Government Cargo. U.S. Vessels. Security in the International Market.

What is Cargo Preference? Cargo Preference is a shipping strategy designed to maintain a nation's prescence and economic viability in the international shipping market. In short, certain percentages of certain cargo classes must be carried on vessels registered to a nation when the cargo is supported by that nation's federal funding. Such cargo is commonly referred to as "government-impelled," and is typically moving 1) as a direct result of Federal Government involvement 2) indirectly through financial sponsorship of a Federal program or 3) in connection with a guarantee provided by the Federal Government. Cargo preference applies to all components of the shipping process, not only to the end product.

Vessel restrictions and allowances

Why is Cargo Preference necessary? Three words: creative flag registration. Many nations, including the U.S., are already at a competitive disadvantage due to the widespread practice of registering a vessel under a "Flag of Convenience." In this legal but economically-attractive scenario, a vessel is owned and operated by one country but registered (and flying the flag of) another, which allows the vessel's owner to take advantage of favorable taxes, regulations, safety standards and operating costs in the registration country. Without Cargo Preference, U.S. companies could theoretically choose to import/export ALL cargo using foreign-registered ships (not necessarily foreign-owned) and undercut the U.S. maritime economy.

Cargo Preference mitigates the threat. By requiring that, for instance, 50% of all civilian agency cargo (those with Federal funding) be shipped on U.S.-flag carriers, we ensure that certain economic activities benefit the United States first.

List of U.S.-Flag vessels (subject to change)

Additional Benefits. Cargo Preference provides another critical benefit: a revenue base that will retain and encourage a privately-owned and operated U.S.-flag merchant marine, which itself provides 1) essential sealift capability in wartime or other national emergencies 2) a stream of skilled seafarers and 3) protection against total foreign entities attempting to dominate US. waterborne commerce.

What percent of cargo is required to be carried on U.S.-flag vessels?

• Military Cargo = 100%
• Civilian Agencies Cargo = at least 50%
• Agricultural Cargoes = at least 50%
• Export Import Bank = 100%

Cargo Preference Laws and Regulations

Cargo Preference is a self-imposed government mandate, meaning, like other nations (Australia, Brazil, France, Japan, Taiwan), 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 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.
• A third mandate -- 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

See our Cargo Preference Laws and Regulations page for expanded information.

Compliance

The Maritime Adminsitration's Office of Cargo and Commercial Sealift manages all MARAD cargo preference activities. Below is the typical Cargo Preference disposition process:

1. Shipper/cargo interests identify a potential cargo move
2. Fully identify cargo to be shipped to extent possible
3. Identify timeframe for expected move to extent possible
4. Shipper works in advance with potential U.S.-flag carriers and Maritime Administration and must solicit U.S.-flag carriers
5. Evaluate U.S.-flag carrier responses regarding availability and cost
6. Book cargo on a U.S.-flag vessel or contact the Maritime Administration for assistance (202-366-4610 or cargo.marad@dot.gov)
7. File required reports (bill of lading) with Maritime Administration

Send Bill of Lading documents (when required) to:

The Contractor Standard

The prime contractor is responsible for ensuring that they and all subcontractors comply with cargo preference regulations. Any penalties for violation of cargo preference regulations at any contracting level will be imposed on the prime contractor, who is also responsible for providing the Government Contracting Officer and MARAD with a copy of the ocean carrier, freight rated and onboard ocean bill of lading for all shipments.

Questions?

Cargo Preference has dozens of moving parts. See our FAQ section for additional information. For more specific questions about any aspect of MARAD's Cargo Preference program, contact the Office of Cargo and Commercial Sealift.