Frequently Asked Questions (FAQs) - Cargo Preference
1. What is cargo preference?
Cargo Preference is the general term used to describe the U.S. laws, regulations and policies that require all Government-impelled cargo to move via U.S.-flagged vessels. Government-impelled cargo is defined as cargo financed by the U.S. Government directly, indirectly (through a Federal program), or a loan or loan guarantee provided by the Federal Government cargo for eventual U.S. Government use or in which the Government has an interest. Examples include:
- Federal Contracts
- Federal Loans and Loan Guarantees
- Federal Grants
Per the Cargo Preference laws, it is the primary responsibility of all Federal Agencies to ensure compliance with these laws and regulations. The Maritime Administration (MARAD) does not have Cargo Preference legal enforcement authority; it only monitors compliance with Cargo Preference to the extent it receives bills of ladings after shipments occur. However, when the U.S.-flag use requirements have been violated, MARAD can and often does recommend punitive actions available under the law to the appropriate authorities.
U.S.-flag vessel requirements for each program are listed for quick reference:
- Military Cargo = 100% (governed by Military Cargo Preference Act of 1904)
- Export-Import Bank Cargo = 100% (governed by Public Resolution 17)
- Civilian Agencies Cargo = at least 50% (governed by Cargo Preference Act of 1954)
- Agricultural Cargo = at least 50% (governed by the Cargo Preference Act of 1954)
2. Who is obligated to comply with the Cargo Preference laws and regulations?
A department or agency of the Federal Government administering a program wherein the United States Government procures, contracts for, or otherwise obtains for its own account, or furnishes to or for the account of a foreign country, organization, or persons without provision for reimbursement, any equipment, materials, or commodities, or provides financing in any way with Federal funds.
3. How does a prime contractor comply with the Cargo Preference laws?
U.S. Cargo Preference (CP) laws require that all or a portion of Government-impelled cargo must be transported via a U.S.-flagged vessel. Additionally, each Government agency has its own Cargo Preference compliance and reporting requirements. The prime contractor must confer with its respective sponsoring Government agency.
A detailed description of each program can be found here:
4. What is the difference between P1 and P2 services?
- P1 service - the cargo is transported on one or more U.S.-flagged vessels (only) from the load port to the destination discharge port.
- P2 service - the cargo is transported on at least two different vessels en route to the destination discharge port. At least one U.S.-flagged vessel and one non-U.S.-flagged vessel are used.
5. For civilian programs, do I need a Determination of Non-Availability (DNA) before using P2 service?
No. However, MARAD must provide concurrence before using P2 service.
6. For military programs, do I need a waiver before using P2 service?
Yes, because for Department of Defense (DOD) cargo, the contracting officer is the only entity that can approve the use of any form of non-U.S.-flag service, even P2 service.
See DFARS 252.247-7023 (d) for details.
7. For civilian programs, what if I cannot locate a U.S.-flagged vessel for my shipment?
Each civilian program's requirements are different. If you cannot identify a U.S.-flagged vessel, please contact MARAD's Office of Cargo & Commercial Sealift at firstname.lastname@example.org for further assistance.
8. For military programs, what if I cannot locate a U.S.-flagged vessel for my shipment?
Contractors and subcontractors must submit any request for the use of non-U.S.-flagged vessels in writing to the DOD Contracting Officer at least 45 days before the sailing date necessary to meet delivery schedules. DFARS 252.247-7023 (d) includes detailed instructions on what to do. Contractors and subcontractors must provide a documented description of efforts made to secure U.S.-flagged vessels, including points of contact (with names and telephone numbers) with at least two U.S.-flagged carriers contacted (usually copies of emails).
However, if at any point you are unable to identify a U.S.-flagged vessel, please contact MARAD's Office of Cargo & Commercial Sealift at email@example.com for further assistance.
9. When do I report my shipments to ensure compliance with the Cargo Preference laws?
Civilian Cargo: Under the law, all documentation must be reported within 20 business days from the date of loading from the United States and 30 business days for shipments loaded outside the United States. The reporting requirement applies to all ocean-borne cargo (U.S.-flagged and non-U.S.-flagged vessels).
Military Cargo: Under the law, all documentation must be reported within 30 business days from the date of loading. The reporting requirement applies to all ocean-borne cargo (U.S.-flagged and non-U.S.-flagged vessels).
