of lading.
Subcontractor bills of lading shall be submitted through the Prime Contractor.
The Contractor Standard
The prime contractor has ultimate responsibility to ensure that they and all subcontractors comply with Cargo Preference regulations. This includes guaranteeing that Government-impelled cargo move via U.S.-flag vessels and sending the copy(s) of the rated onboard vessel operating carrier's ocean bill of lading for all shipments to the Government Contracting Officer and MARAD. These documents typically contain the carrier's commercial logo and the ocean freight ("rated"). The prime contractor is subject to penalties for any Cargo Preference violations.