10. Is the rated bill of lading submitted to MARAD confidential?
Yes. Bill of lading freight information is treated as Business Sensitive and is not released. Aggregate data is used for statistical and reporting purposes.
11. Can I submit a rated house bill of lading?
No. The law requires the rated master bill of lading, which should have the ocean carrier's commercial logo. We review the ocean freight rate and other information to compute compliance with Cargo Preference. Instead of a rated master bill of lading, MARAD also accepts an unrated master bill of lading with the corresponding carrier's ocean freight invoice.
An Ocean Transportation Intermediary (OTI) can submit rated master bills of lading on behalf of contractors.
12. Do I need to report shipments on non-U.S.-flagged vessels?
Yes, under the law, all Government-impelled cargo moving on U.S.-flagged vessels and non-U.S.-flagged vessels, irrespective of cargo origin and destination, must be reported by the Federal contractor or subcontractor to our office within 20 or 30 days as explained above.
13. Does Cargo Preference apply to Government-impelled cargo that ships between foreign ports? Must I report these shipments?
Yes, Cargo Preference laws and requirements apply to all Government-impelled cargo regardless of origin and destination.
14. Does the Cargo Preference Act of 1904 cover only U.S. Military cargo movements?
Yes, the "04 Act" covers military cargo movements and movements by DOD contractors and subcontractors. Specifically, 10 U.S.C. §2631 states, "Only vessels of the United States or belonging to the United States may be used in the transportation by sea of supplies bought for the Army, Navy, Air Force or Marine Corps."
15. What is the definition of U.S. Military (DOD) cargo?
The Cargo Preference Act of 1904 and the Defense Federal Acquisition Regulations Supplement (DFARS) define military cargo as "supplies." "Supplies" means all property, except land and interests in land, that is clearly identifiable for eventual use by or owned by the DOD at the time of transportation by sea. "Supplies" includes, but is not limited to, public works; buildings and facilities; ships; floating equipment and vessels of every character, type, and description, with parts, subassemblies, accessories, and equipment; machine tools; material; stores of all kinds, end items; construction materials; and components of the foregoing (See DFARS 252.247.7023 Transportation of Supplies by Sea).
16. Does U.S. Military (DOD) cargo include Military Household Goods (HHGs) and service members' Privately-Owned Vehicles (POVs)?
No, the military cargo U.S.-flag vessel use requirements of 48 CRF 252.247-7023 do not apply to personal property. However, Military Household Goods (HHGs) are covered under 46 U.S.C. §55302, and Privately-Owned Vehicles (POVs) are covered under 46 U.S.C. §55303. Both must be shipped exclusively (100%) aboard U.S.-flagged vessels when available.
If you cannot identify a U.S.-flag service and are a Transportation Service Provider (or doing your own shipping), you may contact the Army's Military Surface Deployment and Distribution Command (SDDC) for guidance. SDDC is best reached by email at firstname.lastname@example.org.
17. What percentage of U.S. Military (DoD) cargo must be shipped on U.S.-flagged vessels?
Per the Cargo Preference Act of 1904, 100% of cargo must be shipped on a U.S.-flagged vessel. This mandate has also been extended to military household goods (HHGs) and privately-owned vehicles (POVs). The regulations implementing the 100% U.S.-flag requirements of the Cargo Preference Act of 1904 (10 U.S.C. §2631) can be found at DEFENSE FEDERAL ACQUISITION REGULATIONS SUPPLEMENT (DFARS) 247.5 (instructions for contracting officers) and at DFARS 252.247-7023 (instructions for contractors), the latter of which is included as a clause in every DOD contract in which transportation of supplies by sea may occur.
18. Can the U.S.-flagged vessel requirement for Military cargo be waived?
Yes, however, only the DoD contracting officer can waive the requirement for U.S.-flagged vessels, and then only after following a process that includes a review from a major transportation Command (SDDC or MSC) and MARAD. The conditions under which a waiver can be granted are described in DFARS 252.247-7023. If you have questions about the waiver process, please contact the Maritime Administration at 202-366-4610 and press 4 for the Department of Defense team.
19. What technical assistance is available to help my agency or company comply with the Cargo Preference laws?
- Training and continued learning credits are available via Defense Acquisition University (DAU). The four catalog courses are:
- Outreach materials are available upon request from email@example.com.
- Additional resources for reference.
20. I have a question not answered here; whom do I contact?
Please submit your question or inquiry to firstname.lastname@example.org or call 202-366-4610.